Gold Traders' Report - February 13, 2019

Jim Pogoda, Senior Gold Trader, Gold Bullion International 
FEB 13, 2019

Gold traded either side of unchanged overnight in a range of $1308 - $1314.30. It rose to its $1314.30 high during Asian time, aided by a modest pullback in the US dollar (DX to 96.64).

The dollar was pressured by some dovish comments from the usually hawkish Fed’s Mester (“At coming meetings, we will be finalizing our plans for ending the balance-sheet runoff and completing balance-sheet normalization”), and other hawk Esther George (supported pause in interest rate hikes so Fed could assess how much its past hikes have slowed the eco…inflation pressures did not appear very strong) and a continued rebound in the euro ($1.1323 - $1.1342).

During European time, however, gold retreated to its low of $1308, pressured by a bounce in the dollar (DX to 96.84). The DX was aided by a retreat in the euro ($1.1302) from a weak Eurozone Industrial Production report, and the pound ($1.2874) from misses on UK CPI and PPI.

Gold was also pressured by further gains in global equities, which were boosted from further optimism over US-China trade developments (reports Xi was to meet with US delegates Mnuchin and Lighthzer on Friday) and averting US government shutdown (reports Trump would sign the deal), and technical buying as the S&P finished above its 200-day moving average yesterday (2743).

The NIKKEI was up 1.3%, the SCI gained 1.8%, European shares were up from 0.2% to 0.6%, and S&P futures tacked on 0.2%. Firmer oil (WTI from $53.32 - $53.89) from a surprise draw in US crude inventories reported by the API last night along with the Saudi’s plans to cut production by 500k bpd contributed to the gains in stocks.

At 8:30 AM, though the mom US CPI report missed expectations, (0 vs. exp. 0.1%), markets focused on the yoy reports that were firmer than expected: overall - (1.6% vs. exp. 1.5%), and core (2.2% vs. exp. 2.1%).

Also, reports on both Real Weekly Earnings and Average Hourly Earnings exceeded last month’s levels. S&P futures rallied (+9 to 2754), and the US 10-year bond yield popped to 2.715% (1-week high). The DX climbed further to 97.03, but gold firmed.

The yellow metal advanced to $1314, where resistance at the overnight high briefly held – either focusing on the weaker mom figures, or with an expectation that the Fed might be falling behind the curve in putting rate hikes on hold – or a combination of both.

Shortly thereafter, more dovish Fedspeak from Bostic (Fed must not inadvertently weaken economy) lifted US stocks further (S&P +17 to 2762), aided by strong gains in the Energy Sector, with WTI oil reaching $54.39.

The 10-year yield moved down to 2.695% while the DX pulled back to 96.84. Gold tripped some buy stops over $1314 and $1315 – the last two session’s highs and down trendline of pennant formation from 1/31 $1326 high - to reach the upper end of resistance at $1318.15.

Into mid-day, US stocks pared some gains (S&P +4 to 2748), weighed by a dip in oil (WTI to $53.91, larger than expected build in US oil and distillate inventories reported by the EIA) and some mildly hawkish comments from the Fed’s Harker (My own view is that one rate hike for 2019 and one for 2020 are appropriate).

The 10-year yield edged up to 2.70%, and the DX continued to climb (97.10), fueled by a further retreat in the euro ($1.1273) and the pound ($1.2849, rumors that Article 50 would be extended were suppressed). Gold turned lower, and retraced back to $1311.

In the afternoon, equities turned back higher (S&P finished +7 to 2752) with Consumer Discretionary and Industrials joining the Energy sector in leading the advance.

The 10-year yield clawed back up to 2.709%, and the DX made a new high for the day at 97.17. Gold was pressed lower, and slid to its low of $1305, where support at the pennant up trendline and in front of $1303-04 (triple bottom - 1/29, 2/7, and 2/11 lows) held. Gold was $1306 bid at 4PM with a decline of $4.

Open interest was off just 0.1k contracts – showing a near balance of new longs along with some short covering from yesterday’s advance. Volume was a little lower and continued to be subdued with 156k contracts trading.

Bulls were disappointed that gold’s breakout over $1315 (last two session’s highs, pennant formation) lacked follow through buying, and instead of holding that level, it ended the day with a decline.

However, other bulls were upbeat that gold’s loss was limited to $4, given the DX pushed back above 97, the US 10-year bond yield rose back above 2.70%, and equities posted further significant gains (S&P over its 200-day MA at 2743).

Bulls remain comfortable with the yellow metal’s recent consolidation, and will use dips to get long(er) – looking for the area of $1300 - $1303-05 (1/29 low, former resistance level) to be a near term floor.

The bulls still feel that the trend is their friend, and note the up trendline from the 11/13 $1196 low ($1287) is still intact, and expect the yellow metal’s strong rally over the past two months to carry further.

