Gold Traders' Report - May 4, 2018

Jim Pogoda, Trader, Gold Bullion International 
MAY 4, 2018

Gold was fairly steady overnight, trading either side of unchanged in a range of $1308.65 - $1314.45 and awaiting the release of the US Payroll Report this morning.

It traded up to its high during early Asian hours as it faded some early dollar weakness (DX to 92.36) which was pressured by some strength in the yen (109.24 – 108.92).

During European time, gold drifted lower as the dollar rebounded (DX to 92.62), boosted by a softer euro ($1.1996 - $1.1955, miss on Eurozone PMI’s).

A tick down in the US 10-year bond yield was supportive for gold while global equities were mixed. The NIKKEI was closed, the SCI slipped 0.3%, Eurozone shares ranged from -0.1% to +0.4%, and S&P futures were off 0.2%. News that US – China trade talks ended with no deals and no date set for further talks weighed on stocks, but was countered by news from Berkshire that they bought 75M shares of Apple in Q1.

Firmer oil prices were a tailwind for stocks with WTI up to $68.86 on continuing concerns US reinstating sanctions on Iran.

At 8:30 AM, the US Payroll Report was mixed. While Non-Farm Payrolls were less than expected (164k vs. exp. 192k), the last two months were revised up by 30k.

The Unemployment Rate ticked down (3.9% vs. exp. 4.0%, 18-year low), but Average Hourly Earnings were off a bit (0.15% vs. exp. 0.2%). Initially, the bond yield (2.911% - fresh 2-week low), S&P futures (-14 to 2614) and the DX (92.36) slipped sharply from the algorithms picking up the lower NFP.

Gold rallied in response, and took out its overnight high to reach $1315.35.

At 9AM, Eurozone Retail Sales were much lower than expected (0.1% vs. exp. 0.5%), and knocked the euro down to $1.1912 (fresh 4-month low). The DX rallied to 92.91 (4-month high), and forced gold down.

The yellow metal took out its overnight low to reach $1308, but solid support ahead of the 200-day moving average from bargain hunting longs limited gold’s downside, and led a quick bounce back to the $1312-13 area.

Later in the morning, US stocks turned higher (S&P +20 to 2650 – Apple, consumer staples, and information technology lead gainers) and the US 10-year yield climbed to 2.953%. The DX - which had pulled back to 92.62 – clawed back to 92.80. Gold turned down in response, but found support at $1310.

Into the afternoon, US equities continued to climb (S&P +43 to 2672), helped by some dovish comments from the Fed’s Williams (“I don’t see any rapid increase in inflation coming”… “Given that inflation has been below our target for a number of years, I think it is important to reinforce that message that we think of 2 percent as the midpoint of where we expect inflation to be and I am personally comfortable with the fact that inflation may overshoot that 2 percent for a while”), and Bostic (“I’m pretty firmly a three [total rates hikes for ’18] right now”).

The 10-year yield pulled back below 2.95%, and the DX slid down to 92.52. Gold advanced, but was capped by resistance at the earlier $1315 high. It was $1314 bid at 4PM with a gain of $2.

Open interest was off 3.9k contracts, showing a net of short covering from yesterday’s advance. Volume was lower but still robust with 324k contracts trading.

The CFTC’s Commitment of Traders Report as of 5/1 showed the large funds cutting 16k contracts of longs and adding 14k contract of shorts to cut their net long position to 107k contracts.

This was done on gold’s move down from $1333 to $1302, and is the lowest Net Fund Long Position since 12/12/17.

While this is certainly not bullish for sentiment, it is a relatively and historically light Net Fund Long Position, and shows gross shorts over 100k contracts – which is also relatively and historically elevated.

Combined, 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 excess shorts can fuel a rally if / when they are forced to cover.

Bulls were pleased with gold’s gain today, despite the rally in stocks, a steady 10-year bond yield near 4-year highs, and a fresh 4-month high in the DX.

They feel the relatively low Net Fund Long Position is preventing a cascading of support levels being tripped to trigger a significant move lower, and that recent influx spec shorts will provide fuel for an impending rally.

They feel that a base is being formed at the 200-day moving average ($1305 – which has held on a closing basis), and feel comfortable getting long at the bottom of gold’s 4-month trading range.

Additionally, they feel the dollar’s rally has been over extended, and expect a pullback in the greenback to ignite 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 comments later this evening by the Fed’s Kaplan, and reports Monday on BOJ Policy Minutes, German Factory Orders, Construction PMI, Eurozone Retail PMI, and US Consumer Credit for near-term guidance

In the news:

 Resistance levels: 

$1315 – 5/4 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

$1331 – 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