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Gold Traders' Report - June 25, 2018

JUN 25, 2018

News that the Trump Administration plans to bar China from investing in US tech firms and block more tech exports, along with a Trump tweet saying the US was preparing “more than reciprocity” to trade partners that impose what he called “artificial” barriers to American companies roiled financial markets last night.

Global equities tumbled with the NIKKEI down 0.8%, the SCI off 1.1%, Eurozone shares fell 0.9% to 1.5%, and S&P futures -0.7%.

A dip in oil (WTI to $68.16, Saturday’s OPEC + news conference implied a full 1M bpd increase in production, not the appeasing 600k announced Friday) also weighed on stocks. Money fled to the usual safe havens, the yen (from 110 to 109.37) the US 10-year bond (2.893% to 2.866%), and gold.

The yellow metal was initially bid up to $1272.60 during early Asian hours, taking out Friday’s $1271 high.

Later during Asian time and into early European time, gold fell back to $1264.55 with a lack of follow-through buying along with a firming dollar (DX from 94.45 to 94.70) knocking it down.

Softness in the pound ($1.3271 - $1.3221) and the euro ($1.1673 - $1.1628, miss on German IFO) helped to prop up the greenback.

During late European hours, however, gold clawed back to the $1270 area as the dollar turned down (DX to 94.28, two-week low), pressured by rebounds in the euro ($1.7101) and sterling ($1.3290).

At 8:30 AM, markets largely ignored a worse than expected reading on the Chicago Fed’s National Activity Index (-0.15 exp.. 0.30), as the 10-year yield turned up to 2.897%. The DX recovered to 94.42, and sent gold down to $1266.

US stocks opened weaker (S&P -36 to 2718) with Boeing, Intel, and the FANG stocks getting clobbered. A stronger than expected reading on US New Home Sales (689k vs. exp. 667k) was only able to help limit the damage.

The 10-year yield dipped back to 2.866%, but the DX hovered around 94.40. Gold was a bit choppy, trading between $1266 and $1270.

US equities softened from the late morning and into the afternoon (S&P -55 to 2699), with losses accelerating once the DJ broke its 200-day moving average at 24,280.

The 10-year yield hovered around 2.87%, and the DX took out its prior low to make a fresh two-week low at 94.21. Gold drifted higher to $1267.75.

Later in the afternoon, comments from White House Trade Advisor Peter Navarro walked back the overnight news on investment restrictions (no plans on imposing investment restrictions on China or others and said that markets were overreacting), and allayed some of the trade-related fears.

US stocks pared losses, with the DJ rallying back above its 200-day moving average before closing just below it. The S&P ended off 38 to 2716, and the 10-year yield clawed back to 2.889%.

The DX rose to 94.35, and gold sold off. It tumbled quickly to $1264.75, but support in front of the overnight low at $1264.55 held. Gold was $1266 bid at 4PM with a loss of $4.

Open interest was up 3k contracts, showing a net of new longs from Friday’s advance. Volume was much lower with 198k contracts trading.

Bulls were a bit disappointed that gold couldn’t hold overnight gains, given the increased trade fears that upset markets.

However, they still view gold as a very oversold market - dropped $104 (7.62%) since 4/11 (7.62%), and $48 (3.67%) since 6/14, with a 14-day RSI reading of 28.5. 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 (did see a two-week low today) to trigger a significant short covering rally in gold. Bulls see a base being formed between $1261-70, and 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 along with the recent exodus of longs and large build-up of new shorts (+30k contracts in gross shorts to 106k) that should help limit further downside moves.

While some bears have taken profits during last week’s tumble and are awaiting further strength to sell into, others are still looking for gold to decline further (as witnessed by Friday’s COT Report showing large build in fund gross shorts) - with fuel from a firmer dollar providing the downside pressure.

Bears feel the dollar’s strength vs. the other currency majors will resume after Friday’s profit taking and today’s dip to 94.21 - given the recent divergence in interest rate policy of the Fed, ECB, and the BoJ.

Bears will look for another test of Thursday’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 for some momentum playing shorts to get short on the technical death cross, where the 50-day moving average just crossed below the 200-day moving average.

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 Case-Shiller Home Price Index, Richmond Fed Manufacturing Index, Consumer Confidence, and comments from the Fed’s Bostic and Kaplan for near-term guidance.

In the news:

Resistance levels: 

$1270 – 6/21 high

$1271 – 6/22 high

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

$1273 – 6/25 high

$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

$1289 – 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

$1295 – down trendline from 5/15 $1315 top

$1297 – 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

$1301 – down trendline from 4/11 $1365 high

$1305– 200-day moving average

$1304 – 50 day moving average

$1305 – down trendline from 4/23 $1336 high

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

$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:

$1265 – 6/25 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