Gold Traders' Report - March 5, 2019

Jim Pogoda, Senior Gold Trader, Gold Bullion International 
MAR 5, 2019

Gold was a little choppy last night, trading either side of unchanged and moving in a range of $1283.50 - $1289.65.

It rose to its $1289.65 high during early Asian hours as the DX remained soft (96.60-65), and against a decline in S&P futures (-7 to 2785) and Asian equity markets over initial response to China’s weaker PMI data and a cut in China’s growth target (6.0-6.5%).

During European time, however, gold slipped back to $1283.50, where support from yesterday’s $1283 held.

The yellow metal was pressured by a rebound in the DX (96.82) which was boosted from a pullback in sterling ($1.3197 to $1.3098, reverses spike on strong UK PMI, focus shifts to Carney’s testimony) and the euro ($1.3143 - $1.1316 shrugged off stronger Eurozone PMI and Retail Sales data), along with mostly firmer global equities - which were aided by news that China announced tax cuts to stimulate growth among manufacturers and increase infrastructure investment.

While the NIKKEI was off 0.4%, the SCI gained 0.9%, European markets ranged from -0.2% to +0.3%, and S&P futures were +0.2% (stronger earnings reports from Target and Kohl’s).

Higher oil prices (WTI from $56.09 - $56.88, Goldman projects OPEC will balance market from oversupply by next month) were supportive of stocks.

Some buying on the NY open – despite any significant move in the DX or equity futures took gold back up to $1288, but a lack of follow through and resistance in front of the overnight high capped the advance, and it retreated quickly back to $1285-$1285.50 level.

US stocks pulled back modestly on their open (S&P -9 to 2783), with losses in the Financials and Materials sectors weighing. The US 10-year bond yield edged down from 2.744% to 2.731%, and the TD slid to 96.72. Gold ticked higher and reclaimed $1286.

At 10 AM, a much stronger than expected reading on US ISM Services (59.7 vs. exp. 57.3) along with a better report on US New Home Sales (621k vs. exp. 590k) lifted US stocks back into positive territory (S&P +4 to 2796).

Some dovish comments from the Fed’s Kashkari (U.S. economy not at full employment, amazed by the millions coming off the sidelines to join the workforce, focused on wages as the best indicator of the labor market tightness) aided the move.

The 10-year bounced to 2.748%, and the DX charged to a two-week high of 97.01. Gold was knocked lower, and took out yesterday’s $1283 low to reach $1281, where support ahead of $1277-80 (7 bottoms – 12/28, 1/4, 1/21, 1/22, 1/23, 1/24 and 1/25 lows) held.

US stocks drifted lower into the afternoon (S&P -5 to 2788), while the 10-year yield retreated to 2.724%. The DX pulled back to 96.81, and gold bounced back to $1286.50, helped by some bargain hunting buying.

Later in the afternoon, US equities meandered sideway (S&P finished -3 to 2790), while the US 10-year bond yield made a fresh low at 2.719%. The DX hovered around yesterday’s 96.82 high, and gold was able to claw back to $1288. Gold was $1288 bid at 4PM with a gain of $1.

Open interest was off another 6.8k contracts (off 33k in the last 4 sessions on gold’s move down from $1330) reflecting more long liquidation from yesterday’s decline.

Volume was lower but still relatively heavy with 288k contracts trading. The CFTC’s Commitment of Traders Report (delayed) as of 2/26 showed the large funds cutting 17.2k contracts of longs and trimming 7.3k contracts of shorts to reduce their net long position to 135k contracts.

This was done during gold’s move up from $1342 to $1347 followed by its pullback to $1329 during that week – showing some initial short covering followed by heavier long liquidation.

Despite the reduction of 7.3k of gross shorts, 101k contracts of shorts remained. Since then, gold has come off sharply from $1329 on 2/26, taking the NFLP down to approximately 100k – 110k contracts and gross shorts have probably increased to over 115k 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 in the money now) - will help accelerate any upside moves.

Bulls were again disappointed with gold’s price erosion, making 5 consecutive lower lows, and dipping to $66 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, bulls were encouraged with gold’s ability to finish on the plus side today – given the DX made a run at 97 and finished higher.

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 2/26) released today 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 $66 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, along with the dollar’s strength, though some were disappointed that gold didn’t breach $1277-80 when the DX broke over 97.

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 9 consecutive sessions of lower highs.

While some bears took some profits in front of $1277-80, 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 when the S&P consolidates over the key 2800 level.

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 expect a breach of initial support at $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 100-day moving average at $1267.

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 German Construction PMI, OECD Outlook, US MBA Mortgage Applications, ADP Employment Change, Trade Balance, Oil Inventories, Fed Beige Book, and comments from the BOJ’s Harada, and the Fed’s Williams and Mester for near term direction.

In the news:

Resistance levels: 

$1290 – 3/1 low

$1290 – 3/5 high

$1297 – 3/4 high

$1298 – 1/28 low

$1300 – psychological level, options

$1302 – 50-day moving average

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

*$1306– up trendline from 11/13 $1196 low

$1306 – 40-day moving average

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

$1315 – 20-day moving average

$1317 – 2/27 low

$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

$1281 – 3/5 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

$1267 – 100-day moving average

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

$1259 – 12/24 low

$1254 – 12/21 low

$1250 – options

$1247 – 200-day moving average