Jim Pogoda, Senior Gold Trader, Gold Bullion International
MAR 22, 2019
Gold rebounded overnight, moving in a range of $1306.90 - $1313.90. After remaining fairly steady between $1307-10 during Asian hours, gold climbed to its $1313.90 high during European time in choppy trading, where resistance at $1314 (50% retracement of down move from 2/20 $1347 high to 3/7 $1281 low) held. The yellow metal’s gain was fueled by weaker Eurozone (especially Germany’s) and Japanese PMI Reports that sent European shares (DAX -0.75%, CAC -1.3%) and S&P futures (-0.7%) tumbling, and knocked bond yields further down (German 10-year bund yield turns negative for first time in over 2 years, JGB to -0.72% - 2-year low, US 10-year yield dips to 2.471% - fresh 14 month low, curve inverted, yield below 1-mo 2.481%). Gold was able to advance – albeit in a choppy fashion – despite the US dollar gaining (DX from 96.22 - 96.81) against a plunge in the euro ($1.1390 - $1.1289), but despite a bounce in the pound ($1.3175) which was supported by the deal yesterday to delay Brexit until April 12 – pending the third vote on May’s Brexit deal next week.
US stocks opened weaker (S&P -29 to 2826), hurt by weaker readings on US Markit PMI data in both Manufacturing (52.5 vs. exp. 53.6) and Services (54.8 vs. exp. 55.8), along with a decline in oil (WTI to $58.63). Losses in the Financials, Energy, and Materials sectors led the decline. The US 10-year bond yield continued to sink (2.444%) and the DX pulled back to 96.53. Gold - which had retraced to $1310 – rebounded to take out the overnight high to reach $1315.
At 10AM, better than expected reports on Existing Home Sales (5.51M vs. exp. 5.1M), Wholesale Inventories (1.2% vs. exp. 0.1%) and Wholesale Trade Sales (0.5% vs. last -1.0%) pared some losses in equities (S&P to 2838). The 10-year yield ticked up to 2.458%, while the DX recovered to 96.73. Gold was knocked down from its high, but dip buying limited the decline to $1312.
Into mid-day, US stocks resumed their decline (S&P -52 to 2802), while the US 10-year yield slid further to 2.42%. The DX rose to 96.79 however, propped up by a further decline in the euro ($1.1273), which was weighed by a fresh low in the German 10-year bund (-0.033%). Gold slid lower, but found support at the earlier morning low of $1310.
In the afternoon, equities remained soft (S&P finished off 54 to 2801 ), while the US 10-year yield edged up to 2.44%. The DX moved lower and was choppy between 96.60-72, and gold clawed back to $1313. Gold was $1312 at 4PM with a gain of $4.
Open interest was up a scant 64 contracts, showing a balance of early new longs to $1320 followed by liquidation later in yesterday’s session. Volume was lower but remained robust with 403k contracts trading, with a good portion of that in the April-June contract rollover. The CFTC’s Commitment of Traders Report as of 3/19 showed the large funds cutting 0.9k contracts of longs and 10.5k contracts of shorts to increase their net long position to 88k contracts. This was done during gold’s move up from $1302 to $1311, showing a fair amount of short covering in the rally. However, gross shorts at 116k remain elevated, higher than we had estimated. 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 will take today’s $4 gain, but some were a bit disappointed that gold didn’t perform better. Some bulls were expecting the yellow metal to at least take out resistance at $1314 (50% retracement of down move from 2/20 $1347 high to 3/7 $1281 low) - given the trouncing in equities and plunge in bond yields. 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 Wednesday to keep downward pressure on US interest rates and the dollar, which should help drive gold higher. Bulls also point to today’s Commitment of Traders Report (as of 3/19) that still has the large funds with a significant gross short position (116k contracts). 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 $1314 (50% retracement of down move from 2/20 $1347 high to 3/7 $1281 low) to bring a retest of Wednesday’s and Thursday’s highs of $1317 and $1320. Beyond here, bulls see a vacuum until $1326 (up channel line from 3/4 $1297 high) and $1327 (2/28 high).
While bears were disappointed with gold’s advance today, most are relieved that it was a muted gain – given the trouncing in stocks, and the plummet in global bond yields. 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 12 weeks to resume – 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 on Wednesday - given the lousy Eurozone PMI data today that forced the German 10-year bund yield back into the red. 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, up trendline from 3/7 $1281 low) 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 Monday on Japan’s All Industry Activity Index, Germany’s IFO, US Chicago Fed National Activity Index, Dallas Fed Manufacturing Activity Indes ,and comments from the BOJ’s Harada and the Fed’s Harker and Evans for near term guidance.
In the news:
$1314 – 50% retracement of down move from 2/20 $1347 high to 3/7 $1281 low
$1315 – 3/22 high
$1317 – 3/20 high
$1320 – 3/21 high
$1325 – options
$1326 – up channel line from 3/4 $1297 high
$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
$1311 – 40-day moving average
$1307 – 3/22 low
$1306-7 – double top - 3/15 and 3/18 highs
$1306 – 50-day moving average
$1304 – 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
$1303 – 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
$1276 – 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