Gold Traders' Report - June 28, 2018

Jim Pogoda, Trader, Gold Bullion International 
JUN 28, 2018

Gold traded either side of unchanged last night in a range of $1248.55 - $1254.15. It made its high of $1254.15 during Asian time when the dollar pulled back (DX from 95.40 – 95.21) against a firmer yen (110.30 – 109.94, safe haven buying despite weaker Retail Sales) and early weakness in Asian equities (NIKKEI fell 1% before bouncing back to finish flat, the SCI was off 1%).

Gold retreated during early European time as the DX rallied to 95.54 (11-month high), taking out $1251 (yesterday’s low, 12/14/17 low) and options support at $1250 to reach $1248.50 – a fresh 6-month low.

However, as we’ve seen many times before, bargain hunting bids brought it quickly up to the $1250-51 area. Later during European hours, gold climbed to its high of $1254.15 as the DX fell to 95.09.

The greenback was pressured by a rebound in the euro ($1.1527 - $1.1598), which was boosted by stronger readings on German GfK Consumer Confidence, Eurozone Industrial and Services Confidence reports.

At 8:30 AM, a weaker 2nd revision to US Q1 GDP (2.0% vs. exp. 2.2%) along with a miss on Jobless Claims (227k vs. exp. 220k) tugged the DX back down to the overnight low at 95.09.

The US 10-year bond yield dipped to a 1-month low at 2.822%, and S&P futures turned negative (2693 off 12). Gold popped higher, but it was only able to barely breach its overnight high to reach $1254.30.

After opening weaker, US stocks turned higher by mid-morning (S&P +12 to 2712), with financials (down for 13 straight sessions) and telecoms outperforming.

Stocks were boosted by some dovish commentary from the Fed’s Bullard (concerned raising rates too fast), another strong rally in crude (WTI to $73.99, 3½ year high, lingering concerns over Iran sanctions, 360k bpd production halt at Suncor), and a better than expected reading on the Kansas City Fed Manufacturing Activity Index (28 vs. exp. 26).

The 10-year yield recovered to 2.845%, and the DX rose to 95.27. Gold declined in response, but held around $1250.

Into the afternoon, US stocks continued higher (S&P +24 to2724) and the 10-year yield kept climbing 2.853%). The DX rallied back to 95.40, and gold’s support at $1250 failed. It was knocked down through the overnight low to reach a fresh 6-month low at $1246, with both long liquidation and new short selling seen.

Later in the afternoon, US stocks finished a tad off of their highs (S&P +17 to 2717), and the 10-year yield dipped to 2.84%. The DX came off to 95.30, and gold ticked up to $1248.50 – unable to recapture the $1250 level. It was $1248 bid at 4PM with a loss of $4.

Open interest was up 1.7k contracts, showing a net of new shorts along with some bottom fishing new longs from yesterday’s decline. Volume was a little higher with 270k contracts trading.

Bulls remain comfortable buying gold scale down into the current weakness. They view gold as a very oversold market, having dropped $119 (8.72%) since 4/11, and $63 (4.81%) since 6/14 - with 7 consecutive sessions of a 14-day RSI reading at or under 30 (currently a paltry 21.03).

Gold’s 14-day RSI hasn’t been this low since the 12/15/16 when gold was at $1123, and was coming off of a $215 hammering after the $1338 election night (11/9/16) high.

While some bulls have taken a pounding on the way down, other previously sidelined bulls are seeing a great opportunity to get long on the current weakness.

They look for a meaningful correction in the torrid dollar (another 11-month high last night) to trigger a significant short covering rally in gold.

Bulls hope to see gold forming a base around $1250 ,and have an initial upside target of $1277 which is the 50% retracement of down move from 6/14 $1309 high to today’s $1246 low.

In addition, bulls point to the still relatively and historically low NFLP and large build-up of new shorts (+30k contracts in gross shorts to 106k from last Friday’s COT) which sets gold up better to move higher should help limit further downside moves.

While some bears have taken profits during the past 2-week 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 has legs, given the recent divergence in interest rate policy of the Fed, ECB, and the BoJ. With support at $1250 now broken, bears see a vacuum until $1239 - $1240 (12/13/17 low, up trend line from 12/17/15 $1048 low), and will be gunning for stops below this level to bring $1235 -36 (quadruple bottom - 12/12/17, 7/18/17, 7/19/17, 7/20/17 lows) and then $1229 (7/17/17 low) into play.

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 release of results of the 2nd round of the Fed’s bank stress tests, and then reports tomorrow on Japan’s Jobless Rate, CPI, Industrial Production, Construction Orders, Consumer Confidence, and Housing Starts, German Retail Sales and Unemployment, UK GDP, Eurozone CPI, US Personal Spending, Personal Income, PCE Deflator, Chicago PMI, University of Michigan Consumer Sentiment, Baker-Hughes Rig Count, and the Commitment of Traders Report for near-term direction.

In the news:

Precious metals on a long-term buy signal, short-term mixed

Platinum to gold price wider than ever as dollar strength knocks metals

Gold to attract investors / physical demand when falls below $1250 – Standard Chartered

CFTC – SEC sign Mem of Understanding, working to reduce regulatory burden

India Central Bank intervenes as rupee crashes to record low - not helping the bulls as gold is getting expensive locally.

Resistance levels: 

$1250  - options

$1251 – double bottom, 6/27 low, 12/14/17 low

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

$1254 – 6/28 high

$1260 – 6/27 high

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

$1268 – 6/26 high

$1270-73 – triple top, 6/21, 6/22, and 6/25 highs

$1273 – up trendline from 1/9/17 $1171 low

$1275 – options

$1275 – 6/15 low

$1276 – 6/20 high

$1277 – 50% retracement of down move from 6/14 $1309 high to 6/28 $1246 low

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

$1282 – 6/18 high

$1282 – 20-day moving average

$1284 – 6/19 high

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

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

$1293 – 40 day moving average

$1295 - up trendline from 12/15/16 $1123 low

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

$1298 – 50 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

$1304– 200-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:

$1246 – 6/28 low

$1240 – 12/13/17 low

$1239 – up trend line from 12/17/15 $1048 low

$1235 -36 – quadruple bottom - 12/12/17, 7/18/17, 7/19/17, 7/20/17 lows

$1229 – 7/17/17 low

$1214-16 – triple bottom, 7/12/17, 7/13/17, 7/14/17 lows