Sive Morten
Special Consultant to the FPA
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- 18,659
Fundamentals
(Reuters) - Gold fell more than 1 percent on Friday, snapping a four-day streak of gains following conflicting signals from U.S. Federal Reserve officials on the timing of a possible rate hike, but was still on track for its second straight week higher.
Spot gold fell as much as 1.5 percent to a session low of $1,337.37 per ounce, paring losses by 2:57 p.m. EDT (1857 GMT) when it was down 0.7 pct at $1,342.62. The yellow metal was still heading for a weekly gain of around 0.6 percent.
U.S. gold settled down 0.8 percent at $1,346.2 per ounce.
Gold is sensitive to higher rates which lift the opportunity cost of holding non-yielding assets such as bullion, while boosting the dollar in which it is priced.
There have been mixed signals this week from Federal Reserve policymakers, which left the market anticipating more direction at next week's annual meeting of central bankers from around the world in Jackson Hole, Wyoming. At that gathering Fed Chair Janet Yellen is seen likely to cement expectations for a slow pace of rate increases.
"We have had conflicting statements from the Fed and it's created quite a lot of confusion as to the thinking, so now the market is waiting to hear ... Yellen's thoughts on the world and economic growth," Ole Hansen, head of commodity strategy at Saxo Bank.
The dollar rose 0.4 percent against a basket of six major currencies as investors began to price in a greater likelihood that the Fed will raise rates this year, while stocks on major markets fell worldwide.
"Gold prices could drop back in the short term if the Fed resumes its rate hikes sooner than the markets currently anticipate," said Capital Economics.
"But any pull-backs are likely to be temporary, particularly with the U.S. presidential elections coming up and the potential contagion of Brexit to the rest of the EU."
Holdings of SPDR Gold Trust, the world's largest gold-backed ETF, fell for a second day.
"Looking beyond the paper gold and focusing on the physical market, which often determines longer-term price trends, we note that off take has been somewhat patchy," said Bank of America Merrill Lynch in a note.
"We maintain our $1,500/oz target into 2017."
COT Report
Recent CFTC data confirms suggestion that investors currently just hold long positions without any action. As Speculative net long position stands at all time highs - it is not much free additional purchases that could be done to support upward action. So, as gold has lack of fuel to upside action, it just stands flat. But this standing can't last forever, sooner or later stops will be triggered and retracement could start.
Technicals
Monthly
August month right now stands inside one to July and mostly keeps our analysis the same, so it is difficult to say something really new here. Still, recently gold has started to move more active and it looks promising, since we could get finally some direction soon. May be Yellen speech in Wyoming will become a driving factor for gold on coming week.
Technically current upward action started in Dec 2015 is first one after long term of decreasing and it should be interrupted by deep retracement sometime. Probably it should happen but this potential downward action has a great chance to become just a retracement. Overall political and financial situation in the world probably will not give a chance to relax. Thus, we have a positive long-term view on gold market.
As market slightly has moved above YPR1 and our K-resistance area, something is starting to form here, I mean pattern by which long-term global trend could change on gold.
Take a careful look at the picture - could you recognize here possible reverse H&S pattern? Besides the shape itself, some features here that in general typical for H&S. For example, relation between head and shoulders - 1.618. Butterfly... very often first part of H&S takes the shape of butterfly pattern...
Finally take a look at action on downward slope and upward one of the head - last move down was slower than current move up. All these moments point on possible H&S pattern here.
If we really will get it - then we could make an assumption on possible depth of retracement. Now the bottom of shoulder stands approximately around 1160 area... Currently we could only gamble what event could push gold as low as 1160 again, but probably something will happen.
Now market is approaching to major, all time 3/8 Fib resistance @ 1380 level. First reaction already has followed, as gold has dropped. But this drop has not taken the shape of tendency yet. Let's see how situation will change in coming month. So, on monthly time scale we will watch for deep retracement. As it could be reverse H&S pattern, it should start somewhere around neckline - 1380-1400. This in general agrees with overall situation and COT report. Gold could spike up temporally, but then solid chances that price will turn down. This action could take 6-9 months or may be more:
Weekly
As we've said last week based on analysis of monthly chart, we probably should be focused on searching downward reversal patterns, that could confirm (or destroy, may be) our thoughts on monthy pattern.
