Sive Morten
Special Consultant to the FPA
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Fundamentals
Yesterday we've discussed major events of the week and their impact on market. As you can see gold reacts differently on positive NFP data, compares to Forex market in general and EUR in particular. Overall situation becomes more tricky for gold market as it has not inner growth factors (such EUR economy potential warm up interest to EUR) and strongly depends on inflation and counter-inflation measures done by the Fed.
Thus, week-by-week we keep an eye on US bonds yields, as this is strong driving factor for gold. Recently it has jumped to 2.8% In short-term we expect 3.3% while in longer perspective target, that we could calculate now stands around 4.7%
Treasuries yield is major rival for gold. As gold pays no interest, but bonds' yield is rising - this makes pressure on gold prices.
In daily review Reuters puts opinions of some traders:
"The hawkish reading of the data is proving to be a trigger point for more downside pressure in gold in the short-term," said Suki Cooper, precious metals analyst at Standard Chartered Bank.
"The fact that it's gone up that fast that quick could force the Fed to act more aggressively before the March meeting if the 10-year gets to three percent," said Bob Haberkorn, senior market strategist at RJO Futures.
At the same time rising yields and Fed rate will increase borrowing costs as for companies as for investors who use leverage or borrow capital to finance their positions. VIX index is rising and this has led to solid drop in US shares. That's the factor that could support gold:
Holding gold offers a degree of insurance if the broader market suffers a correction, ScotiaMocatta said in a monthly report this week. "Record-setting global equities may well start to wobble if inflation starts to pick up, or if bond yields/interest rates continue to rise," it said.
Still, more aggressive Fed tone in assessment of current economy will provide some headwind to gold market. Overall situation becomes worse for gold and retracement that we've talked about previous really could happen at the same moment as on FX market. We think that this is perspective of 1-2 weeks. It could start even closer to an end of coming week.
COT Report
Last COT report brings two important issues. In general last week, long position has dropped slightly as well as open interest. This moment points on closing some long positions. But what is more important that we've got divergence of speculative positions and price. This could be very important signal and assume downside action of gold market:
Technicals
Monthly
Last week technical picture barely has changed as price was coiling around 1330 top. On long-term chart our major setup is still valid. Gold price action looks rather well. In fact, market could show any retracement till 1255 level without any bad consequences for bullish trend on monthly chart.
Our major trend line (green) still stands valid. That's why long-term bull trend stands intact. December candle should provide us a lot of patterns for trading on lower time frames, in addition to large patterns that we could get here later.
As our first target has been completed, next one mostly will be 1380-1391 that includes 2016 top, major Fib level and YPR1.
In fact we have a sequence of upside targets. Beyond 1390 area we have 1445, 1500 and 1530 extensions, i.e. targets.
Taking a look at "dark side" it would be better if market washes out 1375 top. In this case it could totally destroy any, even theoretical chances, on downside butterfly. But as price stands below 1375, theoretically butterfly is still possible, despite that chances look phantom right now.
That's being said, as chances on some moderate retracement increases, it seems that our major time frame for few weeks will be daily one.
Weekly
Here trend is still bullish, while overbought should appear only around 1390 area. Last week we've discussed major targets.
In fact weekly chart adds more importance to our 1380-1390 monthly resistance. Here we have two different AB-CD's. First one has 1384 objective point, it is not shown on the chart and second one is 1387 target - red AB-CD. Both targets stand above previous 1380 tops, so multiple stops could be triggered there and gold could reach YPR1 directly, just due impulse move.
Thus, it is logical to expect major brief taking only around 1380-1390 area. As major targets stand untouched hardly any meaningful bounce will happen here, on weekly until price will not reach our destination point.
Still we have here bearish engulfing pattern and W&R of previous tops at "B" point. This is short-term bearish patterns. If we apply minor engulfing target, it equals to the length of the bars - it leads us approx. to 1305 Fib support. This is most probable retracement destination. Markets quite rare show deep retracement while major targets have not been hit. Thus although we have 1266-1273 K-area support but now we do not have clear sighs that gold could get there...
Daily
Daily picture mostly looks bearish. Market has shown inability to re-establish upward action as harmonic swing was doubled to the downside and price has reached 1330 K-support. Upward swing was engulfed by solid NFP drop. As you can see gold shows more sensitivity to NFP data and Fed policy, compares, say, to EUR. And it has closed right at bottom on Friday. This moment suggests deeper retracement.
Now 1330 K-area still holds the market and gold could show some bounce here, but chances are solid that price will proceed to next support around 1310 K-area.
Intraday
First, on 4-hour chart you could recognize some kind of H&S shape. Anyway, we're mostly care about AB-CD pattern and its target that stands around 1319 by far. Also we have our minor AB-CD, with XOP that stands at the same area. So 1319 area will be a target for coming week probably.
At the same time, market stands at daily K-support and Agreement as it has completed OP target on Friday:
So Monday could start from upside bounce. Hourly chart shows K-resistance around 1340 area and now it looks like most probable destination point. As retracement will be done, downside action could be re-established:
Conclusion
Long term situation has not changed yet. Gold market has extended targets and nothing has happened yet that could make us change our view.
Although long-term picture stands untouched, gold feels pressure from fundamental factors that makes possible deeper retracement down on coming week.
