Gold Traders' Report - March 26, 2018

Jim Pogoda, Trader, Gold Bullion International 
MAR 26, 2018

Gold was a little choppy overnight, trading in a range of $1343.50 -$1350.50.  It fell to its low during Asian and early European hours, as markets reacted to easing trade tensions:

  • Trump Administration sent a letter to the Chinese with specific requests to help slash China’s huge trade surplus with the US
  • Mnuchin said he’s “cautiously hopeful to reaching an agreement” and is considering a trip to Beijing
  • China willing to hold talks, offered to buy more US semiconductors
  • US and South Korea renew trade pact

Global equities were mostly firmer on the positive trade developments, along with last night’s 60 Minutes interview with Stormy Daniels not being seen devastating to Trump.

The NIKKEI up 0.7%, the SCI was off 0.6%, Eurozone shares were up 0.3% - 0.5%, and S&P futures were +1.4% (reverses most of last Friday afternoon’s plunge).

A spike in oil (WTI to $66.55 – fresh 2-month high) also aided the rally in equities.

Though the US 10-year bond yield climbed (2.815% - 2.852%), the dollar weakened (DX from 89.51 to 89.16 – 5-week low) during European hours.

The greenback softened as the euro rallied ($1.2351 - $1.2417) on some hawkish comments from the ECB’s Weidmann (calls for prompt end of QE, approves of rate rise in June of ’19), and as the pound firmed ($1.4145 - $1.4230, Labour party seeks amendment to prevent a “no deal” or hard Brexit).

Gold rallied back in response, but was capped again by resistance at $1350.

At 8:30 AM, a stronger Chicago Fed National Activity Index (0.88 vs. exp. 0.15) took S&P futures up to 2638, and the 10-year yield up to 2.856%.

The DX rebounded to 89.33, and gold was pressured to $1347.35.

Later in the morning, news that the US was expelling 60 Russian diplomats in the wake of the UK nerve agent attack combined with a later report that the FTC was probing Facebook for its privacy practices and a worse than expected reading on the Dallas Fed Manufacturing Index (21.4 vs. exp. 33.5) to knock US stocks lower (S&P +13 to 2602).

The 10-year yield slipped to 2.819%, and the DX took out its overnight low to reach 89.02.  Gold popped higher, finding some buy stops over the $1350-51 double top to reach $1356.

In the afternoon, US stocks turned up strongly (S&P finished + 71 to 2659, financials, technology, and consumer discretionary lead gainers).

The 10-year yield clawed back to 2.85%, but the dollar probed lower.

The DX slid to 88.98 - still under pressure from a rising euro ($1.2461) before bobbing back above 89 late in the session.

Gold drifted a bit lower but held above prior resistance at $1350-51, and was $1353 bid at 4PM with a gain of $5.

Open interest was off 6.1k contracts, showing a net of short covering from Friday’s rally. Volume exploded with 594k contracts trading.

The CFTC’s Commitment of Traders Report as of 3/20 showed the large funds cutting 10.5k contracts of longs and adding 8.7k contracts of shorts to trim their net long position to 149k contracts (lowest since 12/26).

While the reduction is not bullish for sentiment, it certainly sets the market up better to advance going forward.

The sizeable addition of new gross shorts increases the fuel for potential sharp short covering rallies, and the lack of a large overhang of spec longs removes a braking mechanism on the upside.

For silver fans, the large funds turned net short again (12k contracts net short), dropping 3k longs and adding 12k of shorts. 

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 reports tomorrow on the US Case/Shiller Home Price Index, Richmond Fed Manufacturing Index, Consumer Confidence, and comments from the Fed’s Bostic for near-term direction.

In the news:

Goldman expects gold to outperform amid growing fears of a stock market correction

Silver speculators have never been this short

Alabama becomes 37th state to exempt sales tax on precious metals

Resistance levels: 

$1356 – 3/26 high

$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:

$1350 – options

$1350-51 – double top – 2/19 and 3/23 highs

$1347 – 2/20 high

$1345 – down trendline from 8/2013 weekly chart

$1343 – 3/26 low

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

$1338 – 11/9 election night high

$1337 – 3/21 high

$1335 – 3/22 high

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

$1332 – 50 day moving average

$1330 – 40 day moving average

$1328 -30 – quadruple top, 3/8, 3/13, 3/14 ,and 3/15 highs

$1324 – down trend line from 2/16 $1362 high

$1324 – 20-day moving average

$1320-22 – double top 3/16 and 3/19 highs

$1317 – 3/20 high

$1317 – up trend line from 12/12 $1236 low

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

$1307-10 – quadruple bottom – 3/16, 3/19, 3/20, and 3/21 lows

$1308 – 100-day moving average

$1303 – 3/1 low

$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

$1292– 200-day moving average

$1287 – 12/28 low

$1281 – 12/27 low