Gold Traders' Report - May 10, 2018

Jim Pogoda, Trader, Gold Bullion International 
MAY 10, 2018

Gold rose overnight in a range of $1311 - $1318, but was capped at the quadruple top resistance area of $1318 -19 (5/3, 5/7, 5/8 and 5/9 highs).

It was fueled by a softening in the resurgent US dollar, which traded down from 93.17 – 92.80. The greenback was pressured by some strength in the euro ($1.1845 - $1.1891) and the pound ($1.3545 - $1.3615 – bid up ahead of BoE statement).

At 7AM, the pound tanked ($1.3490) after the Bank of England left rates unchanged, and on Carney’s subsequent dovish comments (wanted to see a pick up in the next few months before raising rates, lowered GDP and inflation forecasts).

The DX rallied back to 93, and pressed gold down to $1317 ahead of the NY open. News that Israel struck some Iranian targets in Syria after receiving rocket fire on the Golan Heights was supportive for gold, as well as a pullback in the US 10-year bond yield from 3.006% to 2.97%.

Global equities were mostly firmer and a headwind for gold with the NIKKEI +0..4%, the SCI up 0.5%, Eurozone shares ranged from -0.3% to +0.3%, and S&P futures were +0.1%. A continued advance in oil (WTI from $71.20 - $71.84, high since Nov. ’14, looming sanctions on Iran), supported equities.

At 8:30 AM, lower than expected reading on US CPI (0..2% vs. exp. 0.3%) and Core CPI (0.1% vs. exp. 0.2%) overcame a lower reading on Jobless Claims (211k vs. exp. 219k).

S&P futures popped to 2706, and the 10-year yield slipped further (2.948%). The DX tumbled, and took out its overnight low to reach 92..53. Gold rallied, and finally breached the quadruple top at $1318-19 to reach $1323, with some short covering seen.

 US stocks opened stronger, (S&P +16 to 2713), with real estate and telecom leading gainers. Comments from Commerce Secretary Ross on the US-China trade talks (trying to get China to buy more US goods than getting it to ship less) aided the rally.

The 10-year yield recovered to 2.982%, and the DX bounced to 92.85. Gold retreated, but found support at the old quadruple top at $1318-19.

Into mid-day, US stocks continued to climb, (S&P + 20 to 2626), and the DX reached 93. Gold was knocked briefly under support at $1318-19 to reach $1316.20, but bargain hunting buying brought the market back over $1318.

In the afternoon, US stocks pared some gains (S&P +16 to 2714), hurt by a pullback in oil (WTI to $70.54). The 10-year yield pulled back to 2.96%, and the DX retreated to 92.61. Gold rallied back to $1322, but failed to take out its earlier high. It was $1320.50 bid at 4PM with a gain of $8.

Open interest was up 3.7k contracts, showing a combination of new shorts along with some bargain hunting new longs from yesterday’s decline. Volume was a bit lower but remained very robust with 430k contracts trading.

Gold bulls were thrilled to finally get a pullback in the dollar, and to see the DX finish back under 93. This was enabled gold to break over resistance at the quadruple top $1318-19, and to get a close over that level.

They maintain that the recent influx of large fund shorts will provide additional fuel to extend rallies, and they are targeting a breach of the confluence of resistance at $1324-28 level ($1324-25 – double top, 4/27 and 4/30 highs, $1325 – options, $1326 – 100-day moving average, $1326 – 20-day moving average, $1328 – 50 day moving average, $1328 – down trendline from 4/11 $1365 top) to trigger some additional short covering and bring into play next resistance at $1332-33 (double top - 4/24 and 4/25 highs).

Bears were disappointed with the $1318-19 resistance level giving way, but are still comfortable selling into rallies. They still maintain that a long-term bottom at 88.25 from 2/16 in the DX is in place, and expect renewed strength in the greenback to fuel a further decline in the yellow metal. Bears are still looking for a failure of support at $1304-07 (200-day moving average, triple bottom) to set off liquidating stops that they expect will breach the triple bottom at $1302-03 and then $1300-01 (50% retracement of up move from 12/12/17 $1236 low to 1/25/18 $1366 high, psych level, options) to 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 reports tomorrow on US Import Prices, Export Prices, University of Michigan Sentiment, Baker-Hughes Rig Count, and the Commitment of Traders Report for near term guidance.

In the news: 

Resistance levels: 

$1323 – 5/10 high

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

$1325 – options

$1326 – 100-day moving average

$1326 – 20-day moving average

$1328 – 50 day moving average

$1328 – down trendline from 4/11 $1365 top

$1329 – 40 day moving average

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

$1335 – 4/23 high

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

$1333 – 50% retracement of down move from 4/11 $1365 high to 5/1 $1302 low

$1346 – 4/20 high

$1350 – options

$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:

$1318 -19 – quadruple top 5/3, 5/7, 5/8 and 5/9 highs

$1311 – 5/10 low

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

$1307– 200-day moving average

$1304 – 06 – quadruple bottom  5/2, 5/3, 5/8, and 5/9 lows

$1302 - 03 – triple bottom - 1/1, 3/1, 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