Gold Traders' Report - June 12, 2018

Jim Pogoda, Trader, Gold Bullion International 
JUN 12, 2018

Gold traded a little lower overnight, but remained in a narrow range of $1296.45 - $1299.80, with market participants wary of putting on significant positions ahead of tomorrow’s FOMC meeting.

It dipped to its low during early Asian hours as the Trump – Kim summit further diffused geopolitical risk on the Korean Peninsula, and as the dollar index reached a 1-week high at 93.90.

The yellow metal recovered to $1298.75 during European time, as the DX softened (DX to 93.46) against some strength in the pound ($1.3343 - $1.3418) and euro ($1.1757 - $1.1807).

Global equities were mixed, with Asian markets higher off of the euphoria of the summit (NIKKEI +0.3%, SCI +0.9%), but European markets (flat to -0.3%), and S&P futures (+0.1%) had more tempered reactions.

Just ahead of the NY open, a much better than expected reading on the US NFIB Small Business Optimism Index (107.8 vs. exp. 105) helped a move up in the US 10-year yield (2.977%), and a recovery in the DX to 93.68.

This knocked gold through support at the overnight low and $1294-95 (quadruple bottom – 6/6, 6/7, 6/8, and 6/11 lows) to reach $1293, where it found support ahead of the up trendline support at $1292.

As we have seen many times before, though, bargain hunting bids emerged to take gold quickly back to the $1295 area.

The US CPI Report at 8:30 AM was in line with expectations (0.2% for both the overall reading and the core) and market reaction was muted.

US stocks opened down to flat, and the US 10-year yield retreated from 2.976% to 2.961%. The dollar pulled back to 93.52, and gold shot up amid a lack of offers to $1299.50.

Later in the morning and into the afternoon, US stocks turned higher (S&P +8 to 2790), led by gains in AT&T (ahead of Court ruling on its $85B deal for Time Warner).

The 10-year yield kept declining, however, and touched 2.957%. The DX reacted more to the rising equities, and ran to 93.92. Gold gave up its morning gains, and retreated to support at $1294.

Later in the afternoon, US equities traded either side of unchanged, and finished slightly higher (S&P +5 to 2787) and the 10-year yield hovered between 2.955% - 2.965%.

The DX remained firm around 93.80, and gold traded narrowly between $1294.75 - $1296.25. It was $1296 bid at PM with a loss of $3.

Open interest was off just 77 contracts, showing a slight net of short covering from yesterday’s advance. Volume was lower with 218k contracts trading.

Bulls are looking for a dovish spin from the FOMC tomorrow. They remain encouraged by the bullish set up from Friday’s COT Report (still very light NFLP).

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, and expect a major pullback in the DX to fuel a gold rally.

The bulls look for a breach of initial resistance at $1300-03 ($1301 -03–7 tops 6/1, 6/5,6/6, 6/7, 6/8, and 6/11 highs, 50% retracement of up move from 12/12/17 $1236 low to 1/25/18 $1366 high, down trendline from 5/15 $1315 top ) followed by the quadruple top at $1306-08 ( 5/24, 5/25, and 5/29 and 5/31 highs) and the 200-day moving average at $1308 to ignite more significant short covering along with some momentum buying to bring about a test of $1315 (5/15 high).

Bears are expecting a hawkish Fed tomorrow, and remain comfortable selling into rallies, though more have bailed recently as witnessed by the 4k decline in gross shorts fromFriday’s COT Report.  Bears are still expecting another leg down in gold’s 2-month old downtrend, and look for a resumption in the dollar’s rally to pressure gold lower.

They first need to get through initial support at $1294-95 (quadruple bottom – 6/6, 6/7, 6/8, and 6/11 lows) that was briefly broken today. Below this, they will gun for long liquidating sell stops below $1288-91 (5 bottom low - 5/22, 5/23, 6/1, 6/4, and 6/5 and up trendline from 12/15/16 $1123 low) to bring about a test of the 5/21 low at $1282 and then $1273-75 (options, 12/25 and 12/26 lows).

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 UK CPI and Retail Sales, Eurozone Industrial Production, US MBA Mortgage Applications, PPI, Oil Inventories, and the much awaited FOMC meeting statement and subsequent Powell Press Conference for near-term direction. Going into the meeting, FedWatch pegged the probabilities for future Fed rate hikes as follows:

June                      Sep                        Dec

96.3%                    76.7%                    45.3%

In the news: 

Gold to move toward $1400 by late 2019 – TD Bank

What to watch at this week’s FOMC meeting

Resistance levels: 

$1297 – 20-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

$1302 – down trendline from 5/15 $1315 top

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

$1308– 200-day moving average

$1308 – 40 day moving average

$1315 – 5/15 high

$1315 – 50 day moving average

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

$1322-23 – 5/10 and 5/14 highs

$1323 – 100-day moving average

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

$1325 – options

$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

$1364 – 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:

$1293-95 –quadruple bottom – 6/6, 6/7, 6/8, 6/11 ,and 6/12 lows

$1292  - 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