Gold Traders’ Report - May 7, 2019

Jim Pogoda, Senior Gold Trader, Gold Bullion International 
MAY 7, 2019

Gold was steady overnight, trading either side of unchanged in a tight range of $1279 - $1283.75.  It rose to its $1283.75 high during Asian hours, fading some moderate weakness in the US dollar (DX from 97.57 – 97.38).  Gold softened to its $1279 low during European time as the DX rebounded to 97.69.  The greenback was lifted by a drop in the euro ($1.1218 - $1.1184, EC cuts Eurozone / German growth forecast, miss on German Factory Orders, German 10-year yield back to negative territory), and softness in the pound ($1.3131 - $1.3060, lack of progress in cross party Brexit talks, calls for May’s resignation intensify).  Global equities were mostly lower and a tailwind for gold with the NIKKEI off 1.6% (1st day back from golden week, playing catch up) the SCI up 0.7% (helped by news that China confirmed it was sending its delegation to the US to resume talks later in the week), European markets were of from 0.5% to 1%, and S&P futures were off 0.4% (choppy, gave up earlier gains on news that Chinese delegation was arriving after Lighthizer accused Beiging of “reneging” on commitments it made during earlier talks).  Oil was lower (WTI from $62.57 - $61.50) and contributed to the weakness in stocks. 

 Strength in the DX continued through the NY open (97.72), boosted by continued weakness in the euro ($1.1175) off of the discouraging Spring Eurozone (and in particular – German) growth forecast (1.1% to 0.5%).  Gold fell further to $1278, where support ahead of yesterday’s $1277 low held.  

 US stocks opened weaker and softened further into the late morning hours (S&P -49 to 2882, matched Sunday’ night’s low), hurt by concerns that US-China talks were stalling, weaker oil (WTI to $60.65), and shrugging off some slightly dovish comments from Fed Vice Chair Clarida (inflation running on soft side, important priority of policy to get us to 2% inflation).  Losses in the IT, Energy, Health Care, and Consumer Discretionary and Communication Services all exceeded 1%.  The US 10-year yield fell to 2.457% (1-month low), and the DX was tugged back to 97.60.  Gold rose in response and was able to take out its overnight high to reach $1284.90, where resistance at yesterday’s $1285 high held. 

 Equities trimmed some losses during mid-day (S&P -36 to 2895), and the 10-year yield ticked up to 2.462%.  The DX edged higher to 97.74, but gold remained firm between $1284-$1284.50. 

 In the afternoon, US stocks turned lower (S&P -70  to 2871, 1-month low), while the 10-year yield probed lower to 2.446%.  The DX remained fairly steady (97.70) however, with continued softness in the euro ($1.1165) offset by safe-haven yen strength (110.67 - 110.16, 6-week high).  Gold edged higher to $1286.15, but resistance at $1286-7 (triple top - 4/29, 4/30, and 5/1  highs) capped the advance.

 Later in the afternoon, stocks trimmed some gains (S&P finished -48  to 2884), while the 10-year yield ticked up to 2.45%.  The DX slipped to 97.56, while gold traded narrowly between $1284-85.  Gold was $1284 bid at 4PM with a gain of $5.

 Open interest was up 2.3k contracts, showing a net of new longs from yesterday’s advance.  Volume declined with 257k contracts trading. 

 Bulls were pleased with gold’s $5 gain today, given that despite the big selloff in stocks and the decline in the US 10-year bond yield, the DX did advance.  Some bulls were left looking for more, however, expecting resistance at $1286-87 (triple top - 4/29, 4/30, and 5/1) and $1289 (double top 4/16 and 4/26 highs) to be breached given the magnitude of the selloff in equities.  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 $1267).  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 have spoken in recent days.  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 last 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 (now quadruple top - 4/29, 4/30, 5/1, and 5/7 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 $1294-95.  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 three sessions, and is now some $19 dollars away from that key downside breakout target level.  However, other bears are remaining patient, and are using the gains of the past 3 sessions to get short(er).  Bears were encouraged with gold’s failure to rally more significantly (failed to take out $1287, $1289) today - given another plunge in stocks and a dip in the 10-year yield to a 1-month low - 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.  Today’s downgrade in the growth forecast for Germany and the Eurozone by the EC that drove the German 10-year yield back into negative territory underscores this view.  While derailed again today from concerns about the US-China trade negotiations, bears expect the rebound in US equities seen over the past 4 months to resume (S&P made all time high last Wednesday), putting further pressure on the yellow metal.  Bears expect long liquidation in gold 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 the BOJ March Meeting Minutes, Japan’s Services PMI, China’s Trade Balance, German Industrial Production, US MBA Mortgage Applications, Oil Inventories, and comments from the ECB’s Draghi, the BOE’s Ramsden, and the Fed’s Brainard for near term direction.  

 In the news:

Can the gold industry return to the golden age – McKinsey: https://www.mckinsey.com/~/media/McKinsey/Industries/Metals%20and%20Mining/Our%20Insights/Can%20the%20gold%20industry%20return%20to%20the%20golden%20age/Can-the-gold-industry-return-to-the-golden-age-vF.ashx

 WGC – ETF holdings fell 2% in April, resulting in net 2019 outflow:   https://www.gold.org/goldhub/data/global-gold-backed-etf-holdings-and-flows

Gold implied volatility at all-time lows:   https://www.gold.org/goldhub/gold-focus/2019/05/gold-implied-volatility-all-time-lows

YTD Performance


12/31/2018

5/7/2019

Change
% Change
Gold


1282.5

1285

2.5

0.195%

DX


96.06

97.59

1.53

1.593%

S&P


2505

2884

379

15.130%

JYN


109.63

110.28

0.65

0.593%

Euro


1.1466

1.1188

-0.0278

-2.425%

US 10-year bond yield


2.69%

2.450%

-0.0024

-8.786%

Oil (WTI)


45.45

61.21

15.76

34.675%

 

Resistance levels: 

$1285 – 5/6 high

$1286 – up trendline from 12/28 $1274 low

$1286-7 – quadruple top - 4/29, 4/30, 5/1, and 5/7  highs

$1289 – double top 4/16 and 4/26 highs

$1291 – 4/15 high

$1292 – 40-day moving average

$1294– 100-day moving average

$1295 – 50-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:

$1283 -20 day moving average

$1283 – 5/3 high

$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

*$1267 – 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