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.
Yesterday we've discussed major events of the week and their impact on market. As you can see gold reacts differently on positive NFP data, compares to Forex market in general and EUR in particular. Overall situation becomes more tricky for gold market as it has not inner growth factors (such EUR economy potential warm up interest to EUR) and strongly depends on inflation and counter-inflation measures done by the Fed.
Thus, week-by-week we keep an eye on US bonds yields, as this is strong driving factor for gold. Recently it has jumped to 2.8% In short-term we expect 3.3% while in longer perspective target, that we could calculate now stands around 4.7%
Treasuries yield is major rival for gold. As gold pays no interest, but bonds' yield is rising - this makes pressure on gold prices.
In daily review Reuters puts opinions of some traders:
"The hawkish reading of the data is proving to be a trigger point for more downside pressure in gold in the short-term," said Suki Cooper, precious metals analyst at Standard Chartered Bank.
"The fact that it's gone up that fast that quick could force the Fed to act more aggressively before the March meeting if the 10-year gets to three percent," said Bob Haberkorn, senior market strategist at RJO Futures.
At the same time rising yields and Fed rate will increase borrowing costs as for companies as for investors who use leverage or borrow capital to finance their positions. VIX index is rising and this has led to solid drop in US shares. That's the factor that could support gold:
Holding gold offers a degree of insurance if the broader market suffers a correction, ScotiaMocatta said in a monthly report this week. "Record-setting global equities may well start to wobble if inflation starts to pick up, or if bond yields/interest rates continue to rise," it said.
Still, more aggressive Fed tone in assessment of current economy will provide some headwind to gold market. Overall situation becomes worse for gold and retracement that we've talked about previous really could happen at the same moment as on FX market. We think that this is perspective of 1-2 weeks. It could start even closer to an end of coming week.
COT Report
Last COT report brings two important issues. In general last week, long position has dropped slightly as well as open interest. This moment points on closing some long positions. But what is more important that we've got divergence of speculative positions and price. This could be very important signal and assume downside action of gold market:
Technicals
Monthly
Last week technical picture barely has changed as price was coiling around 1330 top. On long-term chart our major setup is still valid. Gold price action looks rather well. In fact, market could show any retracement till 1255 level without any bad consequences for bullish trend on monthly chart.
Our major trend line (green) still stands valid. That's why long-term bull trend stands intact. December candle should provide us a lot of patterns for trading on lower time frames, in addition to large patterns that we could get here later.
As our first target has been completed, next one mostly will be 1380-1391 that includes 2016 top, major Fib level and YPR1.
In fact we have a sequence of upside targets. Beyond 1390 area we have 1445, 1500 and 1530 extensions, i.e. targets.
Taking a look at "dark side" it would be better if market washes out 1375 top. In this case it could totally destroy any, even theoretical chances, on downside butterfly. But as price stands below 1375, theoretically butterfly is still possible, despite that chances look phantom right now.
That's being said, as chances on some moderate retracement increases, it seems that our major time frame for few weeks will be daily one.
Weekly
Here trend is still bullish, while overbought should appear only around 1390 area. Last week we've discussed major targets.
In fact weekly chart adds more importance to our 1380-1390 monthly resistance. Here we have two different AB-CD's. First one has 1384 objective point, it is not shown on the chart and second one is 1387 target - red AB-CD. Both targets stand above previous 1380 tops, so multiple stops could be triggered there and gold could reach YPR1 directly, just due impulse move.
Thus, it is logical to expect major brief taking only around 1380-1390 area. As major targets stand untouched hardly any meaningful bounce will happen here, on weekly until price will not reach our destination point.
Still we have here bearish engulfing pattern and W&R of previous tops at "B" point. This is short-term bearish patterns. If we apply minor engulfing target, it equals to the length of the bars - it leads us approx. to 1305 Fib support. This is most probable retracement destination. Markets quite rare show deep retracement while major targets have not been hit. Thus although we have 1266-1273 K-area support but now we do not have clear sighs that gold could get there...
Daily
Daily picture mostly looks bearish. Market has shown inability to re-establish upward action as harmonic swing was doubled to the downside and price has reached 1330 K-support. Upward swing was engulfed by solid NFP drop. As you can see gold shows more sensitivity to NFP data and Fed policy, compares, say, to EUR. And it has closed right at bottom on Friday. This moment suggests deeper retracement.
Now 1330 K-area still holds the market and gold could show some bounce here, but chances are solid that price will proceed to next support around 1310 K-area.
Intraday
First, on 4-hour chart you could recognize some kind of H&S shape. Anyway, we're mostly care about AB-CD pattern and its target that stands around 1319 by far. Also we have our minor AB-CD, with XOP that stands at the same area. So 1319 area will be a target for coming week probably.
At the same time, market stands at daily K-support and Agreement as it has completed OP target on Friday:
So Monday could start from upside bounce. Hourly chart shows K-resistance around 1340 area and now it looks like most probable destination point. As retracement will be done, downside action could be re-established:
Conclusion
Long term situation has not changed yet. Gold market has extended targets and nothing has happened yet that could make us change our view.
Although long-term picture stands untouched, gold feels pressure from fundamental factors that makes possible deeper retracement down on coming week.
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.
