Gold Traders’ Report - May 10, 2019

Jim Pogoda, Senior Gold Trader, Gold Bullion International 
MAY 10, 2019

The US and China’s delegation led by Liu He failed to make a late breakthrough ahead of the midnight US tariff increase to 25% from 10% on $200B of Chinese goods, and China’s Commerce Ministry immediately announced it would take countermeasures.  Equity markets took the news in stride, with the NIKKEI up 0.3%, the SCI up 3.1% (China’s state funds jumped in after initial slump), European shares were up from 0.5% to 1.1%, and S&P futures were flat.  Firmer oil (WTI from $61.52 - $62.23) was supportive for stocks.  The US 10- year bond yield was relatively steady between 2.439% - 2.467%, and the DX was also stable but trending down between 97.31 – 97.45. The greenback had some modest pressure from a slightly higher euro ($1.1220 - $1.1238) from a stronger German Trade Balance and the pound ($1.3000 -  $1.3027 on stronger UK industrial and manufacturing production data.  Gold was fairly steady as well, trading in a narrow range of $1283.25 - $1287.15. 

Ahead of the NY open, some tweets from Trump regarding US-China trade unnerved markets:

Talks with China continue in a very congenial manner - there is absolutely no need to rush - as Tariffs are NOW being paid to the United States by China of 25% on 250 Billion Dollars worth of goods & products. These massive payments go directly to the Treasury of the U.S....

5,715

7:43 AM - May 10, 2019

Tariffs will make our Country MUCH STRONGER, not weaker. Just sit back and watch! In the meantime, China should not renegotiate deals with the U.S. at the last minute. This is not the Obama Administration, or the Administration of Sleepy Joe, who let China get away with “murder!”

4,875

7:48 AM - May 10, 2019

S&P futures sold off (-18 to 2854), and the 10-year yield declined to 2.444%.  The DX slid to 97.25, and gold edged back up to $1286.50. 

 At 8:30 AM, the US CPI Report was weaker than expected, missing both overall (0.3% vs. exp. 0.4%), and on the Core (0.1% vs. exp. 0.2%).  S&P futures slipped further (2849), as did the 10-year yield (2.441%).  The DX softened to 97.18 (1-week low), and gold traded higher.  The yellow metal found buying over last night’s high to reach $1289, where resistance at $1266-89 (7 tops – 4/16, 4/26, 4/29, 4/30, 5/1, 5/7, 5/9 highs) capped the advance.

US stocks opened weaker and softened into the late morning hours (S&P -45 to 2825), with markets concerned that Trump’s stance on “no need to rush” won’t lead to a quick trade deal, and that new steeper tariffs will impede global growth.  Losses in the IT, Health Care, Industrials, and ConsumerDiscretionary sectors led the decline.  The 10-year bond yield fell to 2.428% (6-week low), and the DX slumped to 97.12 (3-week low).  Gold - after a dip back to $1286.50 - pushed higher, but couldn’t get past resistance at $1289.  

Equities rallied back into the afternoon to reach unchanged (S&P t o2871), helped by some upbeat comments on today’s US-China trade talks from Treasury Secretary Mnuchin (“they were constructive discussions between parties”) and China’s Vice Premier He (trade talks with US went fairly well).  The US 10-year yield climbed to 2.46%, and the DX recovered to 97.34.  Gold pulled back in response – but was fairly resilient – only declining to $1286.  

Stocks got a boost later in the afternoon (S&P rallied to 2892, finished +11 to 2882) after Trump described the China talks as constructive and that they will continue.  The 10-year yield edged up to 2.471%, and the DX reached 97.36.  Gold was pressured lower but decent support limited the decline to $1285.  Gold was $1286 bid at 4PM with a gain of $2.

Open interest was up 11.3k contracts, showing a good chunk of new longs in from yesterday’s advance.  Volume was higher and remained robust with 351k contracts trading.  The CFTC’s Commitment of Traders Report (as of 5/7/19) showed the large funds adding 8.5k contracts of longs and trimming 0.6k contracts of shorts.  This was done on gold’s dip from $1282 to $1266 and rally back to $1286 during the past week, reflecting the addition of a moderate amount of new longs.  The Net Fund Long Position increased to 75k contracts, while gross shorts ticked down to 110k contracts.  Despite the change, the NFLP still remains historically low, and the level of gross spec shorts remains relatively high.  This still sets up the gold market very well to recover higher as many longs remained sidelined and the still elevated amount of gross shorts - when forced to cover - will help accelerate any upside moves. 

