Gold Traders’ Report - July 18, 2019

Jim Pogoda, Senior Gold Trader, Gold Bullion International 
JUL 18, 2019

Gold pulled back last night from making two week highs yesterday afternoon, trading in a range of $1418 - $1428.  It succumbed to some profit taking during Asian hours down to $1420, despite the US dollar softening (DX from 97.22 – 07.04) against some strength in the yen (108.08 – 107.61, 2-week high, risk off).  Later during European time, gold was pressed further to its $1418 low, where it found support at the prior resistance $1417-18 (triple top - 7/12, 7/15, and 7/16  highs).  The yellow metal faded a rise in the US 10-year bond yield (2.038% - 2.059%) and a rebound in the DX to 97.27.  The greenback was helped by some comments from Secretary Mnuchin (he and Lighthizer scheduled to talk with Chinese counterparts later in the day, markets shouldn’t be concerned over the debt ceiling), and a tumble in the euro ($1.2444 - $1.1205, ECB considering revamping target inflation to “below but close to 2%”), which overcame a rally in sterling ($1.2432 - $1.2494, upbeat UK Retail Sales, EU’s Brexit negotiator Barnier open to alternative Irish border plan).  Global equities were softer and gold supportive - weighed by last night’s earnings report from Nefllix showing a surprise loss in US subscribers.  The NIKKEI was off 2%, the SCI fell 1%, European markets were flat to -0.5%, and S&P futures were -0.2%.  Oil prices were firmer (WTI from $56.20 - $57.29) from a report that Iran seized a tanker in the Strait of Hormuz that it accused of smuggling oil. 

At 8:30 AM, US Jobless Claims were as expected (216k), but the Philly Fed Index was much better than expected (21.8 vs. exp. 5.0).  S&P futures turned positive (+2 to 2987), and the US 10-year bond yield climbed further to 2.075%.  After a prior pullback to 97.10, the DX rallied back to 97.26, but couldn’t take out its overnight high.  Gold fell further, and breached support at $1417-18 to reach $1414.75, but support in front of $1414 (up trendline from 5/30 $1275 low) held.  However, as we’ve seen many times, bargain hunting buying emerged to bring gold quickly back to the $1418 level.

US stocks firmed modestly after their open (S&P +3 to 2987), with the Financials, Consumer Staples and Health Care sectors leading gainers.  Stocks shrugged off a miss on Leading Indicators (-0.3% vs. exp. 0.1%), and were helped by an announcement from Mnuchin that the Trump administration and congressional leaders have reached an agreement on overall spending levels in a 2-year deal.  The 10-year yield fell to 2.061% and the DX retreated to 97.17.  Gold climbed in response, and traded up to $1423.  

Into mid-day, US stocks turned down (S&P -10 to 2973), weighed by losses in the Communication Services (Netflix clobbered), Consumer Discretionary, Real Estate, and Energy sectors.  The 10-year yield hovered around 2.06% - 2.065%, and the DX fell to 97.12.  Gold rose further to reach $1429, where resistance in front of yesterday’s $1430 high held. 

In the afternoon, dovish comments from the Fed’s Williams (central bank needed to act quickly, better to take preventative measures than wait for disaster to unfold) dramatically increased the probability of a 50 bp cut at the upcoming July meeting to 58.6%. Equities rallied sharply (S&P +15 to 2998) while the 10-year bond yield sank to 2.033%.  The DX plunged through 97 to reach 96.71 (2-week low) and gold shot higher.  Buy stops were hit over yesterday’s $1430 high, $1435 (upper channel line from 6/25 $1439 high), $1436-39 (triple top – 6/25 7/2, and 7/3 highs) to reach $1446, where  from the 5/12/13 $1446 high held.

Later in the afternoon, US stocks pared gains (S&P finished +11 to 2995 ) on news that the US Navy shot down an Iranian drone in the Strait of Hormuz.  The 10-year yield ticked lower to 2.024% and the DX slumped to 96.67 (2-week low).  Gold took out resistance at $1446 to reach $1448 – a fresh 6-year high.  It was $1446 bid at 4PM with a gain of $20.

Open interest was up big – 19.2k contracts – showing a heavy amount of new longs from yesterday’s $21 rally. Volume was higher with 393k contracts trading. 

Bulls were pumped with gold’s $20 rally today, and for its ability to take out and hold over key resistance levels of $1435 (break out over upper channel line from 6/25 $1439 high), $1436-39 (triple top – 6/25 7/2, and 7/3 highs), and  $1446 (5/12/13 high).  They’re encouraged that they gold’s sharp advance has extended to $178 (14%) from the $1270 low on May 21 to the $1448 6-year high reached today.  With today’s dovish comments from Williams on top of the 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 58.6% chance for a 50bp cut, a 93.9% chance of 2 hikes by the October meeting, and a 75.3% 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, US shot down Iranian drone today), 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 today’s $1448 high followed by $1450 (options), $1479 (5/5/13 high), $1488 (4/28/13), $1496 (4/14/13 high), and then $1500 (options).  Bullish technicians are quick to point out that there is a vacuum between $1496 and $1591 - the high from 4/7/13.  

While many bears were stopped out from gold’s advance yesterday and today, other bears with stronger hands used the advances to get short(er) at better levels.  Bears see a market that has risen $178 (13.31%) from the 5/20 $1270 low, with 14-day RSI returning to an overbought level of 66, and expect a significant pullback to ensue.  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 pullback from its torrid rise, and expect some significant long liquidation selling to materialize if it can get a close under $1435 (upper channel line from 6/25 $1439 high), $1414 (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). 

 

YTD Performance


12/31/2018

7/18/2019

Change
% Change
Gold


1282.5

1446

163.5

12.749%

DX


96.06

96.70

0.64

0.666%

S&P


2505

2995

490

19.561%

JYN


109.63

107.29

-2.34

-2.134%

Euro


1.1466

1.1276

-0.019

-1.657%

US 10-year bond yield


2.69%

2.026%

-0.0066

-24.572%

Oil (WTI)


45.45

55.62

10.17

22.376%

 

Resistance levels: 

$1448 – 7/18 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:

$1446 – 5/12/13 high

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

$1435 – upper channel line from 6/25 $1439 high

$1430 – 7/17 high

$1427 – 7/11 high

$1425 – 6/28 high

$1425 – options

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

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

$1415 – 7/18 low

$1414 - up trendline from 5/30 $1275 low

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

$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

$1380 – 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

$1352 – 50-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

$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

$1322 – 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

*$1293 – 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