Gold Traders' Report - August 29, 2018

Jim Pogoda, Trader, Gold Bullion International 
AUG 29, 2018

Gold firmed moderately overnight in a range of $1201.50 - $1205.90 – despite the dollar also edging higher.

The DX traded up from 94.69 – 94.94, buoyed by weakness in the yuan (6.80 – 6.827), the euro ($1.1697 - $1.1651, weaker than expected German GfK, concerns over Italy’s budget plans), the pound ($1.2874 - $1.2845, Brexit negotiation deadline extended) and some weakness in emerging market currencies (Turkish lira from 6.10 – 6.47, S. African rand from 14.19 – 14.44, Russian rouble from 67.80 – 68.24).

Global equities were mostly softer and supportive of gold with the NIKKEI up 0.2%, the SCI off 0.3%, European markets were down from 0.1% to 0.6%, and S&P futures were -0.2%. A decline in oil (WTI from $68.65 – 68.35, API shows surprise build in US Oil Inventories) weighed on stocks.

AT 8:30 AM, a stronger than expected reading on the first revision to Q2 US GDP (4.2% vs. exp. 4.0%, up from the previously reported 4.1%) turned S&P futures positive, and brought the US 10-year bond yield up to 2.888%.

The DX, after pulling back to 94.84, was only able to tick up slightly to 94.92 – and failed to take out its overnight high. Gold retreated to $1202, but was supported ahead of its overnight low at $1201.50. When the DX quickly turned back down to 94.80, gold turned up, and took out the overnight high to reach $1206.75.

AT 10AM, a miss on US Pending Home Sales (-0.7% vs. exp. 0.4%) combined with some conciliatory comments from the EU’s Chief Brexit negotiator Michael Barnier (“We are prepared to offer Britain a partnership such as there never has been with any other third country,” including economic and foreign and security policy ties) that sent the pound soaring ($1.2865 - $1.3014), took the euro higher ($1.1670 - $1.1708) and drove the dollar lower.

The DX plunged to 94.58, and gold popped higher. However, gold’s upside was capped at $1206.50, as gains in US stocks (S&P +17 to 1915, consumer discretionary, tech, and materials sectors lead gainers) and the 10-year yield (2.898%) capped the advance. Stocks were lifted by positive comments from Canada’s Trudeau and Freeland on reaching a trade deal by this Friday, along with firmer oil (WTI to $69.47) from a larger than expected draw in the EIA report on US Oil Inventories.

In the afternoon, US stocks added to their gains (S&P finished +17 to 2914 – record high close ) but the US 10-year bond yield pulled back to 2.878%. The DX slipped a bit further (94.54), pressured by a continued gain in the pound ($1.3028), and with the euro remaining firm over $1.17. Gold remained steady, trading in a narrow range of $1205 - $1206.50, and was $1206 bid at 4PM with a gain of $5.

Open interest was off 3.1k contracts, showing a net of long liquidation from yesterday’s decline. Volume surged with 299k contracts trading.

Bulls cheered gold’s ability to advance today, given that US stocks charged further into record territory and the rise in the 10-year bond yield.

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 – making higher lows in 6 of the past 9 sessions.

Some will look to continue to buy on weakness, and others on some expected 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 (today’s high, 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 8/10 highs).

Beyond this, bulls are looking for a move to at least $1262 – the 50% retracement of the move down from the 4/11 $1365 high to the 8/16 $1160 low. In addition, bulls maintain that last Friday’s Commitment of Traders Report showing 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.

Bears have been using gold’s recent bounce off of $1160 to rebuild short positions scale up, and are comfortable to continue to sell into strength. Other bears, however, are still looking for gold to decline significantly more, as witnessed by last Friday’s COT Report showing another hefty build in fund gross shorts (+7k contracts to 222k contracts).

They feel fuel from a rebound in the dollar from its 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 Retail Trade, German Import Prices and Unemployment Change, EU Economic Confidence, Business Climate Indicator, and Consumer Confidence, US PCE, Personal Income, Personal Spending, and IU Claims for near-term direction.

In the news:

Resistance levels: 

$1207 -8/29 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

$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

$1218 – 40 day moving average

$1220-21 – 8/2 and 8/3 highs

$1225 – 7/30 high

$1225  - options

$1225 – 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

$1267 – 100-day moving average

$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

$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:

$1203 – 8/27 low

$1201 – 8/29 low

$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

$1178 – 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