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Gold Traders' Report - February 9, 2018

 
FEB 9, 2018

Gold traded down last night in a range of $1322 - $1313.60.  It remained nervous and choppy along with other markets, and largely fading the direction of the US dollar.   Gold ticked up to its high early during Asian hours, when the NIKKEI tumbled on its open, and the DX slipped to 90.19.

Global equities were all lower and playing catch up to the hammering the US markets took late yesterday afternoon:

  • NIKKEI off 2.3%
  • SCI off 4%
  • Eurozone markets off 0.6% - 1.3%

However, the dollar improved during the rest of the night (DX to 90.51), helped by a weaker yen (108.85 to 109.30, Japanese Tertiary Industry Activity Index lower than expected) and a tumble in sterling ($1.3987 - $1.3790, on some negative comments from the EU’s Barnier on Brexit negotiations).

A move up in the US 10-year yield (2.819% - 2.864%) and S&P turning up (2578 – 2616) after the US Congress agreed to a continuing resolution that reopened the government after a brief shutdown also weighed against gold as it was pressured to its low of $1313.60. 

US stocks opened firmer, and were helped by better than expected readings on US Wholesale Inventories (0.4% vs. 0.2%), and Wholesale Trade Sales (1.2% vs. exp. 0.4%) at 10AM (S&P +40 to 2620, J&J and Microsoft lead gainers).  The US 10-year yield remained firm around 2.86%, and the DX hovered around 90.40.  Gold was pressed lower, and it took out its overnight low to reach $1311.15. 

By the late morning, however - as we’ve seen many times over the past week - US equity markets nosedived.  The S&P sold off hard and fast, falling 88 points from 2620 to 2568 (fresh 3-month low), taking out support at the 10% correction level at 2585.  Weakness in oil contributed to the slump in stocks, with WTI to $58.07, Baker Hughes Rig Count +26).

A flight to safety ensued, with the 10-year yield dipping to 2.786%.  Gold rallied, but was capped at $1319 as the DX also rose.  The DX climbed to 90.56 with help from continued weakness in sterling ($1.3769) and a softer euro ($1.2205). 

Late in the afternoon, though, equities rallied back as sharply as they had just fallen.  The S&P shot to 2637 (tech leads gainers) and finished +38 to 2620.  The 10-year yield climbed back as well, reaching 2.858%, but the dollar remained fairly steady between 90.35 – 90.50.

Gold retreated to $1312, where it found support ahead of its earlier low.  It was choppy between $1312 - $1316.50 for the remainder of the session, and was $1315 bid at 4PM with a loss of $6. 

Open interest was off 7.5k contracts, showing a net of long liquidation from yesterday’s decline.  Volume was a little higher with 385k contracts trading.  The CFTC’s Commitment of Traders Report as of 2/6 showed the large funds cutting a whopping 24.5k contracts of longs and trimming 8.1k contracts of shorts to reduce their net long position back under 200k to 191k contracts.  This was on the move down from $1350 - $1320 last week.

In the past three sessions, around another 10k net longs were reduced, taking this net fund long position to approximately 180k.  This is the second straight week this position has declined after a 7 week stretch that saw the nflp rise from 107k on 12/12 (when gold was down at $1236), to 214k contracts 2 weeks ago ($1366 high).

With this pullback, the gold market is much better set up to move higher, as much of the spec froth that had been built up in the rally to $1366 has been removed.  

Gold bulls were pleased with the limited ($5) loss, given the strong ending rally in stocks, the 10-year yield over 2.85%, and the DX solidly over 90.  They’ll look for the now triple top in the DX at 90.57-60 to hold, and expect the triple bottom in gold at $1306-7 will be a solid floor.  They’ll look for gold to breach resistance at the $1322 double top and then to challenge $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, and oil prices for near-term direction.  There are no economic reports of significance on Monday.

In the news:

Resistance levels: 

$1317 – 40 day moving average

$1320 – 2/6 low

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

$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

$1336 – 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:

$1314 – down channel line

$1316 – 1/11 low

$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

$1305 – 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

$1294 – 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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