Gold Traders' Report - July 30, 2018

Jim Pogoda, Trader, Gold Bullion International 
JUL 30, 2018

Gold was a little choppy overnight, trading either side of unchanged in a narrow range of $1219 - $1224, and fading some modest movement in the US dollar.

Gold rose to its high of $1224 during early Asian time, when the DX slipped to 94.62, pressured by some strength in the yen (110.87, stronger Japanese Retail Sales, JGB yield up to 0.113%, fresh 17-month high).

Later during Asian hours and into early European time, gold retreated to its $1219 low as the DX recovered to 94.76. Ahead of the NY open, however, the yellow metal rebounded to $1223.50 as the dollar sank to 94.46.

The greenback was pushed down by a stronger euro ($1.1648 - $1.1692), which was helped by better than expected readings on Eurozone Economic Confidence and Services Confidence.

A tweet from Trump on Sunday threatening a government shutdown if Congress does not fund his border wall was gold supportive, and helped soften global equities. The NIKKEI was off 0.7%, the SCI fell 0.2%, Eurozone shares were down from 0.2% to 0.3%, and S&P futures were -0.1%. A rise in oil prices (WTI to $70.13, looming sanctions on Iran) helped support equities.

US stocks opened weaker, and softened into mid-day (S&P -20 to 2798), with the tech sector leading decliners – despite oil continuing to firm (WTI to $70.40) and better than expected readings on US Pending Homes Sales (0.9% vs. exp. 0.2%) and the Dallas Fed’s Manufacturing Index (32.3 vs. exp. 31). After an overnight rise to 2.99%, the US 10-year yield pulled back to 2.967%, while the DX retreated to 94.26. Gold advanced, but ran into resistance just beyond the overnight high at the options strike of $1225.

In the afternoon, US equities pared some losses (S&P finished -16 to 2803) as the 10-year yield ticked up to 2.98%. The DX recovered to 94.37, and gold drifted down to $1221. Gold was $1221.50 bid at 4PM with a loss of $1.50.

Open interest was down 22.3k contracts, reflecting some early long liquidation down to $1217 followed by some mid-day short covering up to $1227 – along with a good chunk of close outs (instead of rolling) of profit taking by shorts, and some liquidation from longs from Friday. Volume was higher with 431k contracts trading – again inflated with the August – December rollover.

A good number of bulls remain optimistic and believe that gold has put in a bottom at $1212, given the sharp reversal on 7/19 and the market’s subsequent price action. They maintain that gold has been extremely oversold, having dropped $153 (11.2%) since 4/11, and $83 (7.41%) since 6/14, with its 14-day RSI spending only 6 sessions north of 35 since 6/14.

Bulls remain steadfast in their belief that the dollar’s rally is overextended, and expect a meaningful correction in the greenback from its 95.66 1-year high last Thursday (up 8.40% since its 88.25 low on 2/14) to help trigger a significant short covering rally in gold. Bulls see gold on the verge of breaking out over key of resistance at $1228 (down trendline from its 6/14 $1309 high) and $1235-38 (old support level, and triple top).

They expect some significant buy stops to be tripped over that level and over the next resistance at $1244-49, and expect a rally to extend to at least $1260 – the 50% retracement its move down from $1309 (4/11 high) to last week’s $1212 low.

In addition, bulls maintain that Friday’s Commitment of Traders Report with a historically and relatively very low Net Fund Long Position (48k contracts, low since Jan 2016) and a heavy build in new gross shorts (+11k to 172k contracts –short side of gold becoming a very crowded trade) leaves this market set up in a highly favorable position to move higher from potential heavy short covering and sidelined longs returning to the market.

Some bears have taken profits on gold’s dip toward and under the key $1215 support, and have been doing some scale –up selling up to $1235 / or are awaiting further strength to re-establish fresh short positions. However, other bears are still looking for gold to decline significantly more, as witnessed by Friday’s COT Report showing a continued strong build in fund gross shorts (+11k contracts to 172k contracts).

They feel fuel from a firmer dollar (DX touched 95.66 on 7/19, fresh 1 year high) will continue to provide downside pressure on gold, and that the dollar’s ability to strengthen against other currency majors has legs. They will be gunning for stops below the 7/19 $1212 low and $1205-08 (triple bottom, 7/7/17, 7/10/17 and 7/11/17 lows) that they feel should lead to a test of $1200.

All markets will continue to focus on geopolitical events, developments with the Trump Administration (especially on US-China trade), Q2 corporate earnings, oil prices, and will turn to reports tomorrow on the Bank of Japan’s Rate Decision and Monetary Policy Statement, German Retail Sales, Unemployment Change, Eurozone Unemployment Rate, CPI, US Personal Income, Personal Spending, PCE deflator, Case-Shiller Home Price Index, Chicago Purchasing Managers Index, and Consumer Confidence for near-term direction. Looming Wednesday is the release of the FOMC meeting statement.

In the news:

Resistance levels: 

$1225 – 7/30 high

$1225  - options

$1227 – 7/27 high

*$1228 – down trendline from 6/14 $1309 high

$1234-35 – triple top, 7/23, 7/25, and 7/26 highs

$1235 -38 – 6 bottoms –7/16/18, 7/13/18, 12/12/17, 7/18/17, 7/19/17, 7/20/17 lows

$1239 – 20-day moving average

$1244 – up trend line from 12/17/15 $1048 low

$1245-46 – double top – 7/16 and 7/17 highs

$1250  - options

$1251-53 – triple bottom 7/4, 7/5, and 7/6 lows

$1259-61 – quadruple top – 6/27, 7/4, 7/5, and 7/6 highs

$1260 – 40 day moving average

$1266 – 7/9 high

$1267 – 50 day moving average

$1268 – 6/26 high

$1270-73 – triple top, 6/21, 6/22, and 6/25 highs

$1275 – options

$1278 – up trendline from 1/9/17 $1171 low

$1275 – 6/15 low

$1275 – 50% retracement of down move from 6/14 $1309 high to 7/2 $1240 low

$1276 – 6/20 high

$1281-82 – double bottom, 5/21  and 12/27 lows

$1282 – 6/18 high

$1284 – 6/19 high

$1288 – double bottom, 5/22 and 5/23 lows

$1292-95 –5 bottoms – 6/6, 6/7, 6/8, 6/11, 6/12, and 6/13

$1295 - up trendline from 12/15/16 $1123 low

$1295 – down trendline from 5/15 $1315 top

$1296 – 100-day moving average

$1299 – 6/13 high

$1299– 200-day moving average

$1300 – psychological level, options

$1300 – 6/12 high

$1300 -03–7 tops 6/1, 6/5,6/6, 6/7, 6/8, 6/11, and 6/12 highs

$1301 – 50% retracement of up move from 12/12/17 $1236 low to 1/25/18 $1366 high

$1301 – down trendline from 4/11 $1365 high

$1305 – down trendline from 4/23 $1336 high

$1306 -08 – quadruple top, 5/24, 5/25, 5/29, and 5/31 highs

$1315 – 5/15 high

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

Support levels:

$1222-23 – triple bottom, 7/23, 7/25, and 7/26 lows

$1216-19 – quadruple bottom – 7/20, 7/24, 7/27, and 7/30 lows

$1212 – 7/19 low

$1205-08 – triple bottom, 7/7/17, 7/10/17 and 7/11/17 lows

$1200 – psychological level, options