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

01 November 2019

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

Gold – In Brief

Gold fell to a low of US$1,459.114 (spot) on the 1st of October, finding support at the 23.60% retracement of the August 2018-September 2019 upswing, before recovering to enter a period of consolidation. Positioning is fairly long, and the market is beginning to feel stale and unable to absorb ‘new’ news to take the price higher.

The FOMC decided to cut rates to a target level of 1.50-1.75%, with two dissenters, ‘in light of global developments for the economic outlook as well as muted inflation pressures’ although noting that the labour market remained strong. The decision to pause rates hinges on an optimistic reading of the trade war and its successful resolution leading to an uptick in business investment. That doesn’t seem likely at the moment – so is the pause merely allowing time for the three previous cuts to feed through, and to provide the Fed with more room to manoeuvre if things don’t go so well.

Additionally, gold has spent the period since the 30th of September trading within the Daily Ichimoku cloud, which tends to promote directionless trading within the cloud band. That band currently lies between US$1,479 and US$1,515.

The drivers for gold’s bullishness remain unchanged, with outgoing ECB President Mario Draghi saying that policy-makers accepted that interest rates “would remain low for a long time to come.”

The German economy may have entered recession for the first time since 2013 in September. We will know for sure in mid-November. Flash manufacturing PMI touched a contractionary 41.90 in late October.

Mid-October saw encouraging news regarding the US-China trade war which may have prompted a recovery in the Dollar Index, and the rising number of tariff exclusions points to the degree of pain felt on both sides, however the outlook is not set for a marked improvement any time soon.

The CME Managed Money long position stands at 21.832 million Tozs, the short position at 3.388 million Tozs, with gross length declining by 2.12 million Tozs over the period since the last report and short positioning more or less unchanged. Changes in position suggest that longs are happy to take profit at these levels, but sentiment has not changed sufficiently to prompt serious short-selling.

A large increase in open interest on Thursday the 24th may indicate fresh longs arriving, but the price has been pushed back relatively quickly since.

Money and Interest Rates
The underlying low interest rate outlook has not changed.

Quick Overview of Managed Money Positioning in Gold
Longs peaked recently at 26.518 million FTozs in the week ending the 3rd of September, before retreating to 23.948 million by the 10th of September, a 9.70% or 2.57 million FTozs decline. Shorts have remained subdued but saw an increase of 1.17 million FTozs in the week ending the 27th of August, with a total position of 3.329 million by the 10th of September.

ABC-NF Chart October 2019

Gold Positioning and Volume-Weighted Average Pricing
The recent VWAP and position changes are as follows: there is certainly scope for some stranded longs basis longs accumulating in the week ending the 22nd October.

ABC-NF Chart October 2019

Weekly Ichimoku Cloud Chart
The 23.60% retracement worked as a support level. Next supports lie at US$1,446 and the US$1,407-11 level where the 50% retracement of the May-September rally lies. The market is bullish, feeling a bit stale but… forming a continuation pattern?

ABC-NF Chart October 2019

Daily Ichimoku Cloud Chart
The price has entered the Daily cloud and starts to range within the cloud, with support at the cloud base at US$1,479. The price has rallied to resistance at the Daily Turning Line at US$1,499.50. The next line of resistance is US$1,515 at the Daily cloud top, which drops to US$1,503 next week.

ABC-NF Chart October 2019

Price Targets via Point and Figure – Short Term
The price did test the US$1,470 level before rebounding and the outlook is now bullish although the pullback from the high pole must be treated with caution – a break below US$1,477 would open the way to those low targets in the chart below. So far, the price action remains positive.

ABC-NF Chart October 2019

Gold Hourly Point and Figure – Medium Term
Returned to bullish. After reaching the significant cluster of targets around the US$1,552-1556 level, delineated by the orange box, the market lost energy and turned lower, however there are is some clustering around the US$1,585-1,588 level, shown by the red box, which is also close to the US$1,590 level on the daily point and figure (very long-term) chart. Again, remaining above US$1,477 is key.

ABC-NF Chart October 2019

The Inflation-Linked Bond Yield
The yield remains low although significantly higher than the low of 0.05% reached on the 30th of August. The current level is still supportive of gold.

ABC-NF Chart October 2019

Gold-Silver Ratio
The ratio weakened to 87 before silver outperformed to 82.60. The outlook still seems range-bound, with a tendency towards 86 again.

ABC-NF Chart October 2019

Equities - the SPX
The market remains bullish: looking for 3,110. Support at 2,953 and 2,889 from the Weekly Turning and Standard Lines. Utilities, telecoms are the drivers for the recent push higher, helped along by the FOMC decision.

ABC-NF Chart October 2019

SPX Hourly Chart with Targets
The short-to-medium outlook remains bullish with targets clustering around 3,100 and then on to 3,150 and 3,250. Support at 2,970. 

ABC-NF Chart October 2019

The Dollar – DXY
The DXY retreats relative to the previous report, with support at the Weekly Turning line, possibly an initial consequence of balance-sheet expansion although Fed plans seem guided by a desire to minimise noise in the rates and FX space, and some analysts think that possible curve steepening may act to strengthen the Dollar overall, given the continuation of other major central banks overt easing policies.

Support at 96.90-97.20, some resistance at 98.40. The trend remains positive.

ABC-NF Chart October 2019

AUD Weekly Cloud
Bearish still basis the weekly cloud chart, however breaking up above the trendline to break up above the Weekly Standard Line in green at 0.6877.

The market remains below the Weekly Cloud and bearish but the US rate cut and additionally there are some decent-sized options expiring around 0.6900/0.6950 so the AUD may get pinned to these levels until Monday.

ABC-NF Chart October 2019

The AUD Hourly Point and Figure
The Hourly chart has turned bullish with clear targets to 0.6971 and 0.7186. Short covering has continued with positioning dropping by 1.124 billion AUD since the 24th of September, perhaps on the thinking that the RBA has done enough on the rates front? Longs have not increased, but declined by 0.874 billion over the same period.

ABC-NF Chart October 2019

Where to from Here?
Gold remains bullish, however a slight shift in the negative or ultra-low yielding picture combined with a strengthening Dollar index, plus some desire to lighten up on highly extended long speculative positions is acting to drive gold lower from its recent local high. The macro picture has not changed markedly, and so far, the decline in prices remains very much within a strong rising trend.
 
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$1,496 3 months
Targets US$1,635 Long term (Daily) Point and Figure (just under 1 in 8)
  US$1,590 Long term (Daily) Point and Figure (1 in 4)
Targets US$1,460 Medium term Point and Figure (under 1 in 4)
  US$1,438 Medium term Point and Figure (1 in 4 probability in 3 months at spot US$1,496)
  US$1,424 Medium term Point and Figure (1 in 8 probability in 3 months at spot US$1,496)
(Downside)      

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 financial products mentioned herein.