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Gold Traders’ Report - March 29, 2019

Jim Pogoda, Senior Gold Trader, Gold Bullion International 
MAR 29, 2019

Gold rebounded overnight from yesterday’s $18 thumping, trading in a range of $1286.80 - $1294.  It slipped to its $1286.80 low during Asian and early European hours against a move up in the US 10-year bond yield (2.389% to 2.428%), stronger global equities (NIKKEI +0.8%, SCI up 3.2%, European markets up from 0.3% to 0.6%, and S&P futures +0.2% - reports of progress in US-China trade talks), and a modest firming in the US dollar (DX from 97.24 – 97.34).  The DX was boosted by weakness in the yen (110.55 – 110.90, fading safe haven demand), the pound ($1.3085 - $1.3003, DUP confirms it will vote against May’s agreement later), and the euro ($1.1239 - $1.1209, shrugged off stronger German Retail Sales).  Later during European time, however, gold bounced to $1294 where resistance from the prior support (quadruple bottom -  3/11, 3/12, 3/14, and 3/15 lows) held.  The move was fueled by a pullback in the DX (97.11), which was pressured by a rebound in the pound ($1.3134) as former Brexit Secretary Dominic Raab and other hard line Brexiteers now support May’s deal, and the euro ($1.1236). 

 At 8:30 AM, worse than expected readings on US Personal Income (0.2% vs. exp. 0.3%), Personal Spending (0.1% vs. exp. 0.3%), and the CORE PCE (0.1% vs. exp. 0.2%) knocked S&P futures lower (2831), and tugged the US 10-year bond yield back to 2.417%.  The DX tumbled further to 97, and drove gold higher.  The yellow metal climbed to $1299.80, where resistance at $1300 held.  A fair amount of short covering was seen. 

 US stocks opened higher (S&P +18 to 2833) amid renewed optimism on the progress of the US-China trade talks (Mnuchin tweeted he had constructive talks, looks forward to continuing them next week when Vice Premier He comes to the US).  Stronger readings on US New Home Sales (667k vs. exp. 620k) and the University of Michigan Consumer Sentiment (98.4 vs. exp. 97.8) overshadowed a miss on the Chicago PMI (58.7 vs. exp. 61) and aided the advance.  The 10-year yield edged up to 2.43%, and the DX recovered to 97.19.  Gold pulled back to $1295, where support in front of $1291-94 held.

 During the late morning, news that the Parliament defeated May’s EU withdrawal agreement knocked the pound down to $1.2978, and drove the DX to 97.29.  Gold was pressed lower, but bargain hunting bids limited the decline to $1293.  

 Into mid-day, US stocks trimmed gains (S&P +6 to 2822) from some hawkish comments from the Fed’s Quarles (confidence in US growth, said more interest rate hikes likely will be appropriate) along with some comments from Trump (threatens to close border with Mexico on caravan concerns).  The 10-year yield – which had slid to 2.41% - ticked up to 2.421%.  The DX, which had declined to 97.14, recovered to 97.28.  Gold traded lower to $1292.50, but again, bargain hunting bids limited the decline. 

 US stocks turned higher into the afternoon (S&P +14 to 2830), with gains in the Health Care, IT, and Industrials sectors leading the advance.  The move was aided by comments from White House Economic Advisor Larry Kudlow calling for the Fed to cut interest rates and stop shrinking its balance sheet, along with upbeat comments on the progress of US-China trade negotiations.  The 10-year yield fell back to 2.403%, but the DX improved to 97.30.  Gold was caught in the cross currents, and traded narrowly between $1292.50 - $1294.  

 Later in the afternoon, US stocks continued to firm, and took out its opening high (S&P finished +19 to 2834).  The 10-year yield slipped further to 2.401%, while the DX remained steady between 97.25-97.30.  Gold made a fresh low at $1291.80, and was $1292 bid at 4PM with a gain of $1. 

 Open interest was off big – 48.6k contracts – showing a massive amount of long liquidation from yesterday’s selloff.  Volume ballooned with 528k contracts trading, with a fair amount in the April-June contract rollover.  The CFTC’s Commitment of Traders Report as of 3/26 showed the large funds adding 10.1k contracts of longs and slashing 21.2k contracts of shorts to increase their net long position to 120k contracts.  This was done during gold’s rally from $1306 to $1325 last week – reflecting a fair amount of short covering in the rally.  However, gross shorts at 95k are elevated.  Moreover, since the report, a hefty amount of long liquidation – along with a significant amount of new shorts – has been seen to cut the Net Fund Long Position to well under 100k contracts, and gross shorts are probably back over 105k contracts.  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. 

 Some bulls were disappointed with gold’s modest bounce today – given the $38 decline during the past 4 sessions.  However, given the strength in stocks, the uptick in the 10-year bond yield and steady US dollar many bulls are pleased that gold was able to hold above the $1291-94 support level, and that it wasn’t forced lower.  Bulls feel the selloff from $1325 has been overdone and have used the dips to get long (er) at more attractive levels.  Bulls also 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 (US 10-year yield flirting with 15-month lows) and the dollar, which should help drive gold higher.    Bulls also point to today’s Commitment of Traders Report (as of 3/26) that still has the large funds with a significant gross short position (95k 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. 

 Some bears were concerned with gold’s resilience today, and how well the low $1290’s support level was defended.  However, bears believe gold’s downside has further legs, and maintain that gold’s recent bounce from $1281 was just a modest uptick within the early stages of a more significant downside correction.  Though some bears took some profits yesterday and early this morning 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 the week before - 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 (7 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 $1291-94 followed by $1287 (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 (head and shoulders neckline - up trendline from 12/28 $1274 low – head and ), $1280 (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, and will turn to reports Monday on China’s PMI, Japan’s Tankan Survey and PMI, Eurozone PMIs, US Retail Sales, Markit PMI, ISM Manufacturing, Construction Spending and Business Inventories for near term direction. 

 In the news: 

Countries must seek ECB approval to manage gold reserves – Draghi:

 Asia gold – China premiums ease as growth woes dent demand:

 Resistance levels: 

$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 – 40-day moving average

$1311 – 3/25 low

$1312 – 3/28 high

$1313 – up trendline from 3/7 $1281 low

$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

$1336 – 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:

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

$1289 – 3/28 low

$1287 – 3/29 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

$1280 – 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