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Gold Traders' Report - February 16, 2018

Jim Pogoda, Trader, Gold Bullion International 
FEB 16, 2018

Gold continued to move in a nervous and choppy fashion overnight, trading in a range of $1352.50 - $1361.80 and fading movements in the dollar. It rose during Asian and early European hours and punched through resistance at $1356-58 (triple top, 2/15, 2/14, 1/26 highs) to reach $1361.80 (3-week high) as the DX took out its 88.43 low from 1/25 to make a fresh 3-year low.

The DX was hurt by a continued surge in the yen (yen from 106.30 to 105.55 – fresh 15 month low, shrugs off reappointment of Kuroda as BOJ Governor), and the euro ($1.25 - $1.2555, 3- year high).

Later during European time, the dollar rebounded (DX to 88.83), as a miss in UK Retail Sales drove pound lower ($1.4145 - $1.40.35), and knocked gold back down to unchanged at $1354.

A move down in the US 10-year yield (2.913% - 2.877%) was gold supportive, while firmer global stocks (NIKKIE up 1.2%, SCI closed, Eurozone shares +0.5% to +0.8%, and S&P futures were +0.1%) a headwind.

At 8:30 AM, stronger reports on US Import Prices (1.0% vs. exp. 0.6%), Export Prices (0.8% vs. exp. 0.3%), Housing Starts (1.326M vs. exp. 1.232M), and Building Permits (1.396M vs. exp. 1.300M), lifted the dollar further (DX to 89.04), and pressed gold down through its overnight low to reach $1351.50.

At 10AM another strong report hit the market, with the University of Michigan Consumer Sentiment Index soundly beating expectations (99.9 vs. exp. 95.5).

US stocks reversed opening weakness and rallied sharply (S&P from 2626 to 2754, +22) as the 10-year yield - which had continued to decline to 2.85% - held steady.

The dollar, which had ticked down to 88.90 - bounced back to 89.01, but couldn’t take out the earlier high. Gold probed lower in response, and found support at $1351.

Around mid-day, news that US Deputy Attorney General Rod Rosenstein was going to make an announcement on indictments regarding Russian interference in the 2016 elections sent US stocks lower (S&P -3 to 2730).

The dollar softened to 88.81, and gold rebounded to $1356.50.

When Rosenstein announced that no American was a “knowing participant” in the meddling, and that the interference didn’t affect the election outcome, US stocks rallied back (S&P +10 to 2744).

The dollar shot up to 89.23, and gold sold off. The yellow metal tripped sell stops under the overnight low and yesterday’s $1349 low to reach $1344.70.

Open interest was up 3.7k contracts, showing a mix of some new shorts selling ahead of resistance at $1357 along with some bargain hunting longs on dips below $1350 from yesterday.

Volume was lower but still decent with 294k contracts trading.

The Commitment of Traders Report as of 2/13 showed the large funds cutting 22k contracts of longs and 6.7k contracts of shorts to reduce their net long position to 176k contracts.

In the last three days, approximately 20k contracts of net longs were added, taking the net fund long position to around 195k contracts.

While this position has been rebuilt substantially since the 107k contract level on 12/12, it remains much lower than the 255k level from 9/12 when gold was also trading around $1257, and far beneath the 316k level from 7/6/16 when gold was at $1375.

Therefore, it shows that the large funds have not yet come on board the long side in a large way, and that there is certainly more room for further upside gains.

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 Japan’s Trade Balance on Monday, and Tuesday’s reports on German PPI, German ZEW, Eurozone ZEW and Consumer Confidence for near-term direction.

In the news:

Resistance levels: 

$1349 – 2/15 low

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

$1350 – options

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

$1362 – 2/16 high

$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:

$1347 – down trendline from 8/2013 weekly chart

$1346 – 2/6 high

$1345 2/16 low

$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