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

19 December 2019

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

Gold – In Brief

Gold continues to be dominated by shifts in news and sentiment relating to the US-China trade disputes. The corrective move lower in November has been followed by range-trading and a distinct lack of recovery, with nearby resistance at US$1487 amidst a zone of resistance that lies between US$1481 and US$1501.

News of a Phase 1 settlement in the trade dispute has been digested as mere détente, although better than no signs of progress at all, allowing Bloomberg’s Economics team to revise China expected growth figure for 2020 upwards by 20 bp to 5.90 %.

Germany reported a December Flash Manufacturing PMI of 43.40, signalling a weak ending to a rather difficult year. Strife in the Eurozone’s second largest economy with deliberate blackouts and massive strikes suggests a diminution of economic activity compared with expectations.

With the interest rate outlook looking ‘steady’, gold goes into the next quarter reliant on progress or otherwise in the trade dispute, and in the longer term reliant on the US consumers contribution to the American economy.

 The impact of the ongoing Brexit ‘process’ is hard to call however the decision to rule out any extension to the transition period may be viewed as a negative for growth, and therefore a positive for gold.   

Overall, gold remains positive technically. However gold needs something to electrify the narrative – or at least give it a push in a given direction.

Money and Interest Rates
The underlying low interest rate outlook has not changed, just in degree. Fed officials reiterated that three cuts have done enough for now, although interest rate futures imply a slight reduction in the Fed’s target interest rate of about 0.20 % by this time in 2020. Interest rates rises aren’t contemplated either, of course.
Likewise, the Bank of Japan looks set to stay with the existing target rate (-0.10 %) for 2020.

Quick Overview of Managed Money Positioning in Gold
Longs remain roughly the same level as at the time of the last report, standing at 21.293 million FTozs. The net position is long 18.37 million Tozs, with a z-score for this value of 1.05, meaning that this value lies in the top 15 % of values, if you make some flaky assumptions about the way net positioning is distributed. Shorts have increased very slightly after some reductions since mid-November. Gross shorts are 2.928 FTozs as at the 10th of December. (See 'Gold Positioning and Volume-Weighted Average Pricing' for weighted average prices and shifts in weekly holdings.)

ABC-NF Chart December 2019 - 01

Gold Positioning and Volume-Weighted Average Pricing
The recent VWAP and position changes are as follows:
ABC-NF Chart Decemeber 2019 - 02

Weekly Ichimoku Cloud Chart
Since holding at the 38.20 pct. retracement, gold has (so far) been unable to rally up past the resistance at the mid-point of the marubozu candle formed in the week ending the 8th of November. The mid of the candle body lies at US$1487 and so far, that level has suppressed gold.

The chart remains bullish, with minor resistance at the Weekly Turning line (US$1481) and the above-mentioned US$1487 level.

ABC-NF Chart December 2019 - 03
Minor support at the Weekly Standard Line in green at US$1469. Support at US$1445.7 again and US$1413, the 50-pct. retracement and the Weekly Standard Line.

Daily Ichimoku Cloud Chart
The daily chart is bearish. The short-term price movements are constrained by the presence of the cloud above. In order to turn bullish, the price needs to close consecutively above US$1502, or US$1491 from the 23rd of December (see below).

Resistance at the cloud base (now US$1481…) and the cloud top (US$1501.40). The Lagging Span continues to interact with the base of the daily cloud (see the boxed area) and this is interaction is also negative in the short run. The bigger picture in the Weekly cloud chart is bullish.

ABC-NF Chart December 2019 - 04
Gold Hourly Point and Figure – Medium Term
The chart has swung to bullish: the change in the box size (to reflect evolving market volatility) has eliminated some of the more distant downside targets. A move above US$1517 would remove the sub-US$1436 downside targets shown below.

ABC-NF Chart December 2019 - 05

Price targets via Point and Figure – Short Term
Bullish. Target to US$1488 almost achieved and the initial energy spent, allowing the market to roll back and test the trend line support. A move above the recent high would intensify the chance of a move to the US$1516-1519 resistance zone in the purple box.

ABC-NF Chart December 2019 - 06
The Inflation-Linked Bond Yield
The yield declined very slightly. For non-inflation linked 10-year US Treasury yields, the yield tested just below the 1.77 % target before a sharp rally. Now there are a large cluster of targets in the 2.12-2.24 % zone, a possible headwind for gold. Significant congestion lies at 1.95-2.10 %.

ABC-NF Chart December 2019 - 07
Gold-Silver Ratio
A strong rally to the 83 target level before surging back ‘up’ to 88. Although there are plenty of targets to 91-92, it seems that the 83-88 range is worth positioning for.

ABC-NF Chart December 2019 - 08
Equities - the SPX
As relentless as ever. Onwards and upwards. Not many targets left on the Hourly point and figure though, 3,157, 3,189 and 3,254 at the moment. That signifies little at the moment except a possible weakening of upward momentum? The Daily point and figure has a target to 3,310 so perhaps that is the number to really watch closely.

Support at 3,094 and 3,009 (Weekly Turning and Standard Lines) then 2,846 from the Weekly Cloud top.

ABC-NF Chart December 2019 - 09
SPX Hourly Chart with Targets
Switching to the daily point and figure with a log-based box size for a macro (but not too macro) perspective. The unfulfilled targets are:

3,310 / 3,603 / 3,731. I like this chart because it captures the turning points rather nicely, as certain targets are reached, the market swings back into another cycle.

ABC-NF Chart December 2019 - 10
The Dollar – DXY 
The DXY remained capped by the Weekly Turning line and has fallen below the weekly Standard. Support at 96.00. Resistance at 98.13. The trend remains positive but weakening.

Net flows of international capital were minus 48 billion in October which may help explain the weakening then, and there may be a seasonal effect going into the year-end…

ABC-NF Chart December 2019 - 11
AUD Weekly Cloud
Bearish basis the weekly cloud chart. Non-commercials appear to be trimming both long and short positions, with only slight changes in the net positioning, reducing slightly to 3.681 billion short overall.

ABC-NF Chart December 2019 - 12
The AUD Hourly Point and Figure
The AUD short to medium term trend is bullish although price action since Friday the 13th has been negative, with support at 0.645.

Look for moves to 0.71.

ABC-NF Chart December 2019 - 13
Where to from Here?
Gold remains bullish in the medium term and is holding above the key retracement touched last month. Price action is somewhat narrow however.
Resistance US$1,586 61.80% Fibonacci retracement of the 2011-2015 down move.
  US$1,557 September 2019 high
Supports US$1,446 38.20% retracement of the May-September rally
  US$1,412 Weekly Standard Line & 50% retracement (May-September 2019 rally)
  US$1,378 61.80% retracement (May-September rally)
  US$1,359 50% retracement (August 2018 low – September 2019 high)
      Basis spot US$1,470 3 months
Targets US$1,635 Long term (Daily) Point and Figure (just under 1 in 10)
  US$1,590 Long term (Daily) Point and Figure (1 in 6-ish)
Targets US$1,435 Medium term Point and Figure (1 in 5-ish)

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.