Gold Traders’ Report - July 8, 2019

Jim Pogoda, Senior Gold Trader, Gold Bullion International 
JUL 8, 2019

Gold firmed overnight, though retaining its choppy tone in a range of $1394.65 - $1407.65.  It rose to its $1407.65 high during Asian and early European time, fading a decline in the US 10-year bond yield (2.403% - 2.013%) and a modest pullback in the US dollar (DX from 97.29 – 97.16).  The DX was pressured by strength in the yen (108.56 – 108.28, despite dovish comments from Kuroda and miss in Japan’s Machine Orders).  Weaker global equities were also a tailwind for gold with the Friday’s robust Non-Farm Payroll gain that dampened chances for the Fed to aggressively cut rates still resonating, along with reports that Iran breached the nuclear deal for the 2nd time and a downgrade in global stocks by Morgan Stanley.  The NIKKEI was down 1%, the SCI fell 2.6%, European markets were off from 0.1% to 0.3%, and S&P futures were -0.2%.  Lower oil prices (WTI from $57.75 - $57.30) weighed on stocks.  Later during European time, gold was pressured down to $1403 (up trendline from 5/30 $1275 low) as S&P futures pared losses (2988), the 10-year yield rebounded to 2.039%, and the DX bounced to 97.33.  The DX was helped by a retreat in the euro ($1.1234 - $1.1212, miss in German Industrial Production and Eurozone Sentix Investor Confidence, ECB’s Coeure says accommodative policy is needed more than ever), and the pound ($1.2540 - $1.2507, political uncertainty with Brexit), and a tumble in the Turkish lira (5.6258 – 5.7842) after President Erdogan sacked the central bank governor.  

US stocks opened weaker (S&P -18 to 2972), hurt by a downgrade of Apple shares and Boeing losing a $6B order to rival Airbus, with losses in the Health Care, IT, and Communication Services weighing.  The US 10-year bond yield softened to 2.013%, but the DX firmed (97.35) off of continued weakness in the euro ($1.1209) and sterling ($1.2498).  Gold was caught in the cross currents and traded lower, finding support at $1395.50, ahead of the overnight low. 

During the later morning hours, equities had a modest rebound (S&P -12 to 2978), while the 10-year yield edged up to 2.036%.  The DX continued to climb (97.42), and gold slid further, taking out its overnight low to reach $1394.  

Into mid-day, US stocks drifted a little lower (S&P -20 to 2970) while the 10-year yield ticked down to 2.023%.  The DX pulled back to 97.32, and gold had a modest bounce to $1399.

Later in the afternoon, US stocks pared some losses (S&P finished -14 to 2976), and the 10-year yield made its high for the day at 2.049%.  The DX edged back up to match its previous high at 97.42, and gold retreated to $1392.  Gold was $1392 bid at 4PM with a loss of $7.  

Open interest was off - but only by 5.2k contracts - showing a net of long liquidation from Friday’s $22 drop, but with a fair amount of new shorts and new bargain hunting longs as well.  Volume exploded with 614k contracts trading.  The Commitment of Traders Report as of 7/2 showed the large funds adding 14.6k contracts of longs and cutting 7.8k contracts of shorts.  This was done during gold’s selloff from $1439 on 6/25 to $1382 on 7/1, and sharp rally back to $1438 on 7/2.  This reflects another sizeable chunk of new longs piling in along with some profit taking and then covering from shorts.  The Net Fund Long Position rose from 236k contracts to 259k contracts, but since then, some profit taking from longs has been seen, which has probably reduced this position to around 240 contracts, while gross shorts probably have moved back above 60k contracts.  While this adjusted NFLP is getting fairly sizeable, the long side of gold cannot be labeled a crowded trade – yet – and therefore shouldn’t be an  impediment for further upside gains.  However, the swelling of gross longs (now over 300k contracts to 312k) cannot be ignored, and it can hasten and exaggerate downside moves when they are forced to liquidate. 

Bulls were disappointed with gold’s failure to hold gains made overnight – despite the pullback in equities and a modest uptick in the US dollar.  Bulls were also dismayed that the up trendline from the 5/30 $1275 low (at $1403) failed to hold, which leaves the yellow metal vulnerable for further selling.  Despite this, bulls remain ecstatic with gold’s sharp $169 (13.31%) rally from the $1270 low on May 21 to the $1439 6-year high on 6/25.  Bulls are comfortable with a further consolidation, and allows them an opportunity to get long(er) at better levels.  With the further dovish lean from Powell and the Fed recently (though there were some mildly hawkish items from Powell and Bullard two weeks back and from Mester last Tuesday, and the strong Payroll report Friday), 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, a78.1% chance of 2 hikes by the October meeting, and a 45.6% 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 the trade truce achieved at the G20) will continue to impede global growth,  will put downward pressure on interest rates (US 10-year made fresh 32-month low last week 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 will look for the market to resume its rally after the 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 were pleased with gold’s pullback today, and encouraged that it finished below the key up trendline from the 5/30 $1275 low ($1403).  However, they remain disappointed with gold’s resilience and its ability to find buying on dips.    Despite the sharp $29 selloff in the past two sessions, 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 57, 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 Daly and Mester recently alluded to, and with Friday’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 Friday, up (1.68%) in the past 9 sessions), 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 (today’s miss on German Industrial Production and Eurozone Sentix Investor Confidence) that drove the German 10-year yield further into negative territory over the past months (record low bund yield last week -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 look for gold to continue its decline, and expect some significant long liquidation selling to materialize if it can get a close under $1382-84 (triple bottom – lows 6/24, 7/1, and 7/2) 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 tomorrow on China’ New Yuan Loans, Japan’s Machine Tool Orders, US NFIB Small Business Optimism, JOLTS Job Openings, and comments from the Fed’s Bullard and Bostic for near term direction. Looming ahead Wednesday and Thursday is Powell’s semi-annual testimony to Congress.  

 

In the news:

China’s gold hoard swells:   https://www.investing.com/news/commodities-news/chinas-gold-hoard-swells-1917102

Gold price forecast – bullish momentum abates ahead of Powell testimony: https://www.dailyfx.com/forex/fundamental/us_dollar_index/daily_dollar/2019/07/08/Gold-Price-Forecast-Bullish-Momentum-Abates-Ahead-of-Powell-Testimony.html

Gold price faces some headwinds but prospects remains bullish:   https://www.sharpspixley.com/articles/lawrie-williams-gold-price-faces-some-headwinds-but-prospects-remains-bullish_294293.html

H1 China gold demand lowest for 5 years:   https://www.sharpspixley.com/articles/lawrie-williams-2019-h1-china-gold-demand-lowest-for-five-years_294327.html

 

YTD Performance


12/31/2018

7/8/2019

Change
% Change
Gold


1282.5

1392

109.5

8.538%

DX


96.06

97.42

1.36

1.416%

S&P


2505

2976

471

18.802%

JYN


109.63

108.76

-0.87

-0.794%

Euro


1.1466

1.1209

-0.0257

-2.241%

US 10-year bond yield


2.69%

2.049%

-0.0064

-23.716%

Oil (WTI)


45.45

57.45

12

26.403%

 

Resistance levels: 

$1400 – options

$1403 - up trendline from 5/30 $1275 low

$1408 – 7/8 high

$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

$1437 -  down trendline from 6/25 $1439 high

$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:

$1392 – 7/8 low

$1387 – 7/5 low

$1385– 20-day moving average

$1382 -84 – triple bottom – lows 6/24, 7/1, and 7/2

$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

$1342 - 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

$1330 – 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

$1315– 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

*$1288 – 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

*$1284 – 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