Gold Traders' Report - January 31, 2019

Jim Pogoda, Trader, Gold Bullion International 
JAN 31, 2019

Gold charged to a fresh 9-month high last night, trading in a range of $1317.30 - $1324.80 and extended its rally to nearly $50 in just the past week.

The yellow metal was fueled by short covering and momentum buying, along with some further weakness in the US dollar during Asian hours.

The DX slid to 95.16 (fresh 3-week low), aided by strength in the yen (109.07 – 108.54, upbeat Japanese eco data) and the yuan (6.7114 - 6.6904 – 6 month high, optimism surrounding US-China trade talks), and was still pressured from the Fed’s dovish commentary yesterday that also brought the US 10-year bond yield down to 2.659% - a 3-week low.

Though the DX firmed later during European time (DX to 95.39), gold continued to climb. It took out the double top at $1322-23 (5/14/18 and yesterday’s highs) but was capped at resistance at $1325-26 (options, quadruple top - 4/26/18, 4/27/18,4/30/18, and 5/11/18 highs).

Global equities were firmer - following the dovish Fed-inspired gains in the US yesterday - and a headwind for gold with the NIKKEI up 1.1%, the SCI +0.4%, European markets were up from 0.1% to 0.5%, and S&P futures were +0.1%. Oil was modestly lower (WTI from $54.30 - $54.02) and weighed on stocks.

At 8:30 AM, a much worse than expected reading on US Jobless Claims (253k vs. exp. 215k) sent S&P futures lower (-6 to 2676) and brought the US 10-year bond yield down to 2.645%.

The DX remained fairly steady around 95.30, however, caught in the cross-currents from a decline in the pound $1.3147 - $1.3105) as the EU was demanding that the UK pay the 39B sterling divorce bill even if there is a no-deal Brexit. Gold climbed nonetheless and reached $1326 – where the $1325-26 resistance held once again.

US stocks turned higher shortly after their open and climbed into mid-day with a much better than expected reading on US New Home Sales (657k vs. exp. 570k) outweighing a miss on the Chicago Purchasing Managers Index (56.7 vs. exp. 60.8).

The S&P was up 28 to 2709, fueled also by strong earnings from Facebook last night and GE earlier this morning and led by gains in the Communications Services, Consumer Staples, Consumer Discretionary and Utilities sectors.

A rebound in oil (WTI to $55.33) also aided the move. However, the yield on the US 10-year bond slid further to 2.635% - with Powell’s dovishness still resonating.

The DX climbed to 95.62, also aided by weakness in the euro ($1.1435), which fell on some downbeat comments from the ECB’s Weidmann (sees longer growth slump, inflation miss). Gold retreated but found support at the old support level of $1319.

In the afternoon, US stocks trimmed gains (S&P +16 to 2697), when Trump told reporters that it was possible that a comprehensive trade deal with China would not be complete by March 1. The 10-year yield edged down to 2.619% (1-month low), and the DX pulled back to 95.53. Gold rebounded in response and traded up to $1322.

US stocks rallied late in the session to finish just off session highs (S&P finished +24 to 2705 ) on comments from China’s Liu that he hopes to speed up 90 day period for a trade deal.

The 10-year yield ticked back up to 2.63%, while the DX rebounded to 95.62. Gold dipped to $1318.50 - however, some dip buying emerged to bring the market back to $1321. Gold was $1320 bid at 4PM with a gain of $2.

Open interest was off 11.9k contracts, showing a good chunk of short covering from yesterday’s rally. Volume was lower but still elevated with 343k contracts trading – still inflated by the Feb-April contract rollover.

Bulls cheered gold’s continued rally, which has extended to nearly $50 in just the past week, making 9-month highs. They were particularly encouraged by gold’s ability to advance today– especially when the DX was also gaining, and amid strength in US equities.

The bulls feel that the trend is their friend and note the up trendline from the 11/13 $1196 low is still intact, and expect the yellow metal’s strong rally over the past two months to carry further.

