Gold Traders' Report - June 21, 2018

Jim Pogoda, Trader, Gold Bullion International 
JUN 21, 2018

Gold traded lower overnight in a range of $1261.20 - $1270.20. It was pressured down to support at the triple bottom at $1261-63 (12/19, 12/20, and 12/21 lows) from continued strength in the dollar, with the DX climbing to a fresh 11-month high at 95.54.

The greenback was lifted by weakness in the yen (110.35 – 110.76, ), the euro ($1.1584 - $1.1508, 11-month low), and the pound ($1.3171 - $1.3101, 6-month low).

Mostly weaker global equities (trade war fears continue) were supportive of gold, with the NIKKEI up 0.6%, the SCI off 1.4%, Eurozone shares flat to -0.8%, and S&P futures -0.3%.

Weaker oil prices (WTI from $65.50 - $64.34, OPEC nears deal to raise output) weighed on stocks.

At 7AM, while the Bank of England kept rates on hold as expected, their Chief Economist Haldane turned hawkish - voting for a rate rise (6:3 vote against) and lifting chances for a rate hike in August.

The yield on the UK gilts popped from 1.281% to 1.348%, and took sterling off its lows to reach $1.3225. The DX was knocked down to 95.25, and gold bounced to $1264.

At 8:30 AM, a much worse than expected reading on the Philly Fed Index (19.9 vs. exp. 29) overcame a slightly better than anticipated report on Jobless Claims (218k vs. exp. 220k).

The US 10-year bond yield fell from 2.935% to 2.909%, and S&P futures turned negative to 2766. The dollar continued to plunge and retreated back below 95 to 94.86. Gold rose in response, and clawed back to $1266.75.

US stocks opened weaker, and softened further into the late into the late morning (S&P -20 to 2747, energy, industrials, and materials lead decliners). It was hurt by earlier comments from Commerce Secretary Ross on trade (“So what we have to do is create an environment where it's more painful for these parties that have these huge trade barriers ... got to make it more painful for them to keep those barriers than to get rid of them,"), and a Supreme Court ruling allowing states to force online retailers to collect internet taxes.

Additionally, misses on US Leading Indicators (-0.5 vs. exp. 0) and the House Price Index (0.1% vs. exp. 0.5%) contributed to the softness in equities. The 10-year yield continued lower (2.891%), and the DX pulled back further to 94.67. Gold pushed higher and traded up to $1268.80.

In the afternoon, US stocks had a modest bounce (S&P –8 to 2758), and the 10-year yield ticked up to the 2.91% area. The DX was a little choppy between 94.72 – 94.94, but gold continued to recover. The yellow metal traded up to $1270, but resistance at the overnight high held.

Later in the afternoon, US stocks turned down, and ended near their lows (S&P – 21 to 2745). The 10-year yield slipped back under 2.90% to reach 2.893%, but the DX had a bounce to 94.84. Gold drifted down to $1267 and was $1267 bid at 4PM with a loss of $2.

Open interest was off 0.4k contracts, showing a small net of long liquidation from yesterday’s decline. Volume was lower with 250k contracts trading.

Bulls see a market that has dropped $104 (7.62%) since 4/11 (7.62%), and $48 (3.67%) since 6/14 with an oversold 14-day RSI reading of 27.5. While some bulls took a pounding on the way down, other previously sidelined bulls are seeing a great opportunity to get long on weakness.

They look for a meaningful correction in the torrid dollar to trigger a significant short covering rally in gold. Bulls have an initial upside target of $1285 which is the 50% retracement of down move from 6/14 $1309 high to today’s $1261 low.

In addition, bulls point to the still relatively and historically low NFLP which sets gold up to move higher, and the recent exodus of longs and build-up of new shorts should help limit further downside moves.

While some bears have taken profits during this past week’s tumble and are awaiting further strength to sell into, others are still looking for gold to decline further - with fuel from a firmer dollar providing the downside pressure.

Some feel the dollar’s strength vs. the other currency majors has legs, given the recent divergence in interest rate policy of the Fed, ECB, and the BoJ.

Bears will look for another test of today’s low at $1261 (quadruple bottom at $1261-63) to trip further long liquidating sell stops to bring into play the $1253 double bottom (12/15 ,12/18 lows) and $1250 options level.

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 this afternoon’s US bank stress tests followed by reports tomorrow on Japan’s CPI, PMI, and All Industry Activity Index, Eurozone PMI’s, US Markit Manufacturing and Services PMI’s, the Baker-Hughes Rig Count, the Commitment of Traders Report, and results of the OPEC meeting for near-term direction.

In the news:

Resistance levels: 

$1270 – 6/21 high

$1271 – 6/20 low

$1272 – up trendline from 1/9/17 $1171 low

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

$1275 – options

$1275 – 6/15 low

$1276 – 6/20 high

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

$1282 – 6/18 high

$1284 – 6/19 high

$1285 – 50% retracement of down move from 6/14 $1309 high to 6/21 $1261 low

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

$1292 – 20-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

$1296 – down trendline from 5/15 $1315 top

$1299 – 6/13 high

$1299 – 40 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

$1306– 200-day moving average

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

$1306 – down trendline from 4/11 $1365 high

$1307 – down trendline from 4/23 $1336 high

$1307 – 50 day moving average

$1315 – 5/15 high

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

$1319– 100-day moving average

Support levels:

$1261-63 – quadruple bottom – 6/21, 12/19, 12/20, and 12/21 lows

$1253 – double bottom – 12/15, 12/18 lows

$1251 – 12/14/17 low

$1250  - options

$1240 – 12/13/17 low

$1238 – up trend line from 12/17/15 $1048 low

$1236 – quadruple bottom - 12/12/17, 7/18/17, 7/19/17, 7/20/17 lows