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Gold Traders' Report - May 3, 2018

Jim Pogoda, Trader, Gold Bullion International 
MAY 3, 2018

Yesterday’s FOMC statement was viewed as a bit dovish, with the Fed noting the weakness in growth in the first quarter, and signaled their willingness to allow inflation to exceed their 2 percent goal somewhat by adding a reference to the “symmetric” nature of their target – implying they might not be as quick to hike rates going forward.

While the probability of a 25 bp hike in June remained a virtual certainty, the probabilities of additional hikes September and December dropped as follows:

  • Sep from 77.9% to 71.9%
  • Dec from 50.8% to 41%

The yield on the US 10-year bond fell overnight to 2.935%, while the DX moved down to 92.36.

Gold advanced, taking out some stops over yesterday’s $1314 high and Tuesday’s $1316 high on the way to $1318.20 (short covering seen).

Mostly weaker global equities were a tailwind for gold with the NIKKEI closed, the SCI was up 0.6%, European shares were off from 0.1% to 0.2%, and S&P futures were off 0.3%.

Reports that the US was considering taking executive action to restrict some Chinese firms’ ability to sell telecom equipment weighed on stocks just before the NY open (S&P futures to 2617).

News from the World Gold Council that demand declined 7% in Q1 (see news story below) was a headwind for gold and limited its gains.

At 8:30 AM, better than expected reports on US Jobless Claims (211k vs. exp. 225k), and the Trade Balance (-$49B vs. exp. -$50B) outweighed misses on Productivity (0.7% vs. exp. 0.9%) and Unit Labor Costs (2.7% vs. exp. 3.0%).

S&P futures stabilized from the morning selloff (2623), and the 10-year yield moved up to 2.953%.  The DX rebounded to 92.56, and pressed gold back to $1314.

US stocks opened weaker, with the S&P plunging to support at its 200-day moving average at 2615.

Worries about White House investigations and continued concerns over US – China trade negotiations weighed on stocks.

The 10-year yield moved back down to 2.935%, and the DX was tugged down to 92.45.  Gold clawed higher, but was capped at $1316.

At 10AM, a worse than expected report on ISM Services (56.8 vs. exp. 58) outweighed a slightly better than expected reading on Factory Orders (1.6% vs. exp. 1.4%).

US stocks fell further (S&P -40 to 2595), with a drop in crude (WTI to $67.20) aiding the move while the 10-year yield moved lower to 2.927% (2-week low).

The dollar, however, failed to decline as weakness in the euro ($1.20 to $1.1949 further fallout from earlier miss on Eurozone CPI) and the pound ($1.3605 - $1.3538, further fallout from earlier miss in UK Services PMI, growing doubts UK will hike rates next week) pushed the DX up to 92.67. 

Gold - caught in the cross currents – drifted a bit lower to $1312.50.

Into the afternoon, US stocks bounced back briefly into positive territory (S&P +2 to 2637), aided by a recovery in oil (WTI to $68.56).

The 10-year yield climbed back to 2.95%, but the dollar failed to move along higher.

The DX was pressed lower as a recovery in the euro ($1.2004), and sterling ($1.3585) sent it back to 92.34.

Later in the afternoon, US equities finished a tad lower (S&P -5 to 2630), while the 10-year yield remained steady around 2.95%.

The DX bounced to 92.47, and gold slipped back to $1311. It was $1312 bid at 4PM with a gain of $6.

Open interest was off 6.7k contracts, showing a net of short covering from yesterday’s advance. Volume ballooned with 405k contracts trading.

Bulls were encouraged that support at the 200-day moving average held again, and feel there is a lack of conviction in driving gold lower. They feel the relatively low Net Fund Long Position is preventing a cascading of support levels tripping a significant move lower.

They’and feel that a base is being formed and feel comfortable getting long at the bottom of gold’s 4-month trading range. Additionally, they feel the dollar’s rally has been overextended, and expect a pullback in the greenback to fuel a corrective rally in gold.  Bulls are looking for a quick rebound to at least $1333 - the 50% retracement level of the down move from the $1365 high on 4/11 to the $1302 low from 5/1.

Bears still maintain 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 below $1315, 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 tomorrow’s much-awaited US Payroll Report for near-term direction.

In the news:

Resistance levels: 

$1314 – 5/2 high

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

$1318 – 5/3 high

$1319 – 4/25 low

$1324 – 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

$1329 – 50 day moving average

$1330 – 40 day moving average

$1332 – 20-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

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

$1337 – up trend line from 12/12 $1236 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:

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

$1305– 200-day moving average

$1305 – 5/3 low

$1304 – 5/2 low

$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