Gold Traders’ Report - June 24, 2019

Jim Pogoda, Senior Gold Trader, Gold Bullion International 
JUN 24, 2019

Gold continued its advance last night, climbing in a range of $1400.85 - $1411.15, although price action remained nervous and choppy.  Buying was tripped over $1400 early during Asian time – gapping higher – but it was capped by Friday’s $1412 high.  Gold was helped by news of increasing tensions between the US and Iran, with Trump announcing further sanctions on Iran will be put in place - with military options on the table - while Iran warns that more US drones can be blown out of the sky.  A decline in the US 10-year bond yield (2.061% - 2.028%), and a pullback in the US dollar (DX from 96.20 – 95.98) also benefitted the yellow metal.  The DX was pressured by some firming in the safe-haven yen (107.40 - 107.23), and the euro ($1.1367 - $1.1399 – 3-month high, better than expected German IFO survey).  Mostly firmer global equities were a headwind for gold, however, with hopes of some sort of a breakthrough in the US-China trade war this week when Trump meets Xi at the G20 fueling gains.  The NIKKEI was up 0.1%, the SCI was up 0.2%, European markets ranged from flat to -0.5%, and S&P futures were +0.3%.  Firmer oil prices (WTI from $57.62 - $58.22, US –Iran tensions) aided the gains in stocks. 

AT 8:30 AM, a better than expected reading on the Chicago Fed’s National Activity Index (-0.05 vs. exp. -0.2) helped S&P futures tick up (2958) and brought the US 10-year bond yield to 2.038%.  The DX came off the floor to reach 96.15, and gold retreated to $1405.  

Later in the morning, news that Trump was imposing new sanctions on Iran and its Supreme Leader knocked US stocks into negative territory (S&P -2 to 2949), and brought the US 10-year bond yield down to 2.106%.  The DX traded down to 96, and gold rallied.  Stops were hit over last night’s and Friday’s high($1412) and $1416 (9/1/13 high) to reach $1417.   

Stocks softened a bit further in the afternoon (S&P finished off 5 to 2946), while the 10-year yield hovered between 2.106% – 2.03%.  The DX made a fresh low at 95.97, and tripped some further buying in gold.  Stops were hit over the prior high on the way to $1420 – another fresh 6-year high.  Gold was $1419 bid at 4PM with a gain of $20. 

Open interest was up 1.2k contracts, showing a net of new longs from Friday’s advance.  Volume was a little lower but very robust with 536k contracts trading. 

Bulls continuing to smile as gold made its 5th consecutive higher high and higher low, and had its 4th straight double digit advance to a fresh 6-year high.  They were especially pleased that gold was able to continue its torrid advance despite US stocks remaining relatively steady (S&P holding near all-time highs).  Bulls are smitten with gold’s sharp $150 (11.81%) rally from the $1270 low on May 21 to today’s $1420 top, and will argue the trend is their friend (well above up trendline from $1270 low at $1355).  With the further dovish lean from Powell and the Fed Wednesday, 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 91.5% chance of 2 hikes by the October meeting, and a 70.8% 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 Friday’s Commitment of Traders Report (as of 6/18) that showed the large funds with a still relatively moderately large net long position (204k), and a still significant gross short position (70k contracts).  Therefore, the bulls feel the gold market remains fairly well 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 $1425 (options), and then $1434 (8/25/13 high), $1434 (8/25/13 high), and then $1450. 

Bears will concede gold advancing significantly with the DX breaking below its 200-day moving average at 96.63 and the 10-year bond yield hovering near 31-month lows just above 2%, but they were disappointed with the magnitude of gold’s advance given that US stocks were modestly lower, and within a whisker of all-time highs (S&P was within 6 points last night of all-time high of 2964). Many bears were stopped out last night and today, especially when $1412 was breached.  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 $150 (11.81%) in the past month, with a 14-day RSI of 85.9 – a level not seen since 2/2016 – and expect a sharp, significant correction.  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 their 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 last 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 (optimism ahead of this week’s meeting between Trump and Xi), and continue to reverse the recent softness in equities.  They expect the rebound in US equities seen over the past 4 weeks to continue (S&P at all-time high close Friday) 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 and US-Iran tensions), developments with the Trump Administration (especially on US-China trade, potential legal issues), oil prices, and will turn to reports tomorrow on the Minutes of the BOJ’s April Meeting, US House Price Index, S&P Case Shiller Home Price Index, Richmond Fed Manufacturing Index, Consumer Confidence, and comments from the Fes’s Williams, Bostic, Barkin, and Bullard for near term direction.  


In the news:

The relevance of gold as a strategic asset:   https://www.gold.org/goldhub/research/relevance-of-gold-as-a-strategic-asset-in-the-uk

Gold breaks out of key multi-year resistance level – WGC:   https://www.gold.org/goldhub/gold-focus/2019/06/gold-breaks-out-key-multi-year-resistance-level

GLD adds massive 35 tonnes of gold Friday:   https://www.sharpspixley.com/articles/lawrie-williams-gld-adds-massive-35-tonnes-of-gold-friday_293935.html

Macquarie – Gold has more upside than downside:   https://www.bloomberg.com/news/videos/2019-06-23/gold-has-more-upside-than-downside-macquarie-wm-says-video

The Fed and Gold – Scotiabank:   https://www.gbm.scotiabank.com/content/dam/gbm/market-insights/2019/june/Quick%20Note%20on%20the%20Fed%20and%20Gold-min.pdf

CFTC – gold speculators continued to push bullish bets higher:   https://www.investing.com/analysis/gold-speculators-continued-to-push-their-bullish-bets-higher-this-week-200433877


YTD Performance


12/31/2018

6/24/2019

Change
% Change
Gold


1282.5

1419

136.5

10.643%

DX


96.06

96.01

-0.05

-0.052%

S&P


2505

2945

440

17.565%

JYN


109.63

107.31

-2.32

-2.116%

Euro


1.1466

1.1397

-0.0069

-0.602%

US 10-year bond yield


2.69%

2.018%

-0.0067

-24.870%

Oil (WTI)


45.45

57.85

12.4

27.283%

 

Resistance levels: 

$1420 – 6/24 high

$1425 – options

$1434 – 8/25/13 high

$1446 – 5/12/13 high

$1450 – options

$1479 – 5/5/13 high

 

Support levels:

$1416 – 9/1/13 high

$1412 – 6/21 high

$1401 – 6/24 low

$1400 – options

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

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

$1383 – 6/21 low

$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

$1355- 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

$1343 -  50% retracement of up move from 5/2 $1266 low to 6/24 $1420 high

$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

$1337 – 20-day moving average

$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

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

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

$1310 - 40-day moving average

$1305– 100-day moving average

$1304 – 50-day moving average

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

$1300 – psychological level, options

$1290 – 50% retracement of up move from 8/16/18 $1160 low to 6/24 $1420 high

$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

*$1282 – 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

*$1273 – 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

$1250 – options

$1242-43 – double bottom – 12/19 and 12/20 lows