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Gold Traders' Report - April 9, 2018

Jim Pogoda, Trader, Gold Bullion International 
APR 9, 2018

Gold was a little choppy overnight in a range of $1326.90 - $1334.25, largely fading movements in the US dollar. It ticked up to its high of $1334.25 during early Asian hours as the DX hovered around 90.13, with the double top at $1335 providing resistance.

The yellow metal softened later during Asian hours and early European time to its low of $1326.90 while the DX rose to 90.28 as markets reacted to Trump’s tweet Sunday that China could remove its trade barriers and suggested that taxes will be reciprocal and a deal will be made on intellectual property along with Treasury Secretary Mnuchin saying he doesn’t expect a trade war between the US and China – largely walking back his comments saying it was possible on Friday.

Global equities advanced on that news with the NIKKEI up 0.5%, the SCI +0.2%, European shares unchanged to +0.7%, and S&P futures were +0.8%.

However, a couple of hours before the NY open, another Trump tweet regarding unfair auto trade between the US and China knocked S&P futures from its high, and pressed the DX down to 90.

Gold responded positively, and bounced back to $1333. Some geopolitical developments were largely offsetting, with the destabilizing factor of a Syrian chemical attack were mitigated by reports that North Korea told the US it is prepared to discuss denuclearization when Trump meets Kim Jong Un next month.

After the NY open, S&P futures continued to slide (2614), and the US 10-year bond yield pulled back from 2.801% to 2.786%.

The DX also dipped further, and took out support at 90 to 89.84. Strength in the euro ($1.2270 - $1.2325) from some comments by Draghi (slide in equities has not materially impacted euro zone financial conditions) weighed on the greenback.

Gold rallied in response, but ran into resistance at the overnight high and double top at $1335 and topped out at $1334.65.  However, some subsequent soothing comments from White House Economic Advisor Larry Kudlow on trade (“hopefully it will be mostly negotiations…I don’t know if we’ll have tariffs or not”) boosted US stocks at their open and through the morning hours (S&P +36 to 2640, tech leads gainers).  A rebound in oil (WTI from $62.10 - $63.58) from Friday’s plunge aided the move.  The 10-year yield turned up to 2.814%, and the DX bounced to 89.96.  Gold retreated, but found support at $1331.

Into the afternoon, the rally in US stocks paused, and the 10-year yield slipped back to 2.794%.

The DX fell back to support at last Monday’s low at 89.82, and gold pushed higher. Some buy stops were tripped over the double top at $1335 to reach $1337.

Later in the afternoon, US stocks pared much of their earlier gains, hurt by news of an FBI raid on the office of Trump’s lawyer Michael Cohen (S&P + 9 to 2613). The 10-year yield dropped to 2.772%, and the DX ticked down to 89.81, a 2-week low.

Gold probed higher to reach $1338, and was $1337 bid at 4PM with a gain of $3.

Open interest was up 1.8k contracts, showing a net of new longs from Friday’s advance. Volume was much higher with 383k contracts trading.

The CFTC’s Commitment of Traders Report as of 4/3/18 showed the large funds slashing 24.3k longs and adding 12.4k shorts to cut their net long fund position to 166k contracts.

While this is not good for sentiment, it leaves the market set up better to move higher as it leaves plenty of room for sidelined longs to pile in, and the addition of new shorts can add fuel to a rally if/when they are forced to cover.

Bulls were pleased with today’s gain, but some were looking for more as the dollar index dipped below 90.

They’ll look for additional weakness in the DX and equity market volatility to build on today’s gains. With the favorable large fund positioning mentioned above, bulls expect that a breakout over resistance at the double top at $1347-48 (3/28 and 4/2 highs) can trigger a cascade of buy stops over next resistance levels at $1356-57 (3/26, 3/27 highs),  $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 will continue to be comfortable selling into strength, knowing that gold’s forays north of $1340 have been rally graveyards for months. 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.

The bears will look for a test of support at the double bottom at $1321 (3/29 and 4/6 lows), and expect further long liquidation to come out below this level to bring into play the $1307-10 support level.

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 Chinese New Yuan Loans, Japanese Machine Tool Orders, US NFIB Small Business Optimism, PPI, Wholesale Trade Sales, Wholesale Inventories, and comments from the Fed’s Kaplan for near-term direction. 

In the news:

Resistance levels: 

$1338 – 4/9 high

$1340-41 – former triple top

$1343 – 4/3 high

$1345 – down trendline from 8/2013 weekly chart

$1347-48 – double top - 3/28 and 4/2 highs

$1350 – options

$1354 – 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:

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

$1335 – double top highs 4/5 and 4/6

$1332 – 50% retracement of up move from the 3/20 $1307 low to the 3/27 $1357 top.

$1331 – 50 day moving average

$1330 – 40 day moving average

$1330 – 20-day moving average

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

$1320 – up trend line from 12/12 $1236 low

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

$1313 – 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

$1297– 200-day moving average

$1294 – 12/29 low

$1287 – 12/28 low

$1281 – 12/27 low