Gold Traders’ Report - May 24, 2019

Jim Pogoda, Senior Gold Trader, Gold Bullion International 
MAY 24, 2019

Gold softened last night, paring some of yesterday’s rebound in a narrow range of $1281 - $1285.30.  It rose to its $1285.30 top during Asian and early European time, fading a dip in the US dollar (DX from 97.91 – 97.68).  The DX was pressured by gains in the yen (109.74 – 109.45), pound ($1.2660 - $1.2717, relief rally after PM May announces she will resign on 6/7, upbeat UK Retail Sales), and the euro ($1.1176 - $1.1205).  Gold softened to its $1281 low later during European hours as the DX rebounded (97.84) and against a bounce in the US 10-year bond yield (2.313% to 2.333%) and mostly firmer global equities.  The NIKKEI was off 0.2% and the SCI was flat, but European markets advanced 0.7% -0.8%, and S&P futures were +0.6%.  Stocks were lifted by comments last night from Trump that he expected the US-China trade war to end swiftly, and that a trade deal could include the US lifting restrictions on Chinese telecom giant Huawei, along with remarks early this morning from the Chinese Ambassador Tianki that China was ready for further trade talks.  After three sessions of heavy losses ($63.76 - $57.33), oil prices bounced (WTI to $58.74) and were also supportive of stocks.   

 At 8:30 AM, a miss on US Durable Goods (-2.1% vs. exp. -2.0%, with large downward revision to last month’s increase) knocked S&P futures lower (+12 to 2831), and took the US 10-year bond yield down to 2.311%.  The DX slipped back to 97.70, and gold bounced to $1284.25.  

 US stocks rallied on their open (S&P +20 to 2841) with gains in the Financials, Utilities and Real Estate sectors leading the advance.  An upbeat forecast on Amazon by Piper Jaffray and a further increase in oil (WTI to $58.97) supported the move.  The 10-year yield edged up to make a fresh intraday high at 2.334%, and the DX edged up to 97.79, helped by the pound sliding to $1.2647 (fear that leading candidate to replace May Boris Johnson said UK would leave the EU with or without a deal by 10/31) . Gold retreated in response, but found support at the overnight low of $1281. 

 Equities turned south into the late morning hours (S&P -2 to 2820), hurt by Trump approving an additional military deployment (about 1500 troops) to the Persian Gulf to deter Iranian threats along with a cut in Q2 GDP forecast by JPM to just 1% from 2.25%.  The 10-year yield slipped to 2.317%, and DX fell to an intraday low of 97.61 (1-week low).  Gold rebounded to reach $1284.75, but couldn’t take out its overnight high. 

 Stocks turned back into positive territory in the afternoon (S&P reached 2834 before finishing +4 to 2826) while the 10-year yield edged up to 2.324%.  The DX declined, however, sliding to 97.57 against a recovery in the pound (1.2732) and the euro ($1.1212).  Gold was caught in the cross currents and ticked lower to $1284, and was $1284 bid at 4PM with a $1 gain.

 Open interest was up 5.2k contracts, showing a net of new longs (outstripping the short covering seen) from yesterday’s $10 advance.  Volume surged with 414k contracts trading, which was inflated by some June-August rollovers.  The CFTC’s Commitment of Traders Report as of 5/21 showed the large funds slashing 22.7k contracts of longs and adding 13k contracts of shorts.  This was done on gold’s move down from $1304 to $1270, reflecting a heavy amount of long liquidation along with a significant amount of new shorts.  The Net Fund Long Position declined to 89k contracts, while gross shorts increased to 115k contracts.  In the past three sessions, there has been some significant short covering (most done during yesterday’s bounce to $1287) and new longs entering, adjusting the NFLP to around 110k contracts, and taking gross shorts down to around 105k contracts.  Even this adjusted NFLP remains historically low, and the level of gross spec shorts remains relatively high.  This leaves the gold market well positioned to recover higher as many longs remained sidelined and the still elevated amount of gross shorts - when forced to cover - will help accelerate any upside moves. 

 Some bulls were disappointed with gold’s meager $1 advance today, given the pullback in the US dollar.  However, other bulls will take today’s gain given rebound in equities and bounce in the US 10-year bond yield.  Bulls are still thrilled with gold’s ability to hold over the key support at $1275 (up trendline from 8/16/18 $1160 low) in the last few sessions. 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 Wednesday,  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 58.9% 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 today’s Commitment of Traders Report (as of 5/21) that showed the large funds with a still relatively small net long position (89k), and a still relatively high gross short position (115k 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).

 Given the weakness in the DX, bears will take gold’s modest rise today.  However, some bears were expecting gold to remain lower today given the rebound in the 10-year yield and stocks – and were disappointed with the shallowness of gold’s intraday dips. While bears are still smarting from gold’s failure to breach key support at $1274 (up trendline from the 8/16/18 $1160 low) in the past few sessions, others remain patient and are using the subsequent rebound 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 this week.  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 on Wednesday, 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, 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 yesterday’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 $1275 (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 Monday on China’s Industrial Profits, Japan’s Leading Index, and Tuesday on German GfK Consumer Confidence, Eurozone Confidence, US House Price Index, S&P/Case Shiller Home Price Index, Consumer Confidence, and the Dallas Fed Manufacturing Index for near term direction.

In the news:

Goldman’s Currie weighs in on commodity markets:   https://uk.finance.yahoo.com/video/goldman-sachs-jeff-currie-weighs-203448990.html

India gold discounts flip to premiums as demand picks up:   https://in.reuters.com/article/asia-gold-demand/india-gold-prices-flip-to-premium-as-demand-picks-up-idINKCN1SU1I5?rpc=401&

YTD Performance


12/31/2018

5/24/2019

Change
% Change
Gold


1282.5

1284

1.5

0.117%

DX


96.06

97.57

1.51

1.572%

S&P


2505

2826

321

12.814%

JYN


109.63

109.30

-0.33

-0.301%

Euro


1.1466

1.1207

-0.0259

-2.259%

US 10-year bond yield


2.69%

2.324%

-0.0036

-13.477%

Oil (WTI)


45.45

58.94

13.49

29.681%

 

Resistance levels: 

$1285 – 40-day moving average

$1285 – 5/24 high

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

$1290 – 50-day moving average

$1297– 100-day moving average

$1298 – 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

$1281 – 5/24 low

$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

*$1275 – 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