Sive Morten
Special Consultant to the FPA
- Messages
- 18,659
Fundamentals
(Reuters) - Gold prices hovered above a four-month low on Friday and were on track for their biggest
weekly fall since May after progress on U.S. tax reform fueled optimism about the U.S. economy and boosted the dollar.
Stronger-than-expected U.S. employment data on Friday also demonstrated healthy economic growth and suggested the Federal Reserve will raise interest rates next week, as expected. Spot gold was up 0.1 percent at $1,247.81 an ounce by 2:34 p.m. EST (1934 GMT), near Thursday's low of $1,243.71, the
weakest since July 26. It has fallen 2.6 percent so far this week, its third consecutive weekly fall and the biggest since early May. U.S. gold futures settled down 0.4 percent at $1,248.40.
"Gold's luster was tarnished this week, not only by its failure to react at all positively to Trump's contentious
Jerusalem announcement but also by its unseemly retreat through the bottom of a five month range," said Tai Wong, head of base and precious metals trading at BMO Capital Markets in New York.
"Bullion stabilized somewhat today, helped by weak earnings in the U.S. employment report with bulls now pinning their hopes on a dovish hike by the Federal Reserve next week."
The U.S. Fed is expected next week to announce a rise in interest rates and offer guidance on the pace of further increases. It has previously forecast three rate hikes in 2018. That is likely to pressure gold prices because rising interest rates push up bond yields, reducing the appeal of non-yielding gold, and tend to boost the dollar.
Wall Street and other major global stock markets rose, and the U.S. dollar was on pace for its fifth day of gains after the jobs data.
Selling of gold was triggered this week after it broke below $1,260, the bottom of its trading range since September, and plunged below its 200-day moving average for the first time since July. "You can put it down to the strength of the dollar and the ebullience of investors regarding equities and all things risk-on," said ETF Securities analyst Martin Arnold. "When in such a positive mindset investors don't look for defensive assets like gold."
COT Report
CFTC data in last 2 weeks shows rather volatile action. Thus, two weeks ago net long position has jumped significantly, but last week it has dropped overwhelming previous surge. Both times open interest has dropped which indicates on position closing. But as gold stands near extreme point of total positions value - this is normal.
Thus, as gold has dropped through 1260 area - it has triggered massive long closing. So, currently market stands in a process of portfolio rebalancing. But still, short term sentiment stands bearish.
Approximately the same stats we see in SPDR Fund. It also has lost ~6 tonnes last week.. So, action that has been triggered by tax reform approving, was continued by NFP numbers.
Technical
Monthly
Market starts to confirm our worryings on bearish perspective here, as we've got clear "222" Sell. Our potential bullish grabber, that at least theoretically could give some hopes on recovery was vanished prior than been formed.
Of course, no major breakout has followed yet, but recent action opens road to trend line support. That stands around 1211-1220, depending on how fast market will continue dropping. That's why we keep our "critical look" at gold market...
Key markets show hints on dollar strength that could last for 6-8 months. As we coming closer to 2018 and December Fed meeting, as stronger pressure of anticipating of dollar strength becomes.
Thus, last time we've shown long-term charts on 10-year Notes, Dollar Index. They are suggest strong growth of US Interest rates that will be supportive for dollar, but deadly for gold market. Currently we see temporal relief but we still treat it as preparation for reversal in favor of USD.
And now perspectives of upside action do not look as promising as it was 2-3 months ago.
Currently gold has formed "222" Sell pattern on monthly chart. When price has started up from 1050 lows - long-term bear trend line has been broken and re-tested later. But after that upside action has slowed significantly. Besides, this upside action has taken the shape of AB-CD pattern, that is typical for retracement.
This makes us doubt on upside continuation here and we suspect that this AB-CD action of "222" pattern mostly should be treated as retracement after drop out from 1380 area rather than new upside leg.
September month has shown reversal shape and if it would have closed slightly lower, we could call it as "reversal candle".
October doesn't bring a lot of new inputs as trading range is rather small and mostly as September as October still stand in August range. November stands even smaller inside October range. this nested action indicates market's contraction and sooner or later will lead to fast breakout in one or other direction - and now it stands underway.
Besides, market stands at strong resistance area around 1330. It already has been tested once, but it is still valid. This is not just 3/8 major monthly Fib level. This is also Yearly Pivot Resistance 1.
Year is coming to an end and the fact that upside action was stopped by YPR1 tells that 2017 upside price action mostly a retracement of long-term bear trend.
