Gold Traders' Report - February 15, 2018

Jim Pogoda, Trader, Gold Bullion International 
FEB 15, 2018

Gold remained nervous and choppy and traded either side of unchanged overnight in a range of $1348.65 - $1357.20 - still largely trading against movements in the US dollar.

The yellow metal climbed to its high near the European open as the DX dipped to 88.58, softened by a 15-month high in the yen (107 – 106.18, Japanese Fin Min talked down need for intervention) and continued strength in sterling ($1.3995 - $1.4077, EU Brexit negotiators drop a “punishment clause”) and the euro ($1.2448 - $1.2510).

Resistance at the double top at $1356-58 (2/14, 1/26 highs) capped the move.  However, later during European hours, the DX recovered to 88.89, and pressured gold down through some light stops under $1350 (prior support) to $1348.65.

Ahead of the NY open, some bargain hunting buying brought gold back to the $1351-53 area. Firmer global equities (NIKKEI +1.5%, SCI closed, Eurozone shares +0.5% - 1.4%, and S&P futures were +0.7%), and another 4-year high in the US 10-year bond yield (2.944%) were headwinds for gold.

At 8:30 AM, stronger than expected readings on Core PPI (0.4% vs. exp. 0.2%) and the Philly Fed Index (25.8 vs. exp. 21.6) were largely offset by worse reports on Jobless Claims (230k vs. exp. 227k) and the Empire State Manufacturing Index (13.1 vs. exp. 18).

At 9:15 AM, worse than expected readings on Industrial Production (0.1% vs. exp. 0.2%) and Capacity Utilization (77.5% vs. exp. 78%) knocked US stocks lower (S&P to 2689), and sent the 10-year yield down to 2.882%.  The DX dipped to 88.61, and gold clawed back to $1354.25.

By mid-day, US stocks turned higher, and advanced fairly steadily into the afternoon (S&P +33 to 2729), with financials and tech as the best performers.

A rise in crude (WTI to $61.62) aided the move.  The 10-year yield remained fairly steady between 2.885% - 2.905%, but the dollar was choppy.  It rallied to 88.97 early in the afternoon, pressing gold back to its overnight low at $1348.60 where support held.

Later in the afternoon, however, the dollar resumed its decline, and took out its overnight bottom to reach 88.54 – a two-week low. The greenback was pressured by further strength in the yen (106.01 – fresh 15-month high) and sterling ($1.4103), and lifted gold to $1355.  Gold was $1353 bid at 4PM with a $1 decline.

Open interest was up big – 18.7k contracts – showing a large chunk of new longs coming in during yesterday’s rally.  Volume exploded with 458k contracts trading.

Bulls were pleased with the near unchanged finish today, despite strong gains in stocks and a fresh 4-year high in the US 10-year bond yield.  They feel the dollar will continue its downtrend to fuel further advances in gold.

Bulls expect the recent 3-year low in the DX at 88.43 to be breached to get gold past initial resistance at $1357.  This should open up tests of next resistance levels at $1365-67 (5 tops 1/25, 8/2/16, 8/3/16, 8/4/16, and 8/5/16 highs), and $1375 (7/6/16 high), where they feel momentum playing longs will propel the market higher.

Bears see gold’s rally from the 2/8 low of $1307 to $1357 as wildly overdone.  They are expecting a significant rebound in the dollar to ignite at least a 50% correction of this up move back to $1332.

All markets will continue to focus on the volatility in the equity and bond markets, geopolitical events, developments with the Trump Administration, corporate earnings, oil prices, and will turn to reports tomorrow on German Wholesale Price Index, UK Retail Sales, US Import Prices, Export Prices, Housing Starts, Building Permits, University of Michigan Consumer Sentiment, Baker Hughes Rig Count, and the Commitment of Traders Report for near-term guidance.

In the news:      

Resistance levels: 

$1356-58 – triple top, 2/15, 2/14, 1/26 highs

$1365-67 – 5 tops 1/25, 8/2/16, 8/3/16, 8/4/16, and 8/5/16 highs

$1375 – 7/6/16 high

$1388-89 – double top 3/16/14, 3/17/14 highs

Support levels:

$1349 – 2/15 low

$1350 – 52 – triple top – 1/29 , 2/1, and 2/2 highs

$1350 – options

$1347 – down trendline from 8/2013 weekly chart

$1346 – 2/6 high

$1338 – 11/9 election night high

$1336 – 20 day moving average

$1331-32 – double top, 2/7 and 2/13 highs

$1327 - 29 – quadruple bottom - 1/19, 1/22, 2/2 ,and 2/5 lows

$1326 – down trendline from 1/25 $1366 high

$1325 – 40 day moving average

$1322-23 – double top 2/8 and 2/9 highs

$1322 – up trend line from 2/8 $1307 low

$1322 – 2/13 low

$1311 – 2/9 low

$1311 – 50 day moving average

$1308-09 – double bottom 1/9 and 1/10 lows

$1306-7 – triple bottom, lows 1/3, 1/4, 2/8

$1304 – 1/2 low

$1303 – down channel line

$1302 – 1/1 low

$1301 – 50% retracement of up move from 12/12/17 $1236 low to 1/25/18 $1366 high

$1300 – psychological level, options

$1296 – 100-day moving average

$1294 – 12/29 low

$1287 – 12/28 low

$1284– 200-day moving average

$1281 – 12/27 low

$1281 – 50% retracement of up move from 7/10/17 $1205 low to 9/8/17 $1357 high