Gold Traders’ Report - October 8, 2019

 
OCT 8, 2019

Gold Rebounds $14 to $1506 as Optimism Around Us-China Trade Deal Hopes Turns Sour - Gold Today October 8, 2019 

Jim Pogoda, Senior Gold Trader, Gold Bullion International

 

Overnight – gold recovers to $1507 as US-China trade deal hopes dim

·        Gold rebounded last night, advancing in a range of $1487 - $1507. 

·        It dipped to its $1487 low during Asian time, where it found support around yesterday’s $1488 low. 

·        Gold faded a modest bounce in S&P futures (+12 to 2950), a rally in the NIKKEI  (+1%, stronger Japanese Economy Watchers Survey, Household Spending, Trade Balance) a climb in the US 10-year bond yield (1.56%  -1.587%), and a firmer US dollar (DX to 99.03).  

·        Later during European time, however, gold climbed to its $1507 high, where it was capped in front of resistance at yesterday’s $1509 top. 

·        The yellow metal was lifted by a retreat in S&P futures (-26 to 2911) as optimism dimmed around US –China trade talks. 

·        On top of last evening’s US expansion of its trade blacklist to another 28 Chinese companies, Blomberg reported the US was deliberating limiting government pension investment in China, while the South China Morning Post reported that China was toning down expectations of the talks, were cutting short its stay by one night, and that Vice Premier Liu He would not carry the “special envoy” title. 

·        A dip in oil (WTI to $51.82) also weighed on stocks.

·        A pullback in the US 10-year bond yield (1.519%) and a decline in the DX (98.84) were also gold supportive. 

·        The DX was weighed by a strength in the yen (107.44 – 106.81, risk off), a recovery in the euro ($1.0965 - $1.0996) off of a stronger than expected reading on German Industrial Production, which overcame weakness in the pound ($1.2302 - $1.2207) from deteriorating Brexit negotiations.

 

US PPI Report weak, but gold remains stable against firm US dollar

·        At 8:30 AM, the US PPI report was weaker than expected (-0.3% vs. exp. 0.1%). 

·        S&P futures softened further (2907), and the US 10-year bond yield was tugged lower to 1.517%. 

·        However, the DX climbed to 99.03, lifted by a turn down in the euro ($1.0967) on trade concerns and comments from a German official that they see no need for a stimulus package, and further weakness in the pound ($1.22, EU accuses Johnson of playing stupid blame game, talks on brink of collapse). 

·        Gold was caught in the cross currents, and traded in a choppy fashion between $1502.50 - $1506.50.

 

Gold climbs against weakness in stocks, but resistance at $1509 holds

·        US stocks opened weaker, and slid through the mid-morning hours (S&P -39 to 2897), with losses in the Financials, Health Care, and Industrials sectors leading the decline. 

·        Downbeat comments from the IMF’s Georgieva (warns of a “synchronizd slowdown” in global growth) contributed to the move, while a  rebound in oil (WTI to $52.50) helped to mitigate it. 

·        The US 10-year bond yield edged further down to 1.512%, but the DX firmed (99.13), still supported by continuing declines in the euro ($1.0953) and the pound ($1.2194). 

·        Gold remained in the cross currents, but was able to take out the overnight high to reach $1509, where resistance at yesterday’s high held. 

 

Gold slips to $1498 as US stocks pare losses into midday

·        Around mid-day, US stocks pared some losses (S&P -20 to 2916) while the 10-year bond yield recovered to 1.548%. 

·        The DX continued to firm (99.21), and gold retreated to $1498. 

 

Dovish remarks from Powell lift stocks / gold climbs to $1504

·        Later in the afternoon, some dovish remarks from the Fed’s Powell (will start growing its balance sheet again in response to tightness in overnight lending markets last month, recent job gains may be revised lower, sees no reason why expansion can’t continue, stands committed to supporting the recovery) lifted US stocks further (S&P -13 to 2924), and took the 10-year yield slightly higher to 1.553%. 

·        The DX was choppy between 99.10 – 99.25, and gold was likewise choppy between $1500 - $1504. 

 

Gold rallies to $1509.75 on announcement US was placing visa restrictions on Chinese officials

·        Shortly afterward, news that the US was placing visa restrictions on Chinese officials over abuses of Muslims in Xinjiang knocked stocks back down (S&P -34 to 2903) and pushed the 10-year yield down to 1.536%.  

·        The DX slipped to 99.08, and gold popped up to $1509.75, but failed again at yesterday’s high.

 

Gold finishes $1506 bid, up $14

·        Later in the afternoon, equities dipped further (S&P finished off 46 to 2893), and the 10-year yield ticked down to 1.532%. 

·        The DX edged up to trade between 99.10 – 99.15, however, and gold backed to $1504. 

·        Gold was $1506 bid at 4PM with a gain of $14

 

Futures volume and open interest

·        Open interest was off 5.4k contracts, showing a net of long liquidation from yesterday’s decline. 

·        Volume was much lower with 271k contracts trading.

 

Bulls

·        Pleased with gold’s $14 advance today – which more than offset yesterday’s $12 decline

·        However, some bulls were a bit disappointed that gold couldn’t take out yesterday’s $1509 high – given the weakness in equities and pullback in the US 10-year bond yield

·        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 (US expands blacklist, contemplating limiting Chinese stocks in government funds, blocks visas on Chinese officials; China planning on cutting short its US visit, tones down expectations of the talks, were cutting short its stay by one night, Liu He would not carry the “special envoy” title) 

·        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, he was somewhat more dovish today, and 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:  86.1% chance of a 25bp cut at the October meeting, a 40.6% probability of two 25bp cuts by the December meeting, and a 18.9% 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), $1522 (down trendline from 9/4 $1557 high) $1525 (options), and then $1535-36 (double top – 9/25 and 9/25 highs.

 

Bears

·        Bears were disappointed with today’s rally that exceeded yesterday’s loss

·        Still concerned with the persistent bargain hunting buying that has cushioned downside moves (bounce from $1487 last night, and $1498 this afternoon)

·        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 yesterday) 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 China’s New Yuan Loans and Aggregate Financing, Japan’s Machine Tool Orders, US JOLTS Job Openings, Wholesale Inventories, Wholesale Trade Sales, Oil Inventories, FOMC Minutes (Sep 18), and comments from the Fed’s Powell for near term direction.  

 

In the news:

China adds more gold to reserves, but relatively small amount:   https://www.sharpspixley.com/articles/lawrie-williams-china-adds-more-gold-to-reserves-but-relatively-small-amount_296719.html

UBS Schnider – any pullback in gold is a buying opportunity:   https://www.bloomberg.com/news/videos/2019-10-08/any-pullback-in-gold-is-a-buying-opportunity-says-ubs-s-schnider-video

 

YTD Performance


12/31/2018
10/8/2019
Change
% Change
Gold


1282.5
1506
223.5
17.427%
DX


96.06
99.13
3.07
3.196%
S&P


2505
2893
388
15.489%
JYN


109.63
107.07
-2.56
-2.335%
Euro


1.1466
1.0955
-0.0511
-4.457%
US 10-year bond yield


2.69%
1.536%
-0.0115
-42.815%
Oil (WTI)


45.45
52.48
7.03
15.468%

 

 

Resistance levels: 

$1509-10 – double top - 10/7 and 10/8 highs

$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:

$1503– 50-day moving average

$1501 – 20-day moving average

$1500 – psychological level, options

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

$1487-88 – double bottom - 10/7 and 10/8 lows

$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

$1438 – 100-day moving average