Gold Traders’ Report – August 14, 2018

The dollar was also weighed by a small uptick in the euro (to $1.1425) from some relief over Eurozone bank exposure to Turkey along with some stronger Eurozone economic data (German and Eurozone GDP and ZEW surveys beat expectations).

Global equities were mostly firmer and a headwind for gold, however, with the NIKKEI up 2.3%, the SCI was off 0.2%, European markets were up from 0.3% to 0.5%, and S&P futures were +0.3%. Firmer oil prices (WTI from $67.30 – $68.15, Saudis cut output in July,) were supportive of stocks.

At 8:30 AM, US Import Prices were unchanged as expected, but a strong upward revision to last month’s reading boosted the DX back over 96.30.

Weakness in the pound ($1.2775 – $1.2704, UK average weekly earnings disappoint, UK Foreign Secretary Hunt says “Everyone needs to prepare for the possibility of a chaotic no-deal Brexit”), the euro ($1.1415 – $1.1332) and the yen (110.75 – 111.30, unwinding of safe-haven positions) along with a stronger opening of US stocks (S&P +17 to 2839, financials and consumer discretionary sectors lead) boosted the DX to take out its high from yesterday at 96.53 by late morning.

Strangely, gold managed to move up during a good part of the dollar’s ascent but topped out at $1198.80 – the former 5-bottom support level – when the DX took out yesterday’s high.

The DX continued to climb against further weakness in the euro, pound, and yen, making a fresh 14-month high at 96.80 by early afternoon. The greenback was also aided further gains in US stocks (S&P +21 to 2842). Gold turned down, and tumbled back to $1192 where support from yesterday’s low held.

In the afternoon, US stocks held most of their gains (S&P ended +18 to 2840), while the US 10-year bond yield was steady around 2.89%. The DX pulled back to 96.67, and gold rebounded to $1194.50. Gold was $1194 bid at 4PM – unchanged.

Open interest was up 9.2k contracts – showing a net of new shorts (but also a fair amount of bottom fishing new longs) outweighing the heavy long liquidation seen during yesterday’s sell-off. Volume swelled with 390k contracts trading.

Bulls were encouraged that gold was able to hold yesterday’s $1192 low today despite the dollar making yet another 14-month high, and a strong recovery in US stocks. They remain steadfast that gold has or is very close to putting in a major bottom, and continue to look to buy on weakness.

They maintain the market has been extremely oversold – having dropped $173 (12.67%) since 4/11, and $117 (8.94%) since 6/14. Also, its 14-day RSI – currently at 25.5 – has spent only 6 sessions north of 35 since 6/14. Bulls strongly believe that the dollar’s rally is badly overextended, and expect a meaningful correction in the greenback from today’s high (up 9.69% since its 88.25 low on 2/14) to help trigger a significant short covering rally in gold.

Bulls are looking for gold to consolidate ahead of $1185 (up trendline support from 10/19/08 $682 low), and then challenge resistance at the prior support levels of $1195-98 and $1205-08.

In addition, bulls maintain that Friday’s Commitment of Traders Report with a historically and relatively very low Net Fund Long Position (12k contracts, low since Dec ‘15) and a massive and growing gross short position (+22k to 196k contracts – short side of gold becoming 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.

Some bears took profits yesterday in front of $1205, $1200, and $1195, and will look for renewed strength in gold to rebuild scale up short positions. Other bears, however, are still looking for gold to decline significantly more, as witnessed by Friday’s COT Report showing another large build in fund gross shorts (+22k contracts to 196k contracts).

They feel fuel from a firmer dollar will continue to provide downside pressure on gold, and that the dollar’s ability to strengthen against other currency majors (and emerging market currencies if the current crisis lingers) still has legs.  They will be gunning for stops below $1185, the up trendline from 10/19/08 $682 low to trip more long liquidating sell stops to challenge next support levels at $1181, $1177, and then $1175.

All markets will continue to focus on geopolitical events (especially with Turkey and other emerging markets), developments with the Trump Administration (especially on US-China trade), Q2 corporate earnings, oil prices, and will turn to reports tomorrow on UK CPI and PPI, US Retail Sales, Empire State Manufacturing Index, Unit Labor Costs, Industrial Production, Capacity Utilization, Business Inventories, NAHB Housing Market Index, and Oil Inventories for near-term direction.

In the news:

• Gold Weekly:  Speculators most negative since April 1993
• ABN Precious Metals Watch – time to bottom out
• Gold market oversold

Resistance levels: 

$1195-98   – 5 bottoms1/31/17, 2/1/17, 3/9/17, 3/13/17, 3/15/17 lows

$1199 – 8/14 high

$1200 – psychological level, options

*$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

$1207 – down trendline from 6/14 $1309 high

$1216-18 – 5 tops, 8/6, 8/7, 8/8, 8/9 and 8/10and highs

$1219 – 20-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

$1237 – 40 day moving average

$1245-46 – double top – 7/16 and 7/17 highs

$1250  – options

$1250 -50% retracement from 4/11 $1309 high to 8/13 $1192 low

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

$1248 – 50 day moving average

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

$1266 – 7/9 high

$1268 – 6/26 high

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

$1275 – options

$1278 – up trendline from 1/9/17 $1171 low

$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

$1284 – 100-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

$1295 – up trendline from 12/15/16 $1123 low

$1295 – down trendline from 5/15 $1315 top

$1296– 200-day moving average

Support levels:

$1192 – double bottom 8/13 and 8/14  lows

$1188 – 1/30/17 low

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

$1181 – 1/27/17 low

$1177 – 1/11/17 low

$1175 – options strike