Jim Pogoda, Senior Gold Trader, Gold Bullion International
MAR 25, 2019
Gold rose overnight in a range of $1311 - $1319.25, with concerns of global growth (inverted US yield curve, global equities hammered) spurring some safe haven buying. Dovish comments from the Fed’s Evans (understandable for markets to be nervous when the yield curve flattened) and Harker (sees risks tilting slightly to the downside, inflation edging slightly downward, business confidence has declined) helped fuel the advance. The yellow metal tripped some buying over $1314 (50% retracement of down move from 2/20 $1347 high to 3/7 $1281 low), $1315 (Friday’s high), and $1317 (3/20 high) where it was capped in front of $1320, the 3/21 high. Modest weakness in the US dollar (DX from 96.69 – 96.49) was also gold supportive. The greenback was pressured by some strength in the euro ($1.1290 - $1.1325) which was helped by a stronger than expected reading on Germany’s IFO Business Climate Index (took German 10-year bund yield positive), and a rebound in the pound ($1.3160 - $1.3225) on speculation that May will get a 3rd vote on her Brexit deal and offering her resignation to attract support. Global equities remained weak and aided gold’s advance with the NIKKEI down 3%, the SCI was off 2%, European markets were down from 0.4% to 0.6%, and S&P futures were -0.3% (reversed brief opening rally on reports from Mueller / Barr found Trump didn’t collude with Russians). A decline in oil (WTI from $58.94 - $85.72) was a headwind for stocks.
At 8:30 AM, a worse than expected reading on the Chicago Fed’s National Activity Index (-0.29 vs. exp. -0.25) pushed S&P futures lower (2799), and took the US 10-year bond yield – which had bounced to 2.47% after the German IFO – declined to 2.441%. The DX slipped to 96.47, and gold climbed to $1320 – taking out its overnight high.
US stocks opened weaker (S&P -16 to 2785), with losses in the IT, Energy, and Health Care sectors lagging. A miss in the Dallas Fed Manufacturing Index (8.3 vs. exp. 9.6) and a decline in oil (WTI to $58.16) contributed to the move. The DX softened further (96.43), and gold took out its prior high to reach $1323.15 – a 4-week high.
Into mid-day, US stocks recovered and turned positive (S&P +10 to 2809), with gains in the Consumer Discretionary and Industrials sectors leading the comeback. The 10-year yield edged up to 2.444%, and the DX bounced to 96.55. The dollar was also supported by a decline in the pound ($1.3167) and the euro ($1.1311) as May told MPs that she doesn’t have enough support to win a third vote on her Brexit deal. Gold retreated in response, and traded down to $1320.
US stocks turned back down in the afternoon (S&P -16 to 2785), but found support at the morning low. The 10-year yield plunged to 2.379%, a fresh 15-month low and 6bp below the 3-month yield - further inverting the curve. The DX slipped to 96.45, and gold rebounded to make a new high at $1324.55, where resistance ahead of the $1335 options strike (April CX option expire tomorrow) held. News of an escalation in hostilities between Israel and Hamas contributed to the move.
Later in the afternoon, US stocks pared some losses (S&P finished -2 to 2798), while the 10-year yield had a minor bounce to 2.41%. The DX traded up to 96.57, and gold pulled back to $1320. The yellow metal was $1322 bid at 4PM with a $9 advance.
Open interest was up 2.6k contracts, showing a net of new longs from Friday’s advance. Volume was lower but still on the heavy side with 362k contracts trading – again inflated by the ongoing April-June contract rollover.
Bulls were encouraged with today’s $9 gain, given only a slight pullback in the US dollar and equities. They’re pleased that resistance at $1314 (50% retracement of down move from 2/20 $1347 high to 3/7 $1281 low) and $1320 (3/21 high) held on a closing basis, and that the market is recovering nicely in the upper end of the rising price channel from its 3/7 $1281 low. 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 last Wednesday to keep downward pressure on US interest rates and the dollar, which should help drive gold higher. Bulls also point to Friday’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 (especially as the market is approaching the mid-February highs) – when forced to cover. Bulls look for a breach of initial resistance at $1325 (options), followed by $1328 (up channel line from 3/4 $1297 high), $1330 (double top – 2/27 and 2/26 highs), and then $1333 (double top 2/22 and 2/25 highs)
Bears were concerned with today’s strong advance in gold, despite the minor declines in the DX and stocks. 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. Bears also feel that the strength in the US dollar has legs – despite the surprise dovishness from the Fed last Wednesday - given the lousy Eurozone PMI data Friday 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 tomorrow on the BOJ’s Summary of Opinions, Germany’s GfK Consumer Confidence, French GDP, US Housing Starts, Building Permits, Housing Price Index, S&P Case-Shiller Home Price Index, Richmond Fed Manufacturing Index, Consumer Confidence and comments from the Fed’s Rosengren, Harker, Evans and Daly for near term direction.
In the news:
Gold speculators lifted bullish bets after 3 down weeks: https://www.investing.com/analysis/gold-speculators-lifted-bullish-bets-after-3-down-weeks-200400466
Google pay set to launch gold as an investment plan on its platform: https://www.thenewsminute.com/article/google-pay-set-launch-gold-investment-plan-its-platform-98840
Heraeus – Chinese jewellery demand losing its shine: https://www.heraeus.com/media/media/hpm/doc_hpm/precious_metal_update/en_6/Appraisal_20190325.pdf
Gold hits 3-week high as global growth worries lift its safe-haven appeal: https://www.cnbc.com/2019/03/25/gold-market-us-recession-fears-global-economy-in-focus.html
Fiat Chrysler recall could send palladium prices soaring: https://www.detroitnews.com/story/business/autos/chrysler/2019/03/25/fiat-chrysler-recall-send-palladium-price-soaring/39251305/
$1325 – options
$1325 – 3/25 high
$1327 – 2/28 high
$1328 – up channel line from 3/4 $1297 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
$1320 – 3/21 high
$1317 – 3/20 high
$1315 – 3/22 high
$1314 – 50% retracement of down move from 2/20 $1347 high to 3/7 $1281 low
$1311 – 3/25 low
$1311 – 40-day moving average
$1307 – 50-day moving average
$1307 – 3/22 low
$1306-7 – double top - 3/15 and 3/18 highs
$1305 – up trendline from 3/7 $1281 low
$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
$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
$1277 – 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
$1248 – 200-day moving average