Gold Traders’ Report - September 9, 2019

Jim Pogoda, Senior Gold Trader, Gold Bullion International 
SEP 9, 2019

Gold retraces further to $1500, retains choppy tone

 Overnight – gold choppy between $1504 - $1514

  • ·        Gold rebounded overnight after dropping $54 over the last three sessions
  • ·        Retained its nervous and choppy tone in a range of $1504 - $1514. 
  • ·        Bounced to $1512 during early Asian hours, fading modest strength in the US Dollar (DX from 98.40 - 98.51).  The greenback was lifted from some yen weakness (106.87 – 107.02) from a worse than expected readings on Japan’s Trade Balance, Business Spending, and the Economy Watchers Survey Outlook. 
  • ·        Traded down during the rest of Asian time and early European hours, however, but found support ahead of Friday’s $1503 low.  The yellow metal faded mostly firmer global equities (NIKKEI +0.6%, SCI +0.8%, European shares from -0.4% to +0.3%, and S&P futures +0.2%), which were lifted by an increase in US-China trade optimism (Politico reported that China offered to increase purchases of US Agricultural Products if US would ease restrictions on Huawei), and expectations of further easing from the PBOC (China’s exports fell 1% in August, and were off a whopping 16% with the US). 
  • ·        A move up in global bond yields (Japan’s 10-year from -0.263% to -0.253%, German 10-year from -0.639% to -0.594%, US 10-year from 1.559% to 1.601%) was a further headwind for gold. 
  • ·        Recovered late during European hours to make its $1514 high against a pullback in the DX (98.30), with a decent amount of bargain hunting buying seen.  The dollar was pressured by strength in the euro ($1.1014 - $1.1042) from a better than expected German Trade Balance and Eurozone Sentix Investor Confidence report and pound ($1.2233 - $1.2384) on upbeat UK economic data and receding fears of a no-deal Brexit. 
  • ·        Shortly after the NY open, news that Germany is considering extra fiscal stimulus (creation of “shadow budget”) drove the euro higher ($1.1058), and sent the DX down to 98.18. 
  • ·        Gold took out its overnight high to reach $1515, but the advance was capped by a further gain in bond yields (German 10-year to -0.567% - 1-month high, US 10-year to 1.622% - 2-week high).
  • ·        US stocks opened firmer and climbed into the late morning hours (S&P +9 to 2986), led by gains in the Financials and Energy sectors, and helped by upbeat comments from Treasury Secretary Mnuchin (China and the U.S. have a “conceptual agreement” on enforcement mechanisms around intellectual property theft, US economy is in very good shape).  
  • ·        A rally in oil (WTI to $58.13) off of the replacement of Saudi’s oil minister (al-Falih replaced by King’s son Prince Abdulaziz) for failing to deliver higher oil prices also contributed to the strength in equities.  
  • ·        The 10-year yield rose further to 1.633%, and the DX bounced to 98.33. 
  • ·        Gold tumbled in response, tripping long liquidating sell stops under $1503-4 (last night’s and Friday’s lows) and $1500 to reach $1498 (3-week low), where support ahead of $1493-4 (5 bottoms 8/14, 8/19, 8/20, 8/22, 8/23 lows) held. 
  • ·        Equities turned down into the afternoon (S&P -9 to 2969), hurt from weakness in Microsoft, Alphabet (antitrust probe) and the tech sector. 
  • ·        The 10-year yield edged down to 1.611%, and the DX pulled back to 98.14 - its intraday low. 
  • ·        Gold rebounded to $1506, but a lack of follow through led to a drift back to $1502
  • ·        Later in the afternoon, US stocks clawed back to near unchanged (S&P finished unchanged at 2979)
  • ·        10-year yield made a fresh high (1.635%), and the 2-10-year spread moved out to the highest seen in 3 weeks (4.5bp)
  • ·        The DX bounced back to 98.30, and gold fell back to $1500, where dip buying support held. 
  • ·        Gold was $1500 bid at 4PM with a loss of $6.
  • ·        Open interest was off 1.2k contracts, showing a small net of long liquidation outpacing the bargain hunting new longs and some new shorts seen during Friday’s decline. 
  • ·        Volume was lower but still very robust with 576k contracts trading. 
  • ·        Disappointed with gold’s $6 decline today, despite US stocks remaining near unchanged and the pullback in the US dollar.    
  • ·        However, bulls were encouraged that bargain hunting buying emerged ahead of $1493-4 – 5 (bottoms 8/14, 8/19, 8/20, 8/22, 8/23 lows), and that $1500 bid held on the close
  • ·        Despite today’s pullback, 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 on 9/4 that has brought in momentum following players.  
  • ·        Encouraged with the steady and significant purchases by global central banks
  • ·        Benefitted from the recent escalation of the ongoing trade war between the US and China that led to both sides increasing tariffs recently along with increasing tough rhetoric.  
  • ·        Despite the recent agreement between the US and China Wednesday to meet next month, bulls feel that this issue won’t be solved anytime soon, and instead expect further escalation to ensue.  They feel this will add to further uncertainty, and increase the probability of a more severe global economic slowdown.  This along with
  • ·        Powell’s dovish tone recently at Jackson Hole (though tempered Friday with his upbeat economic assessment) will only increase chances the Fed (and other central banks) will need to cut interest rates again and more aggressively, fueling further gains in gold.  
  • ·        Fed Fund Futures still show relatively high chances of an aggressively dovish Fed:  95.8% chance of a 25bp cut at the September meeting, a 61.4% chance of two 25bp cuts by the October meeting, and a 32.6% likelihood of three 25bp cuts by the December meeting.
  • ·        Current geopolitical tensions – especially the situations between Hong Kong and Mainland China, Brexit, Israel, Syria, and Iran and North Korea - as additional tailwinds for gold.  
  • ·        Bulls will look for the market to consolidate above $1500, and then retest initial resistance at $1517-20 followed by $1535 (8/13 high and former support), $1550, and then last Wednesday’s $1557 high.  Beyond $1557, bullish technicians see no significant chart resistance until $1591, the high from 4/7/13. 
  • ·        Pleased with gold’s pullback today, and with the $59 decline in the last three sessions, with 3 consecutive sessions of lower highs and lower lows. 
  • ·        However, some are concerned with the persistent bargain hunting buying that has cushioned downside moves (support emerged ahead of the 5 bottom support at $1493-94, $1500 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 a bit over their skis on rate cut predictions, feel that the downward pressure on bond yields was also overdone, and expect the current reversal should continue, which 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 (weak German Industrial Production Friday) and the Eurozone that drove the German 10-year yield further into negative territory over the past months (German bund yield near record lows, touched  -0.743% last week) underscores this view. 
  • ·        Feel a US-China trade deal is in both sides’ best interests, and feel that last week’s 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 50 points 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 301k contracts, highest in 3 years, long gold now a crowded trade) to materialize if support at the following levels can be breached: $1500, $1493-94 (5 bottoms, 8/14, 8/19, 8/20, 8/22, and 8/23 lows), $1476 (up trendline from 5/30 $1275 low), $1472 (8/7 low), $1457 (8/6 low), $1450 (options), $1438 (8/5 low), and $1430 8/2 low).

