Gold Traders' Report - March 15, 2019

Jim Pogoda, Senior Gold Trader, Gold Bullion International 
MAR 15, 2019

Gold bounced back last night, trading higher in a range of $1294 - $1304.50.

It tripped some buy stops over $1297 (yesterday afternoon’s high), and $1300, but was capped by resistance at $1303-05 (former breakout from 6/15/18 top and prior 5 bottom support - 1/29, 2/7, 2/11, 2/13, and 2/14 lows).

The move was fueled by a pullback in the US dollar (DX from 96.79 – 96.59), which was pressured by some strength in the yuan (6.7293 – 6.7060, stronger Foreign Direct Investment), the euro ($1.1296 - $1.1329, stronger German Wholesale Price Index, Eurozone CPI as expected), and the pound ($1.3221 - $1.3278 – extremely choppy, markets digesting if lessening probability of no-deal Brexit outweighs uncertainty of the duration of Article 50 as May will now ask EU for delay).

Considerably firmer global stocks were a headwind for gold, with the NIKKEI up 0.8% (BOJ dovish – downgraded assessment of exports, factory output and global economy), the SCI rose 1%, European markets were up from 0.3% to 0.6%, and S&P futures were +0.4%.

Stocks were lifted by higher oil prices (WTI to $58.93 – fresh 4-month high) along with a report from the Chinese state media last night that the China’s Vice Premier Liu He spoke with Mnuchin and Lighthizer, and that US and Beijing were making “concrete progress” on the text of the trade agreement.

S&P futures firmed further ahead of the NY open (+14 to 2826), while the US 10-year bond yield moved up to 2.634%. The DX climbed to 96.76, and knocked gold back to $1301.

Misses on the US Empire State Manufacturing Index at 8:30 AM (3.7 vs. exp. 10) and Industrial Production (0.1% vs. exp. 0.4%) and Capacity Utilization (78.2% vs. exp. 78.5%) at 9:15 AM along with a plunge in oil (WTI to $57.75, IEA says mkt could show modest surplus in Q1, strong US production) knocked S&P futures back to 2815.

The US 10-year yield sank to 2.58% (fresh 2-month low) and the dollar dipped to 96.54, taking out its overnight low. Gold rebounded, but topped out at $1304, where resistance at the overnight high and key $1303-05 level held.

At 10AM, much stronger than expected readings on the University of Michigan Consumer Sentiment (97.8 vs. exp. 95.6) and JOLTS Job Openings (7.581M vs. exp. 7.225M) took US stocks higher (S&P +12 to 2820). The US 10-year yield ticked up to 2.596%, and the DX bounced to 96.61.

Gold came of its high, but dip buying limited its decline to $1303.

Stocks retreated into the mid-morning, however, (S&P +4 to 2812), with the 10-year yield hovering around 2.585%.

The DX retreated to 94.48, which was also pressured by strength in the pound (Ministers in talks with DUP – who rejected May’s deal twice – to get them to back May’s Brexit deal) and the euro ($1.1344).

Gold popped higher, and took out resistance at $1303-05 to reach $1306.30, where resistance in front of $1307 (down trendline from 2/20 $1347 high) held.

Into the afternoon, US stocks climbed higher (S&P +21 to 2830) with gains in the IT, Consumer Staples, and Financials sectors leading the advance. A turnaround in Boeing on a report that a 737 Max software fix could come earlier than expected along with a rebound in oil (WTI to $58.62) aided the move.

The 10-year yield bounced back to 2.605%, and the DX recovered to 96.62. Gold slid lower in response, but found support at $1301.50 – ahead of the morning low.

Later in the afternoon, US stocks pared gains (S&P finished up 14 to 2822), with losses in Alphabet weighing (Bloomberg reports states to take early steps toward Google probe).

The 10-year yield edged down to 2.589%, but the DX was steady between 96.56-96.61. Gold was similarly stable, stuck between $1301.25 - $1302, and was $1302 bid at 4PM with a gain of $6.

Open interest was up 8.3k contracts, showing a combination of new shorts along with some bargain hunting new longs from yesterday’s decline. Volume increased with 287k contracts trading.

The CFTC’s Commitment of Traders Report as of 3/12 (current) showed the large funds adding 2.6k contracts of longs and 11.8k contracts of shorts to trim their net long position to 79k contracts, with gross shorts up to 126k contracts. This was done during gold’s move up from $1282 to $1302.

While there had been some significant short covering on Wednesday to $1311 and in today’s rebound, this gross short position is still sizeable, and probably still north of 110k contracts.

This still sets up the gold market very well to resume moving higher as many weaker longs have been forced out – and won’t weigh on advancing prices. Also, the still elevated amount of gross shorts - when forced to cover (though most are still in the money now) - will help accelerate any upside moves.

Bulls were encouraged with gold’s $6 advance today – given the more modest pullback in the DX and the strong advance in equities.

Bulls maintain that gold’s correction down from $1347 has been overdone, and feel that gold 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 and Retail Sales reports last week) and a correction in the torrid US dollar to resume driving gold higher.

Bulls also point to today’s Commitment of Traders Report (as of 3/12 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 breach of initial resistance $1303-05 (former breakout over 6/15/18 top and prior 5 bottom support - 1/29, 2/7, 2/11, 2/13, and 2/14 lows) to lead to a retest of $1307 (downtrend line from 2/20 $1347 high) followed by $1310-11 (double top, 3/13 and 3/14 highs).

Some bears are concerned with gold’s ability to rebound today – given the modest decline in the DX and strong rally in stocks.

However, they’re encouraged that gold put in a second session of a lower high, and failed to hold above the key $1303-05 former breakout and support level. Bears maintain that gold’s recent bounce from $1281 is just a modest uptick 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 feel 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 11 weeks to resume – especially with the S&P having breached the key 2800 level.

Bears also feel that the strength in the US dollar has legs – especially given the recent surprise dovishness from the ECB and continued flow of weak Chinese economic data – 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, and a recent change to lower guidance by the Bank of Australia 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.

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 Monday on Japan’s Trade Balance, Industrial Production and Capacity Utilization, Eurozone’s Trade Balance, and the US NAHB Housing Market Index for near term direction.

In the news:

Resistance levels: 

$1303-05 – former breakout (6/15/18 top) and prior 5 bottom support (1/29, 2/7, 2/11, 2/13, and 2/14 lows)

$1304 – 50-day moving average

$1306 – 3/15 high

$1307 – down trendline from 2/20 $1347 high

$1308 – 40-day moving average

$1310-11 – double top, 3/13 and 3/14  highs

$1310 – 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:

$1300 – psychological level, options

$1295 – down trendline from 2/20 $1347 high

$1291-94 – quadruple bottom -  3/11, 3/12, 3/14, and 3/15 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

$1282 – 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

$1272 – 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