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Gold Traders' Report - February 20, 2018

Jim Pogoda, Trader, Gold Bullion International 
FEB 20, 2018

Gold traded lower last night in a range of $1336.70 - $1346.50.  It found support ahead of $1336, the 50% retracement of the down move from the 1/25 $1366 high to the 2/8 $1307 low.

Gold was pressured by a continued rebound in the beleaguered dollar (which came off a three year low at 88.25 early Friday) to reach 89.68.

A firming in global bond yields (US 10-year bond yield from 2.888% - 2..929%, UK Gilts from 1.598% - 1.629%, German Bunds from 0.732% - 0.764%) was also a headwind for gold.

Mostly weaker global equities, however, were gold supportive (NIKKEI -1%, SCI closed, Eurozone shares ranged from -0.3% - +0.1%, and S&P futures were -0.8%), with weaker oil prices (WTI $62.62 - $61.66) weighing on stocks. 

Ahead of the NY open, weaker earnings from Walmart led to a softer opening for US stocks.  The US 10-year yield pulled back to 2.89%, the DX was tugged down to 89.53, and gold rose to $1343. 

By mid-day, however, US equities pared losses (S&P +4 to 2738), and the 10-year yield climbed back over 2.90% to 2.913%.  The dollar climbed to 89.76, and sent gold lower.

The yellow metal took out some stops under $1336 (50% retracement of down move from 1/25 $1366 high to 2/8 $1307 low), and the up trendline from the 2/8 $1307 low at $1335 to reach $1328. 

Later in the afternoon, US stocks turned down (S&P finished-17 to 2715, consumer staples including Walmart, Kroger, and Kraft Heinz led decliners), and players moved to the safety of the US 10-year as the yield dipped back down to 2.884%.

The dollar, however, remained firm, and traded between 89.69-89.75).  Gold was largely kept in check by the firm dollar, rising only slightly in a range of $1328.50- $1331.50.  It was $1330.50 bid at 4PM with a loss of $15. 

Open interest was up 4k contracts, showing a net of new shorts from Friday’s decline.  Volume was lower with 258k contracts trading. 

Bulls were disappointed with the magnitude of today’s setback, given that equities declined sharply and that the US 10-year bond yield dipped under 2.90%.  They believe the dollar’s rebound will be short-lived, and that a retest of the 88.25 low in the DX from Friday will propel gold higher.

While today’s pullback seemed more than a correction in the up move from $1307, bulls are comfortable that gold’s minor trend higher is intact, and that the Commitment of Traders Report leaves the market positioned well for further upside gains.  They will look for a rebound back above the key $1335-36 area, and then a retest of the $1346-50 area.

Bears believed that gold’s up move from $1307 to $1366 was wildly overdone.  Now, the scale up sellers are relishing the fact that the 50% retracement of this upmove at $1336 failed, and that the up trend line from the same low was breached.

The bears feel the dollar’s downside was also overdone, and expect a significant bounce in the DX to trip more long liquidation in gold, and are expecting a test of support at the $1319 low from 2/14. 

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 Japanese Manufacturing PMI, All Industries Activity Index, Eurozone PMI, US MBA Mortgage Applications, Markit PMI, Existing Home Sales, the Jan 31 FOMC minutes, and comments from the Fed’s Harker and the BOE’s Carney for near-term direction. 

In the news:

BlackRock’s Koesterich added to gold, 5-year Treasury holdings

Gold bears play while Chinese away

Resistance levels: 

$1332-33 – double top, 2/7 and 2/13 highs

$1335 – up trend line from 2/8 $1307 low

$1336 – 50% retracement of down move from 1/25 $1366 high to 2/8 $1307 low

$1338 – 20 day moving average

$1338 – 11/9 election night high

$1347 – down trendline from 8/2013 weekly chart

$1346-47 double top – 2/20 and 2/6 highs

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

$1350 – options

$1351 – 2/19 high

$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:

$1330 – 40 day moving average

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

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

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

$1322 – 2/13 low

$1319 – 2/14 low

$1317 – 50 day moving average

$1311 – 2/9 low

$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

$1298 – 100-day moving average

$1294 – 12/29 low

$1287 – 12/28 low

$1285– 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