Gold Traders’ Report - July 25, 2019

Jim Pogoda, Senior Gold Trader, Gold Bullion International 
JUL 25, 2019

Gold was either side of unchanged last night, trading in a relatively narrow range of $1422 - $1427.75 while awaiting today’s ECB rate decision and Draghi press conference.   It ticked up to $1427 during early Asian hours on news that North Korea launched two short range missiles.  However, the yellow metal softened to its low during later Asian and early European time, fading strength in the US dollar (DX from 97.66 – 97.78).  The greenback was lifted from weakness in the euro ($1.1143 - $1.1122) on a lower than expected reading on German IFO Business Climate report and the pound ($1.2488 - $1.2463) as  Johnson’s cabinet reshuffle reinforced the  possibility of a no-deal Brexit.  Gold rebounded later during European time to its high of $1427.75, lifted by softness in global bond yields (US 10-year from 2.05% - 2.025%, German 10-year to record low -0.403%) and a modest retreat in the DX (97.63).

At 7:45 AM, the ECB left rates unchanged, but hinted at cutting rates in September (The Governing Council expects the key ECB interest rates to remain at their present or lower levels at least through the first half of 2020, and in any case for as long as necessary).  The German 10-year yield sank to a fresh record low of -0.421%, while the euro plunged ($1.1101, 26-month low).  S&P futures rallied (+5 to 3025) while the US 10-year yield dipped to 2.015%.  Gold broke through resistance at $1430 (triple top 7/22, 7/23, and 7/24 highs), but was capped at $1434 (up trendline from 5/30 $1275 low, upper channel line from 6/25 $1439 high).  The metal was able to rally despite the DX advancing (97.84, 2-month high) off of the euro weakness.

At 8:30 AM, much stronger than expected reports on US Jobless Claims (206k vs. exp. 217k) and Durable Goods (1.2% vs. exp. 0.2%) took S&P futures higher (+8 to 3028, record high), and brought the US 10-year yield back to 2.04%.  The DX rose further to 97.92, and gold backed off its high to $1428.

Shortly afterward, Draghi was less dovish than expected at his press conference (said there was no discussion of a rate cut today, any cut would come with mitigating measures, labor market continues to improve, little risk of recession, lack of details - hint that the Governing Council may not be fully on board).  The euro rallied back sharply ($1.1188) and the German 10-year yield climbed back to -0.331%.  S&P futures sold off (-17 to 3004) while the US 10-year yield snapped back up to 2.083% - with the probability of a 50bp Fed rate cut next week declining from 23% to 20% (stronger data and less dovish ECB). The DX fell (97.49), but gold also declined - taking its cue from the increase in rates.  It tumbled through last nightly low to reach $1415, where support at $1414-16 (triple bottom - 7/18, 7/23, and 7/24 lows) held.  However, as we’ve seen time and again in recent months, dip buying brought the market back up to the $1420-22 level. 

Later in the morning, US equities pared losses (S&P -4 to 3015), with a gains in Facebook and 3M on stronger earnings reports leading the comeback.  The 10-year yield rose to 2.097% (1-week high), and the DX bounced to 97.68.  Gold retreated in response, but found support at $1417. 

Into mid-day, stocks turned back down (S&P -16 to 3003), with losses in the Energy and Materials sectors leading the decline.  A retreat in oil from earlier morning highs (WTI from $56.95 - $56.12) contributed to the move.  The 10-year yield pulled back to 2.067%, but the dollar remained on the rebound (DX to 97.80) – as the euro retreated back to $1.1145.  Gold was caught in the cross currents and moved lower to $1416. 

Equities pared some losses into the afternoon (S&P -11 to 3007), while the 10-year bond yield edged up to 2.088%.  The DX rose  to match its earlier morning high at 97.92, and pressed gold lower.  Gold took out support at $1414 (triple bottom - 7/18, 7/23, and 7/24 lows) to reach $1411 – a 1-week low. 

