Gold Traders' Report - August 27, 2018

Jim Pogoda, Trader, Gold Bullion International 
AUG 27, 2018

Gold was fairly steady overnight, trading either side of unchanged in a narrow range of $1203.20 - $1208. It consolidated its $20 gain from Friday, with activity a bit muted due to the UK on holiday.

Early during Asian hours, gold slipped to its low as it faded some strength in the US dollar - which was buoyed by weakness in emerging market currencies (Turkish lira plunged 3.5% after weeklong holiday), and the euro ($1.1650 - $1.1595).

Later during European time, gold recovered as the DX softened from a bounce in the euro ($1.1622) from a better than expected German IFO Report.

Global equities were firmer and a headwind for gold, still riding the bullishness from Powell’s speech on Friday. The NIKKEI was up 0.9%, the SCI gained 1.9%, Eurozone shares were +0.5-0.6% (UK on holiday), and S&P futures were +0.2%. A dip in oil (WTI from $68.64 – $68.33) weighed on stocks.

Just ahead of the NY open, news emerged that the US and Mexico were close to concluding their trade deal. Along with this was a comment from Economist Mohamed El-Erian saying there's a 60 percent chance that Trump's hard line with China and Europe yields "fairer trade”.

S&P futures popped higher (+10 to 2888), and the yield on the US 10-year bond climbed from 2.815 – 2.815%. The dollar softened (DX to 95) as the Mexican Peso rallied strongly (18.86 – 18.66), the Chinese yuan strengthened (6.8245 – 6.8155), and the euro continued to climb ($1.1650). Gold rose, but was initially capped in front of the overnight high at $1208.

By late morning, Trump announced that the US and Mexico indeed reached a trade deal, paving the way to replace the much-maligned NAFTA deal, with negotiations with Canada to commence shortly.

US stocks rallied further, with the S&P (+22 to 2899) forging deeper into record territory, led by the materials and financials sectors.

The 10-year yield rose further to 2.851%, while the dollar continued to decline. The DX broke through key support just under 95, and plunged to 94.68 – a 4-week low.

Gold rallied sharply, tripping stops over $1209 (Friday’s high) to reach $1212.50 (a two week high), with a decent amount of short covering seen.

In the afternoon, US stocks pared some gains but both the NASDAQ (+72 to 8018) and S&P (+22 to 2897) finished with record high closes.

The US 10-year yield ticked down to 2.844%, while the DX hovered between 94.75- 94.80. Gold pulled back, but was able to hold support at $1209 (Friday’s high). Gold was $1210 bid at 4PM with a gain of $4.

Open interest was up 0.1k contracts, showing a small net of new longs outweighing the substantial short covering seen from Friday’s rally. Volume surged with 307k contracts trading.

Bulls were pleased with gold’s advance today, especially given the strength in equities taking the S&P and NASDAQ to record high closes.

Many bulls feel that gold bottomed at $1160 on 8/16 after a $35 2-day capitulation, and will continue to look to buy on weakness or on some ensuing upside momentum.

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. Bulls strongly believe that the dollar’s rally was badly overextended, and expect its correction from 8/15’s 96.99 high (up 9.90% since its 88.25 low on 2/14) to continue, and drive a significant short covering rally in gold.

Bulls are looking for gold to consolidate recent gains over $1192, and then challenge resistance at $1205-$1205-08 (today’s high, and former 9 bottom support – 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 8/10and high).

In addition, bulls maintain that Friday’s Commitment of Traders Report with the large funds getting further net short (turned short last week for the first time since 2002) and with the massive and growing gross short position (+7k to 222k 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, though some shorts were run out today on the move over $1209 to $1212.50. Bears 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 Friday’s COT Report showing another hefty build in fund gross shorts (+7k contracts to 222k contracts).

They feel fuel from a rising 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) still has legs. They will be gunning for stops below $1200, $1192, $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, developments with the Trump Administration (especially on US-China trade, potential legal issues), oil prices, and will turn to reports Tuesday on the US Trade Balance, Wholesale Inventories, Retail Inventories, Case Shiller Home Price Index, Richmond Fed Manufacturing Index, and Consumer Confidence for near-term direction.

In the news:

Resistance levels: 

$1212 – 8/27 high

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

$1220 – 40 day moving average

$1220-21 – 8/2 and 8/3 highs

$1225 – 7/30 high

$1225  - options

$1227-28 – 7/27, 7/31 highs

$1228 – 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 – 100-day moving average

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

$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

$1291– 200-day moving average

Support levels:

$1209 – 8/24 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

$1203 – 8/27 low

$1202 – 8/22 high

$1202 – 20-day moving average

$1200 – psychological level, options

$1197 – 8/23 high

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

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

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

$1183 - 84 – triple bottom - 8/20, 8/23, and 8/24  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