Gold Traders’ Report - July 1, 2019

Jim Pogoda, Senior Gold Trader, Gold Bullion International 
JUL 1, 2019

News that Trump and Xi agreed not impose additional tariffs, to restart talks, and that the US would ease restrictions on American companies selling to China’s telecom giant Huawei while China would step up the purchase of US agricultural goods sent gold backpedaling last night.  In addition, Trump’s trip to North Korea to restart talks also deflated some of gold’s geopolitical risk price premium. The yellow metal declined in a range of $1382 - $1398, tripping sell stops under $1399 (6/27 low).  It finally found  support at $1382 (6/21 low) and just ahead of $1379, the up trendline from the 5/30 $1275 low.  Gold fell along with other safe havens (yen from 107.90 – 108.53, US 10-year bond yield up from 2.007% - 2.048%), while global equities rallied sharply.  The NIKKEI was up 2.1%, The SCI gained 2.22% (shrugs off weaker Chinese PMI), European markets were up from 0.8% to 1.3% (despite softer PMIs), and S&P futures rose 1.2%.  Firmer oil prices ($59.42 - $60.28, US-China agreement strengthens demand forecasts, OPEC+ poised to extend supply cut) aided the move in equities.

Ahead of the NY open, a pullback in the US 10-year bond yield (2.014%) knocked the DX down from a 1-week high at 96.61 to 96.36.  Gold rebounded in response, and traded up to $1393. 

US stocks opened stronger (S&P +33 to 2978 – record high), helped by stronger than expected readings on US Markit PMI (50.6 vs. exp. 50.1) and ISM Manufacturing (51.1 vs. exp. 51), and with the IT and Financials sectors leading the advance.  The 10-year yield edged up to 2.029%, and the DX traded up to its overnight high of 96.61.  Gold was pressured lower, but found support at $1388.50. 

However, after a closer look, the Prices Paid (47.9 vs. exp. 53.0) and New Orders (50 vs. 52.5) Components of the ISM report were bad misses, and US stocks softened into mid-day (S&P +14 to 2955), also weighed by reports of continued unrest in Hong Kong, and a dip in oil (WTI to $58.32).  The 10-year yield slid to an intraday low of 2.007%, and the DX was tugged back to 96.51.  Gold snapped higher, and rebounded to $1396. 

Into the afternoon, US stocks turned slightly higher (S&P+16 to 2958), while the 10-year yield climbed to 2.046%.  The DX took breached its 200-day moving average (96.68) to reach fresh intraday high at 96.87, helped by a further softening of the euro ($1.1281, PMI differentials) - and knocked gold back to $1384.

Later in the afternoon, equities finished stronger (S&P + 23 to 2964 , record high close), helped by a rebound in oil (WTI to $59.28, OPEC + agrees to extend its output cut for 9 months).  However, the 10-year yield dipped back to 2.024%, while the DX hovered between 96.80-85.  Gold was steady between $1384 - $1385.50, and was $1384 bid at 4Pm with a loss of $25. 

Open interest was up 1.3k contracts, showing a net of new longs from Friday’s advance.  Volume was lower but still robust with 322k contracts trading. 

While many bulls were disappointed and stopped out during gold’s $25 plunge today, others used the dip to get long or add to positions at more attractive levels.  Bulls remain ecstatic with gold’s sharp $169 (13.31%) rally from the $1270 low on May 21 to Tuesday’s $1439 top (6-year high), and will argue the trend is their friend.  They’re encouraged that support held in front of $1379 -  the key uptrend line from the 5/30 $1275 low.   With the further dovish lean from Powell and the Fed recently (though there were some mildly hawkish items from Powell and Bullard on last week), bulls feel that a series of future Fed rate cuts (FedWatch now has solid 100% probability of a 25bp rate cut at the July meeting, an 79.3% chance of 2 hikes by the October meeting, and a 51.6% likelihood of 3 cuts by the December meeting) will put downside pressure on the entire rate curve, and downward pressure 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 this weekend’s trade truce) will continue to impede global growth, keeping the Fed and most other Central Banks positioned dovishly.  Bulls also see current geopolitical tensions – especially between the US and Iran - as another tailwind for gold.  Bulls also point to Friday’s Commitment of Traders Report (as of 6/25) that showed the large funds with only a moderately large net long position (236), and a still significant gross short position (62k contracts).  Therefore, the bulls feel the gold market remains fairly well set up to move higher – as some funds remained sidelined / not fully committed to the long side and the shorts will provide fuel to further upside moves -  when forced to cover (as seen in the past month).  Bulls will look for the market to consolidate ahead of $1379, and then resume its rally - challenging initial resistance at $1398 (today’s high) - $1400, followed by $1412 (double top  - 6/21 and 6/27 highs).

