Jim Pogoda, Senior Gold Trader, Gold Bullion International
JUN 4, 2019
Gold was nervous and choppy last night in a range of $1320 - $1329 – typical of a market that just reached multi-month highs. Gold rose to its high of $1329 (fresh 3-month high) during late Asian and early European time, helped by a dip in the US dollar (DX to 96.99, 7-week low). The DX was pressured by safe haven flows into the yen, which made a 5-month high at 107.83. Gold was also boosted by a rate cut by Australia’s central bank (1.50% - 1.25%), its first in 3 years. Later during European time, gold was knocked down to its $1320 low against a rebound in the US -10-year bond yield (2.075% - 2.126%) and a bounce in global equities. European markets were up from 0.3% to 1.0%, and S&P futures rose 0.7%. Stocks responded positively to some conciliatory comments from China’s Foreign Ministry (trade dispute should be resolved with talks) after both sides had ramped up threats in recent days, and remarks from Mexican Foreign Minister Ebrard that he expects to find mutual understanding with the US officials over immigration to avert tariffs threatened by Trump. Gold was also pressured by a rebound in the DX (97.32), which was helped by a dip in the pound ($1.2686 - $1.2641, weaker UK Construction PMI) and the euro ($1.1277 - $1.1230, miss on Eurozone CPI).
US stocks opened firmer (+36 to 2780), helped by some dovish remarks from the Fed’s Powell (Fed will act as appropriate to sustain the expansion), and overcoming a slight miss on US Factory Orders (-1.0% vs. exp. 0.9%). Gains in the IT (after yesterday’s thrashing over DOJ and FTC inquiries), Financials, Consumer Discretionary, and Industrials sectors led the advance. The 10-year yield dipped to 2.111%, and the DX plunged briefly to 97.04. Gold spiked off of the DX plunge to $1328.80 –but was capped by the overnight high. However, gold quickly retreated back to the $1323-25 level as the DX bounced back to 97.20.
Equites continued to firm into mid-day (S&P +50 to 2795), with Powell’s comments still resonating, and with some help from a rebound in oil (WTI to $53.76). The 10-year yield climbed to 2.147%, and the DX rose to 97.32. Gold retreated in response, but found support at $1321 – ahead of its overnight low.
US stocks gained more ground later in the afternoon (S&P finished +59 to 2803) but the 10-year yield softened further (2.114%). The DX retreated fell back to 97.04, and gold climbed back to $1328. Gold was $1326 at 4PM with a gain of $1.
Open interest was up 11.6k contracts, showing a net of new longs (overshadowing the heavy short covering seen) from yesterday. Volume was higher and remained robust (despite the dwindling June-Aug rollovers) with 376k contracts trading.
Bulls were pleased with gold’s ability to advance today, despite the surge in US stocks, the bounce in the US 10-year bond yield, and with the DX remaining north of 97. They’re thrilled that gold has held above 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. (FedWatch now has a 60.9 % probability of a 25 bp cut at the July meeting, and a 65.2% chance of a 2nd 25 bp cut at the October meeting, US 10-year yield trading near 21-month lows). This was bolstered by Powell’s comments today (Fed will act as appropriate to sustain the expansion) and the abundance of dovish commentary from the several Fed governors who have spoken in recent days. In addition, bulls feel escalating fears of a protracted trade war with China, along with concerns the US would be entering a trade war with Mexico will impede global growth. 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 last 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 Friday and yesterday). Bulls will look for the rally to extend, and challenge initial resistance at $1327-29 (triple top - 2/28, 6/3, and 6/4 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).
Bears were disappointed that gold failed to pull back today – given the magnitude of the rally in US stocks, along with the bounce in the 10-year yield and relatively stable DX. While many bears were stopped out Friday and yesterday, 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 $59 rebound from its $1270 low on 5/21 as overextended, with its 14-day RSI at 72.2 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 Eurozone CPI) 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 again today at -0.219%) 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 China’ Caixin PMI, Eurozone PMIs, PPI, and Retail Sales, UK PMI, US ADP Employment Change, Markit Services PMI, ISM Services, Oil Inventories, Fed’s Beige Book, and comments from the BOE’s Ramsden and the Fed’s Clarida, Bowman and Bostic for near term direction.
In the news:
Investors stampede into gold as top ETF jumps most since ’16: https://www.bloomberg.com/news/articles/2019-06-04/investors-stampede-into-gold-as-top-etf-swells-most-since-2016
China’s physical gold market still firing on all cylinders: https://www.bullionstar.com/blogs/ronan-manly/still-firing-on-all-cylinders-chinas-physical-gold-market/
|US 10-year bond yield|
$1327-29 – triple top, 6/3, 6/4, and 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
$1320 – 6/4 low
$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