Gold Traders’ Report - May 9, 2019

Jim Pogoda, Senior Gold Trader, Gold Bullion International 
MAY 9, 2019

Comments from Trump last night that “China broke the deal” roiled markets by fueling worries that the US and China wouldn’t be able to put together a trade agreement before new tariffs go into place at midnight.  Global equity markets sold off with the NIKKEI off 0.9%, the SCI fell 1.5% (decline in New Yuan Loans), European markets were off from 0.4% to 1.3%, and S&P futures were -0.8%.  Money flocked to the usual safe havens as the yen advanced (110.12 – 109.59), global bond yields declined (US 10-year from 2.49% to 2.439%, German Bund from -0.042% to -0.066%, and the UK Gilt from 1.145% to 1.109%), and gold advanced.  The yellow metal climbed in a range of $1279.65 - $1285.70 but was capped by resistance at $1286-7 (quadruple top - 4/29, 4/30, 5/1, and 5/7  highs).  News that North Korea fired another projectile – 2nd launch in 5 days – was also gold supportive. 

At 8:30 AM, better than anticipated readings on PPI Excluding Food, Energy, and Trade (0.4% vs. exp. 0.2%) and the Trade Balance (-$50B vs. exp. -$51.1BB) narrowly overshadowed misses on US PPI (0.2% vs. exp. 0.3%) and Jobless Claims (228k vs. exp. 228k).  The US 10-year yield edged up to 2.442%, while the DX ticked up from 97.55 – 97.64.  Gold retreated in response, but found support at $1280 - ahead of the overnight low.

US stocks opened weaker (S&P -39 to 2840) amid technical selling (unable to hold Tuesday’s 2862 low) with Trump’s “China broke the deal” comments still resonating.  Losses in the IT, Materials, Financials, and Consumer Discretionary sectors led the decline, with a drop in oil (WTI to $60.90) contributing to the move.  The 10-year bond yield slipped to 2.428% (fresh 5-week low), and the DX tumbled to 97.24, taking out support in the 97.38-42 area.  Gold shot higher, tripping some buying over $1286-87 to reach $1288.40, where resistance at $1289 (double top 4/16 and 4/26 highs) capped the advance.

During the late morning hours, US stocks had a modest bounce (S&P -31 to 2848), while the 10-year yield improved to 2.437%.  The DX recovered to 97.39, and gold slipped back to $1284-85.  The moves were aided by a much better than expected reading on US Wholesale Trade Sales (2.3% vs. exp. 0.6%). 

US equities continued to pare losses into the afternoon to nearly unchanged (S&P -1 to 2876), helped by comments from Trump (saying a China trade deal is still possible, but was comfortable with the “excellent alternative” of tariffs.  The 10-year bond yield moved back up to 2.467%, and the DX rebounded further to 97.48.  Gold was fairly resilient, with its decline limited to $1283.50. 

Later in the afternoon, US stocks worked moderately lower  (S&P finished -9 to 2871),  while the 10-year yield hovered around 2.455%.  The DX traded down to either side of 97.40, and gold remained steady around $1284.  Gold was $1284 bid at 4PM with a gain of $3. 

Open interest was up 12.8k contracts, showing mostly new longs from yesterday’s early advance to $1292, but some new shorts during the subsequent decline.  Volume surged with 335k contracts trading.  

Bulls will take today’s $3 advance, but some were disappointed that given the large decline in stocks, the 10-year yield making a 5-week low, and the DX making a 1-week low, that gold couldn’t at least challenge yesterday’s $1292 high.  However, bulls were encouraged that gold has made 5 consecutive higher lows, and made higher highs in 4 of the last 5 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.   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 retest initial resistance at $1286-8 (now 5 tops - 4/29, 4/30, 5/1, 5/7, and 5/9 highs) and $1289 (double top 4/16 and 4/26 highs) to open up a test of $1294-96 (4/12 high, 100-day moving average, down trendline from the 2/20 $1347 high).  Above here, bulls expect some more significant short covering and some new momentum playing longs to challenge next resistance at $1309 – 12 (triple top – 3/28, 4/10 and 4/11 highs).

Bears were concerned with gold’s early rally to $1288, but relieved when resistance at $1289 held – given the clobbering stocks took, the decline in the 10-year yield and the selloff in the DX.  However, bears were encouraged with gold’s inability to close over resistance at $1286-87, and that the market remains 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 5sessions 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. Wednesday’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 $1255. 

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 Household Spending, BOJ’s Summary of Opinions, German Trade Balance, UK GDP, Private Consumption, Industrial Production, Construction Output, and Trade Balance, US CPI, Real Average Earnings, Baker Hughes Rig Count, Commitment of Traders Report, and comments from the Fed’s Brainard and Bostic for near term guidance. 

In the news: 

UBS on gold – prices managing to hold above $1280 support area is encouraging:   https://www.forexlive.com/news/!/ubs-on-gold-prices-managing-to-hold-above-the-1280-support-area-is-encouraging-20190509

Scotiabank – precious metals monthly:   https://www.gbm.scotiabank.com/content/dam/gbm/market-insights/2019/may/May-2019-Precious-Monthly.pdf

Resistance levels: 

$1285 – 5/6 high

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

$1286-8 – 5 tops - 4/29, 4/30, 5/1, 5/7, and 5/9 highs

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

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

$1291 – 40-day moving average

$1292 – 50-day moving average

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

*$1294 – down trendline from 2/20 $1347 high

$1296 – 4/12 high

$1296– 100-day moving average

$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)

$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

Support levels:

$1280 -20 day moving average

$1277-80 – quadruple bottom – lows 5/6, 5/7, 5/8, and 5/9 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

*$1268 – 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

*$1255 – 200-day moving average

$1250 – options

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