Gold Traders' Report - March 13, 2018

Jim Pogoda, Trader, Gold Bullion International 
MAR 13, 2018

Gold worked lower last night in a range of $1317 - $1324.40. In price action that resembled that of the previous night, gold ticked up to its high of $1325.40 early during Asian time, as the DX softened to 89.84.

Later on, yen weakness (106.25 – 107.28, miss on Japan’s Tertiary Industry Index) helped take the DX to 90.11, along with a better than expected reading on the NFIB Small Business Optimism Index (107.6 vs. exp. 107.1), which pressed gold to its $1317 low.

A slight move higher in the US 10-year bond yield (2.863% - 2.883%) and mostly firmer global equities were also headwinds for gold.

The NIKKEI was up 0.7%, the SCI fell 0.5%, Eurozone shares were flat to +0.4%, and S&P futures were +0.2%.

Firmer oil prices (WTI to $61.65, strike at a key Libyan suspends crude loadings) were supportive of stocks.

At 8:30 AM, the much awaited US CPI report showed the headline month over month and core month over month in line with official estimates at 0.2%.

However, with higher whisper expectations (given last month’s outsized 0.5% gain) along with jitters from talk of reigniting inflation (Jan Payroll Report’s average hourly earnings) and a slight miss in the year over year core inflation (1.8% vs. exp. 1.9%), the report was cheered and it lowered the probability of future Fed rate hikes from yesterday (from FedWatch) as follows:

  • March 86% from 90.2%
  • June 70.6% from 77.6%
  • September 51.3% from 56.1%
  • December (4th hike) 31.8% from 35.1%

S&P futures shot to 2805 as the 10-year yield plunged to 2.45% ,and the dollar sank though the overnight low to reach 89.73.

Gold initially fell to $1314 from algorithmic trading in thin conditions, then rallied sharply to $1325, where resistance at the double top held. Shortly thereafter, Trump tweeted that Rex Tillerson was out as Secretary of State, and was being replaced by CIA Director Mike Pompeo.

S&P futures pulled back (2794), and the 10-year yield dipped further to 2.835%.  The DX dropped more (89.67), and gold advanced to $1327.50.

Losses in stocks accelerated into the late morning (S&P-13 to 2769, tech leads decliners, blocking of Broadcom / Qualcomm deal weighs), but the 10-year yield rebounded to 2.872%.

The DX jumped – following the 10-year – to 89.98, and gold retreated briefly to $1319.  In the afternoon, US equities softened further (S&P finished -18 to 2764).

The 10-year bond yield hovered between 2.835% - 2.845%, and the dollar stabilized between 89.65 – 89.75.

Gold remained steady, trading between $1325 - $1327.50 and was unable to take out resistance at $1329.  It was $1326 bid at 4PM with a gain of $1. 

Open interest was up 10.2k contracts, showing a combination of new shorts with some bargain hunting new longs from yesterday.  Volume was lower but still healthy with 264k contracts trading. 

Bulls will take today’s gain, though they feel gold should have performed much better given:  the dip in the DX under 90, the 10-year yield under 2.85%, an 18 point decline in the S&P, a second key Trump Administration official resigning within a week (Cohn and now Tillerson), and a potential diplomatic tussle between the UK and Russia over the poisoning of a former spy.

However, they still feel that the dollar’s recent bounce from the 2/16 3-year low at 88.25 is a minor correction within its year-old downtrend, and expect a retest of that level to drive gold higher.

Bulls will need to overcome initial resistance at the double top at $1328-29 to be able to breach the down trendline from the $1362 high from 2/16 at $1334.  Above here, they expect buy stops to propel the market past the triple top at $1341. 

Bears remain comfortable selling into strength, especially after a cluster of bullish factors today resulted only in a paltry $1 gain.

They expect renewed strength in equities, higher bond yields and a continued bounce from the 88.25 low in the DX to pressure gold lower.

They will look for a breach below support at the quadruple bottom at $1313-15 and the up trendline from the $1236 low from 12/12/16 to  bring into play key support at $1303 (100-day moving average, 50% retracement of up move from 12/12/17 $1236 low to 1/25/18 $1366 high,3/1 low).

Below here, bears expect further long liquidation to lead to a test of the 200-day moving average at $1290.

All markets will continue to focus on the volatility in the equity and bond markets, geopolitical events, developments with the Trump Administration, oil prices, and will turn to tonight’s BOJ meeting, comments from the ECB’s Draghi, and reports on Japanese Machine Orders, Chinese Retail Sales, Industrial Production, German CPI, Eurozone Industrial Production, US Retail Sales, PPI, Business Inventories, and Oil Inventories for near-term direction. 

In the news:

Resistance levels: 

$1328 - 29 – double top, 3/8 and 3/13 highs

$1330 – 20-day moving average

$1330 – 50 day moving average

$1333 – 40 day moving average

$1335 – 50% retracement of down move from 1/25 $1366 high to 3/1 $1303 low

$1336 – down trend line from 2/16 $1362 high

$1338 – 11/9 election night high

$1341 – triple top 2/26, 3/6, and 3/7 highs

$1347 – down trendline from 8/2013 weekly chart

$1347 – 2/20 high

$1350 – 52 – triple top – 1/29 , 2/1, and 2/2 highs

$1350 – options

$1351 – 2/19 high

$1356-58 – triple top, 2/15, 2/14, 1/26 highs

$1360 – down trendline from 1/25 $1366 top

$1362 – 2/16 high

$1365-67 – 5 tops 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:

$1324-25 – double top - 3/9 and 3/12 highs

$1313-15 – quadruple bottom, lows 3/2, 3/9, 3/12, 3/13

$1312 – up trend line from 12/12 $1236 low

$1303 – 3/1 low

$1303 – 100-day moving average

$1302 – 1/1 low

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

$1300 – psychological level, options

$1294 – 12/29 low

$1290– 200-day moving average

$1287 – 12/28 low

$1281 – 12/27 low