Gold Traders’ Report - June 28, 2019

Jim Pogoda, Senior Gold Trader, Gold Bullion International 
JUN 28, 2019

Gold rose last night, retaining its choppy tone – as can be expected of a market at 6-year highs – trading in a range of $1408 - $1425.  It rallied to its $1425 high during Asian hours, lifted by weakness in global equities (NIKKEI off 0.3%, SCI down 0.6%, S&P futures to 2930), and a modest dip in the US dollar (DX to 96.14).  The DX was weighed by some strength in the yen (108.85 – 107.56) from stronger Japanese CPI and Industrial Production Reports, and an early move to safe havens.  Gold retreated to $1409 during early European time however, fading a recovery in stocks (European markets up from 0.3% to 0.5%, S&P futures), helped by some pressure on Trump and Xi to work together from other global leaders at the G20 (and Trump’s comment, “I think we have a very good chance of doing something”) an upgrade of Proctor and Gamble from Goldman, and strength in bank stocks (passed Fed stress tests yesterday, free to boost dividends and share repurchases).  An increase in oil (WTI to $59.63) was also supportive of stocks, while a rebound in the DX (96.25) and a tick up in the US 10-year bond yield (2.029%) also contributed to gold’s pullback.  Later during European time, gold traded back up to $1415, as the DX fell back to 96.05.  The greenback was pressured by strength in the euro ($1.1359 - $1.1393) from better readings on Germany’s Import Prices and Eurozone CPI, and the pound ($1.2664 - $1.2698) as UK GDP and Business Investment matched expectations. 

 At 8:30 AM, US Personal Spending (0.4%), PCE Deflator (0.2%), and Core PCE (0.2%) were all as expected (0.4%), while Personal Income was slightly better (0.5% vs. exp. 0.3%).  S&P futures moved back to its overnight high (2939), as did the US 10-year bond yield (2.029%).  The DX only managed to edge up to 96.16, however, weighed by a further gain in the pound ($1.2715).  Gold softened, and tripped some sell stops under support at $1412 and the overnight low at $1408 to reach $1406.  

After opening stronger, stocks softened (S&P +2 to 2933) as a weaker than expected Chicago PMI Report (49.7 vs. exp. 54 – below 50 considered contractionary) overshadowed a slight beat on the University of Michigan Consumer Sentiment (98.2 vs. exp. 97.9).  The 10-year bond yield slipped to 2.005%, and the DX fell to 96.02.  Gold bounced sharply in response, and recaptured the $1412 level to reach $1413. 

US stocks strengthened into mid-day (S&P +15to 2940), with gains in the Financials, Industrials, and Energy sectors leading the advance.  However, the 10-year yield continued to soften, falling below 2% once again to reach 1.998%.  The DX was caught in the cross currents but rose (96.31), lifted by pullbacks in both the euro ($1.1351), and the pound ($1.2687).  Gold fell back below $1412, but found support at $1408. 

In the afternoon, stocks drifted lower, but rallied back on the close to finish near their highs (S&P ended +15 to 2940).  The 10-year yield edged up to 2.007%, but the DX ticked down to 96.20.  Gold drifted higher, and was $1410 bid at 4PM with a gain of $2.  

Open interest was up 5.1k contracts, showing a net of new longs from yesterday’s advance.  Volume was lower but still very healthy with 354k contracts trading.  The CFTC’s Commitment of Traders Report as of Tuesday 6/25 showed the large funds adding 23.4k contracts of longs and cutting 8.8k contracts of shorts.  This was done during gold’s sharp rally from $1346 - $1439 in the past week – reflecting yet another sizeable chunk of new longs piling in during the rally – but not a huge amount of short covering as was expected.  The Net Fund Long Position rose from 204k contracts to 236k contracts.  Since then, some profit taking has been seen, which has probably reduced this position to around 225k contracts, while gross shorts are still above 60k contracts.  While this adjusted NFLP is getting fairly sizeable, the long side of gold cannot be labeled a crowded trade – yet - and gross shorts remain significant.  This still leaves the gold market fairly well positioned to probe higher as many longs remained sidelined and the still decent amount of gross shorts - when forced to cover - will help accelerate any upside moves. 

As they did yesterday, bulls will take gold’s modest $2 gain today, given the advance in equities and the dollar remaining firm.  While they would have preferred a finish over the key $1412 level (double top), bulls are comfortable at the consolidation seen in over the past three trading days, and how dips seem to find strong support.  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 86% chance of 2 hikes by the October meeting, and a 59.3% 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 today’s Commitment of Traders Report (as of 6/25) that showed the large funds with only a moderately large net long position (236), and a still significant gross short position (62k 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 the past month).  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 (6/28 high, options), $1434 (8/25/13 high), $1439 (6/25 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 yesterday, they were disappointed with gold’s resilience and that it has managed to finish higher again today, despite the advance in equities over the past two sessions and the DX consolidating north of 96.  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 yesterday’s $1399 low.  It has risen $169 (13.31%) in the past month and its 14-day RSI is still a hot 76.5, 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 yesterday).  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 tomorrow- 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, $1375 (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 any developments from the Trump-Xi tomorrow morning, followed by reports Monday on China’s PMI, Japan’s Tankan Survey, PMI, and Consumer Confidence, Eurozone PMIs, German Unemployment, UK PMI, US Markit PMI, ISM Manufacturing and Construction Spending for near term direction.   


In the news:

Here’s what every major Wall Street bank believes will happen at the Trump-Xi trade meeting:   https://www.cnbc.com/2019/06/28/wall-street-has-low-expectations-ahead-of-the-trumpxi-g-20-summit.html

Credit Suisse – gold may retest record high of $1921:   https://www.gold-eagle.com/article/credit-suisse-gold-may-retest-record-high-1921oz


YTD Performance


12/31/2018

6/28/2019

Change
% Change
Gold


1282.5

1410

127.5

9.942%

DX


96.06

96.21

0.15

0.156%

S&P


2505

2940

435

17.365%

JYN


109.63

107.90

-1.73

-1.578%

Euro


1.1466

1.1369

-0.0097

-0.846%

US 10-year bond yield


2.69%

2.007%

-0.0068

-25.279%

Oil (WTI)


45.45

58.06

12.61

27.745%

 

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 – 6/28 high, options

$1434 – 8/25/13 high

$1439 – 6.25 high

$1446 – 5/12/13 high

$1450 – options

$1479 – 5/5/13 high

$1488 – 4/28/13

$1496 – 4/14/13 high

$1500 – options

$1591 – 4/7/13

 

Support levels:

$1406 – 6/28 low

$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

$1375 - up trendline from 5/30 $1275 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

$1362– 20-day moving average

$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

$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

$1324 - 40-day moving average

$1314 – 50-day moving average

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

$1309– 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

*$1278 – 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