Gold Traders’ Report - July 26, 2019

Jim Pogoda, Senior Gold Trader, Gold Bullion International 
JUL 26, 2019

Gold rebounded last night from its $12 drop yesterday, trading in a range of $1414 - $1421, with the market retaining its nervous and choppy tone.  After bouncing to $1418 during Asian hours (news of Iran launching a medium range missile supportive), gold slid back to triple bottom support at $1414 during early European hours, pressured by an advance in the US dollar (DX from 97.76 – 97.94, 2-month high).  The greenback was lifted by weakness in the euro ($1.1151 - $1.1129, a miss on German Import Prices, ECB lowers inflation forecasts for inflation and GDP) and the pound ($1.2459 - $1.2423, persistent fears of no-deal Brexit under Johnson).  Mostly firmer global equities were also a headwind for gold with the NIKKEI off 0.4%, the SCI +0.2%, European markets were up from 0.4% to 0.5%, and S&P futures were +0.3% (stronger earnings reports from Alphabet and Intel last night).  Higher oil prices (WTI from $55.81 - $56.54, ongoing tensions with Iran) were supportive of stocks.  Ahead of the NY open, however, gold rebounded to $1421 – despite the DX remaining fairly firm, with strong bargain hunting buying seen. 

At 8:30 AM, the headline US Q2 GDP Report was better than expected (2.1% vs. exp. 2.0%) as well as Personal Consumption (4.3% vs. exp. 4.0%), and the GDP Price Index (2.4% vs. exp. 1.9%).  S&P futures plunged (+3 to 3010, less chance of Fed easing aggressively), while the US 10-year bond yield climbed to 2.088%.  The DX advanced to 97.99, and gold back off to $1414, where support at the triple bottom held again.  After a closer look, a miss in the Core PCE (1.8% vs. exp. 2.0%) and a fall in Business Investment (-0.6%, worst since early ‘16) kept hopes for aggressive Fed easing alive.  S&P futures bounced (3016) while the US 10-year yield slumped back to 2.069%.  The DX pulled back to 97.85, and gold rallied, with the yellow metal taking out the overnight high to reach $1425.

US stocks strengthened from their open into mid-day (S&P +18 to 3021), with strong gains in the Communication Services Sector (DOJ approves TMob / Sprint merger, strong earnings from Twitter, Alphabet) leading the advance.  The 10-year yield was choppy between 2.07% and 2.085%, and the DX climbed to 98.09.  The DX was helped by some pro-dollar comments from White House Economic Advisor Kudlow (“we have ruled out any currency intervention” after meeting about ways to weaken it, claims Trump doesn’t want a weak dollar, wants the dollar to remain the world’s dominant currency).  Gold came off in response, but found support at $1417. 

Into the afternoon, equities continued to firm (+12 to 3024), while the 10-year yield hovered around 2.075%, but the DX pulled back to 98.01.  Gold was caught in the cross currents and moved a tad higher to $1419.50.  

Later in the afternoon, US stocks added to their gains (S&P finished + 22 to 3026, record close), while the 10-year bond yield traded between 2.075% - 2.08%.  The DX was either side of 98, and gold slipped back to $1416, and was $1417 bid at 4PM with a $1 gain.

Open interest was off 20.4k contracts, showing a sizeable chunk of long liquidation from yesterday’s decline.  Volume ballooned with 633k contracts trading, but was inflated by the ongoing Aug-Dec contract rollover.  The CFTC’s Commitment of Traders Report as of 7/23 showed the large funds adding 2.3k contracts of longs and trimming 3.4k contracts of shorts, increasing the Net Fund Long Position to 251k contracts.  This was done on gold’s advance from $1405 on 7/16 to the $1453 6-year high on 7/18, reflecting a modest amount of new longs and short covering up to that high.    This 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  (312k contracts) can hasten and exaggerate downside moves – if  / when the longs are forced to liquidate. 

Bulls were pleased with gold’s ability to advance today – despite the strength in stocks and the firmer dollar.  They were encouraged that gold was able to hold above key support at $1414 ($1414-16  – quadruple bottom - 7/18, 7/23, 7/24 and 7/26 lows), and that dips continued to be bought. The bulls remain ecstatic 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 next week’s meeting with a 19% chance for a 50bp cut, an 82.2% chance of 2 hikes by the October meeting, and a 52.9% 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 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 (missile fired last night) and North Korea (fired another 2 missiles Wednesday night) - as another tailwind for gold.  Bulls will look for the market to resume its rally, and expect a retest of initial resistance at $1434 (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 soften today and how well the $1414 level was defended by the bargain hunters - given the stronger GDP, the significant advance in US stocks, and the DX reclaiming the 98 handle. 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 yesterday, 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 (regained 98 handle today, up 2.35% in the past month) 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 Import Prices) and the Eurozone (ECB’s downgrade of inflation and growth today) that drove the German 10-year yield further into negative territory over the past months (German record low bund yield yesterday -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), $1380-84 (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 Monday on Japan’s Retail Sales, UK Consumer Credit,  and the US Dallas Fed’s Manufacturing Activity Index for near term guidance. 

 

In the news:

Gold deal ends among European central banks:   https://www.seattletimes.com/business/gold-deal-expires-as-sales-by-european-central-bank-dwindle/

Gold gains as US inflation offsets GDP:   https://in.reuters.com/article/global-precious/gold-crawls-up-on-rate-cut-bets-focus-on-u-s-gdp-data-idINKCN1UL0E5?rpc=401&

China’s June net import via Hong Kong slump to 9-month low: https://af.reuters.com/article/commoditiesNews/idAFL4N24Q2M8

Precious metals trader pleads guilty with feds in spoofing probe:   https://www.cnbc.com/2019/07/25/ex-scotia-capital-bear-stears-metals-trader-guilty-in-spoofing-case.html

 

YTD Performance


12/31/2018

7/26/2019

Change
% Change
Gold


1282.5

1417

134.5

10.487%

DX


96.06

98.00

1.94

2.020%

S&P


2505

3026

521

20.798%

JYN


109.63

108.64

-0.99

-0.903%

Euro


1.1466

1.1131

-0.0335

-2.922%

US 10-year bond yield


2.69%

2.075%

-0.0061

-22.748%

Oil (WTI)


45.45

56.13

10.68

23.498%

 

Resistance levels: 

$1425 – options

$1425 – 7/26 high

$1427 – 7/11 high

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

$1434 – 7/25 high

$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  – quadruple bottom - 7/18, 7/23, 7/24 and 7/26 lows

$1415– 20-day moving average

$1414 – up trendline from 5/30 $1275 low

$1411 – 7/25 low

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

$1400 – options

$1390 – 7/10 low

$1388 - 40-day moving average

$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

$1365-67– triple top – 8/2/16, 1/25/18 and 4/11/18 highs

$1367 – 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

$1330– 100-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

$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

*$1299 – 200-day moving average

*$1296 – 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