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

21 May 2019

Gold – In Brief

Gold declined to test the key support at the Weekly Cloud top, with the lows getting within 3 US$ of that support level twice before rebounding. The price closed right on the 38.20% Fibonacci retracement of the August 2018-February upswing and overall the sense of a consolidation turned the mood back towards bullishness by the beginning of May.

The subsequent decline in the SPX index helped support the case for gold, as the US-China trade dispute dusts itself off and regains strength.

Additionally, the rally in US yields has helped gold.

Fed governor Lael Brainerd has suggested that Fed policy ought to let inflation overshoot the 2 per cent target, in comments that support a continued pause in Fed policy, with forward-looking inflation expectations remaining low and really tough to shift. Two-year and five-year US breakeven rates have rolled over and the two per cent target looks untroubled according to market views.

The recentdrop in yields appear to have been given an extra push downwards in part by a return of what appears to be strong duration-based hedging last seen in late March and also by a scarcity of yield in the Eurozone. (Average yields on Bunds dipped to -0.18 % this week, the lowest level seen since September 2016.)

Against this positive outlook for declining yields is the risk that Chinese Treasury sales may increase as a consequence of the trade dispute, as China thinks of ways to impose a cost on Trump.

The price has managed a decent rebound this week, however perhaps linked to the recent surge in recent CME speculative length, the price stalled within the Daily Cloud top (starting at US$1299) and has weakened back to technical support at the Weekly Standard line (c. US$1279.)

It’s fair to say that there are some stranded longs at the US$1289 level, currently, so this will weigh on the price in the short term.

Quick Overview of Managed Money Positioning in Gold

Since the last data set (April the 16th) Managed Money longs have risen to 13.847 million FTozs by May the 14th, an increase of 4.905 million ounces, the largest single-week increase in longs since the 9th of January 2018, which takes Managed money length to the highest level since the end of February.

Shorts at May the 14th are 8.592 million FTozs, a decline of 2.566 million ounces, with the week ending the 30th of April being most notable, as shorts bought back 2.774 million FTozs. Since the 14th, CME Open Interest initially increased by about 636,000 Tozs, before declining by almost the same amount, suggesting that some recent longs exited the market. (See Inflation-linked Bond Yield for weighted average prices and shifts in weekly holdings.)
Gold Managed Money Positioning
Gold Positioning and Volume-Weighted Average Pricing

The large increase in shorts in the week ending April the 16th was offset by short-covering in the week of April the 30th and May the 7th. Now it’s the turn of the longs to pile in with 3.549 million FTozs of fresh length in the week of the 14th May at a VWAP of US$1,289.32. Recent VWAP and position changes are as follows:
Weekly Ichimoku Cloud Chart

The weekly chart remains bullish with the price above the cloud top. The price is interacting with the 38.20% Fibonacci retracement and the Weekly Standard Line. Trend line support comes in at US$1,267 and the Weekly Cloud top at US$1,263.
 Weekly Ichimoku Cloud Chart
Daily Ichimoku Cloud Chart

The Daily cloud chart is still bearish. The price did rally higher but hit resistance at the Daily Cloud and sank again, with both the price and the Lagging Span being deflected by the cloud base, as shown in the two red boxes.

Resistance at US$1,295 and US$1,309.

Daily Ichimoku Cloud Chart
Price Targets Via Point and Figure – Short Term

 Price Targets Via Point and Figure – Short Term 
The Inflation-linked Bond Yield

The yield on the inflation-linked bond is trading sideways, but slightly lower at 0.59%.  The level is positive for gold.
The Inflation-linked Bond Yield

Equities – the SPX

The SPX has weathered the return of the Sino-US trade dispute fairly well, dropping from the recent high to test both the daily Ichimoku cloud and the 23.60 pct. Fibonacci retracement before rallying off those levels. Currently the price has yet to break past the technical resistance at the Daily Standard line (2,878).
Equities – the SPX 
SPX Hourly Chart with Targets

The market cycled lower after touching 2,954. It looks as if the majority of downside targets have been achieved, so a proximate re-test of the recent highs looks possible. The trend is positive, however both this chart and longer term charts contain targets that straddle the 3,000 level, but don’t point to much higher than the 3,000-3,100 level.
SPX Hourly Chart with Targets
The Dollar – DXY

The 61.80% Fibonacci level (of the January 2017- Feb 2018 down move) is still a barrier, despite the DXY closing above that level at the end of April. Overall however the market remains bullish with targets to 100.78-101.18. Growing tension with Iran and the prolonged trade war with China are likely to favour the Dollar initially, with weakness sometime ‘later’.
The Dollar – DXY

The AUD recovered to 0.721. Resistance at 0.726 from the Weekly Cloud base. Short-term support at 0.7117. The AUD already weakening on US-Iran sanctions waiver news? Price action suggests a test of the Weekly Cloud resistance within a bearish environment.

The short to medium term allows for a mild recovery against longer term weakness. 
The AUD 
AUD Weekly Cloud

Bearish, notwithstanding the lift that Scott Morrison’s win on Saturday has given the AUD.

Resistance lies at 0.7040 at the Weekly cloud base from the 27th May onwards.  Price targets angle towards 67.89, however having traded down to 68.9746 last week, a move back higher. Intra-week resistance likely at 0.6940…a more vivid recovery would target the cloud base itself.

Both unemployment and underemployment have increased slightly in April, and taken together with the very low inflation numbers it looks as if the RBA are still likely to cut in June.

AUD Weekly Cloud
Gold Hourly Point and Figure – Medium Term

The chart reverts to bullish, with aggressive upside targets arising from both the broad consolidation since mid-April and the stab higher last week.

The key levels are the US$1263-64 lows.   Although not out of the question, the older downside targets are getting relatively stale with the passage of time.
Gold Hourly Point and Figure – Medium Term 
Where To From Here?

Gold is consolidating with a bullish trend on the weekly chart. A significant amount of new investor interest has emerged on the long side in the last week or so, indicating that gold is moving back into favour with large investor groups.

With the ‘Abraham Lincoln Carrier Strike Group’ now in the Arabian Sea, a number of vessels damaged in the Gulf, and the US-China trade dispute increasing both in intensity and likely longevity, there are plenty of geo-political reasons to like gold right now.
Resistance   US$1365   April 2018 high
Supports   US$1263   Weekly Standard Line & Weekly Cloud top
Targets    US$1356   Medium-term Point and Figure
  US$1317    Medium-term Point and Figure
Targets       US$1274   Medium term Point and Figure   
(Downside)     US$1275    Short term Point and Figure
  US$1243   Medium-term Point and Figure   

Economically, weak China data, a continued reluctance to tighten, and a willingness to tolerate inflation, along with predicted persistence in US inflation rates, gold is in a broadly positive environment provided it remains above the recent lows. The principal caveat relates to recent inflows of speculative longs, and if the price closes below US$1260 then a bearish outcome has ot be considered.
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.