Gold Traders’ Report - July 12, 2019

Jim Pogoda, Senior Gold Trader, Gold Bullion International 
JUL 12, 2019

Gold firmed last night, retaining its choppy tone and trading in a range of $1403 - $1412.  It climbed to its $1412 high during Asian and early European hours, where resistance there held (old double bottom).  Gold’s advance was fueled by a decline in the US dollar (DX from 97.12 – 96.88), which was pressured from some strength in the yen (108.61 – 108.26) along with a dip in the US 10-year bond yield from the 1-month high reached yesterday (2.143% - 2.115%).  Later during European time however, gold retreated to $1405, fading a rebound in the 10-year yield (2.146%) and in the DX (97.03).  The dollar was lifted by weakness in the euro ($1.1274 - $1.1246, dovish remarks from ECB’s Visco, weak German Wholesale Price Index) and the pound ($1.2554 - $1.2522, BOE’s Vlieghe says no-deal Brexit could mean near zero interest rates).  Firmer global equities were also a headwind for gold with the NIKKEI gaining  0.2%, the SCI was + 0.4% (despite weaker Chinese imports), European shares were up from 0.1% to 0.5% and S&P futures were +0.3%.  Higher oil prices (WTI to $60.74, US Gulf oil producers cut production ahead of storm, Mid-East tensions) were supportive of stocks. 

At 8:30 AM, stronger readings on US PPI (0.1% vs. exp. 0) and Core PPI (0.3% vs. exp. 0.2%) helped weaken S&P futures (3111 – 3006) and the US 10-year bond yield climbed to 2.145%.  The DX rose to 97.09, and gold was pressured down to support at the overnight low $1403.  

US stocks drifted a bit lower after their open (S&P +2 to 3002), with gains in Industrials and Consumer Discretionary sectors offset by losses in Utilities and Health Care.  The 10-year yield slipped down to 2.125%, and the DX retreated back below 97 to 96.95.  Gold rose in response – albeit in a choppy fashion – to reach $1410, but quickly fell back to $1405.

Later in the morning, US stocks turned up (S&P +8 to 3008), helped by some dovish remarks from the Fed’s Evans (business investment weaker than expected, nervous about under running inflation objective, “a couple of” rate cuts would help lift inflation by 2021).  The 10-year yield ticked down to 2.122%, and the DX slipped to 96.91.  Gold advanced to $1409.50 – but was unable to take out its prior high. 

US equities firmed modestly into the afternoon, while the US 10-year bond yield slid to its intraday low of 2.106%.  The DX traded down to 96.79 (support at yesterday’s low just ahead of 200-day MA 96.77), and gold broke through $1412 to reach $1417.  

Later in the afternoon, the S&P went out on its high (+14 to 3014, record closing high), while the 10-year yield edged back up to 2.117%.  The DX ticked up to 96.84, and gold pulled back to $1414.50.  Gold was $1415 bid at 4PM with a gain of $10.  

Open interest was off 7.8k contracts, showing a fair amount of long liquidation from yesterday’s decline.  Volume was lower but remained very robust with 458k contracts trading.  The CFTC’s Commitment of Traders Report as of 7/9 showed the large funds cutting 6.6k contracts of longs and adding 7.6k contracts of shorts, reducing the Net Fund Long Position from 259k contracts to 245k contracts.  This was done during gold’s decline from $1438 on 7/3 to $1386 on 7/9, reflecting  a fair amount of profit taking from longs along with a decent amount of new short positions being rebuilt.  However, since then, a fair amount of new longs and some short covering has been seen - especially on gold’s rebound to $1427 yesterday.  Therefore, the NFLP is probably back north of 250k contracts, and gross shorts should be just under 60k contracts.    While this adjusted NFLP is fairly sizeable, the long side of gold cannot be labeled a crowded trade – yet – and therefore shouldn’t be an  impediment for further upside gains.  However, the swelling of gross longs (now over 300k contracts to 306k) cannot be ignored, and it can hasten and exaggerate downside moves if / when they are forced to liquidate. 

Bulls were pleased with gold’s advance today, especially as US stocks forged further into record territory.  They’re encouraged that gold has put in 3 consecutive sessions of higher lows, and is holding the redrawn up trendline ($1398) from the 5/30 $1275 low.  Even below this, most bulls are comfortable with the price continuing to consolidate in the $1380-$1440 channel.  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 Wednesday and yesterday, 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 82.4% chance of 2 hikes by the October meeting, and a 54.6% 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 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 yesterday) - as another tailwind for gold.  Bulls will look for the market to continue its rally, and expect a test 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 disappointed with gold’s strong gain, given the push by US stocks into further record territory.  While many bears were stopped out in the last three sessions, other bears with stronger hands were able to get short(er) at better levels.  Bears 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 (Monday’s miss on German Industrial Production and Eurozone Sentix Investor Confidence, today’s soft German Wholesale Price Index) 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 putfurther 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 $1398 (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 Monday on China’s GDP, Industrial Production, and Retail Sales, and US Empire State Manufacturing Index for near term direction. 

 

In the news: 

London’s gold market more liquid than bonds – LBMA:   https://uk.reuters.com/article/uk-gold-regulation-nsfr/londons-gold-market-is-more-liquid-than-bonds-lbma-idUKKCN1U620N?rpc=401&

Gold gains on Powell pronouncements:   https://www.abcbullion.com.au/investor-centre/pdf/gold-gains-on-powell-pronouncements#.XSi0D-tKiUl

 

YTD Performance


12/31/2018

7/12/2019

Change
% Change
Gold


1282.5

1415

132.5

10.331%

DX


96.06

96.83

0.77

0.802%

S&P


2505

3014

509

20.319%

JYN


109.63

107.88

-1.75

-1.596%

Euro


1.1466

1.127

-0.0196

-1.709%

US 10-year bond yield


2.69%

2.117%

-0.0057

-21.184%

Oil (WTI)


45.45

60.22

14.77

32.497%

 

Resistance levels: 

$1417 – 7/12 high

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

$1425 – 6/28high

$1425 – options

$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

$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:

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

$1408 – 7/8 high

$1403 – 7/12 low

$1401 – 7/11 low

$1400 -  7/9 high

$1400 – options

$1399– 20-day moving average

$1398 - up trendline from 5/30 $1275 low

$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

$1358 – 6/20 low

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

$1354 - 40-day moving average

$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

$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

$1340 – 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

$1318– 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

*$1291 – up trendline from 8/16/18 $1160 low

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

*$1288 – 200-day moving average

$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