Gold Traders’ Report - July 10, 2019

Jim Pogoda, Senior Gold Trader, Gold Bullion International 
JUL 10, 2019

Gold softened last night, trading in a range of $1390 - $1397.  It slid against a climb in the US 10-year bond yield (2.061% - 2.11%, 3-week high) on some position squaring ahead of Fed Chair Powell’s testimony today to the House Financial Services Committee.  The yellow metal’s decline was mitigated somewhat by a modest decline in the US dollar (DX from 97.51 – 97.35) and weaker global equities.  The NIKKEI was down 0.2%, the SCI fell 0.4%, European markets were off from 0.1% to 0.5%, and S&P futures were -0.2%.  A rise in oil (WTI from $58 to $59.31) from the API reports showing a larger than expected draw in US Oil Inventories was supportive of stocks. 

At 8:30 AM, Powell’s prepared testimony was decidedly dovish (business investment has slowed notably, uncertainties have increased, Fed will act as appropriate to sustain the expansion, inflation pressures remained muted, outlook hasn’t improved in recent weeks).  It cemented the market’s anticipation for a rate cut at the 7/31 meeting and re-kindled some hopes of a 50bp rate cut at the upcoming 7/31 FOMC meeting (probability increased from 3% to 20%).  Powell also helped re-inflate recently flagging hopes for a 2nd 25bp cut by October (83.8% from 75.3%) and a third 25bp cut by the December meeting (56.4% from 45%).  S&P futures soared (+25 to 3007, record high), while the US 10-year bond yield plunged to 2.046%.  The DX tumbled to 97.10 (breached 100-day moving average at 97.12), and gold rallied sharply.  Buy stops were hit over last night’s $1397 high, $1400, and $1408 (7/8 high) to reach $1411.40 where resistance in front of $1412 (old double bottom – 6/25 and 7/3 lows) and $1413 (up trendline from 5/30 $1275 low) held.

US stocks opened stronger, with the S&P breaching 3000 for the first time (+25 to 3003).  Gains in the IT, Energy, Communication Services, and Consumer Staples sectors led the advance, with firmer oil (WTI to $59.77, EIA report showed a larger draw – 9.5Mbbl – than the API report) aiding the move.  The 10-year yield edged up to 2.07%, and  the DX rebounded to 97.29.  Gold came off in response, but found support at $1406.

Equities pared gains into mid-day (S&P +5 to 2984, profit taking at record highs), but with nothing in the Q&A portion of Powell’s testimony lessening the dovishness from his prepared remarks.  The 10-year yield dropped to 2.04%, while the DX retreated to 97.06.  Gold popped higher, briefly breaching resistance at $1412 to reach $1412.85 before it fell back to $1410. 

Into the afternoon, some additional dovish comments from Powell (balance of risks shifted to downside, still uncertainty in US-China trade, strong jobs data last week didn’t change Fed’s outlook) turned US stocks higher (S&P +16 to 2995), but the 10-year yield climbed to 2.073%.  The DX hovered between 97.06 – 97.12, and gold edged back up to $1412.

At 2PM, the minutes from the Fed’s 6/19 meeting added to Powell’s dovishness (officials saw strengthening case for rate cut, balance of risks were to the downside, arguments for a cut to shore up inflation, with several  - not just Bullard – favored a rate cut then).  US stocks moved higher (S&P +20 to 2999), also helped by crude breaching $60 to $60.51.  The 10-year yield slipped to 2.059% while DX dipped to a fresh intraday low at 97.03.  Gold shot higher and took out resistance at $1412-13 to reach $1417.30. 

Open interest was  up 1k contracts, showing a small net of new longs from yesterday’s advance.  Volume was lower but still very healthy with 332k contracts trading.  

Bulls cheered gold’s strong rally off of Powell’s dovish testimony and the similarly dovish FOMC minutes that drove gold back over $1400 and $1412-13.  Bulls remain ecstatic 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 today’s further dovish lean from Powell’s testimony, 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, an 83.8% chance of 2 hikes by the October meeting, and a 56.4% 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 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 - as another tailwind for gold.  Bulls will look for the market to continue today’s rally, and expect a test of initial resistance at $1423 -24 (double top, 7/4 and 7/5 highs) followed by $1425, and then $1436-39 (triple top – 6/25 7/2, and 7/3 highs). 

Bears were disappointed with today’s sharp advance, with many getting stopped out on the Powell inspired rally.  However, other bears were able to re-establish shorts at more attractive levels.  Bears see a market that remains overbought. It has risen $169 (13.31%) in the past month, its 14-day RSI remains elevated at 62.6, and bears expect a more significant pullback to resume. While bears acknowledge the further dovishness from Powell and the Fed today 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 (broke back above its 100-day moving average Friday, up (1.68%) in the past 9 sessions), 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 (Monday’s miss on German Industrial Production and Eurozone Sentix Investor Confidence) that drove the German 10-year yield further into negative territory over the past months (record low bund yield last week -0.409%) underscores this view.  Bears feel a US-China trade deal is in both sides’ best interests, and feel that last week’s 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 $1382-84 (triple bottom – lows 6/24, 7/1, and 7/2) 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 China’s Foreign Direct Investment, New Yuan Loans, Japan’s Tertiary Industry Index, Germany’s CPI, ECB’s Account of June 5-6 Meeting, US CPI, Jobless Claims, Real Earnings, Powell’s Testimony to the Senate Banking Committee, and comments from the Fed’s Williams, Bostic, Barkin, and Kashkari for near term direction. 

 

In the news:

Gold smuggling to India and Japan is a symptom of governments’ war against gold:   https://www.bullionstar.com/blogs/bullionstar/gold-smuggling-to-india-and-japan/

ScotiaBank – precious metals monthly:   https://www.gbm.scotiabank.com/content/dam/gbm/market-insights/2019/july/metals-monthly-07-05-19-min.pdf

 

Resistance levels: 

$1417 – 7/10 high

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

$1425 – 6/28high

$1425 – options

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

$1437 -  down trendline from 6/25 $1439 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:

$1413 - up trendline from 5/30 $1275 low

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

$1408 – 7/8 high

$1400 -  7/9 high

$1400 – options

$1392– 20-day moving average

$1392 – 7/8 low

$1390 – 7/10 low

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

$1382 -84 – triple bottom – lows 6/24, 7/1, and 7/2

$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

$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

$1347 - 40-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

$1335 – 50-day moving average

$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

$1316– 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

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

*$1289 – up trendline from 8/16/18 $1160 low

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

*$1286 – 200-day moving average

$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