Gold Traders' Report - November 26, 2018

Jim Pogoda, Trader, Gold Bullion International 
NOV 26, 2018

Gold traded higher overnight in a range of $1222.30 - $1228.15, continuing to fade movement in the US dollar.

It dipped to its low of $1222.30 during Asian time, as the DX ticked over 97 to 97.04. However, gold rebounded during European hours to its $1228.15 high, where it was capped by resistance at the quadruple top at $1228-30 (11/20, 11/21, 11/22, and 11/23 highs).

Gold’s advance was fueled by a pullback in the DX to 96.66, which was pressured by strength in the pound ($1.2795 -$1.2858, EU approved Brexit withdrawal agreement) and the euro ($1.1326 - $1.1383, Brexit optimism, signs Italy was preparing to tweak spending plans).

Gold’s advance was also aided by some tensions between Russia and Ukraine after Russia captured 3 Ukraine Navy vessels off the coast of Crimea. Global equities were mostly firmer and a headwind for gold with the NIKKEI up 0.7%, the SCI off 0.1%, European markets were up from 0.9% to 1.3%, and S&P futures were +1.2%. A rebound in the battered oil price ($50.13 - $51.45) helped support stocks.

At 8:30 AM, a better than expected reading on the Chicago Fed National Activity Index (0.24 vs .exp. 0.18) helped lift S&P futures (2660) and the US 10-year bond yield (3.089%). The DX rebounded to 96.89, and pressed gold back to $1224.

US stocks opened stronger (S&P +39 to 2671), led by a recovery in the FAANG stocks, GM (announced restructuring) and the Financials and Consumer Discretionary sectors. News of record online sales from Black Friday (+23.6%) aided the move.

The DX continued its recovery (97), aided by a pullback in the euro ($1.1338) from a downbeat economic assessment from the ECB’s Draghi, and a dip in sterling ($1.2815) as May’s speech failed to inspire MPs. Gold edged lower in response, but support at the overnight low limited the decline to $1222.25.

Equities pared some gains into the afternoon (S&P +20 to 2652), while the US 10-year yield moved down to 3.066%. The DX rose however (97.09), helped by continued weakness in the pound ($1.2805) and the euro ($1.1326). Gold remained under pressure, and ticked down to $1221.50.

Later in the afternoon, US stocks turned higher (S&P finished +41 to 2673), while the 10-year yield hovered around 3.07%. The DX traded narrowly between 97.03-97.07, while gold was steady between $1221.50 - $1222.50. The yellow metal was $1222 bid at 4PM with a loss of $1.

Open interest was off 12.4k contracts, showing a sizeable chunk of long liquidation (but also some short covering) from Friday’s decline ahead of the weekend. Volume was higher with 307k contracts trading.

The CFTC’s Commitment of Traders Report as of 11/20/18 showed the large funds trimming 2.9k contracts of longs, and cutting 21k contracts of shorts to turn net long again by 9k contracts. The heavy short covering was seen during gold’s move up from $1198 to $1229 last week.

However, though the net fund position increased by 18k contracts, the net 9k contract level remains historically and comparatively still extremely low. The gold market is still set up very well to move sharply higher as the short side of gold is still a very crowded trade.

With many longs still on the sidelines and a massive gross short position still remaining (157k contracts), gold needs a spark to unleash a torrent of buying from shorts covering and sidelined long-side players returning.

Bulls were encouraged that despite the DX trading over 97, the 10-year yield moving up from 3.03% to 3.07%, and the sharp rally in equities - gold held up fairly well - holding above the lows made during the past 5 sessions.

Bulls remain 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 the 97.70 high two weeks back (+4.15% to fresh 17-month high) is badly overextended, and expect a correction to drive a significant short covering rally in gold.

Bulls are looking for a spark to take out $1228-30 (5 tops – 11/20, 11/21, 11/22, 11/23 and 11/26 highs and down trendline from 4/23 $1336 high), which they feel should ignite further buying to challenge $1235-38 (6 tops –10/29, 11/1, 11/2, 11/5, 11/6, and 11/7 highs). In addition, bulls maintain that today’s Commitment of Traders Report still shows the funds with a massive gross short position (157k 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 a bit concerned with gold’s ability to remain firm, despite a significant move higher in equities, bond yields and the dollar today. However, the bears take some comfort that the S&P is back above 2646 (10% retracement from the all-time 2940 high), feel that the strong buying gold has seen on pullbacks will fade and remain comfortable trading gold from the short side and scale up selling into strength.

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) , failure to take out $1244 on 10/26 (would have tripped down trendline from 4/23 $1336 high), and that the fairly heavy amount of short covering seen thus far from the prior few week’s COT reports has failed to lead to a breach of at least $1250 - as signs of a tired market – and expect a significant pullback 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 today’s COT Report – that despite a good chunk (21k contracts) of covering in the past week - a massive gross short position (157k contracts) still remains. Bears will look for a breach of initial support at $1218-21 (5 bottoms, 11/19, 11/20, 11/21, 11/23, and 11/25 lows) to challenge next support at the 100-day moving average at $1212. Below here, bears will look to test $1204 – the up trendline from 8/16 $1160 low.

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, tomorrow’s CME gold options expiration, and will turn to reports tomorrow on German Retail Sales, US Home Price Index, Consumer Confidence, and comments from the Fed’s Bostic, Evans and George for near-term direction. Looming ahead later this week is a speech from Powell on Wednesday, the FOMC Minutes from the 11/8 meeting on Thursday, and the much-awaited meeting between Trump and Xi this weekend.

In the news:

Resistance levels: 

$1225 – options

$1228-30 5 tops  – 11/20, 11/21, 11/22, 11/23 and 11/26 highs

*$1229 – 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:

$1221 – 20-day moving average

$1218-21 – 5 bottoms, 11/19, 11/20, 11/21, 11/23, and 11/25  lows

$1219 – 40 day moving average

$1214 – 11/16 low

$1214 – 50 day moving average

*$1212 – 100-day moving average

$1208 – 11/15 low

*$1204 – up trendline from 8/16 $1160 low

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

$1200 – psychological level, options

$1196-98 – double bottom – 11/13,  11/14 lows

$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