Gold Traders’ Report - June 10, 2019

Jim Pogoda, Senior Gold Trader, Gold Bullion International 
JUN 10, 2019

Gold sold off last night, sliding in a range of $1337.75 - $1325.15.  It tripped some sell stops under $1330 (Friday’s low) and $1327 (6/6 low) to reach its $1325.15 low, where support ahead of $1325 (6/5 low, options) held.  The yellow metal was pressured by the announcement on Friday night that Trump would not impose the threatened 5% tariffs on Mexican exports after Mexico agreed to strengthen its immigration enforcement - which rallied global equities.  The NIKKEI was up 1.2%, the SCI gained 0.9%, European markets were up from 0.3% to 0.8%, and S&P futures were up 0.4%.  Stocks were also helped by comments from Mnuchin last night saying his talks with PBOC’s Governor Yi Gang were “constructive”, and firmer oil (WTI from $53.98 - $54.84, Saudis say close to deal between OPEC and non-OPEC to extend production cut agreement).  Gold was also weighed by an increase in the US 10-year bond yield (2.112% to 2.145%) - which had been bouncing around near 21-month lows – and strength in the US dollar (DX from 96.67 – 96.92).  The greenback was lifted by a softer yen (108.16 – 108.72, dovish remarks from the BOJ’s Kuroda, soft Japanese GDP Price Index, Business Spending and Economy Watchers Survey), yuan (6.9056 – 6.9346, large miss on Chinese imports), euro ($1.1324 - $1.1290), and pound ($1.2728 - $1.2653, miss on UK GDP, Industrial Production, all leading candidates for the next British PM pursuing a pledge to leave the EU on 10/31 – even without a deal). 

Just ahead of and through the NY open, some upbeat comments from Trump on US-China trade (China is going to make a deal because they have to), and lowering US interest rates lifted S&P futures (+16 to 2891), and took the 10-year yield down to 2.119%.  The DX slipped to 96.74, and gold bounced to $1330. 

US stocks opened stronger and firmed into mid-day (S&P +32 to 2905), with gains in the Consumer Discretionary, IT, and Financials sectors leading the rally.  The 10-year yield climbed back to 2.143%, but the DX was choppy between 96.74 – 96.74.  Gold traded lower in response to $1325, where support at the overnight low and former resistance level held. 

Into the afternoon, US stocks trimmed some gains (S&P +12 to 2886), with a decline in oil weighing (WTI to $53.05, still no agreement on extending output cutting deal), while the US 10-year bond yield edged down to 2.131%.  The DX dipped to 96.68 (found support at the overnight low), and gold popped up to $1329.50. 

Later in the afternoon, US stocks went out near their lows, but held on to most of the day’s gains (S&P +13 to 2886 ).  The 10-year yield made its intraday high at 2.147%, while the DX edged up to 96.78.  Gold retreated to $1327.25, and became steady between $1327.25 and $1328.50.  Gold was $1328 bid at 4PM with a loss of $12. 

Open interest was up 8.4k contracts, showing a net of new longs (outstripping the short covering seen) from Friday’s rally.  Volume surged with 344k contracts trading. 

Bulls were disappointed with the magnitude of gold’s decline today, given the moderate (20 bp) advance in the DX.  However, bulls remain encouraged that gold has held above key resistance levels at $1307 (50% retracement of down move from 2/20 $1347 high to 4/23 $1266 low), $1309-12 (triple top – 3/28, 4/10 and 4/11 highs), $1319 (3/27 high), $1322 (3/26 high), and $1325 (options, 3/25 high).  Bulls feel the move down from the $1304 high to $1270 two weeks ago was overdone, and used the dip to get long(er) at more attractive levels. Despite Powell’s brush off of recent weak inflation data as transitory last month - bulls feel that the Fed’s dovish pivot has not been altered, and that market perceptions that the next move(s) will certainly be a cut and not a hike are still intact and increasing – especially after Powell’s comments last Tuesday (Fed will act as appropriate to sustain the expansion), the abundance of dovish commentary from the several Fed governors who have spoken in recent days, and after Friday’s soft jobs report (FedWatch now has a 82.7% probability of a 25 bp cut at the July meeting, a 66.8% chance of a 2nd 25 bp cut at the October meeting, with a 46.2% probability of a 3rd 25bp cut at the December meeting, US 10-year yield hovering near 21-month lows).  In addition, bulls feel escalating fears / uncertainty of a protracted trade war with China will impede global growth.  This they feel will keep US interest rates from climbing, keep the US dollar in check, and allow gold to probe higher.  Bulls also point to Friday’s Commitment of Traders Report (as of 6/4) that showed the large funds with a still relatively low – moderate net long position (156k), and a still relatively high gross short position (84k contracts).  Therefore, the bulls feel the gold market remains set up to move higher, as some funds remained sidelined / not fully committed and the shorts will provide fuel to further upside moves -  when forced to cover (as seen in recent sessions).  Bulls will look for the rally to extend, and challenge initial resistance at $1342 (double top - 2/19 and 2/21 highs), and then $1344 (6/5 high).  If bulls can get a breach of $1346-47 (double top 2/20 and  4/20/18 highs) and $1348 (down trendline from 8/25/13 $1433 high), they feel fresh momentum buying will propel the market toward the tough resistance levels of $1353-56 (triple top – 4/12/18, 4/18/18 and 4/19/18 highs), $1365-67 (triple top 8/2/16, 1/25/18 and 4/11/18 highs), and $1373-75 (double top – 7/6/16 and 7/11/16 highs). 

