Sive Morten
Special Consultant to the FPA
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Fundamentals
(Reuters) -
Gold steadied on Friday, but remained below this week's three-month top as the U.S. dollar and Treasury yields came off their highs after the currency initially jumped on U.S. President Donald Trump's promise of a major tax announcement.
Spot gold was up 0.02 percent at $1,230.78 an ounce by 2:24 p.m. EST (1924 GMT), while U.S. gold futures for April delivery settled down 0.07 percent at $1,235.90. On Wednesday, spot gold reached its highest since mid-November at $1,244.67. Gold prices were on track for a second weekly gain, up 1 percent from late last Friday.
The dollar pared gains against a currency basket on Friday after earlier strength from U.S. President Donald Trump's pledge to announce a major tax plan within weeks cooled some market nerves, reinvigorating dollar bulls. Wall Street hit record highs for a second day on hopes of the business-friendly tax cuts.
"The dollar puts a little pressure on gold however the strength in the equity markets and the strength in the other precious metals is lifting gold up," said Eli Tesfaye, senior market strategist for brokerage RJO Futures in Chicago, as gold prices moved into positive territory. "It's really the intermarket relationship that's stabilizing gold right now."
"Both silver and palladium are up on the day as an improving China signals a better global economy and gives support to the more industrial metals of the group," said aid Miguel Perez-Santalla, vice president of Heraeus Metal Management in New York.
Earlier in the session, however, gold prices were lower. "The Trumpflation trade is back on the agenda, which is negative for gold," Commerzbank analyst Carsten Fritsch said. U.S. economic data has also stoked talk that the Federal Reserve would press ahead with U.S. interest rate hikes sooner rather than later.
U.S. import prices rose more than expected in January, while initial jobless claims dropped unexpectedly last week to the lowest in nearly 43 years. 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.
COT Report
At the end of January gold has jumped due massive closing of short positions. Last week, as gold has reached significant resistance we see opposite picture - new shorts were opened as open interest has increased, while speculative net long position has decreased slightly. This doesn't mean that upside action is over, but still it could a reason for deeper retracement before market again will turn up:
SPDR fund statistics shows very good pace of inflows and supports current trend on gold:
Last week we have detailed discussion on subject of new wave of global economy cycle. Take a look at performance of industrial metals and commodities - mostly all of them in green area. Especially pay attention to Copper, this is a barometer of global industrial production. It means that may be our technical bullish reversal pattern on monthly chart also has fundamental background?
Technicals
Monthly
As gold shows no return back to 1100 lows - it keeps reversal moment of our H&S pattern pretty nice by far.
But here we come to most difficult moment. Mostly because fundamental background for gold market is very blur. D. Trump victory and uncertainty around its economy policy, massive political turmoil in Europe and affer foreign affairs do not let us to estimate clear fundamental picture by far. Although price behavior, short-term sentiment and commodities performance mostly supports idea of bullish reversal pattern here (at least now).
Right now we can make just some suggestions. As we've said technically recent upward action started in Dec 2015 is first one after long term of decreasing and it should be interrupted by deep retracement sometime. Now this retracement stands in place. It is really big chance that gold stands in a stage of big trend changing from bearish into bullish. US economy shows inflation growing. As we've estimated last week, commodities across the board have turned to growth.
Besides, any Trump protection policy will be accompanied by big spending and expenses, this will lead to grow of inflationary expectations and could lead even to more hawkish Fed policy. Thus, we mostly gravitate to idea that gold now stands not in pause of bear trend, but on the eve of new bull trend. Also we expect big structural shifts in EU economy, diminishing Brussels governing role, taking direction on convergence with Russia economy, and through Russia economical infrastructure - with Middle East and Asia.
But our technical "deep" retracement still could be different. Currently, as market stands at the edge of 1170 Fib support, we could talk on 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...
That's being said gold stands at the area where the bottom of right shoulder should be formed. Thus, our first step on this long-term time frame has been completed - "we suggest further drop on gold, at least to 1160-1180 area."
As we've said almost month ago - we're coming to second step how we've specified it - "watch for validity of H&S pattern." Rally that we see right now is not bad, but it seems that it is lack of confidence a bit.
Here we come to idea of another reversal pattern. If retracement will be too deep, back to 1000$, gold still will keep chances to reverse up, but by another reversal pattern - Double Bottom.
So, as you can see here we've got big journey ahead while we will estimate what we really have - either H&S or Double Bottom. It means that we should be extra careful to patterns that will be formed on daily chart.
