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Gold Traders' Report - November 12, 2018

Jim Pogoda, Trader, Gold Bullion International 
NOV 12, 2018

Gold moved lower overnight in a range of $1204 - $1211.45, fading strength in the US dollar. After ticking up to its high of $1211.45 early during Asian hours on some Far Eastern bargain hunting buying, gold softened as the DX took out its high of 97.20 from 10/31.

Buy stops were tripped, which took the greenback up to 97.58 – a 17-month high.

The DX was boosted by weakness in the pound ($1.2975 - $1.2828, ex-foreign secretary says May on “verge of total surrender to Brussels”, reports suggesting May’s plan is increasingly unlikely to make it through Parliament, both sides still stuck on terms of Irish backstop), and the euro ($1.1335 - $1.1240, 17-month low, concerns over Brexit, Italian budget – Italian deputy PM DiMaio says respecting EU limits on budget is suicide).

Gold sold off and touched off some liquidating sell stops under Friday’s $1206 low to reach $1204 – a 1-month low.

Global equities were mixed with the NIKKEI up 0.1%, the SCI gained 1.2%, European markets were off from 0.7% to 0.1%, and S&P futures were flat. A rally in oil (WTI surged from $59.80 - $61.26, Saudi’s say weaker demand warrants output cuts of 1M bpd, will unilaterally cut 500k bpd) help support equities.

After the NY open, optimistic comments from the EU’s chief Brexit negotiator Barnier that the main elements of an exit treaty were ready to present to the UK cabinet on Tuesday brought rebounds in sterling ($1.2934), and the euro ($1.1278).

The DX retreated to 97.32 (but held the 97.20 breakout level), and gold bounced to $1207. Note – US bond markets were closed in observance of Veteran’s Day, limiting activity and liquidity.

US stocks opened weaker, with a sharp decline in Apple (supplier cut outlook) and the IT sector leading the decliners (S&P -28 to 2753, more than 70% of tech sector now in correction territory).

A WSJ report that the US was broadening the trade war with China to use export controls, indictments and other tools to counter the theft of IP weighed on stocks and was dollar supportive.

The DX turned up modestly (DX to 97.38) off of the report, and as the pound ($1.2886) and the euro ($1.1250) retreated. Gold softened further to $1202.50 where bargain hunting bids limited its decline and lifted it back to $1204.50.

Into the mid-day, US equities continued to slide (S&P -48 to 2733), falling through its 200-day moving average at 2762 it just breached to the upside last Wednesday. The dollar, however, failed to decline as support from a dip back down in sterling ($1.2850) and the euro ($1.1241) brought the DX back to 97.50. Gold was resilient though, holding its prior low at $1202.50.

In the afternoon, US stocks trimmed some losses (S&P -29 to 2751), despite oil tumbling (WTI to $59.70) on a tweet from Trump saying, “hopefully Saudi Arabia and OPEC will not be cutting oil production.

Oil prices should be much lower now based on supply!” The DX rose to 97.57 - a tick away from its overnight high – and gold was pressed to $1201 – where support at the 50% retracement of the upmove from $1160 on 8/16 to the $1243 high on 10/26 held.

Later in the afternoon, US equities turned down to make session lows (S&P finished -55 to 2726), with losses in the IT sector exceeding 3.5%.

Some mildly hawkish comments from the Fed’s Mary Daly (economy is very good, with a booming labor market - at or beyond full employment - and inflation likely to rise above the 2% target over the next year, the Fed should continue to raise rates gradually) were a headwind for stocks.

The DX ticked up to a session high at 97.59 and gold slipped to $1200.50. The yellow metal was $1201 bid at 4PM with a loss of $8.

Open interest was up sizably - 8.9k contracts – showing a fair amount of new shorts but also a good amount of new bargain hunting longs from Friday’s $14 drop. Volume swelled with 379k contracts trading.

Bulls are reeling from gold’s $8 decline today and its $35 drop in the last 4 sessions – when they were within a whisker of an upside breakout over the $1237 level. However, some bulls are using this opportunity to get long(er) scale down, remaining steadfast in their thinking that gold bottomed at $1160 on 8/16 after a $35 2-day capitulation.

They still have an uptrend firmly in place from that level, and will look to continue to add to long positions on weakness, or on some expected ensuing upside momentum. They maintain the market has been and remains extremely oversold - having dropped $205 (15.0%) since the 4/11 $1365 high, and $149 (11.4%) since the $1309 high on 6/14.

