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​Monthly Technical and Precious Metals Positioning Report - Gold - February 2019

21 February 2019

Gold – In Brief

The rally continues, helped along by some weak US retail sales data that supports the case for the pause in Fed tightening. Overnight, President Trump’s comments about the CNY sparked a move above the January highs. The CFTC positioning has caught up partially but is a couple of weeks out of date, but I will comment on the change in positioning seen so far. 

Managed Money Positioning in Gold

Quick Overview of Managed Money Positioning in Gold

Longs have increased, but so far don’t appear over-committed.
Equities – The SPX

The SPX has broken through the 61.80% retracement and is just above the Weekly cloud top at 2,770. It looks as if the market will continue to 2,822, around the level of the Nov 2018 high? US earnings will have to be good in H2 to justify this kind of level…
Equities – The SPX
The Dollar – DXY

The Dollar Index remains in a positive trend, but with a limited upside. The 97.91 level remains resistive. Recent comments about the CNY have helped push the index lower. Currently major support lies at the 95.76 level where the Standard Line support comes in on the Weekly chart.

In the short-term, upside resistance lies around the 96.37-96.54 band. The overall trend remains positive.
The Dollar – DXY

The AUD never made it as far as 0.739. After weakness, the short term looks like a return to 0.7264.
The longer term suggests more AUD weakness to come.
AUD Weekly Cloud

Resistance lies at 0.736 now, then the weekly cloud base will lower resistance down to 0.726. The AUD remains very news-sensitive.
AUD Weekly Cloud
The Inflation-linked Bond Yield

The yield on the inflation-linked bond has declined further since the end of January, which is positive for gold.
 The Inflation-linked Bond Yield

Gold Positioning and Outlook

It is possible to see Managed Money positions up the 29th of January.

Managed money longs have increased to 12.60 million FTozs as of the 29th. Managed money shorts did increase to 9.400 million FTozs by the end of January.

Open interest dropped by around 0.70 million FTozs from the 29th January to the 12th of February, which looks like some long liquidation taking place. Open interest then increased back to 48.20 million by the 18th of February, roughly the level seen in mid-December. Given the price action, this suggests considerably more than 0.614 of longs adding, as this figure probably obscures a fair amount of short covering that took place after the US$35 rally that has taken place between the 12th and the 18th.

Recent VWAP is as follows:

VWAP for weeks ending:
February 19th             US$1,321.08
February 12th             US$1,314.63
February 5th               US$1,319.03
January 29th               US$1,292.72

Gold ETFs

Total gold ETFs are 72,621,363 FTozs as at February 19th, with positions essentially unchanged.

Managed Money gold long and short positioning on the CME

Long    12,640,400 FTozs       Shorts  9,400,700 FTozs

Ratio of Managed Money gold shorts to long term average:            2.09 still higher than the long-run average of 1 since 2006.

Ratio of Managed Money gold shorts to long term average 

Weekly Ichimoku Cloud Chart

The Weekly Chart shows that gold has broken above the Weekly cloud and the 61.80 Fib retracement, opening the way for a test of the January-April 2018 highs. The Blue line is the Lagging Span, and this too is above the cloud, so the set-up and the trend are clearly bullish.
Weekly Ichimoku Cloud Chart 
Daily Ichimoku Cloud chart

The daily chart remains bullish, with the price, the standard and the turning lines all above the daily cloud.

Support lies at the Daily Turning Line at US$1,324.64 and the Daily Standard Line which currently lies at US$1,311.80.

Note that the price action today is forming a bit of an inverted hammer (ok, it’s a bit early to call this on Wednesday afternoon…) but if gold closes at around US$1,340 then expect a reversal and weakness back towards US$1,321-25.
Daily Ichimoku Cloud chart 
Price Targets via Point and Figure – Short Term

After breaking up to reach the US$1,344 target today, it will be interesting to see if there is a slight loss of momentum and a cycle back slightly lower after the impulsive move higher.
Price Targets via Point and Figure – Short Term
Gold Hourly Point and Figure – Medium Term

Still bullish however the upside targets have developed after recent price action and if fulfilled, take gold into and just beyond the hot zone of resistance above US$1,365.

Gold Hourly Point and Figure – Medium Term
Where To From Here?

After making a high at around US$1347, the market has softened very slightly and may ease within a bullish trend channel, with targets down towards US$1320 and support at the former US$1326 resistance and US$1302.
Resistance     US$1365  April 2018 high
Supports   US$1326   Former resistance
  US$1302 Daily Standard Line / Trend line support
  US$1302  Weekly Turning Line
  US$1263   Weekly Standard Line & Weekly Cloud top
Targets US$1382  Medium-term Point and Figure
  US$1373 Medium-term Point and Figure
  US$1350  Short term Point and Figure
Targets    US$1320 Medium term Point and Figure     


Summary – The Likely Outcome for Gold

The rally continues. With recent weak US data, the case for Fed pausing looks reasonable, however there are signs that there is still an overall desire to tighten within the FOMC, so the ‘pause’ may only be that, allowing for USD outperformance later in the year.

On the other hand, the Fed is clearly looking to bring ‘QT’ – Quantative Tightening – to an end within 2019, and as some observers calculate that QT is around 64 bps of tightening in addition to the headline policy rate, stopping QT would allow the Fed to raise the Fed funds rate further in isolation if inflation does pick up.

(Overall, the end of QT in 2019 would leave the Federal Reserves balance sheet at around 3.50 Trillion.)

The above is all rather long term but contains the elements of a gold-positive outlook because it implies that without QT in place, the Fed could still raise rates a couple of times this year and still be roughly neutral in terms of total tightening by the year-end.

Shorter term, the bull market in gold continues and the willingness of the BOJ, Fed and the ECB (recently discussing the need to renew Targeted Long term Refinancing Operations to banks) to add liquidity to markets supports the bullish case.

Nicholas Frappell
Global General Manager

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