Gold Traders' Report - March 5, 2018

Jim Pogoda, Trader, Gold Bullion International 
MAR 5, 2018

Gold was a little choppy overnight, trading in a range of $1321.60 - $1327.80.

The yellow metal rose during Asian time and touched off some buying over the down trendline from the 2/16 $1362 high at $1323 and Friday’s $1326 top to reach its high of $1327.80.

The threat of a global trade war continued to roil markets and prompted some safe-haven buying. Also supporting gold was an early firming of the euro ($1.2338), that pressed the DX down to 89.86 as Germany’s Social Democrats voted to re-enter a coalition with Merkel’s conservatives.

Global bond yields also moved down in a flight to quality (JGB’s from 0.067% - 0.040%, German Bunds from 0.646% - 0.596%, UK Gilts from 1.474% - 1.432%, and the US 10-year from 2.866% - 2.81%), while global equities mostly sold off.

The NIKKEI was down 0.7%, the SCI rose 0.1%, Eurozone shares opened down 0.1% - 0.9%, and S&P fell 1%, with weaker oil (WTI down to $61.17, IEA revises US oil output growth up to 17M bpd in 2023, up from 13.2M) contributing to the decline.

Later during European hours, the DX rose back over 90 as the euro softened (euro to $1.2269), hurt by an inclusive election in Italy, and weaker readings on the Eurozone Sentix Investor Confidence Index, Retail Sales, and Services PMI.

Global equities rebounded, bond yields turned back up (US 10-year to 2.84%), and gold spit back most of its overnight gains on a slide back to $1323 ahead of the NY open.

Just ahead of and through the NY open, a tweet from Trump saying, “Tariffs on Steel and Aluminum will only come off if new & fair NAFTA agreement is signed”  - lessened the chances of a trade war, and helped lift S&P futures further (2692) and took the 10-year yield over 2.85% to 2.853%.

The dollar climbed to 90.17 and pressed gold to $1319.50.  At 10AM, a stronger than expected ISM Services Report gave US stocks a fresh boost (S&P +19 to 2710, utilities and real estate the best performers) into mid-day.

The 10-year bond yield also continued to climb, and reached 2.88%.  The dollar failed to advance, however, as it slipped against a strong rebound in the euro ($1.2349) and the pound ($1.3770 - $1.3877, May optimistic that Brexit deal is close).  Gold did work lower, however, but found support at $1318.  

Into the afternoon, US stocks continued to advance, helped by some pressure from Speaker Paul Ryan, urging the Administration to abandon implementing the proposed new tariffs on aluminum and steel, and comments from the Fed’s Quarles that endorsed making material changes to streamline and simplify the Volker Rule.

The S&P rose further (+30 to 2722), and the 10-year yield touched 2.897%.  The DX hovered between 90 and 90.10, but gold probed lower.  It touched $1317.50 late in the session, and was $1319 bid at 4PM with a loss of $1. 

Open interest was off 4.4k contracts, showing a net of short covering from Friday’s advance. Volume was lower with 280k contracts trading.

Though gold had a small pullback today, bulls were pleased that the loss wasn’t larger, given the seemingly decreased chances of a trade war, the big rally in stocks, the 10-year yield approaching 2.90%, and a DX over 90.

They maintain that the dollar’s recent bounce is just a minor correction within its year-old downtrend, and expect a retest of the 3-year low at 88.25 made two weeks ago to lift gold higher.  They expect gold to take out $1336 (50% retracement of down move from 1/25 $1366 high to 2/8 $1307 low and 2/27 high), and then challenge $1341 (2/26 high) followed by $1347 (2/20 high).

Bears believe that equity markets, bond yields, and the dollar have much more room to go on the upside, and that will continue to pressure gold lower.

The bears expect gold’s correction/consolidation after its dive to $1303 has run its course, and expect a fresh test of the recent low at $1303.  They’ll be looking for heavier long liquidating sell stops below $1301 (100-day moving average, 50% retracement of up move from 12/12/17 $1236 low to 1/25/18 $1366 high) to lead to a test of the 200-day moving average at $1288.

All markets will continue to focus on the volatility in the equity and bond markets, geopolitical events, developments with the Trump Administration (especially the tariff situation), corporate earnings, oil prices, and will turn to reports tomorrow on German Construction PMI, Eurozone Retail PMI, US Factory Orders, Durable Goods, and comments from the Fed’s Dudley and Brainard for near-term direction. 

In the news:

LBMA – The Alchemist

Silver looks way better than gold right now - funds turn net short for 1st time since 2003 

CME group metals volume shoots up 32% y/y in Feb

Resistance levels: 

$1323 – down trendline from 2/16 $1362 high

$1326 – 3/2 high

$1327 – up trendline from 12/12 $1236 low

$1328 – 3/5 high

$1328 – 2/20 low

$1328 – 50 day moving average

$1329 – 20 day moving average

$1333 – 40 day moving average

$1336 – 2/21 high

$1336 – 50% retracement of down move from 1/25 $1366 high to 2/8 $1307 low

$1337 – 2/27 high

$1338 – 11/9 election night high

$1341 – 2/26 high

$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:

$1319 – 22 – quadruple bottom, 2/13, 2/14, 2/21, and 2/22 lows

$1316 – 2/12,2/28  lows

$1313 – 2/27 low

$1311 – 2/9 low

$1306-7 – triple bottom, lows 1/3, 1/4, 2/8

$1304 – 1/2 low

$1303 – 3/1 low

$1302 – 1/1 low

$1301 – 100-day moving average

$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

$1287 – 12/28 low

$1288– 200-day moving average

$1281 – 12/27 low

$1281 – 50% retracement of up move from 7/10/17 $1205 low to 9/8/17 $1357 high