Gold Traders’ Report - September 25, 2019

 
SEP 25, 2019

Gold Tumbles to $1504 After Concerns of Trump Impeachment Diminish, Strong Us Data, Optimism on US-China Trade - Gold Today September 25, 2019

 Jim Pogoda, Senior Gold Trader, Gold Bullion International


Overnight – gold slips to $1526 against firmer US dollar

·        Gold traded lower last night, sliding in a range of $1535 - $1526 and retaining its choppy tone.

·        It faded strength in the US dollar (DX from 98.34 – 98.77), which was lifted by weakness in the yen (dovish BOJ minutes), pound ($1.2497 - $1.2372, optimism surrounding the UK Supreme Court ruling against Johnson is short lived as UK political uncertainty weighs) and the euro ($1.1020 - $1.0978, Brexit uncertainty, US-China trade tensions). 

·        The US 10-year bond yield was steady between 1.633% to 1.661% while global equities were softer and supportive of gold with the NIKKEI off 0.4% ,the SCI shed 1.0%, European shares were down from 1% to 1.6%, and S&P futures were off 0.4%.  

·        Equities were weighed by US political uncertainty on Speaker Pelosi’s announcement of a formal impeachment inquiry of Trump yesterday afternoon, and a softer Chinese Beige Book (manufacturing, property, and services sectors all worsening).  

·        Weaker oil prices (WTI from $57.20 - $56.13) from the API reporting a surprise large build in US Oil Inventories also weighed on stocks. 

·        However, late during European time, S&P futures recovered to unchanged helped by strength in Nike (stronger earnings report last night) Phillip Morris and Altria (called off merger talks) – but was checked from some not so dovish comments from the Fed’s Evans (optimistic view of the US eco, growth slightly above trend, current policy is well positioned) which combined to help push gold to its $1526 low. 

 

Strong US New Home Sales, transcript of Trump – Zalensky phone call mitigating impeachment risk ignite equity rally and take gold down to $1512

·        US stocks strengthened after their open (S&P +9 to 2976), helped by a much stronger than expected reading on US New Home Sales (713k vs. exp. 656k) and the release of a rough transcript of Trump’s call with Ukrainian President Zelensky which didn’t appear to show an explicit quid pro quo. 

·        However, an even larger surprise build in US Oil Inventories than the API showed last night reported by the EIA that took oil down to $55.63  - mitigated the advance in stocks

·        The US 10-year bond yield rose to 1.697%, and the DX rallied to 98.94 (2-week high). 

·        Gold sold off in response, and took out support at the overnight low ($1526), $1525 and $1515 (yesterday’s low) where support at $1512 (Monday’s low) held. 

 

Gold pressed to $1501 as Trump hints that US –China trade deal could come soon, US-Japan trade deal

·        Around mid-day, comments from Trump that a US-China trade deal could arrive sooner than expected along with an announcement from Trump and Japan’s PM Abe on an emerging US-Japan trade deal lifted US stocks further (S&P +12 to 2978), with gains in the Financials, Industrials, and Consumer Discretionary sectors leading the rally. 

·        The US 10-year yield rose to 1.735%, and the DX climbed to 99.06. 

·        Gold was knocked below support at $1512 and tumbled through a lack of chart support to $1501. 

·        However, as we’ve witnessed countless times during gold’s rally in past months, bargain hunting buying emerged to lift the market up to the $1505-07 area. 

 

Gold finishes $1504 bid

·        In the afternoon, US stocks continued to firm (S&P reached 2989 before finishing +18 to 2985), helped by some dovish remarks from the Fed’s lead dove James Bullard (would have been better to have made a greater rate cut at last meeting, research shows you need to use the tools you have instead of keeping your powder dry, I think we have a little more to go on rate cuts). 

·        The 10-year yield pulled back to 1.722%, and the DX ticked down to 98.99. 

·        Gold, after another test of the intraday low at $1501 – bounced back to reach $1506 - and was $1504 bid at 4PM with a loss of $27.

 

Futures open interest and volume

·        Open interest was up 11.6k contracts, reflecting a sizeable amount of new longs from yesterday’s rally. 

·        Volume surged with 444k contracts trading. 

 

Bulls

·        Discouraged by the $27 decline today, but encouraged that support held in front of $1500 and especially $1497 (up trendline from 5/30 $1275 low), given the strength in equities, the DX, and the move up in the US 10-year bond yield back over 1.70%. 

·        Bulls remain pleased with the strength and consistency of bargain hunting buying on price declines ($1500 defended twice today), 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 yesterday)  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 (dovish comments from Bullard today).  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:  53.4% chance of a 25bp cut at the October meeting, a 22.1% probability of a 2nd cut by the December meeting, and a 7.8% 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 consolidate in front of $1497 (up trendline from 5/30 $1275 low), and then mount a retest the double top at $1535-36 from the last two sessions.  Beyond this, bulls see scanttechnical resistance until $1553 (9/5 high), and then $1557 (9/4  and 6-year high).  Past this level bullish technicians see a vacuum up to $1591 (4/7/13 high). 

 

Bears

·        Bears cheered gold’s $27 decline today, and that support at $1515 and $1512 failed to hold. 

·        However, still concerned with the persistent bargain hunting buying that has cushioned downside moves (in front of $1500 twice in today’s session, several times last week defending the up trendline from 5/30 $1275 low

·        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 (Expectations Component of yesterday’s German IFO Report and Monday’s PMI data 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, $1497 (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), $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 / impeachment issues), oil prices, and will turn to comments this evening from the Fed’s Kaplan and reports tomorrow on Japan’s Machine Tool Orders, China’s Current Account Balance, Germany’s GfK Consumer Confidence, ECB’s Economic Bulletin, US Trade Balance, GDP, Jobless Claims, Personal Consumption, Wholesale Inventories, Retail Inventories, Pending Home Sales, Kansas City Fed Manufacturing Activity Index, and comments tomorrow from the BOJ’s Kuroda, ECB’s Draghi, BoE’s Carney, and the Fed’s Bullard, Clarida, Kashkari, and Barkin for near term direction.   

 

YTD Performance


12/31/2018
9/25/2019
Change
% Change
Gold


1282.5
1504
221.5
17.271%
DX


96.06
99.02
2.96
3.081%
S&P


2505
2985
480
19.162%
JYN


109.63
107.77
-1.86
-1.697%
Euro


1.1466
1.0943
-0.0523
-4.561%
US 10-year bond yield


2.69%
1.732%
-0.0095
-35.517%
Oil (WTI)


45.45
56.5
11.05
24.312%

 


Resistance levels: 

$1512 – 20-day moving average

$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:

$1504 - 40-day moving average

$1501 – 9/25 low

$1500 – psychological level, options

$1498 – 9/20 low

$1497 – up trendline from 5/30 $1275 low

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

$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