Gold Traders’ Report - July 19, 2019

Jim Pogoda, Senior Gold Trader, Gold Bullion International 
JUL 19, 2019

A clarification from the NY Fed early last evening regarding Fed’s Williams comments (that the Fed needed to act quickly as economic growth slows) were drawing from academic research and “not about potential policy actions” changed the probability for a 50bp rate cut at the July meeting from 58.6% to 41%.  It knocked S&P futures lower (3009 – 2996), and took the 10-year bond yield up from 2.024% to 2.0492%.  The DX rebounded from 96.65 – 96.97, and gold retreated from its 6-year high of $1453 to $1439.  Later during European time, gold slipped further to its low of $1435, where support at the upper channel line from 6/25 $1439 high held.  Gold was pressured by a further gain in the DX (97.03), which was helped by softening in the yen (107.20 – 107.73, risk on) and the euro ($1.1282 - $1.1229, miss on German PPI, Italian politics).  Global equities were mostly firmer and were a headwind for gold, helped by a strong quarterly report from Microsoft, and some perceived progress in US-China trade talks (US and Chinese senior officials spoke by phone last night, 2nd call since G20 summit).  The NIKKEI gained 2%, the SCI was up 0.8%, European markets ranged from -0.1% to +0.1%, and S&P futures were +0.4%.  Oil prices were higher (WTI from $55.47 - $56.22) and supportive of stocks.

US stocks opened stronger (S&P +11 to 3006), led by gains in the Industrials and IT sectors. The 10-year yield advanced to 2.057%, and the DX climbed to 97.18 (breaches 100-day moving average at 97.17).  Gold softened further, breaching support at $1435 to reach $1433.50.

At 10 AM a worse than anticipated University of Michigan Consumer Sentiment Report (98.4 vs. exp. 98.8) softened US equities (S&P unch to 2995) while the 10-year yield pulled back to 2.045%.  The DX dipped back below 97 to reach 96.99, and gold snapped back above $1435 to reach $1441.50. 

Later in the morning, US stocks edged back into positive territory (S&P +6 to 3001).  The 10-year yield hovered either side of 2.05%, and the DX rallied back to the previous high 97.18.  Gold tumbled in nervous and choppy trading and took out its overnight low to reach $1426.

Into mid-day, the S&P recovered from a dip to 2990 back to 3001, while the 10-year yield hovered around 2.045%.  The DX edged up to a fresh intraday high at 97.19 which pressed gold down to its low of $1423. 

In the afternoon, a report that Iran confiscated a British oil tanker in the Strait of Hormuz pushed US equities lower (S&P -3 to 2992 ) and sent oil up from $55.04 - $55.98.  Gold traded higher, reaching $1429.  Shortly thereafter, however, remarks from the Fed’s usually very dovish Bullard opining against a 50bp rate cut at the upcoming July meeting pushed stocks further down (S&P -8 to 2987), and the 10-year yield rose to 2.057%.  The DX popped to 97.30, and gold fell to $1420 where support ahead of $1418 – (up trendline from 5/30 $1275 low) held.

Later in the afternoon, US stocks slumped further (S&P - 18 to 2977 ) while the 10-year yield was steady around 2.05%.  The DX pulled back to 97.14, and gold had a modest recovery to $1426.  Gold was $1425 bid at 4PM with a loss of $16.  

Open interest was up big again – 21.7k contracts – reflecting a sizeable chunk of new longs piling in during yesterday’s $20 rally.  Volume surged with 535k contracts trading.  The CFTC’s Commitment of Traders Report as of 7/16 showed the large funds adding 3.4k contracts of longs and 2.7k contracts of shorts, increasing the Net Fund Long Position to 245k contracts.  This was done on gold’s advance from $1396 on 7/9 to $1427 on 7/11, reflecting a modest amount of new shorts and new longs entering the market.  Since then, a heavy amount of new longs and some short covering has been seen - especially on gold’s climb to $1453 yesterday (fresh 6-year high). Therefore, the NFLP is probably now north of 275k contracts, while gross shorts are probably under 55k contracts.  This adjusted NFLP is very large, and the long side of gold is now approaching being a crowded trade.  It will begin to be an impediment for further upside gains, and the swelling of gross longs (adjusted probably over 325k contracts) can hasten and exaggerate downside moves – if  / when the longs are forced to liquidate. 

