Gold Traders’ Report - July 2, 2019

Jim Pogoda, Senior Gold Trader, Gold Bullion International 
JUL 2, 2019

Gold recovered last night from its $25 selloff yesterday, rising in a range $1384 - $1394.45.  It was lifted by a decline in global bond yields (US 10-year from 2.029% - 2.008%, German 10-year to -0.367%, record low, UK 10-year to 0.756% - 33-month low, Italian 10-year to 1.857% - 1-year low), a cut in rates by the Reserve Bank of Australia (record low 1%), and a modest retreat in the US dollar (DX from 96.88 – 96.62).  The greenback was pressured by a recovery in the euro ($1.1275 - $1.1318) on a report that the ECB is in no rush to cut rates at its upcoming meeting in July that outweighed a miss on German Retail Sales and Eurozone PPI.  Gold was also aided by global equities that were mostly lower with the NIKKEI and SCI unchanged, European shares ranged from -0.2% to +0.4%, and S&P futures were off 0.2%.  Equities were softened from news that the US was targeting $4B worth of EU goods in retaliation for the EU’s subsidies to Airbus, tough talk from Trump on Iran (Iran was playing with fire) after Iran breached its nuclear deal limit, along with a modest pullback in oil (WTI from $59.43 - $58.47, demand worries outweigh the bullishness from yesterday’s OPEC+ agreement to renew supply cuts). 

US stocks firmed shortly after their open (S&P +6 to 2970 ), led by gains in the Communication Services and Consumer Staples sectors.  The 10-year yield ticked up to 2.105%, and the DX rose to 96.84 – helped also by a plunge in the pound ($1.2645 - $1.2584, 2-week low, dovish comments from BOE’s Carney).   Gold softened in response, but found support at $1390. 

Later in the morning and into mid-day US stocks turned negative (S&P -8 to 2956), hurt by some slightly hawkish comments from the Fed’s Mester (interest rate cuts only needed if more bad eco data comes) and a tumble in oil (WTI to $56.58) and while global bond yields resumed their earlier decline (German 10-year to record low -0.373%, UK 10-year to 0.718%, US 10-year to 1.977%, 1-week low).  The DX softened below its 200-day MA at 96.70 to 96.60, and gold shot higher.  Buy stops were hit over $1394 (last night’s high), $1398 (yesterday’s high), and $1400 to reach $1406 where resistance at Friday’s low held (filled the gap from Fri low – Mon high,  $1406 - $1398).

In the afternoon, US stocks turned back up into positive territory (S&P +3 to 2967), but the 10-year yield remained soft (2.977%).  The DX bounced to 96.74, but gold probed higher – showing resilience - and traded past the gap resistance to reach $1409.  

Later in the afternoon, US stocks rallied to make an intraday high, led by the defensive Real Estate and Utilities sectors (S&P finished +9 to 2973, all-time high close).  The US 10-year yield ticked down to 1.976%, making a two week low and just missed touching its 1.974% 32-month low.  The DX remained fairly steady, however, with weakness in the euro ($1.1286, dovish Lagarde named to head ECB) helping to keep it over its 200-day MA at 96.70 to reach 96.79.  Gold continued to show resilience and push higher, however, taking its cue off of the decline in yields.  It tripped buy stops over $1412 (double top  - 6/21 and 6/27 highs) to reach $1416, and was $1413  bid at 4PM with a gain of $26.

Open interest was up 10.3k contracts – showing a combination of new shorts along with new bargain hunting longs from yesterday’s sharp decline.  Volume was much higher with 415k contracts trading. 

Bulls were giddy with today’s rebound rally which more than recovered its $25 loss yesterday, and done with equities remaining firm near their highs and only a modest pullback in the DX.  Bulls remain ecstatic with gold’s sharp $169 (13.31%) rally from the $1270 low on May 21 to last Tuesday’s $1439 top (6-year high), and will argue the trend is their friend, relieved that the key uptrend line from the 5/30 $1275 low ($1384) held.  With the further dovish lean from Powell and the Fed recently (though there were some mildly hawkish items from Powell and Bullard on last week), bulls feel that a series of future Fed rate cuts (FedWatch now has solid 100% probability of a 25bp rate cut at the July meeting, an 85.2% chance of 2 hikes by the October meeting, and a 60.1% 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 this past weekend’s trade truce) will continue to impede global growth, keeping 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 also point to Friday’s Commitment of Traders Report (as of 6/25) that showed the large funds with only a moderately large net long position (236), and a still significant gross short position (62k contracts).  Therefore, the bulls feel the gold market remains fairly well set up to move higher – as some funds remained sidelined / not fully committed to the long side and the shorts will provide fuel to further upside moves -  when forced to cover (as seen in the past month).  Bulls will look for the market to continue higher after its modest pullback, and challenge initial resistance at $1425 (6/28 high), and then $1439 (6/25 and 6-year high), followed by $1446 (5/12/13 high) and $1450.

