Gold Traders’ Report - September 17, 2019

Jim Pogoda, Senior Gold Trader, Gold Bullion International 
SEP 17, 2019

  • Gold bounces off trendline support at $1493 overnight, climbs to finish at $1502 ahead of the FOMC / Powell tomorrow
     
    Overnight – gold bounces off of trendline support at $1493, recovers to $1505
  • ·        Gold edged higher last night after trading either side of unchanged in a range of $1494 - $1505.
  • ·         It slipped to its $1494 low during late Asian and early European hours, where support in front of $1492 (up trendline from 5/30 $1275 low) held. 
  • ·        The move was against a moderate rebound in S&P futures (+2 to 3003 – helped by Trump announcing that the US and Japan had struck a trade agreement with Japan), the US 10-year bond yield (1.842%), and the US dollar (DX to 98.75). 
  • ·        Later during European time, gold traded up to $1505, helped by a pullback in S&P futures (-7 to 2994, large liquidation in Kraft Heinz, downgrade of Home Depot, BoA ML Fund Manager Survey shows recession fears at 38% - highest in 10 years), the US 10-year yield declining to 1.808%, and the DX slipping to 98.56. 
  • ·        The dollar was pressured from a firming in the euro ($1.0989 - $1.1029) by better than expected readings on German and Eurozone ZEW Sentiment
  • ·        US stocks firmed after their open (+3 to 3001), helped by stronger than expected readings on US Industrial Production (0.6% vs. exp. 0.2%), Capacity Utilization (77.9% vs. exp. 77.6%), the NAHB Housing Market Index (68 vs. exp. 66) along with optimism from House Speaker Pelosi on approving the USMCA trade agreement and news from the Saudis that the 5.7M bpd lost output would be restored in 2-3 weeks (however, this weighed on the energy sector as WTI tumbled from $62.41 - $58.76).  
  • ·        The US 10-year yield ticked up to 1.842%, but the DX edged lower to 98.50.  The greenback was pressured by further strength in the euro ($1.1065) and the pound ($1.2393 - $1.2492, opponents of no-deal Brexit strong first day in front of the UK Supreme Court). 
  • ·        Gold was caught in the cross currents but traded lower, declining to $1498. 
  • ·        However, dip buying emerged to bring the market quickly back to the $1503-04 area. 
  • ·        Into mid-day, US stocks turned down (S&P -3 to 2995), with concerns about how dovish the Fed and Powell will be in their statement tomorrow, with Fed Fund futures cutting the probability of a 25bp rate cut down to 50.4%.  
  • ·        The 10-year bond yield edged down to 1.798%, and the DX declined further to 98.18.  Gold traded up in response, and took out its overnight high to reach $1507. 
  • ·        In the afternoon, equities bounced (S&P finished +8 to 3006), after Trump signaled a trade deal could come soon. 
  • ·        The 10-year bond yield inched up to 1.81%, while the DX ticked up to 98.25. 
  • ·        Gold edged lower, but found support at $1502;  was $1502 bid at 4PM with a gain of $3.
  • ·        Open interest was up 3.4k contracts, reflecting a net of new longs from yesterday’s rally. 
  • ·        Volume was a little lower with 368k contracts trading. 
  • ·        Pleased with gold’s $3  advance and that gold was able to hold $1500 on the close – given the gain in US stocks
  • ·        Encouraged that gold was able to bounce off of key support at $1492 (up trendline from 5/30 $1275 low last night
  • ·        Bulls remain pleased with the strength and consistency of bargain hunting buying on price declines (as in the bounce off of the key trendline at $1492 last night and off $1498 after the dollar bullish economic data this morning), which has limited the degree of the price corrections in this 4-month old rally. 
  • ·        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 last week that has brought in momentum following players.  
  • ·        Benefitted from the recent escalation of the ongoing trade war between the US and China that led to both sides increasing tariffs last week along with increasing tough rhetoric.  
  • ·        Despite the agreement between the US and China to meet next month, 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. 
  • ·        Powell’s dovish tone recently at Jackson Hole will only increase chances the Fed (and other central banks) will need to cut interest rates again and more aggressively, fueling further gains in gold.  
  • ·        Though probabilities for future rate cuts declined again today, Fed Fund Futures still show decent chances of an aggressively dovish Fed:  50% chance of a 25bp cut at tomorrow’s meeting (34.2% of a hold), a 49.6% chance of two 25bp cuts by the October meeting, and a 15.9% likelihood of three 25bp cuts by the December meeting.
  • ·        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 will look for the market to consolidate around $1500, and then retest resistance at $1507 (9/17 high), $1512 (9/16 high), $1515 (9/9 high) followed by $1520 (down trendline from 9/4 $1557 high).  Above this trendline, bulls expect to trigger some short covering and momentum following buying to retest recent highs at $1524, $1528.  
  • ·        Bears were disappointed with today’s advance in gold – given the gain in US stocks
  • ·        Concerned with the persistent bargain hunting buying that has cushioned downside moves (bargain hunting bids emerged at $1494 overnight ahead of $1492 - the key trendline support from the 5/30 $1275 low, and again at $1498 after the strong US economic data this morning)
  • ·        Still 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 a bit over their skis on rate cut predictions, 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 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 month and future similar conciliatory actions will be viewed as positive steps by markets, which should help equities to continue to rebound (S&P within 75bp of its all-time high), 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 270k contracts, near 3-year highs, long side of gold remains a crowded trade) to materialize if support at the following levels can be breached:   $1492 (up trendline from 5/30 $1275 low), $1491 (40-day moving average), $1489 (double bottom - 9/12 and 9/13 lows), $1485 - 86 (triple bottom - 9/10, 9/11, and 9/13 lows), $1480 (8/13 low), $1476 (50-day moving average), $1472 (8/7 low), $1457 (8/6 low), $1450 (options), and then $1438 (8/5 low).  

