Jim Pogoda, Senior Gold Trader, Gold Bullion International
MAY 28, 2019
Gold was quiet and steady last night, trading narrowly and either side of unchanged between $1282.40 - $1286.60 and fading modest movements in the US dollar. It slid to its $1282.40 low during Asian and early European time as the DX rose from 97.72 – 97.84. The dollar was lifted from some early weakness in the yen (109.42 – 109.57), the yuan (6.8980 – 6.9087, weaker Chinese Industrial Profits), the euro ($1.1195 - $1.1175, concern over some populist wins in EU elections, weaker German GfK Consumer Confidence, Merkel decides her heir apparent AKK not up to the job, Italy planning a hefty tax cut despite threats from Brussels) and the pound ($1.2682 - $1.2654, Brexit concerns). The yellow metal bounced to its $1286.50 high during European hours, helped by the DX retreating to 97.69. The greenback was pressured by a rebound in the yen (109.21, safe haven), and a recovery in the euro ($1.1198, stronger Eurozone Confidence data). Gold also was aided by a tumble in global bond yields (German Bund from -0.136% to -0.162% near 3-year low, UK Gilt from 0.959% to 0.916%, US 10-year from 2.315% to 2.274% - 19-month low, 3mo – 10 yr spread falls to lowest level since March) and a softening from earlier gains in equities. Though the NIKKEI (+0.4%) and SCI finished with gains (0.6%), European shares (-0.1% to -0.3%) and S&P futures (-0.3%) turned down after opening higher. Equities were hurt from concerns over US-China trade (Trump now says he is “not ready” to make a deal with China, indicated that tariffs on Chinese imports could go up substantially, China’s Foreign Ministry’s Kang says US position keeps changing while their position has not changed), and reports of the Chinese government seizing a bank for the first time in 20-years. Firmer oil prices on concerns of tight supplies (WTI from $58.13 - $59.35) were supportive of stocks.
Just ahead of the NY open, US equity futures turned back higher (S&P futures +3 to 2835). The US 10-year yield bounced from to 2.299%, the DX firmed to 97.82 and gold sold off. Light stops were hit under last night’s $1282 low and Friday’s $1281 low to reach $1277 – where support in front of $1276 (up trendline from 8/16/18 $1160 low) held.
US stocks opened stronger (S&P +14 to 2840), aided by better than expected readings on the S&P/Case –Shiller US Home Price Index (2.7% vs.exp. 2.5%) and US Consumer Confidence (134.1 vs. exp. 130). The 10-year yield was choppy and either side of 2.29%, and the DX advanced to 97.92 - boosted by a resumption of weakness in the euro ($1.11170). Gold retreated further, but support at $1276 held.
Later in the morning, US stocks retreated to unchanged (S&P to 2825), hurt by a large miss on the Dallas Fed Manufacturing Index (-5.3 vs. exp. 5.8) and some comments from JPM’s Dimon that the trade dispute is “real issue that could damage corporate confidence. The 10-year yield dipped to 2.282%, and the DX pulled back to 97.84. Gold came off its low to reach $1279.50.
Into the afternoon, equities softened further (S&P -11 to 2814), with a dip in oil aiding the move (WTI to $58.89). Losses in the Consumer Staples, Utilities, and Energy sectors led the decline. The 10-year yield fell to 2.266%, but the dollar firmed (97.97) - supported by further weakness in the euro ($1.1161). Gold was caught in the cross currents and traded narrowly between $1277.50 - $1278.75.
US stocks traded lower into the late afternoon (S&P finished -24 to 2802). The 10-year yield made a fresh 20-month low at 2.262%, but the DX remained firm (97.95 - 98) against the softer pound ($1.2650) and euro ($1.1160) – and despite some strength in the safe haven yen (109.32). Gold was still caught in the cross currents, but edged up to $1279.50. It was $1279 bid at 4PM with a $5 loss.
Open interest was off 2.4k contracts, showing a net of short covering from Friday’s advance. Volume of 303k contracts was much lower with the pre-holiday thin activity from Friday, but still inflated by the ongoing June-August contract rollover.
Bulls were disappointed with today’s $5 decline, but encouraged with gold’s ability to hold over the key up trendline (from 8/16/18 $1160 low) at $1276. Bulls feel the move down from the $1304 high to $1270 two weeks ago 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 3 weeks ago - which was confirmed by the release of the FOMC minutes last 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 showing increased 62.5% probability of a 25bp rate cut at the Oct FOMC meeting, US 10-year yield scraping 20-month lows). 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 5/21) 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 $1285-87 (quadruple top – 5/23, 5/24, 5/27, and 5/28 highs) followed by $1289 (5/17 high) and then $1297 (100-day moving average).
Bears cheered gold’s drop today, and feel the market is finally poised to breach key support at $1276 (up trendline from 8/16/18 $1160 low). However, some bears are feeling a growing concern over the supportive nature of the decline in global bond yields – especially the US 10-year yield’s decline to 20-month lows, and with markets predicting an increasing probability that the Fed will be moving to cut rates later this year (FedWatch showing 62.5% probability of 25 bp cut at Oct meeting). While some bears are still smarting from gold’s failure to breach the key trendline last week, others have remained patient and used the subsequent rebound to get short(er). The bears applauded the slightly hawkish FOMC minutes last 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 (though not the case 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 German GfK) 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 continue and will look for gold to close below $1276 (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 $1260.
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 French GDP, German Unemployment Change, US Richmond Fed Manufacturing Index and comments from the BOJ’s Kuroda for near term direction.
In the news:
China’s first bank seizure in 20 years sets investors on edge: https://www.bloomberg.com/news/articles/2019-05-27/china-s-first-bank-seizure-in-20-years-spooks-lenders-investors
Gold speculators sharply lowered bullish bets: https://www.investing.com/analysis/gold-speculators-sharply-lowered-their-bullish-bets-by-most-in-5-weeks-200425183
|US 10-year bond yield|
$1278-79 – triple top - 5/20, 5/21, and 5/22 highs
$1283 – 20-day moving average
$1285-87 – quadruple top – 5/23, 5/24, 5/27, and 5/28 highs
$1285 - 40-day moving average
$1285 – 5/24 high
$1289 – 5/17 high
$1289 – 50-day moving average
$1297– 100-day moving average
$1296 – 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
$1276 – 5/28 low
*$1276 – up trendline from 8/16/18 $1160 low
$1275 – options
$1274-75 – double bottom – 5/17 and 5/20 lows
$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
*$1260 – 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