Gold Traders’ Report - July 17, 2019

Jim Pogoda, Senior Gold Trader, Gold Bullion International 
JUL 17, 2019

Gold continued to soften overnight, trading in a range of $1400 - $1407. It was hurt by some technical selling as it failed to hold $1406 (up trendline from 5/30 $1275 low) yesterday afternoon, and breached support at $1401 (7/11 low) to reach its $1400 low (1-week low).  A tick higher in the US dollar during early European time (DX up to 97.45) - continuing its strength from yesterday - also pressured the yellow metal. However, gold rebounded to $1405 during later European hours, as the DX retreated to 97.30.  The greenback was pressured by a bounce in the euro ($1.1199 - $1.1222, Eurozone CPI beats expectations) and the pound ($1.2381 - $1.2416, modest bounce off 27-month lows after weak UK PPI).  Global equities were mixed with the NIKKEI down 0.3%, the SCI off 0.2%, European shares were -0.1% to flat and S&P futures were +0.2%. 

At 8:30 AM, worse than expected readings on US Housing Starts (1.253M vs. exp. 1.260M) and Building Permits (1.220M vs. exp. 1.300M) took S&P futures (3006) and the US 10-year bond yield lower (2.083%).  The DX softened (97.27), and gold rallied through the overnight high and $1409 (up trendline from 5/30 $1275 low) to reach $1412.

US stocks softened into the late morning hours (S&P -14 to 2990), weighed by losses in the Industrials Energy, and Communication Services Sectors.  A drop in oil (WTI from $58.30 - $57.29, large surprise build in US gasoline inventories) contributed to the move.  An IMF report that the US dollar was overvalued by 6-12% knocked the US 10-year down to 2.075% (1-week low), and sent the DX tumbling to 97.16.  Gold shot higher in response, tripping buy stops over $1417-18 (triple top - 7/12, 7/15, and 7/16  highs) to reach $1424, where resistance at $1423-24 (double top, 7/4 and 7/5 highs) held.  A fair amount of short covering was seen. 

Near mid-day, comments from House Speaker Pelosi said she spoke with Treasury’s Mnuchin and wants a debt ceiling deal this week helped US stocks pare losses (S&P -4 to 2999).  The 10-year yield ticked up to 2.078%, and the DX edged up to 97.23.  Gold pulled back, but found support at $1421. 

At 2PM, the Fed’s Beige Book was a bit dovish (cited trade related uncertainties, delayed business investment, growth slowed or flattened in some districts).  However, the S&P retreated to 2992 (further drop in oil to $56.59 weighed), but the 10-year yield slipped to 2.059%.  The DX fell back to its prior 97.16 low, and gold took out resistance at $1423-24 and $1425 to reach $1425.65. 

Open interest was down 5.5k contracts, showing a net of long liquidation from yesterday’s decline.  Volume was much higher with 363k contracts trading. 

Bulls cheered the gold’s breakout back over $1410 (uptrend line from 5/30 $1275 low), and the triple top at $1417-18 - and its ability to hold these levels.  Bulls remain comfortable with the price continuing to consolidate in the $1380-$1440 channel, eventually expecting an upside breakout.  Bulls remainecstatic with gold’s sharp $169 (13.31%) rally from the $1270 low on May 21 to the $1439 6-year high on 6/25.  With the further dovish lean from Powell’s testimony last week, bulls feel that a series of future Fed rate cuts (FedWatch still has solid 100% probability of a 25bp rate cut at the July meeting with a growing possibility – 32.8% - for a 50bp cut, an 86.9% chance of 2 hikes by the October meeting, and a 62.4% likelihood of 3 cuts by the December meeting) will put downside pressure on the entire rate curve and on the US dollar – allowing gold to move significantly higher.  In addition, bulls feel escalating fears / uncertainty of a protracted trade war with China (despite the trade truce achieved at the G20) will continue to impede global growth,  will put downward pressure on interest rates (US 10-year made fresh 32-month low last week at 1.941%) and will keep the Fed and most other Central Banks positioned dovishly.  Bulls also see current geopolitical tensions – especially between the US and Iran (UK also involved in a tanker incident last week), and North Korea (hints at restarting nuclear tests)  - as another tailwind for gold.  Bulls will look for the market to continue its rally, and expect a retest of initial resistance at $1423 -24 (double top, 7/4 and 7/5 highs) followed by $1425, $1427 (7/11 high), then $1436-39 (triple top – 6/25 7/2, and 7/3 highs). 

Bears were encouraged by gold’s early decline, and the technical selling that ensued under $1406 (up trend line from 5/30 $1275 low.  However, they were ambushed by the IMF’s remarks that the dollar was overvalued, tripping some significant short covering that led to gold’s outsized gain.  While some bears were stopped out today, others with stronger hands used the advance to get short(er) at better levels.  Bears still see a market that remains overbought. It has risen $169 (13.31%) from the 5/20 $1270 low, its 14-day RSI still remains elevated at 61, and bears expect a more significant pullback to resume.  While bears acknowledge the further dovishness from Powell and growing concern over lower rates – both the in the long end (10-year near 32-month lows) and the short end (FedWatch predicting earlier Fed cuts), they feel that markets are a bit over their skis on rate cut predictions - especially now that there is some lessened uncertainty with the US-China trade truce in place.  They feel that the downward pressure on bond yields is also getting overdone, and a modest reversal should allow the recently oversold US dollar to continue to rebound against other currencies as they feel the dollar still remains the “cleanest dirty shirt in the laundry basket”, with the US as the sole global growth engine. Recent soft data for both Germany and the Eurozone that drove the German 10-year yield further into negative territory over the past months (record low bund yield two weeks ago -0.409%) underscores this view.  Bears feel a US-China trade deal is in both sides’ best interests, and feel that recent trade truce is the first step toward this end.  This they feel will help drive equities higher, and will put further pressure on the yellow metal.  Bears look for gold to resume its decline, and expect some significant long liquidation selling to materialize if it can get a close under $1410 (up trendline from 5/30 $1275 low), $1381-84 (triple bottom – lows 6/24, 7/1, and 7/2, lower channel line from 6/21 $1383 low) and then $1348 (downtrend line from 8/25/13 $1433 high). 