Weekly
Trend is bullish here, but gold is not at OB on weekly chart. Since gold has erased reversal candle 2 weeks ago and B&B "Sell" pattern, last week it has moved slightly higher and confirmed bullish sentiment. On a way up gold has re-tested 1251 lows and also has reached some intraday and daily targets and Fib levels. Now they stand as major reason for retracement down.
Still in long-term weekly chart gold stands very well - channel has broken up and re-tested by 1.618 AB=CD target. Then gold has turned up again, erased reversal week and B&B and re-tested 1251 lows. This action looks very well from bullish point of view. Long-term bullish crucial point is 1130 lows. Logic is simple here. From perspective of H&S pattern - gold has completed all necessary targets to form right shoulder - downward AB-CD 1.618 extension has been completed and also price has reached 5/8 major Fib support. It means that if gold will drop below this level - it will mean that H&S has failed.
On coming week hardly we will be involved in big picture and big patterns. Mostly we will keep up with retracement that has started last week. Thus our major time frames will be daily and intraday charts.
Daily
As we've discussed last week - gold has reached objection point, that incudes MPR1, Fib level and minor 0.618 AB-CD target. That was the reason why we've suggested minor retracement down. Retracement was triggered by nice bearish engulfing pattern right a top.
Now, take a look that bullish grabber that we was watching - has not been formed. It means that we have to ignore scenario of immediate upward continuation and mostly will stick with engulfing targets. This pattern suggest slightly deeper retracement of some AB-CD pattern on intraday chart.
Intraday
Depth of retracement could be different, but we will focus first on nearest target of AB=CD pattern, that stands around 1213 area - very close to K-support area. Also you can see that upside action was finalized by nice butterfly pattern:
Hourly chart shows that upside channel was broken and price already has re-tested it's lower border. DeMark method of breakout target estimation suggests slightly lower level of 1208-1209 area:
Conclusion:
As market has completed first step of our long term analysis - dropped to 1170 area, now we're turning to second step - estimating of validity of monthly H&S pattern. Currently we still think that gold has fundamental background to start long-term bullish trend and two patterns could be formed. Either H&S or Double bottom. As Januray close was strong - gold keeps good chances to form H&S pattern still.
So, currently we're working with H&S. But starting moment of this bull trend is rather extended.
In shorter term perspective we will work with downside retracement, that could take most part of 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.
(Reuters) -
Gold steadied on Friday, but remained below this week's three-month top as the U.S. dollar and Treasury yields came off their highs after the currency initially jumped on U.S. President Donald Trump's promise of a major tax announcement.
Spot gold was up 0.02 percent at $1,230.78 an ounce by 2:24 p.m. EST (1924 GMT), while U.S. gold futures for April delivery settled down 0.07 percent at $1,235.90. On Wednesday, spot gold reached its highest since mid-November at $1,244.67. Gold prices were on track for a second weekly gain, up 1 percent from late last Friday.
The dollar pared gains against a currency basket on Friday after earlier strength from U.S. President Donald Trump's pledge to announce a major tax plan within weeks cooled some market nerves, reinvigorating dollar bulls. Wall Street hit record highs for a second day on hopes of the business-friendly tax cuts.
"The dollar puts a little pressure on gold however the strength in the equity markets and the strength in the other precious metals is lifting gold up," said Eli Tesfaye, senior market strategist for brokerage RJO Futures in Chicago, as gold prices moved into positive territory. "It's really the intermarket relationship that's stabilizing gold right now."
"Both silver and palladium are up on the day as an improving China signals a better global economy and gives support to the more industrial metals of the group," said aid Miguel Perez-Santalla, vice president of Heraeus Metal Management in New York.
Earlier in the session, however, gold prices were lower. "The Trumpflation trade is back on the agenda, which is negative for gold," Commerzbank analyst Carsten Fritsch said. U.S. economic data has also stoked talk that the Federal Reserve would press ahead with U.S. interest rate hikes sooner rather than later.
U.S. import prices rose more than expected in January, while initial jobless claims dropped unexpectedly last week to the lowest in nearly 43 years. 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.
COT Report
At the end of January gold has jumped due massive closing of short positions. Last week, as gold has reached significant resistance we see opposite picture - new shorts were opened as open interest has increased, while speculative net long position has decreased slightly. This doesn't mean that upside action is over, but still it could a reason for deeper retracement before market again will turn up:
SPDR fund statistics shows very good pace of inflows and supports current trend on gold:
Last week we have detailed discussion on subject of new wave of global economy cycle. Take a look at performance of industrial metals and commodities - mostly all of them in green area. Especially pay attention to Copper, this is a barometer of global industrial production. It means that may be our technical bullish reversal pattern on monthly chart also has fundamental background?
