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

20 September 2019

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

Gold – In Brief


Gold made a high in September of US$1,557.11, before a trio of weeks where the price closed near the lows. 

The Managed Money long position declined by 9.7% in the week of 03-10 September (2.57 million FTozs), the largest percentage decline since May of this year, with longs taking profit as the price drew close to the top of the apparent flag pattern, and perhaps as the negative-yielding bonds / ever lower natural interest rate narrative grew somewhat stale. Indeed, the value of negative-yielding debt, which peaked at 17.037 trillion US$ on the 29th of August, declined 19% to 13.842 trillion US$ by Monday the 16th of September.

In addition, some signs that the Americans and Chinese might reach an accord on trade emerged, which put pressure on gold.

Money and Interest Rates

The underlying low interest rate outlook has not changed dramatically, with the ECB announcing a EUR 20 billion a month more-or-less indefinite bond buying program and a reduction in the key EUR interest rate to -0.50%. The scale of the program prompted Jens Weidmann of the Bundesbank to say that the ECB Council had “gone overboard” and over-committed in the duration of QE.

The Bank of Japan is expected to keep policy unchanged.  Although the door remains open to further easing, negative interest rate policies are crushing the banking sector, and tying the hands of policy-makers to some degree.

The Fed cut by 25 bp cut, as expected, to reduce the Fed Funds rate to 2.00%. Why? Real GDP at 2.30%, private investment at -6.20% (quarterly) industrial production at 0.36% (year-on-year) and the ISM Manufacturing index at 49.10 suggest lower. Labour and inflation markets remain firm however, tugging in the other direction with decent hiring rates (3.90%) participation (63.20%) and whilst Non-Farms are flat-lining, surely that’s an artefact of incredibly low Unemployment? (3.70%)?

However, the much-scrutinised Dot Plots show that median expectations are for no further cuts into 2020.

… a side note or otherwise, the overnight repo rate spiked to over 8% on Monday, before the Fed piled in with 53.15 billion USD of liquidity, with Treasury-backed repos trading as high as 3.25%. (Bear in mind that the target rate for Fed Funds is 2.00-2.25%), and the previous 23 open market operations involved draining liquidity, not adding it. A storm in a tea-cup arising from technicalities such as corporate tax payments to some extent, but also a reflection on a squeeze in bank reserves in the post-QE (post-2014) period and a sign that transmitting monetary policy via the Fed Funds rate is getting harder.


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.

Quick Overview of Managed Money Positioning in Gold
 
Gold Positioning and Volume-Weighted Average Pricing

The recent VWAP and position changes are as follows:

The two significant weeks are the 27th of August when a relatively significant short position was established at a VWAP of around US$1,527, and the week ending the 10th of September when longs unwound significantly at around US$1,530. Since the 10th, total open interest has increased by about 10,000 lots or 100,000 Tozs. It is hard to draw an inference from that number.
 
Gold Positioning and Volume-Weighted Average Pricing 
Weekly Ichimoku Cloud Chart

The price managed to climb another US$22, another 1.40% before a slide to test the 23.60% Fibonacci retracement of the May-September rally. Next supports at US$1,479 (the Weekly Turning Line) US$1,463 (the 23.60% retracement of the extended August-September rally) US$1,446 and the US$1,407-11 level where the 50% retracement of the May-September rally lies.
 
Weekly Ichimoku Cloud Chart  
Daily Ichimoku Cloud Chart

The Daily cloud chart shows the price breaking past the Daily Turning line support after losing momentum ahead of the target to the “US$1,575 plus” area.

Daily Ichimoku Cloud Chart
Price Targets via Point and Figure – Short Term

Recent price action implies a test of the Daily cloud top support level, with US$1,476 and US$1,462 looking like plausible levels.

