Gold Traders’ Report - September 30, 2019

 
SEP 30, 2019

Gold Retreats $24 to $1473:  Dismissal of Friday’s Report That Us Was Considering Restrictions to Us Investments in Chinese Companies, Stronger Dollar, and Technical Selling Weigh - Gold Today September 30, 2019 

Jim Pogoda, Senior Gold Trader, Gold Bullion International


Overnight – gold slips to $1482, US dismisses rumor it was considering restrictions of investment in Chinese companies, DX to 28-month highs, key technical support broken

·        Gold softened last night, trading in a range of $1482 - $1499. 

·        Unable to hold above key trendline support Friday afternoon at $1502 (up trendline from 5/30 $1275 low), gold tumbled through Friday’s $1487 low and $1484 - 86 (4 bottoms - 9/10, 9/11, 9/13, and 9/18 lows) to reach $1482 – a 7-week low.  

·        Gold was pressured by a bounce in S&P futures (+ 14 to 2978) as the White House said it is “not contemplating blocking Chinese companies from listing shares on US exchanges at this time”, US Director of Trade Navarro called the reports Friday that roiled equity markets “fake news”

·        China’s Vice Commerce Minister Shouwen urges a “calm and rational” resolution to the current trade dispute. 

·        In addition, China posted better than expected Chinese manufacturing data (both official and Caixin PMIs were stronger). 

·        A firming in the US 10-year bond yield (1.678% - 1.713%) and a stronger dollar (DX from 99.05 – 99.47, 28-month high) also weighed on gold. 

·        The greenback was lifted by a softening in the euro ($1.0945 - $1.0885, fresh 28-month low) as a weaker reading on German CPI overshadowed stronger reports on Retail Sales and Unemployment.  

 

Weaker Chicago PMI gives gold a bounce to $1487.50

·        At 9:45 AM, a much worse than expected reading on the Chicago PMI (47.1 vs. exp. 50) capped a stronger opening for US stocks (S&P +14 to 2976). 

·        The US 10-year dipped back to 1.682%, and the DX retreated to 99.26. 

·        Gold bounced in response, trading up to $1487.50. 

 

Rally in US stocks trips further selling in gold, stops hit below support levels to reach $1466

·        US stocks climbed higher into mid-day (S&P +18 to 2980), helped by an upgrade of Apple by JPMorgan and with gains in the IT, Health Care, and Consumer Staples sectors leading the rally.  

·        The US 10-year bond yield softened further, however, reaching 1.68%.  The DX was caught in the cross currents but rebounded to 98.40. 

·        Gold took out its overnight low and tripped sell stops under $1480 (8/13 low) $1475 (options), and $1472 (8/7 low) to reach $1466 – a fair amount of long liquidation was seen.

 

Gold slips further to 2-month low at $1464.50 against firm equities

·        In the afternoon, US stocks pushed higher (S&P +22 to 2984), despite weakness in oil (WTI to $53.96, Saudi output recovery weighs) while the 10-year bond yield edged up to 1.684%.  

·        The DX climbed back to 99.46, and pressed gold down to $1464.50 – a two-month low. 

 

Gold recovers to $1473 as US equities pare gains

·        Later in the afternoon, US stocks pared some gains (S&P finished +15 to 2977), and the 10-year yield made its session low of 1.671%. 

·        The DX pulled back to trade either side of 99.40 and gold rebounded to $1475 with some bargain hunting buying seen.

·        Gold was $1473 bid at 4 PM with a $24 loss. 

 

Futures volume and open interest

·        Open interest was off 2.2k contracts, showing a net of long liquidation from Friday’s decline. 

·        Volume was higher and remained heavy with 479k contracts trading.

 

Commitment of Traders

·        The CFTC’s Commitment of Traders Report as of 9/24 showed the large funds adding 28.9k contracts of longs and cutting 1k contracts of shorts to increase their net long position by 30k contracts to 312k contracts – its highest level in 3 years.

·        This was done on gold’s rally from $1493 on 9/17 to $1535 on 9/24

·        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  (370k contracts) can hasten and exaggerate downside moves  – if  / when the longs are forced to liquidate (as we saw in today’s price action) 

 

Bulls

·        Discouraged by the $24 decline today, and that the well supported up trendline from the 5/30 $1275 low was finally violated. 

·        Bulls remain pleased with the strength and consistency of bargain hunting buying on price declines (rallied $10 off the $1465 bottom today) 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 (escalation possibly spreading to the financial side, with the US having to deny contemplating restrictions on US investment in China, bulls talk of potential Chinese retaliation by dumping US Treasuries)  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 at their last meeting, markets are still anticipating the Fed is in an easing mode

·        Though probabilities for future rate cuts have declined recently, Fed Fund Futures still predict the Fed continuing to cut rates going forward:  41.2% chance of a 25bp cut at the October meeting, a 67.2 % probability of a 25bp cut by the December meeting, and a 29.1% 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 consolidate in front of $1457 (8/6 low), and then mount a test of resistance at the prior support level  $1484 - 86 (4 bottoms - 9/10, 9/11, 9/13, and 9/18 lows)

 

Bears

·        Bears cheered gold’s $24 decline today, and that key support at $1505 (up trendline from 5/30 $1275 low) – which has been staunchly defended - finally cracked

·        However, still concerned with the persistent bargain hunting buying that has cushioned downside moves ($10 rally off of the $1465 bottom today)

·        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 (though the probabilities  for future aggressive rate cuts have come in significantly recently), 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 (DX reached a 28-month high today) 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 CPI knocked the euro to 28-month lows 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 312k contracts, 3-year highs, long side of gold remains a crowded trade) to materialize if support at the following levels can be breached:   $1457 (8/6 low), $1450 (options), $1438 (8/5 low), and then $1425 (100-day moving average.

 

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 reports tomorrow on Japan’s Jobless Rate, Tankan Survey, Nikkei Manufacturing PMI, UK House Price Index and PMI, Eurozone PMIs and CPI, US Markit PMI, ISM Manufacturing, Construction Spending, and comments from the Fed’s Evans, Clarida and Bowman for near term direction.  

 

In the news:

CFTC Commitment of Traders as of 9/24/19:   https://www.cftc.gov/dea/futures/deacmxsf.htm

Gold slides as dollar soars:   https://www.cnbc.com/2019/09/30/gold-markets-us-china-trade-war-in-focus.html


YTD Performance


12/31/2018
9/30/2019
Change
% Change
Gold


1282.5
1473
190.5
14.854%
DX


96.06
99.40
3.34
3.477%
S&P


2505
2977
472
18.842%
JYN


109.63
108.10
-1.53
-1.396%
Euro


1.1466
1.09
-0.0566
-4.936%
US 10-year bond yield


2.69%
1.673%
-0.0101
-37.714%
Oil (WTI)


45.45
54.33
8.88
19.538%

 

 

Resistance levels: 

$1480 – 8/13 low

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

$1487 – 9/27 low

$1489 – 9/19 low

$1494– 50-day moving average

$1498 – 9/30 high

$1500 – psychological level, options

$1501 – double bottom - 9/25 and 9/26 lows

$1505– up trendline from 5/30 $1275 low

$1507 – 20-day moving average

$1507 – 9/27 high

$1510 - 40-day moving average

$1512 – 9/26 high

$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:

$1472 – 8/7 low

1465 – 9/30 low

$1457 – 8/6 low

$1450 – options

$1438 – 8/5 low

$1425 – 100-day moving average