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Gold Traders' Report - April 2, 2018

Jim Pogoda, Trader, Gold Bullion International 
APR 2, 2018

Gold traded higher overnight in a range of $1325.85 - $1335.30. It tripped some buying over last Thursday’s $1329 high and was aided by a lack of resistance and liquidity during European time as much of the Eurozone was off observing Easter Monday.

Gold was driven by a dip in the dollar (DX from 90.03 – 89.82), and some weakness in global equities.

The NIKKEI fell 0.31%, the SCI slipped 0.18%, and S&P futures were off 0.23%.

An announcement by China that they were implementing retaliatory tariffs on 128 US products US (up to 25%, approximately $3B), was seen as a small, measured step, but hurt sentiment in equities and added to the concerns a possible trade war was developing and was therefore gold supportive.

US stocks opened lower (S&P off 15 to 2626), hurt by further weakness in Amazon as Trump continued to pressure the company through tweets (“only fools, or worse, are saying that our money losing Post Office makes money with Amazon. They lose a fortune, and this will be changed”).

Losses accelerated with weaker reports at 9:45AM on the Markit Manufacturing PMI (55.6 vs. exp. 55.7), Construction Spending (0.1% vs. exp.. 0.4%), and ISM Manufacturing (59.3 vs. exp. 60) contributing to the selloff.

The S&P tumbled through its 200-day moving average (2589) during the late morning to reach 2553 (-87, Intel hurt on report Apple will switch chips, tech sector clobbered) by the mid-afternoon. A decline in oil (WTI from $65.28 - $62.93) contributed to the softness in stocks.

The US 10-year bond yield fell on the flight to safety, reaching 2.719% - a 2-month low.

The dollar, however, failed to decline (despite the safe haven yen climbing to 105.66) and was pushed up in choppy trading to reach 90.15 by sharp drops in the euro ($1.2345 - $ 1.2282) and the pound ($1.4078 - $1.4025).

Gold - caught in the cross-currents - was able to drift higher, then tripped some buy stops over the old triple top at $1340-41 to reach its high of $1345.

Later in the afternoon, US stocks came off their lows (S&P finished -62 to 2579), and the US 10-year yield bounced to 2.744%.  The DX hovered between 90 and 90.07, and gold retreated.  The yellow metal pulled back to the old resistance area at $1340 and was $1341 bid at 4PM with a gain of $16.  Gold year to date: +2.99%

Open interest was off 8.6k contracts, showing a net of long liquidation from last Thursday’s decline.

Volume was much lower with 264k contracts trading as the April-June rollover is essentially completed.

The CFTC’s Commitment of Traders Report as of 3/27 showed the large funds adding a whopping 35.1k contracts of longs and slashing 19.5k contracts of shorts to increase their net long position by 54k to 203k.

This sizeable shift was done on gold’s rally to $1357 last week. Since the report, around 10k net longs were reduced, taking the net fund long position to approximately 195k.

Given that gold has come back to $1341, a Net Fund Long Position under 200k contracts is comparatively and historically small, and is certainly a bullish factor in the near/intermediate term as it leaves plenty of room for new longs to pile in and drive rallies further.

For silver fans, the large funds got further short (net short 14k contracts), shedding 3.0k longs and cutting 1.9k contracts of shorts, and was a bullish factor as silver rallied over $0.25 today.  

Bulls cheered gold’s ability to advance sharply today, despite the DX remaining firm and over 90. They’ll look to take out initial resistance at the double top at $1345-47 (3/28 and today’s highs) to get within shouting distance of the double top at $1356-57 from last week.

Given the favorable fund positioning from the aforementioned COT Report, bulls are looking for the addition of sidelined longs to pile back in over that level and subsequent resistance levels at $1362 (2/16 high) and $1365 (down trendline from 7/6/16 $1375 high, 5 tops - 1/25, 8/2/16, 8/3/16, 8/4/16, and 8/5/16 highs) to challenge the 7/6/16 high at $1375.

Bears continue to sell into strength, knowing that gold’s forays north of $1340 have been rally graveyards for months. They expect this one to be no different, and will look for a quick pullback into the mid-low $1320’s.

All markets will continue to focus on the volatility in the equity and bond markets, geopolitical events, developments with the Trump Administration, oil prices, and will turn to reports tomorrow on German Retail Sales, Eurozone Manufacturing PMI, US Vehicle Sales, and comments from the Fed’s doves - Kashkari and Brainard  - for near-term direction. 

In the news:

Resistance levels: 

$1345 – down trendline from 8/2013 weekly chart

$1345-47 – double top - 3/28 and 4/2 highs

$1350 – options

$1355 – down trendline from 1/25/18 $1366 high

$1356 - 57 – double top, 3/26 and 3/27 highs

$1362 – 2/16 high

$1365 – down trendline from 7/6/16 $1375 high

$1365-67 – 5 tops 1/25, 8/2/16, 8/3/16, 8/4/16, and 8/5/16 highs

$1375 – 7/6/16 high   

$1388-89 – double top 3/16/14, 3/17/14 highs

Support levels:

$1340-41 – former triple top

$1335 – 50% retracement of down move from 1/25 $1366 high to 3/1 $1303 low

$1332 – 50 day moving average

$1329 – 3/29 high

$1329 – 40 day moving average

$1328 – 20-day moving average

$1321 – 3/29 low

$1313 – up trend line from 12/12 $1236 low

$1313-15 – quadruple bottom, lows 3/2, 3/9, 3/12, 3/13

$1311 – 100-day moving average

$1307-10 – quadruple bottom – 3/16, 3/19, 3/20, and 3/21 lows

$1303 – 3/1 low

$1302 – 1/1 low

$1301 – 50% retracement of up move from 12/12/17 $1236 low to 1/25/18 $1366 high

$1300 – psychological level, options

$1294 – 12/29 low

$1294– 200-day moving average

$1287 – 12/28 low

$1281 – 12/27 low