Gold Traders’ Report - May 2, 2019

Jim Pogoda, Senior Gold Trader, Gold Bullion International 
MAY 2, 2019

Transitory – After its release yesterday, the FOMC meeting statement was viewed by markets as dovish, noting a concern for the lack of inflation.  The S&P rallied strongly (2954) the 10-year yield sank to 2.459%, and the DX tumbled to 97.14.  Gold rallied sharply, reaching $1287.30.  However, during his subsequent press conference, Chair Powell described the softness in inflation as transient – which unleashed a sharp reversal in markets, as the prospects for the Fed cutting rates in the near / intermediate term diminished as per FedWatch:

     Meeting date            prob of 25bp cut now          prob of 25bp cut last week

            June                            6.7%                                      18.8%

            July                             15.6%                                     27.7%

            Sep                              25.0%                                     35.2%

            Oct                              29.1%                                     37.9%

The S&P collapsed to 2723, while the 10-year yield popped to 2.514%.  The DX rallied back to 97.73, and gold slumped to $1273.

 Gold continued to soften overnight, trading in a range of $1270.30 - $1277.85.  It rose to its $1277.85 high during Asian time, helped by a pullback in the DX to 97.57.  However, the yellow metal retreated during European time to its $1270.30 low (1-week low) as the DX rebounded (97.70).  The greenback was lifted by some mild weakness in the pound ($1.3080 - $1.3035, BOE’s Carney not as hawkish as expected, downgraded 2019 inflation forecast) and against a further climb in the US 10-year bond yield to 2.535%, and mostly firmer global equities.  The NIKKEI and SCI were still closed, European shares ranged from -0.1% to +0.2%, and S&P futures were +0.2%.  A pullback in oil (WTI from $63.64 - $62.70) was a headwind for stocks.

 After a modest bounce to $1272.50, selling on the NY open knocked gold down to $1269.50 – despite the dollar remaining fairly steady (97.60-67) and a pullback in S&P futures (2923).  Shortly afterward at 8:30 AM, a large gain in US Q1 Productivity (3.6% vs .exp. 2.4%) overshadowed a miss on Jobless Claims (230k vs. exp. 218k).  This lifted the 10-year yield to 2.525% and the DX to 97.83.  Gold was pressured down to $1266, where it found support at$1265-67 (quadruple bottom - 12/25, 12/26, 12/27, and 4/23 lows, and the up trendline from 8/16/18 $1160 low).  However, dip buying emerged, and quickly took the market back up to $1270.

 US stocks opened weaker and softened into mid-day (S&P -23 to 2900) shrugging off a stronger than expected reading on US Factory Orders (1.9% vs. exp. 1.4%).  Powell’s view of inflation as transitory was still resonating - hinting a rate cut may not be on the horizon.  Losses in the Energy, Materials, and Communication Services sectors led the decline, with a further tumble in oil (WTI to $60.94 – 1-month low) and a report that Trump Fed choice Stephen Moore (who was in favor of a rate cut)  was withdrawing from the process contributed to the decline.   The 10-year yield continued its ascent to reach 2.554% - a 1-week high.  The DX edged up to 97.85, but gold continued to probe higher to reach $1272. 

 In the afternoon, US stocks trimmed losses (S&P finished -6 to  2918), while the 10-year yield was steady around 2.55%.  The DX remained similarly steady around 97.80, and gold likewise traded narrowly between $1270-$1272.  Gold was $1271 bid at 4PM with a loss of $6. 

 Open interest was up 3.8k contracts, showing a combination of some new longs up to yesterday’s $1287 high followed by some new shorts on the dip back  to $1273. Volume was much higher with 288k contracts trading. 

