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Gold Traders' Report - June 22, 2018

Jim Pogoda, Trader, Gold Bullion International 
JUN 22, 2018

Gold traded modestly higher last night in a range of $1266.80 - $1271.15. It faded some weakness in the red-hot dollar, with the DX slipping from 94.88 to 94.43.

The greenback was pressured by some initial strength in the yen (110.08 – 109.86, firmer CPI, PMI, All Industry Activity Index), a firmer euro ($1.16 -$1.1675, stronger German and Eurozone PMI’s), and continued strength in the pound ($1.3240 - $1.3314, yesterday’s tilt to the hawkish side by the BoE still resonating), along with some profit-taking after a strong week.

Mostly firmer global equities were a headwind for gold, with the NIKKEI off 0.8%, the SCI up 0.5%, European markets were up 0.4% to 0.8%, and S&P futures were +0.5% - with news that the 35 biggest US banks passed the first round of the Fed’s stress tests supportive of equities.

Firmer oil (WTI $65.70 - $66.60, rumors that OPEC was leaning to only a moderate output increase) was also a tailwind for stocks.

After the NY open, S&P futures rose (+16 to 2768) on news from OPEC that the output increase – while announced at 1M bpd, would be effectively only a rise of 600k bpd as many of the members were already at capacity, and took WTI over $68.

The US 10-year yield moved up to 2.928%, and the DX rebounded to 94.81. Gold retreated in response, but found support at the overnight low at $1266.80.

AT 10 AM, a worse than expected reading on US Markit Manufacturing PMI (54.6 vs. exp. 56.1) took US stocks lower (S&P +5 to 2755). A tweet from Trump threatening new tariffs on the EU also weighed on stocks:

Based on the Tariffs and Trade Barriers long placed on the U.S. and it great companies and workers by the European Union, if these Tariffs and Barriers are not soon broken down and removed, we will be placing a 20% Tariff on all of their cars coming into the U.S. Build them here!

10:25 AM - Jun 22, 2018

The 10-year yield fell to 2.897%, and the DX dipped back to 94.66. Gold rebounded in response, however, the advance stopped at $1270.80 - in front of resistance at the overnight high.

Into the afternoon, US stocks turned back higher (S&P +13 to 2763, energy, telecom, and materials lead gainers), aided by a further gain in oil (WTI to $68.82, markets cheer moderate output hike, Baker-Hughes Rig count drops for first time in 12 weeks).

The 10 year bond yield moved up to 2.915%, but the DX couldn’t advance, and hovered just above 94.50 (profit taking, euro bounce to $1.1660). Gold was caught in the cross currents, and traded narrowly between $1268.25 - $1270.

Open interest was up 2.8k, showing a net combination of new shorts along with some bottom fishing new longs from yesterday’s decline.

Volume was higher with 295k contracts trading. The CFTC’s Commitment of Traders Report as of 6/19 showed the large funds adding 10.1k contracts of longs and a whopping 33.9k contracts of shorts to reduce their net long position to 96k contracts.

While this large reduction won’t help sentiment, it sets up the gold market better to move higher as this Net Fund Long Position is historically and relatively small, with a lot of room for sidelined bulls to enter.

Also, the heavy addition of shorts (gross shorts up to 106k contracts ) will be fuel for a short covering rally – provided the market can find a spark.

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 29.5.

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 yesterday’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 large 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.

Bears feel the dollar’s strength vs. the other currency majors will resume after today’s profit taking, given the recent divergence in interest rate policy of the Fed, ECB, and the BoJ. Bears will look for another test of yesterday’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.

Bears are also looking at an impending death cross (50-day moving average crossing below the 200-day moving average – both currently $1305) that should trip some further long liquidation and new shorts from chart following traders.

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 Commitment of Traders Report followed by reports Monday on Japan’s Leading Index, German IFO, US Chicago Fed National Activity Index, New Home Sales, and the Dallas Fed Manufacturing Activity Index for near-term guidance.

In the news: 

US dollar pullback continues

Resistance levels: 

$1270 – 6/21 high

$1271 – 6/22 high

$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

$1291 – 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

$1298 – 40 day moving average

$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

$1305– 200-day moving average

$1305 – 50 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

$1315 – 5/15 high

$1318– 100-day moving average

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

Support levels:

$1267 – 6/22 low

$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