Gold Traders' Report - September 26, 2018

Jim Pogoda, Trader, Gold Bullion International 
SEP 26, 2018

Gold traded moderately lower last night in a range of $1197 - $1202.65.

After edging up to its high during Asian hours, gold softened during European time against strength in the dollar (DX from 94.11 – 94.33).

The greenback was supported by weakness in the euro ($1.1722 - $1.1735) and the pound over Brexit issues (May’s “no deal is better than bad deal” still resonating, EU wants no-deal plans to intensify in months ahead).

Global equities were mostly firmer and a headwind for gold with the NIKKEI up 0.4%, the SCI +0.9%, European markets ranged from -0.1% to +0.2%, and S&P futures were +0.2%.

Oil prices were softer (WTI from $72.30 – $71.70, API reported smaller than expected drawdown in US oil inventories) and weighed on stocks.

After the NY open, weakness in the euro ($1.1726) continued, driving the DX higher to 94.40 and pressuring gold lower.

Some stops were hit under yesterday’s $1197 low and $1196 (up trendline fro m8/16 $1160 low) to reach $1194, where support at the 5 bottom low between $1192-94 (9/12, 9/14, 9/17, 9/21, and 9/23 lows) held.

At 10AM, the report on US New Home Sales was a little lower than expected (629k vs. exp. 630K), with a large downward revision to last month’s sales. US stocks were tugged lower (S&P +2 to 2915), with weaker oil (WTI to $71.57, EIA reports surprise build in US crude stocks, Trump tells UN that OPEC is “ripping off the world”) aiding the move.

The US 10-year bond yield remained near its overnight low of 3.082%, while the the DX pulled back to 94.20. Gold bounced in response, but topped out at $1195.

Into mid-day, US stocks turned moderately higher, (S&P +10 to 2925), with health care, consumer discretionary, and communication services sectors leading gainers.

However, activity became more muted ahead of this afternoon’s FOMC rate decision, meeting statement, and Powell’s press conference.  The US 10-year bond yield hovered around 3.085%, and the DX pulled back to ticked back up to 94.27. Gold slid back to $1194, then was a little choppy between $1194 - $1197 ahead of the FOMC.

At 2PM, the FOMC statement was initially viewed as dovish. While the Fed kept positive language about the economy, it removed the statement that “the stance of monetary policy remains accommodative”, with markets interpreting that the Fed was closer to a neutral rate and lessening the probabilities of ongoing rate hikes.

Also, they took down their 2019 projection of inflation from 2.1% to 2.0%. US stocks cheered (S&P +16 to 2931), as the US 10-year yield plunged to 3.063%. The DX sank to 93.95, and gold shot up to $1200.

However, markets quickly reversed seeing that the Fed was still projecting one more hike in 2018 (Dec), three more in 2019, and projecting the rate going above neutral for 2 years.

Further, Chair Powell said the removal of “accommodative” language wasn’t meant to signal a policy change. Stocks slid, with the S&P finishing -8 to 2907.

The 10-year yield ran back up to 3.091%, only to plummet to 3.048% on subsequent comments from Powell that he doesn’t see inflation surprising to the upside. The DX bounced to 94.40, then was pulled back to the 94.25 area off of the tame inflation comment. Gold conversely bounced to $1199 before sliding back to $1194. It was $1195 bid at 4PM with a loss of $7.

Bulls were disappointed with today’s $7 decline – especially after Powell’s tame inflation comment that caused the pullback in the US 10-year bond yield and the late sell-off in stocks.

However, other bulls point out that the uptrend from the $1160 low is still intact, and are encouraged that gold has remained over $1187 – the 50% retracement of up move from the 8/16 $1160 low to the 8/28 $1214 high.

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 $1212 (down trendline from the 8/10 $1217 high), $1213-14 (triple top – 8/13, 8/28, and 9/13 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 last Friday’s Commitment of Traders Report showing the large funds added to their net short position (turned short 4 weeks ago for the first time since 2002) and with a massive gross short position (208k 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 were encouraged with today’s breach of the up trendline from the 8/16 $1160 low at $1196 and the move below key support at $1192-94 (5 bottoms, 9/12, 9/14, 9/17, 9/21, and 9/23 lows).

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

This is witnessed by last Friday’s COT Report showing the large funds added to their net short position and have with a hefty 208k 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 $1192-4 (5 bottoms) followed by $1191 (up trendline from 10/19/08 $682 low), $1187-88 (9/11 low, 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).

Open interest was off 6.5k contracts, showing a net of short covering from yesterday’s advance. Volume was a little lower with 216k contracts trading.

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 German GfK Consumer Confidence and CPI, ECB’s Economic Bulletin, Eurozone Economic Confidence and Consumer Confidence, US Goods Trade Balance, Retail Inventories, Wholesale Inventories, GDP, Durable Goods, Jobless Claims, Pending Home Sales, Kansas City Fed Manufacturing Activity Index, and comments from the BoJ’s Kuroda, ECB’s Draghi, the Fed’s Powell and Kaplan for near-term direction.

In the news:

Resistance levels: 

$1196 - up trendline from the 8/16 $1160 low

$1199 – 20-day moving average

$1200 – psychological level, options

$1200 – 40 day moving average

$1203 – 9/26 high

$1203-04 –triple top, 9/24, 9/25, and 9/26 highs

$1205 – 50 day moving average

$1207-09 –7 tops, 8/29, 8/30, 8/31, 9/6, 9/12, 9/14, and 9/20 highs

$1211 – 9/21 high

$1211 – 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

$1222 – down trendline from 4/11 $1365 high

$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

$1241 – 100-day moving average

$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:

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

$1191 – 9/26 low

$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