Gold Traders' Report - May 31, 2018

Jim Pogoda, Trader, Gold Bullion International 
MAY 31, 2018

Gold advanced overnight in a range of $1301.25 - $1306.65, tripping some buy stops over $1303 (down trendline from 4/11 $1365 top).

However, resistance at $1306-08 (triple top, 5/24, 5/25, and 5/29 highs ,200-day moving average) capped the advance. It was boosted by weakness in the dollar as the DX softened from 94.14 – 93.71.

The greenback was pressured by early strength in the yen (108.92 – 108.53, stronger Japanese Housing Starts, mo. end selling from Japanese exporters), and the euro ($1.1660 - $1.1724, fears of a potentially disruptive early election in Italy easing, stronger Eurozone CPI).

Global equities were mostly firmer and a headwind for gold with the NIKKEI up 0.8%, the SCI up 1.8% (stronger Chinese PMI), Eurozone shares ranged from -0.3% to +0.4%, and S&P futures were +0.1%.

Weaker oil prices (WTI from $68.30 - $67.56, API report showed unexpected builds in US inventories, weighed on stocks).

Gold was also supported by a report during late European time that the US metal tariffs on Mexico, Canada and the EU are 99.9% done, and will be in effect from midnight tonight.

At 8:30 AM, stronger than expected reports on US Personal Spending (0.6% vs. exp. 0.4%) and Jobless Claims (221k vs. exp. 230k) helped lift S&P futures to 2727, and brought the DX up to 94.10.

Gold plunged back under the $1303 level to reach $1299, but was met with some bargain hunting bids that brought it quickly back to $1300.

US stocks opened weaker (S&P -13 to 2711, consumer staples lag), with the earlier news of US trade tariffs increasing global trade tensions.

Stocks were also hurt by a much weaker than expected Pending Home Sales Report (-1.3% vs. exp. 0.5%).  The US 10-year yield fell back to 2.828%, but the DX rose, reaching 94.18.

The greenback was buoyed by a tumble in the euro ($1.1641), the Canadian dollar ($1.2824 - $1.2986), and the Mexican Peso (19.775 – 20.049) in response to the US tariffs. Gold rose in response, and again received a boost after crossing $1303, but the move topped out in front of resistance at $1306.

By late morning, US equities recovered to near unchanged (S&P -1 to 2722), and the 10-year yield bounced back to 2.871%. The dollar climbed to 94.25, and knocked gold back to $1300.50.

Into the afternoon, stocks sold off (S&P -23 to 2700), hurt by news of retaliatory tariff measures against the US by Mexico, the EU, and Canada.

The 10-year yield dipped to 2.822%, and the DX traded back below 94, and gold was able to claw back to $1302.25.

Later in the afternoon, US stocks came off of their lows (S&P finished off 19 to 2705), helped by some positive comments from Secretary of State Pompeo regarding North Korea (said that talks were moving in the right direction).

This was tempered somewhat by mildly hawkish comments from the usually dovish Fed’s Brainard (not concerned about a flattening yield curve). The 10-year yield ticked up to 2.855%, and the DX traded up to 94.15, then hovered between 94 – 94.05. Gold retreated back to $1299, and traded narrowly between $1299 - $1301. The yellow metal was $1299 bid at 4PM with a loss of $3.

Open interest was off 9.5k contracts, reflecting a net of short covering from yesterday’s advance. Volume was much lower with 399k contracts trading, showing the June-August rollover winding down.

Bulls were disappointed that despite a significant pullback in the DX and a dip in stocks, gold couldn’t manage to breach the 200-day moving average at $1308, couldn’t hold over resistance at $1303 (down trendline from 4/11 $1365 top), and couldn’t even finish up on the day.

However, bulls are stillencouraged that the COT Report (light NFLP, hi gross shorts) shows the market set up well to go higher are feel that the dollar’s recent run up from 89.25 – 95.03 (+6.48%, 14-day RSI touched 78.4) in the past 6 weeks has been vastly overdone.

They expect a major pullback in the DX to fuel a gold rally, and look for a breach of $1308 to trip some momentum playing new longs to bring about a quick test of $1315.

Bears are still comfortable getting short into strength, and they expect the dollar’s rally to extend. Bullish dollar technicians see a breach of the triple top in the DX at 95.15 leading to a test of 96.50, which they feel should drive gold considerably lower.

Bears will be gunning for long liquidating sell stops below the double bottom at $1293-94, followed by $1288-89 (double bottom, 5/22 and 5/23 lows, up trendline from 12/15/16 $1123 low) to bring about a test of the 5/21 low at $1282.

All markets will continue to focus on the volatility in the equity and bond markets, geopolitical events (especially Italy, Spain, and North Korea), developments with the Trump Administration (especially on US-China trade), corporate earnings, oil prices, and will turn the much awaited US Payroll Report tomorrow for near-term direction.

In the news:

April Swiss gold exports – India improving but China better

LBMA – the Alchemist, May 2018

Resistance levels: 

$1300 – psychological level, options

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

$1301 – down trendline from 4/11 $1365 top

$1303 – 20-day moving average

$1304 – 5/30 high

$1306 -08 – triple top, 5/24, 5/25, and 5/29 highs

$1308– 200-day moving average

$1317 – 40 day moving average

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

$1321 – 50 day moving average

$1322-23 – 5/10 and 5/14 highs

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

$1325 – options

$1326 – 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:

$1299 – 5/31 low

$1296 – 5/30 low

$1293 – 94 – double bottom – 5/24 and 5/29 lows

$1288 – double bottom, 5/22 and 5/23 lows

$1288  - up trendline from 12/15/16 $1123 low

$1281-82 – double bottom, 5/21  and 12/27 lows

$1275 – options

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

$1267 – up trendline from 1/6/17 $1171 low

$1265 – 12/22 low