Sive Morten
Special Consultant to the FPA
- Messages
- 18,673
Fundamentals
(Reuters) - Gold prices clung to earlier gains and were poised for their first weekly gain in four weeks on Friday, withstanding pressure from strong equities markets on continued support from this week's interest rate rise by the Federal Reserve.
Spot gold up 0.19 percent at $1,255.12 per ounce by 2:22 p.m. EST (1922 GMT), up 0.6 percent for the week as it recovered from Monday's five-month low of $1,235.92. The most active U.S. gold futures for February delivery settled up 0.03 percent, at $1,257.50 per ounce.
Higher interest rates usually push gold lower because they raise bond yields, reducing the appeal of non-yielding bullion, and boost the dollar, making gold more expensive for holders of other currencies. But markets had priced in Wednesday's rise and the dollar and bond yields fell after the Fed kept its outlook for three rate rises next year unchanged and said proposed U.S. tax cuts would not significantly spur growth.
U.S. inflation remained weak, which Chicago Fed President Charles Evans said on Friday undermined the case for rate rises.
The dollar recouped some losses as Republican senators worked to resolve disagreements on the tax reform. Major stock indexes hit record highs.
"The rate hike was baked in, but I think more importantly there was this slight doubt in people's minds that the Fed might be more aggressive in 2018. What we got from them this week tells us that probably isn't the case" Bill O’Neill, partner at Logic Advisors in Upper Saddle River, New Jersey.
Also helping was a rise in demand in Asia as buyers took advantage of low price. Societe Generale analyst Robin Bhar said gold's bounce would be short-lived because other asset classes including equities,
industrial metals and even bitcoin appeared to offer better returns.
Gold is up around 9 percent this year while global shares and industrial metals have gained some 20 percent and bitcoin 1,740 percent.
COT Report
Recent CFTC data clearly shows bearish sentiment on the market. Last three weeks speculative position was dropping rather fast. Currently it is not accompanied by rising of open interest, which means that gold drops mostly by long covering.
Additional sell-off could come due the end of financial year and position closing before long holidays. But, anyway, CFTC picture lets us to say that sentiment is bearish right now.
At the same time now we could talk on moderate bearish sentiment, as SPDR Fund statistic doesn't show yet any collapse in traders' positions. Despite solid volatility on the market since September - storages stands around the same 840-850 tonnes. Market drops to 1250 area for the third time in 3 months and no big sell-off happens. It means that investors mostly keep physical gold positions and do not hurry to sell it.
Technical
Monthly
Although market has got some light relief after strong pressure at the eve of Fed meeting - this barely has impact on monthly chart. Investor right now has a cautious attitude to gold market as too much assets provide better return. That's why currently consensus mostly stands on opinion that gold will continue to be under pressure.
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.
At the same time, recent Fed comments are treated widely as flaw in 2018 hawkish policy fortress. May be this will provide some support to gold market, but it is a question how strong this support will be.
Thus 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 have some doubts 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".
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. Last week mostly was inside one and brings no new inputs for overall picture.
Last week we have talked on breakout of major K-support area and exceeding of downside harmonic swing. Both these moments suggest further drop.
Now, on a same drop we've got breakout of shorter-term trend line.
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. But for this kind of reversal some serious fundamental or political background is needed.
Daily
On Friday gold mostly shows bearish action. If market would close a bit lower - we could get bearish reversal candle. Mostly, as you can see, gold has re-tested broken support of our triangle consolidation.
Another detail here, that will be important on Monday trading - MACDP line. We haven't got bearish grabber on Friday, but we could get it on Monday. This will be very important pattern that could give more confidence with downside continuation.
Currently we mostly talk on 1230 uncompleted targets cluster. There we have as 1.618 butterfly extension as XOP of inner AB-CD.
Intraday
4-hour chart shows that market has met major K-resistance area. It is rather suitable for downside reversal. Currently, chances on deeper upside retracement are not significant as we have uncompleted major targets on daily chart that stand slightly below recent lows.
Although we have small grabber on 4-hour chart, but this is a real question whether it will work or not. Anyway, if market will show another spike up around 1260 - this should not change overall situation significantly.
On hourly chart upside action was finalized by butterfly "Sell", which could become a part of H&S pattern. On Monday we will watch for two patterns - bearish grabber on daily and situation on hourly - whether gold will form here H&S pattern.
If we will get them both - this should become perfect trading plan.
While something should start forming on hourly chart, currently it seems it should be H&S, but who knows...
Anyway, scalp traders could give additional trading setups. For example, minor "222" Sell could be formed on the slope of the head, that could push price to neckline.
On a top of right shoulder also some pattern could be formed. Sometimes second part of H&S takes the shape of "222" Sell...
Conclusion
Long term perspective of gold market stands mostly blur. It is more bearish compares to 2-3 month ago situation, CFTC data shows some long covering, but, at the same time in last few weeks, when Fed shows not as hawkish position, this is brought some temporal support to gold market.
In shorter term perspective, we definitely see 1230 area s potential target. As market has uncompleted daily targets and price has met solid resistance, on Monday we will watch for bearish patterns, as on daily chart as on intraday ones...
