Gold Traders' Report - June 7, 2018

Jim Pogoda, Trader, Gold Bullion International 
JUN 7, 2018

Gold moved slightly higher overnight, trading in a tight range of $1295.55 - $1299.75. It was aided by a modest decline in the dollar (DX from 93.60 – 93.21), which was pressured by some strength in the yen (110.20 – 109.84, firmer Japanese Leading Index) and the euro ($1.1775 - $1.1839, 3-week high - yesterday’s comments by ECB’s Praet on the bank looking to signal next week a winding down of its bond buying program by year end still resonating).

A further rise in global bond yields (US 10-year from 2.97% - 2.992%, German Bund from 0.469% - 0.517%, UK Gilt from 1.38% - 1.419%) was a headwind for gold, as were firmer global equities. The NIKKEI advanced 0.9%, the SCI shed 0.2%, European markets ranged from -0.1% to +0.3%, and S&P futures were +0.2%.

Some comments from Berkshire’s Buffet ("Right now, there's no question: It's feeling strong. I mean, if we're in the sixth inning, we have our sluggers coming to bat right now,"), and JPMorgan’s Dimon ("The way I look at it, there is nothing that is a real pothole,"), along with news that the US reached a deal with China over ZTE to end crippling sanctions were supportive of stocks.

Strong buying on the NY open took gold past its overnight high and the triple top at $1301-02 to reach $1303. However, the advance was short lived as the 8:30 AM Jobless Claims Report was a little better than expected (223k vs. exp. 225k).

US stocks rallied into and through their open (S&P +8 to 2780), and the US 10-year yield hovered around 2.99%. The DX popped to 93.49, and drove gold lower.

The yellow metal sank through $1300 to reach $1295, where support at yesterday’s low held. However, bargain hunting bids quickly emerged to bring gold back to the $1297-98 level.

From late morning and through the afternoon, US stocks retreated (S&P finished -2 to 2770), with a pullback from the recent run-up in tech shares weighing. The 10-year yield tumbled to 2.89%, as fears over Brazil’s fiscal outlook and political future lead to a rout of Brazilian stocks and the real.

The DX was caught in the cross-currents, and traded a bit lower, but remained between 93.30 – 93.45. Gold traded sideways between $1296.50-$1299, and was $1297 bid and unchanged at 4PM.

Open interest was off 4.9k contracts, showing a net of short covering from Friday’s advance. Volume was a little lower with 265k contracts trading.

Bulls were a bit disappointed that rally attempts keep getting turned away. However, they are encouraged that gold has put in three straight sessions of higher highs and higher lows, and reached an intraday high of $1303.

They point to the fact that that gold was able to breach and hold above resistance at $1295 (down trendline from 4/11 $1365 top) and are encouraged by the bullish set up from last Friday’s COT Report (positive sentiment, still very light NFLP, somewhat elevated gross shorts).

They also believe that the dollar’s recent run up from 89.25 – 95.03 (+6.48%, 14-day RSI touched 78.4) in the past 6 weeks has been vastly overdone, and expect a major pullback in the DX to fuel a gold rally.

The bulls look for a breach of initial resistance at today’s $1303 high followed by the quadruple top at $1306-08 ( 5/24, 5/25, and 5/29 and 5/31 highs) and the 200-day moving average at $1308 to ignite more significant short covering along with some momentum buying to bring about a test of $1315 (5/15 high).

Bears remain comfortable selling into rallies, though some have bailed as witnessed by the decline in open interest on advances during some of the past sessions. Bears are still expecting another leg down in gold’s 2-month old down trend, expecting a the dollar’s rally to resume to pressure gold lower.

They will be gunning 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).

However, both bull and bear camps will be loath to take significant positions ahead of next week’s FOMC meeting.

All markets will continue to focus on the volatility in the equity and bond markets, geopolitical events (especially this weekend’s G7 meeting), developments with the Trump Administration (especially on US-China trade), corporate earnings, oil prices, and will turn to reports tomorrow on Japan’s Trade Balance, GDP, and Economy Watcher’s Survey, China’s Trade Balance, German Trade Balance and Industrial Production, US Wholesale Inventories and Sales, Baker-Hughes Rig Count, and the Commitment of Traders Report for near-term guidance.

In the news:

Chinese gold demand continues to rise yoy

Gold market dreams of blockchain supply chain by next year

China is working to change global commodities trading – to its own benefit

Scotiabank to scrap half its metals business

eBay launches bullion buyback program

Brazil stocks, currency tank as investor fears emerge

Resistance levels: 

$1297 – 6/4 high

$1298 – 20-day moving average

$1300 – psychological level, options

$1301 -02–triple top 6/1, 6/5, and 6/6 highs

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

$1303 – 6/7 high

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

$1308– 200-day moving average

$1312 – 40 day moving average

$1315 – 5/15 high

$1317 – 50 day moving average

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

$1322-23 – 5/10 and 5/14 highs

$1324 – 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

$1365 – 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:

$1292 – down trendline from 4/11 $1365 top

$1294-95 –double bottom – 6/6 and  6/7 lows

$1291  - 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