Gold Traders’ Report - June 20, 2019

Jim Pogoda, Senior Gold Trader, Gold Bullion International 
JUN 20, 2019

Gold exploded last night, reaching a 6-year high of $1392.60 during early Asian hours.  It finally closed above the key $1348 level (down trendline from 8/25/13 $1433 high), tripping short covering and momentum following buying.  Further stops were hit over resistance levels of $1353-56 (quadruple  top – 4/12/18, 4/18/18, 4/19/18, and 6/18 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), $1388-89 (double top, 3/9/14 and 3/16/14), and $1392 (9/8/13).  Gold was fueled by the dovish lean from the Fed yesterday afternoon.  While Powell and the FOMC left rates unchanged, they omitted the term “patient”, and said that “uncertainties have increased”, and will “act as appropriate to sustain the expansion”.  Moreover, 7 members are now predicting the Fed will make two rate cuts of 25 bp this year.  FedWatch now has a solid 100% probability of a 25bp rate cut at the July meeting, a 93.8% chance of 2 hikes by the October meeting, and a 72.4% likelihood of 3 cuts by the December meeting.  Global equities rallied overnight and were a headwind for gold with the NIKKEI up 0.6% (BOJ’s Kuroda also dovish, signaling readiness to ramp up stimulus), the SCI surged 2.4%, European markets rose from 0.3% - 0.9%, and S&P futures rose 0.9%.  However, the 10-year bond yield dropped further (1.975%, 31-month low), and the DX plunged to 96.58, combining to make a strong tailwind for the yellow metal.  During later Asian time, gold pulled back to $1375, finding support at the prior resistance level.  During early European hours, however, gold surged again to reach $1386, lifted by news that Iran shot down a US drone (WTI oil rallied to $55.95).  Gold pulled back again ahead of the NY open, where support at $1380 held.

At 8:30 AM, a worse than expected reading on the US Philly Fed Index (0.3 vs. exp. 10.4) overcame a better report on Jobless Claims (216k vs. exp. 220k).  S&P futures were tugged lower (2964 – 2956), and the 10-year yield slipped back to 1.994% after a modest recovery to 2.016%.  The DX dipped to 96.55, and gold shot back up to $1386.  However, the move was short-lived as 10-year yield popped back over 2% to reach 2.013%, and the DX bounced to 96.72.  Gold retreated in response, falling back to prior support at $1380. 

Though the S&P opened at a record high (+29 to 2956), it softened into the later morning (2946) - hurt by a worse than expected report on US Leading Indicators (0 vs. exp. 0.1%), and a tweet from Trump chastising Iran for the downing of the US drone (“Iran made a big mistake”).  The 10-year yield slipped back to 1.984%, but the DX was choppy between 96.61 – 96.72.  The greenback was supported by a softening in the euro ($1.1290) from a weaker Eurozone Consumer Confidence report.  Gold was caught in the cross currents, and also traded in a choppy manner between $1380-85.

Around mid-day, a comment from Trump that “you’ll soon find out”, when asked if the US would strike back at Iran for the downed US drone sent US stocks further down (S&P +4 to 2931), and brought the 10-year yield to 1.977%.  The DX fell to 96.61, oil rose further (WTI to $57.35), and gold rallied – albeit in an uneven fashion – to make a fresh high at $1393.30. 

In the afternoon, US stocks climbed back to make new highs (S&P finished +28 to 2954, all-time high close) with gains in the Energy, Industrials, IT, and Materials sectors leading the advance, while a successful IPO from Slack contributed to the move.  The 10-year yield recovered to 2.01%, but the DX hovered near the session’s low - either side of 96.60.  Gold came off its highs but remained fairly firm between $1388 - $1392, and was $1389 bid at 4PM with a gain of $30.

Open interest was up 13.3k contracts, showing a good chunk of new longs from yesterday’s rally.  Volume was lower but still robust with 343k contracts trading. 