Yes, we have bullish scenario as well. Next major target will stand around 50% Fib level and Agreement, as it coincides with upside AB=CD objective point as well. Market could take the shape of butterfly to get there, if our "222" pattern will fail. 1.27 extension also stands in the same area. But to keep this scenario valid price should not drop too deep. If gold will break 1205 lows, it will suggest deeper downside continuation and put butterfly and any upside continuation under question. Now market is coming closer and closer to this area, where moment of truth will come.
Weekly
Trend stands bearish on weekly chart and market is not at oversold. Here is major event has happened - price has broken K-support area. Also, harmonic swing down has been exceeded. Both these moments suggest further drop.
Technical tools that we have here mostly point on 1210 area. This is trend line, Fib support, double of harmonic swing. Besides, if we will use large AB-CD pattern here - 1210 is an area of 0.618 extension.
Reaching of this area is highly possible.
But after that significant change could come. In fact, ABC triangle could become a wing of large upside butterfly. Only drop below 1120 level will erase it, but it is rather extended point for current moment.
Daily
On Friday market mostly has confirmed our suggestion. Despite NFP data, gold was not able to drop further and coiling around previous lows.
As we've estimated on Thu - market has reached multiple targets. They are 1.27 Butterfly, 0.618 of major AB-CD pattern. And this has been done right at oversold level.
Despite solid bearish momentum, gold market needs some technical time out before it will proceed to next target @ 1230.
Appearing of tweezers bottom on Friday also supports this suggestion.
Intraday
4-hour chart shows that most probable destination of upside retracement is 1260-1264 area. Here we have as K-resistance area as former support of consolidation that has been broken. For gold market it is typical to re-test previous important support/resistance areas.
If you want to take long position here - it is better to wait for clear bullish reversal patterns. Right now we do not have any. On Friday we've talked on possible hourly DRPO "Buy", but it hasn't got good shape. So, we need something better.
Others, who trade on daily time frame need to wait when upside retracement will be over.
Conclusion
On longer term perspective now more factors have appeared that indicate more pressure on gold due coming USD strength. Now long term perspectives look even more blur, especially with tax reform approving.
In shorter-term perspective technical picture mostly looks bearish, and after technical bounce we will be watching for next 1230 target. Potentially relatively "free" area stands till 1210 support.
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 prices hovered above a four-month low on Friday and were on track for their biggest
weekly fall since May after progress on U.S. tax reform fueled optimism about the U.S. economy and boosted the dollar.
Stronger-than-expected U.S. employment data on Friday also demonstrated healthy economic growth and suggested the Federal Reserve will raise interest rates next week, as expected. Spot gold was up 0.1 percent at $1,247.81 an ounce by 2:34 p.m. EST (1934 GMT), near Thursday's low of $1,243.71, the
weakest since July 26. It has fallen 2.6 percent so far this week, its third consecutive weekly fall and the biggest since early May. U.S. gold futures settled down 0.4 percent at $1,248.40.
"Gold's luster was tarnished this week, not only by its failure to react at all positively to Trump's contentious
Jerusalem announcement but also by its unseemly retreat through the bottom of a five month range," said Tai Wong, head of base and precious metals trading at BMO Capital Markets in New York.
"Bullion stabilized somewhat today, helped by weak earnings in the U.S. employment report with bulls now pinning their hopes on a dovish hike by the Federal Reserve next week."
The U.S. Fed is expected next week to announce a rise in interest rates and offer guidance on the pace of further increases. It has previously forecast three rate hikes in 2018. That is likely to pressure gold prices because rising interest rates push up bond yields, reducing the appeal of non-yielding gold, and tend to boost the dollar.
Wall Street and other major global stock markets rose, and the U.S. dollar was on pace for its fifth day of gains after the jobs data.
Selling of gold was triggered this week after it broke below $1,260, the bottom of its trading range since September, and plunged below its 200-day moving average for the first time since July. "You can put it down to the strength of the dollar and the ebullience of investors regarding equities and all things risk-on," said ETF Securities analyst Martin Arnold. "When in such a positive mindset investors don't look for defensive assets like gold."
COT Report
CFTC data in last 2 weeks shows rather volatile action. Thus, two weeks ago net long position has jumped significantly, but last week it has dropped overwhelming previous surge. Both times open interest has dropped which indicates on position closing. But as gold stands near extreme point of total positions value - this is normal.
Thus, as gold has dropped through 1260 area - it has triggered massive long closing. So, currently market stands in a process of portfolio rebalancing. But still, short term sentiment stands bearish.
