Jim Pogoda, Senior Gold Trader, Gold Bullion International Gold Traders’ Report - March 19, 2019
JUL 5, 2019
Gold softened last night in a range of $1412 - $1423, fading strength in the US dollar. The DX rose from 96.71 – 96.98, helped weakness in the yen (107.75 – 108.17, risk on mood), pound ($1.2585 - $1.2539, weaker UK Unit Labor Costs), and euro ($1.1288 - $1.1255, weaker German Factory Orders, German 10-year yield to -0.403%). Global equities were little changed ahead of this morning’s US Payroll Report with the NIKKEI up 0.2%, the SCI was up 0.2%, European markets were off from 0.2% to 0.3%, and S&P futures were off 0.1%.
At 8:30 AM, the highly anticipated US Payroll Report was much stronger than expected. Non-Farm Payrolls increased by 224k, well over the official estimates of 160k, and much higher than the weaker whisper numbers (120-130k) after the paltry ADP Report on Wednesday (102k). This overshadowed a slight miss in Average Hourly Earnings (0.2% vs. exp. 0.3%), and minor (11k) downward revisions to the last two months of employment gains. After this, FedWatch lowered the probability for a 50bp rate cut at the July meeting from 29.2% to just 1.8% (however, it still kept the probability of a 25bp cut at 100%). It lowered the chances of two 25bp cuts by the October meeting to 79.9% from 86%, and cut the probability of 3 25bp cuts by the December meeting to 45.4% from 61.2%.
S&P futures tumbled (-17 to 2983, hopes of the Fed acting aggressively to lower rates dented) while the US 10-year bond yield soared to 2.048%. The DX continued to strengthen, and tripped some buy stops over 97 and 97.09 (100-day moving average) to reach 97.27 (2-week high). Gold fell sharply, triggering some sell stops under $1412 (double bottom 6/25 and 7/3 lows), $1400, and $1398 (up trendline from 5/30 $1275 low) to reach $1391. A fair amount of long liquidation was seen.
US stocks continued to soften through their open and into the mid-morning hours (S&P -27 to 2968) – despite a rally in oil (WTI to $57.70) - with losses in the Industrials, Real Estate, Utilities, Materials and Consumer Staples leading the decline. The 10-year bond yield climbed further (2.068%, 1-week high), as did the DX (97.45). Gold continued to trade lower, but found support at $1387.
Into mid-day, US stocks had a modest recovery (S&P -15 to 2980), helped by some comments by Trump (if Fed lowered rates, US economy would be like a rocket ship), and some dovishness in the Fed’s semi-annual report to Congress (repeated pledge to act as appropriate to sustain the expansion) – ignoring some of the Fed’s hawkish remarks (labor market strong, recent weak inflation due to transitory influences). The 10-year yield edged down to 2.044%, and the DX retreated to 97.27. Gold bounced in response amid some decent bargain hunting buying (as we’ve seen on many pullbacks recently), and clawed back over the trendline at $1398 to reach $1400.
In the afternoon, equities continued to pare losses (S&P -1 to 2994), with a gain in the Financial sector leading the comeback. The 10-year yield slipped further (2.049%), but the DX stabilized between 97.30-35. Gold moved lower, but in a choppy fashion, trading between $1395-$1399.50.
Later in the afternoon, US stocks edged lower (S&P finished - 5 to 2990), while the 10-year yield hovered around 2.04%. The DX ticked down to 97.23, and gold was able to finish at $1400 bid with a loss of $22 – but above the key up trendline at $1398.
Open interest was off 1.3k contracts, showing a net of long liquidation from Tuesday’s decline. Volume was higher with 447k contracts trading.
Bulls were ambushed by the strong Non-Farm Payroll gain this morning that dented the prospects of aggressive rate cuts by the Fed and knocked gold back to $1387. However, they were encouraged that the market was able to finish over key support at $1398 (up trendline from 5/30 $1275 low). 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 $1398 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, Mester on Tuesday, and the strong Payroll report today), 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 79.9% chance of 2 hikes by the October meeting, and a 45.4% 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 last week’s trade truce) will continue to impede global growth, will put downward pressure on interest rates (US 10-year made fresh 32-month low yesterday 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 (236k), 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 resume its rally after its modest pullback, and challenge initial resistance at $1423 -24 (double top, 7/4 and 7/5 highs) followed by $1425, and then $1436-39 (triple top – 6/25 7/2, and 7/3 highs), followed by $1446 (5/12/13 high) and $1450.
Bears cheered the strong Jobs report that was finally able to knock gold through key support at the up trendline from 5/30 $1275 low ($1398). However, they were disappointed with gold’s resilience and ability to claw back over this level at the close. Despite today’s sharp $22 selloff, bears still see a market that remains overbought. It has risen $169 (13.31%) in the past month, its 14-day RSI remains elevated at 60, and bears expect a significant pullback to continue. 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, as the Fed’s Mester commented on Tuesday, and with today’s large beat in Non-Farm Payrolls ) – 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 (broke back above its 100-day moving average 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 (today’s weak Factory Orders) and the Eurozone that drove the German 10-year yield further into negative territory over the past months (record low bund yield yesterday -0.409%) underscores this view. Bears feel a US-China trade deal is in both sides’ best interests, and feel that last week’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 it can get a close under $1398 (up trendline from 5/30 $1275 low), and then $1348 (downtrend line from 8/25/13 $1433 high).
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 Monday on China’s Foreign Reserves, Japan’s Trade Balance, Machine Orders, and Economy Watcher’s Survey, Germany’s Industrial Production and Trade Balance, Eurozone Sentix Investor Confidence, and US Consumer Credit for near term direction.
In the news:
NFP quick analysis: https://www.fxstreet.com/analysis/nfp-quick-analysis-time-for-usd-bulls-to-enjoy-the-fireworks-the-feds-cut-may-be-a-one-off-201907051253?utm_source=onesignal&utm_medium=push&utm_campaign=analysis
India raises taxes on gold for the first time in 6 years: https://indianexpress.com/article/business/commodities/india-raises-taxes-on-gold-for-the-first-time-in-six-years-5816946/
It looks like a gold bull market – Degussa: https://www.degussa-goldhandel.de/wp-content/uploads/2019/07/degussa-marktreport-engl-04-07-2019.pdf
Mobius – the place to be is in stocks and gold: https://www.bloomberg.com/news/videos/2019-07-04/mobius-the-place-to-be-is-in-stocks-and-gold-video
$1412 – double bottom – 6/25 and 7/3 lows
$1423 -24 – double top, 7/4 and 7/5 highs
$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
$1400 – options
$1398 - up trendline from 5/30 $1275 low
$1387 – 7/5 low
$1384 – 7/2 low
$1382 – 7/1 low
$1381– 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
$1352 - 50% retracement of up move from 5/2 $1266 low to 6/25 $1439 high
$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
$1342 – double top - 2/19 and 2/21 highs
$1339 - 40-day moving average
$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
$1328 – 50-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
$1314– 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
*$1283 – 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