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Gold Traders' Report - August 17, 2018

Jim Pogoda, Trader, Gold Bullion International 
AUG 17, 2018

Gold moved moderately higher overnight in a more stable range of $1172 - $1179.80, largely fading movement in the US dollar. Gold dipped to its $1172 low early during Asian time, when the DX ticked up to 96.67.

The yellow metal climbed for the rest of the session and reached $1179.80 as the DX slipped to 96.30. The greenback was pressured by some strength in the yuan (6.89 – 6.865), the yen (111.05 – 110.35, safe haven flows), and the euro ($1.1365 - $1.1395, higher Eurozone inflation).

Global equities were mixed with the NIKKEI +0.35%, the SCI was off 1.34%, European shares were off from 0.2% to 0.4%, and S&P futures were -0.2%. Higher oil prices (WTI from $65.30 – $65.89) were supportive of equities.

US stocks opened weaker (S&P -7 to 2835), hurt by renewed concerns over the emerging market currency crisis with the Turkish lira (5.80 – 6.34), S.African rand (14.65 – 15.02), Mexican Peso (18.95 – 19.15), Russian rouble (66.70 – 67.60) all moving substantially lower.

The US 10-year bond yield slid to 2.846%, and the DX was tugged down under the overnight low to reach 96.21. Gold rose in response, and took out its overnight high to trade $1180.70.

US stocks turned higher by late morning, and reached unchanged by mid-day with the telecom, materials, and consumer staples sectors leading gainers. A continued push higher in oil (WTI to $66.30) was supportive of equities, as was a comment from Mexican Economy Minister Guajardo that a NAFTA agreement would hopefully be done in very few days.

The 10-year yield rose to 2.86%, and the DX stabilized around 96.25, with a modest recovery in emerging market currencies keeping the DX in check. Gold retreated, and slid to $1176.50.

In the afternoon, news from Dow Jones that Chinese and U.S. negotiators are reportedly working on a plan to hold talks to end a trade dispute that result in meetings between President Donald Trump and Chinese leader Xi Jinping at a summit in November took US stocks sharply higher (S&P +16 to 2856).

The 10-year bond yield rose further to 2.877%, but the dollar turned down. The DX – which has benefitted by the trade disputes – probed lower, reaching 96.10. Gold charged higher, taking out its prior high to reach $1184.50, but was capped by resistance at $1185 - the up trendline from the 10/19/08 $682 low. Gold was $1184 bid at 4PM with a gain of $9.

Open interest was off 2.5k contracts, showing a small net of long liquidation from yesterday. Volume was lower but still very healthy with 373k contracts trading.

The CFTC’s Commitment of Traders Report as of 8/14 showed the large funds adding 3.5k contracts of longs and a whopping 19.8k contracts of shorts to turn the group net short 4k contracts. This was largely done on gold’s move down to $1192 last Tuesday.

This is the first time this group has been net short in many, many years. While this is certainly not bullish for sentiment, it leaves the gold market set up to move sharply higher as the short side of gold has become an extremely crowded trade.

With longs on the sidelines and a massive gross short position having been constructed (215k contracts), gold just needs a spark to unleash a torrent of buying from shorts covering and sidelined players getting back on the long side.

Bulls were pleased with gold’s late rally today off of the decline in the DX, but a bit disappointed that it couldn’t take out $1185 - the up trendline from the $682 low from 10/19/08.

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 29.3 - 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 Wednesday’s 96.99 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 the quadruple bottom between $1171-73, and then challenge resistance at the prior support levels at $1185, $1192, $1195-98 and then $1205-08.

In addition, bulls maintain that today’s Commitment of Traders Report with the large funds turning net short and with the massive and growing gross short position (+20k to 215k 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 in the last few sessions are looking 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 today’s COT Report showing another hefty build in fund gross shorts (+20k contracts to 215k 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 (quadruple bottom 8/15, 8/17, 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 Monday on German PPI, Eurozone Construction Output, and comments from the Fed’s Bostic for near-term direction.

In the news:

Resistance levels: 

$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

$1197 – down trendline from 6/14 $1309 high

$1199 – 8/14 high

$1200 – psychological level, options

$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

$1210 – 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

$1228 – 40 day moving average

$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

$1239 – 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

$1278 – 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

$1293– 200-day moving average

Support levels:

$1175 – options strike

$1171-73– quadruple bottom – 8/15, 8/17, 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