Sive Morten
Special Consultant to the FPA
- Messages
- 18,669
Fundamentals
(Reuters) Gold pared gains on Friday, while the dollar turned up and U.S. stocks fell, as investors struggled to decipher the timing of a U.S. interest rate increase following comments by Federal Reserve Chair Janet
Yellen and other officials. In her much-awaited speech, Yellen said the case for raising U.S. interest rates has strengthened, although increases should be gradual.
Spot gold rallied 1.5 percent to $1,341.60 an ounce and the U.S. dollar index fell 0.6 percent after Yellen spoke, but bullion later gave back all its gains and the greenback rallied 0.7 percent after Fed Vice Chair Stanley Fischer suggested that rate hikes were on track for this year.
"Fischer's hawkish interpretation of Chair Yellen's comments has hamstrung the gold bull with bullion sliding back close to day's lows," said Tai Wong, director of base and precious metals trading for BMO Capital Markets in New York. "It's likely now that gold remains unsettled through the September Employment report."
Spot gold was up 0.02 percent at $1,321.52 an ounce by 3:00 p.m. EDT (1900 GMT). It was on track to finish the week down 1.5 percent after two straight weeks higher. U.S. gold futures for December delivery settled up
0.1 percent at $1,325.90. Yellen pointed to improvements in the U.S. labor market and expectations for moderate economic growth, reinforcing the view that such a move could come later this year. She did not,
however, lay out a clear roadmap for what the Fed needs to see to raise rates.
Gold is highly sensitive to rising U.S. interest rates, which increase the opportunity cost of holding non-yielding bullion, while boosting the dollar, in which it is priced. "Yellen's highly anticipated remarks at Jackson Hole had a hawkish tilt ... although with the usual caveats that the timing will be based on how the data unfold," said Avery Shenfeld, chief economist for CIBC Capital Markets. Gold discounts in India hit near three-month lows this week, while buying gathered steam elsewhere in Asia as lower prices and festive buying lifted demand for the metal.
COT Report
As we do not have yet numbers of last week, or even coming week (after Fed statement), current report brings nothing new to us. Speculative net long positions stands at all-time highs. Nobody is selling and keeps long position and nobody is buying, because everybody who wants to buy have bought already. Situation could change only in one direction - "down". In this case profit taking process will start, stops will be triggered and gold will release free space for new uptrend. Any upside action is doomed since gold has no significant buying potential to support this trend up. Although this is still a question of time, how much time gold will spend in consolidation.
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. Yellen speech has triggered some action, but now it is still a question, how long-term it will be.
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. Yellen speech has added more bearish fuel to the fire and gold has dropped even more. Theoretically bullish patterns stand valid, I mean butterfly "Sell" and grabber, but right now market stands very close to it's invalidation point. Equilibrium is becoming fragile, especially on coming NFP report.
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. Price too close to invalidation point and once it will drop below 1300 - it could trigger chain reaction of massive position closing. At the same time upside potential is limited. Gold probably could return to 1380-1400 area, but it just has no purchasing power to start new full-value upside trend. That's why we should get downward reversal anyway. It's just a question how it will start - either immediately or after final upside leg to previous tops.
Daily
Here trend is bearish, gold right now stands at support of triangle's border, MPS1 and Fib level. Market stand on 4th wave inside of triangle, which means that breakout should come soon. Overall picture looks more bearish rather than bullish and suggests if not real bearish trend, but at least minor downward breakout.
Among possible scenarios we see two major ones. First one is real breakout and starting of our long-term retracement. This will happen if gold will drop below 1300 and will stay there, start gradual downward action. In this case, our next nearest destination point will be bottom of Brexit candle around 1250$
But first we need to focus on another scenario, which has closer and more realistic target. This is 1300 area. Take a look that around 1300$ market will be oversold and here we also have AB=CD target. That's why, it could happen so that gold will show W&R of 1300 lows, complete AB-CD and then turn to some other action. This is so-called "minimum" target.
4-hour
On 4-hour chart you could see it better:
Besides this AB-CD we see another inputs. Thus, we also have inner butterfly "Buy" pattern with the same destination point and K-support on 4-hour chart. Now recall that this will daily oversold as well. That's being said, it seems that 1300 area will be tough level. By this mean it would be better to focus on this destination first. Besides, it is very typical for gold - kind of W&R's, failure breakouts etc. For example, if gold will drop to 1300 grab stops below it and then return back inside triangle - this will 100% match to gold's habit.
Hourly
On hourly chart we also could get some setup with butterfly. Gold has completed most recent AB-CD, then 5/8 retracement has followed. Thus, it could continue to 1.618 target. This continuation also could take a shape of butterfly after minor retracement to WPP or slightly higher. Both of these patterns also have targets around 1300-1305:
That's being said, despite what action will happen, but gold hardly will miss the chance to grab stops below 1300. Thus, currently better to not dream about extended perspectives but focus only nearest target around 1300 area.
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. Yellen speech indicates that pressure on gold from rising rates perspective is growing.
In short-term gold could show really doom&gloom action. Absolutely perfect from gold's habit point of view will be an action, when gold first will drop to 1300 and then return back inside triangle to show it's failure breakout. Thus, to avoid traps, we think that it is better to count only on action to 1300$ level and see what will happen next.
