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

26 March 2019

Gold – In Brief


After retracing from the February highs to test the 38.20 retracement of the September-February rally, a level below which gold could not close, the price has recovered to emerge from the Daily Ichimoku Cloud and targets US$1329 (achieved overnight) and then US$1341.
 
The rally occurred around the time the ECB decided to defer the next Eurozone interest rate hike ‘at least to the end of 2019’, and to re-introduce fresh TLTROs (Targeted Long-Term Refinancing Operations) as existing operations have started to mature in large chunks, which would shrink the ECB’s balance sheet and potentially put a liquidity squeeze on Eurozone lending.

The rally was given a further boost by the FOMC’s median forecast of no further interest rate rises in 2019, and that ‘Quantative tightening’ or balance sheet reduction would stall in September. A sharp drop in bond yields followed, along with a drop in the Dollar Index (DXY) although the Dollar has rebounded.

10-year US Treasury yields have dropped to 2.416 pct., erasing the rally to 3.26 pct. that took place last year. German Bund average yields dipped below zero to trade at -0.07 pct. for the first time since October 2016, against a background of poor economic data in the final week of March with French Services and Manufacturing and German Flash Manufacturing PMI data deep in contractionary territory.

Recession-watchers also noted that 3-month minus 10-year US yields went to zero and this is considered a reliable predictor of recession in the United States (see the St. Louis FRED graph on the page below). Past research by the Federal Reserve bank of New York places the chances of a recession in four quarters time at around 1 in 4.

As usual a couple of comments around SPX and DXY before moving onto gold.
 
Fred chart
Source: Federal Reserve Bank of St. Louis
 
 

Quick Overview of Managed Money Positioning in Gold


Longs peaked on February the 19th at 16.641 million FTozs, before declining 4.25 million FTozs to 12.391 million by March the 19th.

Meanwhile, shorts increased over the same 1-month period from 8.403 million to 9.343 million FTozs, peaking at 10.589 million on the way.

The net decline in length was 5.19 million FTozs.
 
Gold Managed money positioning 

Other Asset Markets: Equities - The SPX

The SPX exceeded the target level of 2,822 to peak (so far) at 2,822.  Given that recent targets have worked quite well, a continuation of the rally from here targets 2,908-2,922, the lilac box in the chart, before weakening again.
 
The SPX 

The Dollar – DXY

The 97.91 level remains resistive. The trend in the USD remains positive as the US Active treasury total return yield is still way higher than Euro benchmarks or the JPY equivalent, and that seems as good a reason as any to continue to like the Dollar.

Right now, the first quarter of the year remains range-bound for the Dollar Index, in a roughly 95.50-97.50 range. A break through 97.91 targets 99.44-50.
  
The Dollar
 

The AUD

The AUD is trading indecisively with resistance at 0.726-0.729 from the Weekly Cloud base. Price action suggests that the AUD can strengthen towards this resistance level in the short to medium term.

(The very long-term target is 0.6415, however the market is currently pricing only a 1 in 5 probability of that level being reached in the next 2 years.)
 

AUD Weekly Cloud

 
AUD Weekly Cloud 

The Inflation-linked Bond Yield


The yield on the inflation-linked bond has declined further since the end of February and is 63 bp lower than the recent high in November, overall another driver for gold prices to rally.
 
The Inflation-linked Bond Yield

Gold Positioning and Outlook

It is possible to see Managed Money positions up the 28th of February, and I have commented on the details of changes there on Page 1.

Since then Open interest has risen very slightly as prices have risen, suggesting more futures length has been added.

Recent VWAP is as follows:

VWAP & change in the composition of longs and shorts by week:
 
Week ending VWAP  Managed Money length weekly change  Managed Money shorts weekly change
March 19th  $1,302.64    61,600  -1,245,200
March 12th   $1,291.44   -261,000     1,123,000
March 05th  $1,308.14  -2,831,000  1,899,800
February 26th  $1,335.16 -1,219,400  -837,600
 
 

Gold ETFs


Total gold ETFs are 72,0286,873 FTozs at March 25th,a slight reduction of 534,490h, with positions essentially unchanged.
 
 
Managed Money Gold Long and Short Positioning on the CME

Long    12,390,900 FTozs       Shorts  9,343,400 FTozs
 
Ratio of Managed Money Gold Shorts to Long Term Average:         2.26 still higher than the long-run average of 1 since 2009.
 
Ratio of Managed Money Gold Shorts to Long Term Average
Ichimoku Cloud Chart

The Weekly Chart shows gold interacting with the 61.80 % Fibonacci retracement of the dip since the February high. 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 retreated back into the cloud, found support near the base of the cloud and has broken up above the cloud again, returning the set-up is bullish (again).
 
Ichimoku Cloud Chart
Gold Daily Ichimoku Cloud Chart

The inverted hammer that appeared on the 20th February presaged a drop a deeper drop in the gold price than anticipated.

Notwithstanding that, the decline interacted with the 38.20% Fibonacci retracement of the September-February rally before turning around to rally again, after which the ECB news helped boost the price once their dovish outlook was confirmed on the 8th.   
 
Gold Daily Ichimoku Cloud Chart 
Gold Price Targets via Point and Figure – Short Term

Recent price action has targeted US$1326-1329 and having made a high so far of US$1328 basis spot, it would seem reasonable for gold to roll lower to test short term support levels before any push to the higher US$1341 and US$1353 targets seen here.

Short term supports come in at US$1315.
 
Gold Price Targets via Point and Figure
 
Gold Hourly Point and Figure – medium term

Turned bullish again. Targets to US$1361 and the low US$1380’s. Support at US$1280 has been re-iterated. Support at US$1307.

Gold Hourly Point and Figure – medium term 
  
Where To From Here?

 
Resistance    US$1365 April 2018 high
  US$1346   February high
Supports    US$1314  Daily Standard Line / Weekly Turning Line / Daily Cloud top (26th March)
  US$1311  Daily Turning Line
  US$1265   Weekly Standard Line & Weekly Cloud top
Targets    US$1382-85  Medium-term Point and Figure
  US$1356-61         Medium-term Point and Figure
  US$1341     Short term Point and Figure
Targets 
(Downside)       
US$1208-17 Medium term Point and Figure     
                  

Summary – the Likely Outcome for Gold


After a swing downwards from the February high, that was contained by the 38.20% Fibonacci retracement, the overall picture remains bullish. Even on the dip the price did not penetrate the Daily Cloud particularly far and rode higher in line with the support given by the rising cloud.

The cautious note around the possible temporary nature of the Fed ‘pausing’ tightness proved to be too cautious as the March Fed statement showed, along with the ECB confirming continuing easy monetary policy.

Positioning remains quite restrained with March 19th Managed money length only 80% of the average length held between August 2009 and now (that’s the last 500 observations if you are wondering…) Managed Money shorts on the other hand are over twice the average (2.26 times) over the same period, suggesting managed money doesn’t share the broadly positive view of gold given by the charts and supported by declining yields seen in  the fixed income space.

The key levels remain the US$1365-1370 resistance seen in January February and April 2018. There is notable open interest in June Comex US$1365 with 10,838 FTozs of calls and June US$1385 which has 8,067 call open interest.
 

Nick Frappell
Global General Manager
Nick

 
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