Gold Traders’ Report - October 1, 2019

 
OCT 1, 2019

Gold Rebounds from $1459 2-Month Low on Weak Us Ism Report to Finish up $8 at $1480 - Gold Today October 1, 2019 

Jim Pogoda, Senior Gold Trader, Gold Bullion International

 


Overnight – Gold pressed to 2-month low at $1459 against firming stocks and bond yields, but bounces to gamely to $1470 on DX pullback

·        Gold continued to pull back last night, making its 5th consecutive lower low and trading in a choppy fashion between $1459 - $1475. 

·        It was pressured to its $1459 low (2-month low) during Asian and early European time, where support ahead of $1457 (8/6 low) held. 

·        Gold faded strength in S&P futures (+16 to 2994), which were still riding the renewed optimism in the US-China trade talks after the US denied contemplating blocking Chinese firms from listing shares on US exchanges.  

·        A rise in global bond yields and early firming in the US dollar also weighed on gold, with a poor Japanese 10-year bond offering (yield from -0.21% to -0.145%, BOJ said last month it would reduce purchases to help lift rates ) lifting yields around the globe (German 10-year from -0.575% to -0.512%, US 10-year from 1.67% to 1.753%). 

·        The US dollar rose (DX to 99.59, fresh 29 month high) lifted by weakness in the yen (108.02 – 108.46). 

·        Some slightly hawkish comments from the Fed’s Evans (US still on path for “solid” 2.255 GDP this year, with no further rate cuts expects inflation to increase above 2%) were another headwind for gold.

·        However, news of continued violent protests in Hong Kong were gold supportive and helped minimize the downside move

·        Later during European time, gold rebounded to $1470, helped by bargain hunting bids and a dip in the DX (99.40). 

·        The greenback was weighed by an advance in the euro ($1.0878 – $1.0908) as better than expected German and Eurozone PMI (though well below 50 and in contraction) data outweighed a miss on Eurozone CPI.  

 

Gold slips back to $1462 as the DX makes a fresh 29 month high

·        Ahead of and through the NY open, gold fell back to $1462, pressured by a rebound in the DX (99.62). 

·        The dollar was aided from some softening in the euro ($1.0889) and the pound ($1.2313 - $1.2221, Brexit uncertainty as EU spokesman denies flexibility on the Irish backstop). 

 

Poor ISM Manufacturing report crushes stocks, knocks bond yields and the DX lower and gold rallies back to $1487

·        At 10:00 AM, a much worse than expected reading on US ISM Manufacturing (47.8 vs. exp. 50.2, lowest in 10 years) along with a miss on US Construction Spending knocked US stocks lower (S&P -31 to 2947) into mid-day.  

·        Losses in the Materials, Financials, and Industrials sectors led the decline, and a fall in oil prices (WTI to $53.91) weighed. 

·        The US 10-year bond yield plunged to 1.618% (3-week low), and the DX sank to 99.06. 

·        Gold rallied in response, taking out its overnight high ($1475) and former support levels  at $1480 (8/13 low) and $1484 - 86 (4 bottoms - 9/10, 9/11, 9/13, and 9/18 lows) to reach $1487. 

 

Gold retreats to $1482 as the DX and bond yields stabilize

·        US stocks continued to weaken into the afternoon (S&P finished -38 to 2940 ), but the 10-year bond yield stabilized and edged up to 1.64%-1.65%. 

·        The DX was caught in the cross currents, but moved higher trading in a choppy manner between 99.10 – 99.20. 

·        Gold came off its high, and was unable to hold above prior support at $1484-86 to reach $1478.

·        Gold was $1481 bid at 4PM with a gain of $8

 

Futures volume and open interest

·        Open interest was off 19.1k contracts, reflecting a heavy amount of long liquidation from yesterday’s selloff. 

·        Volume was a tad lower but remained strong with 463k contracts trading. 

 

Bulls

·        Encouraged by gold’s rebound today off of the weaker ISM report and its ability to rally sharply ($25) up to $1487 - but some were disappointed that the market couldn’t hold above the key support level $1484-86 

·        Bulls remain pleased with the strength and consistency of bargain hunting buying on price declines which has limited the degree of the price corrections in this 4-month old rally

·        Remain ecstatic with gold’s sharp advance that has extended to $275 (22.1%) from the $1275 low on May 30 to the $1557 6-year high two weeks ago that has also brought in momentum following players.  

·        Benefitted from the recent escalation of the ongoing trade war between the US and China (escalation possibly spreading to the financial side, with the US having to deny contemplating restrictions on US investment in China, bulls talk of potential Chinese retaliation by dumping US Treasuries)  that led to both sides increasing tariffs earlier this month along with increasing tough rhetoric. 

·        Despite the agreement between the US and China to meet next month, bulls feel that this issue won’t be solved anytime soon, and instead expect further escalation of the trade war to ensue.  They feel this will add to further uncertainty, and increase the probability of a more severe global economic slowdown. 

