Sive Morten
Special Consultant to the FPA
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Fundamentals
This week was silent in terms of new fundamental events. Most shaking one has come on Friday. It was Powell statement on inflation, that Fed doesn't see big inflation pressure in nearest future. Mostly this was the same driving factor as for FX market. We do not change our long term bearish view on gold by far, but now our attention mostly stands on upside bounce that should last for few weeks as market is a bit overextended down
As Reuters reports - gold prices rose on Friday as the dollar came under pressure from clues about the direction of U.S. monetary policy from Federal Reserve Chairman Jerome Powell, which market watchers interpreted as dovish.
The greenback weakened as Powell, speaking in Jackson Hole, Wyoming, said a gradual approach to raising rates remained appropriate to protect the U.S. economy and keep job growth as strong as possible with inflation under control.
“It sounds like the Fed is starting to lean a little bit dovish and that is taking the wind out of the U.S. dollar’s sail now,” said Shree Kargutkar, portfolio manager at Sprott Asset Management.
U.S. political uncertainty, heightened by the legal woes of two of U.S. President Donald Trump’s former advisers this week, is keeping the dollar under pressure despite tighter U.S. monetary policy, analysts say.
A Reuters survey published on Thursday showed analysts expecting U.S. rates to rise twice more this year and twice next year. The Fed next meets over Sept. 25-26.
“Investor appetite for gold has been in the doldrums in recent months. Rate hikes, low inflation, rising equity markets and a strong dollar have significantly diminished the appeal of gold,” ANZ analysts said in a note.
“The fall in gold prices could invigorate a pick-up in physical demand. Overall we see gold prices stabilizing at current levels, with the probability of a short-covering rally increasing substantially.”
Last week’s data showed hedge funds and money managers raising their net short position for the sixth straight week to another record in the week to Aug. 14.
In general, as we've mentioned in our FX research this week, Powell's statement has not made significant impact on investors anticipation of rate change. CME Fed watch tool shows that probability of 4th rate increase in December has dropped a bit, but this change was very small.
Besides, despite Powell's comments, store of SPDR fund has dropped for another 8 tonnes within a week to 764 tonnes.
COT data also shows increasing of net short position on a background of rising Open interest. This keeps sentiment bearish by far:
What is really interesting, guys - this Fathom consulting article. Although it mostly dedicated to crude oil, but it has scaring forecast of Global collapse in 2020. If recession really will come - this will be destructive issue for gold market. Now we have bearish view and ultimately it suggests level of 800$. But, Fathom forecast could bring it to reality:
We consider recent movements in the price of crude oil in the context of Fathom’s oil-market model. We find that, if our judgement that we are heading for a global recession in 2020 turns out to be broadly correct, oil could be approaching $20 a barrel within a year or two.
It seems that big events ahead.
Technical
Monthly
Market stands in upside retracement right now that's why monthly/weekly time frames barely have changed.
Previously we already explain major points of our view on gold market and explained why we worry on acceleration of bearish performance here.
Slowly but stubbornly gold market moves lower and result of this move could be seen even on monthly chart. The crucial, decisive bearish moment happens not now, it has happened at the end of 2017.
Long-term trend line has been broken in July and as we've said last time - "If this line will be broken - gold could start dropping with acceleration."
Fundamental irrational behavior which we've disclosed earlier now starts to show continuation. Recall our conclusion that we've made since the beginning of the year. That was decisive moment that we've mentioned:
"most important moment for long-term gold right now is ability to move higher. 1327 level is long-term COP target of AB-CD started at 1046$, in July 2015. First it was reached in July 2017. After logical minor bounce price returns back to it. But right now it should be an action higher, to next 1450 target, which is OP of the same AB-CD.
If gold will not be able to do it - strong drop is possible, because price will fail to proceed next extension leg, showing inability and lack of strength to do it. This could break whole AB-CD construction. Besides, this standing below "B" point also keep door open for downside butterfly. As longer gold will stand under resistance as weaker it position will be."
Now take a look at price action that we have. Market has failed to break 1360 top, which means that it has failed to proceed to OP target. Which, in turn, means breaking of CD leg. This process has not finished yet, but signs that we see right now makes us worry.
Besides, we have W&R of 1360 COP top, which also has bearish sentiment.
Our hopes to get bulilsh grabber on May were vanished as price has closed below MACDP line. Trend now stands bearish here.
That's being said, on long-term chart gold looks heavy and weak and overall picture is not attractive for taking long-term bullish position. The fact that gold disrespect 1215 major support and Agreement area, but proceeds directly to YPS1 - just proves the weakness. YPS1 is quite important for any market. Breaking of this level will let us to treat gold action as new bear trend, and previous upside action to 1380 as just a retracement. Next target here, on monthly is 1120 lows, but first is - reaction of the market on YPS1 that we see right now:
Weekly
So our bet on upside action was correct. Although this week is inside one, but overall performance is positive as gold shows tail close and we do not have overbought here. Since this is long-term chart, the major patterns that we're waiting for are mostly the same.
