Gold Traders’ Report - October 7, 2019

 
OCT 7, 2019

Gold retreats to $1492 fading optimism in US –China trade and technical selling - Gold Today October 7, 2019 

Jim Pogoda, Senior Gold Trader, Gold Bullion International

 

Overnight – Gold fades a rebound in S&P futures and dips to $1498

·        Gold worked lower last night, trading either side of unchanged in a range of $1498 - $1509. 

·        It rose to its $1509 high early during Asian hours, lifted by weakness in S&P futures (-22 to 2928) on reports that China is hesitant to pursue a broad trade deal with the US, with Vice Premier Liu He allegedly saying his offer to the US won’ include commitments on reforming China’s industrial policy or government subsidies when talks resume in the US this Thursday. 

·        Some hawkish comments from the Fed’s George (not concerned about low inflation, US economy is currently in a good place, outlook for continued moderate growth, doesn’t see need for a further rate cut) and a lack of progress in US-North Korea talks also contributed to the move. 

·        A corresponding dip in the US 10-year bond yield (1.52% to 1.505%) and a softer US dollar (DX from 98.83 – 98.75) from a move to the safe-haven yen (106.88 – 106.68) were also gold supportive. 

·        However, gold declined to its low of $1498 during later Asian and European time where support ahead of $1496 (10/3 and 10/4 lows) held. 

·        Gold was pressured by a bounce in S&P futures (-4 to 2946) and the 10-year bond yield (1.54%), along with a firming in the dollar (DX to 98.99). 

·        The dollar was lifted by weakness in the euro ($1.0988 - $1.0961) from worse than expected reports on German Factory Orders and the Eurozone Sentix Investor Confidence Index and the pound ($1.2339 - $1.2287), as the EU Parliament rejected PM Johnson’s Brexit plan, increasing chances of a no-deal Brexit. 

·        A continued rebound in oil prices (WTI to $53.53, supply concerns over unrest in Iraq) were supportive of stocks. 

 

Support holds at the $1496 double bottom after the NY open

·        Gold softened a bit further after the NY open, but support at $1496 (last two sessions lows) held, as bargain hunting buying  -a major feature in this market for months – emerged once again.

 

Early weakness in US stocks give gold a boost to $1504

·        US stocks opened weaker (S&P -15 to 2936), with the news that China was reluctant to pursue a comprehensive trade deal continuing to weigh. 

·        Losses in the Consumer Discretionary, Utilities,  Industrials, and Real Estate sectors led the decline. 

·        The US 10-year bond yield  - after climbing further to 1.549% - dipped to 1.532%. 

·        The DX pulled back to 98.74, taking out its overnight low. 

·        Gold bounced in response, and reached $1504. 

 

Gold retreats to $1498 as equities turn positive into mid-day

·        Later in the morning and into mid-day, US equities turned positive (S&P +4 to 2956), helped by a continued firming in oil (WTI to $54.04). 

·        The move was aided by dovish comments from the Fed’s Kashkari (Fed should continue to cut rates, should be supporting the economy, not tapping the brakes, cited slowing global growth, weakening business investment and below target inflation), and some optimistic comments from White House Economic Advisor Kudlow (“Recently some of statements coming out of Beijing have been a little more positive, they’ve been in the market buying some agricultural products – that’s a good sign, it is possible some additional progress will be made toward the end of the week”).

·        The 10-year bond yield inched up to 1.546%, and the DX bounced to 98.90. 

·        Gold traded lower, but its downside was limited to $1498, ahead of support at $1496. 

 

Gold pressed to $1488 on report that China ready to do deal on agreed upon points, set timetable for resolution of harder issues

·        In the afternoon, a report surfaced that the Chinese Commerce Ministry was ready to do a deal on the parts of the negotiations both sides have agreed upon, and was prepared to set out a timetable for the harder issues to be worked out next year.  

·        It reversed a prior decline in US stocks to reach a fresh intraday high (S&P +7 to 2959), and sent the 10-year bond yield up to 1.555%. 

·        The DX climbed to resistance at Friday’s 99.01 high, and gold sold off. 

