Gold Traders' Report - March 11, 2019

Jim Pogoda, Senior Gold Trader, Gold Bullion International 
MAR 11, 2019

Gold had a modest pullback overnight, moving in a range of $1294.20 - $1299.25.

It faded strength in global equities as the NIKKEI gained 0.5%, the SCI rose 1.9%, European markets were up from 0.3% to 0.8%, and S&P futures were +0.1%.

Firmer oil prices (WTI from $55.95 - $56.76, Saudis say end to supply cuts was unlikely before June) along with some dovish comments from Powell last night (does not feel any hurry to change level of rates, current rates roughly neutral, no reason the economy can’t continue to expand) aided the strength in stocks.

A firming in the US 10-year bond yield (2.625% - 2.657%) was also a headwind for gold, while the US dollar traded either side of unchanged (DX from 97.27 – 97.46).

The dollar was boosted from some early weakness in the yuan (6.7173 – 6.7264) from a miss in New Yuan loans, the yen (110.88 – 111.30, appetite for risk increases, miss in Japan’s Machine Tool Orders), and the pound ($1.3018 - $1.2960, May seen failing to get Brexit votes).

Later during European time, the DX worked lower from a rebound in the euro ($1.1222 - $1.1258, shrugs off weaker German Industrial Production), and the pound ($1.2963 - $1.3034).

At 8:30 AM, the initial read on the US Retail Sales Report was positive (0.2% vs .exp. -0.1%). S&P futures moved higher (+9 to 2760), the 10-year yield ticked up to 2.645% (after a prior pullback to 2.639%), and the DX reached 97.37.

Gold softened and traded down to its overnight low at $1294.25. Shortly afterward, markets focused on the large negative revision to last month’s poor reading (-1.2% to -1.6%).

This sent the 10-year yield down to 2.632% and knocked the DX back to 97.20. The DX was also pressured by a continued bounce in sterling ($1.3095) and the euro ($1.1255) on hopes for a last-minute Brexit deal (May flying to Strasbourg for talks with Junker). Gold rose in response and traded up to $1297.

US stocks opened firmer and climbed into late morning hours (S&P +30 to 2773) with strength in the IT, Energy, Communication Services and Materials sectors overcoming a huge loss in Boeing (2nd crash of 737 Max).

A further increase in oil (WTI to $56.95) and a solid report on US Business Inventories (0.6% as expected) aided the move.

The 10-year yield edged up to 2.643%, and the DX recovered to 97.31. Gold took out its overnight low at $1294 to reach $1291 - however, some bargain hunting buying brought the market back to $1293.50.

Into the afternoon, US stocks continued to advance (S&P +36 to 2780), while the US 10-year yield hovered around 2.645%.

The DX slid lower, however, pressured by the pound reaching $1.1369. Gold was caught in the cross-currents and probed lower – making a fresh low of $1290.50.

Open interest was up 13.8k contracts, showing a good chunk of new longs (but also some new shorts) from Friday’s rally. Volume was a little higher and remained robust with 328k contracts trading.

Bulls were disappointed with today’s decline, and gold’s inability to crack $1300 when the DX pulled back earlier in the session.

However, they maintain that gold’s correction down from $1347 has been overdone, are encouraged - especially by the price action over the past 3 sessions - that the yellow metal has consolidated ahead of key support at $1277-80 (7 bottoms – 12/28, 1/4, 1/21, 1/22, 1/23, 1/24 and 1/25 lows).

Bulls are confident that the trend is their friend, and while the up trendline from the 11/13 $1196 low was violated, technicians have other up trendlines that are still intact, going back to the 8/16/18 $1160 low.

They look for the strong rally over the past 4 months to carry further, expecting continued volatility in equity markets along with a pause in Fed rate hikes for a considerable period (especially given the poor US Payroll Report Friday) and a correction in the torrid US dollar to resume driving gold higher.

Bulls also point to Friday’s Commitment of Traders Report (as of 3/5 and current) that still has the large funds with a significant gross short position. 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.

Bulls look for a continued bounce back to test the former support level at $1303-05 followed by $1308 -the down trendline from the 2/20 $1347 high.

Bears welcomed today’s decline in gold – especially given the pullback in the US dollar. Bears still remain comfortable selling into strength and will continue to use rallies as entry points for getting short(er).

They maintain that gold’s advance to $1347 had been overdone – having rallied $70 since the $1277 low on 1/24 (5.48%), $114 since the $1233 low on 12/14 (9.25%), and $151 since the $1196 low on 11/13 (12.63%).

They maintain that the 20% correction in equities – much of which occurred during very illiquid holiday trading – was also overdone, and expect the rebound seen over the past 10 weeks to resume – seeing the recent pullback in the S&P (95 points from the 3/4 2818 high) as a healthy correction. Bears also feel that the strength in the US dollar has legs – especially given last Thursday’s surprise dovishness from the ECB and the poor Chinese trade data from the night before – and will continue to pressure gold lower.

In addition, bears think that the recent severe cuts in growth estimates by the UK, the Reserve Bank of India, a recent change to lower guidance by the Bank of Australia, and China’s slowdown leaves the US as the sole global growth engine (notwithstanding today’s soft US Payroll Report).

aThis, they feel should keep the US dollar well bid. Bears expect further long liquidation to resume and expect a breach of initial support at $1281-84 followed by $1277 – 80 (7 bottoms – 12/28, 1/4, 1/21, 1/22, 1/23, 1/24 and 1/25 lows) to bring a test of the 100-day moving average at $1268.

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, Q4 corporate earnings, and will turn to comments this evening from Powell followed by reports tomorrow on UK’s Trade Balance, Industrial Production, Construction Output, GDP, US NFIB Small Business Optimism Index, CPI, Real Earnings, and comments tomorrow from the ECB’s Lautenschläger and the Fed’s Brainard for near-term guidance.

In the news:


Resistance levels: 

$1299 – 3/11 high

$1300 – psychological level, options

$1301 – 3/8 high

$1303 – 50-day moving average

$1303-05 – 5 bottoms - 1/29, 2/7,2/11, 2/13 and 2/14 lows

$1307 – 40-day moving average

$1309 – down trendline from 2/20 $1347 high

$1310– up trendline from 11/13 $1196 low

$1311-13 – double bottom 2/15 and 2/28 lows

$1312 – 20-day moving average

$1317 – 2/27 low

$1321-23 – quadruple bottom – 2/18, 2/19, 2/21, and 2/26 lows

$1322-23 – quadruple top – 5/14/18, 1/30, 2/1, and 2/15 highs

$1325 – options

$1325 - 27 – 6 tops-  1/31, 2/18,  4/26/18, 4/27/18,4/30/18, and 5/11/18 highs

$1327 – 2/28 high

$1330 – double top – 2/27 and 2/26 highs

$1333 –double top 2/22 and 2/25 highs

$1336 – 4/23/18 high

$1342 – double top - 2/19 and 2/21 highs

$1346-47 – double top 2/20 and  4/20/18 highs

$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

Support levels:

$1291 – 3/11 low

$1289-91 – triple top – 3/5, 3/6, and 3/7 highs

$1281-84 – quadruple bottom 3/4, 3/5, 3/6, and 3/7 lows

$1277 – 80  7 bottoms – 12/28, 1/4, 1/21, 1/22, 1/23, 1/24 and 1/25  lows

$1275 – options

$1274 – 12/28 low

$1269 – 100-day moving average

$1265-67 – 12/25, 12/26 ,and 12/27  lows

$1259 – 12/24 low

$1254 – 12/21 low

$1250 – options

$1247 – 200-day moving average