Gold Traders' Report - September 17, 2018

Jim Pogoda, Trader, Gold Bullion International 
SEP 17, 2018

Gold rebounded overnight, trading in a range of $1192.80 - $1198.65, supported by weakness in the US dollar (DX from 95 to 94.66).

The dollar was pressured from strength in the euro ($1.1620 - $1.1675, ECB’s Coeure says uncertainty around inflation outlook is receding and a sustained convergence to levels closer to ECB’s aim is in sight).

While reports that the US will slap tariffs on $200B of Chinese goods soon have been dollar supportive, rumors that the rate will be 10% and not 25% muted dollar strength.

Global equities were softer and a tailwind for gold with the NIKKEI closed, the SCI off 1.1%, European shares were off from 0.2% to 0.5%, and S&P futures were -0.2%. Oil prices were firmer WTI from $68.74 - $69.65).

At 8:30 AM, the US Empire State Manufacturing Index missed expectations (19 vs. exp. 23), and pushed S&P futures down to 2907. The US 10-year bond yield - which had climbed overnight to a 4-month high at 3.022% - dipped back to 3.005%.

The DX fell further to 94.50, which drove gold higher. The yellow metal took out resistance at $1200, and climbed through some buy stops to $1202.

US stocks opened weaker (S&P -12 to 2893) with Apple, Amazon, and Micron taking the tech sector lower, with concerns over US-China trade weighing, as well as a retreat in oil (WTI to $68.52). A bellicose tweet from Trump:

Tariffs have put the U.S. in a very strong bargaining position, with Billions of Dollars, and Jobs, flowing into our Country - and yet cost increases have thus far been almost unnoticeable. If countries will not make fair deals with us, they will be “Tariffed!”

6:11 AM - Sep 17, 2018

along with comments from China’s foreign ministry stating China would retaliate in kind pressured equities. The 10-year yield dipped to 2.989%, and the DX continued to sink to 95.45. Gold drove higher, and topped out at $1205 by mid-day.

Into the afternoon, US stocks trimmed losses (S&P -5 to 2899) while the 10-year yield hovered around 2.99%. The DX recovered to 94.57, and gold pulled back to $1201.

However, later in the afternoon, comments from Trump saying an announcement on US –China trade will be coming this afternoon after the closing bell, saying “a lot of money will be coming into the coffers of the US” – alluding to an announcement of heavy tariffs sent US stocks to fresh lows (S&P finished -16 to 2889).

The US 10-year yield was fairly steady between 2.99% and 3.005%, and the DX was similarly stable between 94.44 – 94.50. Gold ticked a tad lower to $1200, but traded narrowly between $1200-$1201. Gold was $1200 bid at 4PM with a gain of $7.

Open interest was off 5.2k contracts, showing a net of long liquidation (along with some profit taking from shorts) from Friday’s decline. Volume was lower with 294k contracts trading.

Bulls cheered gold’s advance today, and were pleased that it was able to hold over $1200 – despite the US 10-year bond yield reaching a 4-month high over 3%.

Bulls remain steadfast in their thinking that gold bottomed at $1160 on 8/16 after a $35 2-day capitulation, and will look to either 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 are looking for gold to consolidate recent gains over $1187 (50% retracement of up move from the 8/16 $1160 low to last week’s $1214 high) and then challenge resistance at $1207-09 (6 top - 8/29, 8/30, 8/31, 9/6, and 9/14 highs), and then $1216-18 (5 tops, 8/6, 8/7, 8/8, 8/9 and 8/10 highs).

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 Friday’s Commitment of Traders Report showing the large funds remain net short (turned short 4 weeks ago for the first time since 2002) and with a massive gross short position (206k contracts –short side of gold an extremely crowded trade) leaves this market set up in a highly favorable position to move up from potential heavy short covering and sidelined longs returning to the market.

Bears have been using gold’s recent bounce off of $1160 to rebuild short positions scale up, and are comfortable to continue to sell into any strength.

Many bears believe that gold’s recovery rally ($1160 - $1214) has been completed, and point to gold’s inability to take out the $1214 double top high last Thursday as evidence that the yellow metal will resume its decline.

This is witnessed by Friday’s COT Report showing the large funds remain net short, with a massive 206k gross short position.

They feel fuel from a rebound in the dollar from its recent correction will provide downside pressure on gold, and that the dollar’s ability to strengthen against other currency majors (and emerging market currencies) still has legs. They will be gunning for stops below key support levels in the mid $1180’s - $1188 (up trendline from 10/19/08 $682 low), $1187 (50% retracement of up move from 8/16 $1160 low to 8/28 $1214 high), and $1183 - 84 (triple bottom - 8/20, 8/23, and 8/24 lows) to lead to a test of $1175 (options strike) and then $1171-73 (quadruple bottom – 8/15, 8/17, 1/6/17 and 1/9/17 lows).

All markets will continue to focus on geopolitical events (especially emerging markets), developments with the Trump Administration (especially on US-China and US-Canada trade, potential legal issues), oil prices, and will turn to reports tomorrow on the US NAHB Housing Market Index, Long-term TIC Flows, and comments from the ECB’s Draghi for near-term guidance.

In the news:

Resistance levels: 

$1204 – 40 day moving average

$1205 – 9/17 high

$1207 - 09 –6 tops, 8/29, 8/30, 8/31, 9/6, 9/12, and 9/14 highs

$1210 – 50 day moving average

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

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

$1220-21 – 8/2 and 8/3 highs

$1225 – 7/30 high

$1225 - options

$1227-28 – 7/27, 7/31 highs

$1234-35 – triple top, 7/23, 7/25, and 7/26 highs

$1235 -38 – 6 bottoms –7/16/18, 7/13/18, 12/12/17, 7/18/17, 7/19/17, 7/20/17 lows

$1245-46 – double top – 7/16 and 7/17 highs

$1249 – 100-day moving average

$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:

$1200 – 9/13 low

$1200 – psychological level, options

$1199 - up trendline from the 8/16 $1160 low

$1199 – 20-day moving average

$1193 – triple bottom, 9/12, 9/14, and 9/17  lows

$1189 – up trendline from 10/19/08 $682 low

$1188-90 – double bottom, 9/4 and 9/11 lows

$1187 – 50% retracement of up move from 8/16 $1160 low to 8/28 $1214 high

$1183 - 84 – triple bottom - 8/20, 8/23, and 8/24  lows

$1175 – options strike

$1171-73– quadruple bottom – 8/15, 8/17, 1/6/17 and 1/9/17 lows

$1166 – 1/5/17 low

$1160 – 8/16  low

$1156 – 1/4/17 low

$1150 – options

$1146 – 1/4/17 low