Gold Traders’ Report - July 11, 2019

Jim Pogoda, Senior Gold Trader, Gold Bullion International 
JUL 11, 2019

Gold was choppy last night, trading in range of $1418.30 - $1427. It rose to its $1427 high (1-week high) during early Asian time, taking out resistance at$1423 -24 (double top, 7/4 and 7/5 highs) and $1425 (options, 6/28 high).  The advance was fueled by a further decline in the US 10-year bond yield (2.037%) and a continued softening in the US dollar (DX to 96.83, 1-week low) resonating from Powell’s dovish testimony yesterday.  An attempt by Iran’s Revolutionary to seize a British oil tanker in the Persian Gulf – further intensifying tensions in the region – was also gold supportive.  However, gold softened to its $1418.30 low during later Asian and European time against a climb in global bond yields (US 10-year to 2.068%, German 10-year from -0.323% to -0.263%, UK 10-year from 0.748% to 0.825%), and firmer global equities.  The NIKKEI gained 0.5%, the SCI rose 0.1%, European markets were flat to +0.3%, and S&P futures were +0.2%.  A further strong advance in oil (WTI to $60.94, 2-month high, UK tanker incident and producers cutting Gulf of Mexico production ahead of storm) were a tailwind for stocks.  A continued pullback in the DX (96.79, support ahead of 200-day MA at 96.76) helped mitigate gold’s retreat.  The dollar was pressured by strength in the pound ($1.25 - $1.2571 UK Financial Stability Report shows financial system is ready for Brexit), and the euro ($1.250 - $1.1285, German CPI in line, French CPI firmer). 

At 8:30 AM, better than expected reports on US Jobless Claims (209k vs. exp. 221k), CPI (0.1% vs. exp. 0), and Core CPI (0.3% vs. exp. 0.2%) knocked S&P futures lower (+1 to 2999) and lifted the US 10-year bond yield to 2.087%.  The DX rebounded to 97.02, and gold sold off down to $1412, where support (double bottom – 6/25 and 7/3 lows) held. 

US stocks turned and rallied into mid-day (DJ breaks 27k to record high, S&P +9 to 3002), with gains in the Health Care (White House drops proposal to eliminate drug rebates), IT, Industrials, and Consumer Discretionary sectors leading the gain.  Some more dovish testimony from Powell to the Senate Banking Committee (concern for Fed not to get behind the curve and let inflation expectations drop below 2%) along with dovish remarks from the Fed’s Williams (manufacturing production is in decline, global growth and domestic job gains are slowing, inflation remains below target may be negatively affecting decisions) aided the advance.  The US 10-year bond yield continued to climb (2.103%) – despite the dovishness from Powell, and the DX took out its 100-day moving average at 97.12 to reach 97.14.  Gold slipped further, and broke support at $1412 to reach $1408.50. 

Equities turned negative into the afternoon (S&P -3 to 2989), weighed by some mildly hawkish comments from the Fed’s Bostic (US in good position on inflation and employment, skeptical of need to lower rates) and Barkin (sees “noise” in market based inflation measures, discounting signals they may be flagging), but the 10-year yield rose further (2.134%, 1-month high), still riding this morning’s stronger inflation report.  The DX was caught in the cross currents and edged higher, reaching 97.15.  Gold continued to soften and traded down to $1403.65.

Later in the afternoon, US stocks rebounded to finish firmer with record high closes for both the DJ and S&P (S&P +7 to 3000, DJ +228 to 27,088).  The 10-year yield hovered around 2.13%, while the DX dipped to 97.05.  Gold came off its low to reach $1408, and was $1407 bid at 4PM with a loss of $13. 

Open interest was up 4.3k contracts, showing a net of new longs from yesterday’s rally.  Volume ballooned with 507k contracts trading. 

Bulls were disappointed with gold’s $13 decline today, especially given the dovishness expressed from Powell for the second consecutive day.  However, 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 the further dovish lean from Powell’s testimony yesterday and today, 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 80.4% chance of 2 hikes by the October meeting, and a 50.3% 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 (UK also involved in tanker incident this morning) - as another tailwind for gold.  Bulls will look for the market to resume its rally, and expect a test of initial resistance at $1423 -24 (double top, 7/4 and 7/5 highs) followed by $1425, $1427 (today’s high), then $1436-39 (triple top – 6/25 7/2, and 7/3 highs). 

Bears were pleased with gold’s $13 retreat today, but some bears were hoping the pullback would be steeper given the strength in stocks (record high closes in the DJ and S&P), the 1-month high in the US 10-year bond yield, and with the DX rebounding back over 97.  While many bears were stopped out on yesterday’s  Powell inspired rally, 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 still remains elevated at 59, 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 (had a nearly 10 bp rise today from 2.037% to 2.134%) should allow the recently oversold US dollar to continue to rebound against other currencies (broke back above its 100-day moving average briefly 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 (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 Trade Balance, New Yuan Loans, and Foreign Direct Investment, Japan’s Industrial Production and Capacity Utilization, German Wholesale Price Index, Eurozone Industrial Production, US PPI, Baker Hughes Rig Count, Commitment of Traders Report, and comments from the BOE’s Vilieghe and Fed’s Evans for near term guidance. 

 

In the news: 

WGC – Gold mid-year outlook:   https://www.gold.org/goldhub/research/gold-mid-year-outlook-2019

Powell assails gold standard supported by Trump Fed nominee:   https://uk.reuters.com/article/uk-usa-fed-powell-gold/powell-assails-gold-standard-supported-by-trump-fed-nominee-idUKKCN1U52E6

WGC – India’s gold import duties rise:   https://www.gold.org/goldhub/gold-focus/author/mukesh-kumar

Goldman advises closing bullish palladium bet after 18% gain:   https://www.bloomberg.com/news/articles/2019-07-10/goldman-advises-closing-bullish-palladium-bet-after-18-gain

 

YTD Performance


12/31/2018

7/11/2019

Change
% Change
Gold


1282.5

1407

124.5

9.708%

DX


96.06

97.07

1.01

1.051%

S&P


2505

3000

495

19.760%

JYN


109.63

108.46

-1.17

-1.067%

Euro


1.1466

1.1256

-0.021

-1.832%

US 10-year bond yield


2.69%

2.130%

-0.0056

-20.700%

Oil (WTI)


45.45

60.45

15

33.003%

 

Resistance levels: 

$1408 – 7/8 high

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

$1417 - up trendline from 5/30 $1275 low

$1417 – 7/10 high

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

$1425 – 6/28high

$1425 – options

$1427 – 7/11 high

$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:

$1404 – 7/11 low

$1400 -  7/9 high

$1400 – options

$1396– 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

$1350 - 40-day moving average

$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

$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

$1338 – 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

$1317– 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

*$1287 – 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