Gold Traders’ Report - July 3, 2019

Jim Pogoda, Senior Gold Trader, Gold Bullion International 
JUL 3, 2019

Gold remained nervous and choppy last night, trading in a range of $1413 – 1438.  It spiked higher during early Asian hours to its $1438, high breaking through resistance at $1425 (6/24 and 6/28 highs, options strike) where resistance in front of $1439 (6/25 high) capped the advance.   The move was fueled by a further decline in global bond yields (US 10-year from 1.977% to 1.941% (fresh 32-month low, German 10-year Bund to -0.399% - all time low, UK 10-year Gilt to 0.67% - 33 month low).  A slight pullback in the US dollar (96.78 – 96.67) aided the move, which was pressured by strength in the safe-haven yen (107.90 – 107.52).  Gold retreated during later Asian and European time to $1415, hurt by firming of European stocks (up from 0.7% to 0.8%, cheering nomination of dovish Lagarde to head ECB) and S&P futures (+0.3%, upbeat comments on US-China trade from White House Trade Advisor Navarro), a bounce in the US 10-year bond yield (1.96%), and a rebound in the DX (96.88).  The dollar was helped by weakness in the euro ($1.1295 - $1.1267, record low German bund yields), and the pound (German Ambassador to Britain Wittig says withdrawal agreement will stand as is, miss on UK Services PMI).  

A lower than expected ADP Jobs report at 8:15 AM (102k vs. exp. 140K) was followed shortly afterward by weaker readings on Jobless Claims (221k vs. exp. 220k) and the Trade Balance (-$55.5B vs. exp. -$53.4B) which knocked S&P futures lower (+3 to 2982), and tugged the 10-year yield back to 1.955%.  The DX retreated to 96.64, and gold recovered to $1421. 

US stocks opened firmer, helped by a better than expected reading on Markit Services PMI (51.5 vs. exp. 50.7).  The 10-year yield edged up to 1.967%, and the DX ticked up to 96.71.  Gold softened in response, falling to $1412 where support from the old resistance level held. 

Later in the morning, misses on ISM Services (55.1 vs. exp. 56) and Factory Orders (-0.7% vs. exp. -0.5%) along with a drop in oil (WTI to $56.10, smaller than expected draw in US oil inventories) caused a slight brief dip in US stocks (S&P +7 to 2980) while the 10-year yield fell back to 1.946%.  The DX slipped to 96.54, and gold popped back up to $1421. 

US stocks rallied into the 1PM holiday shortened session close (S&P finished +23 to 2996, record high close), helped by a tweet from Trump calling for lower rates (he nominated another 2 doves to the Fed in Christopher Waller and Judy Shelton).  The 10-year yield remained soft between 1.945% - 1.955%, while the DX improved to trade between 96.75 – 96.83 -  and held above its 200-day moving average at 96.71.  Gold retreated to $1415, and traded narrowly between $1415-17.  It was $1416 bid at 1PM with a loss of $9. 

Open interest was up 14.8k contracts, showing a net of new longs from yesterday’s recovery rally.  Volume was higher with 423k contracts trading. 

Bulls were thrilled with gold’s continued rebound last night that got the market within a whisker of making a fresh 6-year high over the $1439 top from 6/25 – but they’re a bit disappointed the gains failed to hold.  However, they’re encouraged that support at $1412 held – despite today’s strength in equities and the stability in the US dollar.  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 (key uptrend line from the 5/30 $1275 low now at $1389 continues to hold).  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, and Mester yesterday), 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, an 86% chance of 2 hikes by the October meeting, and a 60.3% 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,  will put downward pressure on interest rates (US 10-year made fresh 32-month lows today 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 and Iran - as another tailwind for gold.  Bulls also point to last 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 $1436-39 (triple top – 6/25 7/2, and 7/3 highs), followed by $1446 (5/12/13 high) and $1450.

Bears were encouraged that gold’s early advance was repelled at $1436-39 last night, and that the market finished below the key $1425 level.  While many bears were stopped out yesterday, 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 6/25 $1439 high to Monday’s $1382 low.  It has risen $169 (13.31%) in the past month, its 14-day RSI is back to an elevated 67, and bears expect a significant pullback to ensue. 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, and Mester checked yesterday) – 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 again 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 that drove the German 10-year yield further into negative territory over the past months (record low bund yield today -0.399%) 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 $1389 (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 Eurozone Retail Sales and Germany’s Construction PMI followed by reports Friday on Japan’s Household Spending and Leading Index, German Factory Orders,  and US Employment for near term guidance. 

 

In the news: 

Ross Norman – gold price action suggest epic events close by:   https://www.zerohedge.com/news/2019-07-03/ross-norman-gold-price-action-suggest-epic-events-close

High prices fail to dampen gold imports in June:   https://www.asianage.com/business/in-other-news/030719/high-prices-fail-to-dampen-gold-imports-in-june.html

 

YTD Performance


12/31/2018

7/3/2019

Change
% Change
Gold


1282.5

1416

133.5

10.409%

DX


96.06

96.79

0.73

0.760%

S&P


2505

2996

491

19.601%

JYN


109.63

107.86

-1.77

-1.615%

Euro


1.1466

1.1279

-0.0187

-1.631%

US 10-year bond yield


2.69%

1.953%

-0.0073

-27.290%

Oil (WTI)


45.45

56.75

11.3

24.862%

 

Resistance levels: 

$1425 – 6/28high

$1425 – options

$1436-39 triple top – 6/25 7/2, and 7/3 highs

$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 bottom – 6/25 and 7/3 lows

$1400 – options

$1389 - up trendline from 5/30 $1275 low

$1384 – 7/2 low

$1382 – 7/1 low

$1374– 20-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

$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

$1333 - 40-day moving average

$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

$1323 – 50-day moving average

$1312– 100-day moving average

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

$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

*$1287 – up trendline from 8/16/18 $1160 low

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

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

*$1281 – 200-day moving average

$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