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 clung to earlier gains and were poised for their first weekly gain in four weeks on Friday, withstanding pressure from strong equities markets on continued support from this week's interest rate rise by the Federal Reserve.
Spot gold up 0.19 percent at $1,255.12 per ounce by 2:22 p.m. EST (1922 GMT), up 0.6 percent for the week as it recovered from Monday's five-month low of $1,235.92. The most active U.S. gold futures for February delivery settled up 0.03 percent, at $1,257.50 per ounce.
Higher interest rates usually push gold lower because they raise bond yields, reducing the appeal of non-yielding bullion, and boost the dollar, making gold more expensive for holders of other currencies. But markets had priced in Wednesday's rise and the dollar and bond yields fell after the Fed kept its outlook for three rate rises next year unchanged and said proposed U.S. tax cuts would not significantly spur growth.
U.S. inflation remained weak, which Chicago Fed President Charles Evans said on Friday undermined the case for rate rises.
The dollar recouped some losses as Republican senators worked to resolve disagreements on the tax reform. Major stock indexes hit record highs.
"The rate hike was baked in, but I think more importantly there was this slight doubt in people's minds that the Fed might be more aggressive in 2018. What we got from them this week tells us that probably isn't the case" Bill O’Neill, partner at Logic Advisors in Upper Saddle River, New Jersey.
Also helping was a rise in demand in Asia as buyers took advantage of low price. Societe Generale analyst Robin Bhar said gold's bounce would be short-lived because other asset classes including equities,
industrial metals and even bitcoin appeared to offer better returns.
Gold is up around 9 percent this year while global shares and industrial metals have gained some 20 percent and bitcoin 1,740 percent.
COT Report
Recent CFTC data clearly shows bearish sentiment on the market. Last three weeks speculative position was dropping rather fast. Currently it is not accompanied by rising of open interest, which means that gold drops mostly by long covering.
Additional sell-off could come due the end of financial year and position closing before long holidays. But, anyway, CFTC picture lets us to say that sentiment is bearish right now.
At the same time now we could talk on moderate bearish sentiment, as SPDR Fund statistic doesn't show yet any collapse in traders' positions. Despite solid volatility on the market since September - storages stands around the same 840-850 tonnes. Market drops to 1250 area for the third time in 3 months and no big sell-off happens. It means that investors mostly keep physical gold positions and do not hurry to sell it.
Technical
Monthly
Although market has got some light relief after strong pressure at the eve of Fed meeting - this barely has impact on monthly chart. Investor right now has a cautious attitude to gold market as too much assets provide better return. That's why currently consensus mostly stands on opinion that gold will continue to be under pressure.
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.
At the same time, recent Fed comments are treated widely as flaw in 2018 hawkish policy fortress. May be this will provide some support to gold market, but it is a question how strong this support will be.
Thus 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 have some doubts 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".
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. Last week mostly was inside one and brings no new inputs for overall picture.
Last week we have talked on breakout of major K-support area and exceeding of downside harmonic swing. Both these moments suggest further drop.
Now, on a same drop we've got breakout of shorter-term trend line.
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. But for this kind of reversal some serious fundamental or political background is needed.
Daily
On Friday gold mostly shows bearish action. If market would close a bit lower - we could get bearish reversal candle. Mostly, as you can see, gold has re-tested broken support of our triangle consolidation.
Another detail here, that will be important on Monday trading - MACDP line. We haven't got bearish grabber on Friday, but we could get it on Monday. This will be very important pattern that could give more confidence with downside continuation.
Currently we mostly talk on 1230 uncompleted targets cluster. There we have as 1.618 butterfly extension as XOP of inner AB-CD.
Intraday
4-hour chart shows that market has met major K-resistance area. It is rather suitable for downside reversal. Currently, chances on deeper upside retracement are not significant as we have uncompleted major targets on daily chart that stand slightly below recent lows.
Although we have small grabber on 4-hour chart, but this is a real question whether it will work or not. Anyway, if market will show another spike up around 1260 - this should not change overall situation significantly.
On hourly chart upside action was finalized by butterfly "Sell", which could become a part of H&S pattern. On Monday we will watch for two patterns - bearish grabber on daily and situation on hourly - whether gold will form here H&S pattern.
If we will get them both - this should become perfect trading plan.
While something should start forming on hourly chart, currently it seems it should be H&S, but who knows...
Anyway, scalp traders could give additional trading setups. For example, minor "222" Sell could be formed on the slope of the head, that could push price to neckline.
On a top of right shoulder also some pattern could be formed. Sometimes second part of H&S takes the shape of "222" Sell...
Conclusion
Long term perspective of gold market stands mostly blur. It is more bearish compares to 2-3 month ago situation, CFTC data shows some long covering, but, at the same time in last few weeks, when Fed shows not as hawkish position, this is brought some temporal support to gold market.
In shorter term perspective, we definitely see 1230 area s potential target. As market has uncompleted daily targets and price has met solid resistance, on Monday we will watch for bearish patterns, as on daily chart as on intraday ones...
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.
