Gold Traders' Report - August 16, 2018

Jim Pogoda, Trader, Gold Bullion International 
AUG 16, 2018

Gold continued its plunge during early Asian hours on follow through selling and a tick up in the US dollar (DX to 96.77), and slid to a fresh 19-month low at $1160.

However, an announcement from the China’s Ministry of Commerce that they will send a delegation to the US later this month to restart trade talks turned markets around. The NIKKEI and SCI pared initial heavy losses to finish modestly lower (NIKKEI -0.05%, SCI-0.66%), while Eurozone markets (up 0.3% to 0.6%) and S&P futures (+0.4%) rallied sharply.

The dollar sold off (DX to 96.40) as the yuan rose (6.9347 – 6.8782), and most other emerging market currencies also advanced, helping to lift the beleaguered industrial commodity complex (WTI from $64.43 to $65.20, copper from $2.564 to $2.6175).

Gold snapped back sharply to $1182, with a fair amount of short covering seen amid a lack of offers. Later during European hours, the dollar bounced back (DX to 96.67) against some weakness in the euro ($1.1398 - $1.1357, weaker German Wholesale Prices and Eurozone Trade Balance) and the pound (after rallying to $1.2732 on stronger Retail Sales, sinks back to $1.2688 on no-deal Brexit concerns). Gold retreated, and pulled back to $1177 ahead of the NY open.

At 8:30 AM, misses on US Housing Starts (1.168M vs. exp. 1.260M) and the Philly Fed Index (11.9 vs. exp. 22) overcame a slightly better than anticipated report on Jobless Claims (212k vs. exp. 215k). The US 10-year bond yield dipped to 2.859% and brought the DX down through the overnight low to reach 96.31. Gold rose in response, but topped out at $1181.50 – unable to take out the overnight high.

US stocks opened stronger, and climbed higher into the mid-afternoon (S&P + 37 to 2851). It was boosted further by the news on US/China trade talks resuming, a strong earnings report from Walmart, an upbeat commentary on the US economy from US NEC Director Larry Kudlow, news from US Trade Rep Lighthizer that a breakthrough on NAFTA was possible in the next few days, and a recovery in oil (WTI to $65.50).

The 10-year yield advanced to 2.893%, and the DX rebounded to 96.77 – matching its overnight high. The dollar was also boosted by some weakness in the Turkish lira (5.70 – 5.94) and the euro ($1.1409 - $1.1348) off of comments from Treasury Secretary Mnuchin that the US is prepared to put more sanctions on Turkey if pastor Brunson is not released. Gold was pressured lower, but found decent support at $1175.

Later in the afternoon, US stocks trimmed some of their gains (S&P ends +23 to 2841, telecoms, financials, and consumer staples lead advancers), while the 10-year bond yield dipped to 2.87%. The DX faded to 96.60, but gold didn’t advance – and dipped to $1173.50. Gold was $1174 bid at 4PM with a loss of $1.

Open interest was up 3.2k contracts, showing a net of new shorts and bottom fishing longs outweighing the long liquidation and profit taking by shorts from yesterday’s tumble. Volume ballooned with 392k contracts trading.

After getting hammered to $1160 early last night, bulls were thrown a lifeline by the Chinese agreeing to resume trade talks last night - and did the most with it - galloping $22 ahead on short covering to $1182.

Despite the dollar retreating modestly (96.31), and finishing strong, along with a huge rally in US equities, bulls were pleased to finish off only $1 and hold above Tuesday’s low of $1173 - though some bulls would have wanted to hold the options strike of $1175.

Bulls remain steadfast that gold has or is very close to putting in a major bottom, and continue to look to buy on weakness. They maintain the market has been extremely oversold - having dropped $205 (15.0%) since the 4/11 $1365 high, and $149 (11.4%) since the $1309 high on 6/14.

Also, its 14-day RSI - currently at 19.1 and screaming oversold – hasn’t been this low in 3 years, and has spent only a scant 6 sessions north of 35 since 6/14. Bulls strongly believe that the dollar’s rally is badly overextended, and expect a meaningful correction in the greenback from today’s high (up 9.90% since its 88.25 low on 2/14) to help trigger a significant short covering rally in gold.