Here is our thoughts about bullish grabber on weekly chart. Once we've put them, they are still valid, as well as grabber itself:
"Last week we've said - It seems that something is forming here, some really important thing will follow, and probably soon, but not yet, as market just has finished upside action. Initially we've made an assumption that it could be H&S pattern, because current top stands precisely at 1.618 extension of tprevious swing up and right at top we've got bearish engulfing patter.
But last week we've got opposite pattern that could adjust or even cancel this idea of H&S. This is bullish stop grabber. What changes could happen by this pattern? Most friendly one is just W&R of previous top, if market just will grab stops above the top and drop again down. This will not cancel overall idea of H&S pattern, but postpone it for week or two...
More radical consequences will happen, if market will break 1380 top and hold there. In this case we will have to review our medium term strategy and just wait for new inputs and patterns to understand what is going on.
Currently, it seems that shy jump above 1380$ and return back looks more logical compares to stable upside trend, just because gold has not reached neckline on monthly chart and major 3/8 resistance. Thus, it could happen so that market will touch it and then take another chance to turn down. Especially, taking in consideration high levels of net long speculative positions, stable upside trend right now looks doubtful. "
But right now it seems that gold has some problems with upside continuation. Even supportive statistics hasn't been utilized properly. So, on daily chart we will see the reasons for that problems.
From trading point of view - we see better solution is to not take long trade yet by 2 reasons. First is - obvious heavy market and insufficient power to go up. Second - contracted target. Destination stands too close to current market, while risk is significant. If you still will decide to go long - try to do it as closer to 1300 area as possible, if market will keep valid bullish grabber of course.
Daily
Daily chart explains us why gold has problem with upward action and also brings new pattern - bearish grabber. Here you clearly could see these long shadows on daily candles that indicate existing of selling that holds market in tight range and prevent upside continuation. Pay attention that selling pressure stands right at the top of Brexit candle - 1360 area.
On Friday gold also has dropped below MPP. Although this grabber has closer target - around 1330, but it could trigger downward action and after 1330, gold could continue to 1300 and even futher.
Thus, although we should better stay flat on weekly chart - on daily, if you have a bearish view on the market, you could try to make a trading plan based on this grabber. Besides, we do not have any other clear patterns here...
Also guys, I keep butterfly shape here, but with recent action chances on upside continuation have decreased.
Intraday
Large picture on 4-hour chart looks like follows. Trend has turned bearish here. Market is forming 2 patterns - wide large triangle and smaller one inside of it. Right below large triangle we have K-support area @ 1300.
If daily bearish grabber will start to work and gold will drop below 1330 - this will lead to appearing of 4th wave inside of triangle. At the same time, drop below 1300 could become some kind of W&R, at least on first drop, since gold will meet strong support area.
That's being said, existing of daily bearish grabber puts limitations on taking long position right now. If you have bullish view, you need to wait either grabber failure or it's completion and only after that take a fresh look at bullish perspectives. If you're bearish - as we've said above, daily pattern could become good background for your trading plan.
For example, on hourly chart gold also has formed multiple bearish grabbers. As we've estimated nearest target @ 1330 - it coincides with WPS1 and hints on appearing of butterfly, as one of possible scenarios. Thus, you could watch for upside retracement to WPP first and think about going short from 1345 area. Other words - search for clues and patterns that could make your etnry process easier and give you clear levels for stop orders:
Conclusion:
We continue to keep long-term bullish view on gold market. But now chances on deep retracement are very high due combination of as sentiment as technical moments. Partially we even could recognize thrilling pattern on monthly chart which brings more clarity and shows definite levels to watch for. Now is the major question whether it will be formed or not.
In short-term perspective gold shows more and more bearish signs. Market very lazy reacts on news and statistics releases, if even this statistics is supportive to gold. While gold shows mixed behavior on weekly chart - now we should avoid taking any long-term trades. On daily chart our trading plan mostly is bearish and has 2 stages - first one till 1330 area, second - to 1300. Thus on Monday we will watch for triangle breakout on 4-hour chart...
The technical portion of Sive's analysis owes a great deal to Joe DiNapoli's methods, and uses a number of Joe's proprietary indicators. Please note that Sive's analysis is his own view of the market and is not endorsed by Joe DiNapoli or any related companies.
