Gold Traders’ Report - June 13, 2019

Jim Pogoda, Senior Gold Trader, Gold Bullion International 
JUN 13, 2019

Gold continued to recover last night, trading higher but in a choppy fashion in a range of $1332.40 - $1339.  The yellow metal got a boost to $1337.50 from a selloff in US equity futures during early Asian time (-13 to 2868), as the US 10-year yield slipped to 2.098% (1-week low), and the DX fell to 96.89 against a firming yen (108.53 – 108.16).  After a pullback to $1334, gold rallied to its $1339 high during early European time, where it was capped by resistance at $1338 - 40 (triple top – 6/6, 6/10 and 6/12 highs).  The move was fueled by news that 2 oil tankers were attacked in the Strait of Hormuz, which sent oil surging to $53.01.  Later during European hours, the yellow metal pulled back to $1335 against a recovery in European equities (+0.3% to +0.5%) and S&P futures (+0.4%), along with a recovery in the US 10-year bond yield (2.117%), and a rebound in the DX (97).  The dollar was lifted by a retreat in the yen (108.50), along with some weakness in sterling ($1.2701 - $1.2662, rising fears of no-deal Brexit), and the euro ($1.1304 - $1.1283).

After the NY open, market shrugged off weaker reports on US Jobless Claims (222k vs. exp. 215k) and Import Prices (YOY -1.5% vs. exp. -1.4%) and Import Prices Ex-oil (-0.3% vs. exp. -0.1%).  S&P futures (2892) and the 10-year yield (2.12%) rose, and the DX took out its overnight high to reach 97.06.  Gold slid in response, but found support at $1333.50. 

US stocks gave up opening gains through the midday hours (S&P +2 to 2882), hurt by a pullback in oil (WTI to $51.89).  The 10-year yield slid to 2.098%, but the DX (97.09) firmed further, however, buoyed by weakness in the euro ($1.1268).  Gold was caught in the cross currents but traded higher to $1340.90, where resistance again held. 

Into the afternoon, US stocks turned higher (S&P +14 to 2894), helped by a gain in Disney (Morgan Stanley upgrade) and strength in the Energy, Communication Services and Consumer Discretionary sectors.  Some upbeat comments from While House Economic Advisor Larry Kudlow (Trump to meet Xi at the G20 next week, overall economic burden hurting China more than us) contributed to the move.  The US 10-year bond yield slid further however, reaching 2.095%, but DX remained steady – and traded either side of 97.  Gold edged lower, but found support at $1339.

Later in the afternoon, US stocks pared gains (S&P +2 to 2882) after Secretary of State Pompeo blamed  Iran for the attacks on two tankers early this morning.  Oil rallied back (WTI to $52.91) while the 10-year yield sank further (2.084%).  The DX retreated to 96.96, and gold broke through resistance at $1338-40 and $1342 ($1342 – double top - 2/19 and 2/21 highs), to reach $1343. 

US stocks had a modest bounce into the close (S&P +12  to 2892), while the 10-year yield edged up to 2.096%.  The DX clawed back to 97.06, and gold came off to $1340.50.  Gold was $1341 bid at 4PM with a gain of $8.  

Open interest was up 5.9k contracts, reflecting a net of new longs from yesterday’s advance.  Volume was higher with 249k contracts trading. 

Bulls cheered today’s $8 rally, especially given the modest advance in the DX and strength in stocks.  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) and that the market is within $7 of key resistance at $1348.  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 from the prior week (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 last Friday’s soft jobs report (FedWatch now has a 84.4% probability of a 25 bp cut at the July meeting, a 74.7% chance of a 2nd 25 bp cut at the October meeting, with a 54.4% 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 (double top - 6/5 and 6/13 highs).  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 disappointed that gold was able to advance – and significantly – today, given the modest gain in the DX and the advance in equities.  This resilience continues to plague the bears, many of whom have been stopped out in recent sessions.  However, other bears with stronger hands have 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 last Friday’s $1348 high as overextended, and its 14-day RSI moved back to overbought (70.65).  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 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 last 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 65 points from its all-time high made on 5/1), 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 Fixed Asset Investment, Industrial Production, Jobless Rate and Retail Sales, Japan’s Industrial Production and Capacity Utilization, German Wholesale Price Index, US Retail Sales, Industrial Production, Capacity Utilization, University of Michigan Consumer Sentiment, Business Inventories, Baker Hughes Rig Count, Commitment of Traders, and comments from the BOE’s Carney for near term direction. 

In the news:

Gold is Tudor Jones’ favorite trade for next 12-24 months:   https://www.bloomberg.com/news/videos/2019-06-12/gold-is-paul-tudor-jones-s-favorite-trade-for-next-12-24-months-video

Russia’s gold and forex reserves exceed $500B:   https://www.rt.com/business/461787-russia-foreign-reserves-growth/

Australian dollar gold price hits record high amid doubts over production future:   https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/52280055

Gold / silver ration hits 26-year high:   https://www.bullionvault.com/gold-news/gold-silver-ratio-061220191

 

YTD Performance


12/31/2018

6/13/2019

Change
% Change
Gold


1282.5

1341

58.5

4.561%

DX


96.06

97.05

0.99

1.031%

S&P


2505

2892

387

15.449%

JYN


109.63

108.38

-1.25

-1.140%

Euro


1.1466

1.1275

-0.0191

-1.666%

US 10-year bond yield


2.69%

2.096%

-0.0059

-21.966%

Oil (WTI)


45.45

52.14

6.69

14.719%

 

Resistance levels: 

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

$1343-44 – 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:

$1338 - 40 – triple top – 6/6, 6/10 and 6/12 highs

$1333 –double top 2/22 and 2/25 highs

$1331- up trendline from 5/30 $1275 low

$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

$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

$1305 – 20-day moving average

$1304  - 5/14 high

$1301– 100-day moving average

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

$1300 – psychological level, options

$1299 – 5/16 high

$1294 - 40-day moving average

$1293 – 50-day moving average

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

$1288 – down trendline from 2/20 $1347 high

$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

*$1267 – 200-day moving average

$1265-67 – 5 bottoms - 12/25, 12/26, 12/27, 4/23, and 5/2  lows

$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