Senior Trader Daily Update 15 August 2017

Good morning everyone.
 
Range trading / consolidatory type price action characterised trading in gold and silver to commence the week, as a rebound in the US Dollar Index and US equities, as well as a modest dialling down of the bellicose rhetoric between the US administration and North Korea triggered profit taking and modest long liquidation but which also provided investors with a dip-buying opportunity.
 
Technically, XAU/AUD posted another ‘Long-legged Doji’ candlestick on the Daily chart yesterday, with the market testing lower and upper bounds before closing near the opening level of the day, both a reflection of market indecision and the arm-wrestle taking place between bullish and bearish concerns at present levels. Richard Donchian (the father of Trend Following style trading) noted that: “A move followed by a sideways range often precedes another move of almost equal extent in the same direction as the original move.  Generally, when the second move from the sideways range has run its course, a counter move approaching the sideways range may be expected”. The current sideways price action certainly has every chance of laying the foundations for a move in the days and weeks ahead that bears this observation out.
 
XAU/USD remains confined within the well-defined sideways range between USD 1205 & USD 1300. The major trendline resistance just beneath the psychologically and technically important USD 1300.00 level is to be afforded due respect and some mean-reversion back towards the 21 Day moving average at USD 1264 cannot be ruled out but would potentially provide a solid platform for XAU/USD as it attempts to break through the ceiling that has held it in check since November last year. Worth bearing in mind also is the significant level of open interest in COMEX Gold (December) Options at the USD 1300 & USD 1350 strikes, with almost 8,000 lots and 13,500 lots respectively of Open Interest in Calls (see attached chart). While the USD 1300 would likely be aggressively defended by grantors of the calls, the large level of open interest gathered at the 1300 strike has the potential to add powerful momentum to any topside breakout as positions are covered.
 
Good luck.
 
Regards,
Andre