·        Despite Powell and the Fed not projecting as dovish as some would have liked at their last meeting, markets are still anticipating the Fed is in an easing mode

·        Though probabilities for future rate cuts have declined in recent days, they increased markedly today off of the poor US ISM report.  Fed Fund Futures predict the Fed continuing to cut rates going forward:  62.5% chance of a 25bp cut at the October meeting, a 79.1% probability of a 25bp cut by the December meeting, and a 47% likelihood of two 25bp cuts by the January meeting - and bulls see a rate cutting environment one in which gold can flourish

·        Bulls see current geopolitical tensions – especially the Saudi / Iran situation, along with the tensions between Hong Kong and Mainland China, the Brexit issue, and North Korea - as additional tailwinds for gold.

·        Bulls look for the market to consolidate in front of $1457 (8/6 low), and then mount a re-test of resistance at the prior support level  $1484 - 86 (4 bottoms - 9/10, 9/11, 9/13, and 9/18 lows). 

 

Bears

·        Just as bears were eyeing downside support at $1457 and below, they were blindsided by the poor ISM report, with many recent shorts getting run out of the market

·        However, some bears used today’s bounce to get short(er) at more attractive levels

·        Encouraged with gold making 5 consecutive lower lows and lower highs in its move down from the 9/24 $1536 high, and that gold couldn’t hold above support at $1484-86

·        Still concerned with the persistent bargain hunting buying that has cushioned downside moves (overnight bounce from $1459 - $1470)

·        See gold as an overbought market that has risen $282 (22.1%) from the $1275 low on 5/30, and expect a more significant correction to ensue. 

·        Feel that markets are still a bit over their skis on rate cut predictions (though the probabilities  for future aggressive rate cuts have come in significantly recently), feel that the downward pressure on bond yields was also overdone, and that a modest reversal should allow the US dollar to strengthen further against other currencies (DX reached a 29-month high today) as they feel the dollar still remains the “cleanest dirty shirt in the laundry basket” with the US as the sole global growth engine. Recent soft data for both Germany and the Eurozone (weak German CPI knocked the euro to 28-month lows today) that drove the German 10-year yield further into negative territory over the past months (German bund yield remains negative and not far from record lows of  -0.743%) underscores this view. 

·        Feel a US-China trade deal is in both sides’ best interests, and feel that the recent agreement to resume negotiations next month and future similar conciliatory actions will be viewed as positive steps by markets, which should help equities to continue to rebound and will put downward pressure on the yellow metal.  

·        Bears look for a significant pullback from gold’s torrid rise, and expect considerable long liquidation selling (large specs with a very heavy net long position – Net Fund Long Position 312k contracts, 3-year highs, long side of gold remains a crowded trade) to materialize if support at the following levels can be breached:   $1457 (8/6 low), $1450 (options), $1438 (8/5 low), and then $1425 (100-day moving average.

 

 

Looking ahead

All markets will continue to focus on geopolitical events (especially Brexit news and Saudi - Iran tensions, Hong Kong protests), developments with the Trump Administration (especially on US-China trade, potential legal / impeachment issues), oil prices, and will turn to reports tomorrow on Japan’s Consumer Confidence, US ADP Employment, Oil Inventories and comments from the Fed’s Barkin, Harker and Williams for near term direction. 

 

In the news:

Happiness has a price and it’s $1500 an ounce for gold miners:   https://www.forbes.com/sites/mergermarket/2019/09/30/happiness-has-a-price-and-its-1500-an-ounce-for-gold-miners/#7387189a2f1a

 

YTD Performance


12/31/2018
10/1/2019
Change
% Change
Gold


1282.5
1481
198.5
15.478%
DX


96.06
99.10
3.04
3.165%
S&P


2505
2940
435
17.365%
JYN


109.63
107.69
-1.94
-1.770%
Euro


1.1466
1.0935
-0.0531
-4.631%
US 10-year bond yield


2.69%
1.640%
-0.0105
-38.943%
Oil (WTI)


45.45
53.65
8.2
18.042%

 

Resistance levels: 

$1480 – 8/13 low

$1484 - 86 – 4 bottoms - 9/10, 9/11, 9/13, and 9/18 lows

$1487 – 10/1 high

$1489 – 9/19 low

$1495– 50-day moving average

$1498 – 9/30 high

$1500 – psychological level, options

$1501 – double bottom - 9/25 and 9/26 lows

$1503 – 20-day moving average

$1505– up trendline from 5/30 $1275 low

$1507 – 9/27 high

$1510 - 40-day moving average

$1512 – 9/26 high

$1525 – options

$1535-36 – double top – 9/25 and 9/25 highs

$1553 – 9/5 high

$1557 – 9/4 high

$1591 – 4/7/13 high

$1600 – options

$1604 – 3/31/13 high

$1614 – 3/24/13 high

 

Support levels:

$1472 – 8/7 low

1465 – 9/30 low

$1457-59 – double bottom - 8/6 and 10/1  lows

$1450 – options

$1438 – 8/5 low

$1427 – 100-day moving average