Gold Traders’ Report - May 6, 2019

Jim Pogoda, Senior Gold Trader, Gold Bullion International 
MAY 6, 2019

Fears that the US-China trade talks were unraveling roiled markets last night.  After Trump tweeted that the current 10% tariffs on $200B of Chinese goods will rise to 25% Friday and threatened to impose 25% levies on and additional $325B of Chinese goods “shortly” - citing the slow pace of the talks and accusing China of attempting to renegotiate - China was reportedly considering at least delaying Vice Premier Liu He’s trip to Washington scheduled for Wednesday to continue the talks.  Global equities sold off sharply:  The SCI fell 5.6% (despite a beat on Caixin PMI Services), European markets shed 2%, S&P futures sank (-63 to 2884).  Oil tumbled to $60.04 to make a fresh 6-week low.  The yuan plunged from 6.73335 – 6.7958 (3-month low) and the euro also dipped ($1.1201 - $1.1181).  Investors flocked to the safe havens, with the yen climbing sharply (111.10 – 110.29, 6-week high), the US 10-year yield dipped from 2.53% to 2.475%, the DX improved (97.59, yuan and euro weakness slightly overcame the yen strength), and gold rallied.  The yellow metal gapped up to $1285.30, tripping some buying over Friday’s $1283 high, but was unable to challenge resistance at $1286-87 (triple top - 4/29, 4/30, and 5/1  highs).  News that the US was deploying a carrier to the Middle East in a warning to Iran, new North Korean missile launches over the weekend, and an escalation in hostilities between Israel and Hamas (but cease fire announced for Mon AM) contributed to gold’s upside.

 During European time, S&P futures pared some losses (-47 to 2900), and the US 10-year yield edged back up to 2.85%.  The dollar moved moderately higher (DX to 97.63), with the yen trimming some prior gains (110.86) and weakness in the pound ($1.3175 - $1.3092, Brexit uncertainties) overcoming some strength in the euro ($1.1202, upbeat Eurozone Services PMI and Sentix Investor Confidence).  Gold likewise gave up some prior gains, and slid back to $1280. 

 Just ahead of and through the NY open, S&P futures rebounded further (2905).  The 10-year yield ticked up to 2.491%, and the DX moved up to 97.71.  Gold retreated in response, and fell to $1277.10.

 US equities opened weaker (S&P -61 to 2894), hurt by some slightly hawkish comments from the Fed’s Harker (echoes Powell saying weakness in US inflation could be transitory – suggesting no reason to adjust monetary policy at this point, continues to see one rate hike at most this year, possibly one at most next year).  Losses in the IT, Industrials, and Materials sectors led the decline.  The 10-year yield improved to 2.494%, but the DX – caught in the cross currents – backed off to 97.62.  Gold edged higher, and reached $1278.75.

 Later in the morning, US stocks rebounded (S&P -24 to 2922), helped by some bullish comments from Warren buffet (stocks are ridiculously cheap if you believe 3% on the 30-year bond makes sense).  The 10-year yield hovered around 2.49%, but the DX slipped further to 97.56.  Gold probed higher and back into positive territory, trading up to $1280. 

 In the afternoon, equities edged lower (S&P -28 to 2918), and the 10-year bond yield ticked down to 2.482%.  The DX continued to soften, reaching 97.51, while gold improved to $1282.75.

 Open interest was off 2.8k contracts, showing a net of short covering from Friday’s advance.  Volume was a little lower but still healthy with 291k contracts trading. 

 Bulls were generally encouraged with gold’s safe-haven related advance today, but some were a bit disappointed that the yellow metal couldn’t take out at least $1286-87 (triple top - 4/29, 4/30, and 5/1 highs) given the magnitude of the initial selloff in stocks off of the US – China trade rift news.  However,bulls feel that gold’s dip last week 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 $1266).  Despite Powell’s brush off of recent weak inflation data as transitory 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 spoke Friday.  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 4/30) 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 take out initial resistance at $1286-7 (triple top - 4/29, 4/30, and 5/1 highs) and $1289 (double top 4/16 and 4/26 highs) to open up a retest of the 50 and 100-day moving averages at $1295.  Bulls expect some more significant short covering and some new momentum playing longs to emerge if the market can breach $1297 – the down trendline from the 2/20 $1347 high.

 Bears were again disappointed that gold has moved further away from key support at $1265-67 (5 bottoms - 12/25, 12/26, 12/27, 4/23, and 5/2  lows, up trendline from 8/16/18 $1160 low) in the last two sessions, and is now some $15 dollars away from that key downside breakout target level.  However, other bears remained patient, and are using the gains of the past two sessions to get short(er).  Bears were encouraged with gold’s inability to rally more significantly (failed to take out $1287, $1289) in the early morning hours off of the plunge in stocks, and view the lack of upside conviction as a bearish factor.  The bears applauded Powell’s less dovish tone last Wednesday 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.  While derailed today from the US-China trade rift, 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 $1254. 

 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 PMI, German Factory Orders and Construction PMI, US JOLTS Job Openings, Consumer Credit, and comments from the Fed’s Kaplan for near term guidance. 

 In the news: 

US gold and silver eagle coin sales modestly lower last week:   http://www.coinnews.net/2019/05/03/gold-and-silver-log-fifth-weekly-losses-in-six-weeks/

Gold speculators bets rebounded:   https://www.investing.com/analysis/gold-speculators-bets-rebounded-this-week-as-shorts-pull-back-200416986

Central banks are going gaga over gold:   https://www.thestreet.com/investing/central-banks-embracing-gold-14946561

YTD Performance


12/31/2018

5/6/2019

Change
% Change
Gold


1282.5

1282

-0.5

-0.039%

DX


96.06

97.50

1.44

1.499%

S&P


2505

2920

440

17.565%

JYN


109.63

110.81

1.18

1.076%

Euro


1.1466

1.1205

-0.0261

-2.276%

US 10-year bond yield


2.69%

2.481%

-0.002

-7.260%

Oil (WTI)


45.45

62.38

16.93

37.250%

 

Resistance levels: 

$1283 – 5/3 high

$1283 -20 day moving average

$1285 – 5/6 high

$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

$1295 – 50-day moving average

$1295– 100-day moving average

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

$1296 – 4/12 high

*$1297 – 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

Support levels:

$1280 – 4/30 low

$1278 – 5/2 high

$1277 – 5/6 low

$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

*$1254 – 200-day moving average

$1250 – options

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