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Gold Traders’ Report - June 27, 2019

Jim Pogoda, Senior Gold Trader, Gold Bullion International 
JUN 27, 2019

Gold moved lower overnight, trading in a range of $1401 - $1412. It was pressured to its $1401 low during Asian and early European time where support at $1401-$1402 (6/24 and 6/26 lows) and ahead of $1400 held.  Gold was weighed by reports that the US and China have tentatively agreed to a truce in their trade war to resume talks, which helped lift global equities.  The NIKKEI was up 1.2%, the SCI gained 0.7%, European markets ranged from flat to +0.5%, and S&P futures were +0.2%.  An early firming in the US 10-year bond yield (2.069%, 1-week high) and strength in the dollar (DX to 96.39, 1-week high) were also a headwind for gold.  The DX was helped by softness in the yen (107.64 – 108.16, US-China trade optimism dents safe-haven demand) and the euro ($1.1375 - $1.1347, weaker Eurozone Confidence data).  Later during European time gold clawed back to $1407, helped by a retreat in S&P futures (2918) which were hurt by comments from China’s Commerce Ministry’s Feng (urges US to cancel pressure and sanctions on Huawei and cancel all additional tariffs) and reports of a new software issue with Boeing’s Max jet. Gold was also lifted as the DX retreated to 96.15 against a recovery in the euro ($1.1381) from a  stronger than expected reading on German CPI (0.3% vs. exp. 0.2%) 

At 8:30 AM some US economic reports were mixed, with misses on the Q1 GDP revision (3.1% vs. exp. 3.2%), Personal Consumption (0.9% vs. exp. 1.3%), and Jobless Claims (227k vs. exp. 219k) largely offset by slightly better readings on the GDP Price Index (0.9% vs. exp. 0.8%) and the Core PCE (1.2% vs. exp. 1.0%).  S&P futures edged higher (2926), while the US 10-year yield was choppy between 2.026% - 2.04%.  The DX moved higher (96.26), and gold was knocked below support at $1402-02 to reach $1399.  However, some bargain hunting buying quickly emerged to lift the yellow metal back to $1405. 

US stocks started stronger (+14 2928), helped by a stronger reading on US Pending Home Sales (1.1% vs. exp. 1.0%) and firmer oil (WTI to $59.61), with the Real Estate, Health Care, and Financials sectors leading the advance.  The 10-year yield edged up to 2.043%, and the DX ticked up to 96.30.  Gold was pushed lower, but found support at $1402. 

Later in the morning and into mid-day, some downbeat comments from US Economic Advisor Kudlow (no preconditions for the US-China trade meeting and that the US may move forward with additional tariffs) knocked the S&P lower (+4 to 2918), and the 10-year yield sank to 2.014%.  The DX moved only modestly lower to 96.18, finding support from a tumble in sterling ($1.2665, EU’s Brexit Coordinator Verhofstadt dismissed claims by Boris Johnson that the Brexit deal can be rewritten).  Gold clawed higher, and rose to $1408.

US stocks turned higher into the afternoon (S&P +11 to 2925), shrugging off some mildly hawkish comments from the Fed’s Daly (too early to say if rate cut needed, need to see if data is transitory), and instead focusing on her dovish offerings (not seeing much pass through from tariffs on final prices, believes our tool kit still has power to lift inflation).  The 10-year yield slid to 2.005%, but the DX  - caught in the cross currents – ticked up to 96.24.  Gold edged slightly higher to trade $1409, and was $1408 bid at 4PM with a gain of $1.

Open interest was off 3.1k contracts, showing a net of profit taking from longs from yesterday’s decline.  Volume was much lower but still extremely robust with 440k contracts trading.  

Bulls will take gold’s modest $1 gain today, given the strength in stocks and the firmer dollar.  While the double bottom support level at $1401-02 was breached intraday, bulls are pleased that the market recovered and finished over that level.  Bulls remain ecstatic with gold’s sharp $169 (13.31%) rally from the $1270 low on May 21 to Tuesday’s $1439 top (6-year high), and will argue the trend is their friend (well above up trendline from $1270 low at $1370).  With the further dovish lean from Powell and the Fed last week (though there were some mildly hawkish items from Powell and Bullard on Tuesday), 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, an 85.3% chance of 2 hikes by the October meeting, and a 60.5% 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 6/18) 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 in recent sessions).  Bulls will look for the rally to resume and challenge initial resistance at $1412 (double top  - 6/21 and 6/27 highs) followed by $1422 (6/26 high), $1425 (options), $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 that took gold briefly under $1400 ($40 below its 6-year high on Tuesday) early in the session off of the dollar and equity strength, they were disappointed with gold’s resilience and that it managed to claw back into positive territory in the afternoon.  While some bears have been stopped out in the past week, 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 remains extremely overbought – despite the $40 pullback from its $1439 Tuesday high to today’s $1399 low.  It has risen $169 (13.31%) in the past month and its 14-day RSI is still a hot 76.2, and bulls 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 (as the Fed’s Mary Daly alluded to today).  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 Tuesday -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 at least a working truce to enable the resumption of meaningful dialogue between the sides will be reached by Trump and Xi at the G20 this Saturday - and will continue to reverse the recent softness in equities.  They expect the rebound in US stocks seen over the past 4 weeks to continue (S&P at all-time high close last 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, $1370 (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 Japan’s Jobless Rate, CPI, BOJ Summary of Opinions, Industrial Production, Housing Starts, and Construction Orders, China’s Current Account Balance, Germany’s Import Prices, UK GDP, Eurozone CPI, US Personal Income, Personal Spending, PCE Deflator, Core PCE, Chicago PMI, University of Michigan Consumer Sentiment, Baker Hughes Rig Count, and the Commitment of Traders for near term guidance. 

In the news: 

Perth Mint’s gold bullion sales drop to 25-month low:

Resistance levels: 

$1412 – double top  - 6/21 and 6/27 highs

$1412 – 6/25 low

$1416 – 9/1/13 high

$1420 – 6/24 high

$1422 – 6/26 high

$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:

$1401-02 - double bottom -  6/24 and 6/26 lows

$1400 – options

$1399 – 6/27 low

$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

$1370- up trendline from 5/30 $1275 low

$1358 – 6/20 low

$1356– 20-day moving average

$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

$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

$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

$1320 - 40-day moving average

$1312 – 50-day moving average

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

$1307– 100-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

*$1277 – 200-day moving average

$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

$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