(Reuters) - Gold fell more than 1 percent on Friday, snapping a four-day streak of gains following conflicting signals from U.S. Federal Reserve officials on the timing of a possible rate hike, but was still on track for its second straight week higher.
Spot gold fell as much as 1.5 percent to a session low of $1,337.37 per ounce, paring losses by 2:57 p.m. EDT (1857 GMT) when it was down 0.7 pct at $1,342.62. The yellow metal was still heading for a weekly gain of around 0.6 percent.
U.S. gold settled down 0.8 percent at $1,346.2 per ounce.
Gold is sensitive to higher rates which lift the opportunity cost of holding non-yielding assets such as bullion, while boosting the dollar in which it is priced.
There have been mixed signals this week from Federal Reserve policymakers, which left the market anticipating more direction at next week's annual meeting of central bankers from around the world in Jackson Hole, Wyoming. At that gathering Fed Chair Janet Yellen is seen likely to cement expectations for a slow pace of rate increases.
"We have had conflicting statements from the Fed and it's created quite a lot of confusion as to the thinking, so now the market is waiting to hear ... Yellen's thoughts on the world and economic growth," Ole Hansen, head of commodity strategy at Saxo Bank.
The dollar rose 0.4 percent against a basket of six major currencies as investors began to price in a greater likelihood that the Fed will raise rates this year, while stocks on major markets fell worldwide.
"Gold prices could drop back in the short term if the Fed resumes its rate hikes sooner than the markets currently anticipate," said Capital Economics.
"But any pull-backs are likely to be temporary, particularly with the U.S. presidential elections coming up and the potential contagion of Brexit to the rest of the EU."
Holdings of SPDR Gold Trust, the world's largest gold-backed ETF, fell for a second day.
"Looking beyond the paper gold and focusing on the physical market, which often determines longer-term price trends, we note that off take has been somewhat patchy," said Bank of America Merrill Lynch in a note.
"We maintain our $1,500/oz target into 2017."
COT Report
Recent CFTC data confirms suggestion that investors currently just hold long positions without any action. As Speculative net long position stands at all time highs - it is not much free additional purchases that could be done to support upward action. So, as gold has lack of fuel to upside action, it just stands flat. But this standing can't last forever, sooner or later stops will be triggered and retracement could start.
Technicals
Monthly
August month right now stands inside one to July and mostly keeps our analysis the same, so it is difficult to say something really new here. Still, recently gold has started to move more active and it looks promising, since we could get finally some direction soon. May be Yellen speech in Wyoming will become a driving factor for gold on coming week.
Technically current upward action started in Dec 2015 is first one after long term of decreasing and it should be interrupted by deep retracement sometime. Probably it should happen but this potential downward action has a great chance to become just a retracement. Overall political and financial situation in the world probably will not give a chance to relax. Thus, we have a positive long-term view on gold market.
As market slightly has moved above YPR1 and our K-resistance area, something is starting to form here, I mean pattern by which long-term global trend could change on gold.
Take a careful look at the picture - could you recognize here possible reverse H&S pattern? Besides the shape itself, some features here that in general typical for H&S. For example, relation between head and shoulders - 1.618. Butterfly... very often first part of H&S takes the shape of butterfly pattern...
Finally take a look at action on downward slope and upward one of the head - last move down was slower than current move up. All these moments point on possible H&S pattern here.
If we really will get it - then we could make an assumption on possible depth of retracement. Now the bottom of shoulder stands approximately around 1160 area... Currently we could only gamble what event could push gold as low as 1160 again, but probably something will happen.
Now market is approaching to major, all time 3/8 Fib resistance @ 1380 level. First reaction already has followed, as gold has dropped. But this drop has not taken the shape of tendency yet. Let's see how situation will change in coming month. So, on monthly time scale we will watch for deep retracement. As it could be reverse H&S pattern, it should start somewhere around neckline - 1380-1400. This in general agrees with overall situation and COT report. Gold could spike up temporally, but then solid chances that price will turn down. This action could take 6-9 months or may be more:
Weekly
As we've said last week based on analysis of monthly chart, we probably should be focused on searching downward reversal patterns, that could confirm (or destroy, may be) our thoughts on monthy pattern.
