Gold Traders' Report - September 19, 2018

Jim Pogoda, Trader, Gold Bullion International 
SEP 19, 2018

Gold traded higher overnight in a range of $1196 - $1204.75. The advance was stalled at resistance at the double top at $1204-05 - the highs from the prior two sessions.

Gold’s gain was fueled by weakness in the US dollar (DX from 94.66 – 94.32, which was pressured by strength in sterling ($1.3150 - $1.3214, stronger UK CPI), and the euro ($1.1665 - $1.1715, 3-month high in German 10-year bund).

Global stocks were mostly firmer and a headwind for gold with the NIKKEI up 1.1%, the SCI +1.1%, European shares were up from 0.2% to 0.3%, and S&P futures were unchanged.

Just ahead of the NY open, reports that UK PM May is set to reject the improved offer by the EU’s Barnier regarding the Irish border issue sent sterling plunging to $1.31, and knocked the euro back to $1.66.

The DX popped up to 94.68, and knocked gold back to $1201.50, with bargain hunting bids keeping the yellow metal over $1200.

At 8:30 AM, a better than expected reading on US Housing Starts (1.282M vs. exp. 1.235M) was overshadowed by a large miss on Building Permits (1.229M vs. exp. 1.310K).

S&P futures dipped (-5 to 2906), and the yield on the US 10-year bond – which touched 3.07% overnight – pulled back to 3.044%. The DX retreated to 94.56, lifting gold higher. The yellow metal took out resistance at the $1204-05 double top to reach $1206.30, but ran out of steam ahead of the 6 top high between $1207-09.

US stocks rallied after their open, with financials (bank shares get a boost from higher longer term rates, and a modest steepening of the yield curve) and materials leading gainers (S&P +8 to 2912).

A push higher in oil (WTI to $71.01, EIA reports larger than expected draw in US gasoline supplies) aided the move. The 10-year yield climbed to 3.092% - a fresh 4-month high.

The DX continued to slip to 94.44 however, as trade war tensions with China ease, and the Canadian dollar advanced (1.2980 – 1.2915) as US/Canada trade talks were resuming today.

Gold was caught in the cross currents and became a little choppy in response. It fell back to $1201, then spiked back to $1206 before becoming steady around $1203-04.

In the afternoon, US stocks came off their highs (S&P finished +4 to 2908 ), and the US 10-year yield ticked down to 3.075%. The DX inched up to 94.60, then stabilized around 94.55. Gold remained quietly steady between $1203-04 and was $1203 bid at 4PM with a gain of $4.

Open interest was off 3.5k contracts, showing a net of long liquidation from yesterday’s decline. Volume was moderately higher with 236k contracts trading.

Bulls were pleased with today’s gain, given the jump in the US 10-year yield to 3.092%, the continued firming in stocks (S&P finished within 8 points of all- time highs), and only a slight decline in the dollar.

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 upside resistance levels at $1207-09 (6 top - 8/29, 8/30, 8/31, 9/6, and 9/14 highs), $1212 (down trendline from the 8/10 $1217 high) 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 last 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 last 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 initial support at $1197 (up trendline from 8/16 $1160 low), followed by $1193 (triple bottom - 9/12, 9/14, and 9/17 lows), $1190 (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 UK Retail Sales, Eurozone Consumer Confidence, US Jobless Claims, Philly Fed Index, Leading Index, and Existing Home Sales for near-term direction.

In the news:

Resistance levels: 

$1204-05 double top, 9/17 and 9/18  highs

$1206 – 9/19 high

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

$1208 – 50 day moving average

$1212 – down trendline from 8/10 $1217 high

$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

$1247 – 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:

$1202 – 40 day moving average

$1200 – 9/13 low

$1200 – 20-day moving average

$1200 – psychological level, options

$1197 - up trendline from the 8/16 $1160 low

$1196 – 9/18 low

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

$1190 – 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