Gold Traders’ Report - October 3, 2019

 
OCT 3, 2019

Gold Rallies $7 Against More Weak Us Economic Data - Gold Today October 3, 2019  

Jim Pogoda, Senior Gold Trader, Gold Bullion International


Overnight – Gold unchanged but choppy between $1496 - $1505

·        Gold was either side of unchanged last night, trading in a range of $1496 - $1505 and retaining its choppy tone. 

·        It slid to its $1496 low during Asian and early European time, fading a rebound in S&P futures (+14 to 2894) from its 120 point (4%) drubbing over the previous two sessions and a climb in the US dollar (DX to 99.20).  

·        The DX was aided by some slightly hawkish comments from the typically dovish Charles Evans from the Fed (outlook for US economy is quite good, “what we’ve done already may be sufficient”, and wasn’t pining for further cuts) along with weakness in the euro ($1.0965 - $1.0940, misses on German and Eurozone Services PMIs) and the pound ($1.231 - $1.2266, weaker UK Services PMI). 

·        Gold recovered to its $1505 high during later European hours – albeit in a very choppy manner – finding resistance at yesterday’s high. 

·        It rallied against a retreat in S&P futures (-2 to 2878), and a pullback in the dollar (DX to 98.95). 

·        The greenback was pressured by a bounce in the pound ($1.2350, Brexit optimism as Tories and the DUP extend support to PM Johnson’s proposed deal), and the euro ($1.0970, stronger Eurozone Retail Sales).  

·        However, gold fell back to unchanged ($1499) ahead of the NY open, trading against a bounce in the DX to 99.05. 

 

Weaker than expected US Jobless Claims give gold a boost to $1503

·        At 8:30 AM, a worse than expected reading on US Jobless Claims (219k vs. exp. 215k) tugged the DX back to 98.91, and boosted gold back up to $1503. 

 

Miss on US ISM Services send stocks plunging and gold rallying to $1520

·        At 10 AM, a slightly better than expected report on US Factory Orders (-0.1% vs. exp. -0.2%) and an as expected reading on Durable Goods (0.2%) were far outweighed by a big miss on the ISM Services Report (52.6 vs. exp. 55.1, 3-year low).  

·        US stocks sold off sharply (S&P – 34 to 2856), with losses in the Financials, Consumer Discretionary, and Industrials leading the decline. 

·        A plunge in oil (WTI to $51, 2-month low) contributed to the move. 

·        The US 10-year bond yield tumbled to 1.517%, (1-month low), and the DX fell to 98.63 (1-week low). 

·        Gold shot higher, taking out resistance at $1505 (last two day’s highs), $1507 (9/27 high), $1510 (40-day moving average), $1512 (up trendline from 5/30 $1275 low and 9/26 high) to reach $1520 – with a fair amount of short covering seen. 

 

Gold retreats to $1505 as stock bounce on higher probabilities of Fed rate cuts and upbeat comments from Trump on US-China trade

·        By late morning, however, US stocks rebounded back into positive territory (S&P +14 to 2902), helped by some upbeat comments from Trump on US-China trade talks, and a significant increase in the probabilities of future Fed rate cuts:

1 - 25 bp cut October     2 -  25bp cuts December         3 - 25bp cuts January

Today                 90.3%                             53.3%                                        30.7%

Yesterday          77.0%                             38.6%                                        29.8%

Last week         49.2%                             18.9%                                          6.7%

 

·        The 10-year bond moved up to 1.558%, and the DX had a bounce to 98.80. 

·        Gold retreated, but found support at the prior resistance of $1505 - helped by the higher probabilities of a more aggressive Fed  

 

Gold holds $1505 despite further gains in stocks

·        In the afternoon, US stocks probed higher (S&P finished +24 to 2911), helped by a bounce in oil (WTI to $52.62). 

·        Gains in the Energy, IT, Real Estate, and Consumer Staples sectors led the advance. 

·        However, the 10-year yield retreated to the $1.53-1.54% level

·        The DX was caught in the cross currents but traded higher, reaching 98.90. 