 Bulls were disappointed with gold’s further decline today on top of the reversal lower off of Powell’s not so dovish commentary yesterday.  However, other bulls were encouraged that support seemed robust at the key $1266 level today ($1265-67 – 5 bottoms - 12/25, 12/26, 12/27, 4/23, and 5/2  lows,$1265 – up trendline from 8/16/18 $1160 low), and that the market was able to bounce significantly from that level.  Bulls feel that the dip over the past two sessions from $1287 to $1266 has been overdone, as was the $45 the drop from $1311 on 4/10 to 4/23’s $1266 low – and have used the dips 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 $1265).  Despite Powell’s brush off of recent inflation data as transitory yesterday, 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 – albeit not as strong as it was prior to yesterday.  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 4/23) that showed the large funds cutting their net long position to just 37k contracts, and increasing their gross short position to 139k 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 retest the double top at $1289 (Friday’s and 4/16’s high) and then challenge its 100-day moving average at $1293, above which they expect to trip some momentum buying.  Bulls expect a further significant boost if the down trendline at $1299 from the 2/20 $1347 high can be breached.

 Bears cheered gold’s decline over the past two sessions that brought the market down to key support at $1265-7 (5 bottoms - 12/25, 12/26, 12/27, 4/23, and 5/2  lows, $1265 – up trendline from 8/16/18 $1160 low).  While some bears took profits ahead of this support today, other bears feel the downside has much more room to go, once this key support can be broken.  Bears applauded Powell’s less dovish tone, 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 will 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.  Bears expect the rebound in US equities seen over the past 4 months to continue (S&P made all time high yesterday), putting further pressure on the yellow metal.  Bears expect long liquidation to continue and look for a retest of initial support at $1265-67 (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 $1253. 

 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 UK PMI, Eurozone PPI and CPI, US Payroll Report, Trade Balance, Wholesale Inventories, Retail Inventories, Markit Services PMI, Baker-Hughes Rig Count, Commitment of Traders and a slew of Fed speak - Evans, Clarida, Williams, Bowman, Bullard, Daly, Kaplan, and Mester – for near term direction.

 In the news: 

WGC Gold Demand Trends Q1 2019:   https://www.gold.org/goldhub/research/gold-demand-trends/gold-demand-trends-q1-2019

 Turkish central bank to set up lira for gold swap market to boost reserves:   https://www.reuters.com/article/turkey-cenbank-swaps/update-1-turkish-central-bank-to-set-up-lira-for-gold-swap-market-idUSL5N22E6AF?rpc=401&

 Gold gets taken for a ride after Fed comments:   https://www.bloomberg.com/news/articles/2019-05-01/gold-gets-taken-for-a-ride-as-price-gyrates-after-fed-comments

YTD Performance


12/31/2018

5/2/2019

Change
% Change
Gold


1282.5

1271

-11.5

-0.897%

DX


96.06

97.8

1.74

1.811%

S&P


2505

2918

413

16.487%

JYN


109.63

111.5

1.87

1.706%

Euro


1.1466

1.1172

-0.0294

-2.564%

US 10-year bond yield


2.69%

2.55%

-0.0014

-5.063%

Oil (WTI)


45.45

61.65

16.2

35.644%

 

Resistance levels: 

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

$1275 – options

$1277-78 – double bottom – 4/29 and 5/1 lows

$1278 – 5/2 high

$1280 – 4/30 low

$1285 -20 day moving average

$1286 – up trendline from 12/28 $1274 low

$1286-7 – triple top - 4/29, 4/30, and 5/1  highs

$1289 – double top 4/16 and 4/26 highs

$1291 – 4/15 high

$1293 – 40-day moving average

$1294– 100-day moving average

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

$1296 – 4/12 high

$1297 – 50-day moving average

*$1299 – down trendline from 2/20 $1347 high

$1300 – psychological level, options

$1301 – 4/10 low

$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)

$1306 – 4/9/high

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

*$1314 – 50% retracement of down move from 2/20 $1347 high to 3/7 $1281 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:

$1271 – 4/18 low

$1269 -4/24 low

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

*$1265 – up trendline from 8/16/18 $1160 low

$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

*$1253 – 200-day moving average

$1250 – options

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