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Gold Traders' Report - May 1, 2018

Jim Pogoda, Trader, Gold Bullion International 
MAY 1, 2018

Gold slumped further overnight in a range of $1316 - $1307 (6-week low), where it found support at the 5-bottom level of $1307-10 (3/16, 3/19, 3/20, 3/21 and 4/30 lows).

Continued strength in the US dollar provided downward pressure for the yellow metal, as it rose from 91.80 – 92.32 (4-month high, breaks 200-day MA at 91.94, turns positive for the year).

The dollar was boosted by weakness in the pound ($1.3770 - $1.3656, 4-month low, miss on UK Manufacturing PMI) and in anticipation of a hawkish FOMC meeting statement tomorrow, and was exacerbated by the illiquidity from today’s May Day Holiday.

Global equities were mixed with the NIKKEI off 0.2%, FTSE +0.5%, S&P futures unchanged, with the other major markets on holiday. Oil - which rallied sharply off of Netanyahu’s comments yesterday regarding Iran - pulled back to $67.73, while the US 10-year bond yield remained steady between 2.951% - 2.963%.

After the NY open, a dip in S&P futures (2638) along with a tick down in 10-year yield (2.949%), helped tug the DX down to 92.18.

Gold rebounded in response, and clawed back to $1310. However, currency players used the dip to get long, and brought the greenback up to 92.35. Gold fell in response, and slid back to support at $1307.

At 10AM, despite weaker reports on US Construction Spending (-1.7% vs. exp. 0.5%) and ISM Manufacturing (57.3 vs. exp. 58.5), the dollar continued to rise.

The greenback was helped by some positive comments from Commerce Secretary Ross regarding extending the steel and aluminum tariff exemptions and his upcoming trip to negotiate trade issues with China, along with a tick up in the 10-year yield to 2.979%.

The DX charged ahead to reach 92.57, and gold sold off. Support at $1307 failed, as did some brief support at the 200-day moving average ($1305) and $1303 (3/1 low) on the way to $1302, where support at the 1/1 low finally held.

During the late morning and into the afternoon, losses in US stocks accelerated (S&P -23 to 2623, Boeing and the energy, materials, and industrial sectors lead decliners) and the 10-year yield retreated to 2.962%. The dollar slumped to 92.29, and gold bounced to $1308.

Later in the afternoon, US stocks rebounded (S&P finished +7 to 2655 helped by gains in Apple ahead of its earnings announcement later this afternoon).

The 10-year yield rose to 2.976%, and the DX climbed back to 92.50. Gold drifted lower, but was supported ahead of the 200-day MA at $1305. It was $1305 bid at 4PM with a loss of $10.

Open interest was up 7.9k contracts, showing a combination of new shorts along with some new bottom fishing longs from yesterday’s decline. Volume was heavier with 328k contracts trading.

Bulls obviously disheartened in seeing the $10 down day, and with another two key technical support levels being breached.

However, many bulls feel that gold is just about oversold (14-day RSI = 36), having fallen $63 (4.6%) in 3 weeks, and see an opportunity to get long near the bottom of the well-worn trading range of the last 4 months.

They’re encouraged that there was very little conviction in the selling under the 200-day moving average, as the COT Report has shown a relatively small number of net fund longs and healthy amount of gross spec shorts - not depicting a market vulnerable to a significant sharp selloff.

Bulls will look to build a base around the 200-day moving average, and will look to challenge first resistance at the old support at $1307-$1310.

Bears cheered the rally in the dollar today. They feel that a long-term bottom at 88.25 from 2/16 in the DX is in place, and expect continued strength in the greenback to fuel a further decline in the yellow metal.

Though some bears were happy to take profits today as gold has moved to the bottom of its recent trading range, other bears are still looking for more room on the downside. They’ll be looking for a retest the 200-day moving average at $1305, and then look to take out $1301 (50% retracement of up move from 12/12/17 $1236 low to 1/25/18 $1366 high) and $1300 to trigger more liquidating sell stops that will bring the low $1290’s and high $1280’s into play.

All markets will continue to focus on the volatility in the equity and bond markets, geopolitical events, developments with the Trump Administration, corporate earnings, oil prices, and will turn to earnings from Apple after the bell today, and reports tomorrow on Japanese PMI, Chinese Caixin PMI, Eurozone GDP, PMI, Unemployment, US MBA Mortgage Applications, ADP Employment Change, Oil Inventories, and the FOMC Meeting Statement for near term direction.

Ahead of the Fed:

According to FedWatch, probabilities for the next 25 bp rate hikes by meeting:

  • May – 5.7%          1.75% - 2.00%
  • June – 99%          1.75% - 2.00%
  • Sep – 77.9%         2.00% - 2.25%
  • Dec – 50.8%         2.25% - 2.50%

In the news:

Resistance levels: 

$1307-10 – five bottoms – 3/16, 3/19, 3/20, 3/21 and 4/30 lows

$1315 – double bottom – 4/26 and 4/27 lows

$1319 – 4/25 low

$1322 – 100-day moving average

$1321-23 – quadruple bottom, 3/29, 4/5, 4/6 and 4/23 low

$1324-25 – double top, 4/27 and 4/30 highs

$1325 – options

$1330 – 50 day moving average

$1331 – 40 day moving average

$1332-33 – double top - 4/24 and 4/25 highs

$1334 – 20-day moving average

$1336 – up trend line from 12/12 $1236 low

$1335 – 4/23 high

$1334-35 triple bottom – 4/12, 4/13, and 4/20 lows

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

$1338 – 4/17 low

$1341 – 4/19 low

$1345 – down trendline from 8/2013 weekly chart

$1346 – 4/20 high

$1350 – options

$1350 – down trendline from 1/25/18 $1366 high

$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:

$1305– 200-day moving average

$1303 – 3/1 low

$1302 – double bottom - 1/1, 5/1 lows

$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

$1281 – 12/27 low