Jim Pogoda, Senior Gold Trader, Gold Bullion International
MAY 14, 2019
Gold traded lower last night in a range of $1296 - $1303.65, trimming a modest amount of its robust gain from yesterday’s session. The yellow metal initially rose to a fresh 1-month high of $1303.65 during early Asian hours, attracting some Far-Eastern follow through buying. The move was helped by a small pullback in the US dollar (DX to 97.27) along with an early continuation of yesterday’s selloff in global equities (NIKKEI off 2% and SCI off 1% playing catch up, S&P futures dropped another 0.3% to 2800). Later during European time, gold retreated to its low of $1296, where it found support at the former resistance level and 100-day moving average. It was pressured by a recovery in the DX (97.40), which was aided by a pullback in the safe haven yen (109.13 – 109.77, weaker Japanese Economy Watchers Survey), declines in the euro ($1.1244 – weaker German and Eurozone ZEW Surveys, drives German 10-year bund yield further negative) and pound ($1.2970 - $1.2923, reports May won’t sign on for a permanent customs union – the key demand by Labour), and a firmer NFIB Small Business Optimism Report (103.5 vs. exp. 102). Gold was also weighed by a bounce in the US 10-year bond yield (2.394% to 2.419%) and a rebound in European equity markets (up from 0.6% to 0.9%) and S&P futures (up 0.7%). Equities were helped by upbeat comments China’s Foreign Ministry (both sides have agreed to continue pursuing relevant discussions), and from Trump (has a feeling negotiations will be very successful). Firmer oil (WTI from $60.80 - $61.97, Saudis report drone attacks on pumping stations) was supportive of stocks.
At 8:30 AM, weaker than expected readings on US Import Prices (0.2% vs. exp. 0.7%), and Export Prices (0.2% vs. exp. 0.6%) helped tug S&P futures lower (2820), and sent the US 10-year yield down to 2.403%. The DX continued to firm (97.50) however, buoyed by a further decline in the euro ($1.1203). Gold was caught in the cross currents, but traded up to $1299.
US stocks rallied after their open, and climbed steadily into mid-day (S&P +38 to 2850), with a further advance in oil aiding the move (WTI to $62.09). Gains in IT, Energy, Financials, Industrials and Materials sectors (all up over 1.25%) led the advance. The 10-year yield moved back up to 2.426%, and the DX edged up to 97.55. Gold retreated in response, falling below support at $1296 (100-day moving average) to reach $1293.80.
Into the afternoon, US stocks pared some gains (S&P +30 to 2842), while the 10-year yield ticked down to 2.419%. The DX pulled back to 97.47, and gold recovered to reach the key $1296 level.
Equities continued to back off in the afternoon, but held on the bulk of their earlier gains (S&P +23 to 2834). The 10-year yield hovered either side of 2.42%, while the DX traded narrowly around 97.50. Gold edged higher to $1297 and was $1297 bid at 4PM with a loss of $3.
Open interest was up big – 31.8k contracts – showing a huge amount of new longs jumping in during yesterday’s rally (along with some scale up new shorts) overshadowing the significant short covering also seen. Volume ballooned with 433k contracts trading.
Some bulls were disappointed that gold failed to advance further last night– especially without any significant technical resistance until $1309-12 - and then later on its subsequent $3 decline. However, other bulls were encouraged that the market was able to finish over its 100-day moving average at $1296 – despite the rally in stocks, the bounce in the US 10-year yield and the strength in the DX. Bulls were pleased with another session of putting in a higher high and higher low, making it 7 of the last 8 sessions. 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 two weeks ago, 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 (FedWatch has a 55% probability of a 25bp rate cut at the Oct FOMC meeting). 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 last 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 yesterday - when forced to cover. Bulls look for this month’s rally to continue, 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).
Bears were encouraged with gold’s pullback today, but would have expected the yellow metal to have retreated back below $1292 (down trendline from 2/20 $1347 high), given the magnitude of the equity rally and the dollar’s strength, and are concerned over its resilience to the downside. Bears also remain 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 were comfortable getting short(er) into yesterday’s rally, and will remain patient and continue to sell into strength. The bears applauded Powell’s less dovish tone from two weeks ago, 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. Today’s soft ZEW Surveys for both Germany and the Eurozone that drove the German 10-year yield further 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 level of $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 China’s Industrial Production, Retail Sales and Jobless Rate, Japan’s Machine Tool Orders, German GDP, Eurozone GDP and Employment, US MBA Mortgage Applications, Empire State Manufacturing Index, Retail Sales, Industrial Production, Capacity Utilization, NAHB Housing Market Index, Business Inventories, Oil Inventories, Long Term TIC Flows, and comments from the ECB’s Coeure and Praet and the Fed’s Quarles for near term direction.
In the news:
China’s SGE gold withdrawals sharply down in April: https://www.sharpspixley.com/articles/lawrie-williams-china-sge-gold-withdrawals-sharply-down-in-april_292879.html
Spoofing Showdown – two judges set to rule on weapon used by prosecutors in commodity trading cases: https://www.cnbc.com/2019/05/13/judges-mulling-challenges-to-commodity-spoofing-trading-cases.html
Bosch goes for platinum-light fuel cells: https://www.reuters.com/article/us-platinum-week-bosch-fuelcells-exclusi/exclusive-bosch-goes-for-platinum-light-fuel-cells-idUSKCN1SJ0FG
|US 10-year bond yield|
$1300 – psychological level, options
$1301 – 5/13 high
$1304 - 5/14 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
$1294 – 5/14 low
*$1291 – 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
$1281 -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
*$1256 – 200-day moving average
$1250 – options
$1242-43 – double bottom – 12/19 and 12/20 lows