Jim Pogoda, Senior Gold Trader, Gold Bullion International
JUN 6, 2019
Gold firmed overnight, trading in a choppy fashion in a range of $1327.15 - $1337.50. It rose to $1333.75 during early Asian time against a drop in S&P futures on news that the US and Mexico failed to reach a deal during negotiations yesterday afternoon. However, the yellow metal dipped down to its $1327.15 low shortly afterward as equity futures recovered off news that talks would resume today. Gold rebounded during late Asian time and across European hours to its $1337.50 high, fading a decline in the US 10-year bond yield (2.135% - 2.095%) and some moderate weakness in the US dollar (DX from 97.44 – 97.20). The greenback was pressured by gains in the yen (108.45 – 108.07), pound ($1.2680 - $1.2698), and the euro ($1.1220 - $1.1242). Global equities were mostly firmer and a headwind for gold with the NIKKEI flat, the SCI was off 1.2% (Trump says tariffs on China could be raised by another $300B if necessary), European markets were up from 0.7% to 0.8%, and S&P futures were +0.4%. A recovery in oil (WTI from $51.25 - $52.23) was supportive of stocks.
Ahead of the NY open, the ECB kept rates unchanged and pushed forward guidance into H1 2020, but raised their 2019 inflation forecast (1.3% to 1.2%), 2019 growth forecast (1.2% from 1.1%) and raised the rate on the new TLTRO at the deposit rate + 10 bps. The euro spiked ($1.272), and knocked the DX back to 96.99. Gold climbed further, trading up to $1338.25.
At 8:30 AM, worse than expected readings on US Jobless Claims (218k vs. exp. 215k), Unit Labor Costs (-1.6% vs. exp. -0.9%), and Productivity (3.4% vs. exp. 3.5%) took S&P futures lower (unchanged at 2827), but the US 10-year yield hovered around 2.10%. The dollar sank further (DX to 96.78), also pressed by some surprisingly hawkish comments from Draghi (resilient economic progress despite global trade tensions, upgraded growth and inflation forecasts) that drove the euro to $1.1308. Gold was unable to advance however, trading in a ripply manner between $1335-38.
US stocks opened stronger (S&P +7 to 2833), helped by gains in the Energy, Health Care, and Consumer Staples sectors. The 10-year yield remained steady around 2.10%, but the DX bounced to 97.19. The DX was helped by a retracement in the euro ($1.1245, Draghi mentions several members of ECB Governing Council raised the possibility of rate cuts). Gold was tugged lower, but found support at $1333.
Equities turned down into mid-day (S&P unch at 2826), while the 10-year yield dipped to an intraday low of 2.093%. The DX retreated to 96.82 (recovery in the choppy euro to $1.30), and gold rallied – taking out its prior $1338.25 high to reach $1340.
US stocks recovered into the afternoon (S&P +17 to 2843), helped by reports that the US may delay tariffs on Mexico, some upbeat comments from Mexico’s Foreign Minister Ebrard (talks will continue, I think they’re advancing), along with some dovish remarks from the Fed’s Williams (excessively low inflation a pressing problem). The 10-year yield edged back up to 2.126%, and the DX ticked up to 97.08. Gold slid in response, and traded down to $1333.
Later in the afternoon, US stocks added to their gains (S&P finished +18 to 2844), helped by a recovery in oil (WTI to $53.28). The 10-year yield ticked up to 2.133%, while the DX traded either side of 97.05. Gold was steady between $1333 - $1335, and was $1333 bid at 4PM with a gain of $1.
Open interest was up 8.2k contracts, showing a net of new longs (overshadowing the short covering seen) from yesterday’s rally. Volume surged with 429k contracts trading. Bulls were pleased with gold’s gain today, despite ending the streak of 6 consecutive sessions of higher highs. However a streak of 5 consecutive sessions of higher lows is intact, and bulls are encouraged that gold was able to hold onto a gain given the strength in equities. Bulls remain 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 68.7% probability of a 25 bp cut at the July meeting, and a 68.8% 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 Tuesday (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 in recent sessions). Bulls will look for the rally to extend, and challenge initial resistance at $1340 (today’s high), $1342 (double top - 2/19 and 2/21 highs), and $1344 (6/5 high). 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 concerned with gold’s resilience today, continuing to advance despite the strength in equities. While many bears were stopped out in recent sessions, other bears with stronger hands used gold’s bounce in the past six sessions to get short(er) at better levels. Bears see gold’s $74 rebound from its $1270 low on 5/21 as overextended, with its 14-day RSI at 74.8 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 (as Kaplan remarked), 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 for both Germany and the Eurozone that drove the German 10-year yield further into negative territory over the past month (record low bund yield again today at -0.241%) 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), oil prices, and will turn to reports tomorrow on Japan’s Household Spending and Leading Index, China’s Foreign Reserves, German Industrial Production and Trade Balance, US Payroll Report, Wholesale Trade Sales, Baker Hughes Rig Count, and Commitment of Traders for near term guidance.
In the news:
Gold-backed ETFs experienced small outflows in May: https://www.gold.org/goldhub/data/global-gold-backed-etf-holdings-and-flows
Agnico Eagle CEO sees potential Fed easing as boost for gold: https://www.bloomberg.com/news/videos/2019-06-05/agnico-ceo-sees-potential-fed-easing-as-boost-for-gold-video
|US 10-year bond yield|
$1340 – 6/6 high
$1342 – double top - 2/19 and 2/21 highs
$1344 – 6/5 high
*$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
$1333 –double top 2/22 and 2/25 highs
$1330 – double top – 2/27 and 2/26 highs
$1327-29 – triple top, 6/3, 6/4, and 2/28 highs
$1327 – 6/6 low
$1325 – options
$1325 – 6/5 low
$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
$1298– 100-day moving average
$1295 – 20-day moving average
$1291 – down trendline from 2/20 $1347 high
$1289 – double top - 5/17 and 5/30 highs
$1289 – 50-day moving average
$1288 - 40-day moving average
$1285-87 – 5 tops – 5/23, 5/24, 5/27, 5/28, and 5/29 highs
$1279 – 5/29 low
*$1276 – up trendline from 8/16/18 $1160 low
$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
*$1264 – 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