Gold Traders’ Report - June 17, 2019

Jim Pogoda, Senior Gold Trader, Gold Bullion International 
JUN 17, 2019

Gold softened last night, trading in a nervous and choppy fashion (expected of a market fresh off 14-month highs) in a range of $1333 - $1343.55.  It climbed to its high during Asian time, fading some modest weakness in the US dollar (DX from 97.58 – 97.47) where resistance at $1344-48 (5 tops , 2/20 and  4/20/18, 6/5, 6/7, and 6/13) capped the advance.  Gold retreated to its $1333 low during European time, where it found support from last Thursday’s low.  It traded against a firmer US 10-year bond yield (2.091% - 2.115%), and a rebound in the DX (97.61).  The greenback was boosted by weakness in the euro ($1.1224 - $1.1203, downbeat comments from the ECB’s Coeure), the pound ($1.2598 - $1.2570, 2-week low, ongoing Brexit concerns), and the yen (108.51 – 108.72, risk on).  Global equities were slightly firmer and a headwind for gold with the NIKKEI flat, the SCI up 0.2%, European shares ranged from -0.1% to +0.2%, and S&P futures were +0.1%.  Stocks were able to advance despite a decline in oil (WTI from $52.74 - $51.77), a repeated downbeat assessment on the prospect of a US-China trade deal at the G20 from US Commerce Secretary Wilbur Ross, continued unrest in Hong Kong, tensions with Iran,  India imposing tariffs on the US, and a deep cut in forward guidance by China’s Huawei – with markets keying instead on prospects of a further dovish lean from Powell and the Fed at this Wednesday’s FOMC meeting.  

 Ahead of the NY open, some belligerent comments from Iran (will breach its nuclear stockpile limit in 10-days, calls for US forces to leave the Gulf, says Teheran is in charge of the Gulf’s security) took S&P futures lower (2897), and brought the 10-year yield down to 2.098%.  The DX retreated to 97.45, and gold bounced to $1338.

 At 8:30 AM, the US Empire State Manufacturing Index missed badly (-8.6 vs. exp. 11), taking S&P futures negative (-1 to 2894).  The 10-year yield slipped further to 2.087%, and the DX plunged to 97.33.  Gold continued its upswing, and rallied back to $1343 – but failed again ahead of resistance at $1344-48.

 After a weaker opening, US stocks turned higher into the late morning (S&P +10 to 2897) shrugging off a miss in the NAHB Housing Market Index (64 vs. exp. 67).  The move was aided by a recovery in oil (WTI to $52.46), with gains in the Communication Services, Energy, and Real Estate sectors pacing the advance.  The 10-year yield edged up to 2.101%, and the DX rose to 97.54, helped also by sterling plunging to $1.5553, 5-month low.  Gold pulled back in response and traded down to $1337.

 Into the afternoon, US equities trimmed gains (S&P +3 to 2890), and the 10-year yield edged down to 2.082%.  The DX dipped to 97.41, and gold recovered to $1341.50.

 Later in the afternoon, stocks had a modest rebound (S&P + 9 to 2896), but finished with just a slight gain (S&P ends +3 to 2890).  The 10-year yield was steady between 2.08% - 2.09%, and the DX was stable between 97.54-58.  Gold was similarly steady between $1338-$1340, and was $1340 bid at 4PM with a loss of $1. 

 Open interest was up 10.9k contracts, showing  a net combination of early new longs to 14-month highs along with new shorts from Friday’s subsequent decline.  Volume was much heavier with 376k contracts trading. 

 Some bulls were disappointed with gold’s $1 dip today, and its inability to hold the up trendline at $1342 from the 5/30 $1275 low and to generate some self-sustaining momentum - given the growing list geopolitical issues.  However, the bulls will take gold’s modest decline today– encouraged that gold’s pullback wasn’t deeper – given the move to 16-month highs early Friday along with the moderate increase in US stocks and the firm dollar in today’s session.  Bulls remain encouraged that gold has held above key resistance levels at $1309-12 (triple top – 3/28, 4/10 and 4/11 highs), $1319 (3/27 high), $1312 (50% retracement of up move from 5/2 $1266 low to $6/14 $1358 high, $1322 (3/26 high), and $1325 (options, 3/25 high).  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 84.7% probability of a 25 bp cut at the July meeting, a 73.5% chance of a 2nd 25 bp cut at the October meeting, with a 51.4% 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 Friday’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 $1344-48 (6 tops , 2/20 and  4/20/18, 6/5, 6/7, 6/13, and 6/17 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 (6/14 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).  

 Bears will take today’s decline, and were encouraged with gold finishing below $1342 (up trendline from 5/30 $1275 low).  However ,they 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 Friday’s $1358 high as overextended, and its 14-day RSI remains near overbought (68).  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 Friday of -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 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 $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 tomorrow on Eurozone Trade Balance, CPI, ZEW Survey, German ZEW Survey, US Housing Starts, Building Permits, and comments from the ECB’s Draghi for near term guidance. 

 In the news:

Gold speculators sharply boosted bullish bets:   https://www.investing.com/analysis/gold-speculators-sharply-boosted-their-bullish-bets-for-2nd-week-200431886

Round tripping still rampant in gold exports:   https://www.asianage.com/business/in-other-news/170619/round-tripping-still-rampant-in-gold-exports.html

Heraeus – Has diesel turned the corner in Germany?: https://www.heraeus.com/media/media/hpm/doc_hpm/precious_metal_update/en_6/Appraisal_20190617.pdf

YTD Performance


12/31/2018

6/17/2019

Change
% Change
Gold


1282.5

1340

57.5

4.483%

DX


96.06

97.57

1.51

1.572%

S&P


2505

2890

385

15.369%

JYN


109.63

108.56

-1.07

-0.976%

Euro


1.1466

1.1216

-0.025

-2.180%

US 10-year bond yield


2.69%

2.087%

-0.006

-22.301%

Oil (WTI)


45.45

51.94

6.49

14.279%

 

Resistance levels: 

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

$1344-48 – 6 tops , 2/20 and  4/20/18, 6/5, 6/7, 6/13, and 6/17 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

$1332-33 – double bottom – 6/13 and 6/17 lows

$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

$1311 – 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

$1302– 100-day moving average

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

$1300 – psychological level, options

$1299 – 5/16 high

$1297 - 40-day moving average

$1295 – 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

*$1269 – 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