Gold Traders' Report - February 21, 2018

Jim Pogoda, Trader, Gold Bullion International 
FEB 21, 2018

Gold softened last night in a relatively narrow range of $1325.50 - $1330.80, tripping some long liquidating sell stops below yesterday’s $1328 bottom to reach its low.

Gold was pressured again by a continued rebound in the dollar (DX from 89.68 – 90, 1-week high) after it had plunged to a 3-year low at 88.25 early last Friday.

The greenback was helped by weakness in the yen (107.21 – 107.90, miss on Japanese Manufacturing PMI), euro ($1..2345 - $1.23, miss on Eurozone PMI), and the pound ($1.40 - $1.3910, UK employment data disappoints).

A sharp decrease in US Mortgage Applications (-6.6%) at 7AM briefly took the DX down to 89.84, but it quickly rebounded to its high of 90.

An uptick in the US 10-year bond yield to 2.901% early during Asian hours also pressured gold, but mostly weaker global equities were a tailwind for the yellow metal with the NIKKEI +0.2%, SCI still closed, Eurozone shares off 0.2% - 0.8%, and S&P futures  -0.2%.  Weakness in oil ($61.70 - $60.92, stronger dollar weighs) contributed to the weakness in stocks.  

 At 9AM, dovish comments from the Fed’s Harker (“Based on the relatively strong economy, but the continued stubbornness of inflation, I’ve penciled in two hikes for 2018,”), helped lift S&P futures (2718), and knocked the 10-year yield down to 2.877%.

The dollar sank to 89.76, and gold rallied. Some light buy stops were elected over the overnight high to reach $1332.20.

At 9:45 AM, stronger than expected US Markit PMI data (Manufacturing 55.9 vs. exp. 55.5, Services 55.9 vs. exp. 54), took the 10-year yield up to 2.89%, and helped US Stocks open stronger (S&P +14 to 2731).

The DX bounced to 89.87, and tugged gold back to $1330. However, a much lower than expected Existing Home Sales report at 10AM (5.38M vs. exp. 5.62M) took the DX back to its prior low at 89.76.  Gold shot back up, and made a fresh high at $1332.80 – where it was capped at the double top at $1332-33 from 2/7 and 2/13.

Later in the morning, some hawkish commentary from the Fed’s Kaplan (“History suggests that if the Fed waits too long to remove accommodation at this stage in the economic cycle, excesses and imbalances begin to build, and the Fed ultimately has to play catch-up.”) helped take the dollar back up to 89.91.  Gold retreated in response, falling to $1328.

Into mid-day, markets quieted ahead of the release of the minutes from the FOMC’s 1/31 meeting. Before the meeting, FedWatch pegged the probabilities for the next Fed rates hike as follows: 

  • March - 77.5%
  • June - 61.9%
  • Sep – 44.1%
  • Dec – 26.8% 

Open interest was off 7.9k contracts, reflecting a good chunk of long liquidation from yesterday’s sell-off.  Volume ballooned with 399k contracts trading.

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 this afternoon’s FOMC minutes from the 1/31 meeting for near-term direction.

In the news:

WGC – Market selloff bolsters case for gold

Russia is now world # 5 national gold holder – but is it?

Inflation’s back and commodities will benefit – JP Morgan 

Hong Kong gold exchange seeks to create gold trading corridor along Belt and Road

Goldman debunks idea dollar is being driven down by US worries

Forex Setups Across Major USD-Pairs Ahead of FOMC, ECB Minutes

Resistance levels: 

$1331 – 40 day moving average

$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:

$1328 – 2/20 low

$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