Gold Traders’ Report - October 14, 2019

 
NOV 6, 2019

Gold Recovers to $1492 as Doubts Emerge over Us China Trade Deal - Gold Today October 14, 2019

Jim Pogoda, Senior Gold Trader, Gold Bullion International


Overnight – choppy trading either side of unchanged  between $1483  - $1497

·        Gold remained choppy overnight, trading in a range of $1483 - $1497 amid thinner market conditions as the Japan (Health and Sports Day) and the US Bond Market (Columbus Day) were closed. 

·        It rallied to its $1497 high during European time on news from Bloomberg that China wants more talks and for the US to scrap its planned tariff hike scheduled for December before signing Trump’s “Phase One” trade deal.  

·        S&P futures sold off (-16 to 2954), and the dollar also softened (DX down to 98.37).  The DX was also pressured by a bounce in the euro ($1.103 - $1.1043) as a better reading on Eurozone Industrial Production overcame a miss on the German Wholesale Price Index, and overshadowed a softer pound ($1.2669 - $1.2543) on a lack of progress in Brexit negotiations.

·        Gold slipped back to unchanged at $1489 during later European hours and through the NY open, hurt by a rebound in S&P futures (S&P -3 to 2967). 

·        However, as we have seen time and again, bargain hunting buying quickly emerged to lift gold back to the $1490-91 level

·        Stocks were lifted by some upbeat remarks from Treasury Secretary Mnuchin on the US –China trade deal (made substantial progress, have a fundamental agreement that is subject to documentation, addressed IP, financial services, foreign exchange and significant structural issues).  

·        The DX also rebounded (98.51), helped by further weakness in the pound ($1.2516). 

·        Gold was also supported by continued unrest in Hong Kong this weekend, and a further incursion of Turkish troops into northern Syria.

 

Gold climbs to $1494 on weaker opening of US stocks

·        US stocks opened softer (S&P -8 to 2962) amid doubts about the US-China trade agreement, and the DX slipped back to 98.40

·        Gold traded higher in response, but the advance was capped at $1494.

 

Gold pressed back to support at $1489 as US stocks turned higher during the late morning

·        Later in the morning, US equities battled back into positive territory (S&P +2 to 2973), with modest gains in the IT and Health Care sectors overcoming weakness in the Energy sector (weaker oil, WTI to $52.78, doubts over US –China deal dent demand prospects).  

·        The DX clawed back to 98.53, and gold pulled back to unchanged again at $1489.

 

US stocks pull back in the afternoon, gold climbs to $1493.50, and finishes $1492 bid with a gain of $4

·        Into the afternoon, US stocks ticked lower and went out quietly steady (S&P finished off 6 to 2966)

·        The DX edged down to 98.46

·        Gold inched higher to $1493.50 but was unable to take out its earlier top of $1494. 

·        Gold finished $1492 bid with a gain of $4

 

Futures volume and open interest

·        Open interest was off 9.4k contracts, showing a good chunk of long liquidation from Friday’s decline. 

·        Volume was much higher with 512k contracts trading.

 

  Commitment of Traders Report

·        The CFTC’s Commitment of Traders Report as of 10/8 showed the large funds adding 11.6k contracts of longs and 5.0k contracts of shorts to increase their net long position by 6k contracts to 276k contracts

·        This was done on gold’s bounce from its $1459 low on 10/1  to $1508 on 10/8

·        This addition to an already very large Net Fund Long Position makes the long side of gold an even more crowded trade

·        It will begin to be an impediment for further upside gains, and the swelling of gross longs  (334k contracts) can hasten and exaggerate downside moves  – if  / when the longs are forced to liquidate

 

Bulls

·        Will take gold’s $4 advance today, though some were looking at more  - at least retaking the $1500 level - given the newly developing uncertainty around the Phase 1 portion of the US –China trade deal 

·        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 ($1489 level defended twice early during NY hours. 

·        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 6 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 tentative agreement reached between the sides Friday, cracks emerged in the deal last night, with China looking for the US to scrap their planned December tariffs and have additional talks before signing an agreement. Bulls believe a comprehensive agreement is very complex, nearly untenable and certainly feel that this issue won’t be solved anytime soon.  Instead bulls expect further escalation of the trade war to ensue which they feel 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, Powell was somewhat more dovish in the last week, and markets are still anticipating the Fed is in an easing mode

·        Though probabilities of future rate hikes have decreased in recent days, Fed Fund Futures still show a significant chances of the Fed continuing to cut rates in the near / intermediate term:  75.4% chance of a 25bp cut at the October meeting, a 24.5% probability of two 25bp cuts by the December meeting, and a 39.2% 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, 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 price action from two weeks ago (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, 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

·        Disappointed as the long awaited and heavily touted Phase 1 of the US-China trade deal announced Friday developed serious cracks and doubts over the weekend – leading to gold’s bounce today.  

·        Still concerned with the persistent bargain hunting buying that has cushioned downside moves ($1489 defended strongly 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 Wholesale Price Index 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 believe that Friday’s tentative Phase 1 Agreement – though cracks developed over the weekend – will soon be solidified, and then expanded  to mutually benefit both parties.  Bears see this as a gradual process, and that as long as positive progress can be seen, markets will view it positively, helping equities advance, bond yields and the US dollar climb, and putting 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 276k 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), Q3 corporate earnings, oil prices, and will turn to reports tomorrow on China’s CPI and PPI, Japan’s Industrial Production, Capacity Utilization, Tertiary Industry Index, UK’s Employment Report, Gemany’s ZEW, Eurozone ZEW, US Empire State Manufacturing Index, and comments from the BOE’s Carney, and the Fed’s Bostic, George, and Daly for near term direction. 

 

In the news:  

China wants more talks before signing trade deal with Trump: https://www.bloomberg.com/news/articles/2019-10-14/china-wants-more-talks-before-signing-trump-s-phase-one-deal

Commitment of Traders Report:   https://www.cftc.gov/dea/futures/deacmxsf.htm

LBMA – the Alchemist:   http://www.lbma.org.uk/assets/Alchemist/Alchemist_95/Alch95Complete.pdf

 


YTD Performance




12/31/2018
10/14/2019
Change
% Change
Gold




1282.5
1492
209.5
16.335%
DX




96.06
98.53
2.47
2.571%
S&P




2505
2966
461
18.403%
JYN




109.63
108.39
-1.24
-1.131%
Euro




1.1466
1.1023
-0.0443
-3.864%
US 10-year bond yield




2.69%
1.734%
-0.0095
-35.443%
Oil (WTI)




45.45
53.41
7.96
17.514%

 


$1500 – psychological level, options

$1500 – 10/9 low

$1501 – 20-day moving average

$1504 – 10/11 high

$1507– 50-day moving average

$1508 - 40-day moving average

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

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

$1516 – 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

$1483 – 10/14 low

$1474, 75 – double bottom - 10/11 and 10/12 lows

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

$1450 – options

$1447 – 100-day moving average

$1438 – 8/5 low