Gold Traders’ Report - September 24, 2019

 
SEP 24, 2019

Gold Extends 4-Session Rally to $1533, Weak Us Data, Tough Talk from Trump and Impeachment Concerns Fuel Advance - Gold Today September 24, 2019 

Jim Pogoda, Senior Gold Trader, Gold Bullion International

Overnight – gold quietly steady between $1519-$1524, consolidating recent gains

·        Gold was quietly steady overnight, consolidating gains from yesterday while trading in a narrow range of $1519 - $1524. 

·        Supported by a decline in the US 10-year bond yield (1.729% - 1.769%), and moderate weakness in the US dollar (DX from 98.71 – 98.48). 

·        Softness in the yen (107.49, BOJ’s Kuroda hinted at further easing) was overshadowed by strength in the pound ($1.2414 - $1.2487, UK Supreme Court ruled Johnson acted unlawfully in suspending Parliament, raised expectations of a softer Brexit) and the euro ($1.0983 - $1.1005) which was lifted by a better than anticipated reading on Germany’s IFO Business Climate Index. 

·        Global equites were mostly firmer and a headwind for the yellow metal, however, with the NIKKEI up 0.1%, the SCI gained 0.3%, European shares ranged from -0.3% to + 0.3%, and S&P futures were +0.3%. 

·        Equities were lifted from optimism around the US –China trade talks, as China granted waivers US soy purchases, and Treasury Secretary Mnuchin confirmed he and US Trade Representative Lighthizer would meet with Chinese Vice Premier Liu He for continued talks in two weeks.  

 

Early stronger US Housing data press gold to its low of $1516

·        US stocks opened stronger (S&P +7 to 3008), helped by a better than expected reading on the US House Price Index (0.4% vs. exp. 0.3%). 

·        Gains in Apple along with the Utilities, IT, and Consumer Staples sectors led the advance. 

·        The US 10-year bond yield edged up to 1.701%, and the DX bounced to 98.58. 

·        Gold declined in response, breaching the overnight low at $1519 to reach $1516.

 

Gold rallies to $1526 against weaker US Consumer Confidence Report, tough talk from Trump at the UN

·        At 10AM, much weaker readings on US Consumer Confidence (125.1 vs. exp. 133) and the Richmond Fed Manufacturing Index (-9 vs. exp. 1) combined with some tough talk from Trump at his UN address targeting China and Iran knocked US stocks lower (S&P -10  to 2982).  

·        Losses in Netflix and the Energy, Consumer Discretionary sectors led the decline with softer oil prices (WTI to $57.40) contributing

·        The 10-year bond yield tumbled to 1.67%, and the DX took out its overnight low to reach 98.43. 

·        Gold rebounded and took out its overnight high at $1524 and yesterday’s $1526 top to reach $1528, where resistance at the 9/6 high capped the advance.

 

Gold climbs to 3-week high of $1536 on concerns Pelosi will announce a formal impeachment inquiry

·        Around mid-day, news that House Speaker Pelosi was going to make an announcement on possibly impeaching Trump knocked stocks further down (S&P -33 to 2958). 

·        The 10-year yield slipped to 1.647% (2-week low), and the DX fell to 98.32. 

·        Gold took out the $1528 top to reach $1536 (3-week high), with a fair amount of both short covering and new longs seen. 

 

Gold retreats to $1525 after Trump authorizes release of transcript of call with Ukraine

·        In the afternoon, news that Trump authorized release of the transcript of his controversial call with Ukranian President Zelensky in an attempt to mitigate calls for impeachment took US stocks off of their lows (S&P off 14 to 2978).   

·        The US 10-year yield edged up to 1.668%. 

·        The DX bounced to 98.52, and gold retreated to $1525. 

 

Gold recovers to $1533 as US stocks finish lower

·        Later in the afternoon, US stocks slipped lower (S&P finished -31 to 2961 ), and the 10-year yield made a fresh intraday low at 1.635%.

·        The DX similarly made a fresh intraday low at 98.29, and gold climbed back to $1534. 

·        Gold was $1533 bid at 4PM with a gain of $10 . 

 

Futures volume and open interest

·        Open interest was up 12.4k contracts, showing a good chunk of new longs in from yesterday’s advance. 

·        Volume was much higher with 384k contracts trading. 

 

Bulls

·        Cheered today’s $10 rally, and that gold was able to breach and hold resistance at $1528 (9/4 high)on the close

·        Encouraged with gold’s 4 session $53 rebound that has brought the market within $25 of its 6-year high made 3 weeks ago

·        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 the past week

·        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 (Trump’s dressing down of China at the UN 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 last 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:  64.1% chance of a 25bp cut at the October meeting, a 30.3% probability of a 2nd cut by the December meeting, and a 12.7% 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, and North Korea - as additional tailwinds for gold.

·        Bulls look for the market to extend its rally, and see very little technical resistance until $1553 (9/5 high), and then $1557 (9/4  and 6-year high).  Beyond this level bullish technicians see a vacuum up to $1591 (4/7/13 high). 

 

Bears

·        Bears were disappointed with today’s gain in gold, but with the rout in stocks, the significant decline in the US 10-year bond yield and the dollar, some were encouraged that gold’s advance was as limited as it was.

·        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 (14-day RSI back elevated at 60) 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 (Expectations Component of today’s German IFO Report weak) 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:   $1500, $1494 (up trendline from 5/30 $1275 low), $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 tomorrow on Japan’s BOJ Policy Minutes, German GfK Consumer Confidence, US New Home Sales, Oil Inventories, and comments from the ECB’s Coeure and Lautenschlaeger, and the Fed’s Evans, George, and Kaplan for near term direction.  

 

In the news:

WGC – gold skew is at all-time cheapness highlighting bullish sentiment:   https://www.gold.org/goldhub/gold-focus/2019/09/gold-skew-all-time-cheapness-highlighting-bullish-sentiment

Gold, government bonds deliver portfolio resilience – Blackrock:   https://www.bloomberg.com/news/videos/2019-09-23/why-this-week-s-hot-trade-focuses-on-gold-s-performance-video

Glint app goes into administration:   https://www.altfi.com/article/5772_update-2-glint-freezes-withdrawals-as-administrators-confirm-customer-money-is-safe 

Pelosi expected to announce impeachment inquiry: https://www.cnbc.com/2019/09/24/pelosi-says-she-will-make-announcement-after-dems-discuss-impeachment.html

 

YTD Performance


12/31/2018
9/24/2019
Change
% Change
Gold


1282.5
1533
250.5
19.532%
DX


96.06
98.33
2.27
2.363%
S&P


2505
2962
457
18.244%
JYN


109.63
107.04
-2.59
-2.362%
Euro


1.1466
1.1019
-0.0447
-3.898%
US 10-year bond yield


2.69%
1.632%
-0.0105
-39.241%
Oil (WTI)


45.45
56.96
11.51
25.325%

 

Resistance levels: 

$1536 – 9/24 high

$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:

$1527-28 – double top - 9/6 and 9/23 highs

$1525 – options

$1524 – 9/12 high

$1517 – 9/20 high

$1516 – 9/24 low

$1513 – 20-day moving average

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

$1504 - 40-day moving average

$1504 – 9/19 high

$1500 – psychological level, options

$1498 – 9/20 low

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

$1494 – up trendline from 5/30 $1275 low

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

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

$1480 – 8/13 low

$1478– 50-day moving average

$1472 – 8/7 low

$1457 – 8/6 low

$1450 – options

$1438 – 8/5 low