Here is our thoughts about bullish grabber on weekly chart. Once we've put them, they are still valid, as well as grabber itself:
"Last week we've said - It seems that something is forming here, some really important thing will follow, and probably soon, but not yet, as market just has finished upside action. Initially we've made an assumption that it could be H&S pattern, because current top stands precisely at 1.618 extension of tprevious swing up and right at top we've got bearish engulfing patter.
But last week we've got opposite pattern that could adjust or even cancel this idea of H&S. This is bullish stop grabber. What changes could happen by this pattern? Most friendly one is just W&R of previous top, if market just will grab stops above the top and drop again down. This will not cancel overall idea of H&S pattern, but postpone it for week or two...
More radical consequences will happen, if market will break 1380 top and hold there. In this case we will have to review our medium term strategy and just wait for new inputs and patterns to understand what is going on.
Currently, it seems that shy jump above 1380$ and return back looks more logical compares to stable upside trend, just because gold has not reached neckline on monthly chart and major 3/8 resistance. Thus, it could happen so that market will touch it and then take another chance to turn down. Especially, taking in consideration high levels of net long speculative positions, stable upside trend right now looks doubtful. "
But right now it seems that gold has some problems with upside continuation. Even supportive statistics hasn't been utilized properly. So, on daily chart we will see the reasons for that problems.
From trading point of view - we see better solution is to not take long trade yet by 2 reasons. First is - obvious heavy market and insufficient power to go up. Second - contracted target. Destination stands too close to current market, while risk is significant. If you still will decide to go long - try to do it as closer to 1300 area as possible, if market will keep valid bullish grabber of course.
Daily
Daily chart explains us why gold has problem with upward action and also brings new pattern - bearish grabber. Here you clearly could see these long shadows on daily candles that indicate existing of selling that holds market in tight range and prevent upside continuation. Pay attention that selling pressure stands right at the top of Brexit candle - 1360 area.
On Friday gold also has dropped below MPP. Although this grabber has closer target - around 1330, but it could trigger downward action and after 1330, gold could continue to 1300 and even futher.
Thus, although we should better stay flat on weekly chart - on daily, if you have a bearish view on the market, you could try to make a trading plan based on this grabber. Besides, we do not have any other clear patterns here...
Also guys, I keep butterfly shape here, but with recent action chances on upside continuation have decreased.
Intraday
Large picture on 4-hour chart looks like follows. Trend has turned bearish here. Market is forming 2 patterns - wide large triangle and smaller one inside of it. Right below large triangle we have K-support area @ 1300.
If daily bearish grabber will start to work and gold will drop below 1330 - this will lead to appearing of 4th wave inside of triangle. At the same time, drop below 1300 could become some kind of W&R, at least on first drop, since gold will meet strong support area.
That's being said, existing of daily bearish grabber puts limitations on taking long position right now. If you have bullish view, you need to wait either grabber failure or it's completion and only after that take a fresh look at bullish perspectives. If you're bearish - as we've said above, daily pattern could become good background for your trading plan.
For example, on hourly chart gold also has formed multiple bearish grabbers. As we've estimated nearest target @ 1330 - it coincides with WPS1 and hints on appearing of butterfly, as one of possible scenarios. Thus, you could watch for upside retracement to WPP first and think about going short from 1345 area. Other words - search for clues and patterns that could make your etnry process easier and give you clear levels for stop orders:
Conclusion:
We continue to keep long-term bullish view on gold market. But now chances on deep retracement are very high due combination of as sentiment as technical moments. Partially we even could recognize thrilling pattern on monthly chart which brings more clarity and shows definite levels to watch for. Now is the major question whether it will be formed or not.
In short-term perspective gold shows more and more bearish signs. Market very lazy reacts on news and statistics releases, if even this statistics is supportive to gold. While gold shows mixed behavior on weekly chart - now we should avoid taking any long-term trades. On daily chart our trading plan mostly is bearish and has 2 stages - first one till 1330 area, second - to 1300. Thus on Monday we will watch for triangle breakout on 4-hour chart...
The technical portion of Sive's analysis owes a great deal to Joe DiNapoli's methods, and uses a number of Joe's proprietary indicators. Please note that Sive's analysis is his own view of the market and is not endorsed by Joe DiNapoli or any related companies.
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