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

22 August 2019

To view this report in PDF format, please click here.
 

Gold – In Brief

 
Gold had an explosive move since the last report, hitting US$1,535. John Williams, the President of the New York Fed commented on the 19th of July that central banks need to take ‘swift action’ when near the Zero Lower Bound, which helped form the perception that the interest-rate cycle will continue to be accommodative. Williams is the co-author of a 2000 paper that promotes a modified Taylor rule with a forward-looking adjustment that pushes the policy rate lower faster, and a backward-looking adjustment that would rates lower for longer.

Gold’s essential drivers remain low interest rates, geo-political tensions, unresolved trade issues and an overarching fear that all of the above could tip the world into recession. The accompanying drop in equities helped propel bond yields lower and gold higher. Around $16 trillion USD worth of bonds now trade at a negative yield.

Japanese JGB 10-year yields dipped below the BOJ’s target, dropping to minus 25.50 bps, below the – 20 bps lower boundary of their 10-year yield target.

Neel Kashkari, President of the Minneapolis Fed stated in his recent interview with Minnesota Public Radio  ‘…we need to give more stimulus to the economy, more support, …and not allow a recession to hit us.’

EBC core inflation remains extremely low. 

Gold remains bullish, with the price now showing signs of consolidation around the US$1,490-1,530 zone, and the target to US$1,590-1,600 remains a distinct possibility. The weekly Ichimoku cloud support is very remote now at US$1,287, and below the recent high of US$1,535 the implied supports are US$1,471, US$1,458, US$1,432, and US$1,401.
 
 
Quick Overview of Managed Money Positioning in Gold

Longs have grown by 3.733 million since July the 9th, and shorts have reduced by 0.367 million, taking the total longs to 24.563 million by the 13th of August, with shorts down to 2.202 million. Net length has grown by 4.10 million. Gross shorts have increased very slightly in the week ending the 13th of August, after a very sharp reduction in the week ending the 6th of August, however managed money short positioning is still very low.  (See page 3 for weighted average prices and shifts in weekly holdings.)
 
Gold Managed Money Positioning 
 
Gold Positioning and Volume-Weighted Average Pricing

The recent VWAP and position changes are as follows:

Total open interest has increased by about 828,000 Tozs since the 13th of August at a VWAP of US$1,523.64, and it looks as though many of those new arrivals since Tuesday the 13th will be fresh shorts, with the price action feeling increasingly stale and hemmed-in.
Gold Positioning and Volume-Weighted Average Pricing 
Weekly Ichimoku Cloud Chart

Forming a local top? Support at US$1,454 and US$1,400 from the Weekly Turning and Standard Lines… Recent price activity suggests that the recent rapid climb warrants some consolidation…
  
Weekly Ichimoku Cloud Chart

Daily Ichimoku Cloud Chart

The Daily Cloud chart shows support at US$1,467, US$1,433 and US$1,422, the last from the Daily Cloud top. The top arrow shows the approximate measured targets basis the recent price action, between US$1,575 and US$1,600.
 
Daily Ichimoku Cloud Chart

Price Targets via Point and Figure – Short Term

Still positive, but now generating targets to the downside that reflect the recent directionless consolidation between US$1,490-1,530.
 
Price Targets via Point and Figure – Short Term  
The Inflation-linked Bond Yield

We are definitely no longer in Kansas City when it comes to the inflation linked yield. The yield on the inflation-linked bond has weakened to 0.14 %, after dropping to 0.09 % on the 16th of August.
 
The Inflation-linked Bond Yield 

Gold-Silver Ratio

No longer really a topic du jour…but it did go to the 87 level as predicted. Now it seems to be chopping around and a move back to 90-92 looks as likely as a move to 87 again. As Lyndon Johnson once commented on a rival in the senate, the ratio is “…as independent as a hog on ice” so probably worth being patient with, however on balance, below 87.40 look for silver to outperform.
 
Gold-Silver Ratio  
Equities - the SPX

The 2,815 level provided support. Prices seem keen to rebound from those recent lows, however a break down below would target 2,774 and 2,654, where the price should find support within the Weekly Cloud. The medium-term outlook remains bullish however the scope for a move to test cloud support looks more plausible now. The remaining upside targets are quite distant and look like outliers in the present context.
 
 Equities - the SPX

SPX Hourly Chart with Targets
 
The short-to-medium outlook shows trendline support and a deeper target below, aiming for 2,664.64. The market has recovered nicely off hourly P n F trendline support.
 
SPX Hourly Chart with Targets

The Dollar – DXY

The DXY closed above the 61.80 Fibonacci level, as sentiment improves and importantly as other currencies ease as aggressively as the Fed. Look for 99.00.

The Dollar – DXY
 
AUD Weekly Cloud

Bearish, with Weekly Turning Line at 0.688 and Standard line resistance at 0.6941 now. Domestic data is mixed however employment growth remains strong, and it is largely overseas data that is negative for the AUD. Although the RBA has an ‘easing bias’, the recent cuts in rates are likely to mean that the RBA pauses before considering further action. Non-commercials increased their short positioning versus the AUD, and a recent influx of non-commercial longs almost all exited after August the 6th.
 
AUD Weekly Cloud 
The AUD Hourly Point and Figure

The Hourly chart has price targets clustering at 0.6627, then a target on to 0.638. There is scope for a move up to 0.6883 and 0.7035…
 
The AUD Hourly Point and Figure
 
Gold Hourly Point and Figure – Medium Term


The price hit the US$1,534 target created in late July. There are several remaining targets that cluster around the US$1,540 level. The price has weakened but remains in an uptrend, and the one downside target aims for the July support levels. The option market is pricing in a 1 in 10 chance of that level being reached within 3 months, which most likely reflects an overly exuberant bullish bias.
 
Gold Hourly Point and Figure – Medium Term
Where to from Here?

Gold looks capable of testing the recent high. If that level is broken through, then the price is likely to converge on US$1,480.
 
Resistance  US$1587   61.80 % Fibonacci retracement of the 2011-2015 down move
  US$1535   August 2019 high
Supports     US$1458   Weekly Turning Line
  US$1401  Weekly Standard Line & 50 % retracement (May-August 2019 rally)
  US$1368  61.80 % retracement (May-August rally)
Targets    US$1635  Long term (Daily) Point and Figure        
(1 in 5 probability in 3 months at spot US$1,496)
  US$1590   Long term (Daily) Point and Figure           
(Market pricing in 1 in 4 probability in 3 months at spot US$1,496)
Targets      US$1476   Medium term Point and Figure      
(over 1 in 3 probability in 3 months at spot US$1,496)
  US$1458  Medium term Point and Figure      
(under 1 in 3 probability in 3 months at spot US$1,496)
  US$1387   Medium term Point and Figure   
(Market pricing in 1 in 10 probability in 3 months at spot US$1,422)
(Downside)       


Nicholas

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.