Gold Traders' Report - August 23, 2018

Jim Pogoda, Trader, Gold Bullion International 
AUG 23, 2018

Gold softened overnight in a range of $1186.50 - $1196.65, tripping some sell stops under $1192 - yesterday’s low and the old double bottom from 8/13-14.

The yellow metal was pressured by a rebound in the dollar, as the DX rose from 95.08 – 95.50. The greenback was buoyed by some weakness in the yuan (6.85 – 6.875, new US-Chinese tariffs go into effect today), the yen (110.50 – 110.90), the euro ($1.16 - $1.1550, weaker Eurozone PMI’s), and the pound ($1.2917 - $1.2849, UK Brexit department distributes no-deal contingency document).

Global equities were mixed with the NIKKEI +0.2%, the SCI was up 0.4%, European markets ranged from -0.2% to +0.1%, and S&P futures were flat. A modest move down in oil (WTI from $68.11 - $67.60) weighed on stocks.

Ahead of the NY open, comments from Trump saying, "If I ever got impeached, I think the market would crash. I think everybody would be very poor” sent US stock futures lower (2858 off 3), and brought the US 10-year bond yield down from 2.832% to 2.817%. The DX sold off to 95.17, and gold popped up to $1191.

At 8:30 AM, a better than expected reading on US Jobless Claims brought the DX up to 95.45, which pushed gold back to $1188.50. Later in the morning, a weaker US Markit PMI (55.2 vs. exp. 55.8) along with a lower than expected reading on US New Home Sales (627k vs. exp. 645k) tugged US stocks lower, with the S&P reaching 2854 (-8) by late morning.

Concerns over US-China trade and Trump’s legal issues continued to weigh, with the materials sector lagging. The 10-year yield declined to 2.817%, but the DX, after a quick dip to 95.26, turned higher.

Pressure from a falling euro ($1.1530) off of a weaker than expected report on Eurozone Consumer Confidence drove up the DX to 95.50. Gold weakened in response, and slid to support at the overnight low of $1186.50.

Into the afternoon, US stocks battled back to unchanged, with IT as the lone advancing sector. The 10-year yield ticked up to 2.828%, and the DX advanced to 95.71.

Gold failed to hold the overnight low, and briefly plunged through support at $1185 to touch $1184. Some comments from the Fed’s Kaplan stressing the Fed’s independence ( won’t be pressured by Trump to stop raising the FF rate) – echoed earlier comments from the Fed’s George were also dollar supportive, and weighed on gold.

Late in the afternoon, US stocks finished moderately lower (S&P -5 to 2857), while the 10-year yield was steady around 2.825%. The DX faded to 95.61, and gold ticked up to $1186. It was $1186 bid at 4PM with a loss of $10.

Open interest was up 1.4k contracts, showing a modest amount of new longs along with a few new shorts on the move up to $1200 yesterday. Volume was higher with 243k contracts trading.

Bulls were disappointed with the $10 decline today, but were glad that support at $1185 (up trendline from 10/19/08 $682 low, down trendline from 6/14 $13009 high) held, and some used the dip as a chance to get longer. 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. Gold’s 14-day RSI is back under 35 at 33.8, and 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, 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 CPI, German GDP, US Durable Goods, Baker-Hughes Rig Count, Commitment of Traders Report, and the highly anticipated comments from the Fed’s Powell at Jackson Hole for near-term direction.

In the news:

Resistance levels: 

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

$1197 – 8/23 high

$1200 – psychological level, options

$1202 – 8/22 high

$1203 – 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

$1222 – 40 day moving average

$1225 – 7/30 high

$1225  - options

$1227-28 – 7/27, 7/31 highs

$1231 – 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

$1272 – 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

$1292– 200-day moving average

Support levels:

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

$1185 – down trendline from 6/14 $1309 high

$1183 - 84 – double bottom - 8/20 and 8/23  lows

$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