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Gold Traders' Report - October 25, 2018

|Includes: SPDR Gold Trust ETF (GLD), GLDM
Summary

Gold traded either side of unchanged overnight in a range of $1,230.20 - $1,239.20.

It rose to its high of $1,239.20 during Asian hours, where it was capped by resistance at Tuesday’s $1,240 high.

The DX slipped to 96.61, and gold was $1,230 bid at 4PM with a loss of $3.

Gold traded either side of unchanged overnight in a range of $1230.20 - $1239.20.

It rose to its high of $1239.20 during Asian hours, where it was capped by resistance at Tuesday’s $1240 high.

Gold was fueled by safe-haven buying as the equity selloff in the US yesterday spilled into Far Eastern markets (NIKKEI off 3.7%) and a modest pullback in the dollar (DX to 96.20) as the yen also saw safe-haven bids (112.73 – 111.82).

However, global equities turned higher during European time with Eurozone shares up from 0.1% to 1.4%, and S&P futures recovered by 0.7% (2692). The US 10-year bond yield, which had dipped to 3.10% yesterday, climbed back to 3.138%. The DX rose to 96.39, and gold fell back to $1230.20.

At 8:30 AM, though the headline Durable Goods report was better than expected, markets focused on the misses in some of its components – ex transportation (0.1% vs. exp. 0.4%), and Cap Goods Orders Non-Defense ex Air (-0.1% vs. exp. 0.5%) - along with a worse than expected reading on US Jobless Claims (215k vs. exp. 213k).

S&P futures pulled back (2673), and the DX slid back to the overnight low at 96.20. Gold popped higher, but was capped at $1235.

Shortly afterward, comments from the ECB’s Draghi (concerns over global trade war, protectionism, hard Brexit, weaker industrial production, still expects to leave rates on hold until end of next summer, monetary union is fragile), knocked the euro down ($1.1432 - $1.1371, 2-month low), and lifted the DX to 96.60 (fresh 2-month high).

A sharp plunge in sterling ($1.2905 - $1.2810, 7-week low – ongoing Brexit concerns) also supported the greenback. Gold traded down in response, but found support at the overnight low and former resistance level of $1230.

At 10AM, a stronger reading on US Pending Home Sales (0.5% vs. exp. 0) contributed to US stocks turning higher. The S&P rallied to 2700 (+35) by mid-day, with gains in the IT, Consumer Discretionary, and Communication Services sectors. A rebound in oil (WTI to $67.62) aided the move. The 10-year yield ticked up to 3.145%, and the DX climbed to 96.68.

Gold broke support at $1230, and dipped to $1228. However, bargain hunting buying emerged to lift the yellow metal back over $1230. Some mildly dovish comments from the Fed’s Clarida (no inflation alarm bells ringing at the moment, labor market might not be as tight as thought, wages gains don’t always lead to inflation, possible pickup in productivity growth, 2019 hikes depend on growth, jobs, and inflation) contributed to the price action.

In the afternoon, US stocks continued to strengthen (S&P +68 to 2723), while the 10-year yield hovered around 3.14%. The DX pushed higher to 96.74, with continued euro ($1.1355) and sterling ($1.1278) weakness contributing. Gold was knocked lower, but again found support at $1228.

US equities pared some gains at the close (S&P ended +50 to 2706), while the 10-year yield was steady around 3.14%. The DX slipped to 96.61, and gold bounced to $1230.50. Gold was $1230 bid at 4PM with a loss of $3.

Open interest was off 2.2k contracts, showing a net of short covering from yesterday’s gain. Volume was much lower with 216k contracts trading.

Some bulls were disappointed that last night’s rally couldn’t take out Tuesday’s $1340 top, and for the market’s ensuing slide.

However, other bulls were encouraged with the strong dip buying seen, that gold managed to remain over its 100-day moving average ($1224), and finish over the prior resistance at $1230 – especially amid the hostile climate of a strong rebound in equities, the 10-year yield remaining near 3.15%, and a significant up move in the US dollar (fresh two-month high at 96.74).

