Gold Traders' Report - August 28, 2018

Jim Pogoda, Trader, Gold Bullion International 
AUG 28, 2018

Gold moved higher last night, trading in a range of $1208.15 - $1214.45. It ticked down to its $1208.15 low during Asian time as the dollar modestly firmed (DX to 94.92).

The greenback was boosted by some weakness in the yen (111 – 111.35) and the pound ($1.2901 - $1.2859, May’s comment that it “wouldn’t be the end of the world” if there was a no-deal Brexit).

However, gold turned up during European time, and took out yesterday’s $1212.50 high to reach $1214.45 where resistance from the 8/13 high held.

This was as the dollar traded down (DX to 94.50, 1-month low) from strength in the yuan (6.819 – 6.80), and the euro ($1.1662 - $1.1721), and from some positive trade comments from Treasury Secretary Mnuchin.

Global stocks were mostly higher and weighed on gold, with the NIKKEI up 0.1%, the SCI was off 0.1%, Eurozone markets were up 0.2% - 0.3%, and S&P futures were +0.1%.

A worse than expected reading on the US Goods Trade Balance (-$72.2B vs. exp. -$69.0B) at 8:30 AM was followed by a miss on the S&P/Case Shiller HPI (6.31% vs. exp. 6.41%) at 9AM which knocked the DX further down to 94.43.

Gold, which had previously pulled back to $1211, popped to $1214 – but failed again at resistance there.

At 10AM, much stronger than expected reports on Consumer Confidence (133.4 vs. exp. 126.5, highest since 2000) and the Richmond Fed Manufacturing Index (24 vs. exp. 17) took US stocks higher (S&P +7 to 2903).

The US 10-year bond yield rose to 2.886% and the dollar reversed and turned higher. The DX rose quickly to 94.67, which tripped some selling from weak longs in gold. The yellow metal fell through some minor support at $1210-11 and $1208 – the previous upside breakout level – to reach $1207.

Into the mid-day, US stocks turned negative (S&P -4 to 2893), with the telecom, materials, and energy sectors leading decliners. A dip in oil (WTI to $68.20) weighed on stocks. The 10-year yield pulled back to 2.869%, and the DX drifted down to 94.51. Gold moved higher in response, recovering to $1210.

In the afternoon, US stocks turned modestly higher (S&P +1 to 2898 for another record high close). The 10-year yield reached 2.888% - a two-week high.

The dollar firmed, bouncing back to 94.75. Gold sold off, falling through support at the prior $1207 low, and $1203 (yesterday’s low) to reach $1200 (psychological level, options strike, 20-day moving average), where support finally held. Long liquidation from weak longs was seen. Gold was $1201 bid at 4PM with a loss of $9.

Open interest was up 1.1k contracts, showing a net of new longs from yesterday’s advance. Volume was lower with 215k contracts trading.

Bulls were disappointed with gold’s decline today, especially given that the dollar had also pulled back. However, much of the bullish community believes that gold bottomed at $1160 on 8/16 after a $35 2-day capitulation, and are comfortable that the uptrend from that level ($1195) is still intact.

They 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-$1195, and then challenge resistance at $1205-08 (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 took profits today on gold’s decline to $1200 today.  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 the dollar’s recent correction will 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, $1195 (up trendline from $1160 low), $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 tomorrow on Japan’s Consumer Confidence, German GfK Consumer Confidence, US GDP, Personal Consumption, Pending Home Sales, and Oil Inventories for near-term guidance.

In the news:

Resistance levels: 

$1203 – 8/27 low

$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

$1209 – 8/24 high

$1212 – 8/27 high

$1214 – double top – 8/13 and 8/28 highs

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

$1219 – 40 day moving average

$1220-21 – 8/2 and 8/3 highs

$1225 – 7/30 high

$1225  - options

$1227 – 50 day moving average

$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

$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

$1268 – 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:

$1200 – 8/28 low

$1200 – 20-day moving average

$1200 – psychological level, options

$1197 – 8/23 high

$1195 – up trendline from 8/16 $1160 low

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

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

$1180 – 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