Daily Ichimoku Cloud Chart 
Gold Hourly Point and Figure – Medium Term

Turned bearish with targets clustering around the US$1,462 and US$1,446 levels, which would take gold back to the 38.20% Fibonacci retracement of the May-September upswing, a natural move back within a move higher. Resistance lies at US$1,502 and US$1,514. Bear in mind that below US$1,480, the upside targets to US$1,597 and US$,1678 will disappear. (There are other longer term targets visible on the Daily chart which will remain in place, having been created at lower levels and longer ago.)
 
Daily Ichimoku Cloud Chart 
The Inflation-Linked Bond Yield

After hitting a low of 0.05% on the 30th, the inflation-linked bond yield has snapped back higher, and gold has unsurprisingly headed lower.
 
 The Inflation-Linked Bond Yield
Gold-Silver Ratio

Still the topic du jour, of course! The 60 min chart has been a useful guide in the period since May. The bias appears to be towards relative silver weakness in the shorter term, with those who believe in silver out-performance in the long term looking at the 86 level as point to establish a position again?
 
Gold-Silver Ratio 
Equities - the SPX

The market remains bullish and has recovered well after severely testing the weekly standard line support level. However, the recent highs look tough to overcome. A break above would target 3,110.
 
Equities - the SPX 
SPX Hourly Chart with Targets

The short-to-medium outlook suggests that achieving the 3018 target might imply some short-term weakness within a bullish frame, with the bullish outlook more supportable basis optimism around resolution of US-China trade disputes. 
 
SPX Hourly Chart with Targets 
The Dollar – DXY

The DXY reached the 99 target: The Dollar still looks good in the context of more QE from the ECB and easy policies from the BOJ and elsewhere, and this has thwarted gold this week. Significant resistance emerges at 100.18-100.68.
 
The Dollar – DXY  
AUD Weekly Cloud

Bearish still but enjoying a rally as non-commercials shorts trim by about 500 billion and longs add around 466 billion since the 20th of August (basis CFTC futures data) The market has rallied to the first point and figure target mentioned in last week’s report, and then rejected the Weekly Standard Line which acted as resistance around 0.6867. The AUD has probably been assisted by improving trade news, but the RBA is still likely to make a cut at the October meeting, especially given the very slight rise in unemployment to 5.30%.
 
AUD Weekly Cloud
The AUD Hourly Point and Figure

The Hourly chart remains bearish although the recent high pole has created a distinctive target to 0.7264, more or less to the top of the Weekly Cloud. Short term you may expect a roll-back down to 0.674. Targets down to 0.6612 and 0.6493 remain in force, with 0.6415 a target on the 0.50 % Log Daily P and F chart.
 
The AUD Hourly Point and Figure 
Brent

With such a news-driven move its tempting to add a slide with Brent targets, especially now that the Saudis are playing down the scale of the disruption. The targets met and slightly exceeded this week were created by price action from mid-August and particularly in the 5th-6th of September, waiting for a catalyst to trigger the move. The market has already retraced about 50% of the move. Note that the point and figure does not capture the full extend of the move to US$72 as the market retreated so fast that it left no trace on the hourly chart.
 
Brent
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$1587 61.80 % Fibonacci retracement of the 2011-2015 down move.
  US$1557   September 2019 high
Supports    US$1478   Weekly Turning Line
  US$1412  Weekly Standard Line & 50 % retracement (May-September 2019 rally.)
  US$1378 61.80 % retracement (May-September rally)
  US$1359 50 % retracement (August 2018 low – September 2019 high)
    Looking at the option-based probabilities it seems the spot price is back to where it was when I last wrote in August…)
                       
Targets     US$1635  Long term (Daily) Point and Figure     
(just under 1 in 5 in 3 months at spot US$1496)
  US$1590   Long term (Daily) Point and Figure     
(1 in 4 in 3 months at spot US$1496)
Targets        US$1464  Medium term Point and Figure        
(under 1 in 3 probability in 3 months at spot US$1496)
  US$1446  Medium term Point and Figure 
(1 in 4 probability in 3 months at spot US$1496)
  US$1407  Medium term Point and Figure 
(1 in 8 probability in 3 months at spot US$1496)
(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.