Gold Traders’ Report - July 22, 2019

Jim Pogoda, Senior Gold Trader, Gold Bullion International 
JUL 22, 2019

Gold was fairly steady last night, trading either side of unchanged in a range of $1422.30 - $1429.90.  It slipped to its $1422.30 low during early Asian hours, where support in front of $1421 (up trendline from 5/30 $1275 low) and Friday’s $1420 low held.  It was pressured by a firmer US dollar (DX from 97.15 – 97.24) which was helped by weakness in the yen (107.65 – 108.07) and a move up in the US 10-year bond yield off of some hawkish comments late Friday from the Fed’s Rosengren (economy quite strong, inflation close to 2%, not an environment needing further accommodation, think we should wait).  Later during Asian time, gold climbed to its $1429.90 high, helped by a further escalation in tensions between the US/UK and Iran (on top of seizing UK tanker Friday, Iran claims it dismantled a CIA spy ring, arresting 17).  However, gold slipped back to $1424-25 during European time, as the DX rebounded to 97.29.  The greenback was aided from a softer pound ($1.2513 - $1.2454, key UK ministers resigning / threatening resignation ahead of probable election of Boris Johnson as PM), and euro ($1.1224 - $1.1206).  Global equities were mixed with the NIKKEI off 0.2%, the SCI down 1.3%, European markets were flat to +0.3%, and S&P futures were up 0.2%.  Firmer oil prices (WTI from $56 - $57.04) from the increasing tensions with Iran in the key oil producing Persian Gulf region were supportive of stocks. 

At 8:30 AM a miss on the Chicago Fed’s National Activity Index (-0.02 vs. exp. 0.1) trimmed gains in S&P futures (2982), and helped tug the US 10-year bond yield down to 2.029%.  The DX retreated to 97.16 and gold rose to $1429, but resistance at the overnight high held. 

US stocks firmed after the open (S&P +10 to 2987), aided by a report that a deal on the US debt ceiling and budget are “near final”, and with gains in the IT sector leading the advance.  The US 10-year yield ticked up to 2.038%, and the DX clawed back to 97.26.  Gold softened in response, but support at $1424 held.  

Later in the morning, US stocks pared gains (unchanged to 2977), with a retreat in oil (WTI to $55.81) aiding the move.  The 10-year yield inched lower to 2.031%, the DX slipped to 97.17, and gold moved up to $1427.50.  

Into mid-day, US equities turned back higher (S&P +8 to 2985) and the 10-year yield inched back up to 2.036%.  The DX traded modestly lower, however, trading down to 97.19 – but held its 100-day moving average at 97.17.  It was pressured by strength in the yen (107.76) on some upbeat comments from the BOJ’s Kuroda (economy no longer in deflation from powerful monetary easing).  Gold probed higher to $1428.75, but failed again to take out the overnight high.  

In the afternoon, the S&P firmed to its high ( +14 to 2991), helped by comments from Trump that he had a very positive correspondence with North Korea.  The 10-year yield climbed to 2.05%, and the DX rose to 97.30, making its intraday high. Gold retreated, but found support at $1423.50.

Later in the afternoon, stocks trimmed some gains (S&P finished +8 to 2985  ), while the 10-year yield was steady around 2.05%.  The DX pulled back to 96.26, and gold edged up to $1425.  Gold was $1425 bid at 4PM – unchanged.  

Open interest was off 9.8k contracts, showing a net of long liquidation from Friday’s decline.  Volume was higher and remained very robust with 594k contracts trading. 

Bulls were thrilled for gold to finish unchanged today, given the increase in US stocks, the uptick in the 10-year bond yield, and the firming of the US dollar.  Also, they’re pleased with the bargain hunting buying that enabled support at $1421 (up trendline from 5/30 $1275 low) to hold.  The bulls remain encouraged that  gold’s sharp advance has extended to $183 (14.4%) from the $1270 low on May 21 to the $1453 6-year high reached last Thursday.  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 24.5% chance for a 50bp cut, an 88.6% chance of 2 hikes by the October meeting, and a 63.3% 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 two weeks ago 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/UK and Iran 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 disappointed that gold didn’t finish the session lower with stocks, the 10-year bond yield, and the dollar all moving higher.  Bears were expecting a breach of support at $1421 (up trendline from 5/30 $1275 low) to trigger additional long liquidation, but were thwarted by the bargain hunting buying that held the level.   Bears continue to see a market that has risen $183 (14.4%) from the 5/20 $1270 low, with a 14-day RSI remaining near overbought at 59.4 – even after Friday’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, with the NY Fed having to walk back William’s hints at a 50bp cut from Thursday, and Friday’s afternoon’s hawkish remarks from the Fed’s Rosengren.  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 (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 $1421 (up trendline from 5/30 $1275 low), followed by $1381-84 (triple bottom – lows 6/24, 7/1, and 7/2, lower channel line from 6/21 $1383 low) and then $1346 (downtrend line from 8/25/13 $1433 high). 

All markets will continue to focus on geopolitical events (especially Brexit news and US / UK - 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 Japan’s Department Store Sales and Machine Tool Orders, Eurozone Consumer Confidence, US House Price Index, Richmond Fed Manufacturing Index, and Existing Home Sales for near term guidance. 

 

In the news: 

Gold speculators edged their bullish bets slightly higher this week:   https://www.investing.com/analysis/gold-speculators-edged-their-bullish-bets-slightly-higher-this-week-200442259

The gold rush heats up as sub-zero yields spread:   https://economictimes.indiatimes.com/markets/commodities/news/the-gold-rush-heats-up-as-sub-zero-yields-spread/articleshow/70305493.cms

 

YTD Performance


12/31/2018

7/22/2029

Change
% Change
Gold


1282.5

1425

142.5

11.111%

DX


96.06

97.29

1.23

1.280%

S&P


2505

2985

480

19.162%

JYN


109.63

107.89

-1.74

-1.587%

Euro


1.1466

1.1208

-0.0258

-2.250%

US 10-year bond yield


2.69%

2.050%

-0.0064

-23.678%

Oil (WTI)


45.45

56.3

10.85

23.872%

 

 

Resistance levels: 

$1427 – 7/11 high

$1430 – double top 7/17and 7/22 highs

$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 – options

$1422 – 7/22 low

$1420 – 7/19 low

$1421 - up trendline from 5/30 $1275 low

$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

$1400 - 01 – triple bottom – 7/11, 7/16, and 7/17 lows

$1400 – options

$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

$1375 - 40-day moving average

$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

$1360 -  50% retracement of up move from 5/2 $1266 low to 7/18 $1453 high

$1358 – 6/20 low

$1357 – 50-day moving average

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

$1346 – 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

$1324 – 100-day moving average

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

$1307 – 50% retracement of up move from 8/16/18 $1160 low to 6/25 $1439 high

$1301 – double top 5/13 and 5/15 highs

$1300 – psychological level, options

*$1295 – 200-day moving average

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

$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