Gold Traders’ Report - March 21, 2019

Jim Pogoda, Senior Gold Trader, Gold Bullion International 
MAR 21, 2019

Gold climbed further last night in a range of $1314.40 - $1320.40, boosted by a much more dovish than expected FOMC meeting statement and subsequent comments from Powell.  The Fed forecast no hikes for the remainder of the year (down from 2), said it would begin its balance sheet reduction process by September, and cut its growth forecast for this year (2.3% to 2.1%).  The yellow metal climbed to its high during Asian and early European time on follow through buying over key technical resistance levels of $1314 (50% retracement of down move from 2/20 $1347 high to 3/7 $1281 low) and $1315 (3/1 high), fueled by a further decline in the US 10-year bond yield to 2.508% (14-month low), but against a modest recovery in the US dollar (DX 95.74 – 95.95).  Later during European time, however, gold retreated to $1315 against a further rebound in the dollar (DX to 96.24).  The greenback was lifted from weakness in sterling ($1.3227 - $1.3106) and the euro ($1.1437 - $1.1385) as the EU insisted that a Brexit extension only go to May 22, and rejected Mays’s June 30 proposal.  Global equities were mixed with the NIKKEI closed, the SCI up 0.4%, European markets ranged from -0.4% to +0.3%, and S&P futures were off 0.1%.  A modest pullback in oil to $59.67 after reaching $60.30 – a fresh 4-month high – weighed on stocks.

 At 8:30 AM, better than expected reports on US Jobless Claims (221k vs. exp. 225k) and the Philly Fed Index (13.7 vs. exp. 5) took S&P futures off their lows (2814 – 2814), and lifted the US 10-year yield from 2.50% to 2.523%).  The DX, which had previously dipped to 96.14, rallied back to 96.26.  Gold, which had bounced back to $1318, retreated to take out its overnight low and previous resistance at $1314-15 to reach $1312.50.  

 US stocks opened higher, and climbed into the late morning hours (S&P +20 to 2844, took out yesterday’s afternoon’s high), helped by a better than expected reading on US Leading Indicators (0.2% vs. exp. 0.1%).  Gains Micron and Apple led the IT sector soaring, with other strong advances seen in Materials, Real Estate, Consumer Staples, Industrials, and Consumer Discretionary sectors.   The 10-year yield edged up to 2.528%, and the DX rallied to 96.52 – erasing yesterday’s post FOMC decline.  The greenback was aided by a decline in the euro ($1.1354), which was softened by a lower than expected reading on Eurozone Consumer Confidence and the pound ($1.3056) on increasing no-deal Brexit fears amid disagreements between the EU and factions within the UK.  Gold fell further in response, and dipped to $1308.50.

 Into the afternoon, equities continued to climb (S&P +28 to 2852), and the 10-year yield moved up to 2.539%.  The DX rose to 96.63, aided by sustained weakness in the pound ($1.3005) and the euro ($1.1342).  Gold fell further, and finally found support at the old breakout level of $1303. 

 Later in the afternoon, US stocks rose further (S&P finished +31 to 2855), with the Financials sector (banks’ margins under pressure from dovish Fed) the only one in the red.  The 10-year yield ticked back up to 2.54%, but the DX retreated to 96.40.  The dollar was pressured by a recovery in the pound ($1.31) and the euro ($1.1366) on news that the EU agreed to extend Brexit until May 22 – conditional on the UK Parliament approving the deal.  Gold recovered to $1309.25, and was $1309 bid at 4PM with a loss of $6.

 Open interest was up 2k contracts, showing a net of new longs from yesterday’s rally, exceeding the fair amount of short covering seen.  Volume surged with 434k contracts trading. 

 Bulls were disappointed with gold’s retreat from its $1320 overnight high, and its inability to hold above key resistance at $1314 (50% retracement of down move from 2/20 $1347 high to 3/7 $1281 low) and $1315 (3/1 high).  However, 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 feel that the trend is their friend and that the up move going back to the 8/16/18 $1160 low is still intact.  They look for the strong rally over the past 7 months to carry further, expecting continued volatility in equity markets along with the surprisingly dovish Fed statement yesterday to keep downward pressure on US interest rates and the dollar, which should help drive gold higher.    Bulls also point to last 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 expect a retest of the last two sessions highs - $1317 and $1320.  

 While some bears were stopped out on the way to $1320 last night, other bears remain comfortable selling scale up, and were able to take some profits on the way back to the key $1303-05 level later in today’s session.  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 continue – especially with the S&P having breached the key 2800 level and now making fresh 5-month highs.  Bears also feel that the strength in the US dollar has legs – despite the surprise dovishness from the Fed yesterday.  They feel that the US remains the sole global growth engine, and will continue to grow – despite the pronounced slowdown in global growth prospects.  This, they feel, should keep the US dollar well bid and will continue to pressure gold lower.  Bears expect further long liquidation to resume, and look for a breach of initial support at $1303-05 (former breakout of 6/15/18 top and prior 5 bottom support from 1/29, 2/7, 2/11, 2/13, and 2/14 lows) followed by $1300-01 (up trendline from 3/7 $1281 low, options),  $1298-99 (double bottom - 3/18 and 3/20 lows) and then $1291-94 (quadruple bottom -  3/11, 3/12, 3/14, and 3/15 lows).

 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 CPI, PMI, Leading Index and Department Store Sales, Eurozone PMIs, US Markit PMI, Wholesale Inventories, Wholesale Sales, Existing Home Sales, Baker Hughes Rig Count and the Commitment of Traders Report for near term direction.  

 In the news:

Fed statement gives gold a boost:   https://www.sharpspixley.com/articles/lawrie-williams-us-fed-statement-gives-gold-a-boost_291451.html

 Russia adds another million oz to gold reserves in Feb:   https://www.sharpspixley.com/articles/lawrie-williams-russia-back-on-gold-reserve-track-adds-another-millionoz_291448.html

 7 trends shaping the future of the mining and metals industry:   https://www.weforum.org/agenda/2019/03/seven-trends-shaping-the-future-of-the-mining-and-metals-sector/

 Citigroup settles Venezuela gold swap transaction:   https://www.bloomberg.com/news/articles/2019-03-20/citigroup-is-said-to-settle-venezuela-gold-swap-transaction

  Resistance levels: 

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

$1311 – 40-day moving average

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

$1315 – 3/1 high

$1217 – 3/20 high

$1320 – 3/21 high

$1324 – up channel line from 3/4 $1297 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:

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

$1305 – 50-day moving average

$1305 – 20-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 – 3/21 low

$1301 – up trendline from 3/7 $1281 low

$1300 – psychological level, options

$1298-99 – double bottom - 3/18 and 3/20 lows

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

$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 – 100-day moving average

$1275 – options

$1274 – 12/28 low

$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