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Gold Traders' Report - February 23, 2018

Jim Pogoda, Trader, Gold Bullion International 
FEB 23, 2018

Gold was a tad lower and a little choppy overnight in a range of $1325.85 - $1331.65, and continued to trade against movements in the US dollar.

During Asian hours, the DX rose to its high of 90.06 as the yen softened (106.64 – 107.13, Japanese CPI beat expectations, but still far from 2% target), which pressed gold to its low below $1326.

However, the DX retreated during European time (DX back down to 89.79) as euro strengthened ($1.2279 - $1.2321), and the US 10-year bond yield fell from 2.937% - 2.877% - which lifted the yellow metal back up to $1331.

Mostly firmer global equities were a headwind for gold with the NIKKEI +0..7%, the SCI +0.6%, Eurozone shares ranged from -0.1% to +0.2%, and S&P futures were +0.3%.

US stocks opened stronger (S&P +19 to 2723, tech leads gainers), which boosted the DX to 89.98.  Gold was pressured lower, but found support at $1326.60, ahead of the overnight low at $1325.85.

At 10AM, Gold got a boost from some tough rhetoric from Trump as he announced further sanctions against North Korea, which lifted the metal to $1329.50.

At 11AM, the Fed’s Monetary Policy Report was a bit hawkish, citing an economy past full employment, and repeated language from the Jan FOMC meeting that further gradual adjustments (increases) in the funds rate would be appropriate.

The 10-year yield ticked up to 2.884%, the DX rose to 89.96, and gold was knocked back to $1327.

In the afternoon, the 10-year yield resumed its earlier decline, and reached a 1-week low of 2..861%.  This helped US stocks climb further (S&P ends +36 to 2748), which was also aided by a rally in oil (WTI to $63.70).

The dollar was tugged down a bit by the lower bond yields, and traded between 89.80-89.95. Gold drifted higher in response, and reached $1330.  It was $1329 bid at 4PM with a loss of $1.

Open interest was unchanged, showing an even balance of new longs and some short covering from yesterday’s rise.  Volume was lower with 220k contracts trading.

The CFTC’s Commitment of Traders Report as of 2/20 showed the large funds adding 5k contracts of longs and cutting 10k contracts of shorts (heavy short covering) to increase their net fund long position by 15k contracts to 191k contracts.

This was done largely on the move up to the 2/16 high of $1362.  It is a slightly bearish short-term development that while this increase was largely expected, it should have been substantially reduced by the subsequent dip below $1330 on Tuesday – leaving a large number of spec longs still hanging on.

This could provide some downside pressure in the very near term. Nonetheless, looking a bit more ahead, 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 trading around $1357), 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. 

Bulls were a bit disappointed with gold’s lackluster performance today, especially since the US 10-year bond yield pulled back below 2.90% and made a 1-week low, and the DX failed once again at 90.  They still maintain that the dollar’s recent bounce is just minor correction within its year- old down trend, and expect a test of the recent 3-year low at 88.25 from last week to propel gold higher.

Once initial resistance at $1332 is broken, they’ll look to take out $1336 (50% retracement of down move from 1/25 $1366 high to 2/8 $1307 low), and then $1347 (2/20 high).

 Bears believe that gold’s run up to the $1362 high was overdone, and that the ensuing $41 decline will continue. Likewise, they expect the DX’s streak of 5 consecutive higher lows to extend, and to pressure gold through initial support at the quadruple bottom at $1319-22.

Below here, bears expect to trip more long liquidating stops (especially from the recent longs built up as highlighted in the above COT report) under the next recent lows at $1316, $1311, and then $1307.

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 Monday on Japan’s Leading Index, US Chicago Fed National Activity Index, New Home Sales, Dallas Fed Index, and comments from the Fed’s Bullard for near-term direction.  Looming ahead Tuesday is the Humphrey Hawkins testimony from the incoming Fed Chair Powell. 

In the news:

Resistance levels: 

$1332 – 40 day moving average

$1332 – double top 2/22 and 2/23 highs

$1335 – 20 day moving average

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

$1338 – 11/9 election night high

$1338 – up trend line from 2/8 $1307 low

$1347 – down trendline from 8/2013 weekly chart

$1347 – 2/20 high

$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

$1325- down trendline from 2/16 $1362 top

$1326 – 2/23 low

$1322 – 2/13 low

$1321 – 50 day moving average

$1319 – 22 – quadruple bottom, 2/13, 2/14, 2/21, and 2/22 lows

$1311 – 2/9 low

$1310 – down trendline from 1/25 $1366 high

$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

$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

$1299 – 100-day moving average

$1294 – 12/29 low

$1287 – 12/28 low

$1286– 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