Gold Traders’ Report - October10, 2019

 
NOV 6, 2019

Gold Sheds $22 on Renewed Us-China Trade Deal Optimism  Gold - Today October 10, 2019  

Jim Pogoda, Senior Gold Trader, Gold Bullion International

 

Overnight – nervous and choppy between $1504-$1517

·        Gold was nervous and choppy last night, trading in a range of $1504 - $1517, fading the volatile moves in S&P futures from conflicting reports on progress / stalling in the US –China trade talks. 

·        Gold rose to its $1517 high early during Asian time, uncovering some buy stops over $1512 (yesterday’s high), where it was capped in front of $1519 (down trendline from 9/4 $1557 high, 10/3 high).  

·        The move faded a dive in S&P futures (-37 to 2882) off of a report from the South China Morning Post citing no progress in deputy level talks (Chinese refuse to talk about forced technology transfers), and that Liu He and his team may leave earlier than expected. 

·        Gold fell back to its $1504 low later during later Asian and early European hours on a report from Bloomberg that the US was considering a currency pact with China as a portion of a partial deal where next week’s scheduled tariffs would be suspended, which lifted S&P futures (+3 to 2922), and took the US 10-year bond yield up from 1.549% to 1.594%. 

·        A decline in the US dollar (DX from 99.10 – 98.65) helped limit gold’s downside, however.  The greenback was pressured by strength in the euro (ECB minutes showed opposition to QE, overcomes weaker German Trade Balance) and the pound ($1.2202  - $1.2265, some Brexit optimism overcomes weak UK GDP and Industrial Production).

 

Gold trades lower against better Jobless Claims but weaker CPI

·        At 8:30 AM, the US CPI Report was lower than expected (unch vs. exp. 0.1%), and Jobless Claims were better than anticipated (210k vs. exp. 218k). 

·        S&P futures moved back up to their overnight high (2922), and the US 10-year bond yield rose to 1.611%. 

·        The DX rose to 98.82, and gold initially spiked to $1511. 

·        However, some selling emerged from players disappointed with the tame inflation numbers and gold quickly retreated through the overnight low ($1504) to reach $1501, where support in front of $1500 (yesterday’s low) held. 

·        Comments from the Fed’s Kaplan were balanced (waiting to cut rates until consumer spending weakens would it be a mistake, but reducing borrowing costs too much could cause imbalances and excesses, and didn’t think the Fed was at the beginning of a “full fledged cutting cycle”). 

 

Trump announces he will meet with Liu tomorrow – stocks rally, gold sells off to $1492

·        Shortly after the equity opening, news that Trump would meet with Liu He tomorrow (confirming the delegation won’t cut short their visit) sent US stocks soaring (S&P +29 to 2948). 

·        Gains in trade bellwether Caterpillar and the Industrials, Financials, and Materials sectors led the rally. 

·        The US 10-year bond yield climbed to 1.654%, and the DX rose to 98.89. 

·        Gold tumbled in response, taking out support at $1500 to reach $1492, with a fair amount of long liquidation seen

 

Gold rebounds to $1499 into the afternoon against a pullback in stocks and dollar weakness against pound strength from renewed hopes of Brexit deal

·        Into mid-day, US stocks pared gains (+15 to 2934), but the US 10-year continued to climb (1.67%, 1-week high) along with other global bond yields (German 10-year from -0.554% to -0.462%, UK 10-year from 0.456% to 0.597%).  

·        The DX was caught in the cross currents but traded lower (98.61), weighed also by a rally in the pound ($1.2469) on renewed Brexit hopes (Ireland’s Varadkar and PM Johnson say they see a pathway to a possible deal).  Gold was able to edge higher and reached $1499.  

 

Gold finishes off $22 at $1493 bid

·        Later in the afternoon, US stocks finished firmer (S&P +19  to 2938), while the US 10-year bond yield hovered around 1.66%. 

·        The DX clawed back to 98.73, and gold fell back to $1493 – but bargain hunting bids kept it above its earlier low. 

·        Gold was $1493 bid  at 4PM with loss of $22. 

 

Futures volume and open interest

·        Open interest was up 3.0k contracts, showing a net of new longs from yesterday’s advance. 

·        Volume was much lower with 300k contracts trading. 

 

Bulls

·        Disappointed with gold’s $22 retreat today and that it couldn’t hold above key support at $1500

·        However, some bulls were relieved that today’s decline wasn’t more severe – given the rally in stocks and climb in global bond yields

·        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 ($1492 low defended at today’s close)

·        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 contemplated cutting short its US visit, toned down expectations of the talks, Liu He 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 in the past two days, 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:  80.7% chance of a 25bp cut at the October meeting, a 38.1% probability of two 25bp cuts by the December meeting, and a 13.5% 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 the prior week’s price action (dip to $1459)  / 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 $1515-17 (triple top – 10/4, 10/9 and 10/10 highs) followed by $1519 (down trendline from 9/4 $1557 high) $1520 (10/3 high), $1525 (options), and then $1535-36 (double top – 9/25 and 9/25 highs.

 

Bears

·        Content with today’s $22 selloff that knocked gold through the key $1500 support level

·        Still concerned with the persistent bargain hunting buying that has cushioned downside moves

·        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 Trade Balance 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 (today’s confirmation Trump will meet with Liu He tomorrow) will be viewed as positive steps by markets, which should help equities to continue to rebound and will putdownward 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, Turkey’s incursion into Syria), developments with the Trump Administration (especially on US-China trade, potential legal / impeachment issues), oil prices, and will turn to comments later this evening from the Fed’s Mester and Bostic followed by reports tomorrow on China’s New Yuan Loans, Aggregate Financing, Germany’s CPI, US Import Prices, Export Prices, University of Michigan Sentiment, Baker Hughes Rig Count, Commitment of Traders, and comments tomorrow from the ECB’s Guindos, and the Fed’s Kashkari, Rosengren and Kaplan for near term direction.

 

 In the news:

It’s been a crazy day for US-China trade news – here’s what we know:   https://www.cnbc.com/2019/10/10/its-been-a-crazy-12-hours-for-us-china-trade-news-heres-what-we-know.html

 

YTD Performance


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


1282.5
1493
210.5
16.413%
DX


96.06
98.70
2.64
2.748%
S&P


2505
2938
433
17.285%
JYN


109.63
107.90
-1.73
-1.578%
Euro


1.1466
1.1007
-0.0459
-4.003%
US 10-year bond yield


2.69%
1.660%
-0.0103
-38.198%
Oil (WTI)


45.45
53.64
8.19
18.020%

 

 
 
 

 

 

 

 

Resistance levels: 

$1500 – psychological level, options

$1500 – 10/9 low

$1502 – 20-day moving average

$1506– 50-day moving average

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

$1509 - 40-day moving average

$1515-17 – triple top – 10/4, 10/9 and 10/10 highs

$1519 – down trendline from 9/4 $1557 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:

$1492 – 10/10 low

$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

$1443 – 100-day moving average

$1438 – 8/5 low