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Gold Traders' Report - July 9, 2018

Jim Pogoda, Trader, Gold Bullion International 
JUL 9, 2018

Gold rose sharply overnight in a range of $1255.50 - $1266, with some buy stops triggered over the $1259-61 – quadruple top (6/27, 7/4, 7/5, and 7/6 highs) to reach a two-week high.

The yellow metal was fueled by a weaker dollar, with the DX dropping from 94.02 to 93.71 to reach a one-month low.

The greenback was pressured by a rebound from recent weakness in the yuan (6.6112, Chinese foreign exchange reserves rose), strength in the euro ($1.1740 - $1.1790, stronger German Trade Balance and Eurozone Sentix Investor Confidence), and a firmer pound ($1.3285 - $1.3362, Brexit Minister Davis resigns, increasing likelihood of soft Brexit).

Healthy advances in global equities – despite the implementation of tariffs by the US and China on Friday - were a headwind for gold with the NIKKEI +1.2%, the SCI +2.5%, European shares were up from 0.2% to 0.6%, and S&P futures were +0.4%. Weaker oil prices (WTI down to $73.45) weighed on stocks.

At 9AM, dovish comments by the ECB’S Draghi softened the euro ($1.1765 - reiterated pledge to leave rates unchanged through the summer of 2019), helped lift the DX to 93.90, and pushed gold back to $1263.

At 10AM, the resignation of UK Foreign Secretary Johnson (again over May’s soft Brexit plan) crushed the pound ($1.3240), and further weakened the euro ($1.1755). The dollar gained, with the DX climbing back over 94 to reach 94.08.

Gold was knocked lower to $1260.50, also pressured by a rise in the US 10-year bond yield (2.862%) and a stronger opening and early gains in US stocks. The S&P was up +18 to 2778 by late morning, with industrials and financials leading gainers, and a rebound in oil (WTI to $74) aided the move.

Into the afternoon, US stocks added to their gains (S&P +23 to 2783), while the 10-year yield hovered around 2.85%. The dollar continued to rise (DX to 94.21), fueled by the pound ($1.3193) and the euro sinking further ($1.1732). Gold retreated in response and failed to hold above the prior resistance at $1259-61 on its way to $1257.75.

Later in the afternoon, US stocks climbed a bit further (S&P +24 to 2784). The 10-year yield remained firm around 2.86%, but the DX pulled back to the 94.05-94.10 level. Gold, caught in the cross-currents, traded narrowly between $1257.75 - $1259.50. It was $1258 bid at 4PM with a gain of $3.

Open interest was up 7.9k contracts, showing a combination of new longs from the dollar’s initial tumble from Friday’s Payroll report combined with some subsequent new shorts selling into strength. Volume was much lower with 218k contracts trading.

The CFTC’s Commitment of Traders Report as of 7/3 showed the large funds adding 15k longs and 13k shorts to increase their long position by 2k to 78k. This was done on gold’s move to its $1238 low on 7/3, and reflects a fair amount of new shorts and new bargain hunting longs entering the market on the down move.

With the Net Fund Long Position still hovering near 1-year lows, there are still many sidelined bulls that can enter this market. Also, with gross shorts now exceeding 130k contracts, gold is certainly vulnerable to a short covering rally – provided a spark emerges.

All markets will continue to focus on geopolitical events, developments with the Trump Administration (especially on US-China trade), oil prices, and will turn to reports tomorrow on China’s CPI and PPI, New Yuan Loans, UK Trade Balance, Industrial Production, GDP, German ZEW Survey, Eurozone ZEW, US NFIB Small Business Optimism, and JOLTS Job Openings for near-term direction.

In the news:

Resistance levels: 

$1259-61 – quadruple top – 6/27, 7/4, 7/5, and 7/6 highs7/6  high

$1266 – 7/9 high

$1268 – 6/26 high

$1267 – 20-day moving average

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

$1274 – up trendline from 1/9/17 $1171 low

$1275 – options

$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

$1282 – 40 day moving average

$1284 – 6/19 high

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

$1288 – 50 day moving average

$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

$1299 – 6/13 high

$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

$1303– 200-day moving average

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

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

$1309– 100-day moving average

$1315 – 5/15 high

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

Support levels:

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

$1250  - options

$1241 – up trend line from 12/17/15 $1048 low

$1238-40 – double bottom – 7/2 and 12/13/17 lows

$1235 -36 – quadruple bottom - 12/12/17, 7/18/17, 7/19/17, 7/20/17 lows

$1229 – 7/17/17 low

$1214-16 – triple bottom, 7/12/17, 7/13/17, 7/14/17 lows