Gold Traders' Report - June 14, 2018

Jim Pogoda, Trader, Gold Bullion International 
JUN 14, 2018

The FOMC statement and Powell were hawkish yesterday afternoon, with an upbeat assessment of the US economy (economic activity rising at a solid rate, unemployment declined, household spending picked up).

They upgraded their forecast for GDP (2.8% from 2.7%) took down their projection for unemployment (3.6% from 3.8%), and lifted their expectation for PCE inflation to 2.1% from 1.9%). They also increased their projection to 4 rates hikes this year from 3 previously. FedWatch took the probabilities of the next Fed rates hikes up as follows:

                         Sep              Dec

Pre FOMC      76.7%           45.3%

Post FOMC     84.3%          55.1%

US stocks turned down, with the S&P finishing off 11 to 2776. The 10-year yield spiked to 3.01% ,and the DX shot to 94.05. Gold dipped, but held up surprisingly well, seeing support ahead of $1292 (up trendline from 12/15/16 $1123 low).

Overnight, gold rose in a range of $1297.60 - $1305.70, breaching resistance at $1300 -03 (7 tops 6/1, 6/5,6/6, 6/7, 6/8, 6/11, and 6/12 highs, down trendline from 5/15 $1315 top ) before it was capped by next resistance at $1306 -08 (quadruple top, 5/24, 5/25, 5/29, and 5/31 highs, 200-day moving average).

It was fueled by a retreat in the dollar (DX from 93.61 – 93.28), which was pressured by some strength in the euro ahead of the ECB / Draghi ($1.1831), and sterling ($1.3446, stronger UK Retail Sales).

Also, mostly weaker global equities were a tailwind for gold, with the NIKKEI -1%, the SCI down 0.2% (miss on Chinese Industrial Production, Retail Sales, and Fixed Asset Investment), Eurozone shares were off 0.2% - 0.5%, and S&P futures were flat.

At 7:45 AM, the euro initially spiked ($1.1851) on the ECB statement (plans to taper and end QE by end of year),and knocked the DX down to 93.17.

Gold shot higher, and briefly took out resistance at $1306-08 to reach $1309.40 – a 3-week high. However, the euro quickly plunged ($1.1666) on Draghi’s pledge to keep rates low through next summer, and the long list of conditions to exit the extreme stimulus, which ignited a rally in the DX to 94.53 – a 2-week high.

The dollar was also aided by better than expected readings on US Jobless Claims (218k vs. exp.. 223k), and Retail Sales (0.8% vs. exp. 0.4%) at 8:30 AM that lifted S&P futures to 2791(+12) ,and brought the US 10-year bond yield back up to 2.95% (after an overnight retreat to 2.93%).

Gold was driven lower, and briefly penetrated support at the prior resistance at $1303 to touch $1301.75. However, as we saw earlier, dip buying emerged to lift the market back over $1303.

By late morning US stocks turned down to unchanged (S&P 2776), hurt by news that the US was set to implement new tariffs on China, and a dip in oil (WTI from $67.14 - $66.33, fear of supply glut). The 10-year yield ticked down to 2.941%, and the DX pulled back to 94.33. This allowed gold rebound and claw back to $1307.

Into the afternoon, US equities recovered (S&P finished + 8 to 2784, consumer discretionary, IT, and real estate sectors lead gainers, record close for NASDAQ) while the 10-year yield hovered around 2.94%. The dollar climbed higher (DX to 94.72), boosted by further weakness in the euro ($1.1601, 2-week low). Gold was pulled lower, and retraced to the prior low at $1301.75. It was $1303 bid at 4PM with a gain of $4.

Open interest was up 5.5k contracts, showing a combination of early new shorts followed by some subsequent new longs from yesterday’s advance. Volume was higher with 276k contracts trading.

Bulls cheered today’s advance, especially given the hawkish fed yesterday, the very strong advance in the dollar, the gain in US stocks, and a 10-year yield hovering around 2.95%.

Bulls will look for a breach of resistance at $1306-009 ( 5 tops - 5/24, 5/25, 5/29, 5/31, and 6/14 highs) and the 200-day moving average at $1307 to ignite more significant short covering along with some momentum buying from sidelined players to bring about a test of $1315 (5/15 high), and then $1322 (100-day moving average).

Bears remain comfortable selling into strength, and expect the stronger dollar to exert downward pressure on the yellow metal. The bears will look for a quick correction back under the $1300-03 former resistance level, and then a test of support at $1292-94 (5 bottoms - 6/6, 6/7, 6/8, 6/11, 6/12, and 6/13 lows, up trendline from 12/15/16 $1123 low).

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 the BoJ Rate Decision, Eurozone Trade Balance and CPI, US Empire State Manufacturing Index, Industrial Production, Capacity Utilization, University of Michigan Sentiment, Baker-Hughes Rig Count, and the Commitment of Traders Report for near-term direction.

In the news:

Resistance levels: 

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

$1307– 200-day moving average

$1306 – 40 day moving average

$1313 – 50 day moving average

$1315 – 5/15 high

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

$1322-23 – 5/10 and 5/14 highs

$1322 – 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:

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

$1301 – down trendline from 5/15 $1315 top

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

$1300 – psychological level, options

$1300 – 6/12 high

$1299 – 6/13 high

$1298 – 20-day moving average

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

$1293 - 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