Jim Pogoda, Senior Gold Trader, Gold Bullion International
JUN 3, 2019
Gold extended its rally last night, climbing in a range of $1307 - $1318.50. Buy stops were hit over $1307 (Friday’s high and 50% retracement of down move from 2/20 $1347 high to 4/23 $1266 low) and $1309-12 (triple top – 3/28, 4/10 and 4/11 highs) to reach $1318 (10-week high) – where resistance in front of $1319 (3/27 high) held. The yellow metal was lifted by another plunge in the US 10-year bond yield (2.133% - 2.073%, 21-month low, JPM slashes US yield forecasts) and further weakness in global equities in response to further concerns over an expanding trade war. The US removed India from a privileged trading program, and rhetoric from China intensified (unreasonable US demands led to collapse of the trade talks in May, US was untrustworthy negotiator, begins probe of FedEx). The NIKKEI fell 0.9%, the SCI was off 0.3%, European markets were off from 0.1% to 0.4%, and S&P futures were off 0.7%. Gold was also boosted by some modest weakness in the US dollar (DX from 97.81 – 97.58). The greenback was pressured mostly by strength in the yen (108.24 – 108.26, fresh 5-month high, safe haven, stronger Japanese Capital Spending and PMI).
Ahead of the NY open, US equity futures pared some losses (S&P futures -2 to 2750), and the US 10-year bond yield bounced to 2.119% - helped by some upbeat comments from the soon to be resigning CEA Chair Kevin Hasset. The DX softened, however (97.57), pressured by strength in the euro (rebound from $1.1160 - $1.12, shrugs off weak German and Eurozone PMI’s). Gold was caught in the cross currents and traded down to $1313.50.
US stocks opened firmer (S&P +7 to 2759), with gains in the Materials and Energy sectors leading the advance, and a recovery in oil (WTI to $54.60) aiding the move (Saudis say they will manage supplies to avoid surplus, possible strike in Norway tomorrow). The 10-year yield hovered around 2.115%, and the DX had a modest bounce to 97.68. Gold was fairly resilient – dipping to $1312.50, where it found support ahead of the prior resistance $1309-12.
At 10 AM, a worse than expected reading on US ISM Manufacturing (52.6 vs. exp. 53) took stocks back into the red (S&P -18 to 2834) and to fresh lows by early afternoon. The 10-year yield was pressed back to 2.093% and the DX slid to 97.20 (3-week low). Gold popped higher – taking out the 3/27 high at $1319, $1322 (3/26 high), and $1325 (options, 3/25 high) to reach $1325.90. A fair amount of short covering along with an influx of new longs was seen.
In the afternoon, US stocks bounced back to unchanged (S&P to 2752), helped by some dovish comments from the Fed’s Bullard (rate cut may be warranted soon given the rising risk to eco growth posed by global trade tensions as well as weak US inflation) and Barkin (running the US economy hot could boost the labor force). The 10-year yield slipped to 2.088%, and the DX ticked down to 97.18. Gold was caught in the cross currents, and traded in a choppy fashion between $1323.50 - $1325.50.
Later in the afternoon, the S&P made a fresh intraday low (-23 to 2729) before finishing off 9 to 2743. The 10-year yield bounced back to 2.265%, but the DX dipped to 97.10 before recovering to 97.20. Gold continued to firm, with some momentum buying lifting the yellow metal to $1328. It was $1325 bid at 4PM with a gain of $20.
Open interest was up big – 21.8k contracts – showing a large net of new longs from Friday’s rally. Volume was higher with 359k contracts trading, still a bit inflated by the June-August contract rollover - which is now essentially complete.
