Gold Traders’ Report - June 14, 2019

Jim Pogoda, Senior Gold Trader, Gold Bullion International 
JUN 14, 2019

Gold rallied sharply last night to a fresh 26 month high of $1358.40, tripping buy stops over $1342 (double top - 2/19 and 2/21 highs), $1344 (double top - 6/5 and 6/13 highs), $1346-47 (double top 2/20 and  4/20/18 highs), $1348 – (down trendline from 8/25/13 $1433 high), and $1353-56 (triple top – 4/12/18, 4/18/18 and 4/19/18 highs) – with a fair amount of short covering along with new longs seen.    It was fueled by a tumble in global bond yields (Japan’s 10-year to -0.131% - 1-week low, German Bund to -0.271% - all-time low, US 10-year to 2.06% - 1-week low) and mostly weaker global equities (NIKKEI +0.4%, SCI off 1%, European markets from -0.4% to -0.8%, and S&P futures -0.3%).  Markets were spooked by a depressing Broadcom earnings report, weaker Chinese Economic Reports on Industrial Production (17-year low) and Fixed Asset Investment, and increased tensions with Iran (US released video claiming Iran removed unexploded mine from a Gulf tanker).  Some early weakness in the US dollar (DX from 97.05 – 96.94) also aided gold’s advance, with the safe-haven yen advancing (108.40 – 108.15). Later during European time, gold pulled back to the $1353 – 55 range (but held the last resistance level) against a rebound in the DX to 97.20.  The dollar was lifted by a decline in the euro ($1.1289 - $1.1251, misses on Italian data, concerns over conflict with Italy and the EU) and the pound ($1.2680 - $1.2625, no-deal Brexit concerns). 

At 8:30 AM, the overall US Retail Sales Report was stronger than expected.  While the headline number was a slight miss (0.5% vs. exp. 0.6%), it was firmer Excluding Autos and Gas, and there were large upward revisions to last month’s report.  This was followed by a better than anticipated report on Industrial Production (0.4% vs. exp. 0.2%) and Capacity Utilization (78.1% vs. exp. 78).  S&P futures pared losses (-2 to 2891), and the US 10-year bond yield rebounded to 2.108%.  The DX surged to 97.36 (1-week high), and gold came off.  Stops were hit under the former resistance levels $1353-56 and $1348 to $1346 where support held. 

US stocks opened weaker (S&P -13 to 2879), with losses in the IT sector (fallout from Broadcom) and a slight miss in the University of Michigan Consumer Sentiment (97.9 vs. exp. 98) weighing.  The US 10-year bond yield slipped to 2.08%, and the DX edged back to 97.25.  Gold clawed higher in response, but was capped at $1352.

US stocks pared some losses into mid-day (S&P -4 to 2887), helped by an upturn in oil (WTI to $52.88).  The 10-year yield improved to 2.091%, and the DX climbed to a two-week high at 97.50.  The greenback was also aided by further weakness in the euro ($1.1206, technical selling below $1.1250), the pound ($1.2588) and the yen (108.58, haven demand dissipates).  Gold turned lower, but found support at the key $1348 level (down trendline from 8/25/13 $1433 high).

Into the afternoon, US stocks traded sideways (S&P between 2883-87), while the 10-year yield edged up to 2.094%.  The dollar continued to strengthen (97.59) however, and pressured gold through support at $1348.  Stops were hit under $1348, $1346, $1344, $1342 on the way to $1338, where support at $1338 – 40 (up trendline from 5/30 $1275 low, triple top – 6/6, 6/10 and 6/12 highs, ) finally held.  A fair amount of long liquidation was seen.  

Later in the afternoon, US stocks turned briefly positive before settling lower (S&P finished -5  to 2887 ), while the US 10-year bond yield was steady around 2.09%.  The DX remained firm around 97.55, and gold traded narrowly between $1339 - $1341.50.  Gold was $1340 bid at 4PM with a loss of $3.

