Gold Traders' Report - March 13, 2019

Jim Pogoda, Senior Gold Trader, Gold Bullion International 
MAR 13, 2019

Gold continued its rebound overnight, climbing in a range of $1301.65 - $1309.40.

The yellow metal uncovered some buy stops over $1303-05 - the former breakout and support level, the down trendline from its $1347 top and the 50-day moving average - to reach its high.

It has now recovered $28 from its dip to the $1281 low from last week and is within $5 of the 50% retracement of the move down from the 2/20 $1347 high.

The advance was fueled by a pullback in the US dollar (DX from 97.02 – 96.85), which was under pressure from a rebound in the yen (111.13 – 111.43, stronger Japanese Tertiary Industry Index), a firmer pound ($1.3056 - $1.3162, increasing probability that UK Parliament will vote to reject disruptive no-deal Brexit later today and vote to delay the 3/29 exit date, EU’s Barnier would consider a short extension that won’t interfere with May 24-26 EU Parliamentary elections) and euro ($1.1281 - $1.1305, stronger Eurozone Industrial Production).

Gold was also lifted by mostly softer global equities with the NIKKEI down 1%, the SCI lost 1.1%, European markets ranged from -0.1% to +0.3%, and S&P futures were +0.1%.

Firmer oil prices (WTI from $56.90 - $57.50) from a larger than expected draw in US oil and gasoline inventories from the API report last night was a tailwind for stocks.

At 8:30 AM, a much better than expected reading on US Durable Goods (0.4% vs. exp. -0.4%) overshadowed a miss on PPI (0.1% vs. exp. 0.2%), and lifted S&P futures (+10 to 2707).

The US 10- year bond yield – which had recovered last night from a 3-month low at 2.958% to 2.619% - climbed further to 2.625%.

The DX rose to 96.91, and gold softened to $1306. Shortly afterward, however, continued strength in the pound ($1.3194) and the euro ($1.1313) pushed the DX down through the overnight low and yesterday’s low of 96.85 to reach to 96.71.

Gold probed higher to $1309.30, but couldn’t take out its overnight high.

At 10AM, a much stronger than expected report on US Construction Spending (1.3% vs. exp. 0.4%) drove US stocks higher (S&P + 27 to 2818) into the late morning with the IT, Industrials, Health Care and Financials sectors leading gainers.

A continued advance in oil (WTI to $58.05 – 4 month high) from the EIA report of larger than expected draws in US oil and gasoline inventories contributed to the advance.

The 10-year yield bounced off of a prior dip to 2.612% to reach 2.621%. The DX had a modest rebound to 96.80, and gold was tugged back to $1306.50.

Into the afternoon, US stocks trimmed some gains (S&P +22 to 2813), with another dip in Boeing (Canada grounds the 737 Max) weighing.

The 10-year yield edged down to 2.612%, and the DX dipped to 96.65 – a 1-week low). Gold traded up to $1309 but failed again to take out the overnight high.

Open interest was up 11k contracts, showing a good chunk of new longs in from yesterday’s rally. Volume was moderately higher with 250k contracts trading.

Bulls were encouraged by today’s advance, especially taking out and holding above key resistance at $1303-05.

They maintain that gold’s correction down from $1347 has been overdone, and are pleased especially by the price action over the past 5 sessions - that the yellow metal has put in 4 consecutive higher 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 see no significant resistance until $1314 (50% retracement of the down move from 2/20 $1347 high to 3/7 $1281 low) and $1315 (3/1 high).

Some bears were stopped out over the key $1303-05 former breakout and support level, and down trendline from $1347 - but others still see gold’s recent advance as only 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 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 $1271.

In the news:

Resistance levels: 

$1311 – 20-day moving average

$1314 – 50% retracement of down move from 2/20 $1347 high to 3/7 $1281 low

$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:

$1307 – 40-day moving average

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

$1304 – 50-day moving average

$1300 – psychological level, options

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

$1298 – down trendline from 2/20 $1347 high

$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

$1271 – 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