Gold Traders’ Report - September 19, 2019

 
SEP 19, 2019

Gold rebounds to $1499 after hawkish Fed - Gold Traders' Report September 19, 2019 

 Jim Pogoda, Senior Gold Trader, Gold Bullion International

Overnight – gold recovers back above key trendline helped by weaker dollar, geopolitical tensions, and bargain hunting

·        Gold firmed last night, climbing in a range of $1489 - $1504.

·        Rebounded after falling through key support at $1495 (up trendline from 5/30 $1275 low) to reach $1484 yesterday afternoon off of the slightly hawkish message from a very divided Fed (Powell said a more extensive sequence of rate cuts would be appropriate only if the economy turns down)

·        Drew strength from a pullback in the US 10-year bond yield (1.817% - 1.768%), and a softer US dollar (DX 98.63 – 98.25). 

·        The greenback was pressured by firmness in the yen (108.47 – 107.79, BOJ keeps rates steady, Japan’s All Industry Activity Index improved from last month), the euro ($1.1022 - $1.1073, better Eurozone Current Account Balance) and the pound ($1.2481 - $1.2438, weaker UK Retail Sales, BOE leaves rates and asset purchase target unchanged). 

·        Gold also was helped by a modest pullback in S&P futures (-9 to 3000) with yesterday’s hawkish tone from the Fed continuing to resonate along with the OECD cutting its global growth forecasts (3.2% to 2.9% this year, 3.4% to 3.0%).  

·        Bargain hunting buying – which has been prevalent in gold’s 4-month rally - was evident again last night, as well as safe haven bids with the Saudi – Iran tensions escalating from the Saudis claiming yesterday that Iran was “unquestionably responsible” for attacking its Abqaiq oil facility last Saturday, while Iran threatened “all-out war” if it is attacked in response.

 

Gold ignores stronger US data on Jobless Claims and Philly Fed, climbs to $1504.50

·        At 8:30 AM, stronger than expected reports on US Jobless Claims (208k vs. exp. 214k), and the Philly Fed Index (12 vs. exp. 10.5) were offset by a miss on the US Current Account Balance (-$128.2B vs. exp. -$127.4B). 

·        While S&P futures rallied (+7 to 3014), the US 10-year bond yield slipped further to 1.754%.  The DX was caught in the cross currents but traded lower to 98.24 – taking out the overnight low.  

·        Gold –after a dip to $1499, climbed to take out its overnight high to reach $1504.50. 

 

Gold retreats to $1496 during mid-day against rally in US stocks

·        US stocks kept advancing through their open (S&P +15 to 3021) into mid-day, with gains in the IT, Health Care, and Materials sectors leading rally. 

·        Stronger readings on US Existing Home Sales (5.49M vs. exp. 5.38M) and Leading Indicators (flat vs. -0.1%) at 10 AM along with announcement by Microsoft authorizing $40B in share buybacks and an increase in its dividend along with some optimism in US –China trade talks (deputies resume negotiations in Washington today for the first time in nearly 2 months) aided the move.

·        The 10-year bond yield turned higher (1.787%), and the DX bounced to 98.41. 

·        Gold retreated in response, falling briefly below $1498 (up trendline from 5/30 $1275 low) to reach $1496.  However, dip buying took the market quickly back to $1499. 

 

Gold bounced to $1501.50 as optimism over a Brexit deal lift the pound and soften the dollar, US stocks pare gains on tough rhetoric on US-China trade

·        In the afternoon, US stocks pared gains (S&P +2 to 3008), hurt by a tweet from China’s Global Times Editor Hu Xijin (Both China and the US should cherish the current talks. Many US officials easily misread China's goodwill, think it shows Beijing's weakness. China doesn't like talking tough before the negotiations, but I know China is not as anxious to reach a deal as the US side thought), along with tough rhetoric from Trump advisor Michael Pillsbury (US is set to ramp up pressure on China  -tariffs  can go to 50-100% - if a trade deal ins not agreed soon)

·        10-year yield hovered around 1.78%. 

