Gold Traders’ Report - March 28, 2019

Jim Pogoda, Senior Gold Trader, Gold Bullion International 
MAR 28, 2019

Gold continued to soften overnight in a range of $1303 - $1312.35.  It climbed to its high during Asian time against a modest pullback in the US dollar (DX from 96.98 – 96.82) from strength in the yen (110.53 – 110.02, risk aversion), early weakness in global equities (NIKKEI down 1.6%, SCI down 0.9%, S&P futures off 0.6%) along with another dip in global bond yields (Japan’s 10 year -0.096% -2 ½ year low, US 10-year to 2.342%, fresh 15-month low, German 10-year bund back to -0.09%.  Gold turned down later during European time, and tripped sell stops below  $1308 (up trendline from 3/7 $1281 low, 50-day moving average and yesterday’s low) and $1307 (3/22 low) to reach $1303 – where it found support (former breakout from 6/15/18 top and prior 5 bottom support, 3/21 low).  The yellow metal was pressured by a rebound in the DX (97.17, 2-week high), which was lifted by weakness in the pound ($1.3198 - $1.3101, PM May’s offer to resign fails to sway hard line opponents to back her Brexit deal after none of the 8 alternatives gained traction in last night’s voting), the euro ($1.1261 - $1.1224, softer Eurozone Confidence data), along with the Turkish lira (central bank burning through reserves to support the lira ahead of elections this weekend) and other emerging market currencies.  A modest bounce in the US 10-year yield 2.385%) and a rebound in global equities (European markets up from 0.1% to 0.5%, S&P + 0.1%) from positive news on the US-China trade talks (reports that Chinese officials made unprecedented offers regarding forced technology transfers and other sticking points) and was also a headwind for gold.  A decline in oil (WTI from $59.40 – 58.20, Trump tweets that OPEC increase the flow of oil, price getting too high) weighed on equities. 

 At 8:30 AM, the revision to US Q4 GDP was as expected (2.2%), and stronger than expected readings on Jobless Claims (211k vs. exp. 225k) and the Core PCE  (1.8% vs. exp. 1.7%) outweighed misses on Personal Consumption (2.5% vs. exp. 2.6%) and the GDP Price Index (1.7% vs. exp. 1.8%).  S&P futures rallied (2820), and the 10-year yield climbed to 2.391%.  The DX rose further (97.24), and gold sold off.  Stops were hit under the key $1303 level, $1300 (psychological level, options), $1298-99 (double bottom - 3/18 and 3/20 lows) to reach $1293 where support from the $1291-94 quadruple bottom (3/11, 3/12, 3/14, and 3/15 lows) finally held.  A fair amount of long liquidation was seen.  

 US stocks opened firmer (+14 to 2819), with gains in the Materials and Consumer Staples sectors leading the advance.  Some dovish commentary from the Fed’s Clarida (can’t ignore exposure to overseas risks) and upbeat comments from White House Economic Advisor Kudlow on the US-China trade talks (sees progress, talks not time dependent) aided the move.   The 10-year yield edged up to 2.398%, and the DX rose to 97.30.  The dollar was also helped by a weaker German CPI Report that knocked the euro to $1.1214.  Gold continued to soften, but found support at $1291 – at the bottom end of the $1291-94 support level. 

 Equities softened and turned negative into mid-day (S&P -8 to 2798), hurt by a weaker reading on US Pending Home Sales (-1.0% vs. exp. flat).  The 10-year yield dipped to 2.391%, and the DX was tugged back to 97.09.  Gold bounced in response, and recovered to $1295. 

 Into the afternoon, US stocks rebounded (S&P +6 to 2812), helped by a recovery in oil (WTI to $59.32).  The 10-year yield hovered around 2.38%, while DX traded back up to its prior high of 97.30, fueled by a further decline in sterling ($1.3039, MPs will vote only on withdrawal portion of May’s Brexit deal tomorrow).  Gold broke support at $1291-94, and dipped to $1288.60 (3-week low), before some bargain hunting bids took it back to $1292.  

 Later in the afternoon US equities pushed higher (S&P finished +10 to 2815 ), helped by some upbeat comments from the Fed’s Williams (not as worried about recession as some in the private sector).  The 10-year bond yield was a little choppy between 2.375% - 2.339%, while the DX stabilized between 97.20-25.  Gold remained steady near its lows between $1290-92, and was $1290  bid at 4PM with a loss of $18.