All markets will continue to focus on geopolitical events (especially Brexit news and US-Iran tensions), developments with the Trump Administration (especially on US-China trade, potential legal issues), Q2 corporate earnings, oil prices, and will turn to reports tomorrow on Japan’s Trade Balance, UK Retail Sales, US Philadelphia Fed Index, Jobless Claims, Leading Indx, and comments from the Fed’s Williams for near term direction. 

In the news:

Deutche Bank – go long gold in case of currency war:   https://www.forexlive.com/news/!/analyst-recommends-that-in-the-case-of-an-imminent-currency-war-buy-gold-20190716

Ray Dalio says gold will be a top investment during upcoming paradigm shift for global markets:   https://www.cnbc.com/2019/07/17/ray-dalio-says-gold-will-be-a-top-investment-during-upcoming-paradigm-shift-for-global-markets.html

 

YTD Performance


12/31/2018

7/17/2019

Change
% Change
Gold


1282.5

1422

139.5

10.877%

DX


96.06

97.23

1.17

1.218%

S&P


2505

2992

487

19.441%

JYN


109.63

108.08

-1.55

-1.414%

Euro


1.1466

1.1223

-0.0243

-2.119%

US 10-year bond yield


2.69%

2.062%

-0.0062

-23.232%

Oil (WTI)


45.45

57.12

11.67

25.677%

 

Resistance levels: 

$1423 -24 – double top, 7/4 and 7/5 highs

$1425 – 6/28 high

$1425 – options

$1426 – 7/17 high

$1427 – 7/11 high

$1436 – upper channel line from 6/25 $1439 high

$1436-39 triple top – 6/25 7/2, and 7/3 highs

$1446 – 5/12/13 high

$1450 – options

$1479 – 5/5/13 high

$1488 – 4/28/13

$1496 – 4/14/13 high

$1500 – options

$1591 – 4/7/13

 

Support levels:

$1417-18 – triple top - 7/12, 7/15, and 7/16  highs

$1412 – double bottom – 6/25 and 7/3 lows

$1410 - up trendline from 5/30 $1275 low

$1409– 20-day moving average

$1408 – 7/15 low

$1403 – 7/12 low

$1401 – 7/11 low

$1400 – 7/17 low

$1400 – options

$1392 – 7/8 low

$1390 – 7/10 low

$1386-87 – double bottom, 7/5 and 7/9 lows

$1382 -84 – triple bottom – lows 6/21, 7/1, and 7/2

$1381 – lower channel line from 6/21 $1383 low

$1373-75 – double top – 7/6/16 and 7/11/16 highs

$1365-67– triple top – 8/2/16, 1/25/18 and 4/11/18 highs

$1364 - 40-day moving average

$1358 – 6/20 low

$1353-56 – quadruple top – 4/12/18, 4/18/18, 4/19/18, and 6/18 highs

$1352 -  50% retracement of up move from 5/2 $1266 low to 6/25 $1439 high

$1348 – down trendline from 8/25/13 $1433 high

$1348 – 50-day moving average

$1344-48 – 6 tops , 2/20 and  4/20/18, 6/5, 6/7, 6/13, and 6/17 highs

$1342 – double top - 2/19 and 2/21 highs

$1338 – double bottom -6/14 and 6/18 lows

$1338 - 40 – triple top – 6/6, 6/10 and 6/12 highs

$1332-33 – double bottom – 6/13 and 6/17 lows

$1327-30 – triple top, 6/3, 6/4, and 6/11 highs

$1325 – options

$1325-26 – triple bottom – 6/5, 6/10, and 6/12  lows

$1324 – double bottom 6/4 and 6/11 lows

$1321– 100-day moving average

$1309-12 - triple top – 3/28, 4/10 and 4/11 highs

$1301 – double top 5/13 and 5/15 highs

$1300 – psychological level, options

$1300 – 50% retracement of up move from 8/16/18 $1160 low to 6/25 $1439 high

*$1292 – up trendline from 8/16/18 $1160 low

*$1292 – 200-day moving average

$1289 – double top - 5/17 and 5/30  highs

$1285-87 – 5 tops – 5/23, 5/24, 5/27, 5/28, and 5/29 highs

$1285– down trendline from 2/20 $1347 high

$1279 – 5/29 low

$1276 – 5/28 low

$1275 – options

$1274-75 – double bottom  – 5/17 and 5/20 lows

$1273 – 5/22 low

$1269-70– triple bottom - 4/24, 5/3, and 5/21 low

$1265-67 – 5 bottoms - 12/25, 12/26, 12/27, 4/23, and 5/2  lows

$1259 – 12/24 low

$1254 – 12/21 low

$1250 – options

$1242-43 – double bottom – 12/19 and 12/20 lows