·        The DX retreated to make a fresh session low at 98.20, weighed by strength in the pound ($1.2560, EU’s Junker said if objectives of the backstop are met through alternative means, it won’t be needed and that there could be a Brexit deal by the October deadline). 

·        Gold edged higher, but topped out at $1501.50.

 

Gold finishes at $1499 bid and holds above trendline support

·        Later in the afternoon, US stocks continued to soften (S&P finished unchanged at 3006), while the 10-year yield ticked up to 1.793%. 

·        The DX came off its lows to reach 98.36

·        Gold fell back to $1497 – but recovered to $1499 bid at 4PM – finishing above the key $1498 level (up trendline from 5/30 $1275 low). 

 

Futures volume and open interest

·        Open interest was off 2.5k contracts, showing a net of long liquidation from yesterday’s decline. 

·        Volume was higher with 384k contracts trading. 

 

Bulls

·        Pleased with gold’s $3  advance, and that gold was able to hold $1498 (up trendline from 5/30 $1275 low) on the close

·        Encouraged that gold was able to shrug off yesterday’s hawkish message from the Fed, and rebound back over $1500 overnight. 

·        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. 

·        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 (Pillsbury and China’s Global Times today) 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 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. 

·        Despite Powell and the Fed not projecting as dovish as some would have liked yesterday, markets are still anticipating the Fed will continue to cut rates going forward.  This declining rate environment should continue to support further gains in gold.

·        Though probabilities for future rate cuts declined again today, Fed Fund Futures still predict the Fed continuing to cut rates going forward:  47% chance of a 25bp cut at the October meeting, 48.8% probability of a cut by the December meeting, and a 27.5% likelihood of two 25bp cuts by the January 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 $1511-12 (double top, 9/16 and 9/18 highs, 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 and $1528. 

 

 Bears

·        Bears were disappointed with today’s advance in gold – given the hawkish Fed, and the stability in US stocks, the 10-year bond yield, and the US dollar

·        Concerned with the persistent bargain hunting buying that has cushioned downside moves (bargain hunting bids emerged in the mid-$1480’s last night to take the market back above the key trendline at $1498, additional dip buying around the trendline both this morning and this afternoon today, level held on the close. 

·        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 still 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 (weak EU auto registrations reported 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 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:   $1498 (up trendline from 5/30 $1275 low), $1497 (40-day moving average), $1489 (double bottom - 9/12 and 9/13 lows), $1484 - 86 ($1484 - 86 – 4 bottoms - 9/10, 9/11, 9/13, and 9/18 lows), $1482 (50-day moving average), $1480 (8/13 low),  $1472 (8/7 low), $1457 (8/6 low), $1450 (options), and then $1438 (8/5 low). 

 

YTD Performance


12/31/2018
9/19/2019
Change
% Change
Gold


1282.5
1499
216.5
16.881%
DX


96.06
98.35
2.29
2.384%
S&P


2505
3006
501
20.000%
JYN


109.63
108.02
-1.61
-1.469%
Euro


1.1466
1.1044
-0.0422
-3.680%
US 10-year bond yield


2.69%
1.794%
-0.0089
-33.209%
Oil (WTI)


45.45
58.35
12.9
28.383%

 

Resistance levels: 

$1500 – psychological level, options

$1504 – 9/19 high

$1507 – 9/17 high

$1511 -12 double top – 9/16 and 9/18 highs

$1512 – down trendline from 9/4 $1557 high

$1515 – 9/9 high

$1515 – 20-day moving average

$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:

$1498 – up trendline from 5/30 $1275 low

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

$1497 - 40-day moving average

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

$1484 - 86 – 4 bottoms - 9/10, 9/11, 9/13, and 9/18 lows

$1482 – 50-day moving average

$1480 – 8/13 low

$1472 – 8/7 low

$1457 – 8/6 low

$1450 – options

$1438 – 8/5 low