Gold Traders' Report - May 18, 2018

Jim Pogoda, Trader, Gold Bullion International 
MAY 18, 2018

Gold traded lower overnight in a narrow range of $1291.20 - $1286.30, but it held above the key support level of $1285 (yesterday’s low, up trendline from 12/15/16 $1123 low).

It traded against a firmer dollar (DX up to 93.65), which was boosted by weakness in the yen (110.71 – 111.08, weaker Japanese CPI) and the euro (dips to near 5-month low at $1.1771, Italian political concerns outweigh stronger German WPI and PPI reports).

A move up to a fresh 7-year high in the US 10-year bond yield (3.128%) boosted the greenback and was also a headwind for gold, as were mostly firmer global equities.

The NIKKEI rose 0.4%, the SCI gained 1.2%, Eurozone shares were flat to -0.1%, and S&P futures were +0.2%. A modest increase in oil (WTI from $71.50 - $71.75) aided the up move in stocks.

After the NY open, further weakness in the euro ($1.1749) and the pound (near 4-month lows at $1.3454, Brexit concerns, BoE dovishness) pushed the DX higher to 93.83 – a fresh 5-month high.

Gold, which had drifted up previously to $1288.50 was knocked back to $1286, but support ahead of $1285 was solid and held.

From mid-morning into the afternoon, US stocks turned down (S&P -11 to 2709) as tensions surrounding the trade talks between the US and China and a downbeat assessment on NAFTA negotiations by US Trade Rep Lighthizer weighed on sentiment.

A dip in oil (WTI down to 71.08) was also a headwind for stocks. The 10-year yield pulled back to 3.071%, and the DX was tugged down to 93.55.

Gold popped up in response and took out some stops over the overnight high ($1291.20) and yesterday’s reaction high at $1291.50 to reach $1294.50 – where resistance at yesterday’s high capped the advance.

Later in the afternoon, US equities remained steady near their lows, and the S&P finished off 7 to 2713. The 10-year yield continued to tick down, and touched 3.058%. Despite that, the DX clawed back to 93.70, and gold retreated to $1291.50. The yellow metal was $1292 bid at 4PM with a gain of $2.

Open interest was up 0.5k, showing a small net of new shorts from yesterday’s slight decline. Volume was lower with 326k contracts trading.

The CFTC’s Commitment of Traders Report as of 5/15 showed the large funds adding 2.9k contracts of longs and a whopping 17.9k of shorts to reduce their net long position to 92k contracts.

This was done on gold’s move down to from $1319 to $1289, and is the lowest NFLP since 7/25/17, when gold was trading around $1250. While this is not bullish for sentiment, this positioning is relatively and historically small, and shows gross shorts very elevated at 109k contracts. It leaves the gold market set up well to move higher - provided there is a spark - as there is plenty of room from sidelined longs to enter, and the excess shorts can fuel a rally if / when they are forced to cover.

Bulls were pleased that gold held support at $1285 and managed to eke out a $2 gain, despite the DX making a fresh 5-month high, and the 10-year yield making a fresh 7-year high. They feel that the gold’s $80 (5.86%) drop since its $1365 4/11 high, and $41 decline (3.09%) since its $1326 top from last week, leave it badly oversold (14-day RSI – 34.09), and point to the solid support at $1285 and price action of the past two days that a significant bounce is impending.

Bulls expect a quick rebound to $1327 - the 50% retracement of the down move from the $1365 high from 4/11 to yesterday’s $1285 low, and the 100-day moving average.

While some bears have already taken profits and are awaiting to sell into future recovery rallies, some are looking for further strength in the dollar and the US 10-year bond yield to drive gold lower. They’re looking for the down trend to continue, and trip more selling under next support at $1285 (up trendline from 12/15/16 $1123 low) and $1281 (12/27 low) to bring $1275 (options) and $1273 (double bottom, 12/25 and 12/26 lows) 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 Monday on Japan’s Trade Balance, US Chicago Fed National Activity Index, and comments from the Fed’s Bostic, Harker, and Kashkari for near-term guidance.

In the news:

Resistance levels:

$1294 – double top 5/17 and 5/18 highs

$1297 – 5/16 high

$1300 – psychological level, options

$1301 – 50% retracement of up move from 12/12/17 $1236 low to 1/25/18 $1366 high

$1301 – 50% retracement of up move from 12/12/17 $1236 low to 1/25/18 $1366 high

$1302 - 03 – triple bottom - 1/1, 3/1, 5/1 lows

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

$1308– 200-day moving average

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

$1311 – 5/10 low

$1312 – 20-day moving average

$1313 – 5/14 low 

$1318 – double bottom  5/11 and 5/14 lows

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

$1320 – down trendline from 4/11 $1365 top

$1322-23 – 5/10 and 5/14 highs

$1325-27 – quadruple  top, 4/26, 4/27, 4/30, and 5/11 highs

$1325 – options

$1325 – 50 day moving average

$1326 – 40 day moving average

$1328 – 100-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:

$1289 – 5/15 low

$1287 – double bottom, 12/28 and 5/16  lows

$1286 – 5/18 1ow

$1285 – 5/17 low

$1285  - up trendline from 12/15/16 $1123 low

$1281 – 12/27 low

$1275 – options

$1273 – double bottom, 12/25 and 12/26 lows

$1265 – 12/22 low

$1265 – up trendline from 1/6/17 $1171 low