Monthly Technical and Precious Metals Positioning Report - Gold - October 2018

Gold – in brief

Gold remained very rangebound until the 11th of October, when the market reacted strongly to weakness in US equity markets and rallied sharply. The price action since suggests weakness back to US$1214, which if supported should help provide a platform for a further move higher. The Managed Money shorts reduced their bets by 25 pct in the week ending Tuesday the 16th of October, which spells a powerful change in sentiment towards gold. 
 

Gold positioning and outlook

Gold positioning on a net short basis increased to 10.945 million FTozs, as of the 9th of October., the shortest net position ever. That reflects that in the period since the 11th of September, managed money longs have reduced by 1.845 million FTozs to 8.222 million FTozs, the lowest levels since the end of December 2015.

Since then, longs have recovered to 9.533 million and shorts have seen a massive reduction (the biggest ever recorded actually) of 4.696 million FTozs in the week ending the 16th of October, as shorts bought back at a VWAP of US$1214.45.

Shorts have reacted to rising prices by adding to their positions, taking shorts to 19.167 million FTozs, just shy of the maximum of 19.717 million recorded on the 21st August.

The ratio of shorts to longs is at the highest ever, at 2.33, and the ratio of managed money gold shorts to the long-run average has barely shifted. Positioning tells us that the narrative of tighter rates, ‘risk on’ behaviour and optimism around other asset classes is still the dominant theme.

That narrative took a hit after October the 3rd when the S & P dived from about 2,940 to a low of 2,711. The index has recovered almost 50 % of that decline, but now trades below the Daily Ichimoku Cloud for the first time since early May. (The S & P 500 price remains above the Weekly cloud, so the long-term uptrend of the S & P 500 index remains intact.)

More recent shifts in Open interest – post the 16th of October open interest has declined slightly, probably reflecting more short covering, but the amounts appear relatively unimportant so far.

Weekly Ichimoku Cloud Chart 

 
Ratio of gold shorts to long term average: On the turn: 



Gold ETFs

A small inflow into total ETF positions with total holdings 67,912,409 FTozs on the 18th of October.
 

Where to from here?

“Gold is breaking into the resistive daily Ichimoku cloud, and still have a fair bit of work to do. However, above US$1,195, look for gold to extend to US$1222 and US$1230 before cycling back initially.”

The above encompasses pretty much what has happening so far. Gold has clear upside risk from here.

After the initial sharp rally, consolidation towards the Daily Cloud top looks likely, and possibly a little lower. However, the overall trend is positive on the Daily Cloud charts and the Hourly Point and Figure chart (from which the above targets are derived.)
 

Resistance	US$1287	Weekly Cloud Base
	US$1263	Weekly Standard Line
	US$1235	50% retracement of the June-August retracement
Supports	US$1213	Daily Cloud top
	US$1208	Standard & Turning Daily Ichimoku Lines
	US$1194	Daily Cloud base
Targets	US$1292
	US$1262
	US$1236
	US$1214
	US$1199

                                  

Short term targets?

 

Medium term?

 

Summary – the likely effect on gold

Gold’s technical outlook remains favourable with the recent sideways trading now resolving upwards.

The long-awaited shift in investor positioning appears to be on the march.

There are other strong risk factors taking shape in the next month or few months, including US mid-term elections, uncertainty over Brexit, the US President weighing into Fed rate-setting decisions. The recent murder of Saudi journalist Jamal Khashoggi has put the US into an unprecedented bind with its chief ally in the Muslim world, and this too adds to uncertainty that may well play out beyond 2018.

Additionally, equities in the US are going through a moment of soul-searching. Although the expectation is that the Fed will carry on tightening unimpeded, the extreme positioning and poor sentiment seen to date is retreating.


Nicholas Frappell
Global General Manager

 
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. to date is retreating.