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Gold Traders' Report - May 8, 2018

Jim Pogoda, Trader, Gold Bullion International 
MAY 8, 2018

Gold traded lower last night in a range of $1308.80 - $1317. In similar price action as we saw the prior night, gold traded up to its high during Asian hours, only to sell off later during European time when the DX made a fresh 4 ½ month high.

Gold rose early to $1317, as the dollar slumped (DX to 92.65) against some modest strength in the yen (109.14 – 108.83), buoyed by some safe-haven buying ahead of Trump’s decision later this afternoon on reinstating sanctions on Iran.

However, the greenback turned higher during European time (DX to 93.13), after absorbing better than expected readings on Germany’s Trade Balance and Industrial Production (euro from $1.1930 - $1.1861 – fresh 4 ½ month low).

Some slightly hawkish comments from the Fed’s Powell (moves by Moves by the Fed and other major central banks to raise interest rates after a long period of keeping them low should not be disruptive to the global economy) were supportive of the dollar, and helped take the US 10-year yield up to 2.959%.

A better than expected reading on the US NFIB Small Business Optimism Index at 6AM (104.8 vs. exp. 104.5) was also dollar bullish. Gold softened in response, and dipped through some light support at yesterday’s $1310 low to reach $1308.80.

Global equities were mixed with the NIKKEI +0.2%, the SCI +0.8% (Imports, Exports and Trade Balance surge), Eurozone shares were unch. to down 0.6%, and S&P futures were off 0.1%. A slight dip in oil (WTI from $70.20 - $69.66) weighed on equities.

After a weaker opening, US stocks bounced back to turn positive (S&P +6 to 2677), helped by a report that Trump would not pull the US out of the 2015 Iran nuclear deal.

Oil tanked to $67.62 in relief, while the 10-year yield continued its climb from overnight, and reached 2.982% by late morning.

The dollar charged higher, with the DX touching 93.29 (high since 12/27). Gold was pressured lower, but it found support once again at its 200-day moving average at $1306.

Near mid-day, another report from the NYT surfaced that Trump would not only reimpose all prior sanctions it had previously waived against Iran, but would seek additional economic penalties.

US stocks sold off (S&P -11 to 2661), oil snapped back over $69, and the DX fell back under 93 to 92.97. Gold rallied back, touching off some buy stops over $1310 to reach $1315.

At 2PM, Trump did announce the US was indeed exiting the Iran nuclear deal, without caveats. S&P futures sold off to 2655, while a flight to quality bid the US 10-year yield down to 2.959%.

Oil rallied sharply, and took out it prior high to reach $70.35. The DX, which had briefly recovered to 93.10, was knocked down to 92.96. Gold rallied, and took out its overnight high at $1317 to reach $1317.80, but was capped there by the double top at $1318-19 (5/3 and 5/7 highs).

Later in the afternoon, US stocks recovered to near unchanged (S&P finished unch at 2672), and the 10-year yield rebounded to 2.974%. The DX clawed back over 93 then traded narrowly between 93.10 – 93.15. Gold traded down to $1314 in response, and was $1314 bid at 4PM with a loss of $1.

Open interest was off 4k contracts, showing a net of short covering from gold’s bounce yesterday. Volume was lower with 258k contracts trading.

Bulls were a bit disappointed with gold’s in ability to advance today - given the increase in tension and uncertainty as Trump pulled out of the Iran nuclear deal.

However, bulls maintain that the historically and relatively low Net Fund Long Position is preventing a cascading of support levels from being tripped to trigger a larger downward move. They point to the bullish development of the recent influx of large fund shorts (over 100k gross shorts) that will provide fuel for an impending rally.

Bulls were encouraged by another bounce off of the 200-day moving average today, and are more convinced a base is being formed there and feel comfortable getting long at the bottom of gold’s 4-month trading range. While a firming dollar is a concern, the bulls see gold holding up well despite the DX making a higher high in the past three sessions while moving up through 93.

Bears were comforted that after 4 straight sessions of higher highs and higher lows, gold breached its $1310 support early, and failed to take out the double top at $1318-19 – even after the US pullout of the Iran nuclear pact. 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 failure of support at $1304-06 (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 Japan’s Leading Index, US MBA Mortgage Applications, PPI, Wholesale Sales, Oil Inventories, and comments by the Fed’s Bostic for near-term guidance.

In the news:

Resistance levels: 

$1310 – 5/7 low

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

$1316 – 5/4 high

$1318 -19 – double top 5/3 and 5/7 highs

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

$1325 – 100-day moving average

$1325 – options

$1328 – 20-day moving average

$1328 – 50 day moving average

$1330 – 40 day moving average

$1331 – down trendline from 4/11 $1365 top

$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

$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

$1306– 200-day moving average

$1304 – 06 – triple bottom 5/2, 5/3 and 5/8 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