Gold Traders’ Report – September 6, 2018

Gold continued to climb overnight, trading in a range of $1195.80 – $1206.70. It took out resistance at $1200, $1202 (Tuesday’s high) and $1204 (Monday’s high), and tripped some buy stops over those levels that took it to $1206.90 – where resistance at the triple top $1207-09 (8/29, 8/30, and 8/31 highs) held.

A decent amount of short covering was seen. A weaker US dollar provided the fuel for gold’s advance, with the DX pulling back below 95 (94.94) – despite concerns that the Trump Administration could impose tariffs on $200B more of Chinese imports later tonight, and China’s Commerce Ministry warning of retaliatory measures.

The dollar was pressured by strength in the yen (111.55 – 111.17), the pound ($1.2895 – $1.2945), and a recovery in some emerging market currencies (South African rand, Mexican peso, Indonesian rupiah).

Gold also was supported by yesterday afternoon’s unflattering NY Times op-ed about the Trump presidency by an alleged anonymous Trump administration official.

Global equities were mixed with the NIKKEI and the SCI both down 0.5%, European markets ranged from -0.1% to +0.2%, and the S&P was unchanged (recovered from 6 point dip to 2882). Weaker oil prices (WTI from $68.89 – $68.41, API reported a smaller than expected draw in US Oil Inventories) weighed on stocks.

At 8:15 AM, a worse than expected reading on the US ADP Employment Report (163k vs. exp. 190k) knocked down S&P futures (2893 – 2888) and the US 10-year bond yield (2.911% – 2.893%).

The DX fell through the overnight low to reach 94.92, and took gold back up to its overnight high of $1206.70, where the triple top resistance held again. Just later at 8:30AM, a much better than expected Jobless Claims Report reversed markets. S&P futures (2892) and the 10-year yield (2.902%) rebounded, while the DX turn up and popped to 95.09. Gold retreated, and was pressed back to $1202.50.

The ISM Services Report at 10AM was much stronger than anticipated (58.5 vs. exp. 56.6), overcoming a slight miss on Factory Orders (-0.8% vs. exp. -0.6%). This combined with some hawkishness from the Fed’s Williams (not concerned with possible yield curve inversion from Fed rate hikes) took the DX up to 95.21 – just shy of its overnight high.

A dip in some emerging market currencies (Mex peso, Russian rouble) also helped strengthen the greenback. Gold sank through the previous support levels of $1202 and $1200 to reach $1197.

US stocks slumped into the early afternoon (S&P -22 to 2867), with the tech sector adding to the steep losses from yesterday, along with weakness in energy. A drop in oil (WTI to $67, EIA reports large surprise builds in gasoline and distillates, overcoming a larger than expected draw in crude) contributed to weakness in stocks. The 10-year yield dipped to 2.871%, and the DX pulled back briefly under 95. Gold traded up in response, clawing back to $1201.

Later in the afternoon, US pared losses – with the major averages mixed. The beleaguered NASDAQ lost 0.9%, but the DJ ended up +0.1%, and the S&P finished off 10 to 2878. The 10-year yield ticked up to 2.88%, and the DX recovered to 95.05. Gold dipped back to $1199, and was $1199 bid at 4PM with a gain of $2.

Open interest was off 6.9k contracts, showing a net of short covering from yesterday’s advance. Volume was much lower with 219k contracts trading.

Bulls will take today’s $2 gain, but were looking to at least hold over the $1202 and $1204 highs from 9/3 and 9/4 – especially given the pullback in the dollar and softness in US equities.

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 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 (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 last 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 any strength. Many bears believe that gold’s recovery rally ($1160 – $1214) has been completed and are looking for the yellow metal to resume its decline.

This is witnessed by last 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 – $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 Leading Index, Germany’s Trade Balance and Industrial Production, Eurozone GDP, US Payroll Report, Baker-Hughes Rig Count, Commitment of Traders Report, and comments from the Fed’s Rosengren, Mester, and Kaplan for near-term guidance.

In the news:

Resistance levels: 

$1198 – 9/5 high

$1200 – psychological level, options

$1202 – 9/4 high

$1204 – 9/3 high

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

$1209 – 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

$1218 – 50 day moving average

$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

$1258 – 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

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

$1288– 200-day moving average

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

Support levels:

$1196 – 9/6 low

$1197 – 20-day moving average

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

$1191 – 9/5 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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