Gold Traders’ Report – September 11, 2018

Gold moved slightly lower overnight, trading in a choppy fashion but in a fairly narrow range of $1192.20 – $1197.50 and continuing to fade movements in the US dollar.

Gold advanced to its $1197.50 high early during European hours – but topped out in front of yesterday’s $1198.50 high – as the DX dipped below 95 to reach 94.87.

The greenback was pressured from strength in the pound ($1.3025 – $1.3086, stronger UK wage data) and the euro ($1.1577 – $1.1643, stronger German and Eurozone ZEW surveys).

Later during European time, a report that China is set to ask the WTO for permission to impose sanctions on the US (citing US non-compliance with a ruling over US dumping duties) roiled markets.

Eurozone equities turned down (-0.2% to 0.7%) as well as S&P futures (-0.2%, comments from Ray Dalio contributed, “time to get defensive”), and the dollar rallied sharply.

The DX climbed to 95.36 through the NY open and mid-morning hours as the yuan tumbled (6.856 – 6.874).

The dollar was also aided by a stronger than expected reading on the US NFIB Small Business Optimism Index (108.8 vs. exp. 108.1), and a stronger JOLTS Job Openings Report (6.939M vs. exp. 6.675M).

The US 10-year bond yield advanced to 2.976% (5-week high), and gold sold off. Stops were hit under $1190-92 (triple bottom, 9/4, 9/5, and 9/10 lows) to reach $1188, where support from the up trendline from 10/19/08 $682 low held.

During the late morning, US stocks recovered sharply from their opening loses (S&P+13 to 2893), with shares of Apple leading the tech sector higher.

Upbeat comments from Canada’s Foreign Minister Freeland on the progress of US/Canada trade talks along with higher oil prices (WTI to $69.28) aided the move.

The 10-year yield remained steady around 2.97%, but the DX pulled back to 95.17 against strength in the Canadian dollar (1.3174 – 1.3123) and modest firming in some emerging market currencies.

Gold rebounded sharply, as some initial bargain hunting buying tripped some short covering over the prior support level at $1190-92, running the market back to the overnight high of $1197.50.

In the afternoon, US stocks remained steady near their highs, with the S&P finishing +11 to 2888. The 10-year bond yield ticked higher to 2.983%, while the DX traded narrowly between 95.20-26. Gold pulled back to $1195.50, and was $1196 bid at 4PM with a gain of $1.

Open interest was up 4.1k contracts, showing a combination of some new longs up to the $1198.50 high and some subsequent new shorts from yesterday’s session. Volume was much lower with 224k contracts trading.

Bulls were pleased with gold’s ability to rally off of the $1188 low and finish on the plus side today, especially given that the DX firmed modestly, the US 10-year bond yield rose to a 5-week high, and that US stocks rallied strongly.

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 (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 yesterday 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 Eurozone Employment and Industrial Production, US PPI, Oil Inventories, Beige Book, and comments from the Fed’s Bullard for near term guidance.

In the news:

Resistance levels: 

$1198 – triple top – 9/5, 9/10, and 9/11  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

$1206 – 40 day moving average

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

$1209 – double top, 8/24, 8/31 highs

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

$1215 – 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

$1254 – 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:

$1196 – 20-day moving average

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

$1188 – 9/11 low

$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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