Jim Pogoda, Senior Gold Trader, Gold Bullion International
MAY 3, 2019
Gold was very steady overnight, trading either side of unchanged in a tight range of $1269.25 - $1272.85 ahead of today’s much awaited US Payroll Report. The yellow metal was fairly resilient in the face of a moderately firmer US dollar (DX from97.78 – 98.03), which firmed against the euro ($1.1178 - $1.1145, weaker Eurozone PPI, shrugs off stronger CPI) and the pound ($1.3043 - $1.2990, pessimistic comments on Brexit negotiations from Labour Party’s Corbyn). Gold also faced pressure from a move up in the US 10-year bond yield (2.454% to 2.565%) along with firmer global equities. Japan was still closed, the SCI gained 0.5%, European shares were up from 0.2% to 0.8% and S&P futures were +0.3%. A rebound in oil (WTI from $61.49 - $61.92) from one-month lows yesterday were supportive of stocks.
At 8:30 AM, the US Nonfarm Payroll Report was a blowout, with 263k new jobs created against an anticipated 190k. Revisions to the last two months reports were up a net 16k, and the Unemployment rate dipped to 3.6% - a 50-year low (exp. 3.8%). S&P futures rallied strongly (+16 to 2934) and the DX spiked briefly to 98.11, matching Monday’s high. Gold initially sank to $1268.70 in response, but support ahead of $1265-67 (5 bottoms - 12/25, 12/26, 12/27, 4/23, and 5/2 lows, up trendline from 8/16/18 $1160 low) held. However, though S&P futures continued to rally, bond and currency markets turned their focus to the miss on Average Hourly Earnings (0.2% vs. exp. 0.1%) and the lower Labor Force Participation Rate (62.8% vs. exp. 63). The 10-year yield sank from 2.565% to 2.53%, and the DX tumbled to 97.80. Gold spiked higher, tripping some short covering buy stops over last night’s $1273 high, $1275, and yesterday’s $1278 top to reach $1278.80.
At 10 AM, a weaker reading on US ISM Services (55.5 vs. exp. 57) tugged US equities modestly off of their opening highs (+13 to 2930). The 10-year yield sank further to 2.529%, and the DX continued to plummet to 97.59. Gold extended its rally, tripping some additional buy stops over $1280 to reach $1282. The move was aided by some dovish comments from the Fed’s Evans (more worried about the economy underperforming, concerned about core inflation trends mired below 2% - in contrast with Powell’s “transient” view of the recent soft inflation) and Bullard (low PCE inflation “making me a little bit nervous”, inflation expectations look a little light and I don’t think that’s a good place to be).
US stocks made further gains into mid-day (S&P +27 to 2945), helped by some more mildly dovish comments from the Fed’s Clarida (growth may be a bit slower this year, inflation pressures muted). A further bounce in oil (WTI to $62.49) aided the move, with gains led by the Energy and Consumer Discretionary sectors. The 10-year yield ticked down to 2.521%, and the DX fell further to 97.49. Gold edged higher, reaching $1282.60.
In the afternoon, equities pushed higher (S&P +30 to 2948), helped by more dovish commentary from the Fed’s Mester (we have inflation a little below our target), and Williams (advocates keeping rates lower for longer to raise inflation expectations). The 10-year yield turned up slightly to 2.536%, and the DX had a modest bounce to 97.62. Gold came off its highs, but found support at $1279.
Later in the afternoon, US stocks trimmed some gains (S&P +28 to 2945), despite more dovish Fed speak from Kaplan (inflation to remain muted, technology and globalization sap pricing power from businesses). The 10-year bond yield hovered around 2.53%, while the DX was steady around 97.50. Gold was similarly stable, and traded narrowly between $1278-$1280. It was $1278 bid at 4PM with a gain of $8.
Open interest was up 9.1k contracts, showing a net of new shorts along with some bargain hunting longs from yesterday’s decline. Volume expanded with 315k contracts trading. The CFTC’s Commitment of Traders Report as of 4/30 showed the large funds adding 0.6k contracts of longs and slashing a sizeable chunk of shorts – 28.2k contracts. This was done during gold’s move up from $1266 to $1289, reflecting the heavy amount of short covering that fueled the rally. The Net Fund Long Position increased to 66k contracts, while gross shorts declined to 111k contracts. Though this change was significant, the NFLP still remains historically low, and the level of gross spec shorts remains relatively high. This still sets up the gold market very well 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.
Bulls were relieved that gold’s knee-jerk drop off of the robust Nonfarm Payroll gain was limited to $1269 - avoiding tripping anticipated long liquidating sell stops under the key $1265 level. The bulls cheered the subsequent $13 rally, fueled by the pullback in the 10-year bond yield and the DX off of the softer Average Hourly Earnings, weaker ISM, and dovish Fed commentary - re-kindling some hopes that the Fed’s next move would be an ease. Bulls feel that gold’s dip from the prior two sessions from $1287 to $1266 had been overdone, as was the $45 the drop from $1311 on 4/10 to 4/23’s $1266 low – and have used the pullbacks 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 weak inflation data as transitory on 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 spoke today. 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 4/30) that showed the large funds with a still relatively small net long position (66k contracts), and a still relatively high gross short position 111k 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 (highs from 4/16 and 4/26) 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 $1298 from the 2/20 $1347 high can be breached.
Bears were disappointed that gold couldn’t take out support at $1265 overnight or after the robust Payroll Report. While many bears were stopped out during the covering –led rally today, other bears remained patient and used the advance to get short(er). While bears applauded Powell’s less dovish tone Wednesday, they were haunted by the series of dovish commentary from the other Fed Governors today, and the subsequent price action that saw the 10-year yield dip back below 2.55%, and the DX lose its hard-fought 98 handle. However, bears still 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. Bears expect the rebound in US equities seen over the past 4 months to continue (S&P made all time high Wednesday), putting further pressure on the yellow metal. Bears expect long liquidation to resume 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 Monday on China’s Caixin Services PMI, Eurozone PMIs, Retail Sales, and Sentix Investor Confidence, and comments from the Fed’s Harker for near term direction.
In the news:
Cryptocurrencies are no replacement for gold – WGC: https://www.gold.org/goldhub/gold-focus/2019/05/cryptocurrencies-are-no-replacement-gold
Criminal sentencing of former JPM Chase precious metals trader delayed as federal probe continues: https://uk.finance.yahoo.com/news/criminal-sentencing-former-jp-morgan-210605095.html
|US 10-year bond yield|
$1280 – 4/30 low
$1284 -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
$1296 – 50-day moving average
*$1298 – down trendline from 2/20 $1347 high
$1300 – psychological level, options
$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
$1278 – 5/2 high
$1277-78 – double bottom – 4/29 and 5/1 lows
$1275 – options
$1273 – 5 bottoms - 4/16, 4/17, 4/22, 4/25, and 5/1 lows
$1271 – 4/18 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
*$1266 – 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