Gold Traders’ Report - June 18, 2019

Jim Pogoda, Senior Gold Trader, Gold Bullion International 
JUN 18, 2019

Gold rallied sharply last night, climbing in a range of $1338.70 - $1350.  It rose to $1348 during Asian hours, where it was capped there at resistance at the long term down trendline from the 8/25/13 $1433 high. The yellow metal was lifted by early weakness in global equities (S&P futures -6 to 2889), a pullback in the US 10- year bond yield (2.072%), and a softening US dollar (DX from 97.57 – 97.37).  During European time, dovish comments from the ECB’s Draghi (more stimulus in rate cuts and asset purchases could come if the economic situation deteriorates or inflation doesn’t reach its target) along with misses in the German and Eurozone ZEW Surveys knocked the euro down to $1.1180 (2-week low), and took global bond yields further negative (German 10-year to -0.325% - record low, US 10-year to 2.016% - 21-month low, Japan 10-year to -0.136%, 22-month low).  Global equities rallied (European markets up from 0.8% to 1.5%, S&P futures up 0.4%), and the DX jumped to 97.75 (2-week high).  Gold turned lower, but found support at $1344.  

Ahead of the NY open, however, Trump tweeted a complaint about Draghi manipulating the euro:

Mario Draghi just announced more stimulus could come, which immediately dropped the Euro against the Dollar, making it unfairly easier for them to compete against the USA. They have been getting away with this             for years, along with China and others. Could cut rates again if inflation doesn’t reach its target…

            6:53 AM - Jun 18, 2019

The euro popped back to $1.1210, and the DX sank to 97.56.  Gold tripped buy stops over $1348 to reach $1350.  Some follow through buying on the NY open took gold up to $1354.65, where it was capped by resistance at $1353-56 (triple top – 4/12/18, 4/18/18 and 4/19/18 highs). 

At 8:30 AM, stronger than expected readings on US Housing Starts (1259k vs. exp. 1235k) and Building Permits (1294k vs. exp. 1290k) took S&P futures higher (+18 to 2915), and the US 10-year yield up to 2.039%.  The DX bounced to 97.73, and gold retreated to $1351. 

Just after the NY equity opening, Trump tweeted he had conversation with Xi and confirmed they will meet at the upcoming G20, rekindling hopes for an end to the trade war:

Had a very good telephone conversation with President Xi of China. We will be having an extended meeting  next week at the G-20 in Japan. Our respective teams will begin talks prior to our meeting.

            9:39 AM - Jun 18, 2019

Stocks surged (S&P +40 to 2930), with hefty gains in the IT, Industrials leading the advance, helped also by a rally in oil (WTI to $54.27).  The 10-year yield recovered to 2.073% while the DX rose further to 97.77.  Gold sold off in response, with stops hit under $1348 (the prior LT trendline resistance) and $1342 (double top - 2/19 and 2/21 highs) on the way to $1339.  However, some dip buying emerged to quickly bring the market back to the $1343-45 area.

Later in the morning, a report that the White House had considered stripping Powell of his Chairman position, but would still keep him on the Board of Governors took some steam out of the equity rally (S&P +27 to 2915). The 10-year yield slipped back to 2.039%, and the DX fell briefly 97.51 before recovering to 97.70. Gold shot higher, again getting a boost through the key $1348 level to reach $1351.75, but then quickly retreated back to $1345.

In the afternoon, stocks were a bit choppy but overall remained firm (S&P finished 28 to 2918) while the 10-year yield hovered just under 2.06%.  The DX was fairly steady and either side of 97.65, and gold was similarly stable trading between $1346 – 47. Gold was $1346 bid at 4PM with a gain of $7.

Open interest was up 1k contracts, showing a small net of long liquidation from yesterday’s decline.  Volume was much lower with 246k contracts trading. 

Bulls cheered today’s $7  rally – especially given the strength in the dollar and robust equity rally.  However, some super-bulls were disappointed that gold failed again to hold above key resistance at $1348 (down trendline from the 8/25/13 $1433 high).  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), and that pullbacks have been relatively shallow.  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 unwavering – 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 72.9% chance of a 2nd 25 bp cut at the October meeting, with a 48.4% probability of a 3rd 25bp cut at the December meeting, US 10-year yield made a fresh 21-month today at 2.016%).  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 last 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 extend, and expect to breach and hold tough initial resistance at $1348 (down trendline from 8/25/13 $1433 high).  Bulls feel a close above this level will attract 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 were disappointed that gold finished with a gain today, given the firmer US dollar and strong equity rally.  While they concede gold’s strength overnight when stocks, the DX, and the US 10-year yield  were soft, they’re concerned with gold’s resilience when stocks and the dollar were thrust higher off of Draghi’s dovishness and the announcement of that Trump will indeed meet with Xi at the G20, rekindling hopes for a trade deal. However, bears note gold’s inability to close over the 6-year down trendline at $1348, and will remain patient.  Bears still see gold’s $88 rebound from its $1270 low on 5/21 to last Friday’s $1358 high as overextended, and its 14-day RSI (70.4) reads overbought.  While some bears acknowledge a growing concern over lower rates – both the in the long end (10-year at fresh 21-month low) 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 again today of -0.325%) 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 (especially hopefull after today’s tweet from Trump) and continue to reverse the recent softness in equities.  They expect the rebound in US equities seen over the past 5 months to continue (S&P within 1.25% 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 Japan’s Trade Balance, German PPI, Eurozone Construction Output, UK CPI and Retail Sales, US MBA Mortgage Applications and Oil Inventories, and the FOMC Rate Decision and Powell’s Press Conference for near term direction. 

 In the news: 

Sharps predicts possible bull run in gold:   https://www.wealthadviser.co/Sharps-Pixley-predicts-possible-bull-run-gold

 Peter Hambro says gold to move up:   https://www.bloomberg.com/news/videos/2019-06-18/peter-hambro-says-gold-to-move-up-iron-ore-in-chronic-shortage-video

Facebook launches a new cryptocurrency called Libra:   https://www.cnbc.com/2019/06/17/facebook-announces-libra-digital-currency-calibra-digital-wallet.html

Fed likely to resist pressure to cut rates this week:   https://www.reuters.com/article/us-usa-fed/fed-likely-to-resist-pressure-to-cut-u-s-rates-this-week-idUSKCN1TI0DV

YTD Performance


12/31/2018

6/18/2019

Change
% Change
Gold


1282.5

1346

63.5

4.951%

DX


96.06

97.65

1.59

1.655%

S&P


2505

2918

413

16.487%

JYN


109.63

108.44

-1.19

-1.085%

Euro


1.1466

1.1194

-0.0272

-2.372%

US 10-year bond yield


2.69%

2.059%

-0.0063

-23.343%

Oil (WTI)


45.45

54.05

8.6

18.922%