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Gold Traders' Report - November 13, 2018

Jim Pogoda, Trader, Gold Bullion International 
NOV 13, 2018

Gold was choppy overnight in a range of $1196.40 - $1205.30, still largely fading movements in the US dollar.

It rose to its high of $1205.30 during Asian hours, as the DX slumped to 97.43 after making a 17-month high yesterday afternoon at 97.70.

The greenback was pressured by gains in the yuan (6.9695 – 6.9481, reports that Treasury Secretary Mnuchin and Vice Premier Liu were beginning trade talks, Liu was planning to visit US ahead of the Trump/Xi meeting at G20), the pound ($1.2835 - $1.2918, UK Brexit Secretary Raab says he’s confident progress will be made in Brexit talks) and the euro ($1.1216 -$1.1258, upbeat Brexit comments, technical bounce from 17-month low yesterday).

During European time, however, gold tumbled through support at $1201 (yesterday’s low, $50% retracement of up move from 8/16 $1160 low to 10/26 $1143 high, $1200 (psychological level, options), and $1198 (up trendline from 8/16 $1160 low) to reach $1196.40 as the DX bounced back to 97.67.

The dollar was boosted by a pullback in the euro ($1.1221) from a miss on Eurozone ZEW survey and Italian budget concerns – as today is the deadline for Italy to resubmit its budget proposals to the EU.

Later during European time and through the NY open, gold rallied back to $1203.50 as the DX slid to 97.27. The dollar weakened against a further climb in sterling ($1.2979) and the euro ($1.1270) as PM May’s deputy Lidington said, “we’re almost within touching distance now” and implied a Brexit deal can be secured within the next 24-48 hours, along with a miss on the US NFIB Small Business Optimism Index (107.4 vs. exp. 108).

Global equities were mostly higher and a headwind for gold with the NIKKEI off 2.1%, the SCI rose 0.9%, European shares were up 0.2% to 0.8%, and S&P futures were +0.6%. A further drop in oil (WTI from $59.05 - $58.23, 9-month low) weighed on stocks.

US equities were choppy and volatile through their open, with losses in Boeing (failed to disclose possible fault of Lion Air crash), and Apple (Goldman cuts iPhone estimates) offset by gains in Home Depot (strong earnings) and rebounds in beaten-down tech shares.

They turned higher by mid-morning (S&P +29 to 2755), aided by some upbeat comments on trade from White House Economic Advisor Kudlow (reiterated positive developments on renewed discussions with China, denounced Navarro’s comments last week). The US 10-year bond ticked up to 3.165%, while the DX hovered around 97.30. Gold softened and slid back to $1199.

Later in the morning, the DX tumbled to 97.07 as reports that UK and EU negotiators have reached a deal on a Brexit backstop. The pound shot higher to $1.3046, and the euro rose to $1.1293 – cheering the news. Gold rebounded, but topped out at $1204.25 - unable to take out the overnight high.

Into the afternoon, US stocks turned negative (S&P -10 to 2717) with losses in the energy and health care sectors weighing.

A continued drop in oil prices (WTI to $55.62, 1-year low, OPEC reduces 2019 demand forecast, Trump’s urging the Saudis and OPEC not to cut production from yesterday still resonating), and rumors that Trump would be replacing Chief of Staff John Kelly contributed to the move.

The 10-year yield slid back to 3.145%, but the dollar rose. The DX climbed to 97.41, as the pound ($1.2944) and the euro ($1.1253) pulled back over fading enthusiasm over the Brexit agreement – knowing it must pass the UK Cabinet (meeting tomorrow) and Parliament before materializing. Gold softened in response, but dip buying limited its decline to $1199.50.

Later in the afternoon, US stocks pared some losses (S&P finished off 3 to 2733). The 10-year yield slid to 3.141%, while the DX retreated to 97.20. Gold edged up to $1202 and was $1201 bid at 4PM – unchanged.

Open interest was up 12.6k contracts, showing a sizeable amount of new shorts but also a healthy amount of new bargain hunting longs from yesterday’s $8 drop. Volume was lower but still decent with 242k contracts trading.

Bulls are concerned with gold’s dip to $1196 today on top of it $40 drop in the last 5 sessions – when they were within a whisker of an upside breakout over the $1237 level.

However, some bulls are encouraged over gold’s ability to rebound from $1196 – despite the dollar also rebounding from its session lows. Bull are using this opportunity to get long(er) scale down (note the large increases in open interest from the past 2 sessions), remaining steadfast in their thinking that gold bottomed at $1160 on 8/16 after a $35 2-day capitulation.

They still have an uptrend 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 yesterday’s 97.70 high (+4.15% 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 are pleased with gold’s 4 consecutive lower lows that dented support at $1198 today (up trendline from 8/16 $1160 low), and leaves the market again 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 ahead of support levels during the past 3 sessions.

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 $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 Japan’s GDP and Industrial Production, China’s Retail Sales and Industrial Production, Germany’s GDP, UK’s CPI and PPI, Eurozone GDP and Industrial Production, US CPI, and comments from the Fed’s Powell for near-term direction.

In the news:

Resistance levels: 

$1205 – 11/13 high

$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

*$1215 – 100-day moving average

$1223 – 11/9 high

$1224 – 20-day moving average

$1225 – options

$1227 – 11/8 high

*$1235 – down trendline from 4/23 $1336 high

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

$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

$1196 – 12/13 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