Gold Traders' Report - January 14, 2018

Jim Pogoda, Trader, Gold Bullion International 
JAN 14, 2019

Unexpectedly weak Chinese trade data roiled financial markets last night, with exports falling 4.4% (exp. +2.0%) and imports declining 7.6% (exp. +4.5%) - indicating further weakness in the world’s 2nd largest economy. Global equities sold off sharply with the SCI off 0.7%, European markets were off from 0.7% to 1.1%, and S&P futures were off 0.9% (Japan was closed).

Oil fell from $51.91 to $50.43, with concerns about a deeper slowdown in China weighing on demand prospects. The usual haven assets were bid up, with the US 10-year yield falling from 2.709% to 2.661%, and the yen advancing (108.58 – 107.98). The DX (95.70 – 95.53) was also pressured from strength in the pound ($1.2818 - $1.2878), as PM May secured assurances from the EU on the Irish backstop ahead of tomorrow’s Parliamentary vote.

Gold strengthened from $1288 - $1295 but was again capped by resistance at the 5 top high at $1295-98 (1/3, 1/4, 1/7, 1/10, and 1/11 highs).

However, selling on the NY open (stale bull selling/profit taking) knocked the yellow metal back to $1288.50, despite just a modest uptick in the DX (95.58 – 95.68), and the US 10-year yield edging up to 2.69%.

Support emerged in front of the overnight low $1288 and the double bottom $1286-87 from the previous two sessions’ lows, and some bargain hunting bids quickly took the market back up to $1291.

US stocks opened weaker (S&P –25 to 2571), with losses in the IT, Utilities, and Health Care sectors leading decliners. The 10-year yield ticked up to 2.699%, while the DX dipped to 95.57.

Gold continued its rebound and traded up to $1293. Later in the morning, comments from PM May and reports that some MP’s would turn to voting for May’s Brexit deal tomorrow launched sterling to $1.2920 – a 2-month high. The DX fell to 95.47, but gold – which had pulled back to $1289 – only managed to edge up to $1291.

Into mid-day, US stocks pared losses (S&P -7 to 2589), with gains in Citicorp (stronger earnings) and the Financial sector leading the rebound. The 10-year yield kept climbing (2.71%), and the DX recovered to 95.59 (helped by a retreat in sterling back to $1.2870). Gold remained steady, however, trading between $1290.50 - $1292.

In the afternoon, US stocks turned back down (S&P – 15 to 2581), with losses accelerating in the Utilities sector, and hurt by a drop in oil. WTI, which made a recovery to $51.78 during morning hours, tumbled to a fresh low of $50.39. The 10-year yield hovered around 2.705%, and the DX ticked up to 95.61. Gold was caught in the cross-currents and was steady around $1291-92.

Later in the afternoon, US equities finished with modest losses (S&P -14 to 2582), and the 10-year yield remained steady at 2.705%. The DX held around 95.60, and gold was $1291.50 bid at 4PM with a gain of $4.

Open interest was up 1.9k contracts, showing a small net of new longs early followed by some later new shorts from Friday’s trade. Volume was lower with 256k contracts trading.

Bulls were again disappointed that gold couldn’t crack the stiff resistance at $1295-98 last night – especially with the bleak news on China’s trade data causing equities to tumble.

However, other bulls were pleased with gold’s ability to hold support in the high $1280’s, that it put in yet another higher low (5 consecutive sessions) and it finished with a decent ($4) gain.

Bulls feel that the trend is their friend and expect the yellow metal’s strong rally over the past two months to carry further. They’re expecting continued volatility in equity markets along with a pause in Fed rate hikes and a further decline in the US dollar to continue driving gold higher.

While we haven’t seen the COT report in 3 weeks, bulls maintain that despite gold’s sharp rally, a significant amount of large fund shorts are still present, and will provide further upside momentum when forced to cover.

Bulls expect to breach tough initial resistance at $1295-98 (6 tops – 1/3, 1/4, 1/7, 1/10, 1/11, 1/14 highs), where they expect to trip some significant short covering that they feel should open up a test of next resistance levels at $1303 (6/15/18 high), $1309(6/14/18 high), and $1315 (5/15 high).

Bears feel that gold’s rally has been overdone (up 8.5% since 11/13 $1196 low), and its overbought indicator (14-day RSI) - though off its 77 high from last week remains elevated at 66. They feel the 20% correction in equities – much of which occurred during very illiquid holiday trading – was also overdone, and expect the rebound seen over the past two weeks to continue.

Bears feel that the plunge in the US dollar seen since 12/14 (97.71 – 95.03, 2.74%) has also overshot, and look for a significant rebound in the greenback to ensue.

Bears will look for a breach of support at $1284 (uptrend line from 12/14 $1233 low) followed by the double bottom at $1279-80 (1/8 and 1/9 lows) to begin a more significant correction. They expect a move to at least $1247 – the 50% retracement of its up move from the 11/13 $1196 low.

In the news:

Resistance levels: 

$1295-98 – 6 tops – 1/3, 1/4, 1/7, 1/10, 1/11, and 1/14  highs

$1300 – psychological level, options

$1303 – 6/15/18 high

$1309 – 6/14/18 high

$1315 – 5/15 high

$1318 -19 – quadruple top 5/3/18, 5/7/18, 5/8/18 and 5/9/18 highs

$1322 – 5/14/18 high

$1325 - options

$1325 - 26 – quadruple top -  4/26/18, 4/27/18,4/30/18, and 5/11/18 highs

Support levels:

$1286-88 – triple bottom – 1/10, 1/11, and 1/14 lows

$1284 – up trend line from 12/14 $1233 low

$1279-80 – double bottom – 1/8 and 1/9 lows

$1277 – 1/4 low

$1275 – 20-day moving average

$1275 – options

$1274 – 12/28 low

$1267 – 12/27 low

$1259 – 12/24 low

$1257 – up trendline from 11/13 $1196 low

$1255 – 40-day moving average

$1254 – 12/21 low

$1250 – options

$1249 – 200-day moving average

*$1247 – 50% retracement of up move from 11/13 $1196 low

$1247 – 50-day moving average

$1242-43  - double bottom – 12/19 and 12/20 lows

$1233-36 – quadruple bottom12/5, 12/6, 12/14 and 12/17 lows

$1231 – 12/4 low

$1229 – 50% retracement from 8/16 $1160 low to 1/4/19 $1298 high

$1228 – 100-day moving average

$1225 – options

$1225 – 50 day moving average