Gold Traders' Report - September 27, 2018

Jim Pogoda, Trader, Gold Bullion International 
SEP 27, 2018

Gold slipped modestly last night in a range of $1193 - $1198.70, fading the direction of the US dollar.

Gold edged to its high of $1198.70 during Asian time as the DX ticked down to 94.21.

The dollar was pressured by some strength in the yen (112.90 – 112.56) from some upbeat comments from the BoJ’s Kuroda. Gold softened to its $1193 low during European time - finding support at $1192-94 (5 bottoms, 9/12, 9/14, 9/17, 9/21, and 9/23 lows) – as the DX turned higher 94.64 (capped at 100-day moving average).

The greenback got a lift from weakness in the euro ($1.1750 -$1.1685, political uncertainty in Italy) and the pound ($1.3178 - $1.3108, Labour leader Corbyn warned that no-deal Brexit would be a disaster).

Global equities were generally softer (following losses in NY yesterday off of Powell’s comments) and gold supportive with the NIKKEI off 1.0%, the SCI down 0.5%, European shares ranged between unchanged and - 0.5%, and S&P futures were unchanged. Oil prices were firmer (WTI from $71.97 - $72.53) and supportive of stocks.

At 8:30 AM, a much stronger than expected report on US Durable Goods (4.5% vs. exp. 2.0%) along with a better than expected PCE report (2.1% vs. exp. 2.0%) far overshadowed a worse than expected reading on Jobless Claims (214k vs. exp. 210k), while the revision to Q2 GDP was as expected at 4.2%.

S&P futures rose (+6 to 2918), while the US 10-year bond yield climbed to 3.068%. The DX rallied, picking up some buying over its 100-day moving average at 94.64 to reach 94.77.

Gold plunged through a series of stops under support levels at $1192-94, yesterday’s $1191 low, $1190 (up trendline from 10/19/08 $682 low), $1188 (9/11 low), and $1187 (50% retracement of up move from 8/16 $1160 low to 8/28 $1214 high) to reach $1184, where support at $1183-84 (triple bottom - 8/20, 8/23, and 8/24 lows) finally held. A fair amount of long liquidation was seen.

US stocks climbed during the late morning hours into mid-day despite misses on reports on Pending Home Sales (-1.2% vs. exp. 0.5%) and the Kansas City Fed Manufacturing Activity Index (13 vs. exp. 17).

The S&P was +20 at 2925, with gains in Apple and Amazon leading gainers. The 10-year yield climbed to 3.074%, and the DX pushed higher to 94.86 – a two week high. Gold was pressed further to $1182 (1-month low), but bargain hunting buying around the $1183-84 support level emerged – and limited further losses.

In the afternoon, US equities trimmed some of their prior gains (S&P finished +8 to 2914), while the US 10-year yield slipped to 3.054%. The DX, however, kept climbing higher to reach 94.99. Gold was caught in the cross currents, but support at $1183-84 proved resilient as the yellow metal edged up to $1185. Gold was $1184 bid at 4PM with a loss of $11.

Open interest was off 7.1k contracts, showing a sizeable amount of long liquidation from yesterday’s decline.  Volume was much higher with 366k contracts trading.

Bulls were certainly disappointed that key support levels of $1192-94, $1191, $1190, $1188, $1187 were breached today, leaving its uptrend in serious jeopardy. However, other bulls were encouraged that support at $1183 – 84 (triple bottom - 8/20, 8/23, and 8/24 lows) did hold, and used the dip to get long and or add to existing long positions.

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 are looking for gold to consolidate over today’s $1182 low, and then challenge initial resistance at the former support levels in the high $1180’s and low $1190’s.

After this, bulls expect to 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 5 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.

On top of breaching $1196 (up trendline from the 8/16 $1160 low) yesterday, bears cheered the cascading of support levels today, leaving gold within 3 support levels of revisiting the $1160 low.

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), yesterday’s failure to hold the uptrend line from the $1160 low at $1196, and today’s breach of i$1187 (50% retracement of up move from 8/16 $1160 low to 8/28 $1214 high) 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 $1182 - 84 (quadruple bottom - 8/20, 8/23, 8/24, and 9/27 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 Japan’s Jobless Rate, CPI, Retail Trade, Industrial Production and Construction Orders, China’s Caixin PMI, German Unemployment Change, Eurozone CPI, UK GDP, US Personal Income, Personal Spending, PCE, Chicago PMI, U. of Michigan Sentiment, Baker-Hughes Rig Count, and Commitment of Traders Report for near-term guidance.

In the news:

Resistance levels: 

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

$1188 - 9/11 low

$1190 – up trendline from 10/19/08 $682 low

$1191 – 9/26 low

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

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

$1199 – 20-day moving average

$1199 – 40 day moving average

$1200 – psychological level, options

$1203 – 9/26 high

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

$1204 – 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

$1240 – 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:

$1182 - 84 – triple bottom - 8/20, 8/23, 8/24, 9/27  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