Weekly time frame is the one that gives us the vision for few weeks. In a longer-term view we still have large AB=CD pattern with OP around 1113 area. Sooner or later but probably it should be reached. Just because gold has dropped easily through 1215 major support and has not stopped at 1180 YPS1 but collapsed right to 1160. So, now price action stands between COP and OP target. Usually in such placement, price gravitates to OP, because in fact, it has no strong support lower, its a free space. And the only thing that keeps gold from disaster is Oversold condition, which important for us in short-term view.
Oversold suggests upside bounce at least to 3/8 resistance area - 1238$. It looks far on weekly chart, but in reality, this is just 30% and common response to reaching of OS. Since our major direction is down - we're mostly looking for chances to go short here, and upside bounce to Fib level could give us B&B "Sell". That's particular the pattern that we will be watching for here:
Daily
On daily chart we do not have yet any clear patterns. Upside action looks good. Here again, gold has shown strong performance on Friday, on a background of Powell's comments.
Most important thing here is daily OB. Although market has not reached yet any meaningful resistance, that stands at 1217, but OB itself could stop upside action for some time, or even trigger downside retracement. This is approximately the same expectation that we have on EUR.
Besides, deep retracement is suggested by previous strong plunge on gold market. It definitely will press on prices as gold will move higher:
Intraday
4H shows that gold has reached XOP target of our AB-CD. Initially we've suggested long entry at 1185, but on Friday it was seemed that gold could show a bit deeper retracement. Powell's comments have pushed price higher and our initial level has worked perfectly still.
Anyway, XOP is reached, and, in combination with daily Overbought we again will watch for pullback. This is time our level is 1190 K-support.
Second issue - scale increasing. Since our initial AB-CD pattern has reached ultimate XOP target and totally completed, we need to increase scale of targeting and turn to larger patterns. One of them is AB=CD with 1224 destination point. Gold shows solid acceleration on the way up, thus, it has good chances to reach the target:
Conclusion
Although our long-term is bearish, gold market stands in upside bounce now and on coming week we mostly will deal with tactical issues of different kind.
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.
This week was silent in terms of new fundamental events. Most shaking one has come on Friday. It was Powell statement on inflation, that Fed doesn't see big inflation pressure in nearest future. Mostly this was the same driving factor as for FX market. We do not change our long term bearish view on gold by far, but now our attention mostly stands on upside bounce that should last for few weeks as market is a bit overextended down
As Reuters reports - gold prices rose on Friday as the dollar came under pressure from clues about the direction of U.S. monetary policy from Federal Reserve Chairman Jerome Powell, which market watchers interpreted as dovish.
The greenback weakened as Powell, speaking in Jackson Hole, Wyoming, said a gradual approach to raising rates remained appropriate to protect the U.S. economy and keep job growth as strong as possible with inflation under control.
“It sounds like the Fed is starting to lean a little bit dovish and that is taking the wind out of the U.S. dollar’s sail now,” said Shree Kargutkar, portfolio manager at Sprott Asset Management.
U.S. political uncertainty, heightened by the legal woes of two of U.S. President Donald Trump’s former advisers this week, is keeping the dollar under pressure despite tighter U.S. monetary policy, analysts say.
A Reuters survey published on Thursday showed analysts expecting U.S. rates to rise twice more this year and twice next year. The Fed next meets over Sept. 25-26.
“Investor appetite for gold has been in the doldrums in recent months. Rate hikes, low inflation, rising equity markets and a strong dollar have significantly diminished the appeal of gold,” ANZ analysts said in a note.
“The fall in gold prices could invigorate a pick-up in physical demand. Overall we see gold prices stabilizing at current levels, with the probability of a short-covering rally increasing substantially.”
Last week’s data showed hedge funds and money managers raising their net short position for the sixth straight week to another record in the week to Aug. 14.
In general, as we've mentioned in our FX research this week, Powell's statement has not made significant impact on investors anticipation of rate change. CME Fed watch tool shows that probability of 4th rate increase in December has dropped a bit, but this change was very small.
Besides, despite Powell's comments, store of SPDR fund has dropped for another 8 tonnes within a week to 764 tonnes.
