Gold Traders’ Report - June 11, 2019

Jim Pogoda, Senior Gold Trader, Gold Bullion International 
JUN 11, 2019

Gold continued to soften last night, sliding in a range of $1329.90 - $1320.  Some light stops were hit under $1325 (double bottom – 6/5 and 6/10 lows, options) on the way to the low of $1320, where support at the 6/4 low held.  Gold faded strength in global equities, which were boosted by news last night that China was providing fresh stimulus for its slowing economy by allowing local governments to use proceeds from special bonds to finance infrastructure projects.  The NIKKEI was up 0.3%, the SCI rallied 2.6%, European markets rose from 0.5% to 1.3%, and S&P futures were +0.5%.  Equities were aided by firmer oil prices (WTI from $53.32 - $53.97), which were lifted by China’s easing measure along with Russia signaling it may support the extension of OPEC – non OPEC supply cuts.  Gold was also weighed by a higher US 10-year bond yield (2.14%-2.178%, 2-week high) and a modest uptick in the US dollar (DX from 96.68 – 96.83).  The dollar was buoyed by a weaker yen (108.32 – 108.78, risk on) and euro ($1.1317 - $1.1304, weaker Eurozone Sentix Investor Confidence) overcoming a firmer yuan (6.927 – 6.9078) and pound ($1.2670 - $1.2728, upbeat UK employment and earnings data).

Just ahead of and through the NY open, comments from Trump pining yet again for lower rates and a lower dollar  - especially citing the euro as devalued and putting the US at a big disadvantage -  overshadowed a mixed US PPI report.  Headline PPI was 0.1% as expected while it was hotter than expected excluding food, energy and trade (0.4% vs. exp. 0.2%), but there was a slight miss on year over year (1.8% vs. exp. 1.9%).  The euro firmed ($1.1326), and the DX slipped back to 96.71.  S&P futures continued to improve (+18 to 2907), and the 10-year bond yield slipped to 2.15%.  Gold came off its low, but found resistance at the prior support level of $1325. 

After opening stronger, US stocks trimmed gains during the late morning hours (S&P +4 to 2890), with a pullback in oil (WTI to $53.22) contributing to the move.  The 10-year bond yield hovered around 2.155%, while the DX edged up to 96.82.  Gold was caught in the cross currents, but traded a tad higher, breaching back above $1325 to reach $1326.75. 

US stocks weakened further into mid-day, with gains turning into losses (S&P -6 to 2880).  Stocks were hurt by comments from Commerce Secretary Ross (rules out definitive trade deal at Trump-Xi G20) and with the reversal of an early morning rally from the IT sector.  The 10-year yield ticked down to 2.138% while the DX edged lower to 96.69.  Gold probed higher, touching $1328.50. 

In the afternoon, equities had a modest bounce back into positive territory (S&P +5 to 2891), but finished down 1 at 2886.   The 10-year yield recovered to 2.148%, while the DX edged up to 96.72.  Gold ticked down to $1326 and was $1326 bid at 4PM with a loss of $2.  

Open interest was off 2.1k contracts, showing a net of long liquidation from yesterday’s decline.  Volume was much lower but still decent with 242k contracts trading. 

Bulls were pleased with gold’s rebound today, bouncing back from $1320 to finish over the key $1325 level.  They 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 76.8% probability of a 25 bp cut at the July meeting, a 62.6% chance of a 2nd 25 bp cut at the October meeting, with a 42% 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 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 to the long side 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 will take today’s $2 decline, but some were disappointed that gold rebounded past the key $1325 level later in the session, and remain concerned with the yellow metal’s recent strength and resilience.  While many bears were stopped out in recent sessions, other bears with stronger hands used gold’s bounce in the past week 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 over the past two sessions, its 14-day RSI remains elevated (64.7) and toward overbought.  While some bears acknowledge a growing concern over lower rates – both the in the long end (10-year near 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 ,and as Goldman is forecasting the 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 =36.6) 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 Japan’s Machine Orders, China’s CPI, PPI, New Yuan Loans, and Foreign Direct Investment, US CPI, Real Earnings, Oil Inventories, and comments from the ECB’s Draghi and Guindos for near term guidance. 

In the news: 

China stimulus – Reuters:   https://www.reuters.com/article/usa-stocks/us-stocks-futures-gain-on-china-stimulus-tariff-relief-idUSL4N23I32J

China upping the ante in gold reserves:   https://www.sharpspixley.com/articles/lawrie-williams-china-upping-the-ante-in-gold-reserves_293557.html

Heraeus - Silver short covering rally underway, but can it continue?: https://www.heraeus.com/media/media/hpm/doc_hpm/precious_metal_update/en_6/Appraisal_20190611.pdf

Gold technical analysis – rejected at fresh long term resistance: https://www.fxstreet.com/news/gold-technical-analysis-rejected-at-fresh-long-term-resistance-201906102237

Murenbeeld and Co - Fed cannot fix indecision trap, gold price to push higher:   https://www.kitco.com/news/2019-06-11/The-Fed-Cannot-Fix-Indecision-Trap-Gold-Price-To-Push-Higher-Murenbeeld-Co.html

 

YTD Performance


12/31/2018

6/11/2019

Change
% Change
Gold


1282.5

1326

43.5

3.392%

DX


96.06

96.72

0.66

0.687%

S&P


2505

2886

381

15.210%

JYN


109.63

108.51

-1.12

-1.022%

Euro


1.1466

1.1327

-0.0139

-1.212%

US 10-year bond yield


2.69%

2.147%

-0.0054

-20.067%

Oil (WTI)


45.45

53.31

7.86

17.294%

 

Resistance levels: 

$1327-30 – triple top, 6/3, 6/4, and 6/11 highs

$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:

$1325 – options

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

$1320 – double bottom 6/4 and 6/11 lows

$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

$1300 – 20-day moving average

$1300– 100-day moving average

$1299 – 5/16 high

$1292 – 50-day moving average

$1291 - 40-day moving average

$1289 – down trendline from 2/20 $1347 high

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

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

$1279 – 5/29 low

*$1278 – 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

*$1266 – 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