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Monthly Technical and Precious Metals Positioning Report - Gold - June 2019

19 June 2019

Gold – In Brief


Finding support repeatedly at the August-February 38.20% Fibonacci retracement or thereabouts, (US$1,276-ish) gold rallied hard to test the 2018 high by the 14th of June. Although a fresh high was made, the 2018 highs proved insurmountable, and gold finished the week right where it opened – in uncertain price action.

The rally was aided by:
  • the perception that the Fed will cut again (and has been cutting the rate paid on excess reserves held even as it holds the Fed Funds steady, in an effort to at least maintain domestic bank loan growth…).
  • a sharp increase in tensions in the Gulf, with Iran being blamed for attacks on tankers moving through the Persian Gulf and into the Strait of Oman.
  • a decline in yields, indeed the total number of negative-yielding bonds rose to just short of US$12 trillion, almost the mid-2016 high.
The market may be over-estimating the likelihood of a Fed cut, in which case gold could experience weakness. However, the recent pronouncements by the Fed do leave the door open for significant cuts.

Fed governor Lael Brainerd reinforced comments made by Chairman Jerome Powell, saying that “the Fed was prepared to adjust policy to sustain the expansion” amidst some weak employment data, and that the central bank has not hit its 2% inflation target on a sustainable basis.

Jerome Powell re-iterated that maintaining US expansion the “overarching goal” of the Fed. The proximity of the lower zero bound implies to some observers that the FOMC would act to pre-empt to slowdown, given the limited scope for rate reductions compared with previous rate cycles.

Gold looks bullish, although thwarted by the recent highs. A move back to US$1,303-1,307* within the channel of rising prices is entirely consistent with a broad upward trend, although I would expect support to appear before those levels, such as US$1,320-21.

 (*back to rising trendline support, and current Weekly Standard Line support)


Quick Overview of Managed Money Positioning in Gold

Longs have grown by 6.67 million since May 14th, and shorts have reduced by 5.30 million, taking the total longs to 16.964 million by the 11th, and shorts down to 4.048 million, the ‘least’ short since April 2018.

(See the next chart for weighted average prices and shifts in weekly holdings.)
 
Quick Overview of Managed Money Positioning in Gold
 
Gold Positioning and Volume-Weighted Average Pricing

The recent VWAP and position changes are as follows: short-covering and new length are fairly evenly balanced, with shorts being chased out heavily in the last two reporting periods.

Total open interest has increased by almost 2.90 million Tozs since the 11th of June at a VWAP of US$1,341.92, and considering the price action over that period, that looks like a substantial increase in longs, particularly on Friday. This suggests that unless the rally continues, there is potential for a large raft of stranded longs…
Gold Positioning and Volume-Weighted Average PricingWeekly Ichimoku Cloud Chart

The weekly chart remains bullish with the price above the cloud top. The powerful rally was constrained by the recent high and faded within US$1.50 of the February high. Last week’s candle was a clear doji which implies major indecision at this crucial level, and possible price reversal. Traders will be inclined to trade the range in the absence of a clear break. A close above that high – a break out of the ‘squarish-looking rectangle’ formation would create a measured target to US$1,432-35. (See the Hourly Point and Figure target…)
  
Weekly Ichimoku Cloud Chart

Daily Ichimoku Cloud Chart

The daily cloud chart is now bullish, after breaking above the cloud. Friday’s candle almost formed a ‘gravestone’ doji, which is a trend-reversal signal in bullish markets. Look to see what the next set of candles do… support around US$1,339, US$1,324.50, and then much more deeply at US$1,307.
 
Daily Ichimoku Cloud Chart 
 
Price Targets via Point and Figure – Short Term

Bullish, with a likely test of supports first. Note the current target back to US$1,327, which remains valid below the Friday high.

Price Targets via Point and Figure – Short Term

The Inflation-linked Bond Yield

The yield on the inflation-linked bond has weakened to 0.47%, after dipping to 0.36% on the 7th of June which is positive for the gold outlook.

The Inflation-linked Bond Yield 
Equities - the SPX

The index seems to remain unperturbed by events. The price has rebounded sharply from the 38.20% Fibonacci retracement at 2,724 and with the price above the cloud the outlook is bullish. If the market rolls lower, expect 2,840.
 
Equities - the SPX
 
SPX Hourly Chart with Targets

The positive technical outlook in the Weekly clouds above is tempered by the price action formed since March, which contains the potential a deeper pull-back to the 50% and 61.80% retracement of the December-May rally.
 
SPX Hourly Chart with Targets 
The Dollar – DXY

The DXY weakened down to Weekly Turning Line support at 96.70, making a low of 96.459 before a decent recovery, however the 97.87-98.37 band remains resistive. Strong support at 96.19 and then 96.07 later in July.

The Dollar – DXY  
The AUD

Firstly, apologies for leaving April’s 60 minute chart in the May report and not picking up on that.

The downside targets extend to 0.66-0.67 in this medium-term chart (and to 0.6415 in the long-term chart) The chances of 0.6713 being reached in the next three months are priced at about 1 in 4.
 
The AUD
 
AUD Weekly Cloud

Bearish, with Weekly Standard and Turning line resistance at 0.7018, and price action generally respecting those lines recently. Recent employment data suggests that RBA easing is likely to continue beyond the recent June cut, with the market assigning a probability of the Australian Cash Rate reaching 1.00% of about 41% by the beginning of October rose.

Interesting research by ANZ suggests that rising commodity export prices are less likely to feed into a stronger Aussie owing to fewer productive investment opportunities, along with income gains from higher prices channelling into Australia’s savings (pension/superannuation) pool, deferring consumption.
 
AUD Weekly Cloud  
Gold Hourly Point and Figure – Medium Term

Opening the way to higher. The US$1,440 target is not too far from where the measured target from a break up through the Double-top on the Weekly Candles, and a break through to US$1,372 would create a new 2019 high.
 
Gold Hourly Point and Figure – Medium Term

Where to From Here?

Given the doji candle made last week it is tempting to see gold cycling lower within a bullish sequence, testing US$1,321, and possibly the US$1,300 level, however the main direction is positive, and both the economic and political environment remain very supportive of gold.

Realistic targets point to US$1,374, and US$1,430-40.
 
Resistance  US$1365  April 2018 high
Supports      US$1312   Weekly Turning Line and 23.60 % Fibonacci retracement (August – June 2019 rally)
  US$1308   Weekly Standard Line
  US$1280  (Approx.) Rising trend line
  US$1271  38.20 % Fibonacci retracement      (August – June 2019 rally)   
Targets    US$1635   Long term (Daily) Point and Figure (Market pricing in 1 in 4 probability in 2 years at spot US$1342)
  US$1445   Long term (Daily) Point and Figure
  US$1440 Medium-term (Hourly) Point and Figure
  US$1374   Medium-term Point and Figure
Targets      US$1297   Medium term Point and Figure     (Market pricing in 1 in 4 probability in 3 months at spot US$1342)
(Downside)      

Nicholas Frappell 

Disclaimer
The information contained herein is based on data obtained from sources believed by ABC Bullion to be reliable. However, such information has not been verified by, ABC Bullion, and ABC Bullion does not make any representations or take any responsibility as to its accuracy. Any statements of a non-factual nature constitute only current opinions, which are subject to change without notice. ABC Bullion (and/or its affiliates) may have positions in commodities referred to herein, and may hereafter liquidate such positions. Neither the information in this report, nor any opinion expressed, shall be construed to be, or constitute, a recommendation or an offer to buy or sell, or a solicitation of an offer to buy or sell, any commodities or other financial products mentioned herein.