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Gold Traders' Report - February 26, 2018

Jim Pogoda, Trader, Gold Bullion International 
FEB 26, 2018

Gold traded higher overnight in a range of $1326.95 - $1340.95.

It tripped some buy stops over $1332 (40 day moving average, double top 2/22 and 2/23 highs) and $1336 (50% retracement of down move from 1/25 $1366 high to 2/8 $1307 low, 2/21 high) as it climbed during Asian hours and peaked during early European time - mostly fading a weaker dollar (DX from 89.99 – 89.50).

The greenback softened against the strength in the yen (107.07 – 106.37, BoJ’s Kuroda said the central bank has no plan for a comprehensive review of policy), the euro ($1.2280 - $1..2355) and the pound ($1.3965 - $1.4070, BoE’s Ramsden says UK rates will need to rise faster).

During late European hours, however, the dollar rebounded (DX to 89.77), and pressed gold back to $1336 (old resistance became support) ahead of the NY open.  A pullback in the US 10-year bond yield (2.877% - 2.839%) also weighed on the dollar and was gold supportive.

However, mostly firmer global equities were a headwind for gold with the NIKKEI +1.2%, the SCI +1.2%, Eurozone shares were up from 0.3% - 0.5%, and S&P futures gained 0.4%. 

 After the NY open, the dollar resumed its climb (DX to 90.03), boosted by some euro weakness (euro to $1.2278, Draghi says slack in the euro zone economy may be bigger than previously estimated), and a stronger opening for US stocks (S&P +20 to 2767).

This was despite weaker economic reports on the Chicago Fed National Activity Index (0.12 vs. exp. 0.20) and New Home Sales (593k vs. exp. 647k), and a further dip in the US 10-year yield (2.831%, 2-week low).

Gold was pressed lower, and tripped some stops under $1336 and $1332 to reach the low of $1330 by mid-day.  Bargain hunting buying prevented a test of the overnight low and Friday’s $1326 bottom.

In the afternoon, US stocks continued to surge, aided by strength in oil (WTI to $64.19, Saudis expect production in Jan-March to be well below caps).

The S&P finished up 32 to 2780 - recovering nearly 75% of its 11.9% plunge to 2532 on 2/12.  The yield on the 10-year bond bounced to 2.865%, while the dollar retreated to 89.82.  Gold recovered, recaptured the key $1332 level and was $1333 bid at 4PM with a gain of $5.

Open interest was up 2.2k contracts, showing a net of new shorts from Friday’s decline.  Volume was lower with just 178k contracts trading.  

Bulls were pleased with gold’s $5 advance, and the fact that the yellow metal held $1332 despite the dollar firming back to Friday’s levels.

They still maintain that the dollar’s 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 2/16  to propel gold higher.  They look for gold to take out $1336 (50% retracement of down move from 1/25 $1366 high to 2/8 $1307 low), and then test $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 dollar to resume its bounce off of 88.25, and to pressure gold through initial support at the up trendline at $1324, followed by 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 tomorrow on German CPI, US Trade Balance, Wholesale Inventories, Durable Goods, Case-Shiller Home Price Index, Richmond Fed Index, Consumer Confidence, and testimony from Fed Chair Powell for near-term direction. 

In the news:

Euro, USD focus in the forex markets this week

Citigroup lifts gold forecast

Deutsche Bank – higher inflation could trigger recession

Resistance levels: 

$1335 – 20 day moving average

$1336 – 2/21 high

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

$1338 – 11/9 election night high

$1341 – 2/26 high

$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

$1360 – down trendline from 1/25 $1366 top

$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:

$1333 – 40 day moving average

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

$1326-27 – double bottom 2/23 and 2/26 lows

$1328 – 2/20 low

$1324 – up trendline from 12/12 $1236 low

$1323 – 50 day moving average

$1322 – 2/13 low

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

$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

$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

$1300 – 100-day moving average

$1294 – 12/29 low

$1287 – 12/28 low

$1287– 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