Open interest was up 8.9k contracts, showing a good chunk of new longs in from yesterday’s rally.  Volume was lighter with 215k contracts trading.  The CFTC’s Commitment of Traders Report (as of 6/11) showed the large funds adding 9.6k contracts of longs and cutting 18.5k contracts of shorts.  This was done on gold’s climb from $1325 to $1348 last week - reflecting a fair amount of new longs and a significant amount of short covering during the advance.  The Net Fund Long Position surged from 156k to 184k contracts, with gross shorts slipping to 66k contracts.  In the last three sessions, a fair amount of additional short covering and new longs have been seen, which should put the NFLP north of 200k contracts, and reduce the gross shorts to under 60k contracts.  However, even this adjusted NFLP is not historically high, and the long side of gold cannot be labeled a crowded trade – yet - and gross shorts remain modestly elevated.  This still leaves the gold market well positioned to probe higher as many longs remained sidelined and the still elevated amount of gross shorts - when forced to cover - will help accelerate any upside moves. 

Bulls were certainly disappointed to see gold’s early rally to 26-month highs turn into a down day.  However, given the rally in the DX and the rebound in stocks and the 10-year bond yield, gold bulls can live with the small $3  decline today.  Moreover, 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) and that the uptrend line from its $1275 low on 5/30 is still intact.  Bulls feel the move down from the $1304 high to $1270 four 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 85.3% probability of a 25 bp cut at the July meeting, a 80.5% chance of a 2nd 25 bp cut at the October meeting, with a 58.8% probability of a 3rd 25bp cut at the December meeting, US 10-year yield remains 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 today’s Commitment of Traders Report (as of 6/11) that showed the large funds with a still relatively moderate net long position (184k), and a still significant gross short position (66k 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 today and in recent sessions).  Bulls will look for the rally to resume, 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), $1358 (today’s high), $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). 

While some bears were stopped out during gold’s early strength today, other bears with stronger hands used the rally as an opportunity to get short(er) – and were rewarded with the market’s subsequent selloff.  However, bears remain concerned with gold’s recent resilience, and its ability to advance against moderate gains in the DX and equities.  Bears see gold’s $88 rebound from its $1270 low on 5/21 to today’s $1358 high as overextended, and its 14-day RSI remains overbought (70.0).  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 recently oversold US dollar to continue 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 today at -0.271%) 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 within 2% 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 $1320 (double bottom 6/4 and 6/11 lows) and $1312 (50% retracement of up move from 5/2 $1266 low to $6/14 $1358 high).

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 Monday on Japan’s Retail Sales, Eurozone Labour Costs, US Empire State Manufacturing Index, NAHB Housing Market Index, and Net Long-term TIC Flows for near term direction.  Looming ahead Wednesday is the FOMC’s rate decision, meeting statement, and Powell’s press conference. 

In the news:

Asia gold – India discounts at 5-month high, buying picks up in China, Singapore:   https://www.reuters.com/article/asia-gold-demand/asia-gold-india-discounts-at-5-month-high-buying-picks-up-in-china-singapore-idUSL4N23L33Z?rpc=401&

Jeff Gundlach long gold:   https://www.cnbc.com/2019/06/13/bond-king-jeffrey-gundlach-i-am-certainly-long-gold.html

YTD Performance


12/31/2018

6/13/2019

Change
% Change
Gold


1282.5

1340

57.5

4.483%

DX


96.06

97.57

1.51

1.572%

S&P


2505

2887

382

15.250%

JYN


109.63

108.55

-1.08

-0.985%

Euro


1.1466

1.1208

-0.0258

-2.250%

US 10-year bond yield


2.69%

2.090%

-0.006

-22.189%

Oil (WTI)


45.45

52.48

7.03

15.468%

 

Resistance levels: 

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

$1344 – double top – 6/5 and 6/13 highs

*$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

$1358 – 6/14 high

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

$1338 – 6/14 low

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

$1333 –double top 2/22 and 2/25 highs

$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

$1312 – 50% retracement of up move from 5/2 $1266 low to $6/14 $1358 high

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

$1308 – 20-day moving average

$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– 100-day moving average

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

$1300 – psychological level, options

$1299 – 5/16 high

$1295 - 40-day moving average

$1294 – 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