Bulls were thrilled with gold’s $20 gain today and for its ability to breach and hold key resistance levels at $1307 (50% retracement of down move from 2/20 $1347 high to 4/23 $1266 low), $1309-12 (triple top – 3/28, 4/10 and 4/11 highs), $1319 (3/27 high), $1322 (3/26 high), and $1325 (options, 3/25 high). Bulls feel the move down from the $1304 high to $1270 two weeks ago was overdone, and used the dip to get long(er) at more attractive levels. Despite Powell’s brush off of recent weak inflation data as transitory last month - bulls feel that the Fed’s dovish pivot has not been altered, and that market perceptions that the next move(s) will be a cut and not a hike are still intact and increasing– especially given the abundance of dovish commentary from the several Fed governors who have spoken in recent days, along with escalating fears that a protracted trade war - now involving Mexico - will impede global growth (FedWatch now has a 64.3 % probability of a 25 bp cut at the July meeting, and a 66.9% chance of a 2nd 25 bp cut at the October meeting, US 10-year yield made fresh 21-month low). This they feel will keep US interest rates from climbing, keep the US dollar in check, and allow gold to probe higher. Bulls also point to Friday’s Commitment of Traders Report (as of 5/28) that showed the large funds with a still relatively small net long position (89k), and a still relatively high gross short position (115k contracts). Therefore, the bulls feel the gold market remains set up to move higher, as these shorts will provide fuel to further upside moves - when forced to cover (as seen again today). Bulls will look for the rally to extend, and challenge initial resistance at $1327-28 (double top - 2/28 and today’s highs) followed by $1330 (double top – 2/27 and 2/26 highs), $1333 (double top 2/22 and 2/25 highs)and then $1342 (double top - 2/19 and 2/21 highs). If bulls can get a breach of $1346-47 (double top 2/20 and 4/20/18 highs) and $1348 (down trendline from 8/25/13 $1433 high), they feel fresh momentum buying will propel the market toward the tough resistance levels of $1353-56 (triple top – 4/12/18, 4/18/18 and 4/19/18 highs), $1365-67 (triple top 8/2/16, 1/25/18 and 4/11/18 highs), and $1373-75 (double top – 7/6/16 and 7/11/16 highs).
Like Friday, a good many bears were stopped out today, still smarting from gold’s failure to breach the up trendline from the $1160 low at $1275 early last week. However, other bears with stronger hands used gold’s bounce in the past three sessions to get short(er) at better levels. Bears see gold’s $58 rebound from its $1270 low on 5/21 as overextended, with its 14-day RSI at 71.8 signaling overbought. While some bears acknowledge a growing concern over lower rates – both the in the long end (10-year to 21-month lows) and the short end (FedWatch predicting earlier Fed cuts), they feel that an imminent rate cut by the Fed is not in the cards, and see the Fed’s predominant watchword “patience” as a double-edged sword. They feel that the downward pressure on bond yields is also getting overdone, and a modest reversal should allow the US dollar to appreciate 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 (including today’s German and Eurozone PMI data ) for both Germany and the Eurozone that drove the German 10-year yield further into negative territory over the past two weeks (record low yield today) 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 and reverse recent softness in equities. They expect the rebound in US equities seen over the past 5 months to resume (S&P made all time high just 1 month ago), 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 the key $1307 level (50% retracement of down move from 2/20 $1347 high to 4/23 $1266 low)
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), Q1 corporate earnings, oil prices, and will turn to reports tomorrow on Eurozone Unemployment and CPI, US Factory Orders and Durable Goods, and comments from the Fed’s Williams, Brainard and Powell for near term direction.
In the news:
JPMorgan slashed US yield forecasts on trade war shock: https://www.bloomberg.com/news/articles/2019-06-02/jpmorgan-cuts-u-s-10-year-yield-target-to-1-75-from-2-45
Goldman eyes $1330 after break of $1307: https://www.forexlive.com/technical-analysis/!/goldman-sachs-eyes-1380-in-gold-20190603
US Mint gold coin sales fall 60% in May: https://www.reuters.com/article/us-mint-american-eagle-gold-coin-sales-f/u-s-mint-american-eagle-gold-coin-sales-fall-60-pct-in-may-idUSFWN2370SZ?rpc=401&
$1327-28 – double top, 6/3/, 2/28 highs
$1330 – double top – 2/27 and 2/26 highs
$1333 –double top 2/22 and 2/25 highs
$1342 – double top - 2/19 and 2/21 highs
*$1346-47 – double top 2/20 and 4/20/18 highs
*$1348 – down trendline from 8/25/13 $1433 high
$1353-56 – triple top – 4/12/18, 4/18/18 and 4/19/18 highs
*$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
$1325 – options
$1325 – 3/25 high
$1322 -3/26 high
$1319 - 3/27 high
$1309 - 12 - triple top – 3/28, 4/10 and 4/11 highs
$1307 – 5/31 high
$1307 – 50% retracement of down move from 2/20 $1347 high to 4/23 $1266 low
$1304 - 5/14 high
$1301 – double top 5/13 and 5/15 highs
$1300 – psychological level, options
$1299 – 5/16 high
$1297– 100-day moving average
$1293 – down trendline from 2/20 $1347 high
$1289 – double top - 5/17 and 5/30 highs
$1288 – 20-day moving average
$1288 – 50-day moving average
$1285-87 – 5 tops – 5/23, 5/24, 5/27, 5/28, and 5/29 highs
$1285 - 40-day moving average
$1279 – 5/29 low
$1276 – 5/28 low
$1275 – options
*$1275 – up trendline from 8/16/18 $1160 low
$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
*$1262 – 200-day moving average
$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