Approximately the same stats we see in SPDR Fund. It also has lost ~6 tonnes last week.. So, action that has been triggered by tax reform approving, was continued by NFP numbers.
Technical
Monthly
Market starts to confirm our worryings on bearish perspective here, as we've got clear "222" Sell. Our potential bullish grabber, that at least theoretically could give some hopes on recovery was vanished prior than been formed.
Of course, no major breakout has followed yet, but recent action opens road to trend line support. That stands around 1211-1220, depending on how fast market will continue dropping. That's why we keep our "critical look" at gold market...
Key markets show hints on dollar strength that could last for 6-8 months. As we coming closer to 2018 and December Fed meeting, as stronger pressure of anticipating of dollar strength becomes.
Thus, last time we've shown long-term charts on 10-year Notes, Dollar Index. They are suggest strong growth of US Interest rates that will be supportive for dollar, but deadly for gold market. Currently we see temporal relief but we still treat it as preparation for reversal in favor of USD.
And now perspectives of upside action do not look as promising as it was 2-3 months ago.
Currently gold has formed "222" Sell pattern on monthly chart. When price has started up from 1050 lows - long-term bear trend line has been broken and re-tested later. But after that upside action has slowed significantly. Besides, this upside action has taken the shape of AB-CD pattern, that is typical for retracement.
This makes us doubt on upside continuation here and we suspect that this AB-CD action of "222" pattern mostly should be treated as retracement after drop out from 1380 area rather than new upside leg.
September month has shown reversal shape and if it would have closed slightly lower, we could call it as "reversal candle".
October doesn't bring a lot of new inputs as trading range is rather small and mostly as September as October still stand in August range. November stands even smaller inside October range. this nested action indicates market's contraction and sooner or later will lead to fast breakout in one or other direction - and now it stands underway.
Besides, market stands at strong resistance area around 1330. It already has been tested once, but it is still valid. This is not just 3/8 major monthly Fib level. This is also Yearly Pivot Resistance 1.
Year is coming to an end and the fact that upside action was stopped by YPR1 tells that 2017 upside price action mostly a retracement of long-term bear trend.
Yes, we have bullish scenario as well. Next major target will stand around 50% Fib level and Agreement, as it coincides with upside AB=CD objective point as well. Market could take the shape of butterfly to get there, if our "222" pattern will fail. 1.27 extension also stands in the same area. But to keep this scenario valid price should not drop too deep. If gold will break 1205 lows, it will suggest deeper downside continuation and put butterfly and any upside continuation under question. Now market is coming closer and closer to this area, where moment of truth will come.
Weekly
Trend stands bearish on weekly chart and market is not at oversold. Here is major event has happened - price has broken K-support area. Also, harmonic swing down has been exceeded. Both these moments suggest further drop.
Technical tools that we have here mostly point on 1210 area. This is trend line, Fib support, double of harmonic swing. Besides, if we will use large AB-CD pattern here - 1210 is an area of 0.618 extension.
Reaching of this area is highly possible.
But after that significant change could come. In fact, ABC triangle could become a wing of large upside butterfly. Only drop below 1120 level will erase it, but it is rather extended point for current moment.
Daily
On Friday market mostly has confirmed our suggestion. Despite NFP data, gold was not able to drop further and coiling around previous lows.
As we've estimated on Thu - market has reached multiple targets. They are 1.27 Butterfly, 0.618 of major AB-CD pattern. And this has been done right at oversold level.
Despite solid bearish momentum, gold market needs some technical time out before it will proceed to next target @ 1230.
Appearing of tweezers bottom on Friday also supports this suggestion.
Intraday
4-hour chart shows that most probable destination of upside retracement is 1260-1264 area. Here we have as K-resistance area as former support of consolidation that has been broken. For gold market it is typical to re-test previous important support/resistance areas.
If you want to take long position here - it is better to wait for clear bullish reversal patterns. Right now we do not have any. On Friday we've talked on possible hourly DRPO "Buy", but it hasn't got good shape. So, we need something better.
Others, who trade on daily time frame need to wait when upside retracement will be over.
Conclusion
On longer term perspective now more factors have appeared that indicate more pressure on gold due coming USD strength. Now long term perspectives look even more blur, especially with tax reform approving.
In shorter-term perspective technical picture mostly looks bearish, and after technical bounce we will be watching for next 1230 target. Potentially relatively "free" area stands till 1210 support.
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.
