Gold Traders' Report - March 6, 2018

Jim Pogoda, Trader, Gold Bullion International 
MAR 6, 2018

Gold rose overnight in a range of $1320.60 - $1330.50 as it tripped some buying over $1328-29 (yesterday’s high, 20 and 50 day moving averages).

The yellow metal was able to climb despite the lessening of political tensions as North Korea said it was open to talking with the US regarding denuclearization and normalizing ties, but was bolstered as the dollar faded weakness in the safe-haven yen (yen from 105.83 – 106.44, Kuroda contemplating exiting monetary stimulus also yen supportive).

The greenback slipped below the double bottom from the past two sessions at 89..86-87 to reach 89.52, where support in front of the 2/26 low at 89.50 held.

Higher global bond yields were a headwind for gold however, with the German Bund (0.64% - 0.70%), UK Gilt (1.50% - 1.567%), and US 10-year bond (2.864% - 2.906%) all moving higher.

Also, strong gains in world equity markets weighed against gold with the NIKKEI up 1.8%, the SCI +1%, Eurozone shares were up 0.8% - 1.2%, and S&P futures were +0.4%.

Higher oil prices (WTI from $62.45 - $63.24) were supportive of the strength in stocks. 

Just ahead of the NY open, some hawkish commentary from the Fed’s Kaplan (concerned about the Fed falling behind the curve, Fed needs to get back to hiking rates ASAP, “history of overshooting full employment in the US and having a soft landing is not a long history”) knocked S&P futures from their highs (2732 – 2725), but failed to support a dip in the 10-year yield back down to 2.88%.

The DX - caught in the crosscurrents – managed a modest rebound to 89.69, and gold was pushed back to $1326.75.

At 10AM, worse than expected readings on US Factory Orders (-1.4% vs. exp. -1.3%) and Durable Goods (-3.6% vs. exp. -3.5%) combined with reports that economic advisor Gary Cohn would resign if Trump goes ahead with the proposed tariffs on steel and aluminum to drive US stocks down (S&P -10 to 2711).

The 10-year yield dipped further to 2.857%, and the dollar slipped to support at 89.50.

Gold climbed, with a significant amount of short covering seen (build of 7k contracts of fund shorts as of the last COT Report providing fuel) to take out resistance at $1335 - 37 (50% retracement of down move from 1/25 $1366 high to 3/1 $1305 low, 2/27 high) to reach $1338.50.

Later in the morning and into the afternoon, some calming remarks from Treasury Secretary Mnuchin saying Canada and Mexico could be excluded from the tariffs (pending the NAFTA re-negotiation), and Paul Ryan (US needs a “more surgical” approach to tariffs) helped turn US stocks higher (S&P +9 to 2730, materials and consumer discretionary sectors lead).

The 10-year yield recovered to 2.885%, and the DX bounced to 89.71.  Gold pulled back in response, and dipped to $1332. 

Late in the afternoon, US stocks went out firm (S&P +7 to 2728) while the 10-year bond yield remained around 2.88% - 2.885%.  The dollar hovered between 89.55 – 89.65.  Gold traded narrowly between $1333 - $1336, and was $1333.50 bid at 4PM with a gain of $13. 

Open interest was off 5.8k contracts, reflecting a net combination of some early short covering to yesterday’s $1328 high, along with some subsequent long liquidation back below $1318 later in the afternoon.  Volume was lower with 242k contracts trading. 

Bulls cheered gold’s double-digit advance today, especially in the face of a decline in tensions in the Korean Peninsula, firmer stocks, and a 10-year bond yield still north of 2.85%.  They maintain that the dollar’s recent bounce is a minor correction within the year-old downtrend, and expect a retest of the 3-year low at 88.25 from two weeks ago to propel gold higher.

Though it didn’t hold at 4PM today, bulls expect initial resistance at $1335-37 to be breached, and look for tests of next levels at $1341 (2/26 high) and $1347 (2/20 high). 

Though some bears were run out of the market over the past 4 sessions on gold’s $35 bounce from its $1303 low on 3/1, others are still comfortable selling into strength.

They expect that the recent pop up to today’s high is a mere correction within the existing downtrend, and expect 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.

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 $1289. 

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 commentary tonight by the Fed’s Brainard followed by reports tomorrow on Japan’s Leading Index, Eurozone GDP, US MBA Mortgage Applications, ADP Employment Change, Nonfarm Productivity, Unit Labor Costs, Trade Balance, Oil Inventories, and comments tomorrow by the Fed’s Dudley and Bostic for near-term direction.

In the news:

Resistance levels: 

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

$1334 – 40 day moving average

$1337 – 2/27 high

$1338 – 3/6 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:

$1329 – 20 day moving average

$1329 – 50 day moving average

$1328 – 3/5 high

$1328 – 2/20 low

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

$1326 – 3/2 high

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

$1321 – 3/6 low

$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

$1289– 200-day moving average

$1287 – 12/28 low

$1281 – 12/27 low