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Gold Traders' Report - April 20, 2018

Jim Pogoda, Trader, Gold Bullion International 
APR 20, 2018

Gold traded lower overnight in a range of $1339.40 - $1346.25.

It was pressured down to its low by a rising dollar (DX from 89.88 – 90.20, 2-week high), which was boosted by a softening yen (107.35 – 107.70, rising US yields) a continued decline in the pound ($1.4095 - $1.4035, fallout from BOE’s Carney comments that they could hold off raising rates next month), and a pullback in the euro ($1.2350 - $1.2295, miss on German PPI).

Hawkish comments from the Fed’s Mester last night (expects GDP to be greater than 2.5% this year, US is slightly beyond full employment, expects inflation to hit 2% over the next year or 2, further rate hikes necessary to avoid overheating) were also supportive of the greenback, helped keep the US 10-year yield north of 2.90%, and were bearish for gold.

Global equities were mixed with the NIKKEI off 0.1%, the SCI down 1.5%, Eurozone shares were up from 0.1% to 0.6%, and S&P futures were unchanged.

Oil was firmer most of the night (WTI to $68.66), until a tweet from Trump saying oil prices were “artificially high” along with news that Russia said it might not stay committed to the OPEC deal until the end knocked it lower ($67.62).

Just ahead of and through the NY open, US stock futures advanced into positive territory (S&P futures to 2698) on the back of better earnings reports from GE and Honeywell.

The US 10-year yield climbed further to 2.93%, and the DX rose to 90.25.

Gold fell in response, and took out support at the overnight low and yesterday’s low to reach $1337.50.

Later in the morning, US equities turned lower (S&P -25 to 2668), hurt by a decline in Apple (Morgan Stanley expects iPhone sales to disappoint).

However, the 10-year yield continued to climb, and reached 2.943%. The DX took out resistance at 90.28 (4/9 high) and ran to 90.48. Gold sank further to $1335 where it found support at the double bottom low (4/12 and 4/13 lows).

US stocks continued to soften into the afternoon (S&P -28 to 2665), and caused a brief flight to quality to take the 10-year yield down to 2.925%. The dollar retreated to 90.22, and gold bounced to $1339.

Later in the afternoon, the S&P dipped further (2660) before finishing down 23 at 2670. But the 10-year yield climbed higher to 2.96% - a fresh 4-year high.

The DX was caught in the cross currents, and remained steady between 90.30-90.35. Gold drifted lower, but support at $1335 held once again. It was $1336 bid at 4PM with a loss of $9.

Open interest was up 1.5k contracts, showing a net of new shorts from yesterday’s decline. Volume expanded with 351k contracts trading.

The CFTC’s Commitment of Traders Report as of 4/17 showed the large funds adding 2.8k contracts, and cutting 4.8k contracts of shorts to increase their long position to 163k contracts.

This is a relatively and historically light Net Fund Long Position, and gross shorts at 74k contracts are still somewhat elevated. Combined, it leaves the gold market set up well to move higher as there is plenty of room from sidelined longs to enter, and excess shorts can fuel a rally if / when they are forced to cover.

Bulls were disappointed with today’s decline, given the decline in stocks. But in the face of a 4-year high in the 10-year bond yield and a 2-week high in the DX, limiting gold’s decline to single digit was a relief.

They maintain that gold’s uptrend is still intact (up trendline from 12/12 $1236 low), and that the intermediate / longer term direction in the dollar is still down and will fuel future upside moves. Also, they point to the favorable set up from the Commitment of Traders Report (above), and expect a rebound to challenge resistance at $1350 followed by the quadruple top at $1355 - 57 (3/26, 3/27, 4/18, and 4/19 highs).

Bears remain comfortable selling into strength, and buying back the subsequent dips.  They still believe a major bottom in the DX from 2 months ago is in place at 88.25, and expect its rebound to resume - especially if the down trendline from the 90.94 March 1 high is breached at 90.50. The bears will look for a break of support at today’s now triple bottom at $1335 to challenge support at $1329 – the up trendline from the 12/12/17 $1236 low.

All markets will continue to focus on the volatility in the equity and bond markets, any news out of this weekend’s IMF, World Bank and G20 meetings, geopolitical events, developments with the Trump Administration, corporate earnings, oil prices, and will turn to reports Monday on Japanese Manufacturing PMI, Eurozone PMI, US Chicago Fed National Activity Index, Markit PMI and Existing Home Sales for near-term direction.

In the news:

Resistance levels: 

$1338 – 4/17 low

$1340 – 20-day moving average

$1341 – 4/19 low

$1345 – down trendline from 8/2013 weekly chart

$1346 – 4/20 high

$1350 – options

$1352 – down trendline from 1/25/18 $1366 high

$1355 - 57 – quadruple top, 3/26, 3/27, 4/18, and 4/19 highs

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

$1365-67 – 6 tops 4/11, 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:

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

$1334-35 triple bottom – 4/12, 4/13, and 4/20 lows

$1333 – 50 day moving average

$1332 – 40 day moving average

$1331 – 4/10 low

$1328 – up trend line from 12/12 $1236 low

$1321 – double bottom, 3/29 and 4/6 lows

$1318 – 100-day moving average

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

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

$1303 – 3/1 low

$1302– 200-day moving average

$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

$1287 – 12/28 low

$1281 – 12/27 low