Jim Pogoda, Senior Gold Trader, Gold Bullion International
MAY 13, 2019
Increased tensions between Trump and China over the elusive trade deal roiled markets last night. Trump tweeted that the US was where it wants to be with China, and added that Beijing broke the deal with the US then sought to renegotiate, while China’s State Media put the blame on the US, stating at no time will China forfeit the country’s respect, and no one should expect China to swallow bitter fruit that harms its core interests. Global equities were hammered, with the NIKKEI off 0.8%, the SCI shed 1.2%, European markets were off from 0.6% to 0.8%, and S&P futures were -1.3%. Investors flocked to the safe havens with the yen rising (109.96 – 109.55), and global bond yields sliding (German Bund from -0.034% to -0.064%, UK Gilt from 1.136% to 1.110%, and the US 10-year from 2.473% to 2.419%). Gold was initially bid up as well, rising to $1288.65, where resistance at $1286-9 (8 tops – 4/16, 4/26, 4/29, 4/30, 5/1, 5/7, 5/9, and 5/10 highs) held. Gold was helped by the yen’s strength pushing the US dollar lower (DX from 97.34 – 97.26). Gold was also supported by news that two Saudi oil tankers were attacked off of the UAE (WTI rallied from $61.20 - $62.65). However, during European time, gold retreated to $1282 as the US dollar strengthened (DX to 97.37) against a tumble in the yuan (6.8220 – 6.8799, 4- month low) and some weakness in the euro ($1.1239 - $1.1222) and the pound ($1.3016 - $1.2998, cross party talks still show no signs of progress).
Just ahead of and through the NY open, a further escalation of tensions emerged, with Trump tweeting:
I say openly to President Xi & all of my many friends in China that China will be hurt very badly if you don’t make a deal because companies will be forced to leave China for other countries. Too expensive to buy in China. You had a great deal, almost completed, & you backed out!
China replied shortly thereafter that they will increase tariffs on $60B of US goods from June 1, and may reduce orders from Boeing and stop buying US agricultural goods. There was also a hint that China was exploring the selling or stopping purchases of US Treasuries. S&P futures tumbled (-58 to 2828) and the 10-year yield fell further (2.403%, 6-wk low). The DX sank sharply to 97.03 (1-month low), and gold surged. The yellow metal finally cracked resistance at $1286-89, and tripped some buy stops over that level, and $1291-92 (double top - 4/15 and 5/8 highs, 40 and 50-day moving averages), $1293-95 (down trendline from 2/20 $1347 high, quadruple top 4/2, 4/3, 4/4, and 4/5 highs) and $1296 (100-day moving average, 4/12 high) to reach $1300 (1-month high), where resistance finally held. A fair amount of short covering was seen along with new momentum following longs.
US stocks continued to soften into the late morning hours (S&P -70 to 2812), with the heaviest losses in the IT sector, but with significant (2.5%+) declines in the Consumer Discretionary, Communication Services, Financials, Industrials sectors. Some dovish comments from the Fed’s Clarida (global neutral rates have fallen and likely to persist for years) and Rosengren (high tariffs for a long period of time could weigh on economic growth) were unable to stem the decline. The US 10-year yield slipped further to 2.393%, but the DX bounced back to 97.33. The greenback was aided by weakness in emerging market currencies, the pound ($1.2951), and the euro ($1.1263 - $1.1228). Gold pulled back in response, but found support ahead of the former resistance at $1296.
Into the afternoon, US equities fell further (S&P -75 to 2801), and the 10-year yield ticked down to 2.391% - matching the low yield from 3/29. The DX remained steady either side of 97.30, and gold edged higher to $1301.50. However, selling (profit taking) emerged that knocked it back below $1300.
Later in the afternoon, some upbeat comments from Mnuchin (two countries are still in negotiations ) and Trump (hasn’t decided yet on the additional $325B in tariffs, will be meeting with Xi at the G20 Summit, US is in a great position, our economy has been very powerful) helped to trim some losses in US stocks (S&P -60 to2824), but they turned back down to finish lower (S&P ended -70 to 2812 ). The 10-year yield bounced to 2.407% but went out at 2.400%. The DX remained very steady around 97.30, and gold held firm and traded narrowly between $1299-$1300. Gold was $1299 at 4PM with a gain of $13.