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 pared gains on Friday, while the dollar turned up and U.S. stocks fell, as investors struggled to decipher the timing of a U.S. interest rate increase following comments by Federal Reserve Chair Janet
Yellen and other officials. In her much-awaited speech, Yellen said the case for raising U.S. interest rates has strengthened, although increases should be gradual.
Spot gold rallied 1.5 percent to $1,341.60 an ounce and the U.S. dollar index fell 0.6 percent after Yellen spoke, but bullion later gave back all its gains and the greenback rallied 0.7 percent after Fed Vice Chair Stanley Fischer suggested that rate hikes were on track for this year.
"Fischer's hawkish interpretation of Chair Yellen's comments has hamstrung the gold bull with bullion sliding back close to day's lows," said Tai Wong, director of base and precious metals trading for BMO Capital Markets in New York. "It's likely now that gold remains unsettled through the September Employment report."
Spot gold was up 0.02 percent at $1,321.52 an ounce by 3:00 p.m. EDT (1900 GMT). It was on track to finish the week down 1.5 percent after two straight weeks higher. U.S. gold futures for December delivery settled up
0.1 percent at $1,325.90. Yellen pointed to improvements in the U.S. labor market and expectations for moderate economic growth, reinforcing the view that such a move could come later this year. She did not,
however, lay out a clear roadmap for what the Fed needs to see to raise rates.
Gold is highly sensitive to rising U.S. interest rates, which increase the opportunity cost of holding non-yielding bullion, while boosting the dollar, in which it is priced. "Yellen's highly anticipated remarks at Jackson Hole had a hawkish tilt ... although with the usual caveats that the timing will be based on how the data unfold," said Avery Shenfeld, chief economist for CIBC Capital Markets. Gold discounts in India hit near three-month lows this week, while buying gathered steam elsewhere in Asia as lower prices and festive buying lifted demand for the metal.
COT Report
As we do not have yet numbers of last week, or even coming week (after Fed statement), current report brings nothing new to us. Speculative net long positions stands at all-time highs. Nobody is selling and keeps long position and nobody is buying, because everybody who wants to buy have bought already. Situation could change only in one direction - "down". In this case profit taking process will start, stops will be triggered and gold will release free space for new uptrend. Any upside action is doomed since gold has no significant buying potential to support this trend up. Although this is still a question of time, how much time gold will spend in consolidation.
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. Yellen speech has triggered some action, but now it is still a question, how long-term it will be.
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. Yellen speech has added more bearish fuel to the fire and gold has dropped even more. Theoretically bullish patterns stand valid, I mean butterfly "Sell" and grabber, but right now market stands very close to it's invalidation point. Equilibrium is becoming fragile, especially on coming NFP report.
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. Price too close to invalidation point and once it will drop below 1300 - it could trigger chain reaction of massive position closing. At the same time upside potential is limited. Gold probably could return to 1380-1400 area, but it just has no purchasing power to start new full-value upside trend. That's why we should get downward reversal anyway. It's just a question how it will start - either immediately or after final upside leg to previous tops.
Daily
Here trend is bearish, gold right now stands at support of triangle's border, MPS1 and Fib level. Market stand on 4th wave inside of triangle, which means that breakout should come soon. Overall picture looks more bearish rather than bullish and suggests if not real bearish trend, but at least minor downward breakout.
Among possible scenarios we see two major ones. First one is real breakout and starting of our long-term retracement. This will happen if gold will drop below 1300 and will stay there, start gradual downward action. In this case, our next nearest destination point will be bottom of Brexit candle around 1250$
But first we need to focus on another scenario, which has closer and more realistic target. This is 1300 area. Take a look that around 1300$ market will be oversold and here we also have AB=CD target. That's why, it could happen so that gold will show W&R of 1300 lows, complete AB-CD and then turn to some other action. This is so-called "minimum" target.
4-hour
On 4-hour chart you could see it better:
Besides this AB-CD we see another inputs. Thus, we also have inner butterfly "Buy" pattern with the same destination point and K-support on 4-hour chart. Now recall that this will daily oversold as well. That's being said, it seems that 1300 area will be tough level. By this mean it would be better to focus on this destination first. Besides, it is very typical for gold - kind of W&R's, failure breakouts etc. For example, if gold will drop to 1300 grab stops below it and then return back inside triangle - this will 100% match to gold's habit.
Hourly
On hourly chart we also could get some setup with butterfly. Gold has completed most recent AB-CD, then 5/8 retracement has followed. Thus, it could continue to 1.618 target. This continuation also could take a shape of butterfly after minor retracement to WPP or slightly higher. Both of these patterns also have targets around 1300-1305:
That's being said, despite what action will happen, but gold hardly will miss the chance to grab stops below 1300. Thus, currently better to not dream about extended perspectives but focus only nearest target around 1300 area.
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. Yellen speech indicates that pressure on gold from rising rates perspective is growing.
In short-term gold could show really doom&gloom action. Absolutely perfect from gold's habit point of view will be an action, when gold first will drop to 1300 and then return back inside triangle to show it's failure breakout. Thus, to avoid traps, we think that it is better to count only on action to 1300$ level and see what will happen next.
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.
