Gold Traders' Report - March 8, 2019

Jim Pogoda, Senior Gold Trader, Gold Bullion International 
MAR 8, 2019

Gold rallied overnight, trading in a range of $1285.20 - $1295.75 as it took out resistance at $1289-91 (triple top – 3/5, 3/6, and 3/7 highs).

It was boosted by safe haven buying from heavy declines in global equities, which were spooked by much weaker than expected trade data from China last night (exports off 10.7%, imports off 5.2%) on the heels of the ECB’s surprise slashing of Eurozone growth forecasts and announcing a new round of policy stimulus yesterday.

The NIKKEI fell 2%, the SCI plunged 2.4%, European markets were off from 0.5% to 1.1%, and S&P futures were down 0.4%. Lower oil prices (WTI from $56.51 - $55.60 – slump in Chinese imports) weighed on stocks.

A modestly weaker dollar (DX from 97.65 – 97.41) was also gold supportive, which was pressured by strength in the safe-haven yen (111.65 – 110.94), and a rebound in the beleaguered euro ($1.1179 - $1.1221) - despite a much weaker than expected reading on German Factory Orders.

At 8:30 AM, the US Payroll Report was much weaker than expected, with Nonfarm Payrolls increasing by only 20k (exp. 180k). S&P futures sank further (-26 to 2723 -3-week low), with a further drop in oil (WTI to $54.49) contributing to the move.

The US 10-year bond yield sank to 2.618% - a two month low, while the DX slid to 97.24. Gold spiked higher and took out resistance at $1297 (3/4 high) to reach $1300.75 – with a fair amount of short covering seen.

US stocks had a modest rebound after their open (S&P -16 to 2732), helped by some upbeat comments from White House Economic Advisor Larry Kudlow (encouraged by 0.4% increase in Average Hourly Earnings and decline in Unemployment Rate to 3.8%, Labor Participation rate steady, suggested weak construction job gains was weather related and overall report was a “fluke” due to the US Government shutdown and weather affecting the number of construction jobs).

The 10-year yield recovered to 2.647%, and the DX bounced to 97.41. The greenback was helped by a plunge in the pound ($1.3090 - $1.3016) after PM May warned that the UK might never leave the EU if MPs vote down the deal with Brussels next week. Gold retreated in response, but found support at the overnight high of $1295.

Equities drifted down into the afternoon to the morning’s low (S&P -26 to 2723), with the Energy and Consumer Discretionary sectors lagging. The US 10-year yield slipped back to 2.623%, and the DX edged lower to 97.30. Gold clawed higher, but was capped by resistance ahead of $1300, and unable to take out its earlier high.

Later in the afternoon, US stocks turned higher (S&P finished -6 to 2743), aided by a bounce in oil (WTI to $56.13). The US 10-year yield edged up to 2.628%, while the DX ticked up to 97.38. Gold held up well, and traded up to $1300.50 but failed to take out its earlier high. It was $1300 bid at 4PM with a gain of $14.

Open interest was up big – 21.8k contracts – showing a decent amount both bargain hunting longs and new shorts (on dollar strength) in heavier two-way trading from yesterday.

Volume surged with 325k contracts trading. The CFTC’s Commitment of Traders Report as of 3/5 (now current) showed the large funds slashing 34.2k contracts of longs and adding 13.4k contracts of shorts to cut their net long position down to 88k contracts, with gross shorts up to 115k contracts.

This was done during gold’s move down from $1330 to $1281. Though there has been some short covering and some new longs in during the last three sessions, the NFLP is probably only up to 100k contracts as of now, and gross shorts are still elevated and well over 100k 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.

Bulls were pleased with gold’s strong $14 gain today, especially with the DX remaining relatively firm and well above 97.

They feel that gold’s correction down from $1347 has been overdone, are encouraged - especially by the price action over the past 2 sessions - that the yellow metal has consolidated ahead of key support at $1277-80 (7 bottoms – 12/28, 1/4, 1/21, 1/22, 1/23, 1/24 and 1/25 lows).

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 (especially given the poor US Payroll Report today) and a correction in the torrid US dollar to resume driving gold higher. Bulls also point to today’s Commitment of Traders Report (as of 3/5 and current) that 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. Bulls look for a continued bounce back to test the former support level at $1303-05 followed by $1308 -the down trendline from the 2/20 $1347 high.

The bears that recognized gold’s resilience yesterday in the face of the strong DX rally and covered were glad they did, while some other bears were run out today. Other bears 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 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 (95 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 yesterday’s surprise dovishness from the ECB and last night’s poor Chinese trade data – 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 sole global growth engine (notwithstanding today’s soft US Payroll Report).

This, they feel should keep the US dollar well bid. Bears expect further long liquidation to resume, 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 Monday on China’s New Yuan Loans and Foreign Direct Investment, Japan’s Machine Tool Orders, German Industrial Production and Trade Balance, US Retail Sales and Business Inventories for near term direction.

In the news:

Resistance levels: 

$1301 – 3/8 high

$1303 – 50-day moving average

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

$1307 – 40-day moving average

$1309 – down trendline from 2/20 $1347 high

$1310– 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:

$1300 – psychological level, options

$1298 – 1/28 low

$1297 – 3/4 high

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

$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