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

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Gold – In Brief

Gold’s rising narrative was electrified by the assassination of Maj. General Qasem Soleimani on the 3rd of January. The news was pushing on an open door as the price had risen by about US$40 from mid-December to the day before the drone strike. The market made a high of US$1,611.44 before falling to make a recent low US$75 lower on January the 14th. Gold’s price behaviour underscores the reality that geopolitical events can and do boost volatility but offer an unreliable road-map for investors.

For now, the Iranian response has been muted, perhaps chastened by the accidental downing of a commercial jet the following Wednesday, leading to domestic protests that leave the regime facing opposition on two fronts. It appears that policy towards ‘containment’ is even less coherent than it was before so look for less certainty around the mid-East, with Iran-aligned actors such as Syria regaining confidence and stability.

US-China Trade Developments
Signature of the Phase 1 settlement took place on January the 15th, a positive outcome in the sense that it eases conflict but appears to achieve less than expected and may help strengthen the role of the Chinese government in trade matters, rather than the market-based outcome that was probably desired. There is a good chance that the dispute will be aggravated again, especially if China doesn’t buy as much ‘stuff’ as America demands. The recent spread of coronavirus has been taken as a positive (in the sense of hampering growth?).

US December PMI showed a broad-based decline to 47.20, the worst result since June 2009, implying some caution around 2020.

Gold remains positive in trend terms but shows signals of a move to US$1,508-11 within an upward move. Other targets and supports later.

Money and Interest Rates
The Bank of Japan pushed back on the idea of policy ‘normalisation;’ with Governor Kuroda casting doubt on positive economic effects arising from phase one of the US-China trade deal, forecasting lower prices. Asset purchases and interest rates remain as before.

The Fed remains neutral although if manufacturing remains slow then the second half of the year may see further easing.

Quick Overview of Managed Money Positioning in Gold
Longs have grown substantially in the previous month, growing by almost 13% and now just short of the recent maximum in September. Shorts have covered very marginally but were small to begin with. (See 'Gold Positioning and Volume-Weighted Average Pricing' for weighted average prices and shifts in weekly holdings.)

Gold Positioning and Volume-Weighted Average Pricing
The recent VWAP and position changes are as follows:

Weekly Ichimoku Cloud Chart
In the period June-July, gold appeared to make a flag-like pattern (see August 0819 Report) suggesting targets between ‘US$1,575- US$1,600’. The high on January the 8th slightly exceeded that. The shape of the candle made that week was a ‘doji’ shape (almost equal opening and closing prices on the week) as shown in the boxed area, and suggests uncertainty, and even a possible trend reversal, which you might expect when the market has reached a given level. So far, no sign of that happening.

Daily Ichimoku Cloud Chart
The daily chart is bullish. The spike higher has almost retraced almost 50% and found support at the Daily Standard Line before setting off higher again.

Some support at US$1,552 in the short term from the Daily Turning Line, and US$1,541 from the Daily Standard Line. I think that medium term you should allow for a move to the US$1,510 point before recovering.

Gold Hourly Point and Figure – Medium Term
The decline respected the 45-degree trend line support and the subsequent recovery created a new target to US$1,651 and reversed an emerging bearish pattern. Resistance at US$1,571-77, and support at US$1,541.

Price Targets via Point and Figure – Short Term
Bullish. Now that the US$1,538 target lower (indicated by the yellow area in the chart below) has been attained, the market has rolled around back higher and has a fresh target to US$1,592. Beware the downside target which will remain in place below US$1,570.

The Inflation-Linked Bond Yield
The yield declined to as low as 8 basis points at the beginning of January, now 10 basis points. This is the long and the short of gold’s bullish story, in one chart.

Gold-Silver Ratio
Once again, the 87-88 area proves the extent of the ratio’s range. The prevalence of targets to 89-91 implies that this might come under test, and meanwhile, 83-85 looks like the local limit of silver’s strength relative to gold.

Equities - the SPX
“The song remains the same”, to quote Led Zep. Or at least it does for now. 7-week RSI is 91.30, which looks overbought, but the market can remain overbought for a fairly long time… like gold, equities appear to be nourished on a diet of low rates, but unlike gold, rarely benefit from bad news.

Support at 3,200 and 3,076 (Weekly Turning and Standard Lines) then 2,900-ish from the Weekly Cloud top.

SPX Hourly Chart with Targets
The ‘unfulfilled’ target at 3,310 has now been reached. Does that leave room for a minor wave downwards whilst the market remains in a very positive trend? 3,603 and 3,731 the remaining targets.

The Dollar – DXY 
The DXY remains bullish basis the weekly chart. The Dollar index is supported by the top of the weekly cloud. Good news on the trade front may push the dollar higher.

AUD Weekly Cloud
Bearish basis the weekly cloud chart. The rally above the trendline – which remains for illustration only – has been thwarted by the overhanging weekly cloud, and the AUD has weakened again, not helped by news of the coronavirus and whether that will prove to be a short-term drag on Chinese economic activity. Price action since late November has created a target to 0.7231, however there is a fair bit of resistance to work through and there are still downside targets to 0.6415 and 0.6164 on the 1 % Daily Point and figure, a chart that has been a decent guide to the Aussie’s progress over the last two decades.

The AUD Hourly Point and Figure
The AUD short to medium term trend is bullish although price action since Friday the 13th has been negative, with support at 0.645.

Look for moves to 0.71.

Palladium
Since Palladium has been front and centre and enjoyed another sharp rally right after the New Year, it warrants a chart this month. This is a ratio of platinum to palladium since 1994, with the ratio now about 0.41. There are no outstanding targets, and it would be a bit foolhardy to call a top. However, it’s certainly another way of looking at the relative value of these two key metals.

Interestingly, the daily Point and Figure hasn’t done a bad job of showing up the extremes and subsequent turning points in the ratio.

Palladium demand continues to rise as tougher emissions requirements require more add-ons and heavier loadings. Here are two graphs that show net autocat demand for Pd after accounting for recycling (in ‘000s of Tozs) and the growing share of demand from China and ‘new’ markets.

Source: Johnson Matthey, Bloomberg

Where to from Here?
Gold remains bullish in the medium term and is holding above the key retracement touched last month. Price action is somewhat narrow however.

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.