They’re expecting continued volatility in equity markets along with a pause in Fed rate hikes for a considerable period and a further decline in the US dollar to continue driving gold higher. Bulls also point to the delayed Commitment of Traders Report (as of 1/15/19) released yesterday and estimates that the current COT Report still has the large funds with a significant (114k contracts) gross short position.

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 expect gold to finally take out initial resistance at the at $1315-18 (7 tops - 2/4, 2/5, 2/6, 2/8, 2/11, 2/12, and 2/13 highs) which also breaches the pennant formation (down trendline from the 1/31 $1326 high).

This should trip some short covering to lead to a test of $1322-23 (triple top – 5/14/18, 1/31, and 2/1 highs) and then challenge the recent high at $1325 – 26 (options, 5 tops - 4/26/18, 4/27/18,4/30/18, 5/11/18, and 1/31/19 highs). Once this is broken, bulls expect some momentum following buying to test next resistance levels of $1332-33 (double top - 4/23/18 and 4/24/18 highs), $1336 (4/23/18 high), and then $1346 (4/20/18 high).

Bears were concerned with gold’s early run at resistance at $1318 - fearing probably buy stops from being triggered over that level - but were able to breathe easy when that area held yet again, and equity, bond yield and dollar strength pressured gold to the bottom end of its pennant formation.

Bears still feel that gold’s advance has been overdone – having rallied $49 since the $1277 low on 1/24 (3.83%), $93 since the $1233 low on 12/14 (7.54%), and $130 since the $1196 low on 11/13 (10.87%). The bears expect the recent pullback from the overbought condition (14-day RSI reached 74 on 1/31) will extend, and are comfortable selling scale up into strength.

They maintain that the 20% correction in equities – much of which occurred during very illiquid holiday trading – was also overdone, and expect the rebound seen over the past 8 weeks to continue, and will find momentum from the S&P eclipsing its 200-day moving average.

Bears feel that the plunge in the US dollar seen since 12/14 (97.71 – 95.03, 2.74%) has also overshot, and look for the rebound in the greenback to carry forward and pressure gold lower.

Bears think that with last week’s severe cuts in growth estimates by the UK and ECB, along with a cut by the Reserve Bank of India, a recent change to lower guidance by the Bank of Australia, and China’s slowdown, the US is left as the global growth engine.

This, they feel dims expectations of a significant dollar pullback off of a more dovish Fed, and has contributed to the dollar’s advance from 95.16 to yesterday’s 97.20 top. Bears will look for further stale bull selling to lead to a breach of initial support at the $1303-05 – the triple bottom and the pennant formation – the up trendline from the 1/28 $1298 low.

They expect some long liquidating sell stops under this level to lead to a test of $1295-98 (1/28 low, former resistance level) and then $1286-88 (6 bottoms – 1/10, 1/11, 1/14, 1/15, 1/16, and 1/17 lows).

All markets will continue to focus on geopolitical events (especially Brexit developments), developments with the Trump Administration (especially on US-China trade, government shutdown, potential legal issues), oil prices, Q4 corporate earnings, and will turn to reports tomorrow on Japan’s GDP, German GDP, Eurozone Employment and GDP, US PPI, IU Claims, Retail Sales and Business Inventories for near term guidance.

In the news:

Resistance levels: 

$1315-18 – 7 tops  - 2/4, 2/5, 2/6, 2/8, 2/11, 2/12, and 2/13 highs

$1315 – down trendline from 1/31 $1326 high

$1322-23 – triple top – 5/14/18, 1/30, and 2/1  highs

$1325 - options

$1325 - 26 – quadruple top -  4/26/18, 4/27/18,4/30/18, and 5/11/18 highs

$1332-33 – double top - 4/23/18 and 4/24/18 highs

$1336 – 4/23/18 high

$1346 – 4/20/18 high

$1353-56 – triple top – 4/12/18, 4/18/18 and 4/19/18 highs

*$1365-66– double top – 1/25/18 and 4/11/18 highs

Support levels:

$1303-05 – 4 bottoms bottom – 1/29, 2/7,2/11, and 2/13 lows

$1304 – up trendline from 1/28 $1298 low

$1303 – 20-day moving average

$1300 – psychological level, options

$1298 – 1/28 low

$1295-98 – 8 tops – 1/3, 1/4, 1/10, 1/11, 1/14, 1/15, 1/16, and 1/17 highs

$1292 – 40-day moving average

$1287 – 1/23 high

$1286-88 – 6 bottoms – 1/10, 1/11, 1/14, 1/15, 1/16, and 1/17 lows

$1285– up trendline from 11/13 $1196 low

$1283 – 50-day moving average

$1280 – 1/25 low

$1277 – 79  6 bottoms – 12/28, 1/4, 1/21, 1/22, 1/23, and 1/24 lows

$1275 – options

$1274 – 12/28 low

$1265-67 – 12/25, 12/26 ,and 12/27  lows

$1259 – 12/24 low

$1254 – 12/21 low

$1250 – options

$1250 – 100-day moving average

$1246 – 200-day moving average