Bulls are looking for gold to consolidate ahead of today’s $1160 low, and then challenge resistance at the prior support levels at $1185, $1192, $1195-98 and then $1205-08. In addition, bulls maintain that last Friday’s Commitment of Traders Report with a historically and relatively very low Net Fund Long Position (12k contracts, low since Dec ‘15) and a massive and growing gross short position (+22k to 196k contracts –short side of gold becoming an extremely crowded trade) leaves this market set up in a highly favorable position to move up from potential heavy short covering and sidelined longs returning to the market.

Some bears took profits last night in front of $1160, and will look for renewed strength in gold to rebuild scale up short positions. Other bears, however, are still looking for gold to decline significantly more,as witnessed by Friday’s COT Report showing another large build in fund gross shorts (+22k contracts to 196k contracts).

They feel fuel from a firmer dollar will continue to provide downside pressure on gold, and that the dollar’s ability to strengthen against other currency majors (and emerging market currencies if the current turmoil lingers) still has legs.  They will be gunning for stops below $1171-72 (double bottom 1/6/17 and 1/9/17 lows) $1166 (1/5/17 low), $1160 (today’s low), $1156 (1/4/17 low) to lead to a test of $1150.

All markets will continue to focus on geopolitical events (especially with Turkey and other emerging markets), developments with the Trump Administration (especially on US-China trade), Q2 corporate earnings, oil prices, and will turn to reports tomorrow on Eurozone CPI, US Leading Index, University of Michigan Consumer Sentiment, Baker-Hughes Rig Count, and the Commitment of Traders Report for near-term guidance.

In the news:

Resistance levels: 

$1175 – options strike

$1177 – 1/11/17 low

$1181 – 1/27/17 low

$1182 – 8/16 high

$1185 – up trendline from 10/19/08 $682 low

$1192 – double bottom 8/13 and 8/14  lows

$1195 – 8/15 high

$1195-98   - 5 bottoms1/31/17, 2/1/17, 3/9/17, 3/13/17, 3/15/17 lows

$1199 – 8/14 high

$1200 – psychological level, options

$1200 – down trendline from 6/14 $1309 high

$1205-08 – 9 bottoms – 8/2, 8/3, 8/6, 8/7, 8/8, 8/10 7/7/17, 7/10/17 and 7/11/17 lows

$1212 – 20-day moving average

$1216-18 – 5 tops, 8/6, 8/7, 8/8, 8/9 and 8/10and highs

$1220-21 – 8/2 and 8/3 highs

$1225 – 7/30 high

$1225  - options

$1227-28 – 7/27, 7/31 highs

$1234-35 – triple top, 7/23, 7/25, and 7/26 highs

$1235 -38 – 6 bottoms –7/16/18, 7/13/18, 12/12/17, 7/18/17, 7/19/17, 7/20/17 lows

$1231 – 40 day moving average

$1242 – 50 day moving average

$1245-46 – double top – 7/16 and 7/17 highs

$1250  - options

$1250 -50% retracement from 4/11 $1309 high to 8/13 $1192 low

$1251-53 – triple bottom 7/4, 7/5, and 7/6 lows

$1259-61 – quadruple top – 6/27, 7/4, 7/5, and 7/6 highs

$1266 – 7/9 high

$1268 – 6/26 high

$1270-73 – triple top, 6/21, 6/22, and 6/25 highs

$1275 – options

$1275 – 6/15 low

$1276 – 6/20 high

$1279 – 100-day moving average

$1281-82 – double bottom, 5/21  and 12/27 lows

$1282 – 6/18 high

$1284 – 6/19 high

$1288 – double bottom, 5/22 and 5/23 lows

$1292-95 –5 bottoms – 6/6, 6/7, 6/8, 6/11, 6/12, and 6/13

$1294– 200-day moving average

Support levels:

$1171-72 – double bottom 1/6/17 and 1/9/17 lows

$1166 – 1/5/17 low

$1160 – 8/16  low

$1156 – 1/4/17 low

$1150 – options

$1146 – 1/4/17 low