Later in the afternoon, US stocks moved modestly lower (S&P finished off 16  to 3004), while the 10-year yield hovered around 2.075%.  The DX dipped to 97.77 before a modest bounce to 97.82.  Gold bounced to $1417 before sliding back to go out at $1414 bid (off $12), but held the key triple bottom support level.  

Open interest was off 2.6k contracts, reflecting a net of short covering from yesterday’s advance.  Volume was lower but still very healthy with 397k contracts trading – inflated by the ongoing Aug-Dec contract rollover.  

Bulls were disappointed with gold’s $12 pullback today, especially after seeing an early breach of resistance at $1430 and with the decline in US stocks.  However, other bulls were relieved that the decline wasn’t steeper given the increase in the US 10-year bond yield to a 1-week high and a firmer DX, and used the dip to get long(er).  While the triple bottom support at $1414 was breached intraday, bulls were pleased that it held on the close. The bulls remain encouraged with gold’s sharp advance that 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 20% chance for a 50bp cut, an 83.8% chance of 2 hikes by the October meeting, and a 54.3% 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 will continue to impede global growth,  will put downward pressure on interest rates (US 10-year made fresh 32-month low three 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 (fired another 2 missiles last night) - 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 $12 retreat today.  However, they were disappointed that the $1414 support level that was breached intraday failed to hold on the close, and remain wary of bulls using opportunities of dips to buy aggressively.  Bears continue to see gold as an overbought market that has risen $183 (14.4%) from the 5/20 $1270 low and expect a more 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 with the ECB not as dovish as expected today, 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 (today’s weak German IFO) and the Eurozone (yesterday’s misses on Eurozone PMIs) that drove the German 10-year yield further into negative territory over the past months (German record low bund yield today ago -0.421%) 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  support at the following levels can be breached:  $1414 ($1414-16  – triple bottom - 7/18, 7/23, and 7/24 lows),  $1400 - 01 (triple bottom – 7/11, 7/16, and 7/17 lows), $1381-84 (triple bottom – lows 6/24, 7/1, and 7/2, lower channel line from 6/21 $1383 low) and $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 CPI, Germany’s Import Prices, ECB Survey of Forecasters, US Q2 GDP, Personal Consumption, Core PCE, Baker Hughes Rig Count, and the Commitment of Traders Report for near term guidance. 

 

In the news:

Italian central bank sitting on potentially huge gold profit:   https://uk.reuters.com/article/uk-italy-cenbank-gold/italian-central-bank-sitting-on-potentially-huge-gold-profit-study-idUKKCN1UK29N?rpc=401&

Advancements in China’s gold buy-back market:   https://www.gold.org/goldhub/gold-focus/2019/07/advancements-chinas-gold-buy-back-market

Euro rallies, but outlook stays bleak as ECB easing in focus:   https://www.cnbc.com/2019/07/25/forex-markets-euro-european-central-bank-in-focus.html

 

YTD Performance


12/31/2018

7/25/2019

Change
% Change
Gold


1282.5

1414

131.5

10.253%

DX


96.06

97.80

1.74

1.811%

S&P


2505

3004

499

19.920%

JYN


109.63

108.63

-1

-0.912%

Euro


1.1466

1.1146

-0.032

-2.791%

US 10-year bond yield


2.69%

2.075%

-0.0061

-22.748%

Oil (WTI)


45.45

55.93

10.48

23.058%

 

Resistance levels: 

$1425 – options

$1427 – 7/11 high

$1430 – triple top 7/22, 7/23, and 7/24 highs

$1434 – 7/25 high

$1434 - up trendline from 5/30 $1275 low

$1434 – 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:

$1414-16  – triple bottom - 7/18, 7/23, and 7/24 lows

$1413– 20-day moving average

$1411 – 7/25 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

$1386 - 40-day moving average

$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

$1365 – 50-day moving average

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

$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

$1328– 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

*$1298 – 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