Gold Traders’ Report - July 30, 2019

Jim Pogoda, Senior Gold Trader, Gold Bullion International 
JUL 30, 2019

Gold was either side of unchanged last night, trading in a range of $1422 - $1430.  It slipped to its $1422 low during Asian time against a modest firming in S&P futures (3027), the US 10-year bond yield (2.067%), and the US dollar (DX to 98.21, fresh 2-month high).  The dollar was helped by weakness in the yen (108.73 – 108.95, BOJ’s Kuroda more positive on further easing, miss on Japan’s Industrial Production), the euro ($1.1151 - $1.1131, miss on French GDP, German Gfk off for 3rd straight month) and the pound ($1.2225 - $1.2119, 28-month lows, mounting hard-Brexit risks).  During European time, however, gold rebounded through resistance at $1425 (down trendline from 7/18 $1453 high) to reach $1430 where resistance there (triple top 7/22, 7/23, and 7/24 highs) capped the advance.  The rebound was fueled by a retreat in S&P futures (3007) and a dip in the 10-year yield to 2.046% as Trump renewed his attacks on China (China not keeping its promise of buying more US ag products…they always change the deal in the end to their benefit).  A pullback in the DX (98.01) was also a tailwind for gold with the greenback pressured by a recovery in the euro ($1.1159, beat on German CPI), the pound ($1.2190, shortcovering) and the yen (108.45, trade optimism fades on Trump comments). 

The 8:30 AM US economic data were mixed.  While Personal Income beat expectations (0.4% vs. exp. 0.3%), and Personal Spending (+0.3%) and the Core PCE (+0.2%) were as anticipated, there were misses on the PCE Deflator YOY (1.4% vs. exp. 1.5%) and the Core PCE YOY (1.6% vs. exp. 1.7%).  After ticking up to its high of $1431, gold backed off to $1425.50 as the 10-year yield edged up to 2.061% and the DX rebounded to 98.12.

After opening softer (S&P -20 to 3000), US stocks pared gains (S&P -6 to 3012) off of much stronger than expected readings on US Consumer Confidence (135.7 vs. exp. 125) and Pending Home Sales (2.8% vs. exp. 0.3%).  The US 10-year bond yield climbed to 2.067%, and the DX rose further to 98.15.  Gold slipped in response, but found support at $1425  - and as we’ve seen many time over the past months, dip buying emerged to take the market quickly back to $1429. 

Into the afternoon, US stocks edged higher (S&P -5 to 3015), with gains in the Materials, Real Estate, Consumer Discretionary and Consumer Staples sectors leading the comeback.  The 10-year bond yield continued to move up (2.074%), and the DX inched up to 98.19 - but it was unable to take out its overnight high.  Gold was pressed lower, but its downside was limited to $1427.50.

Later in the afternoon, US equities made fresh highs (S&P-3 to 3017), with a rally in oil (WTI from $56.95 - $57.78, record Chinese imports from Saudis) contributing to the move.  The 10-year yield edged down to 2.063%, and the DX fell back to its earlier low of 98.01.  Gold broke through resistance at $1430 to reach $1433, but the advance was capped in front of the 7/25 $1434 high. 

At the close, US stocks went out slightly lower (S&P -8 to 3014), and the 10-year yield ticked down to 2.056%.  The DX moved up to 98.08, and gold pulled back to $1431.  Gold was $1431 bid at 4PM with a gain of $6.  

Open interest was off 27k, showing a net of short covering and a fair amount of close outs (mostly profit taking longs not rolling) from yesterday.  Volume was lower but still very robust with 417k contracts trading – and still inflated from the August-December futures contract rollover. 

Bulls were pleased with gold’s $6 gain today, given that equities had only a slight decline, the 10-year bond yield remained north of 2.05%, and the DX held again over 98.  They’re encouraged that the yellow metal has made 3 consecutive higher lows, broke through its pennant formation at $1425 (down trendline from 7/18 $1453 high), and broke above and held above resistance at $1430.  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 on 7/18.  With the recent dovish comments from Williams (even though clarified) on top of the dovish lean from Powell’s recent testimony, bulls feel that a series of future Fed rate cuts (FedWatch still has solid 100% probability of a 25bp rate cut at tomorrow’s meeting with a 21.9% chance for a 50bp cut, a 79.9% chance of 2 hikes by the October meeting, and a 50.4% 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 - as another tailwind for gold.  Bulls will look for the market to resume its rally, and expect a retest of initial resistance at $1434 (7/25 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 surprised again with the strength of gold’s advance today, given just the slight pullbacks in the 10-year yield, US stocks, and the greenback remaining above 98.  Bears remain concerned that gold continues to attract buying on dips despite the DX making a fresh 2-month high again today and holding 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 last week, that there is some lessened uncertainty with the US-China trade truce in place – with face to face talks to resuming today, with the NY Fed having to walk back William’s hints at a 50bp cut and the recent 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 Friday, held again 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 and the Eurozone that drove the German 10-year yield further into negative territory over the past months (German record low bund yield last Thursday -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 heavy net long position) to materialize if  support at the following levels can be breached:  $1414 ($1414-16 - 5 bottoms - 7/18, 7/23, 7/24, 7/26, and 7/29 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 tomorrow on Japan’s Housing Starts, Construction Orders and Consumer Confidence, China’s PMI, Germany’s Retail Sales and Unemployment Change, Eurozone GDP and CPI, US ADP Employment Change, Employment Cost Index, Chicago PMI, Oil Inventories, and the much awaited FOMC meeting announcement and Fed Chair Powell’s Press Conference for near term direction. 

 

In the news: 

Gold extends climb, on pace for longest string of gains in 5 weeks:   https://www.marketwatch.com/story/gold-extends-climb-on-pace-for-longest-string-of-gains-in-5-weeks-2019-07-30?mod=hp_markets

How to read between the lines of the Fed’s rate cut statement:   https://www.marketwatch.com/story/how-to-read-between-the-lines-of-the-feds-rate-cut-statement-2019-07-30

Five things to watch from this week’s crucial Fed meeting:   https://www.marketwatch.com/story/five-things-to-watch-from-next-weeks-crucial-fed-meeting-2019-07-26

 

YTD Performance


12/31/2018

7/30/2019

Change
% Change
Gold


1282.5

1431

148.5

11.579%

DX


96.06

98.06

2

2.082%

S&P


2505

3014

509

20.319%

JYN


109.63

108.59

-1.04

-0.949%

Euro


1.1466

1.1156

-0.031

-2.704%

US 10-year bond yield


2.69%

2.056%

-0.0063

-23.455%

Oil (WTI)


45.45

58.08

12.63

27.789%

 

Resistance levels: 

$1433-34 – double top 7/25 and 7/30 highs

$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:

$1430-31 – triple top 7/22, 7/23, and 7/24 highs

$1428 – 7/29 high

$1425 – down trendline from 7/18 $1453 high

$1425 – options

$1422 – 7/30 low

$1419 – up trendline from 5/30 $1275 low

$1417– 20-day moving average

$1417 – up trendline from 7/9 $1386 low

$1414-16  – 5 bottoms - 7/18, 7/23, 7/24, 7/26, and 7/29 lows

$1411 – 7/25 low

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

$1400 – options

$1393 - 40-day moving average

$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

$1373-75 – double top – 7/6/16 and 7/11/16 highs

$1373 – 50-day moving average

$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

$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

$1332 – 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 – 200-day moving average

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

$1300 – psychological level, options

*$1297 – 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