Gold Traders' Report - March 19, 2019

Jim Pogoda, Senior Gold Trader, Gold Bullion International 
MAR 19, 2019

Gold advanced last night, trading within a range of $1303.45 - $1309.  It tripped some buy stops over the key $1303-05 level and the down trendline from the 2/20 $1347 top (also at $1305) along with the double top at $1306-7  (3/15 and 3/18  highs) to reach its high.  The yellow metal was lifted by weakness in the US dollar (DX from 96.52 to 96.29 – 3-week low), which was pressured by an anticipation of a dovish FOMC statement and commentary from Powell tomorrow, along with strength in the pound ($1.3241 - $1.3310, report that EU leaders were planning to make a contingent offer on a Brexit extension and allow May to try to get the deal through Parliament next week, upbeat UK earning and employment data), and the euro ($1.1332 - $1.1362, better than expected Eurozone and German ZEW surveys).  Global equities were mostly firmer and a headwind for gold with the NIKKEI off 0.1%, the SCI -0.2%, European markets were up from 0.4% to 0.8%, and S&P futures were +0.3%.  A further gain in oil (WTI to 59.54) was supportive of stocks.

 Gold continued to strengthen through the NY open, rising to $1310.90 where resistance at the $1310-11 double top (3/13 and 3/14  highs) capped the advance.  This was despite S&P futures reaching fresh 5-month highs (2852), the US 10-year bond yield bouncing to 2.632%, and the DX remaining steady between 96.31-40.

 US stocks opened higher, (S&P +14 to 2847), shrugging off modest misses in US Factory Orders (0.1% vs. exp. 0.3%) and Durable Goods (0.3% vs. exp. 0.4%).  The advance was led by strength in the Consumer Discretionary and Materials Sectors.  The 10-year yield edged back to 2.625%, while the DX advanced to 96.45.  Gold softened – probably a bit over its skis earlier – and traded back to $1307. 

 Into mid-day, US stocks continued to firm (S&P +17 to 2850), but the 10-year yield slid to 2.612%.  The DX was choppy between 96.30-96.45, and gold traded narrowly between $1307 - $1309.

 Open interest was off 11.5k contracts, showing a fair amount of short covering over $1300 and $1303-05 early in the session, followed by some long liquidation later in the day.  Volume was lower with 205k contracts trading.  

 Bulls cheered the overnight breakout over $1303-05, the trendline at $1305, and the double top at $1306-07 – especially when done while equities were firm and with only a moderate softening of the greenback. 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 at $1310-11 – (triple top, 3/13, 3/14, and 3/19 highs) to bring a test of next levels of $1314 (50% retracement of down move from 2/20 $1347 high to 3/7 $1281 low) and $1315 (3/1 high). Beyond this, bulls see open field running until $1325 (options) and $1327 (2/28 high)

 Some bears were concerned with gold breaching the $1303-05 level and its subsequent run to $1311 – especially ahead of what most are projecting as a dovish FOMC tomorrow.  However, 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 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 Japan’s Machine Tool Orders, BOJ’s Policy Meeting Minutes, Germany’s PPI, UK’s CPI and PPI, US MBA Mortgage Applications, Oil Inventories, and the FOMC meeting statement and Powell’s press conference for near term direction. 

 In the news:  

WGC – Investment update – the impact of monetary policy on gold: https://www.gold.org/goldhub/research/the-impact-of-monetary-policy-on-gold?utm_source=launch-email&utm_medium=email&utm_campaign=wgc-2019-investment-update-monetary-policy

 What to expect from the FOMC meeting:   https://www.cnbc.com/video/2019/03/18/heres-what-to-expect-from-the-federal-reserve-meeting.html 

Resistance levels: 

$1309 – 40-day moving average

$1310-11 – triple top, 3/13, 3/14, and 3/19  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:

$1307 – 20-day moving average

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

$1305 – 50-day moving average

$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)

$1303 – down trendline from 2/20 $1347 high

$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