Gold Traders' Report - November 28, 2018

Jim Pogoda, Trader, Gold Bullion International 
NOV 28, 2018

Gold was steady with other markets last night ahead of Fed Chair Powell’s speech..

Gold traded in a range of $1212.50 - $1215.55, continuing to trade against a similarly stable US dollar (DX from 97.32 – 97.54).

Mostly firmer global equities were a headwind for gold with the NIKKEI up 1%, the SCI was +1.1%, European markets were unchanged to +0.2%, and S&P futures were +0.3%.

Stocks were aided by Kudlow’s upbeat comments regarding US-China trade yesterday and a NY Times report that Trump was increasingly anxious about the impact of a long trade war on financial markets and the economy which would lead him to seek an agreement with China that would delay new tariffs on Chinese goods while the two countries continue to negotiate.

Weaker oil prices oil prices (after rising to $52.50 from a large surprise draw in US gasoline inventories from API, WTI fell to $51.12 after Saudis say they won’t cut output alone, and and outage in UK North Sea oilfield) weighed on stocks.

At 8:30 AM, a host of US economic data was mixed. The revision to Q3 GDP was 3.5% and the GDP Price Index was 1.7% - both as expected - but there were slight misses on Personal Consumption (3.6% vs. exp. 3.9%) and the Core PCE (1.5% vs. exp. 1.6%), and a slightly more negative US Trade Balance (-$77.2B vs. exp. -$72B). However, higher than expected readings on Wholesale Inventories (0.7% vs. exp. 0.4%) and Retail Inventories (0.9% vs. exp. 0.5%) largely offset the misses.

Later on, the DX rose to 97.50, against weakness in sterling ($1.2746, BOE’s Carney says Britain not prepared for cliff-edged Brexit) and the euro ($1.1269). Gold moved lower to $1211.25, briefly breaching its 100-day moving average at $1212. Lacking downside follow through, bargain hunting bids ran the market quickly back to $1214.50.

US stocks opened stronger (S&P +15 to 2698) led by gains in the IT, Health Care, and Consumer Discretionary Sectors, shrugging off misses in the Richmond Fed Index (14 vs .exp. 15) and New Home Sales (544k vs. exp. 575k). The US 10-year yield ticked up to 3.074%, and the DX edged up to 97.54 –matching its overnight high. Gold remained resilient, however, holding steady around $1213.

At noon, the release of Powell’s remarks saying policy rate is “just below” estimates of neutral sent US stocks soaring (S&P +45 to 2727). The US 10-year yield sank to 3.046% ,and the DX plunged to 96.75 (despite the weakness in sterling).

Gold shot higher, and took out stops over last night’s $1215 high, $1218-21 (former 5-bottom support), and $1225 to reach $1226.55 – where resistance in front of $1228-30 (down trendline from 4/23 $1336 high and 5 tops – 11/20, 11/21, 11/22, 11/23 and 11/26 highs) capped the advance. A fair amount of short covering was seen.

In the afternoon, US stocks climbed higher (S&P finished +62 to 2744 ) with the IT, Health Care and Consumer Discretionary sectors all up over 2%. This was despite oil tumbling to a fresh 13-month low (WTI to $50.05, larger than expected build in US Oil Inventories from EIA report).

The 10-year yield ticked down to 3.044%, while the DX edged lower to 96.68. Gold - caught in the cross currents - pulled back to $1221, then traded narrowly between $1221 - $1224. It was $1221 bid at 4PM with a gain of $7.

Open interest was off another large amount – 19k contracts – showing a combination of long liquidation from yesterday’s decline along with some close outs of options related positions from yesterday’s expiration. Volume was again very heavy – 453k contracts – inflated by the Dec-Feb contract rollover.

Bulls were impressed at gold’s ability to hold above $1212 (100-day moving average) early in the session, then cheered Powell’s comments that took the interest rate monkey off gold’s back and knocked the DX below 97.

However, Powell’s words were a double-edged sword as the strong equity rally kept the bulls from breaching stubborn resistance at $1228-30 (down trendline from 4/23 $1336 high and 5 tops – 11/20, 11/21, 11/22, 11/23 and 11/26 highs).

Nonetheless, bulls are encouraged that gold is back again on the verge of challenging this key resistance level. 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 that will aid in taking out $1228-30, 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), and then $1245-46 (double top – 7/16 and 7/17 highs).

In addition, bulls maintain that Monday’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 (as we saw today) and sidelined longs returning to the market.

Bears were disappointed that the $1212 level held early in the session – despite the dollar strength (DX north of 97.50).

However, bears remain comfortable scale up selling into strength. Bears point to the lack of follow through gold has presented on recent rallies: today’s failure to take out $1228-30, the failure to breach $1235-38 (6 tops –10/29, 11/1, 11/2, 11/5, 11/6, and 11/7 highs) during the first week of Nov, the 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 (though argument dented today) and a rebound in equities (as we saw today) will provide downside pressure on gold and see prices north of $1200 offering a great opportunity to get short(er).

This is witnessed by Monday’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, double bottom) and then expect a challenge of $1205 – the up trendline from 8/16 $1160 low, followed by a test of $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 Japan’s Retail Sales, German Unemployment and CPI, UK Consumer Credit, Eurozone Economic Confidence, US Personal Income, Personal Spending, PCE, Jobless Claims, Pending Home Sales, FOMC minutes from 11/9, and comments from the Fed’s Evans for near-term direction.

In the news:

Resistance levels: 

$1225 – options

$1227 – 11/28 high

*$1228 – down trendline from 4/23 $1336 high

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

$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:

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

$1221 – 20-day moving average

$1220 – 40 day moving average

$1215 – 50 day moving average

*$1212 – 100-day moving average

$1211-12 – double bottom (11/27 and 11/28 lows).

$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