Bears were pleased with gold’s $25 retreat today, but some were disappointed that the up trendline at $1370 held.  While some bears have been stopped out in the past week, other bears with stronger hands and other previously sidelined short siders used the opportunity to get short at much better levels Bears see a market that remains overbought – despite the $57 pullback from its $1439 Tuesday high to today’s $1382 low.  It has risen $169 (13.31%) in the past month and its 14-day RSI is still elevated at 62, and bulls expect the sharp, significant correction to continue.  While bears acknowledge the further dovishness from the Fed and growing concern over lower rates – both the in the long end (10-year near 31-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 (as the Fed’s Mary Daly alluded to last week) – 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 (took out 200-day MA today), 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 (weaker PMI today) that drove the German 10-year yield further into negative territory over the past months (record low bund yield today -0.363%) underscores this view.  Bears feel a US-China trade deal is in both sides’ best interests, and feel that this weekend’s trade truce is the first step toward this end, will drive equities higher, and will put further pressure on the yellow metal.  Bears expect gold’s decline to continue, and expect some significant long liquidation selling to materialize if $1379 (up trendline from 5/30 $1275 low), and then $1348 (downtrend line from 8/25/13 $1433 high) can be breached.

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), oil prices, and will turn to reports tomorrow on Germany’s Retails Sales, Eurozone PPI, and comments from the Fed’s Williams and Mester for near term direction. 

 

In the news:

Deutche Bank – 2 reasons not to short gold:   https://www.zerohedge.com/news/2019-06-28/our-dove-chief-two-key-reasons-not-short-gold

CFTC – gold speculators continue raising their bullish bets: https://www.investing.com/analysis/gold-speculators-continue-raising-their-bullish-bets-sharply-for-4th-week-200435856

US Mint Bullion Sales H1:   http://www.coinnews.net/2019/06/28/gold-soars-10-3-in-first-half-of-2019/ 

 

YTD Performance


12/31/2018

7/1/2019

Change
% Change
Gold


1282.5

1384

101.5

7.914%

DX


96.06

96.82

0.76

0.791%

S&P


2505

2964

459

18.323%

JYN


109.63

108.43

-1.2

-1.095%

Euro


1.1466

1.1286

-0.018

-1.570%

US 10-year bond yield


2.69%

2.024%

-0.0066

-24.646%

Oil (WTI)


45.45

59.25

13.8

30.363%

 

Resistance levels: 

$1392-93 – double top - 9/8/13, 6/20 highs

$1398 – 7/1 high

$1399 – 6/27 low

$1400 – options

$1401-02 - double bottom -  6/24 and 6/26 lows

$1406 – 6/28 low

$1412 – double top  - 6/21 and 6/27 highs

$1412 – 6/25 low

$1416 – 9/1/13 high

$1420 – 6/24 high

$1422 – 6/26 high

$1425 – 6/28 high, options

$1434 – 8/25/13 high

$1439 – 6.25 high

$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:

$1382 – 6/21 low

$1379 - up trendline from 5/30 $1275 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

$1362– 20-day moving average

$1358 – 6/20 low

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

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

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

$1343 -  50% retracement of up move from 5/2 $1266 low to 6/24 $1420 high

$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

$1324 - 40-day moving average

$1314 – 50-day moving average

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

$1309– 100-day moving average

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

$1300 – psychological level, options

$1290 – 50% retracement of up move from 8/16/18 $1160 low to 6/24 $1420 high

$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

*$1282 – up trendline from 8/16/18 $1160 low

$1279 – 5/29 low

*$1278 – 200-day moving average

$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