Bulls were pleased that gold managed to stay positive today, given the sharp rebound in stocks, the climb in the 10-year bond yield and a fairly stable dollar.  They were encouraged that gold has made 6 consecutive higher lows, and made higher highs in 5 of the last 6 and remains comfortably above key support at $1269.  Bulls feel that gold’s dip last week from $1287 to $1266 had been overdone, as was the $45 the drop from $1311 on 4/10 to 4/23’s $1266 low – and have used the pullbacks to get long(er) at more attractive levels.   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 (up trendline at $1269).  Despite Powell’s brush off of recent weak inflation data as transitory from the prior week, bulls feel that the Fed’s dovish pivot has not been altered, and that market perceptions that the next move(s) will be a cut and not a hike are still intact – especially given the abundance of dovish commentary from the several Fed governors who have spoken in recent days.  This they feel will keep US interest rates from climbing, keep the US dollar in check, and allow gold to probe higher.  Bulls also point to today’s Commitment of Traders Report (as of 5/7) that showed the large funds with a still relatively small net long position (75k contracts), and a still relatively high gross short position 110k 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 gold to breach initial stubborn resistance at $1286-9 (now 8 tops– 4/16, 4/26, 4/29, 4/30, 5/1, 5/7, 5/9, and 5/10 highs) to open up a test of $1293-96 (4/12 high, 100-day moving average, down trendline from the 2/20 $1347 high).  Above here, bulls expect some more significant short covering and some new momentum playing longs to challenge next resistance at $1309 – 12 (triple top – 3/28, 4/10 and 4/11 highs).

Similar to yesterday, bears were concerned with gold’s early rally to $1289, but relieved when resistance held – given the early equity selloff.  However, bears were disappointed that given the strong stock market rally that ensued, that gold remained fairly resilient, with strong bidding interest emerging to defend the $1285 level.  Nonetheless, bears will remain patient and will continue to use gains to get short(er) as they have done during the past 6 sessions.  Bears are still encouraged that the market remains within striking distance of key support at $1265-69 (5 bottoms - 12/25, 12/26, 12/27, 4/23, and 5/2  lows, up trendline from 8/16/18 $1160 low   The bears applauded Powell’s less dovish tone from the prior week, and feel that the prospect of an imminent rate cut is off the table now for at least the near / intermediate term.  They feel that this should remove downward pressure off of bond yields, and allow the US dollar to appreciate against other currencies, as they feel the dollar remains the “cleanest dirty shirt in the laundry basket”, with the US as the sole global growth engine. Wednesday’s downgrade in the growth forecast for Germany and the Eurozone by the EC that drove the German 10-year yield back into negative territory underscores this view.  While derailed recently over fears that US-China trade talks would prove fruitless, bears expect the rebound in US equities seen over the past 4 months to resume (S&P made all time high on 5/1), putting further pressure on the yellow metal.  Bears expect long liquidation in gold to resume and look for a retest of initial support at $1265-69 (quadruple bottom 12/25, 12/26, 12/27, and 4/23 low, up trendline from 8/16/18 $1160 low).  Below this key trendline, bears expect to trip heavier long liquidation that will bring the low-mid $1250’s into play, and a test of the 200-day moving average at $1255. 

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), Q1 corporate earnings, oil prices, and will turn to reports Monday on China’s Foreign Direct Investment, Japan’s Leading Index, US MBA Mortgage Foreclosures and Delinquencies, and comments from the Fed’s Rosengren, Clarida and Kaplan for near term direction. 

 In the news:

HSBC – gold finding support from trade tensions:   https://www.cnbc.com/video/2019/05/10/gold-finding-support-from-trade-tensions-expert-says.html

YTD Performance


12/31/2018

5/10/2019

Change
% Change
Gold


1282.5

1286

3.5

0.273%

DX


96.06

97.30

1.24

1.291%

S&P


2505

2882

377

15.050%

JYN


109.63

109.96

0.33

0.301%

Euro


1.1466

1.1237

-0.0229

-1.997%

US 10-year bond yield


2.69%

2.473%

-0.0021

-7.930%

Oil (WTI)


45.45

61.65

16.2

35.644%

 

Resistance levels: 

$1287 – up trendline from 12/28 $1274 low

$1286-9 – 8 tops – 4/16, 4/26, 4/29, 4/30, 5/1, 5/7, 5/9, and 5/10 highs

$1291-92 – double top - 4/15 and 5/8 highs

$1291 – 40-day moving average

$1292 – 50-day moving average

$1293-95 –quadruple top 4/2, 4/3, 4/4, and 4/5 high

*$1293 – down trendline from 2/20 $1347 high

$1296 – 4/12 high

$1296– 100-day moving average

$1300 – psychological level, options

$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)

$1309 - 12 - triple top – 3/28, 4/10 and 4/11 highs

$1307 – 50% retracement of down move from 2/20 $1347 high to 4/23 $1266 low

$1319 - 3/27  high

$1322  -3/26 high

$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

$1342 – double top - 2/19 and 2/21 highs

*$1346-47 – double top 2/20 and  4/20/18 highs

*$1350 – down trendline from 8/25/13 $1433 high

$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 – 5/10 low

$1280 -20 day moving average

$1277-80 – quadruple bottom – lows 5/6, 5/7, 5/8, and 5/9 lows

$1275 – options

$1273 – 5 bottoms - 4/16, 4/17, 4/22, 4/25, and 5/1  lows

$1271 – 4/18 low

$1269 – double bottom - 4/24 and 5/3 low

*$1269 – up trendline from 8/16/18 $1160 low

$1265-67 – 5 bottoms - 12/25, 12/26, 12/27, 4/23, and 5/2  lows

$1259 – 12/24 low

$1254 – 12/21 low

$1253 – 50% retracement of up move from 8/16/18 $1160 low to 2/20 $1347 high

*$1255 – 200-day moving average

$1250 – options

$1242-43 – double bottom – 12/19 and 12/20 lows