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Monthly Technical and Precious Metals Positioning Report - Gold - February 2020

20 February 2020

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

Gold – In Brief

How easy are financial conditions? ‘This easy’ – much easier than they were in the run-up to the GFC, another indicator that helps contextualise the floaty nature of almost everything not directly affected by COVID-19.

Technical Analysis Graph 1

A quick run through the current environment:
Coronavirus – COVID-19 – 2,014 deaths and 75,283 cases by February the 20th. The number of reported cases grew in the PRC after the government included those diagnosed via lung imaging rather than the specific diagnostic test. The Case Fatality Rate appears to remain the same and the trend rate may even be negative, according to some epidemiologists.

See global cases via the Johns Hopkins CSSE.

US January Industrial production -0.30 % (forecast decline -0.20 %).

Eurozone growth +0.10 % Q4. Germany drags along at zero.

Eurozone Industrial production in December down -2.10 % m/m.

Japan GDP shrank -6.30 % q/q on an annualised basis after an increase in Consumption tax (from 8 to 10 %...) Japan Preliminary Machine tool orders shrank year-on-year by -35.60 %.

Money and Interest Rates
The Fed remains steady, with a slight softening of interest rates anticipated by the Fed Funds Futures since last month, perhaps spurred by Coronavirus and some weaker data. However, Fed officials describe the economy as being ‘in a good place’ although Vice Chairman Richard Clarida described COVID-19 as a ‘wild card’.

The Bank of Japan moves to replace outgoing Harada Yutaka with Adachi Seiji, another strong ‘reflationist’. No signs of policy change in the BoJ ranks.

Quick Overview of Managed Money Positioning in Gold
Managed money length declined by about 2.70 million FTozs. Managed money shorts increased by almost 0.40 million FTozs.

(See 'Gold Positioning and Volume-Weighted Average Pricing' for weighted average prices and shifts in weekly holdings).

Technical Analysis Graph 2

Gold Positioning and Volume-Weighted Average Pricing
Gold Positioning and Volume-Weighted Average Pricing The recent VWAP and position changes are as follows. Significant liquidation in early February took place at favourable levels (in aggregate), compared with aggregate market entry points. The long position has declined from a recent high of 26.24 million FTozs at the January 14th reporting point to 23.15 million by February the 11th. Shorts have added about a million FTozs to overall positioning since the beginning of the new year, to total 3.583 million FTozs. Solid ETF buying has offset roughly 75 % of CME futures-based reduction in positions.

TOCOM net positioning has risen marginally over the last month as XAUJPY rallies – adding another 110,000 Tozs of buying overall. 

Technical Analysis Graph 3

Weekly Ichimoku Cloud Chart
Support at US$1545 and US$1529 from the Weekly Turning and Standard Lines. Very positive price action, with resistance likely at the US$1611-1612 former recent high.

Importantly, gold is climbing above the 61.80 % retracement of the 2011-2015 down-move. If gold closes above this level in February, that’s positive.

Technical Analysis Graph 4

Daily Ichimoku Cloud Chart
The daily chart is bullish. Resistance expected at US$1,611-1,612. Support at US$1,584.

Technical Analysis Graph 5

Gold Hourly Point and Figure – Medium Term
Prior support levels more than held. Upside targets on the medium-term chart are almost all achieved bar the US$1,611.50 level where I would expect gold to find resistance and roll back. Other targets, to US$1,648 and US$1,665 are more significant

Technical Analysis Graph 6

Price Targets via Point and Figure – Short Term
The price rallied to the US$1,592 target and then rolled over, before rebounding sharply. Targets to US$1,620.

The yellow highlighter shows where strong targets can be inflection points

Technical Analysis Graph 7

The Inflation-linked Bond Yield & the US Yield Curve
The absolute yield on the linker drops further into negative territory. Meanwhile, the flattening of the 10 Year- 3-month curve favours gold. Signs of a resolution to the trade dispute, plus a highly tilted curve by the end of August 2019 encouraged a curve-steepening trade (buy shortdated treasuries, sell longer-dated bonds), however the curve has flattened sharply in the last month.

Technical Analysis Graph 8
Gold Prices and the Yield on the April 2028 US Inflation-Linked Bond
A decade-long overview of gold price movements relative to the yield of the April 2028 inflation-linker, showing strong co-movement. Regressing gold prices on the yield shows that the inflation-adjusted yield can explain about 75 % of gold’s moves.

Technical Analysis Graph 10

Gold-Silver Ratio
The upper bound of around 90 has limited silvers relative underperformance. Strengthening targets cluster around 86.50-87.50,and the sudden move higher in gold has more or less achieved that. Once again, a fairly well-defined range.

Technical Analysis Graph 11

Equities - the SPX
Still trending up despite some poor data and Cov19, propelled onward largely by anaemic yields. Support at 3,200 held – that level is now 3,299 and 3,121 (Weekly Turning and Standard Lines) then 2,902 from the Weekly Cloud top

Technical Analysis Graph 12
SPX Hourly Chart with Targets
Therewas indeed room for a very minor wave downwards (basis the hourly chart), which was swiftly shrugged off for a fresh push higher. Unfortunately, all short-term targets have been met, leaving little additional information to discuss, only the longer-term outlook below.

Technical Analysis Graph 13
The Dollar – DXY 
A degree of safe-haven attraction lifts the Dollar, plus some signs of increased yield gap relative to Japanese government bonds.

Targets on the Daily Log point and figure to 102.00 on the DXY.
Technical Analysis Graph 14
AUD Weekly Cloud
The price fell away sharply and tested the October 2019 lows. Below 0.6950 look for the market to track down to 0.644 and 0.633. Resistance at 0.6848 at the intersection of the Weekly Turning and Standard Lines, then at 0.6911. The two recent variables that the RBA has to contemplate are COVID-19 and the bushfires. Unemployment, commodity prices and house prices suggest the RBA can stay their hand, but Coronavirus in particular could be the decider, particularly if external conditions ease sharply. As of the 19th February, cash futures are pricing the RBA to do nothing at the March meeting.

Technical Analysis Graph 15
The AUD Hourly Point and Figure
The AUD short to medium term trend is bearish. Targets cluster just below 0.64. The 0.6629 target was reached on the 7th of February.

The slight rise in the unemployment data above the forecast (to 5.30 %) has weakened the AUD.

Technical Analysis Graph 16
Where to from Here?
Gold is still bullish, and as of the 20th February has broken up above the 61.80 % retracement of the huge down-move between the 2011 high and the 2015 low, a significant retracement level. A close above this level going into March would add to the bullish picture.

Gold is benefitting in the short term from safe-haven flows, and in the longer term from the expectation of easier monetary behaviour and a fiscal response to economic drag caused by the spread of the virus. Risks to the downside include a sooner-than-expected resolution to coronavirus, or the perception of the same.

Technical Analysis Graph 17
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.