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Gold Traders' Report - November 27, 2018

Jim Pogoda, Trader, Gold Bullion International 
NOV 27, 2018

Gold edged higher last night in a narrow range of $1219.60 - $1224.80. It continued to fade the direction of the US dollar, which ranged from 96.97 – 97.28.

Gold dipped to its $1219.60 low during early European hours - where support at $1218-21 (5 bottoms, 11/19, 11/20, 11/21, 11/23, and 11/25 lows) held yet again -as the DX rose to 97.28 – a 2-week high.

The dollar was boosted by softness in the pound ($1.2819 - $1.2734, fears that Parliament will vote down Brexit deal, comments from Trump saying current Brexit deal is a great deal for EU and questioning US-UK ability to trade) and the euro ($1.1344 - $1.1305, Brexit issues, Italian budget concerns), and on fresh trade tensions with China.

Later during Eurozone hours, gold rallied to its high of $1224.80 as the DX drifted back to 97.05. Mostly weaker global equities were a tailwind for gold, with the NIKKEI up 0.6%, the SCI was unch, European shares were off from 0.3% to 0.4%, and S&P futures were -0.3%.

Comments from Trump yesterday evening in a WSJ interview (highly unlikely the US would delay increasing tariffs on $200B in Chinese goods from 10% to 25%, if he can’t reach a deal with China he will go ahead with tariffs on an additional $267B of Chinese goods, and that a further 10% tariff on laptops and iPhones imported from China could be imposed) weighed on stocks.

Buying on the NY open took out the overnight high, but resistance at the $1225 strike price (CX options expiring today) capped the advance at $1225.25.

Shortly afterward, a speech from Fed Vice Chair Clarida - whose dovish helped US stocks stabilize and launched gold from $1215 - $1225 back on 11/16 - were much more balanced with regard to where he thought the Fed was with achieving a “neutral” Fed Funds rate.

S&P futures dipped further (-15 to 2655), while the US 10-year yield moved up from 3.057% to 3.072%. The DX rebounded to 97.21, and gold pulled back to $1221.

US stocks opened weaker (S&P -17 to 2656) led by losses in Apple and the Materials and Industrials sectors. The US 10-year yield slipped back to 3.057%, while the DX edged down to 97.11, and gold ticked up to $1222.50.

Later in the morning, US stocks pared losses (+5 to 2679) with gains in Amazon (had biggest shopping day ever yesterday on Cyber Monday), a bounce in oil (WTI recovered from $50.69 to $52.34, reports of record Saudi production – 11.3M bpd – offset by prospects of OPEC production cut at upcoming Dec 6 meeting) and some analysts focusing on Clarida’s prior comments that the Fed was “much closer” to a neutral rate providing upside fuel. A report on US Consumer Confidence that was just about as expected (135.7) with a beat in the Present Situation component was also supportive. The 10-year yield ticked up to 3.066%, and the DX rose to 97.50.

The dollar had help from a further deterioration in the euro ($1.1278, 2-week low, reports US considering tariffs on imported cars from all countries except Canada and Mexico) and the pound ($1.2725). Gold broke through support at $1218-21 (5 bottoms, 11/19, 11/20, 11/21, 11/23, and 11/25 lows), $1214 (11/16 low and 50 day MA), and tumbled to $1212 – where support at the 100-day moving average held.

After a modest pullback near mid-day, US equities climbed higher (+6 to 2680) in the afternoon, boosted by upbeat comments from National Economic Council Director Larry Kudlow (“a lot of communication with the Chinese government at all levels”, our economy is “quite strong”, said Trump thinks good deal can be made and he is open to it), - despite GM shares getting hammered (Trump tweeted he was looking into cutting subsidies to the automaker for closing plants in Ohio, Michigan, and Maryland) and oil reversing to $50.28.

The 10-year yield - which had slid to 3.046% - bounced back to 3.057%. The DX, however, pulled back to 97.31, as the euro rebounded to $1.13. Gold recovered and traded between $1213 - $1215 through the CX options expiration.

Later in the afternoon, US stocks made fresh intra-day highs (S&P finished +9 to 2682 ), aided by GM paring some losses (issued statement affirming their support of US manufacturing), while the 10-year bond yield hovered around 3.05% – 3.06%. The DX traded narrowly between 97.34 – 97.39, and gold was similarly steady between $1213 - $1214.50. Gold was $1214 at 4PM with a loss of $8.

Open interest was off a whopping 46.8k contracts, showing a large amount of closeouts yesterday from both longs and shorts – instead of rolling positions into December. Volume ballooned with 421k contracts trading, inflated by the December – February rollover.

Bulls were discouraged with gold’s $8 pullback today, especially when for the past 4 sessions it traded within a couple of dollars from breaching the key down trendline (now $1229) from the 4/23 $1336 high – which would have probably ignited significant short covering.

Further, the failure of support from the last four trading days at $1218-21 leaves the market struggling to hold above the 100-day moving average at $1212. However, 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 support at the $1212 100-day moving average to hold, and then to challenge resistance at the former support at $1218-21. From there, bulls are looking for a spark that will aid in taking 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 yesterday’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 were encouraged with today’s $8 decline, and that support at $1218-21 was finally broken. Some bears took profits today ahead of support at the 100-day moving average at $1212, but other bears feel the downside has more room.

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 (especially if the S&P can hold 2646) will provide downside pressure on gold, and see prices north of $1200 offering a great opportunity to get short(er).

This is witnessed by yesterday’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 $1212 (100-day moving average), and then expect a challenge of $1205 – the up trendline from 8/16 $1160 low, followed by $1200.

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, and will turn to reports tomorrow on Germany’s GfK Consumer Confidence, US MBA Mortgage Applications, Wholesale Inventories, Retail Inventories, Q3 GDP revision, GDP Price Index, Personal Consumption, PCE, New Home Sales, Richmond Fed Index, Oil Inventories, and comments from the Fed’s Powell for near-term direction.

In the news:

Resistance levels: 

$1215 – 50 day moving average

$1219 – 40 day moving average

$1220 – 20-day moving average

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

$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:

*$1212 – 100-day moving average

$1208 – 11/15 low

*$1205 – 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