Gold Traders’ Report - September 20, 2019

 
SEP 20, 2019

Gold rallies to $1516 as stocks and bond yields plunge on China’s trade negotiators cutting trip short - Gold Today September 20, 2019

Jim Pogoda, Senior Gold Trader, Gold Bullion International

 Overnight –choppy trade between $1498 - $1507

·        Gold was a little choppy last night, trading in a range of $1498 - $1507.

·        It climbed to its $1507 during Asian and early European hours, taking out resistance at yesterday’s $1504 high, but was capped by the down trendline from the 9/4 $1557 high. 

·        The move was fueled by a decline in the US 10 year bond yield (1.794% - 1.76%) along with a softer US dollar (DX from 98.38 – 98.14). 

·        The dollar was pressured by a firmer yen (108.09 – 107.74, stronger Japanese Core CPI), euro ($1.1038 - $1.1068), and pound ($1.2520 - $1.2580, EU’s Juncker’s openness toward alternative solutions to the Irish backstop yesterday still resonating).  

·        Gold also benefitted from a surprise cut in India’s corporate tax rate. 

·        Later during European time, gold slipped back to $1499, fading strength in S&P futures (+8 to 3016), which were helped by news the US was temporarily exempting more than 400 types of Chinese products from tariffs that the Trump Administration had imposed last year.  

·        A rebound in the US 10-year bond yield (1.793%) and US dollar (DX to 98.49) also weighed on the yellow metal. 

·        The greenback was helped by a decline in the euro ($1.1026) from a weaker German PPI report and the pound ($1.2476) from comments from the EU’s Chief Negotiator Barnier that it has gone backwards since Britain sent position papers to Brussels two days ago. 

·         Conflicting statements from 2 dissenting Fed governors (Bullard wanting a larger 50bp cut) and Rosengren (wanted no cut) largely offset each other. 

 

Gold climbs to $1505 from Clarida’s dovish comments

·        US stocks opened firmer (S&P +10 to 3016), aided by some dovish remarks from the Fed’s Clarida (concerns from trade policy tensions and slowing global growth). 

·        The 10-year yield slipped to 1.763%, but the DX firmed to 98.63, buoyed by further weakness in the euro ($1.1004, weaker Eurozone Consumer Confidence) and the pound ($1.2461). 

·        Gold was caught in the cross currents, but climbed to $1505. 

 

Gold finds support at $1501 trendline

·        Into mid-day, US stocks trimmed some gains (3006), and the 10-year yield edged lower to 1.76%.

·        The DX continued to strengthen, however, climbing to 98.64. 

·        Gold remained in the cross currents and traded lower, but found support at $1501 (up trendline from 5/30 $1275 low), with dip buying seen

 

Gold rallies to $1514 on news that Chinese trade delegation cuts trip short

·        In the afternoon, news that the Chinese trade delegation in Washington was cutting its trip short and not staying to tour farms in Montana (set up as a good-will gesture) sent US stocks diving (S&P -22 to 2984).  

·        Losses in the IT, Consumer Discretionary, and Communication Services sectors led the decline.

·        The US 10-year bond yield slipped to 1.753%, and the DX fell to 98.46. 

·        Gold shot higher, taking out buys stops over $1507 (down trendline from the 9/4 $1557 high) and $1511 -12 (double top – 9/16 and 9/18 highs) to reach $1514, momentum buying seen

·        Some dovish remarks from the Fed’s Kaplan (My concern is that that weakness may seep into other parts of the U.S. economy, so that ultimately over the next several months, that weakness intensifies, and will ultimately catch up with the job markets, and will ultimately catch up and diminish consumer confidence, and maybe affect consumer behavior) helped mitigate the decline in stocks, but contributed to the dip in the bond yield, the dollar, and gold’s strength.

 

Gold finishes firm, $1516 bid

·        Later in the afternoon US stocks pared some losses (S&P finished -16 to 2991), but the US 10-year bond yield slid further to 1.718%. 

·        The DX hovered either side of 98.50, but gold kept rising to $1517. 

·        Gold was $1516 bid at 4PM with a gain of $18. 

 

Futures volume and open interest

·        Open interest was up 3.6k contracts, showing a net of new longs from yesterday’s advance. 

·        Volume was lower with 302k contracts trading. 

 

Commitment of Traders Report as of 9/17

·        The CFTC’s Commitment of Traders Report as of 9/17 showed the large funds adding 7.4k contracts of longs and cutting 5.5k contracts of shorts to increase their net long position by 12.9k contracts to 283k contracts.  

·        This was done on gold’s increase from $1488 on 9/10 to $1512 on 9/16

·        This NFLP is very large, and reflects how very crowded the long side of gold is currently. 

·        It will begin to be an impediment for further upside gains, and the swelling of gross longs  (341k contracts) can hasten and exaggerate downside moves  – if  / when the longs are forced to liquidate.

 

Bulls

·        Cheered today’s $18 advance, and that gold was able to breach and hold resistance at $1507 (up trendline from 5/30 $1275 low) on the close

·        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 (dip buying strongly defended the up trendline from 5/30 $1275 low in past three sessions)

·        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 (Chinese delegation cut short visit 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 on Wednesday, 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 have declined recently, Fed Fund Futures still predict the Fed continuing to cut rates going forward:  44.9% chance of a 25bp cut at the October meeting, 48.1% probability of a cut by the December meeting, and a 25.3% 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, and North Korea - as additional tailwinds for gold.

·        Bulls look for the market to extend its rally, and challenge next resistance at $1524 (9/12 high), 

$1525 (options), $1528  (9/6 high), $1553 (9/5 high), and then $1557 (9/4  and 6-year high).  Beyond this level bullish technicians see no chart resistance until $1591 (4/7/13 high).  

 

 Bears

·         Bears were disappointed with today’s rally in gold – despite the US dollar firming

·        Concerned with the persistent bargain hunting buying that has cushioned downside moves (bargain hunting bid staunchly defended the up trendline from 5/30 $1275 low in recent sessions, preventing a significant amount of long liquidation 

·        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 German PPI and Eurozone Consumer Confidence 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 next month 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 with a very heavy net long position – Net Fund Long Position 283k contracts, near 3-year highs, long side of gold remains a crowded trade) to materialize if support at the following levels can be breached:   $1501 (up trendline from 5/30 $1275 low), $1499 (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). 

 

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 issues), oil prices, and will turn to reports Monday on Eurozone PMIs, US Chicago Fed’s National Activity Index, US Markit PMIs, and comments from the ECB’s Lane and the Fed’s Williams, Daly, and Bullard for near term direction. 

 

In the news:

 

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

 

YTD Performance
 
 
12/31/2018
9/20/2019
Change
% Change
Gold
 
 

1282.5

1516

233.5

18.207%

DX
 
 

96.06

98.48

2.42

2.519%

S&P
 
 

2505

2991

486

19.401%

JYN
 
 

109.63

107.55

-2.08

-1.897%

Euro
 
 

1.1466

1.1019

-0.0447

-3.898%

US 10-year bond yield
 
 

2.69%

1.720%

-0.0097

-35.964%

Oil (WTI)
 
 

45.45

58.54

13.09

28.801%

 

 

Resistance levels: 

$1517 – 9/20 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:

 

$1514 – 20-day moving average

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

$1507 – down trendline from 9/4 $1557 high

$1504 – 9/19 high

$1501 – up trendline from 5/30 $1275 low

$1500 – psychological level, options

$1498 – 9/20 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

$1484 – 50-day moving average

$1480 – 8/13 low

$1472 – 8/7 low

$1457 – 8/6 low

$1450 – options

$1438 – 8/5 low