Gold Traders' Report - March 12, 2019

Jim Pogoda, Senior Gold Trader, Gold Bullion International 
MAR 12, 2019

Gold firmed overnight, trading in a narrow range of $1292.50 - $1297.90.

It was fueled by a dip in the US dollar (DX from 97.21 – 96.90) as the pound soared ($1.3134 - $1.3288, 2-week high) and the euro advanced ($1.1240 - $1.1284) on news that PM May was able to secure legal changes with the EU’s Junker to the current Brexit proposal.

She gained assurances over the Irish backstop with hopes that she will get the Brexit accord through Parliament in a vote later today.

Global equities cheered the news and were a headwind for gold, however, with the NIKKEI up 1.8%, the SCI gained 1.1%, European markets were +0.1%, and S&P futures were +0.2%.

Another move up in oil (WTI from $56.75 - $57.44) was supportive of stocks.

Ahead of the NY open, news that the UK Attorney General Cox said the new Brexit deal does not change the risk of staying in the Irish Backstop sent the pound tumbling back to $1.3005, and knocked the euro down to $1.1274.

The DX popped back higher, reaching 97.29. Gold retreated, but bargain hunting bids limited its downside to $1295.25.

At 8:30 AM, the US CPI report was slightly lower than expected. While the overall report was +0.2% as expected, the Core came in lighter (0.1% vs. exp. 0.2%).

S&P futures moved higher (+7 to 2796, less pressure on Fed to resume hiking), and the US 10-year bond yield slipped to 2.63%.

The DX dipped back to 97, and gold moved higher. Some light buy stops were elected over last night’s high to reach $1299.50, but resistance ahead of $1299-$1301 (last two session’s highs) capped the advance.

US stocks climbed higher after their open (S&P +14 to 2797), with solid gains in the Energy, IT, and Communication Services overcoming a 2ndday of weakness in Boeing (several countries/airlines grounding their 737 Max jets following the 2 crashes).

The US 10-year yield ticked down to 2.625%, while the DX edged up to 97.07. Gold came off its high and was pressed down to $1295.50 – but bargain hunting buying was again prevalent, and took the yellow metal quickly back to the $1297 area.

Equities remained fairly firm (S&P between 2790-99) into the afternoon, absorbing further losses in Boeing. The 10-year yield probed lower to 2.612% while the DX slipped to 96.92, and gold clawed back to $1298.

Later in the afternoon, PM May’s Brexit deal suffered its 2nd defeat in the UK Parliament. US stocks came off their highs came off their highs (S&P finished +9 to 2792), while the US 10-year yield continued to soften (2.60% - 2 ½ month low).

The DX was tugged down to 96.85 as the pound spiked to $1.3145 and gold took out initial resistance at $1299-$1301 to reach $1302.20. However, resistance at the old breakout level of $1303-05 held. Gold was $1301 bid at 4PM with a gain of $9.

Open interest was up 5.2k contracts, showing a net combination of new shorts along with some new bottom fishing longs from yesterday’s decline. Volume was much lower with 240k contracts trading.

Bulls cheered today’s $9 gain – especially with the strength in equities – and were encouraged with gold’s ability to breach and hold resistance at $1299-$1301.

They maintain that gold’s correction down from $1347 has been overdone, are encouraged - especially by the price action over the past 4 sessions - that the yellow metal has put in 3 consecutive lower lows, and seems to have 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 last Friday) and a correction in the torrid US dollar to resume driving gold higher.

Bulls also point to last 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 breakout and support level at $1303-05 followed by $1315 (3/1 high).

Bears see today’s advance as a modest bounce within the early stages of a more significant downside correction. They 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.

This, 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 $1270

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 reports tomorrow on Japan’s Machine Orders, Corporate Goods Price Index, and Tertiary Industry Index, Eurozone Industrial Production, US MBA Mortgage Applications, PPI, Durable Goods, Construction Spending and Oil Inventories for near term direction.

In the news:

Resistance levels: 

$1299 - $1301 – triple top – 3/8, 3/11, and 3/12 highs

$1300 – psychological level, options

$1301 – down trendline from 2/20 $1347 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

$1311 – 20-day moving average

$1315 – 3/1 high

$1325 – options

$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:

$1291-92 – double bottom -  3/11 and  3/12 lows

$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

$1281 – up trendline from 12/28 $1274 low

$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

$1270 – 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