Bears were encouraged with gold’s decline today, but some remain concerned with its recent strength.  While many bears were stopped out in recent sessions, other bears with stronger hands used gold’s bounce in the past 7 sessions to get short(er) at better levels.  Bears see gold’s $78 rebound from its $1270 low on 5/21 to Friday’s $1348 high as overextended, and even with the pullback today,  its 14-day RSI remains elevated (65.05) and toward overbought.  While some bears acknowledge a growing concern over lower rates – both the in the long end (10-year to 21-month lows) and the short end (FedWatch predicting earlier Fed cuts), they feel that an imminent rate cut by the Fed is not in the cards (as Kaplan recently remarked, Goldman expects Fed to keep the funds rate unchanged this year), believe the market is a bit over its skis on rate cut predictions, and see the Fed’s predominant watchword “patience” as a double-edged sword.  They feel that the downward pressure on bond yields is also getting overdone, and a modest reversal should allow the oversold US dollar(14-day RSI =37) to rebound 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 month (record low bund yield Friday at -0.262%) underscores this view.  While derailed recently over fears that US-China trade talks are on the rocks, bears maintain that a deal is in both sides’ best interests, and are optimistic that an agreement will be put in place and reverse recent softness in equities.  They expect the rebound in US equities seen over the past 5 months to continue (S&P now within 1.8% of all time high made just 1-month ago), putting further pressure on the yellow metal.  Bears expect gold’s rally to make a hasty retreat, and trip sell stops below the previous resistance levels – especially below the key $1307 level (50% retracement of down move from 2/20 $1347 high to 4/23 $1266 low).

All markets will continue to focus on geopolitical events (especially Brexit news), developments with the Trump Administration (especially on US-China trade, potential legal issues), oil prices, and will turn to reports tomorrow on China’s Foreign Direct Investment, Japan’s Machine Tool Orders, UK Employment Change, Eurozone Sentix Investor Confidence, US NFIB Small Business Optimism and PPI for near term direction. 

In the news:

China’s gold reserved grow for 6th straight month:   http://www.xinhuanet.com/english/2019-06/10/c_138130482.htm

CFTC – gold speculator bets surged higher this week:   https://www.investing.com/analysis/gold-speculator-bets-surged-higher-this-week-to-highest-level-in-a-year-200429880

Economic wars and gold – Scotiabank:   https://www.gbm.scotiabank.com/content/dam/gbm/market-insights/2019/may/Macro-Update_economic-wars-%26-Gold-compressed.pdf

Breakout for gold?:   https://www.cnbc.com/video/2019/06/07/chart-points-to-massive-breakout-for-gold.html

US Mint’s gold and silver eagle sales increase from last week:   http://www.coinnews.net/2019/06/07/gold-marks-strongest-week-in-over-a-year/

Goldman says the Fed won’t cut rates this year:   https://www.cnbc.com/2019/06/10/goldman-sachs-says-the-fed-wont-cut-rates-this-year.html

 

YTD Performance


12/31/2018

6/10/2019

Change
% Change
Gold


1282.5

1328

45.5

3.548%

DX


96.06

96.75

0.69

0.718%

S&P


2505

2887

382

15.250%

JYN


109.63

108.45

-1.18

-1.076%

Euro


1.1466

1.1317

-0.0149

-1.299%

US 10-year bond yield


2.69%

2.145%

-0.0054

-20.141%

Oil (WTI)


45.45

53.32

7.87

17.316%

 

Resistance levels: 

$1327-29 – triple top, 6/3, 6/4, and 2/28 highs

$1330 – double top – 2/27 and 2/26 highs

$1330 – 6/7 low

$1333 –double top 2/22 and 2/25 highs

$1338 – 6/10 high

$1340 – 6/6 high

$1342 – double top - 2/19 and 2/21 highs

$1344 – 6/5 high

*$1346-47 – double top 2/20 and  4/20/18 highs

*$1348 – down trendline from 8/25/13 $1433 high

$1353-56 – triple top – 4/12/18, 4/18/18 and 4/19/18 highs

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

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

Support levels:

$1327 – 6/6 low

$1325 – options

$1325 – double bottom – 6/5 and 6/10 lows

$1322 -3/26 high

$1320 – 6/4 low

$1319 - 3/27  high

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

$1307 – 5/31 high

$1307 – 50% retracement of down move from 2/20 $1347 high to 4/23 $1266 low

$1304  - 5/14 high

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

$1300 – psychological level, options

$1299 – 5/16 high

$1299– 100-day moving average

$1298 – 20-day moving average

$1291 – down trendline from 2/20 $1347 high

$1291 – 50-day moving average

$1289 – double top - 5/17 and 5/30  highs

$1289 - 40-day moving average

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

$1279 – 5/29 low

*$1276 – up trendline from 8/16/18 $1160 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

*$1265 – 200-day moving average

$1259 – 12/24 low

$1254 – 12/21 low

$1253 – 50% retracement of up move from 8/16/18 $1160 low to 2/20 $1347 high

$1250 – options

$1242-43 – double bottom – 12/19 and 12/20 lows