Bulls were disappointed with gold’s steep pullback today, especially for its inability to hold $1436-39 (triple top – 6/25 7/2, and 7/3 highs) and $1435 – upper channel line from 6/25 $1439 high.  However, they remain encouraged that they gold’s sharp advance has extended to $183 (14.4%) from the $1270 low on May 21 to the $1453 6-year high reached yesterday.  With the recent dovish comments from Williams (even though clarified) 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 41% chance for a 50bp cut, an 89.4% chance of 2 hikes by the October meeting, and a 67.2% 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 today, US shot down Iranian drone yesterday), and North Korea (hints at restarting nuclear tests)  - as another tailwind for gold.  Bulls will look for the market to resume its rally, and expect a retest of initial resistance at $1435 (upper channel line from 6/25 $1439 high), followed by $1436-39 (triple top – 6/25 7/2, and 7/3 highs), $1446 (5/12/13 high), $1450 (options), $1453 (7/18 high), $1479 (5/5/13 high), $1488 (4/28/13), and then $1496 (4/14/13 high). Bullish technicians are quick to point out that there is a vacuum between $1496 and $1591 - the high from 4/7/13. 

Bears were encouraged with gold’s steep pullback today, and that gold failed to hold key support at $1436-39 (former triple top – 6/25 7/2, and 7/3 highs) and $1435  (upper channel line from 6/25 $1439 high). Bears see a market that has risen $183 (14.4%) from the 5/20 $1270 low, with a 14-day RSI remaining near overbought at 60 – even after today’s decline - 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, and with the NY Fed having to walk back William’s hints at a 50bp cut from yesterday.  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 (weak German PPI today) that drove the German 10-year yield further into negative territory over the past months (German 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 continue to pullback from its torrid rise, and expect some significant long liquidation selling to materialize if it can get a close under $1418 (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 comments from the Fed’s Rosengren later today (last comment before quiet period) and reports Monday on Japan’s Convenience Store Sales and the US Chicago Fed’s National Activity Index for near term direction. 

 

In the news:

WGC – Central Banks return to gold:   https://www.gold.org/goldhub/research/gold-investor/central-banks-return-to-gold

WGC – Central Bank gold reserves survey signals more buying to come:   https://www.gold.org/goldhub/gold-focus/2019/07/2019-central-bank-gold-reserves-survey-signals-more-buying-come

ABC Bullion  - silver spikes 7% - here’s why:   https://www.abcbullion.com.au/investor-centre/pdf/silver-spikes-7-heres-why#.XTHj7etKiCh

NASA’s relationship with gold as world celebrates the 50th anniversary of Apollo 11 Moon Landing:   https://www.kitco.com/news/2019-07-19/NASA-s-Relationship-With-Gold-As-World-Celebrates-50th-Anniversary-Of-Apollo-11-Moon-Landing.html

UBS upbeat on gold but says caution remains warranted:   https://www.kitco.com/news/2019-07-19/Gold-Silver-Precious-Metals-Daily-News-Briefs.html

 

YTD Performance


12/31/2018

7/19/2019

Change
% Change
Gold


1282.5

1425

142.5

11.111%

DX


96.06

97.15

1.09

1.135%

S&P


2505

2977

472

18.842%

JYN


109.63

107.72

-1.91

-1.742%

Euro


1.1466

1.1217

-0.0249

-2.172%

US 10-year bond yield


2.69%

2.050%

-0.0064

-23.678%

Oil (WTI)


45.45

56

10.55

23.212%

 

Resistance levels: 

$1427 – 7/11 high

$1430 – 7/17 high

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

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

$1446 – 5/12/13 high

$1453– 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:

$1425 – 6/28 high

$1425 – options

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

$1420 – 7/19 low

$1418 - up trendline from 5/30 $1275 low

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

$1415 – 7/18 low

$1413– 20-day moving average

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

$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

$1372 - 40-day moving average

$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 – 50-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

$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

$1323 – 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

*$1294 – 200-day moving average

*$1293 – up trendline from 8/16/18 $1160 low

$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