COT data also shows increasing of net short position on a background of rising Open interest. This keeps sentiment bearish by far:
What is really interesting, guys - this Fathom consulting article. Although it mostly dedicated to crude oil, but it has scaring forecast of Global collapse in 2020. If recession really will come - this will be destructive issue for gold market. Now we have bearish view and ultimately it suggests level of 800$. But, Fathom forecast could bring it to reality:
We consider recent movements in the price of crude oil in the context of Fathom’s oil-market model. We find that, if our judgement that we are heading for a global recession in 2020 turns out to be broadly correct, oil could be approaching $20 a barrel within a year or two.
It seems that big events ahead.
Technical
Monthly
Market stands in upside retracement right now that's why monthly/weekly time frames barely have changed.
Previously we already explain major points of our view on gold market and explained why we worry on acceleration of bearish performance here.
Slowly but stubbornly gold market moves lower and result of this move could be seen even on monthly chart. The crucial, decisive bearish moment happens not now, it has happened at the end of 2017.
Long-term trend line has been broken in July and as we've said last time - "If this line will be broken - gold could start dropping with acceleration."
Fundamental irrational behavior which we've disclosed earlier now starts to show continuation. Recall our conclusion that we've made since the beginning of the year. That was decisive moment that we've mentioned:
"most important moment for long-term gold right now is ability to move higher. 1327 level is long-term COP target of AB-CD started at 1046$, in July 2015. First it was reached in July 2017. After logical minor bounce price returns back to it. But right now it should be an action higher, to next 1450 target, which is OP of the same AB-CD.
If gold will not be able to do it - strong drop is possible, because price will fail to proceed next extension leg, showing inability and lack of strength to do it. This could break whole AB-CD construction. Besides, this standing below "B" point also keep door open for downside butterfly. As longer gold will stand under resistance as weaker it position will be."
Now take a look at price action that we have. Market has failed to break 1360 top, which means that it has failed to proceed to OP target. Which, in turn, means breaking of CD leg. This process has not finished yet, but signs that we see right now makes us worry.
Besides, we have W&R of 1360 COP top, which also has bearish sentiment.
Our hopes to get bulilsh grabber on May were vanished as price has closed below MACDP line. Trend now stands bearish here.
That's being said, on long-term chart gold looks heavy and weak and overall picture is not attractive for taking long-term bullish position. The fact that gold disrespect 1215 major support and Agreement area, but proceeds directly to YPS1 - just proves the weakness. YPS1 is quite important for any market. Breaking of this level will let us to treat gold action as new bear trend, and previous upside action to 1380 as just a retracement. Next target here, on monthly is 1120 lows, but first is - reaction of the market on YPS1 that we see right now:
Weekly
So our bet on upside action was correct. Although this week is inside one, but overall performance is positive as gold shows tail close and we do not have overbought here. Since this is long-term chart, the major patterns that we're waiting for are mostly the same.
Weekly time frame is the one that gives us the vision for few weeks. In a longer-term view we still have large AB=CD pattern with OP around 1113 area. Sooner or later but probably it should be reached. Just because gold has dropped easily through 1215 major support and has not stopped at 1180 YPS1 but collapsed right to 1160. So, now price action stands between COP and OP target. Usually in such placement, price gravitates to OP, because in fact, it has no strong support lower, its a free space. And the only thing that keeps gold from disaster is Oversold condition, which important for us in short-term view.
Oversold suggests upside bounce at least to 3/8 resistance area - 1238$. It looks far on weekly chart, but in reality, this is just 30% and common response to reaching of OS. Since our major direction is down - we're mostly looking for chances to go short here, and upside bounce to Fib level could give us B&B "Sell". That's particular the pattern that we will be watching for here:
Daily
On daily chart we do not have yet any clear patterns. Upside action looks good. Here again, gold has shown strong performance on Friday, on a background of Powell's comments.
Most important thing here is daily OB. Although market has not reached yet any meaningful resistance, that stands at 1217, but OB itself could stop upside action for some time, or even trigger downside retracement. This is approximately the same expectation that we have on EUR.
Besides, deep retracement is suggested by previous strong plunge on gold market. It definitely will press on prices as gold will move higher:
Intraday
4H shows that gold has reached XOP target of our AB-CD. Initially we've suggested long entry at 1185, but on Friday it was seemed that gold could show a bit deeper retracement. Powell's comments have pushed price higher and our initial level has worked perfectly still.
Anyway, XOP is reached, and, in combination with daily Overbought we again will watch for pullback. This is time our level is 1190 K-support.
Second issue - scale increasing. Since our initial AB-CD pattern has reached ultimate XOP target and totally completed, we need to increase scale of targeting and turn to larger patterns. One of them is AB=CD with 1224 destination point. Gold shows solid acceleration on the way up, thus, it has good chances to reach the target:
Conclusion
Although our long-term is bearish, gold market stands in upside bounce now and on coming week we mostly will deal with tactical issues of different kind.
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.