Bears were disappointed that gold was able to recover all of its losses from yesterday’s session – and then some – despite a moderate gain in stocks and only a slight decline in the dollar (which held its 200-day moving average.  Bears just missed knocking the yellow metal below its up trendline from the 5/30 $1275 low ($1384) in the past two sessions, and got hammered today.  While many bears were stopped out today, other bears with stronger hands and other previously sidelined short siders used the opportunity to get short(er) scale up at better levels.  Bears see a market that remains overbought – despite the $57 pullback from its $1439 Tuesday high to yesterday’ $1382 low.  It has risen $169 (13.31%) in the past month and its 14-day RSI is back to an overbought 70, and bears expect a significant pullback to resume. While bears acknowledge the further dovishness from the Fed 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 (as the Fed’s Mary Daly alluded to last week) – 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 (held above 200-day MA 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 (weaker German Retail Sales and Eurozone PPI today) that drove the German 10-year yield further into negative territory over the past months (record low bund yield today -0.373%) underscores this view.  Bears feel a US-China trade deal is in both sides’ best interests, and feel that this past weekend’s trade truce is the first step toward this end, will drive equities higher, and will put further pressure on the yellow metal.  Bears expect gold to resume its decline, and expect some significant long liquidation selling to materialize if $1384 (up trendline from 5/30 $1275 low), and then $1348 (downtrend line from 8/25/13 $1433 high) can be breached. 

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), oil prices, and will turn to reports tomorrow on Japan’s Services PMI, China’s Caixin Services PMI, Germany’s PMI, Eurozone PMIs, UK PMI, US Challenger Job Cuts, ADP Employment Change, Trade Balance, Jobless Claims, Markit Services PMI, Factory Orders, Durable Goods, Oil Inventories, and the Baker Hughes Rig Count for near term direction. 

 

In the news:

Gold prices proving resilient during correction as gold volatility drops: https://www.dailyfx.com/forex/fundamental/daily_briefing/daily_pieces/top_fx_headlines/2019/07/02/Gold-Prices-Proving-Resilient-During-Correction-as-Gold-Volatility-Drops.html

Forbes urges Facebook to rename Libra and back it with gold:   https://www.thesouthafrican.com/news/forbes-urges-facebook-to-rename-libra-back-it-with-gold/

Perth Mint’s gold sales jump 80% in June: https://finance.yahoo.com/news/perth-mints-monthly-gold-sales-050724171.html

LBMA vault holdings data:   http://www.lbma.org.uk/london-precious-metals-physical-holdings-statistics

 

YTD Performance


12/31/2018

7/2/2019

Change
% Change
Gold


1282.5

1413

130.5

10.175%

DX


96.06

96.77

0.71

0.739%

S&P


2505

2973

468

18.683%

JYN


109.63

107.90

-1.73

-1.578%

Euro


1.1466

1.1285

-0.0181

-1.579%

US 10-year bond yield


2.69%

1.976%

-0.0071

-26.433%

Oil (WTI)


45.45

56.35

10.9

23.982%

 

Resistance levels: 

$1416 – 7/2 high

$1425 – 6/28high

$1425 – options

$1439 – 6/25 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 top  - 6/21 and 6/27 highs

$1400 - options

$1384 – 7/2 low

$1384 - up trendline from 5/30 $1275 low

$1382 – 7/1 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

$1362– 20-day moving average

$1358 – 6/20 low

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

$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

$1343 -  50% retracement of up move from 5/2 $1266 low to 6/24 $1420 high

$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

$1329 - 40-day moving average

$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

$1319 – 50-day moving average

$1309-12 - triple top – 3/28, 4/10 and 4/11 highs

$1311– 100-day moving average

$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

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

$1285– down trendline from 2/20 $1347 high

*$1282 – up trendline from 8/16/18 $1160 low

$1279 – 5/29 low

*$1279 – 200-day moving average

$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