 

 Looking ahead

All markets will continue to focus on geopolitical events (especially Brexit news and US / UK - Iran tensions, Hong Kong protests), developments with the Trump Administration (especially on US-China trade, potential legal issues), oil prices, and will turn to reports tomorrow on Japan’s Rate Decision and Trade Balance, UK CPI and PPI, Eurozone CPI and Construction Output, US Housing Starts, Building Permits, Oil Inventories, and the FOMC statement and Powell Press Conference for near term direction.  

 

In the news:

Divided Fed set to cut interest rates, but then what?:   https://www.reuters.com/article/us-usa-fed-divided/divided-fed-set-to-cut-interest-rates-this-week-but-then-what-idUSKBN1W20DS

Investors pull gold from Hong Kong as tensions rise:   https://www.ft.com/content/17d289d8-d647-11e9-a0bd-ab8ec6435630

China Gold hunting for deals:   https://www.bloomberg.com/news/articles/2019-09-16/china-gold-is-hunting-for-deals-worth-as-much-as-2-billion

JP Morgan’s metals desk was a criminal enterprise US says:   https://www.bnnbloomberg.ca/jpmorgan-s-metals-desk-was-a-criminal-enterprise-u-s-says-1.1316854

 

YTD Performance


12/31/2018

9/17/2019

Change
% Change
Gold


1282.5

1502

219.5

17.115%

DX


96.06

98.21

2.15

2.238%

S&P


2505

3006

501

20.000%

JYN


109.63

108.12

-1.51

-1.377%

Euro


1.1466

1.1074

-0.0392

-3.419%

US 10-year bond yield


2.69%

1.810%

-0.0088

-32.614%

Oil (WTI)


45.45

59.02

13.57

29.857%

 

 

Resistance levels: 

$1507 – 9/17 high

$1512 – 9/16 high

$1515 – 9/9 high

$1519 – 20-day moving average

$1520 – down trendline from 9/4 $1557 high

$1524 – 9/12 high

$1525 – options

$1528 – 9/6 high

$1535 – 8/13 high

$1549 - $1550 –triple top - 8/26, 8/29, and 9/3 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:

$1500 – psychological level, options

$1494-96 – double bottom – 9/16 and 9/17 lows

$1492 – up trendline from 5/30 $1275 low

$1491 - 40-day moving average

$1489 – double bottom - 9/12 and 9/13 lows

$1485 - 86 – triple bottom - 9/10, 9/11, and 9/13 lows

$1480 – 8/13 low

$1476 – 50-day moving average

$1472 – 8/7 low

$1457 – 8/6 low

$1450 – options

$1438 – 8/5 low