·        Gold was choppy, and bounced between $1505-$1509, but held $1505 (yesterday’s and last night’s highs)

·        Gold was $1506 bid at 4PM with a gain of $7. 

 

Futures volume and open interest

·        Open interest was up 10.4k contracts, reflecting a good chunk of new longs from yesterday’s rally. 

·        Volume was lower but still very strong with 412k contracts trading. 

 

Bulls

·        Encouraged by gold’s continued rebound today off of the weaker ISM Services report and its ability to rally sharply ($20) up to $1520 - but some were disappointed that the market couldn’t hold above $1512 (up trendline from 5/30 $1275 low and 9/26 high)

·        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 (strong support at $1505 in the afternoon today)

·        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 week, 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

·        Probabilities of future rate hikes have increased in recent days off of the weak US economic data (especially large misses on both ISM Manufacturing and ISM Services) - Fed Fund Futures show:  90.3% chance of a 25bp cut at the October meeting, a 53.3% probability of two 25bp cuts by the December meeting, and a 30.7% likelihood of three 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 feel the $98 correction from gold’s $1557 high on 9/4 has run its course, and are expecting the bounce off of the $1459 bottom to continue. 

·        Bulls look for a retest of resistance at $1512– (up trendline from 5/30 $1275 low, 9/26 high) followed by $1520 (today’s high), $1525 (options), $1527 (down trendline from 9/4 $1557 high) and then $1535-36 (double top – 9/25 and 9/25 highs.

 

Bears

·        Bears were hurt by another poor economic report today– ISM Services – chasing more recent shorts out of the market

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

·        Still concerned with the persistent bargain hunting buying that has cushioned downside moves ($1505 held all afternoon, despite stocks and the DX trading higher). 

·        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 back to overestimating the probabilities of future Fed rate cuts, 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 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 and Eurozone Services PMI’s 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 week 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:   $1475 (10/2 low), $1457-59 – double bottom (8/6 and 10/1 lows), $1450 (options), $1438 (8/5 low), and then $1431 (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 Germany’s Construction PMI, US Employment, Trade Balance, Baker Hughes Rig Count, Commitment of Traders, and comments from the ECB’s Guindos, and the Fed’s Rosengren, Bostic, and Powell for near term direction.  

 

In the news:

Gold looking at significantly higher levels in long-term – Saxo Bank:   https://www.bloomberg.com/news/videos/2019-10-03/gold-looking-at-significantly-higher-levels-in-long-term-says-saxo-bank-s-hardy-video

The gold deal keeping Venezuela afloat:   https://www.bloomberg.com/news/videos/2019-10-01/secretive-gold-deal-keeping-venezuela-video

Upward move in gold coming, but may take time – Jeff Christian:   https://www.northernminer.com/news/northern-miner-podcast-154-upward-move-in-gold-coming-but-may-take-time-ft-jeffrey-christian/1003810247/

 

YTD Performance


12/31/2018
10/3/2019
Change
% Change
Gold


1282.5
1506
223.5
17.427%
DX


96.06
98.90
2.84
2.956%
S&P


2505
2911
406
16.208%
JYN


109.63
106.89
-2.74
-2.499%
Euro


1.1466
1.0967
-0.0499
-4.352%
US 10-year bond yield


2.69%
1.539%
-0.0115
-42.703%
Oil (WTI)


45.45
52.35
6.9
15.182%

 

 

Resistance levels: 

$1507 – 9/27 high

$1510 - 40-day moving average

$1512– up trendline from 5/30 $1275 low

$1512 – 9/26 high

$1520 – 10/3 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:

$1505 – 10/2 high

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

$1500 – 20-day moving average

$1500 – psychological level, options

$1498– 50-day moving average

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

$1480 – 8/13 low

$1475 – 10/2 low

$1472 – 8/7 low

1465 – 9/30 low

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

$1450 – options

$1438 – 8/5 low

$1431 – 100-day moving average