Gold Traders’ Report - June 25, 2019

Jim Pogoda, Senior Gold Trader, Gold Bullion International 
JUN 25, 2019

Gold continued its torrid rally last night, rising in a range of $1420.60 - $1438.80 but remaining nervous and choppy.  It shot to its $1338.80 high during Asian hours with buy stops tripped over yesterday’s $1420 high, $1425 (options), and $1434 (8/25/13 high).  The advance was helped by the ratcheting up of tensions between the US and Iran, with Iran declaring a “permanent closure of a diplomatic path” after the US imposed sanctions on Iran’s Supreme Leader.  Gold was also aided by a flight to safe havens as investors pushed global bond yields lower (German 10-year to -0.331%, fresh all-time low, US 10-year yield to 1.998%), and the yen made a 5 ½ month high at 106.75.  The DX retreated to 95.84, a fresh 3-month low.  A pullback in S&P futures (2942) after an early advance  was also a tailwind for gold’s early gain, with US officials downplaying expectations for a breakthrough in US-China trade war at this week’s G20 summit, while China hinted at blacklisting FedEx.  Gold slid to support at $1425 during European time – though in a very choppy fashion – against a modest recovery in the 10-year bond yield (2.021%), a small rebound back to unchanged in S&P futures, and bounce in the dollar (DX to 96.08).  The DX was helped by a decline in the euro ($1.1412 - $1.1376, dovish comments from the ECB’s de Guindos) and the pound ($1.2783 - $1.2719, no-deal Brexit fears). 

US stocks opened weaker, and softened into the late morning hours (S&P -13 to 2931), weighed by much worse than expected readings on US New Home Sales (626k vs. exp. 685k) and Consumer Confidence (121.5 vs. exp. 131), along with some bellicose tweets from Trump to Iran (Any attack by Iran on anything American will be met with great and overwhelming force. In some areas, overwhelming will mean obliteration).  Losses in the Communication Services and IT sectors led the decline. The yield on the US 10 year bond took out the overnight low to reach 1.983%, and the DX slumped to 95.92 – but held above its overnight low.  Gold climbed higher, but topped out at $1436- unable to challenge the overnight high. 

In the early afternoon, though he was generally dovish (as usual), the Fed’s Jim Bullard turned a bit hawkish – saying that a 50 bp cut in July would be overdone.  This was followed shortly afterward by comments from Powell, which were generally consistent with his dovish remarks last week (act as needed to sustain the expansion), except for a bit of hawkishness (warns against bending to short term political interests, important not to overreact in the short term, look for sustained changes – echoing the caution expressed by Kaplan yesterday). The S&P sank (-28 to 2916), while the US 10-year yield popped back up to 2.011%.  The DX rose sharply to 95.37, and gold tumbled.  Selling accelerated below the former resistance levels of $1425, $1420 (6/24 high), and $1416 – 9/1/13 high to reach $1412, where support at the former resistance level (Friday’s high) finally held. 

Later in the afternoon, the S&P hovered between 2916 – 2924 before finishing just off its low (-28 to 2917).  The 10-year yield dipped back below 2% to end at 1.992%.  The DX pulled back to 96.15, and gold recovered (dip buying seen) to finish unchanged at $1422. 

Open interest was up 11k contracts, reflecting a good chunk of new longs coming in during yesterday’s rally.  Volume was much lower but still very healthy with 390k contracts trading.    

Many bulls were disappointed with gold’s inability to hold its overnight gains, and for its failure to finish over $1425 – despite stocks softening and the US 10-year yield moving back below 2%.  However, other bulls are quite pleased that gold made its 6th consecutive higher high and higher low, and reached a fresh 6-year high.  Bulls remain ecstatic with gold’s sharp $169 (13.31%) rally from the $1270 low on May 21 to today’s $1439 top, and will argue the trend is their friend (well above up trendline from $1270 low at $1360).  With the further dovish lean from Powell and the Fed Wednesday (though there were some mildly hawkish items from Powell and Bullard today), 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 90.9% chance of 2 hikes by the October meeting, and a 71.1% 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), $1439 (today’s high) and then $1450. 

While bears were encouraged with some significant price erosion off of the mildly hawkish hints from Powell and Bullard today,  they were disappointed with gold’s resilience and that still managed to claw back to unchanged.  Some bears were stopped out last night – adding to the carnage - especially when $1425 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 $169 (13.31%) in the past month, with a scalding 14-day RSI of 86.3 – a level not seen in years – 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 months (record low bund yield today -0.335%) 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 $1400, $1360 (up trendline from 5/30 $1275 low), and then $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 Germany’s GfK Survey, US Durable Goods, Goods Trade Balance, Retail Inventories, Wholesale Inventories, Oil Inventories, and comments from the BOE’s Carney and the Fed’s Daly for near term guidance.

 

In the news: 

WGC – gold prices continue to rise higher:   https://finance.yahoo.com/video/gold-prices-continue-rise-higher-150156741.html

Morgan Stanley boosts its forecast for gold:   https://www.forexlive.com/news/!/morgan-stanley-boost-their-forecast-for-gold-20190625

 Gold prices in India at all-time high:   https://www.financialexpress.com/market/commodities/gold-prices-in-india-at-all-time-high-should-you-buy-or-is-yellow-metal-headed-for-correction/1618381/

 Russia may cancel VAT on gold investments from 2020:   https://www.reuters.com/article/russia-finance-gold/russia-may-cancel-vat-on-gold-investments-from-2020-idUSL8N23W4HY?rpc=401&

YTD Performance




12/31/2018
6/25/2019
Change
% Change
Gold




1282.5
1422
139.5
10.877%
DX




96.06
96.15
0.09
0.094%
S&P




2505
2917
412
16.447%
JYN




109.63
107.18
-2.45
-2.235%
Euro




1.1466
1.1367
-0.0099
-0.863%
US 10-year bond yield




2.69%
1.992%
-0.0069
-25.838%
Oil (WTI)




45.45
57.8
12.35
27.173%

 

 Resistance levels: 

$1425 – options

$1434 – 8/25/13 high

$1439 – 6.25 high

$1446 – 5/12/13 high

$1450 – options

$1479 – 5/5/13 high

 

Support levels:

$1420 – 6/24 high

$1416 – 9/1/13 high

$1412 – 6/25 low

$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

$1344 – 20-day moving average

$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

$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

$1314 - 40-day moving average

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

$1306– 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 – 200-day moving average

$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

$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