Gold Traders' Report - March 18, 2019

Jim Pogoda, Senior Gold Trader, Gold Bullion International 
MAR 18, 2019

Gold traded either side of unchanged last night in a range of $1298.25 - $1306.25.  It was pressured to its low during early Asian hours as the DX remained firm around 96.60  and Asian equities and S&P futures advanced (NIKKEI +0.6%, SCI +2.5% S&P futures +0.1%) with reports from China’s Xinhua news that the US and China have made “concrete progress” still resonating.  However, gold rebounded during European time, tripping some buys stops over $1300, the $1303-05 resistance level, and the down trendline from the 2/20 $1347 top at $1305 to reach $1306 – where it was capped by Friday’s high.  The yellow metal was boosted by a modest pullback in the DX to 96.37 (2-week low), which was softened by some strength in the euro ($1.1317 - $1.1359, stronger Eurozone Trade Balance) that overcame weakness in the pound ($1.33 - $1.3228, some MPs cast doubt on May’s chance of winning a 3rd vote on her Brexit plan).  Gold was also lifted as equities pulled back on news that the proposed Trump – Xi summit has been reportedly pushed back to June and weakness in Boeing (initial analysis of black boxes from Ethiopian Air crash show clear similarities with Lion Air crash).  Oil prices were firmer (WTI from $58.16 - $58.60, Saudis, at OPEC+ meeting hint supply curbs may extend until the end of the year) and supportive of stocks.

 

After a pullback to $1303, buying on the NY open took gold to a fresh high of $1306.75.  However, lacking follow through, the market drifted back to $1305.  US stocks opened stronger (S&P +12 to 2835), with gains in the Financials, Energy, and Consumer Discretionary sectors leading the advance.  A further gain in oil (WTI to $59.17) supported the move.  The US 10-year bond yield – which had softened from 2.67% - 2.58% over last week rebounded to 2.611%.  The DX bounced to 96.53, also helped by a dip in sterling ($1.3221) from news that May will pull the 3rd vote on her Brexit deal if it had no”realistic prospect” of success, and will move on to asking the EU for a long delay to article 50 on Thursday.  Gold retreated, but decent dip buying limited the decline to $1303.75.  

 

At 10AM, a slight miss on the NAHM Housing Market Index (62 vs. exp. 63) helped US stock trim gains (S&P +7 to 2829).  The 10-year yield slipped back below 2.60% to 2.596%, and the DX edged back to 96.47.  Gold strengthened, and traded back up to $1306. 

 

Near mid-day, news that the UK Parliament Speaker blocked May’s plan to bring her Brexit deal to another vote without the deal being “fundamentally different” sent US stocks sliding to unchanged.  Declines in Boeing and Facebook (analyst downgrade) helped to drag the market lower. The 10-year yield continued to soften (2.592%), but the DX strengthened (96.63).  The greenback was lifted by a plunge in the pound ($1.3185) and the euro ($1.330), as the UK Speaker blocked May’s plan.  Gold was pressed lower, but once again bargain hunting bids limited the downside to $1303.50. 

 

Into the afternoon, US stocks turned back higher (S&P +9 to 2832), while the US 10-year yield inched up to 2.605%.  The DX was a bit choppy between 96.50 – 96.63, checked by a bounce in the pound ($1.3255) and the euro ($1.1339).  Gold softened, and broke support at $1303 to reach $1301. 

 

Later in the afternoon, US equities went out fairly firm (S&P +10 to 2833), and the 10-year yield ticked down to 2.603%.  The DX pulled back to 96.48, and gold clawed back to $1303.  It was $1303 bid at 4PM with a $1 gain.  

 

Open interest was off 12.8k contracts, showing a net of short covering from Friday’s advance.  Volume was a tad lower with 282k contracts trading. 

 

Bulls will take todays modest $1 gain, but some were a bid disappointed that it couldn’t hold the key $1303-05 level, and breach the down trendline at $1305 from the 2/20 $1347 high on the close.  Bulls maintain that gold’s correction down from $1347 has been overdone, and feel that it 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 from the prior week) 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 3/12 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) and downtrendline from 2/20 $1347 high) followed by $1310-11 (double top, 3/13 and 3/14  highs). 

 

Bears were concerned about gold’s early session strength, but were relieved that it failed finish above $1305 (down trendline at $1305 from the 2/20 $1347 high.   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).  Theymaintain 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 and now making 5-month highs.  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 tomorrow on UK’s Employment Change, Germany’s ZEW Survey, Eurozone Construction Output, ZEW Survey, US Factory Orders and Durable Goods for near term guidance. 

In the news:

Gold speculators lowered bullish bets:   https://www.investing.com/analysis/gold-speculators-lowered-their-bullish-bets-for-3rd-straight-week-200398432

 

US Mint bullion coin sales pick up from prior week:   https://www.investing.com/analysis/gold-speculators-lowered-their-bullish-bets-for-3rd-straight-week-200398432

 

Gold and the USD reign supreme in Venezuela as it descends toward collapse: https://www.zerohedge.com/news/2019-03-18/gold-usd-reign-supreme-venezuela-it-descends-toward-collapse

 

 

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

$1305 – down trendline from 2/20 $1347 high

$1306-7  – double top - 3/15 and 3/18  highs

$1309 – 20-day moving average

$1309 – 40-day moving average

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

$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

$1298 – 3/18 low

$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

$1273 – 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