Technicals
Monthly
As gold shows no return back to 1100 lows - it keeps reversal moment of our H&S pattern pretty nice by far.
But here we come to most difficult moment. Mostly because fundamental background for gold market is very blur. D. Trump victory and uncertainty around its economy policy, massive political turmoil in Europe and affer foreign affairs do not let us to estimate clear fundamental picture by far. Although price behavior, short-term sentiment and commodities performance mostly supports idea of bullish reversal pattern here (at least now).
Right now we can make just some suggestions. As we've said technically recent upward action started in Dec 2015 is first one after long term of decreasing and it should be interrupted by deep retracement sometime. Now this retracement stands in place. It is really big chance that gold stands in a stage of big trend changing from bearish into bullish. US economy shows inflation growing. As we've estimated last week, commodities across the board have turned to growth.
Besides, any Trump protection policy will be accompanied by big spending and expenses, this will lead to grow of inflationary expectations and could lead even to more hawkish Fed policy. Thus, we mostly gravitate to idea that gold now stands not in pause of bear trend, but on the eve of new bull trend. Also we expect big structural shifts in EU economy, diminishing Brussels governing role, taking direction on convergence with Russia economy, and through Russia economical infrastructure - with Middle East and Asia.
But our technical "deep" retracement still could be different. Currently, as market stands at the edge of 1170 Fib support, we could talk on 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...
That's being said gold stands at the area where the bottom of right shoulder should be formed. Thus, our first step on this long-term time frame has been completed - "we suggest further drop on gold, at least to 1160-1180 area."
As we've said almost month ago - we're coming to second step how we've specified it - "watch for validity of H&S pattern." Rally that we see right now is not bad, but it seems that it is lack of confidence a bit.
Here we come to idea of another reversal pattern. If retracement will be too deep, back to 1000$, gold still will keep chances to reverse up, but by another reversal pattern - Double Bottom.
So, as you can see here we've got big journey ahead while we will estimate what we really have - either H&S or Double Bottom. It means that we should be extra careful to patterns that will be formed on daily chart.
Weekly
Trend is bullish here, but gold is not at OB on weekly chart. Since gold has erased reversal candle 2 weeks ago and B&B "Sell" pattern, last week it has moved slightly higher and confirmed bullish sentiment. On a way up gold has re-tested 1251 lows and also has reached some intraday and daily targets and Fib levels. Now they stand as major reason for retracement down.
Still in long-term weekly chart gold stands very well - channel has broken up and re-tested by 1.618 AB=CD target. Then gold has turned up again, erased reversal week and B&B and re-tested 1251 lows. This action looks very well from bullish point of view. Long-term bullish crucial point is 1130 lows. Logic is simple here. From perspective of H&S pattern - gold has completed all necessary targets to form right shoulder - downward AB-CD 1.618 extension has been completed and also price has reached 5/8 major Fib support. It means that if gold will drop below this level - it will mean that H&S has failed.
On coming week hardly we will be involved in big picture and big patterns. Mostly we will keep up with retracement that has started last week. Thus our major time frames will be daily and intraday charts.
Daily
As we've discussed last week - gold has reached objection point, that incudes MPR1, Fib level and minor 0.618 AB-CD target. That was the reason why we've suggested minor retracement down. Retracement was triggered by nice bearish engulfing pattern right a top.
Now, take a look that bullish grabber that we was watching - has not been formed. It means that we have to ignore scenario of immediate upward continuation and mostly will stick with engulfing targets. This pattern suggest slightly deeper retracement of some AB-CD pattern on intraday chart.
Intraday
Depth of retracement could be different, but we will focus first on nearest target of AB=CD pattern, that stands around 1213 area - very close to K-support area. Also you can see that upside action was finalized by nice butterfly pattern:
Hourly chart shows that upside channel was broken and price already has re-tested it's lower border. DeMark method of breakout target estimation suggests slightly lower level of 1208-1209 area:
Conclusion:
As market has completed first step of our long term analysis - dropped to 1170 area, now we're turning to second step - estimating of validity of monthly H&S pattern. Currently we still think that gold has fundamental background to start long-term bullish trend and two patterns could be formed. Either H&S or Double bottom. As Januray close was strong - gold keeps good chances to form H&S pattern still.
So, currently we're working with H&S. But starting moment of this bull trend is rather extended.
In shorter term perspective we will work with downside retracement, that could take most part of 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.
