Gold Traders’ Report - May 23, 2019

Jim Pogoda, Senior Gold Trader, Gold Bullion International 
MAY 23, 2019

Gold firmed last night, trading in the well-worn range of $1272.70 - $1278.20.  It dipped to its $1272.70 low during Asian time, fading strength in the US dollar (DX to 98.19) and against the slightly hawkish tone from the FOMC minutes yesterday afternoon (many members concur seeing the early dip in ’19 inflation readings as “transitory”, reducing chances of an imminent rate cut).  Gold bounced during European time, however, fueled by a tumble in the US 10-year bond yield (2.386% to 2.349%, 2-month low) and softer global equities.  The NIKKEI was down 0.6%, the SCI fell 1.4%, European markets were off from 1.5% to 1.8%, and S&P futures were off 1.1%.  Stocks were plagued by further worries over the US-China war with more companies suspending business with China’s Huawei, and the Chinese sharpening its rhetoric (“if the US would like to keep on negotiating it should, with sincerity, adjust its wrong actions”), along with weaker oil prices (WTI to $60.33).  Gold was able to advance despite the DX firming further (98.26) against weakness in the pound ($1.2665 - $1.2604, PM May facing ouster) and euro ($1.1157 - $1.1929, miss on German IFO and Eurozone PMIs, downbeat ECB minutes). 

Buying on the COMEX open took gold through resistance at $1278-79 (triple top – last three sessions highs), tripping some buy stops on the way to $1283.50 - despite the DX remaining fairly steady.  At 8:30 AM, however, US Jobless Claims were better than expected (211k vs. exp. 215k), which led to a tick up in S&P futures (-21 to 2836) and a modest bounce in the 10-year yield (2.363%).  The DX spiked to 98.38 taking out last month’s 98.35 top to make a two-year high.  The greenback was also aided by a further tumble in the euro ($1.1108, two year low).  Gold pulled back in response, but found support ahead of the former resistance at $1278-79. 

US stocks opened weaker, and softened further into mid-day (S&P -49 to 2807, unable to hold support at 2815) with losses in the Energy, IT, Industrials and Financials leading the decline.  Stocks were hurt by weaker reports on US Markit Manufacturing PMI (50.6 vs. exp. 52.7), Services PMI (50.9 vs. exp. 53.5), New Home Sales (675k vs. exp. 673k), and the KC Fed’s Manufacturing Activity Index (4 vs. exp. 7), and a further tumble in oil (WTI to $57.92, fears of growth sapping prolonged trade war, Pompeo says US ready to negotiate with Iran).  The 10-year yield sank to 2.305% (18-month low), and the DX made a U-turn and retreated to 97.80.  Gold rallied through its previous $1283.50 high to reach $1287.30, where resistance in front of $1289 (5/17 high) held.  A fair amount of short covering seen. 

In the afternoon, US stocks finished with a slight bounce (S&P -34 to 2821), while the 10-year yield touched 2.926% before finishing at 2.313%.   The DX bounced to 97.90, and gold backed off to finish up $10 at $1283.  

Open interest was up 5.9k contracts, showing a net of new shorts (but also some bargain hunting new longs) from yesterday’s decline.  Volume was slightly lower with 257k contracts trading.  

Bulls cheered gold’s ability to hold over the key support at $1274 (up trendline from 8/16/18 $1160 low) last night and its subsequent $10 rally today.  Bulls feel the move down from the $1304 high from early last week to the $1270 was overdone, and used the dip to get long(er) at more attractive levels.Despite Powell’s brush off of recent weak inflation data as transitory from two weeks ago, which was confirmed by the release of the FOMC minutes 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 – 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 62.7% 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 Friday’s Commitment of Traders Report (as of 5/14) that showed the large funds with a still relatively small net long position (adjusted to approximately 105-110k contracts), and a still relatively high gross short position (102k 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 feel gold’s consolidation is over, and expect its rally to challenge initial resistance at $1287-89 (double top – 5/17 and 5/23 highs) followed by $1297 (100-day moving average).

Bears were disappointed with gold’s failure to breach key support at $1274 (up trendline from the 8/16/18 $1160 low), despite the run to 2-year highs in the DX early in the session.  Many bears were forced to cover in the ensuing rally to $1287, but other more patient bears used the advance to get short(er).  Like the bulls were disappointed with the lack of conviction on the upside over $1300 a week ago, bears were similarly disappointed yesterday and today.  Perhaps market participants are concerned with the resolution key geopolitical issues (US-China trade, Iran, Brexit) before committing to more significant positions, or perhaps the dreaded summer doldrums have begun to settle in.  The bears applauded the slightly hawkish FOMC minutes yesterday, which echoed Powell’s less dovish tone from three 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 (though that didn’t happen today), 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 (including today’s weak IFO and PMI 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 maintain 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 resume, and will look for gold to close below $1274 (up trendline from 8/16/18 $1160 low).  Below this level, bears hope to trip significant long liquidation that they believe should lead to aggressive selling through $1269-70 (triple bottom - 4/24, 5/3, and 5/21 lows) 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 $1259.

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 CPI and All Industry Activity Index, UK Retail Sales, US Durable Goods, Baker Hughes Rig Count, and Commitment of Traders Report for near term direction. 

In the news: 

Russia’s central bank gold-backed cryptocurrency a possibility:   https://www.fxstreet.com/cryptocurrencies/news/russias-central-bank-gold-backed-cryptocurrency-a-possibility-201905231450

Is the gold slump showing signs of recovery?:   https://international-adviser.com/is-the-gold-slump-showing-signs-of-recovery/

Serbia adds 7 tonnes of gold reserves:   https://seenews.com/news/serbia-adds-7-tonnes-of-gold-reserves-since-2012-c-bank-governor-654981 

YTD Performance


12/31/2018

5/23/2019

Change
% Change
Gold


1282.5

1283

0.5

0.039%

DX


96.06

97.85

1.79

1.863%

S&P


2505

2822

317

12.655%

JYN


109.63

110.56

0.93

0.848%

Euro


1.1466

1.1182

-0.0284

-2.477%

US 10-year bond yield


2.69%

2.313%

-0.0037

-13.887%

Oil (WTI)


45.45

58.14

12.69

27.921%

Resistance levels: 

$1285 – 40-day moving average

$1287-89 – double top – 5/17 and 5/23 highs

$1290 – 50-day moving average

$1297– 100-day moving average

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

$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:

$1283 – 20-day moving average

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

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

$1278-79 – triple top - 5/20, 5/21, and 5/22  highs

$1275 – options

$1274-75 – double bottom  – 5/17 and 5/20 lows

*$1274 – up trendline from 8/16/18 $1160 low

$1273 – 5/22 low

$1269-70– triple bottom - 4/24, 5/3, and 5/21 low

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

*$1259 – 200-day moving average

$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

$1250 – options

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