Gold Traders’ Report - May 8, 2019

Jim Pogoda, Senior Gold Trader, Gold Bullion International 
MAY 8, 2019

Risk off sentiment continued overnight, with fears that the US and China would be unable to resolve disputes over a proposed trade agreement before new tariffs threatened by Trump will be implemented this Friday.  News that Iran was suspending commitments under the 2015 nuclear deal and threatened to resume production of enriched uranium also contributed to the skittishness in the markets. The NIKKEI fell 1.5%, the SCI dropped 1.1%, European markets were of from 0.1% to 0.3%, and S&P futures were off 0.5%.  Investors flocked to the safe havens of the yen (110.32 – 109.90, 6-week high), bonds (German 10-year yield from -0.026% to -0.063% , UK gilt from 1.164% to 1.097%, US 10-year yield from2.469% to 2.428% - 5-week low), and gold.  The yellow metal climbed from $1284.30 - $1290.55, taking out buy stops over resistance at $1286-87 (quadruple top - 4/29, 4/30, 5/1, and 5/7 highs) and $1289 (double top 4/16 and 4/26 highs).  While gold’s move through $1286-87 was aided by weakness in the dollar (DX slipped to 97.41 on yen strength), the move through $1289 was made while the DX was rebounding (97.60) from weakness in the pound $1.3080 - $1.3001, cross party talks on Brexit at brink of collapse) and the euro ($1.1212 - $1.1191, reversed earlier gains off of stronger German Industrial Production). 

 After the NY open, gold continued to climb and took out the 4/15 high at $1291 to reach $1291.70 – a one-month high - despite the DX still firming (97.61).  However, gold’s advance was derailed shortly afterward by a tweet from Trump saying that China is coming this week to make a deal (echoed later by Press Secretary Sarah Sanders). US stocks rallied back sharply (S&P +14 to 2898), while the 10-year yield rose to 2.464%.  The DX remained firm around 97.60, and gold tumbled back under the former resistance levels of $1289, and $1286-7 to reach $1281.50.  Some dovish comments from the Fed’s Brainard  (Fed should consider targeting longer-term interest rate levels in a future downturn) along with firmer oil prices (WTI to $62.33, EIA reports surprise large draw in US Oil Inventories) contributed to the advance in stocks. 

 US stocks came off of their highs near mid-day and turned back into negative territory (S&P -2 to 2882), with losses in Utilities, Communication Services, Materials, and Consumer Staples offsetting strength in Energy, Industrials, and IT.  Comments from China’s Commerce Ministry saying that they will have to take necessary retaliatory measures if US decides to raise trade tariffs on May 10th were behind the move.  The 10-year bond yield slipped to 2.451%, and the DX retreated to 97.45.  Gold had a brief modest bounce to $1283 before residual selling pressure knocked it back to $1281.50.

 Into the afternoon, US stocks turned higher (S&P +10 to 2894) while the 10-year yield edged up to 2.485%.  The DX rose to 97.67, helped by a tumble in the euro ($1.1183, Draghi defends ECB’s inflation goal).  Gold softened further to $1279.20, but support ahead of yesterday’s $1278 low held.

 Open interest was up 7.6k contracts, showing a good chunk of new longs in from yesterday’s $5 advance.  Volume was stronger with 282k contracts trading. 

 Bulls were disappointed that gold’s impressive early rally to $1292 couldn’t hold, and that the prior resistance levels at $1289 and $1286-87 couldn’t hold on the downside when equities reversed their overnight losses.  However, bulls will take solace in that the market has put in 4 consecutive sessions of higher highs and higher lows, and remains comfortably above key support at $1266-67.  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.   Bullsfeel 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 retest 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 concerned with gold’s early advance, especially since the yellow metal rallied significantly while the US dollar held fairly firm.  However, the bears were encouraged with the sharp selloff that ensued, and that gold has moved back within striking distance of 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).  Bears are remaining patient, and have used the gains of the past 4 sessions to get short(er).   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. Yesterday’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 early 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 China’s CPI and PPI, Japan’s Consumer Confidence, US PPI, Trade Balance, Jobless Claims, and comments from the Fed’s Powell for near term guidance. 

 In the news:

China backtracked on nearly all aspects of US trade deal:   https://www.reuters.com/article/us-usa-trade-china-backtracking-exclusiv/exclusive-china-backtracked-on-nearly-all-aspects-of-us-trade-deal-sources-idUSKCN1SE0WJ

 China increases gold holdings for 5th straight month:   http://www.xinhuanet.com/english/2019-05/07/c_138040544.htm

 Investec – gold is very attractive in the current environment:   https://www.cnbc.com/video/2019/05/08/gold-is-very-attractive-in-the-current-environment-investor.html

YTD Performance


12/31/2018

5/8/2019

Change
% Change
Gold


1282.5

1280

-2.5

-0.195%

DX


96.06

97.63

1.57

1.634%

S&P


2505

2892

387

15.449%

JYN


109.63

110.10

0.47

0.429%

Euro


1.1466

1.119

-0.0276

-2.407%

US 10-year bond yield


2.69%

2.485%

-0.002

-7.483%

Oil (WTI)


45.45

62.02

16.57

36.458%

 

Resistance levels: 

$1281 -20 day moving average

$1283 – 5/3 high

$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

$1291-92 – double top - 4/15 and 5/8 highs

$1292 – 40-day moving average

$1294– 100-day moving average

$1293 – 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:

$1277-79 – triple bottom – lows 5/6, 5/7, and 5/8

$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