Gold Traders’ Report - March 26, 2019

Jim Pogoda, Senior Gold Trader, Gold Bullion International 
MAR 26, 2019

Gold retraced most of its gain from yesterday, declining in a range of $1312.70 - $1322.25.  Some sell stops were hit below $1320 (3/21 high), $1317 (3/20 high), $1315 (3/22 high), and $1314 (50% retracement of down move from 2/20 $1347 high to 3/7 $1281 low) to push the yellow metal to its low. Gold was pressed down mostly strong advances in global equities (NIKKEI up 2.2%, the SCI was off 1.5%, European markets were up from 0.1% to 0.6%, and S&P futures were +0.5%), and a stabilization in bond yields (US 10-year climbs to 2.453%, just under 3-month 2.461%, Goldman warns against yield curve panic).  A slightly firmer dollar also weighed on gold as the DX improved from 96.48 – 96.62.  The greenback was aided by a decline in the yen (109.90 – 110.47, exiting safe haven), the euro ($1.1322 - $1.1303, weaker German GfK Survey), and the pound ($1.3223 - $1.3157, less clarity on Brexit as MP lost control of extension to the EU, and of the process to her MPs). 

 At 8:30 AM, a weaker than expected readings on US Housing Starts (1.162M vs. exp. 1.220M) and Building Permits (1.296M vs. exp. 1.30M) tugged S&P futures down briefly (2818), and pulled the US 10-year yield down to 2.435%.  The DX, however, strengthened further (96.74) from continued softness in the euro ($1.1284).  Gold was caught in the cross currents, but rebounded to $1318.50. 

 At 10AM, 2 more weak reports on Consumer Confidence (124.1 vs. exp. 132) and the Richmond Fed Manufacturing Index (2 vs. exp. 12) capped a strong opening to US stocks (S&P +28  to 2827, IT and Energy sector led gainers).  The US 10-year yield edged down to 2.425%, and the DX ticked down to 96.64.  Gold – failing to attract follow through buying to re-test $1320 – came off, and retreated to support at $1314. 

 After a modest dip, US stocks rose into the late morning (S&P +32 to 2830), helped by strength in oil (WTI to $60.33, supply concerns).  The 10-year yield edged up to 2.439%, and the DX rose its prior high at 96.74.  Gold probed lower, but found support at $1313, just ahead of its overnight low. 

 Into the afternoon, US stocks trimmed some gains (S&P +12 to 2810), and the 10-year yield ticked down to 2.426%.  The DX slipped to 96.63, and gold recovered to $1316.50. 

 Open interest was 6.1k contracts, showing a fair amount of new longs in from yesterday’s $9 advance.  Volume was a little lower, but still robust with 347k contracts trading – still inflated by the April-June contract rollover.  

 Bulls were disappointed with today’s decline, given the minor advance in the DX.  However, they’re encouraged that support at $1314 (50% retracement of down move from 2/20 $1347 high to 3/7 $1281 low) and $1320 (3/21 high) held (as of this writing), and that the market is recovering nicely in its 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 $1330 (up channel line from 3/4 $1297 high, double top – 2/27 and 2/26 highs), and then $1333 (double top 2/22 and 2/25 highs).

 Bears will take today’s pullback, but some bears were looking for a steeper decline – given the advance in equities, the rebound in the 10-year bond yield and reassuring analysis to avoid panic on the yield curve inversion.  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 last 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 $1307 (up trendline from 3/7 $1281 low), followed by  $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), $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 comments this afternoon from the Fed’s Daly followed by reports tomorrow on US MBA Mortgage Applications, Trade Balance, Current Account Balance, Oil Inventories, and comments tomorrow from the ECB’s Draghi and the Fed’s George for near term direction.

In the news:

Goldman joins chorus warning against yield curve panic:   https://www.bloomberg.com/news/articles/2019-03-26/goldman-joins-chorus-downplaying-menace-of-inverted-yield-curve

Spot gold price chart shows parabolic climb amid plummeting yields:   https://www.dailyfx.com/forex/market_alert/2019/03/25/spot-gold-price-chart-shows-parabolic-climb-amid-plummeting-yields.html

 GBP/USD forecast:  5 scenarios for Big Brexit Wednesday – 4 pound positive:   https://www.fxstreet.com/analysis/gbp-usd-forecast-5-scenarios-for-big-brexit-wednesday-4-pound-positive-201903261557?utm_source=onesignal&utm_medium=push&utm_campaign=analysis

 Resistance levels: 

$1317 – 3/20 high

$1320 – 3/21 high

$1325 – options

$1325 – 3/25 high

$1327 – 2/28 high

$1330 – 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

 Support levels:

$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

$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 – 20-day moving average

$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

$1278 – 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