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Gold Traders' Report - June 1, 2018

Jim Pogoda, Trader, Gold Bullion International 
JUN 1, 2018

Overnight, gold was very steady along with other markets, trading narrowly between $1297..75 - $1300.65 while awaiting today’s US Payroll Report.

The DX was somewhat stable between 93.88 – 94.20, as the euro stabilized off news that Italy reached a deal on a new government, and ending a crisis that rattled global markets for days.

Global equities were mixed, with losses in Asia (NIKKEI off 0.1%, SCI down 0.7%), but firming in the Eurozone (+0.7% - 1.2%), while S&P futures were +0.4%. Weaker oil prices (WTI from $67 - $66.34, rising US production) weighed on stocks.

At around an hour before the Payroll Report was to be released and in an unprecedented move, Trump - who sees the data ahead of time - put out a tweet saying: “Looking forward to seeing the employment numbers at 8:30 this morning”.

This sent S&P futures up to 2719, and the US 10-year yield up to 2.902%. The dollar popped to 94.22, and gold plunged.

The yellow metal took out stops below the overnight low and yesterday’s low just under $1298, and $1296 (5/30 low) to reach $1294 – where support at the $1293 – 94 double bottom (5/24 and 5/29 lows) held.

At 8:30 AM, the Payroll Report was indeed better than expected. Non-Farm Payrolls rose by 223k (exp. 190k), with a +15k revision to the prior two months reports.

The Unemployment Rate ticked down to 3.8% (exp. 3.9%), and Average Hourly Earnings were up 0.3% (exp. 0.2%). S&P futures climbed higher, (+20 to 2726), while the 10-year yield rose further to 2.926%.

The DX soared to 94.35, and pressed gold lower. The metal fell further, tripping stops under the $1293-94 support level to reach $1289.25, where it found support at $1288-89 (double bottom, 5/22 and 5/23 lows, up trendline from 12/15/16 $1123 low). However, some bargain hunting bids quickly emerged, and took gold back up to the $1293-94 support level.

At 10AM, reports on US Construction Spending (1.8% vs. exp. 0.8%) and ISM Manufacturing (58.7 vs. exp. 58.2) were also stronger than expected.

US stocks charged higher (S&P +29 to 2734) as financials and tech lead gainers, with a rebound in oil (WTI to $66.75) aiding the move. The 10-year yield pulled back to 2.90%, but the DX shot to 94.46. Gold, however, remained well bid, and support at $1293-94 held.

During the late morning, US stocks remained firm near their highs, but the 10-year yield ticked down to 2.889%. The DX retreated to 94.06 off a rebound in the euro ($1.1618 - $1.1681) and the pound ($1.3280 - $1.3360, stronger UK Manufacturing PMI), and gold popped back up to $1299.

In the afternoon, US stocks remained firm (S&P finished +29 to 2734), helped by Trump announcing that his meeting today with North Korean #2 Kim Yong Chol was positive, and that the June 12 summit with Kim Jong Un was on. The 10-year yield softened further to 2.88%, while the DX rose to 94.24. Gold retreated to touch $1292.25, and then clawed back to the previous support level $1293-94. It was $1293.50 bid at 4PM with a loss of $6.

Open interest was up 1k contracts, showing a small net of new shorts from yesterday’s decline. Volume was lower but still robust with 331k contracts trading.

The CFTC’s Commitment of Traders Report as of 5/29 showed the large funds adding 4.0k contracts of longs and trimming a hefty 20.1k contracts of shorts to increase their net long position to 115k contracts.

This was done on gold’s rebound from $1296 - $1308. The increase in the NFLP should be good for sentiment, but it is still relatively and historically small, and gross shorts at 78k contracts are still slightly elevated.

It leaves the gold market set up well to move higher - provided there is a spark - as there is plenty of room from sidelined longs to enter, and the excess shorts can fuel a rally if / when they are forced to cover.

While bulls were disappointed with today’s decline, some were encouraged with the bargain hunting buying and bids below the market, the bounce off of support at $1288-89, and that $1293-94 support level held at the close.

Bulls point to today’s COT Report (positive sentiment, still very light NFLP, somewhat elevated gross shorts) that shows the market set up well to go higher.

They also believe that the dollar’s recent run up from 89.25 – 95.03 (+6.48%, 14-day RSI touched 78.4) in the past 6 weeks has been vastly overdone.

They expect a major pullback in the DX to fuel a gold rally, and look for a breach of $1308 to trip some momentum playing new longs to bring about a quick test of $1315.

Bears are still comfortable getting short into strength, and were encouraged by today’s gain in stocks, the bounce in the 10-year yield and the DX.

They expect the dollar’s rally to extend, and look for a breach of the triple top in the DX at 95.15 to lead to a test of 96.50 which they feel should drive gold considerably lower.

Bears will be gunning for long liquidating sell stops below the double bottom at $1293-94 (that was breached intraday), followed by $1288-89 (double bottom, 5/22 and 5/23 lows, up trendline from 12/15/16 $1123 low) to bring about a test of the 5/21 low at $1282.

All markets will continue to focus on the volatility in the equity and bond markets, geopolitical events (especially Italy, Spain, and North Korea), developments with the Trump Administration (especially on US-China trade), corporate earnings, oil prices, and will turn to reports Monday on Eurozone Sentix Investor Confidence and PPI, US Factory Orders and Durable Goods for near-term guidance.

In the news: 

US Mint eagle coin sales rise sharply in May

EUR/USD caught in a fiscal-monetary tug of war

Gold’s monetary rehabilitation

Deutche Borse breaks 180 tonne marke in gold holdings

Asia gold buying tepid as prices stuck in narrow range

Resistance levels: 

$1299 – down trendline from 4/11 $1365 top

$1300 – psychological level, options

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

$1302 – 20-day moving average

$1304 – 5/30 high

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

$1308– 200-day moving average

$1316 – 40 day moving average

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

$1321 – 50 day moving average

$1322-23 – 5/10 and 5/14 highs

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

$1325 – options

$1326 – 100-day moving average

$1332-33 – double top - 4/24 and 4/25 highs

$1335 – 4/23 high

$1334-35 triple bottom – 4/12, 4/13, and 4/20 lows

$1333 – 50% retracement of down move from 4/11 $1365 high to 5/1 $1302 low

$1346 – 4/20 high

$1350 – options

$1355 - 57 – quadruple top, 3/26, 3/27, 4/18, and 4/19 highs

$1365 – down trendline from 7/6/16 $1375 high

$1365-67 – 6 tops 4/11, 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:

$1293 – 94 – double bottom – 5/24 and 5/29 lows

$1289  - up trendline from 12/15/16 $1123 low

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

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

$1275 – options

$1273 – double bottom, 12/25 and 12/26 lows

$1267 – up trendline from 1/6/17 $1171 low

$1265 – 12/22 low