They’re expecting continued volatility in equity markets along with a pause in Fed rate hikes and a further decline in the US dollar to continue driving gold higher. While we haven’t seen the COT report in 7 weeks, bulls maintain that despite gold’s sharp rally, a fair amount of large fund shorts remain, and will provide further upside momentum when forced to cover.

Bulls expect gold to take out resistance at $1322-23 (double top – 5/14/18 and today’s high) and then $1325 – 26 (options, 5 top - 4/26/18, 4/27/18,4/30/18, 5/11/18, and 1/31/19 highs), and trip further buying to challenge $1332-33 (double top - 4/23/18 and 4/24/18 highs), $1336 (4/23/18 high), and then $1346 (4/20/18 high).

Bears feel that gold’s advance has been overdone – having rallied $49 since the $1277 low on 1/24 (3.83%), $93 since the $1233 low on 12/14 (7.54%), and $130 since the $1196 low on 11/13 (10.87%). The bears see that the market is overbought (14-day RSI = 74), and are comfortable selling scale up into strength.

They maintain that the 20% correction in equities – much of which occurred during very illiquid holiday trading – was also overdone, and expect the rebound seen over the past month to continue.

Bears feel that the plunge in the US dollar seen since 12/14 (97.71 – 95.03, 2.74%) has also overshot, and look for the rebound in the greenback to carry forward, and pressure gold lower.

Bears will look for a breach of initial support at the former resistance at $1303-04 followed by $1295-98 to lead to a test of $1286-88 (6 bottoms – 1/10, 1/11, 1/14, 1/15, 1/16, and 1/17 lows).

All markets will continue to focus on geopolitical events (especially Brexit developments), developments with the Trump Administration (especially on US-China trade, potential legal issues), oil prices, Q4 corporate earnings, and will turn to reports tomorrow on Japan’s Jobless Rate, China’s Caixin PMI, Eurozone PMI’s and CPI, US Payroll Report, Markit PMI, ISM Manufacturing, Construction Spending, Baker–Hughes Rig Count, and comments from the Fed’s Kaplan for near term guidance.

In the news:


Resistance levels: 

$1322-23 – double top – 5/14/18 and 1/30 highs

$1325 - options

$1325 - 26 – quadruple top -  4/26/18, 4/27/18,4/30/18, and 5/11/18 highs

$1332-33 – double top - 4/23/18 and 4/24/18 highs

$1336 – 4/23/18 high

$1346 – 4/20/18 high

$1353-56 – triple top – 4/12/18, 4/18/18 and 4/19/18 highs

*$1365-66– double top – 1/25/18 and 4/11/18 highs

Support levels:

$1318 -19 – quadruple top 5/3/18, 5/7/18, 5/8/18 and 5/9/18 highs

$1317 – 1/31 low

$1315 – 5/15/18 high

$1312 – 1/29 high

$1309 – 6/14/18 high

$1309 – 1/30 low

$1303-05 – triple top, 6/15/18, 1/25, and 1/28  highs

$1303 – 1/29 low

$1300 – psychological level, options

$1298 – 1/28 low

*$1295-98 – 8 tops – 1/3, 1/4, 1/10, 1/11, 1/14, 1/15, 1/16, and 1/17 highs

$1293 – 20-day moving average

$1287 – 1/23 high

$1286-88 – 6 bottoms – 1/10, 1/11, 1/14, 1/15, 1/16, and 1/17 lows

$1280 – 1/25 low

$1277 – 79  6 bottoms – 12/28, 1/4, 1/21, 1/22, 1/23, and 1/24 lows

$1277 – 40-day moving average

$1275 – options

$1274 – 12/28 low

$1274– up trendline from 11/13 $1196 low

$1267 – 50-day moving average

$1265-67  – 12/25, 12/26 ,and 12/27  lows

$1259 – 12/24 low

$1254 – 12/21 low

$1250 – options

$1246 – 200-day moving average