Gold Traders' Report - August 22, 2018

Jim Pogoda, Trader, Gold Bullion International 
AUG 22, 2018

Gold continued its rebound last night, reaching a high of $1200 - $40 higher than the $1160 bottom from 8/16.

The yellow metal again drew strength from weakness in the dollar, which dropped to 94.96 - 2 full handles below its high of 96.99 last week, and was challenging support at a quadruple bottom between 94.98-95.02.

News late yesterday of the conviction of former Trump Campaign Paul Manafort and that former Trump attorney Michael Cohen pleaded guilty to violating campaign finance laws – potentially implicating Trump - further pressured the greenback and which was still reeling from Trump’s comments attacking the Fed for raising rates.

In addition to gold, the yen (110.47 – 110.02) and the US 10-year bond were safe havens with the yield bid down to 2.815%. Global equities were mixed, with the NIKKEI up 0.6%, the SCI off 0.7%, Eurozone shares were unchanged to +0.3%, and S&P futures were -0.2% (recovered from initial drop on the Cohen / Manafort news from 2873 to 2846).

After the NY open, continued weakness in the dollar (DX to 94.93) and a further drop in the US 10-year yield (2.808%, 7-week low) pushed gold up to its high of $1201.60 (1-week high).

However, US stocks turned higher after their open (S&P +4 to 2867), shrugging off a miss on Existing Home Sales (5.34M vs. exp. 5.40M).

A strong rebound in oil (WTI from $66 to $68.05) from a large draw in US crude inventories aided the move. The US 10-year yield rebounded to 2.835%, and the DX recovered to 95.18.

Gold sold off in response, but found support at $1194.50, ahead of key support at $1192 (down trendline from 6/14 $1309 high ,old double bottom).

At 2PM, the release of the minutes from the 8/1 FOMC meeting were initially seen as dovish, with markets seizing on messages of the Fed’s concern over global trade disputes and expectations of slower growth in the 2nd half of 2018.

US stocks popped back to their earlier highs, while the 10-year yield dipped back to 2.187%. The DX retreated back under 95 to 94.94, and gold spiked to $1199.

However, the moves were short-lived, with more hawkish messages from the Fed resonating: discussed removing language describing monetary policy as “accommodative”, labor market continuing to strengthen, and economic activity seen rising at a strong rate.

US stocks quickly retreated to unchanged, and the US 10-year yield ticked up to 2.825%. The DX climbed back over 95 to reach 95.19, and gold sank back to $1194.50. Gold was $1196 bid at 4PM – unchanged.

Open interest was up 2.3k contracts, showing a net of new longs from yesterday’s advance. Volume increased with 225k contracts trading.

Bulls were pleased with gold breaching $1200 today, putting in a 4th consecutive higher high, and 4th consecutive higher low.

Many bulls feel that gold bottomed at $1160 after a $35 2-day capitulation from last week, and will continue to buy on weakness.

They maintain the market has been and remains extremely oversold - having dropped $205 (15.0%) since the 4/11 $1365 high, and $149 (11.4%) since the $1309 high on 6/14.

While its 14-day RSI is currently at 38.8 – it has spent only a scant 8 sessions north of 35 since 6/14. Bulls strongly believe that the dollar’s rally was badly overextended, and expect its correction from last week’s 96.99 high (up 9.90% since its 88.25 low on 2/14) to continue, and help trigger a significant short covering rally in gold.

Bulls are looking for gold to consolidate recent gains over $1185 (up trendline from 10/19/08 $682 low), and then challenge resistance at $1200, $1205-$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), and then $1216-18 (5 tops, 8/6, 8/7, 8/8, 8/9 and 8/10 and high).

In addition, bulls maintain that last Friday’s Commitment of Traders Report with the large funds turning net short (for the first time since 2002) 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 have been using gold’s recent bounce off of $1160 to rebuild short positions scale up, and will look to take profits on an expected retracement toward recent lows.

Other bears, however, are still looking for gold to decline significantly more, as witnessed by last week’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 $1185 (up trendline from 10/19/08 $682 low), $1175 (options strike), $1171-73 (quadruple bottom – 8/15, 8/17, 1/6/17 and 1/9/17 lows), and then the $1160 low from 8/16 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, potential legal issues), Q2 corporate earnings, oil prices, and will turn to reports tomorrow on Japan’s PMI and Leading Index, Eurozone PMI, German GDP, US Jobless Claims, House Price Index, Markit PMI, New Home Sales, and the Kansas City Fed Manufacturing Activity Index for near-term guidance. Looming ahead Friday are highly the anticipated comments from the Fed’s Powell at Jackson Hole.

In the news:

Resistance levels: 

$1200 – psychological level, options

$1202 – 8/22 high

$1205 – 20-day moving average

$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

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

$1220-21 – 8/2 and 8/3 highs

$1224 – 40 day moving average

$1225 – 7/30 high

$1225  - options

$1227-28 – 7/27, 7/31 highs

$1233 – 50 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

$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

$1273 – 100-day moving average

$1275 – options

$1275 – 6/15 low

$1276 – 6/20 high

$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:

$1192 – triple bottom 8/22, 8/13 and 8/14  lows

$1188 – 8/21 low

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

$1183 – 8/20 low

$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