Bulls were thrilled with today’s $30 rally, happy to blow the dust off of their 6-year charts as the yellow metal touched highs not seen since Sep 2013.  They were especially pleased that gold was able to advance that strongly on a day in which the S&P made an all-time high.  The bulls were finally able to get a close over $1348 (down trendline from 8/25/13 $1433 high), which led to the running of the series of buy stops over key upside resistance levels:  $1353-56 (quadruple  top – 4/12/18, 4/18/18, 4/19/18, and 6/18 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), $1388-89 (double top, 3/9/14 and 3/16/14 highs), $1392 (9/8/13 high).  Bulls are smitten with gold’s sharp $123 (9.7%) rally from the $1270 low on May 21 to today’s $1393 top, and will argue the trend is their friend.  With the further dovish lean from Powell and the Fed yesterday, bulls feel that a series of future Fed rate cuts (FedWatch now has solid 100% probability of a 25bp rate cut at the July meeting, a 93.8% chance of 2 hikes by the October meeting, and a 72.4% likelihood of 3 cuts by the December meeting) will put downside pressure on the entire rate curve, and downward pressure on the US dollar – allowing gold to move significantly higher.    In addition, bulls feel escalating fears / uncertainty of a protracted trade war with China will continue to impede global growth, keeping the Fed and most other Central Banks positioned dovishly.  Bulls also see current geopolitical tensions – especially between the US and Iran -  as another tailwind for gold.  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 challenge initial resistance at $1392-93 (double top - 9/8/13, 6/20 highs), followed by $1400 (options), $1416 (9/1/13 high), $1425 (options), and then $1434 (8/25/13 high).

Bears will concede gold advancing significantly with the DX breaking below 97 and the 10-year bond yield diving under 2%, but they were disappointed with the magnitude of gold’s advance given the sharp rally in stocks (S&P made fresh all-time high today). Many bears were stopped out last night and today, especially when $1348 couldn’t hold on a closing basis.  However, other bears with stronger hands and other previously sidelined short siders have used the opportunity to get short at much better levels.  Bears see a market that is extremely overbought, having risen $123 (9.7%) in the past month, with a 14-day RSI of 81.6 – a level not seen since 2/2016.  While bears acknowledge the further dovishness from the Fed and growing concern over lower rates – both the in the long end (10-year at fresh 31-month low) and the short end (FedWatch predicting earlier Fed cuts), they feel that markets are a bit over its skis on rate cut predictions.  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 on Wednesday 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 hopeful after Wednesday’s tweet from Trump) and continue to reverse the recent softness in equities.  They expect the rebound in US equities seen over the past 3 weeks to continue (S&P at all-time high close today) 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 $1348 (downtrend line from 8/25/13 $1433 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 CPI, PMI, and Department Store Sales, Eurozone PMIs, US Markit PMIs, Existing Home Sales, Baker Hughes Rig Count, Commitment of Traders, and comments from the Fed’s Daly Brainard and Mester for near term guidance. 

In the news: 

Gold achieves liftoff as prices rocket toward $1400:   https://finance.yahoo.com/news/gold-jumps-more-5-high-012039159.html?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer_sig=AQAAADvtyER02MjVWeQ66Pv54W4r9OBSKOIllT1Q-TTxN5Fqm1p50jvmFb5txrxwtRIzHKCZsHK0QQDdrI9GWsHfE

What changed in the FOMC statement:   https://www.cnbc.com/2019/06/19/june-federal-reserve-minutes-what-changed-in-the-new-fed-statement.html

YTD Performance


12/31/2018

6/20/2019

Change
% Change
Gold


1282.5

1389

106.5

8.304%

DX


96.06

96.69

0.63

0.656%

S&P


2505

2954

449

17.924%

JYN


109.63

107.38

-2.25

-2.052%

Euro


1.1466

1.1286

-0.018

-1.570%

US 10-year bond yield


2.69%

2.010%

-0.0068

-25.168%

Oil (WTI)


45.45

57.2

11.75

25.853%

 

Resistance levels: 

$1388-89 - double top, 3/9/14 and 3/16/14

$1392-93 – double top - 9/8/13, 6/20 highs

$1400 – options

$1416 – 9/1/13 high

$1425 – options

$1434 – 8/25/13 high

$1446 – 5/12/13 high

$1450 – options

$1479 – 5/5/13 high

Support levels:

*$1373-75 – double top – 7/6/16 and 7/11/16 highs

*$1365-67– triple top – 8/2/16, 1/25/18 and 4/11/18 highs

$1358 – 6/20 low

$1353-56 – quadruple  top – 4/12/18, 4/18/18, 4/19/18, and 6/18 highs

*$1348 – down trendline from 8/25/13 $1433 high

$1346- up trendline from 5/30 $1275 low

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

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

$1338 – double bottom -6/14 and 6/18 lows

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

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

$1329 -  50% retracement of up move from 5/2 $1266 low to 6/20 $1393 high

$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

$1324 – double bottom 6/4 and 6/11 lows

$1315 – 20-day moving average

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

$1304 - 40-day moving average

$1303– 100-day moving average

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

$1300 – psychological level, options

$1299 – 50-day moving average

$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

$1285– down trendline from 2/20 $1347 high

*$1281 – up trendline from 8/16/18 $1160 low

$1279 – 5/29 low

$1276 – 5/28 low

$1275 – options

$1274-75 – double bottom  – 5/17 and 5/20 lows

$1273 – 5/22 low

*$1271 – 200-day moving average

$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

$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