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Gold Traders' Report - February 8, 2018

Jim Pogoda, Metals Trader, Gold Bullion International 
FEB 8, 2018

Gold traded lower overnight in a range of $1307.15 - $1319.25.  It breached support at the $1308-09 – double bottom from 1/9 and 1/10, but found support just below at the double bottom from 1/3, 1/4 at $1306-07.

The yellow metal was pressured by an increase in global bond yields (JGB from 0.074% - 0.083%, German Bund from 0.74% - 0.77%, UK Gilt from 1.536% - 1.566%, and the US 10-year from 2.808% - 2.875%), and a firmer US dollar.  The DX rose from 90.18 – 90.57 (fresh 2-week high) helped by a softening in the yen (109.11 – 109.78, weaker Japanese Economy Watchers Survey), and a decline in the euro ($1.2294 - $1.2211, lower than expected German Trade Balance).

Mostly weaker global equities were gold supportive, however, with the NIKKEI off 1.1%, the SCI down 1.4%, Eurozone shares were off 0.8% - 1.4%, and S&P futures were -0.2%.  Lower oil prices (WTI from $61.78 - $61.11, news from yesterday on increasing US supplies still resonating) weighed on equities. 

At 7 AM, the Bank of England said that interest rates would need to rise “earlier” and by a “somewhat greater extent” than they thought at their last review in November.

The yield on the UK Gilt climbed to 1.655% (high since 4/2016), and the pound shot to $1.4008, pushing the DX down to 90.18.  Gold, which was testing support at its $1306-07 double bottom, was pulled from the fire and rebounded to $1313.

At 8:30 AM, a lower than expected reading on US Jobless Claims helped take the US 10-year yield to 2.884%, just shy of the 4-year high of 2.885% made on Monday.

S&P futures rose to 2686, helped by some dovish commentary from the Fed’s Harker (“lightly pencilled” in two rate hikes for 2018 and could see a third one depending whether inflation rises further and financial conditions remain loose) and Kashkari (Fed is "a long way away" from having to raise interest rates due to higher inflation caused by higher labor costs).

The dollar, however, failed to rebound as it was under continued pressure by the pound ($1.4064), and slipped to 90.01.  Gold climbed higher in response to reach $1317.

By late morning, US stocks began yet another steep selloff (S&P -64  to 2613), with a continued drop in oil (WTI to $60.59 – 5 week low) contributing to the move.

A flight to quality ensued, with the US 10-year yield pulling back to 2.181%. Gold rose, and took out the overnight high to reach $1322.20.  This was despite a recovery in the dollar (DX to 90.43), as the pound gave up most of its earlier gains ($1.3880).

In the afternoon, some calming remarks by the Fed’s Dudley (market drop just “small potatoes”, in favor of rate hike in March as long as the US economy continues to grow above trend) allowed for a small bounce in the S&P to 2649.

The 10-year yield bounced to 2.866%, the dollar hovered around 90.30-90.40, and gold slipped to $1316.  However, this proved short-lived as another wave of equity selling ensued through the close, with news that the Senate was still scrambling for votes to avoid a government shutdown tonight adding angst to an already skittish market.

The S&P took out its 2/5 low of 2593 (10% correction) to reach 2578 before it finished off 78 to 2590.  The 10-year yield pulled back to 2.825%, while the dollar was fairly steady around 90.30.  Gold traded up to $1319.50, and was $1318 bid at 4PM, off $1. 

Open interest was off 10.1k contracts, showing another sizeable chunk of long liquidation from yesterday’s decline..  Volume was lower but still healthy with 362k contracts trading. 

Some bulls were and have been disappointed that gold hasn’t rallied strongly in the face of the steep equity declines.  However, more seasoned bulls point out that the yellow metal has been facing stiff headwinds of a fresh 4-year high in the 10-year bond yield and a strong bounce in the DX.

Since 1/25, the 10-year yield has run up from 2.65% - 2.885%, while the DX has rallied from 88.43 – 90.57 (+2.43%).  During the same period, gold has come off from $1350 to $1318 (-2.30%).  The more seasoned bulls also argue that gold has and is performing well as a store of value, and often times gets sold in distress to meet margin calls or to be used as liquidity for bargain hunting of beaten down stocks.

The bulls will look for the now double top in the DX at 90.57-60 to hold, and that the now triple bottom in gold at $1306-7 will be a floor.  They’ll look for prices to consolidate around closing levels, and will look for a test of initial resistance at the old support of $1323-24 followed by $1327-29. 

Bears expect the firming trend in the DX and the 10-year yield to continue to pressure further long liquidation in gold.  They’ll be gunning for further sell stops under the triple bottom at $1306-7, $1300-01 (50% retracement of up move from 12/12/17 $1236 low to 1/25/18 $1366 high), and then the 100-day moving average at $1293. 

All markets will continue to focus on the volatile equity and bond markets, geopolitical events, developments with the Trump Administration, corporate earnings, oil prices, and will turn to reports tomorrow on Chinese PPI, Japan’s Tertiary Industry Index, US Wholesale Inventories, Wholesale Sales, Baker Hughes Rig Count, and Commitment of Traders Report for near-term direction. 

In the news:

Resistance levels: 

$1320 – 2/6 low

$1323-24 – double bottom, 1/12 and 1/18 lows

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

$1335 – 1/30 low

$1337 – 20 day moving average

$1338 – 11/9 election night high

$1339 – down trendline from 1/25 $1366 high

$1341 – 2/5 high

$1345 – 1/31 high

$1347 – down trendline from 8/2013 weekly chart

$1348-49 – double top, 1/30 and 1/31 highs

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

$1350 – options

$1356-58 – 5 tops 1/26/18, 9/8/17, 8/10/16, 8/14/16, 8/18/16 highs

$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:

$1316 – 40 day moving average

$1316 – down channel line

$1316 – 1/11 low

$1308-09 – double bottom 1/9 and 1/10 lows

$1306-7 – triple bottom, lows 1/3, 1/4, 2/8

$1304 – 50 day moving average

$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

$1294 – 12/29 low

$1293 – 100-day moving average

$1287 – 12/28 low

$1281 – 12/27 low

$1281 – 50% retracement of up move from 7/10/17 $1205 low to 9/8/17 $1357 high

$1281– 200-day moving average



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