Gold Traders' Report - March 4, 2019

Jim Pogoda, Senior Gold Trader, Gold Bullion International 
MAR 4, 2019

Gold softened further last night in a range of $1285.15 - $1297.10. It rose to its high during Asian time, fueled by a decline in the US dollar (DX from 96.45 - 93.37).

However, the yellow metal turned down during European time as the DX rallied to 96.71.

The greenback was helped by weakness in the euro ($1.1375 - $1.1328) despite a rebound in Sentix Investor Confidence and a slight beat on PPI) and the pound ($1.3254 - $1.3181) from a miss in UK Construction PMI.

Global equities continued to climb and were a headwind for gold, with reports that the US and China were in the final stages of completing a trade deal.

The NIKKEI was up 1%, the SCI gained 1.1%, European markets were up from 0.2% to 0.7%, and S&P futures were +0.3%. Firmer oil (WTI from $55.70 - $56.42, OPEC supply fell to 4-year low in February, Baker-Hughes rig count fell 10) was supportive of stocks.

US stocks opened stronger (S&P +15 to 2818, 5-month high), boosted by reports that the US-China trade deal would be done by the end of March.

Strength in Industrials, Financials, IT, and Communication Services led the advance. The US 10-year bond yield – which had moved down from 2.77% to 2.74% overnight – bounced to 2.753%. The DX traded higher, reaching a 2-week high. Gold slipped lower in response, trading down to $1283 – a 6-week low.

At 10 AM, a miss on US Construction Spending (-0.6% vs. exp. 0.2%) helped tug US stocks lower (S&P +5 to 2809). The 10-year yield ticked down to 2.751%, and the DX edged down to 96.70. Gold came off its low to reach $1285.50.

Into mid-day, US stocks slid further and crossed into negative territory (S&P -10 to 2793), hurt by a report that the US wants the ability to re-impose tariffs on Chinese goods if talks fail on enforcement mechanisms and IP theft issues, which is reportedly not sitting well with the Chinese.

The US 10-year yield retreated to 2.724%, and the DX - which had touched 96.81- pulled back to 96.70. Gold edged higher, and traded up to $1289.

Open interest was off 14.7k contracts, showing a sizeable amount of long liquidation from Friday’s plunge. Volume surged with 381k contracts trading.

Bulls were again disappointed with gold’s price erosion, making 4 consecutive lower lows, and dipping to $64 below its $1347 2/20 high.

They’re still troubled with gold’s failure to gain in the past two weeks, when the DX has come off from its 97.37 high.

However, the bulls are confident that the trend is their friend, and while the up trendline from the 11/13 $1196 low was violated, technicians have other up trendlines that are still intact, going back to the 8/16/18 $1160 low.

They look for the strong rally over the past three months to carry further, expecting continued volatility in equity markets along with a pause in Fed rate hikes for a considerable period and a further decline in the US dollar to resume driving gold higher.

Bulls also point to the delayed Commitment of Traders Report (as of 2/19/19) released Friday and estimates that the current COT Report still has the large funds with a significant gross short position.

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.

Many bulls are seeing gold approaching oversold (14-day RSI = 35) having fallen $64 since its $1347 high on 2/20.  They feel that gold’s correction down from $1347 has been overdone, and expect a quick bounce back to the former support level at $1303-05.

Bears cheered gold’s continuation lower today, especially given the more moderate rebound in the US dollar.

They’re encouraged that gold finally broke support at $1303 (up trendline from 11/13 $1196 low) on Friday, and that the market has now made 8 consecutive sessions of lower highs.

While some bears took some profits in front of $1303 and $1300, others remain comfortable selling into strength and will continue to use rallies as entry points for getting short(er).

They maintain that gold’s advance 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 maintain 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 10 weeks to continue.

They expect equities will find further momentum from the S&P eclipsing its 200-day moving average (2746) two weeks ago, and will get a further boost now that the S&P finally closed back above 2800.

Bears also feel that the plunge in the US dollar seen since 12/14 (97.71 – 95.03, 2.74%) has also overshot, and look for the rebound in the greenback to carry forward and pressure gold lower.

Bears think that the recent severe cuts in growth estimates by the UK and ECB, along with a cut by the Reserve Bank of India, a recent change to lower guidance by the Bank of Australia, and China’s slowdown, the US is left as the global growth engine.

This, they feel should keep the US dollar well bid. Bears expect further long liquidation to continue, and don’t see any significant support until $1277 – 80 (7 bottoms – 12/28, 1/4, 1/21, 1/22, 1/23, 1/24 and 1/25 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 Japan’s PMI, China’s PMI, Eurozone’s PMI and Retail Sales, Italy’s GDP, UK PMI, US Markit PMI, ISM Services, New Home Sales, Monthly Budget Statement, and comments from the BOE’s Carney and the Fed’s Kashkari and Barkin for near-term direction.

In the news:

Resistance levels: 

$1290 – 3/1 low

$1297 – 3/4 high

$1298 – 1/28 low

$1300 – psychological level, options

$1301 – 50-day moving average

*$1305– up trendline from 11/13 $1196 low

$1303-05 – 5 bottoms - 1/29, 2/7,2/11, 2/13 and 2/14 lows

$1306 – 40-day moving average

$1311-13 – double bottom 2/15 and 2/28  lows

$1317 – 2/27 low

$1317 – 20-day moving average

$1321-23 – quadruple bottom – 2/18, 2/19, 2/21, and 2/26 lows

$1322-23 – quadruple top – 5/14/18, 1/30, 2/1, and 2/15 highs

$1325 – options

$1325 - 27 – 6 tops-  1/31, 2/18,  4/26/18, 4/27/18,4/30/18, and 5/11/18 highs

$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

Support levels:

$1283 – 3/4 low

$1277 – 80  7 bottoms – 12/28, 1/4, 1/21, 1/22, 1/23, 1/24 and 1/25  lows

$1275 – options

$1274 – 12/28 low

$1265-67 – 12/25, 12/26 ,and 12/27  lows

$1266 – 100-day moving average

$1259 – 12/24 low

$1254 – 12/21 low

$1250 – options

$1247 – 200-day moving average