Open interest was up 14.6k contracts, showing a good chunk of new longs from Friday’s advance. Volume was much lower but still healthy with 271k contracts trading.
Bulls cheered gold’s strong $13 rally today, and moreover, that it was able to hold its gains and remain above key resistance levels of $1296 (100-day MA) $1292 (down trendline from 2/20 $1347 high) despite the DX rebounding to unchanged. Bulls are encouraged that gold has made higher highs and higher lows in 6 of the last 7 sessions, and has moved significantly away from key support at $1270 (up trendline from 8/16/18 $1160 low). Bulls feel that gold’s dip from $1287 to $1266 two weeks ago 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, along with escalating fears that a protracted trade war will impede global growth. 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 Friday’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 –as seen today - when forced to cover. Bulls look for today’s rally to extend, and see no significant resistance between $1300 and $1309 – 12 (triple top – 3/28, 4/10 and 4/11 highs). A breach of this level would open up tests of next resistance levels at $1319 3/27 high), $1322 (3/26 high) and $1325 (3/25 high).
Many bears were stopped out today after gold broke over the key resistance levels of $1292 (down trendline from 2/20 $1347 high) and $1296 (100-day MA), and were disappointed that gold remained firm despite the DX recovering to unchanged during the late morning hours. Bears are concerned that the market has moved significantly away from key support at $1265-70 (5 bottoms - 12/25, 12/26, 12/27, 4/23, and 5/2 lows, up trendline from 8/16/18 $1160 low. However, other bears remained comfortable getting short(er) into today’s rally, and will remain patient and continue to sell into strength. 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. Last 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 are on the rocks, bears view that a deal is in both sides best interests, and are optimistic that an agreement will be put in place. They 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 feel that gold’s rally has been overdone, and look for a quick retracement to initial support at the prior resistance levels of $1296 and then $1292.
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 tomorrow on Japan’s Economy Watcher’s Survey, German Wholesale Price Index and ZEW Survey, UK Employment Change and Weekly Earnings, Eurozone Industrial Production and ZEW Survey, US NFIB Small Business Optimism, Import Prices, Export Prices, and comments from the Fed’s Williams, George, and Daly for near term guidance.
In the news:
Gold trade – central banks smarter than you think: https://www.iol.co.za/business-report/opinion/gold-trade-banks-smarter-than-you-think-22916539
Gold rallies to 1-month tops amid global flight to safety: https://www.fxstreet.com/news/gold-rallies-to-1-month-tops-around-1300-mark-amid-global-flight-to-safety-201905131406
US Mint gold and silver eagle sales lower last week: http://www.coinnews.net/2019/05/10/gold-prices-log-0-5-weekly-increase/
WPIC Platinum Quarterly: https://www.platinuminvestment.com/files/128443/WPIC_Platinum_Quarterly_Q1_2019.pdf
Hong Kong Gold Exchange launches Goldzip tokens backed by $300M reserve: https://en.businesstimes.cn/articles/111982/20190513/hong-kong-gold-exchange-launches-goldzip-tokens-backed-by-300-million-reserve.htm
CFTC – gold speculators increased bullish bets for a 2nd week: https://en.businesstimes.cn/articles/111982/20190513/hong-kong-gold-exchange-launches-goldzip-tokens-backed-by-300-million-reserve.htm
|US 10-year bond yield|
$1300 – psychological level, options
$1301 – 5/13 high
$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
$1296 – 4/12 high
$1296– 100-day moving average
$1293-95 –quadruple top 4/2, 4/3, 4/4, and 4/5 high
*$1292 – down trendline from 2/20 $1347 high
$1292 – 50-day moving average
$1291-92 – double top - 4/15 and 5/8 highs
$1291 – 40-day moving average
$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
$1282-83 – double bottom – 5/10 and 5/13 lows
$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
*$1270 – up trendline from 8/16/18 $1160 low
$1269 – double bottom - 4/24 and 5/3 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