;

Gold Traders' Report - October 24, 2018

Jim Pogoda, Trader, Gold Bullion International 
OCT 24, 2018

Last night, gold traded either side of unchanged in a range of $1255.65 - $1233.70, largely trading against the direction of the US dollar.

It ticked up to its $1233.70 high (resistance at 5 top high at $1232-35, – 5 tops, 7/23, 7/25, 7/26, 10/15, 10/16) during early during Asian time while the DX remained steady between 95.90-96.

However, during European hours, gold fell through initial support at $1230-31 (old resistance level) and fell to $1225.65, where next support in front of the options strike at $1225 (CX options expire tomorrow) and the 100-day moving average at $1224 held.

Gold was pressured by a firming dollar (DX to 96.55 – 2 month high), which rose against weakness in the euro ($1.1476 - $1.1380 – Italy’s budget, weaker Eurozone PMI data) and the pound ($1.2990 - $1.2890 - no breakthrough on Brexit, UK press reports May “lost control” of her government).

The greenback was also aided by a rebound in S&P futures, which rallied back to unchanged from earlier losses on the back of a stronger earnings report from Boeing.

Other global equities were firmer and a headwind for gold with the NIKKEI up 0.4%, the SCI gained 0.3%, and European markets were up from 0.3% to 0.7%.

After the NY open, the DX pulled back to 96.27 from some modest bounces in the euro ($1.1409), and the pound ($1.2930). Gold rebounded as well, reaching $1232.

Gold got a further boost at 10AM by a much weaker than expected reading on New Home Sales (553k vs. exp. 625k, last month revised down from 629k to 585k). US stocks turned lower (S&P -15 to 2725), with losses in tech shares offsetting the large gains in Boeing.

Later in the morning and into mid-day, US stocks fell further (S&P -38 to 2703), with heavy losses in the Communication Services Information Technology sectors.

A comeback in oil (WTI to $67.69) on larger than expected drawdowns in US gasoline and distillate inventories limited the decline.

The US 10-year bond yield dipped to 3.119%, but the DX rose. The dollar was lifted by a continued drop in the pound ($1.2867 – 7 week low, May’s Brexit approach attacked by Conservative MPs), with the DX rebounding to 96.49.

Gold, caught in the cross-currents, declined to $1227. Some mildly hawkish commentary from the Fed’s Mester (fundamentals of eco strong, recent inflation readings pretty good, labor market strong – could bring prices up) and Kaplan (no longer need to stimulate the economy, sees 3 more rate hikes before reassessing whether further hikes are warranted) contributed to the strength in the DX and gold’s pullback.

In the afternoon, US stocks accelerated their decline (S&P -84 to 2656, turns negative for the year), while the 10-year yield ticked down to 3.102% (3-week low). The Fed’s Beige Book mentioning the sore subjects of concern over tariffs and trade contributed to the weakness in equities. The DX declined to 96.34, and gold climbed to $1233 – but failed to take out its overnight high. Gold was $1233 bid at 4PM with a gain of $2.

Open interest was up 5k contracts, showing a net of new longs (overshadowing the short covering seen) from yesterday’s advance. Volume was much higher with 295k contracts trading.

Some bulls were disappointed that gold was only able to advance $2 – given that stocks were clobbered, and the US 10-year bond yield retreated under 3.15% to 3.10%.

However, other bulls will gladly take today’s gain, in light of the stubborn strength of the US Dollar – as the DX has climbed 1.77 (1.87%) in the past week, and reached a 2-month high today at 96.55.

The bulls are pleased with gold’s ability to hold over its 100-day moving average at $1224, and that it rallied back to hold the old resistance level of $1230-31 today.

Bulls remain steadfast in their thinking that gold bottomed at $1160 on 8/16 after a $35 2-day capitulation, 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 rally was badly overextended, and expect its correction from the 8/15 96.99 high (up 9.90% since its 88.25 low on 2/14) to continue, and drive a significant short covering rally in gold.

Bulls will look to re-test $1232-35 (6 tops - 7/23, 7/25, 7/26, 10/15, 10/16, and 10/24 highs) followed by $1240 (yesterday’s high), then challenge $1245-46 (double top – 7/16 and 7/17 highs, down trendline from 4/23 $1336 high).

Beyond this, bulls are looking for a move to at least $1262 – the 50% retracement of the move down from the 4/11 $1365 high to the 8/16 $1160 low. In addition, bulls maintain that last Friday’s Commitment of Traders Report – despite showing a heavy amount of short covering from last week – still shows the funds with a massive gross short position (171k contracts).

They feel the that the short side of gold is still a 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 remain comfortable trading gold from the short side, scale-up selling into rallies.

Bears point to the lack of follow-through gold has presented on rallies (failed to hold $1232-35 again today), that the massive amount of short covering seen from Friday’s COT report (46k contracts) failed to lead to a breach of at least $1250, and today’s lethargic performance against a 3% decline in the S&P today as signs of a tired market – and expect a significant pullback to ensue.

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

This is witnessed by last Friday’s COT Report – that despite a heavy amount of short covering in the past week - a massive gross short position (171k contracts) remains. Bears look for some stale bull selling to trigger a move back to initial support at the $1210 - $1214 area, followed by $1207-09, and then expect a re-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, Q3 corporate earnings, and will turn to comments tonight from the Fed’s Brainard, reports tomorrow on German GfK Consumer Confidence, IFO, the ECB’s rate decision, US Trade Balance (goods), Wholesale Inventories, Retail Inventories, Durable Goods, Jobless Claims, Pending Home Sales, Kansas City Fed Index, and comments tomorrow from the ECB’s Draghi, and the Fed’s Clarida and Mester for near-term direction.

In the news:

Resistance levels: 

$1232-35 – 6 tops, 7/23, 7/25, 7/26, 10/15, 10/16, and 10/24  highs

$1240 – 10/23 high

*$1245 – down trendline from 4/23 $1336 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:

$1230-31 – quadruple top - 10/17, 10/18, 10/19, and 10/22 highs

$1226 – 10/24 low

$1225 – options

$1224 – 100-day moving average

$1222 – 10/23 low

$1220-21 – 8/2 and 8/3 highs

$1221 – 10/17 low

$1219=21 – quadruple bottom, 10/15, 10/17, 10/18, and 10/22 lows

$1216 – 10/12 low

$1216-18 – 5 tops, 8/6, 8/7, 8/8, 8/9 and 8/10 highs

$1213-14 – triple top – 8/13, 8/28, and 9/13 highs

$1211 – 9/21 high

$1210 – 20-day moving average

$1208 – down trendline from 8/10 $1217 high

$1207-09 –10 tops, 8/29, 8/30, 8/31, 9/6, 9/12, 9/14, 9/20, 10/2, 10/3, and 10/4 highs

$1205 – 40 day moving average

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

$1203 – 50 day moving average

$1200 – psychological level, options

$1199– down trendline from 4/11 $1365 high

$1194 -  10/10 high

$1192-94 – 5 bottoms, 9/12, 9/14, 9/17, 9/21, and 9/23 lows

$1191 – up trendline from 8/16 $1160 low

$1185 – 10/10 low

$1181 - 84 – 7 bottoms - 8/20, 8/23, 8/24, 9/27, 9/28, 10/8, and 10/9 lows

$1175 – options strike

$1172– quadruple bottom – 8/17 low

$1160 – 8/16  low

$1156 – 1/4/17 low

$1150 – options

$1146 – 1/4/17 low