Gold Traders’ Report - July 23, 2019

Jim Pogoda, Senior Gold Trader, Gold Bullion International 
JUL 23, 2019

Gold was choppy last night, trading in a range of $1414.30 - $1425.  It fell to its low during Asian time, tumbling through stops below $1421 (up trendline from 5/30 $1275 low) and Friday’s $1420 low to reach $1414.30 where support there from last Thursday’s low held.  Gold was pressured by a move up in the US 10-year bond yield (2.048% - 2.061%) and a firming US dollar (DX from 97.29 – 97.56).  The DX was helped by the announcement of a 2-year debt and budget agreement for the US and some weakness in the pound ($1.2479 - $1.2417) ahead of the election of Boris Johnson as the UK’s next PM (US Justice Minister resigns, Johnson won’t take no-deal Brexit off the table), and the euro ($1.1208 -$1.1168, 7-week low, growing expectations for the ECB to signal upcoming easing this Thurs).  Solid gains in global equities helped by some perceived progress on US-China trade negotiations (US agrees to give timely licensing decisions to Huawei suppliers, China looking to follow through on ag purchases) were also a headwind for gold with the NIKKEI +1%, the SCI up 0.5%, European shares were up from 0.6% to 1.5%, and S&P futures were +0.3% (strong earnings reports from United Technologies and Coke).  A message from Iran to Boris Johnson saying they’re not seeking confrontation also weighed on gold.  Later during European time, however, gold rebounded to $1425, with some bargain hunting buying triggered by a modest pullback in the dollar (DX to 94.47).

US stocks pared gains after their open (S&P +6 to 2991) while the US 10-year bond yield retreated to 2.045%.  The DX resumed its uptrend (97.71) however, with the euro continuing to soften ($1.1152)and the pound – which had briefly rallied – retreated again ($1.2481 - $1.2431).  Gold was caught in the cross currents but continued to advance – taking out its $1425 overnight high to reach $1427.

At 10AM, weaker than expected readings on US Existing Home Sales (5.27M vs. exp. 5.34M) and the Richmond Fed’s Manufacturing Index (-12 vs. exp. 5) took US stocks further down (S&P +3 to 2988).  The 10-year yield – which had rebounded to 2.701% - fell back to 2.048%.  The DX dipped briefly back to 97.61 and gold popped up to $1430  where resistance there ($1430 – double top 7/17and 7/22 highs) capped the advance.  

US stocks turned modestly higher into mid-day (S&P +8 to 2993), with gains in the Materials, Financials and Consumer Staples sectors leading the advance and with a rebound in oil (WTI from $55.72 - $56.60) aiding the move.  The 10-year yield inched up to 2.06%, and the DX made a fresh intraday and 5-week high at 97.72.  Gold came off its high, and tumbled back through prior resistance at $1425 (redrawn uptrend line from 5/30 $1275 low) to reach $1418.  

In the afternoon, a report that face to face trade talks between the US and China would resume on Monday sent US stocks soaring (S&P +19 to 3004).  The 10-year yield climbed to 2.076%, and the DX, after a modest pullback to 97.63, rose back to its 97.72 high.  Gold, after a modest rebound to $1422, was pinned back to its prior low at $1418 – where bargain hunting bids held again. 

Later in the afternoon, the S&P finished higher (+21 to 3006), while the 10-year yield hovered around 2.075%.  The DX moved up to 97.74 to make its intraday and 5-week high.  Support at $1418 in gold gave way, and the yellow metal dipped to $1416.  It was $1417 bid at 4PM with a loss of $7.

Open interest was off 0.5k contracts, showing a small net combination of short covering and long liquidation from yesterday.  Volume was much lower but still decent with 294k contracts trading.  

Many bulls were disappointed with gold’s $7 decline today, and for its inability to hold its uptrend line at $1421.  However, other bulls were relieved that given the strength in stocks and the DX along with the increase in the US 10-year bond yield – that the decline wasn’t sharper, and used the pullback to get long(er).  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 21.4% chance for a 50bp cut, an 84.6% chance of 2 hikes by the October meeting, and a 55.9% 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 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 - 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 pullback today, and that it breached key support at $1421 (up trendline from 5/30 $1275 low).  Bears continue to see gold as an overbought market that has risen $183 (14.4%) from the 5/20 $1270 low 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 face to face talks to resume next week, with the NY Fed having to walk back William’s hints at a 50bp cut from last Thursday, and last 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 and the resumption of face to face negotiations are the first positive steps 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 (large specs with a very large net long position) to materialize if it can get a close under $1400 - 01 (triple bottom – 7/11, 7/16, and 7/17 lows), 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 Manufacturing PMI and Leading Index, Eurozone PMIs, US Markit PMI, New Home Sales and Oil Inventories for near term direction. 

 

In the news: 

Gold holds steady as weak US data offsets strong dollar:   https://in.reuters.com/article/global-precious/gold-prices-slip-on-dollar-strength-profit-taking-idINKCN1UI0CE?rpc=401&

Gold price pulls back – technicals:   https://www.dailyfx.com/forex/fundamental/daily_briefing/session_briefing/daily_fundamentals/2019/07/22/gold-price-technical-forecast-gold-pulls-back-xau-bulls-show-higher-low-support-js50.html

Higher domestic price and monsoon dents Indian gold demand in June:   https://www.gold.org/goldhub/gold-focus/2019/07/higher-domestic-price-and-monsoon-dents-indian-gold-demand-june

 

YTD Performance


12/31/2018

7/23/2019

Change
% Change
Gold


1282.5

1417

134.5

10.487%

DX


96.06

97.73

1.67

1.738%

S&P


2505

3006

501

20.000%

JYN


109.63

108.22

-1.41

-1.286%

Euro


1.1466

1.1145

-0.0321

-2.800%

US 10-year bond yield


2.69%

2.075%

-0.0061

-22.748%

Oil (WTI)


45.45

56.9

11.45

25.193%

 

 

Resistance levels: 

$1425 – options

$1426 - up trendline from 5/30 $1275 low

$1427 – 7/11 high

$1430 – triple top 7/17, 7/22, and 7/23 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:

$1414-15  – double bottom - 7/18 and 7/23 lows

$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

$1379 - 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

$1359 – 50-day moving average

$1358 – 6/20 low

$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

$1326 – 100-day moving average

$1325 – options

$1325-26 – triple bottom – 6/5, 6/10, and 6/12  lows

$1324 – double bottom 6/4 and 6/11 lows

$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

*$1296 – 200-day moving average

*$1295 – 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