Gold Traders’ Report – September 4, 2018

Gold was weaker overnight, trading in a range of $1202.05 – $1191.80. It fell through support at $1200, $1198 (Friday’s low) and $1196 (8/30 low), touching off light stops on the way to its low of $1191.80 – where support at the $1192 triple bottom held.

The yellow metal was pressured by strength in the dollar, as the DX rose above its double top at 95.23 to reach 95.62.

The dollar was boosted by fears of an escalating trade war between the US and China (concerns of Trump following through on $200B more of Chinese imports this Thurs), US and Canada trade (1.3050 – 1.3179 – Trump tweets over the weekend “no political necessity to keep Canada in our new NAFTA deal”), a no-deal Brexit (pound from $1.2870 – $1.2813), a weaker euro ($1.1620 -$1.1550), and softness in emerging market currencies (rand, rupiah, mex peso, rupee) that participants feared would be caught in the middle of any escalating in the current trade conflicts.

Global equities were mostly weaker and supportive of gold with the NIKKEI off 0.1%, the SCI rose 1.1%, Eurozone shares were off from 0.3% to 1.1%, and S&P futures were -0.1%. Oil was firmer (WTI to $71.40, 2-month high) and was a tailwind for stocks.

After opening weaker, US rallied back to unchanged (S&P at 2901) after a much stronger than expected report on US ISM Manufacturing (61.3 vs. exp. 57.6). The US 10-year bond yield climbed to 2.906% (2-week high), and the DX rose further to 95.74. Gold – which had previously rebounded to $1195 – sank through the overnight low to reach $1189.70, with long liquidation seen.

By mid-day, US equities turned back down (S&P -16 to 2885) with the telecom, materials, and healthcare sectors leading the decliners, and with a steep decline in oil (WTI to $69.67) contributing to the weakness. The US 10-year yield ticked down to 2.895%, and the DX pulled back to 95.39. Gold rebounded in response, trading up to $1194.50.

In the afternoon, US stocks pared losses (S&P ended down 5 to 2897), while the US 10-year yield hovered around 2.90%. The DX traded narrowly between 95.40-47, and gold was likewise steady between $1191.50 – $1193. Gold was $1193 bid at 4PM with a loss of $8.

Open interest was off 6.8k contracts, showing a net of early covering/profit taking by shorts early on, followed by some long liquidation later in Friday’s session. Volume was lower with 272k contracts trading.

Bulls were disappointed with gold’s pullback today but encouraged that support at $1192 held on the close. They are 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 8/15’s 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 (triple top), 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 still net short (turned short two weeks ago for the first time since 2002) and with a massive gross short position (210k 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 strength. Other bears, however, are still looking for gold to decline significantly more, as witnessed by Friday’s COT Report showing the large funds are still net short, with 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 – $1187 (50% retracement of up move from 8/16 $1160 low to 8/28 $1214 high), $1185 (up trendline from 10/19/08 $682 low), and $1183 – 84 (triple bottom – 8/20, 8/23, and 8/24 lows) to lead to a test of $1175 (options strikd) 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 PMI, China’s Caixin PMI, Eurozone PMIs and Retail Sales, US Trade Balance, and comments from the Fed’s Bullard and Kashkari for near-term guidance.

In the news:


Resistance levels: 

$1198 – 20-day moving average

$1200 – psychological level, options

$1202 – 9/4 high

$1204 – 9/3 high

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

$1205-08 – 9 bottoms – 8/2, 8/3, 8/6, 8/7, 8/8, 8/10 7/7/17, 7/10/17 and 7/11/17 lows

$1209 – double top, 8/24, 8/31  highs

$1212 – 40 day moving average

$1214 – double top – 8/13 and 8/28 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

$1224 – 50 day moving average

$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

$1259-61 – quadruple top – 6/27, 7/4, 7/5, and 7/6 highs

$1261 – 100-day moving average

$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

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

$1289– 200-day moving average

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

Support levels:

$1192 – triple bottom 8/22, 8/13 and 8/14 lows

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

$1185 – up trendline from 10/19/08 $682 low

$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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