 

 Looking ahead

All markets will continue to focus on geopolitical events (especially Brexit news and US / UK - 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 China’s CPI, PPI, and New Yuan Loans, Japan’s Machine Tool Orders, UK Employment Change, US NFIB Small Business Optimism, and JOLTS Job Openings for near term guidance. 

 

In the news:

China says it adds just 5.9 tonnes to gold reserves in August:   https://www.sharpspixley.com/articles/lawrie-williams-china-says-it-only-adds-59-tonnes-of-gold-to-reserves-in-august_296189.html

 Gold ETFs holdings near record highs:   https://www.sharpspixley.com/articles/lawrie-williams-gold-etf-holdings-near-record-highs-very-positive_296153.html

 

YTD Performance


12/31/2018

9/9/2019

Change
% Change
Gold


1282.5

1500

217.5

16.959%

DX


96.06

98.30

2.24

2.332%

S&P


2505

2979

474

18.922%

JYN


109.63

107.18

-2.45

-2.235%

Euro


1.1466

1.1046

-0.042

-3.663%

US 10-year bond yield


2.69%

1.635%

-0.0105

-39.129%

Oil (WTI)


45.45

58.01

12.56

27.635%

 

 

Resistance levels: 

$1515 – 9/9 high

$1520 – 20-day moving average

$1517-20 (triple bottom – 8/29, 8/30 and 9/2 lows, 20-day moving average)

$1528 – 9/6 high

$1525 – options

$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:

$1506 – 9/5 low

$1503 – 9/6 low

$1500 – options

$1498 – 9/9 low

$1493-4 – 5 bottoms 8/14, 8/19, 8/20, 8/22, 8/23 lows

$1482 - 40-day moving average

$1480 – 8/13 low

$1476 – up trendline from 5/30 $1275 low

$1472 – 8/7 low

$1476 – up trendline from 5/30 $1275 low

$1457 – 8/6 low

$1468 – 50-day moving average

$1450 – options

$1438 – 8/5 low