Gold Traders’ Report - May 16, 2019

Jim Pogoda, Senior Gold Trader, Gold Bullion International 
MAY 16, 2019

Gold was slightly weaker overnight, trading in a range of $1293.70 - $1298.90.  It was very steady during Asian time, trading narrowly between $1295 - $1297.50.  The yellow metal edged up to its $1298.90 high during early European hours, helped by a pullback in the US dollar (DX to 97.44) and a dip in S&P futures (2842). Later during European time gold slipped to its $1293.70 low, pressured by a rebound in the DX (97.62), which was helped by declines in the pound ($1.2852 - $1.2810, Brexit jitters), the yen (109.35 – 109.68, risk on), and the euro ($1.1224 - $1.1198, concerns over Italy’s debt).  Gold was also weighed by an improvement in S&P futures (+12 to 2867, better earnings from Walmart, shrugs off further US-China trade tensions surrounding Huawei), and a move up in the US 10-year bond yield (2.317% to 2.389%).  A move higher in oil (WTI from $62.08 - $62.81, Saudis launch air strikes in retaliation for recent attacks on its oil infrastructure) was supportive of stocks. 

At 8:30 AM, stronger than expected reports on US Jobless Claims (212k vs. exp. 221k), Housing Starts (1.235M vs. exp. 1.205M), Building Permits (1.296M vs. exp. 1.287M), and the Philly Fed Business Outlook Index (16.6 vs. exp. 9) lifted US stock futures further (2880), and brought the US 10-year yield back over 2.40%.  The DX advanced to 97.71, where it ran into resistance at 97.71-74 (quadruple top – highs 5/6, 5/7, 5/9, and 5/15 highs).  Gold sold off to $1290, but held in front of support at $1289 (down trendline from 2/20 $1347 top).  

US stocks opened stronger, and rallied into mid-day (S&P +41 to 2892), with a broad advance lifting all 11 S&P Sectors at least 75bp higher.  Dovish comments from the Fed’s Brainard (new normal of low interest rates requires the central bank to let inflation run hotter than usual) and Kashkari (monetary policy has been too tight in this recovery, I don’t think our approach to monetary policy in this recovery has provided as much stimulus as the economy required) contributed to the move.  The 10-year yield edged up to 2.412%, and the DX broke through resistance at 97.71-74 to reach 97.83 (2-week high).  Gold fell through support at $1289 to reach $1284, where support ahead of $1282-83 (double bottom – 5/10 and 5/13 lows) held.  

In the afternoon, US stocks pared some gains (S&P finished +24 to 2875) while the 10-year yield dipped to 2.398%. The DX continued to firm however (97.88), helped by further softening in the yen (109.90) and euro ($1.1166). Gold was caught in the cross currents but came off its floor to reach $1287.  It was $1287 bid at 4PM with a loss of $10.  

Open interest was up 6.4k contracts, showing a net of new longs from yesterday’s early rally to $1301.  Volume was higher with 272k contracts trading. 

Bulls were disappointed with gold’s $10 retreat today, and with its inability to hold over $1289 (down trendline from 2/20 $1347 high).  They’re concerned that after the market had climbed steadily from $1266 - $1304 over the past 2 weeks, it has given up half of that gain in the last three sessions.  However, other bulls see the move down as a healthy correction, and are using the pullback 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 $1271).  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 58% 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 -  when forced to cover.  Bulls look for gold to consolidate between $1282-$1289, and then to make a retest of the Tuesday’s $1304 high, followed by $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 pleased with gold’s $10 decline today, especially with the move below the key down trendline from the 2/20 $1347 high at $1289.  Bears were encouraged that despite a lack of significant technical resistance between $1300 and $1309-12 that the upside lacked conviction and the rally stalled.  While some bears took profits today on the way down to support at $1282-83 off of the strength in the DX, stocks, and a rebound in the 10-year yield today, others are looking for a more significant move lower.    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. Recent soft data for both Germany and the Eurozone that drove the German 10-year yield further into negative territory over the past two weeks 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 5 months to resume (S&P made all time high on 5/1), putting further pressure on the yellow metal.  Bears expect gold’s pullback to continue, and will look for gold to challenge initial support at $1282-83 (5/10 and 5/13 lows) followed by $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), and then $1271 (4/18 low and up trendline from 8/16/18 $1160 low).  Below this level, bears expect to trip significant long liquidation that they believe should lead to a cascade of selling through $1269 (double bottom - 4/24 and 5/3 low) and $1265-67 (5 bottoms - 12/25, 12/26, 12/27, 4/23, and 5/2  lows) to bring a test of the 200-day moving average at $1257.

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 Department Store Sales and Tertiary Industry Index, Eurozone Construction Output and CPI, US Leading Index, University of Michigan Consumer Sentiment, Baker-Hughes Rig Count, Commitment of Traders, and comments from the Fed’s Williams and Clarida for near term guidance.  

In the news:

Are GLD withdrawals a threat to the gold price:   https://www.sharpspixley.com/articles/lawrie-williams-are-gld-withdrawals-a-threat-to-the-gold-price_292952.html

ICE gets CFTC nod for “speed bump: on US futures exchange:   https://www.reuters.com/article/cftc-ice-speedbump/ice-gets-cftc-nod-for-speed-bump-on-us-futures-exchange-idUSL2N22R1E0

GoldGram and Dillon Gage sign agreement for strategic alliance:   https://www.prnewswire.co.uk/news-releases/goldgram-and-dillon-gage-sign-agreement-for-strategic-global-alliance-822455537.html

YTD Performance


12/31/2018

5/16/2019

Change
% Change
Gold


1282.5

1287

4.5

0.351%

DX


96.06

97.83

1.77

1.843%

S&P


2505

2875

370

14.770%

JYN


109.63

109.84

0.21

0.192%

Euro


1.1466

1.1173

-0.0293

-2.555%

US 10-year bond yield


2.69%

2.378%

-0.0031

-11.467%

Oil (WTI)


45.45

63.05

17.6

38.724%

 

Resistance levels: 

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

*$1289 – down trendline from 2/20 $1347 high

$1290 – 40-day moving average

$1292 – 50-day moving average

$1296 – 4/12 high

$1297– 100-day moving average

$1299 – 5/16 high

$1300 – psychological level, options

$1301 – double top 5/13 and 5/15 highs

$1304  - 5/14 high

$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:

$1284 – 5/16 low

$1282-83 – double bottom – 5/10 and 5/13 lows

$1283 -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

*$1271 – 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

*$1257 – 200-day moving average

$1250 – options

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