·        Stops were hit under the $1496 double bottom to reach $1488.

·        However, once again, bargain hunting bids brought the yellow metal quickly back up to the $1492-94 area

 

Gold recovers and holds $1492 while stocks end lower, but bond yields and the dollar remain firm

·        Later in the afternoon, US stocks turned back negative (S&P finishes -13 to2939).

·        However, the 10-year yield edged higher to 1.56%. 

·        The DX was caught in the cross currents, but remained firm (98.99) – helped by further weakness in the pound ($1.2291), euro ($1.097), and Turkish lira (5.70 – 5.835, Trump warning over Syria). 

·        Gold managed a minor bounce to $1494, and was $1492 bid at 4PM with a loss of $12. 

 

Futures volume and open interest

·        Open interest was up just 0.2k contracts, showing a small net of long liquidation from Friday’s decline. 

·        Volume was lower with 363k contracts trading. 

 

Bulls

·        Disappointed with gold’s $12 decline today – given the late pullback in US stocks.

·        Concerned with 2 consecutive days of lower highs and lower lows, and with a finish below the key $1500 level and that the double bottom at $1496 failed to hold

·        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 (bargain hunting buying emerged on gold’s dip to $1488 this afternoon) 

·        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 this 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:  73.2% chance of a 25bp cut at the October meeting, a 36.8% probability of two 25bp cuts by the December meeting, and a 17.9% 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, North Korea, and Turkey / Syria - 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. 

·        See this past week’s price action / Commitment of Traders data as a healthy pruning of weaker longs, and see the current market better positioned to move higher

·        Bulls look for a retest of resistance at $1512– (9/26 high) followed by $1515 (10/4 high), $1520 (10/3 high), $1523 (down trendline from 9/4 $1557 high) $1525 (options), and then $1535-36 (double top – 9/25 and 9/25 highs.

 

Bears

·        Bears were pleased with today’s $12 pullback – especially given the decline in US stocks.

·        Still concerned with the persistent bargain hunting buying that has cushioned downside moves (bounce from $1488 today)

·        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 Factory Orders and Eurozone Sentix 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 this 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 still with a very heavy net long position – Net Fund Long Position 269k contracts, 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 $1433 (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 Economy Watchers Survey, Household Spending, Real Cash Earnings, Trade Balance, China’s New Yuan Loans, Germany’s Industrial Production, UK’s Unit Labor Costs, US Small Business Optimism, PPI, and comments from the BOE’s Carney, Fed’s Powell, Evans, and Kashkari for near term guidance. 

 

In the news:

Central bank net purchases 57.3 tonnes in August:   https://www.gold.org/goldhub/gold-focus/2019/10/dont-stop-me-now-central-bank-demand-august

Gold doing its job as the ultimate global wealth protector:   https://www.sharpspixley.com/articles/lawrie-williams-gold-doing-its-job-as-the-ultimate-global-wealth-protector_296669.html

US Mint gold and silver eagle sales increase over last week:   http://www.coinnews.net/2019/10/04/gold-edges-0-4-higher-on-week-u-s-mint-bullion-sales-improve/

 

YTD Performance


12/31/2018
10/7/2019
Change
% Change
Gold


1282.5
1492
209.5
16.335%
DX


96.06
98.99
2.93
3.050%
S&P


2505
2939
434
17.325%
JYN


109.63
107.29
-2.34
-2.134%
Euro


1.1466
1.097
-0.0496
-4.326%
US 10-year bond yield


2.69%
1.560%
-0.0113
-41.921%
Oil (WTI)


45.45
52.88
7.43
16.348%

 

 

Resistance levels: 

$1496 – double bottom - 10/3 and 10/4 lows

$1500 – 20-day moving average

$1500 – psychological level, options

$1501– 50-day moving average

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

$1505 – 10/2 high

$1507 – 9/27 high

$1509 – 10/7 high

$1510 - 40-day moving average

$1512 – 9/26 high

$1515 – 10/4 high

$1520 – 10/3 high

$1523 – down trendline from 9/4 $1557 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:

$1488 – 10/7 low

$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

$1436 – 100-day moving average