Monthly Technical and Precious Metals Positioning Report - Gold - September 2018

Gold – In Brief

Gold staged a rally from the August lows, when the weekly RSI touched 9.59, the ‘most oversold’ by that measure seen since January 1997, a mere twenty-one years ago, when Tori Amos was belting out ‘Professional Widow’, for some reason, and the weekly RSI touched 5.26.

Apart from looking overdone, gold benefitted from a slight weakening of the US Dollar, with softer inflation numbers, although the ongoing trade dispute should keep the dollar steady. Additionally, revisions to weak August retail sales, commentary from the Fed that rates may tighten beyond the ‘neutral rate’, and higher 10-year yields ought to be supportive of the Dollar.

The USD looks like tracking down to 93.50, although the trend remains ‘up’ for now.

Gold Positioning and Outlook

Gold’s short position has reduced slightly after peaking at 19.717 million Tozs (measuring the CME Managed Money category) to 17.581 million Tozs as of September the 11th.

Shorts have reduced on two occasions, at a VWAP of US$1205 and US$1201.

So far, the macro picture has remained sufficiently dollar friendly that speculators have not looked unduly threatened. Longs have reduced very slightly.

Net positioning as of September the 11th is 7.522 million Tozs short, having peaked at -9.003 million Tozs in the week ending August the 21st.

Outlook

The narrowing of the Bollinger Bands on the daily chart suggests an increased chance of a break-out. The spot price has rallied above the Weekly Turning Line on the Ichimoku Cloud chart, for the second week in a row (touching the line and crossing it by a dollar doesn’t really count…) and if we close above the line on Friday, that will suggest that the break is to the upside.

Weekly Turning Line   US$1197.80

(A possible trigger for a move may be forward-looking language in the upcoming FOMC that implies a moderation in the pace of Fed tightening, although recent language from ‘dovish’ Lael Brainard makes this an unlikely outcome.)

2019 may see a more ‘dovish’ Federal Open Market Committee as Chicago, and St. Louis rotate to voting membership of the FOMC, offset somewhat by Esther George from the Kansas City Fed.

Weekly Ichimoku Cloud Chart

Ratio of Gold Shorts to Long Term Average

Still far from normal…

Managed Money sector futures short grows from 2 million to over 19 million FTozs in the last five months… and now decline

Gold ETFs
Continue to see small outflows, with total holdings 67,659,186 Tozs on the 19th of September.

Where to From Here?

Gold is breaking into the resistive daily Ichimoku cloud, and still have a fair bit of work to do. However, above US$1,195, look for gold to extend to US$1222 and US$1230 before cycling back initially,

Gold and the DXY

Gold also appears to be slightly cheap given the DXY… still!

Price Targets for Gold – Short to Medium Term

Medium Term?

What about the Gold-Silver Ratio?

A picture is worth a thousand words, so look at the monthly chart below with Bollinger Bands fitted. There are no guarantees in this world, but using the bands (which reflect when silver is 2 Standard Deviations away from the 20 month simple moving average of the ratio, in this specific case) as a guide can be very useful, in most cases.

In other words, buying silver and selling gold looks like the trade to enter.

The Short-Term Outlook for the Ratio…

The outlook basis this point-and-figure chart shows that the ratio is mired in some congestion. The nearby targets are 86 and 87, and if those areas are touched, the ratio looks even more favourable to silver.

Summary – The Likely Effect on Gold

Gold’s technical outlook discussed in the last report did create a US$53 rally, before ranging below this level, and the longer the price ranges, the more likely that it is that we see an extension of the rally, as year-end approaches and speculators consider de-risking.

There are signs that fresh longs are entering the market the week of the 17th September, and it will be possible to check that when the CFTC and CME release data next week.

The macro outlook still favours the dollar for now, as before, however the recovery in gold may have legs enough to challenge US$1238.

Silver may benefit from tightness in industrial metals in China, if silver decides to follow the lead from the base metals side, as it occasionally does.

Nicholas Frappell
Global General Manager

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.