Bulls remain steadfast in their thinking that gold bottomed at $1160 on 8/16 after a $35 2-day capitulation, and will look to continue to 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 will look to re-test $1232-35 (6 tops - 7/23, 7/25, 7/26, 10/15, 10/16, and 10/24 highs) followed by $1239-40 (last two night’s highs), then challenge $1245-46 (double top – 7/16 and 7/17 highs, down trendline from 4/23 $1336 high). 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 – despite showing a heavy amount of short covering from last week – still shows the funds with a massive gross short position (171k contracts).

They feel the that the short side of gold is still a crowded trade, and that the gold market is still set up in a highly favorable position to move up from potential heavy short covering and sidelined longs returning to the market.

Some bears are concerned with gold’s resilience at holding above $1230, despite the strong rebound in stocks today, and for gold’s continued strength in the face of the recent dollar rally (especially since 10/16, +2.07% from 94.78 – 96.74). However, bears remain comfortable trading gold from the short side, scale-up selling into rallies.

Bears point to the lack of follow-through gold has presented on rallies (failed to take out $1240 last night, failed to hold $1232-35 again today) and that the massive amount of short covering seen from Friday’s COT report (46k contracts) failed to lead to a breach of at least $1250 as signs of a tired market – and expect a significant pullback to ensue.

Many bears are firm in their conviction that fuel from dollar strength, higher interest rates and a rebound in equities will continue to provide downside pressure on gold, and see prices north of $1200 offering a great opportunity to get short(er).

This is witnessed by last Friday’s COT Report – that despite a heavy amount of short covering in the past week - a massive gross short position (171k contracts) remains. Bears look for some stale bull selling to trigger a move back to initial support at the $1210 - $1214 area, followed by $1207-09, and then expect a re-test of $1200.

All markets will continue to focus on geopolitical events (especially Brexit developments), developments with the Trump Administration (especially on US-China trade, potential legal issues), oil prices, Q3 corporate earnings, and will turn to reports tomorrow on Japan’s CPI, US GDP, Personal Consumption, Core PCE, U. Michigan Consumer Sentiment, Baker-Hughes Rig Count, Commitment of Traders Report, and comments from the ECB’s Draghi for near-term direction.

In the news:

Resistance levels:

$1232-35 – 6 tops, 7/23, 7/25, 7/26, 10/15, 10/16, and 10/24 highs

$1239-40 – double top, 10/23 and 10/25 highs

*$1245 – down trendline from 4/23 $1336 high

*$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

$1262 – 50% retracement from 4/11 $1365 high to the 8/16 $1160 low

Support levels:

$1230-31 – quadruple top - 10/17, 10/18, 10/19, and 10/22 highs

$1228 – 10/25 low

$1226 – 10/24 low

$1225 – options

$1223 – 100-day moving average

$1222 – 10/23 low

$1220-21 – 8/2 and 8/3 highs

$1221 – 10/17 low

$1219=21 – quadruple bottom, 10/15, 10/17, 10/18, and 10/22 lows

$1216 – 10/12 low

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

$1213-14 – triple top – 8/13, 8/28, and 9/13 highs

$1212 – 20-day moving average

$1211 – 9/21 high

$1207-09 –10 tops, 8/29, 8/30, 8/31, 9/6, 9/12, 9/14, 9/20, 10/2, 10/3, and 10/4 highs

$1207 – down trendline from 8/10 $1217 high

$1205 – 40 day moving average

$1204 – 06 – double top – 10/5, 10/8 highs

$1204 – 50 day moving average

$1200 – psychological level, options

$1199– down trendline from 4/11 $1365 high

$1194 - 10/10 high

$1192-94 – 5 bottoms, 9/12, 9/14, 9/17, 9/21, and 9/23 lows

$1191 – up trendline from 8/16 $1160 low

$1185 – 10/10 low

$1181 - 84 – 7 bottoms - 8/20, 8/23, 8/24, 9/27, 9/28, 10/8, and 10/9 lows

$1175 – options strike

$1172– quadruple bottom – 8/17 low

$1160 – 8/16 low

$1156 – 1/4/17 low

$1150 – options

$1146 – 1/4/17 low

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