Bulls strongly believe that the dollar’s recent climb from its 9/21 93.81 low to today’s 97.59 high (+3.93% to fresh 17-month high) is badly overextended, and expect a correction to drive a significant short covering rally in gold.

Bulls will look to consolidate and form a base in front of $1198 (up trendline from 8/16 $1160 low) and then to retake the 100-day moving average at $1216. Beyond this, bulls will look to hurdle minor resistance at the last two sessions highs at $1223, and $1227, and then have another knock at $1235-38 (6 tops –10/29, 11/1, 11/2, 11/5, 11/6, and 11/7 highs).

In addition, bulls maintain that Friday’s Commitment of Traders Report still shows the funds with a massive gross short position (150k contracts). They feel the that the short side of gold is still a very crowded trade, and that the gold market is still set up in a highly favorable position to move up from potential heavy short covering and sidelined longs returning to the market.

Bears cheered today’s $8 decline that leaves the market teetering at $1201 support level (50% retracement of up move from 8/16 $1160 low to 10/26 $1143 high).

Bears are still comfortable trading gold from the short side and scale up selling into strength, though many took profits today ahead of $1201.

Bears point to the lack of follow-through gold has presented on recent rallies: failure to breach $1235-38 (6 tops –10/29, 11/1, 11/2, 11/5, 11/6, and 11/7 highs) last week, failure to take out $1244 on 10/26 (would have tripped down trendline from 4/23 $1336 high), and that the massive amount of short covering seen thus far from the prior few week’s COT reports (66k contracts) failed to lead to a breach of at least $1250 - as signs of a tired market – and expect a significant pullback to continue to unfold.

Many bears are firm in their conviction that fuel from dollar strength, higher interest rates and a rebound in equities will provide downside pressure on gold and see prices north of $1200 offering a great opportunity to get short(er).

This is witnessed by Friday’s COT Report – that despite some short covering in the past week - a massive gross short position (150k contracts) still remains.

Bears will look for a breach of support at $1201 (today’s low and 50% retracement of up move from 8/16 $1160 low to 10/26 $1143 high) followed by $1200 (psychological level, options), and $1198 – up trendline from 8/16 $1160 low to trip significant long liquidation to bring $1191 (10/11 low), and then $1181 - 85 (9 bottoms - 8/20, 8/23, 8/24, 9/27, 9/28, 10/1, 10/8, and 10/9, and 10/10 lows) into play.

All markets will continue to focus on geopolitical events (especially Brexit developments), developments with the Trump Administration (especially on US-China trade, potential legal issues), oil prices, Q3 corporate earnings, and will turn to reports tomorrow on Germany’s CPI and ZEW Survey, Eurozone ZEW, UK Jobless Claims and Employment Change, US NFIB Small Business Optimism, and comments tomorrow from the Fed’s Kashkari, Brainard, and Harker for near-term guidance.

In the news:

Resistance levels: 

$1204- 06 – double top – 10/5, 10/8 highs

$1206 – 11/9 low

$1207-08 - 10/2, 10/3, and 10/4 highs

$1211 – 11/12 high

$1210 – 50 day moving average

$1213 – 40 day moving average

$1216 – 11/1 low

*$1216 – 100-day moving average

$1223 – 11/9 high

$1225 – options

$1225 – 20-day moving average

$1227 – 11/8 high

$1235-38  – 6 tops –10/29, 11/1, 11/2, 11/5, 11/6 ,and 11/7 highs

*$1236 – down trendline from 4/23 $1336 high

$1239-40 – double top, 10/23 and 10/25 highs

$1243 – 10/26 high

*$1245-46 – double top – 7/16 and 7/17 highs

$1250  - options

$1251-53 – triple bottom 7/4, 7/5, and 7/6 lows

$1259-61 – quadruple top – 6/27, 7/4, 7/5, and 7/6 highs

$1262 – 50% retracement from 4/11 $1365 high to the 8/16 $1160 low

Support levels:

$1201 – 11/12 low

$1201 – 50% retracement of up move from 8/16 $1160 low to 10/26 $1143 high

$1200 – psychological level, options

*$1198 – up trendline from 8/16 $1160 low

$1191 – 10/11 low

*$1181 - 85 – 9 bottoms - 8/20, 8/23, 8/24, 9/27, 9/28, 10/1, 10/8, and 10/9, and 10/10lows

$1175 – options strike

$1172 8/17 low

*$1160 – 8/16  low

$1156 – 1/4/17 low

$1150 – options

$1146 – 1/4/17 low