Gold Traders’ Report – September 10, 2018

Gold traded modestly lower overnight in a tight range of $1191.70 – $1196.50.

It was pressed to its low late during Asian hours by a firmer dollar (DX to 95.57), which was boosted by weakness in the yuan (6.840 – 6.865), the euro ($1.1564 – $1.1527) and some softness in emerging market currencies (Russian rouble – concerns over the central bank’s independence, Indian rupee, Indonesian rupiah).

The DX turned down later during European time (95.25), pressured by strength in the pound ($1.2897 – $1.2955, stronger than expected UK GDP), and gold had a brief bounce to $1196.

However, the yellow metal failed to generate much follow-through buying, failed to take out its overnight high, and fell back to its overnight low ahead of the NY open.

Mostly firmer global equities were a headwind for gold with the NIKKEI up 0.3%, the SCI fell 1.2% (trade worries), European markets were up from 0.3% to 0.4%, and S&P futures were +0.4%. Oil prices were higher (WTI from $67.90 – $68.50) and equity supportive, aided by the stall in US drilling and the decline in Iranian exports.

Not long after the NY open, comments from Chief EU Negotiator Michel Barnier that reaching a Brexit deal is realistic within six to eight weeks launched the pound over $1.30 to $1.3045 and lifted the euro to $1.1615.

The dollar tumbled (DX to 95.02), and sent gold higher – surging past its overnight high to reach $1197.90.

US stocks opened stronger (S&P +17 to 2887), with the tech sector attempting to rebound after its 3% thrashing last week. The US 10-year bond yield hovered around 2.94%, and the DX rebounded to 95.15. Gold retreated in response but found support around the overnight high of $1196.50.

Later in the morning, US stocks pared gains (S&P +4 to2876), and the DX ticked down to 95.04, but held its prior low. Gold climbed to make a fresh high at $1198.50, but it failed in front of $1199 – its up trendline from the 8/16 $1160 low.

In the afternoon, US stocks turned up (S&P +10 to 2882), with gains in the industrials, telecom, and the utilities sectors. Stocks were aided by a report that Trump received a letter from North Korean leader Kim Jong Un about scheduling a second meeting.

The US 10-year yield was steady between 2.93% – 2.94%, and the DX traded up to 95.17. Gold pulled back, but found support at $1194.50.

Later in the afternoon, US stocks drifted a bit lower (S&P +5 to 2877), while the 10-year yield remained steady around 2.93% – 2.94%. The DX traded narrowly between 94.14 – 94.18, and gold was similarly stable around $1194.50 – $1195.50. Gold was $1195 bid at 4PM with a loss of $1.

Open interest was off 2.6k contracts, showing a net of long liquidation (but also some week ending profit taking from shorts) from Friday’s decline. Volume was a little lower but still robust with 300k contracts trading.

Bulls were discouraged with gold’s inability to hold over $1199 – its up trendline from the 8/16 $1160 low, and that it couldn’t manage a gain today given the significant pullback in the DX.

However, bulls remain undeterred 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 (quadruple top – 8/29, 8/30, 8/31, and 9/6 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 adding to their net short position (turned short two weeks ago for the first time since 2002) and with a massive gross short position (213k 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 the breach of the uptrend line from the 8/16 $1160 low at $1199 today as evidence that the yellow metal will resume its decline.

This is witnessed by Friday’s COT Report showing the large funds added to their net short position, leaving a massive 210k contract 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 Japan’s Tertiary Industry Index and Machine Tool Orders, UK Employment Change, German ZEW, Eurozone ZEW, US NFIB Small Business Optimism, JOLTS Job Openings, Wholesale Trade Sales, and Wholesale Inventories for near-term direction.

In the news:

Resistance levels: 

$1196 – 20-day moving average

$1198 – double top – 9/5 and 9/10 highs

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

$1200 – psychological level, options

$1202-04 – triple top – 9/3, 9/4, and 9/7 highs

$1207 – 9 – quadruple top , 8/29, 8/30, 8/31, and 9/6  highs

$1207 – 40 day moving average

$1209 – double top, 8/24, 8/31 highs

$1214 – double top – 8/13 and 8/28 highs

$1216 – 50 day moving average

$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

$1250  – options

$1251-53 – triple bottom 7/4, 7/5, and 7/6 lows

$1255 – 100-day moving average

$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

$1266 – 7/9 high

$1268 – 6/26 high

$1270-73 – triple top, 6/21, 6/22, and 6/25 highs

$1275 – options

$1275 – 6/15 low

$1276 – 6/20 high

$1281-82 – double bottom, 5/21  and 12/27 lows

$1282 – 6/18 high

$1284 – 6/19 high

$1287– 200-day moving average

$1288 – double bottom, 5/22 and 5/23 lows

$1292-95 –5 bottoms – 6/6, 6/7, 6/8, 6/11, 6/12, and 6/13

Support levels:

$1190-92 – triple bottom, 9/4, 9/5, and 9/10  lows

$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

$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

 


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