Gold Traders' Report - March 7, 2019

Jim Pogoda, Senior Gold Trader, Gold Bullion International 
MAR 7, 2019

Gold softened modestly last night, still retaining its choppy tone in a range of $1281 - $1289.

The yellow metal sank to its $1281 low during early European time – pressured by an uptick in the DX (96.80 – 96.91) - but support at $1281-84 (triple bottom 3/4, 3/5, and 3/6 lows) –ahead of key support at $1277-80 held. It rebounded to $1287.50 during later European hours, as the dollar retreated (96.81) and from weakness in global equities.

The NIKKEI was off 0.7%, the SCI was down 2%, European markets were off from 0.4% to 0.5%, and S&P futures were -0.1%. Firmer oil prices (WTI from $56.05 - $56.95, support from OPEC led supply cuts and sanctions against Venezuela and Iran) were supportive of equities.

Just ahead of the NY open, the ECB was surprisingly very dovish: it pushed back hiking rates from end of summer through end of the year, announced a new round of TLTROs beginning in Sep, and said that near term growth will be weaker than previously anticipated.

The euro sank from $1.310 - $1.265, while the yield on the German 10-year bund sank from 0.122% to 0.070% (low since 10/16). S&P futures rallied briefly (+5 to 2776), while the US 10-year bond yield declined from 2.685% - 2.666% (1-week low).

The DX shot up to 97.18, 2-week high), also aided by a dip in the pound ($1.3185 - $1.3111) as Brexit talks have not yielded any results. Gold had an initial spike higher to $1289, but quickly slipped to $1283.50.

At 8:30 AM, Draghi’s comments added to the dovishness (slashed 2019 GDP forecast from 1.7% to 1.1%, persistence of uncertainties related to geopolitical factors appears to be leaving marks on economic sentiment, incoming data have continued to be weak, risks to economic outlook still tilted to the downside, inflation to decline toward the end of the year).

The euro sank further ($1.1223 – 4-month low), and the DX rallied to 97.37 – also boosted by better than expected readings on US Jobless Claims (223k vs. exp. 225k) and Productivity (2.0% vs. exp. 1.7%).

However, US stocks reversed and plunged (S&P -26 to 2745) with concerns over much weaker Eurozone growth weighing, and some technical selling from breaching the 200-day moving average at 2750 exacerbated the move.

The US 10-year yield declined further to 2.648%, and gold – caught in the cross-currents – just edged lower to $1283. Decent bargain hunting support was seen.

Later in the morning, US stocks sank further (S&P -29 to 2742), with the Financials, Materials, and Consumer Discretionary sectors lagging.

The 10-year yield ticked lower to 2.647%, and the DX pulled back to 96.27, also helped by a minor rebound in the euro to $1.1243 and a bounce in the pound ($1.3151, EU made new offer on Brexit backstop negotiations). Gold advanced to $1288, but was unable to take out its prior high.

Into mid-day, US stocks pared losses (S&P -14 to 2757), helped by some dovish commentary from the Fed’s Brainard (called for caution toward monetary policy, downgraded her outlook and cited softness in spending and investment along with trade tensions, Brexit, and weakness in China).

The US 10-year yield hovered around 2.65%, while the DX advanced to 97.51 – a 3-month high – as the euro resumed its slide ($1.1206, low since 6/17) and the pound reversed and made a fresh intraday and 1-week low ($1.3087, EU offer falls short of UK demands). Gold softened to $1284.50 in response, but again, decent bottom fishing bids limited its decline.

In the afternoon, US equities turned back lower (S&P finished -23 to 2749), and the 10-year yield edged to 2.636%.

The DX climbed further, however, and took out the 97.71 high from December to make a 21 month high at 97.72 as the common currency continuing to plummet ($1.1176). Despite the dollar strength, gold was resilient and well supported at $1285, and was $1285 bid at 4PM with a loss of $2.

Open interest was up 6.8k contracts, showing a combination of new bargain hunting longs along with some trend following new shorts from yesterday. Volume was lower with 211k contracts trading.

Bulls cheered that gold’s decline was limited to only $2, and were very pleased that support for gold was solid at $1285 – despite the DX nearly rising 100 points (96.80 – 97.72) to a 21-month high.

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 4 months to carry further, expecting continued volatility in equity markets along with a pause in Fed rate hikes for a considerable period and a correction in the torrid US dollar to resume driving gold higher.

Bulls also point to the delayed Commitment of Traders Report (as of 2/26) released Tuesday 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 = 35.7) having fallen $66 since its $1347 high on 2/20.

They feel that gold’s correction down from $1347 has been overdone, are encouraged - especially by today’s price action - that the yellow metal is consolidating ahead of $1277-80, and look quick bounce back to the former support level at $1303-05.

Bears will take today’s modest $2 decline but are concerned that gold was so resilient despite the 95bp move up in the US dollar.

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 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 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 resume – seeing the recent pullback in the S&P (78 points from the 3/4 2818 high) as a healthy correction. Bears also feel that the strength in the US dollar has legs – especially given today’s surprise dovishness from the ECB – and will continue to pressure gold lower.

In addition, bears think that the recent severe cuts in growth estimates by the UK, the Reserve Bank of India, a recent change to lower guidance by the Bank of Australia, and China’s slowdown leaves the US 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 $1281-84 followed by $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 $1268.

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 Household Spending, GDP, Trade Balance and Economy Watchers Survey, China’s Trade Balance, German Factory Orders, US Payroll Report, Housing Starts, Building Permits, Baker Hughes Rig Count, Commitment of Traders Report, and comments from the Fed’s Powell for near term guidance.

In the news:

Resistance levels: 

$1289-91 – triple top – 3/5, 3/6, and 3/7 highs

$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 – 40-day moving average

*$1309– up trendline from 11/13 $1196 low

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

$1313 – 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:

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

$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

$1268 – 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