 Open interest was off 4.8k contracts, showing a net of long liquidation from yesterday’s decline.  Volume increased with 416k contracts trading – still inflated with from the ongoing April-June futures contract rollover.  

 Bulls were disappointed with today’s $18 plunge along with making a 3rd consecutive loss while dropping $36 from Monday’s $1325 high.  However, other bulls feel the selling was overdone as weaker longs were stopped out as key support levels failed – and used the dip to get long (er) at more attractive levels.  Bulls maintain that gold’s correction down from $1347 had been overdone, and feel that it will consolidate again ahead of key support at $1277-84 ($1281-84 – quadruple bottom 3/4, 3/5, 3/6, and 3/7 lows, $1283 – 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).  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 (note today’s 15-month low in the 10-year yield at 2.342%) and the dollar, which should help drive gold higher.    Bulls also point to last 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 – when forced to cover.  Bulls look for a consolidation ahead of $1277-84, and then for a quick rebound to the old support at $1300 - $1303. 

 Bears cheered today’s plunge, and that there was no significant rebound near the close.  Bears believe the downside has further legs, noting key support at $1291-94 failed to hold.  Bears maintain that gold’s recent bounce from $1281 was just a modest uptick within the early stages of a more significant downside correction.  Though there was some profit taking today as the market approached key support levels, other bulls 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 13 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 (6 consecutive sessions of higher lows, 2-week highs) and will continue to pressure gold lower.  Bears expect further long liquidation to resume, and look for a breach of initial support at $1289 (today’s low) followed by $1285.  They will be gunning for further long liquidating stops below$1281-84 (quadruple bottom 3/4, 3/5, 3/6, and 3/7 lows), $1283 (up trendline from 12/28 $1274 low), $1279 (100-day moving average), and $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 mid-$1260’s.

 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 Jobless Rate, CPI, Industrial Production, Retail Sales and Housing Starts,  Germany’s Import Price Index, Retail Sales, and Unemployment Change, UK GfK Consumer Confidence, Consumer Credit, GDP, US Personal Income, Personal Spending, PCE Deflator, Chicago PMI, New Home Sales, University of Michigan Consumer Sentiment, Baker Hughes Rig Count, Commitment of Traders Report and comments from the Fed’s Kaplan and Quarles for near term direction.

 In the news:

CPM Group – things will get worse for gold before they get better:   https://investingnews.com/daily/resource-investing/precious-metals-investing/gold-investing/cpm-things-worse-gold-before-better/

 Palladium slumps 7% in selloff, gold sheds over 1%:   https://uk.reuters.com/article/global-precious/precious-palladium-sinks-6-pct-in-free-fall-gold-sheds-1-pct-idUKL3N21F44M

YTD Performance


12/31/2018

3/28/2019

Change
% Change
Gold


1282.5

1290

7.5

0.0058

DX


96.06

97.25

1.19

0.0124

S&P


2505

2815

310

0.1238

JYN


109.63

110.58

0.95

0.0087

Euro


1.1466

1.1222

-0.0244

-0.0213

US 10-year bond yield


2.686

2.386

-0.3

-0.1117

Oil (WTI)


45.45

59.36

13.91

0.3061

 

Resistance levels: 

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

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

$1300 – psychological level, options

$1301 – 20-day moving average

$1303 – 3/21 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)

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

$1307 – 3/22 low

$1308 – 3/27 low

$1308 – 50-day moving average

$1310 – up trendline from 3/7 $1281 low

$1310 – 40-day moving average

$1311 – 3/25 low

$1312 – 3/28 high

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

$1315 – 3/22 high

$1317 – 3/20 high

$1319-20 – double top - 3/21 and 3/27  highs

$1325 – options

$1325 – 3/25 high

$1327 – 2/28 high

$1330 – double top – 2/27 and 2/26 highs

$1333 –double top 2/22 and 2/25 highs

$1334 – up channel line from 3/4 $1297 high

$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:

$1289 – 3/28 low

$1285 – 3/8 low

$1281-84 – quadruple bottom 3/4, 3/5, 3/6, and 3/7 lows

*$1283 – 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

$1279 – 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