Sive Morten
Special Consultant to the FPA
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- 18,679
Fundamentals
(Reuters) - Gold reached its highest in 3-1/2 months on Friday as the dollar fell to a one-week low after the new U.S. Treasury chief poured cold water on the "Trumpflation trade" that had boosted the greenback this year.
Treasury Secretary Steven Mnuchin said on Thursday that any steps U.S. President Donald Trump's administration takes on policy would probably have only limited impact this year, though he wants to see tax reform passed by August. The comments suggested much work was still needed on the sweeping tax plan that Mnuchin called his main priority, and which investors had bet would stoke growth and inflation this
year.
"We've got a vacuum of (U.S. domestic) policy, real (interest) rates going down, the dollar going sideways and geopolitical (jitters) around the world ... all helping gold," ICBC Standard Bank analyst Tom Kendall said.
"There is apparently a move of institutional investor money into gold and there are usually very good reasons for that."
Spot gold was up 0.6 percent at $1,256.75 an ounce by 2:26 p.m. EST (1926 GMT), having touched its highest since Nov. 11 at $1,260.10 earlier, zeroing in on the 200-day moving average. It was on track to finish the week higher for the fourth straight week. U.S. gold futures settled up 0.55 percent at $1,258.30.
Tempering gains in bullion, a poll on Friday suggested French presidential candidate Emmanuel Macron would beat far-right leader Marine Le Pen, who has promised a referendum on European Union membership.
Key global stock markets fell as investors scaled back bets that Trump's policies would benefit economic growth. The dollar later pared losses.
Holdings of the largest gold-backed exchange-traded fund, New York's SPDR Gold Trust , have risen more than 5 percent this month on geopolitical risk.
"These dollar-denominated and perceived safe-haven precious metals have risen during a time when Wall Street has repeatedly hit new all-time highs and despite the dollar holding near its multi-year highs," said Fawad Razaqzada, technical analyst for Forex.com, adding that precious metals appeared poised to rise
further in the coming weeks.
"The metals' remarkable performance may suggest that investors are positioning themselves up for a major risk-off event – such as a collapse in the US stock markets."
COT Report
Recent CFTC data mostly supports current upside action. SPDR fund storages stand stable last week and has not changed, while COT report shows that net long position has increased slightly as well as open interest. It means that traders have taken new long positions. Overall picture looks not as bright as on EUR, but still last 2-3 weeks sentiment analysis mostly supports rally that we see:
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 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). At the same time many world top analysts (such as Barnabas Gan) worry about more active Fed policy and think that gold could finish 2017 around 1100$. But Fed is out of our control and prediction.
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, 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 Russian 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, it holds rather well, but it seems that it is still lack of confidence a bit.
Here we come to idea of another reversal pattern. If retracement will be too deep, back to 1000$, gold still will keep chances to reverse up, but by another reversal pattern - Double Bottom.
So, as you can see here we've got big journey ahead while we will estimate what we really have - either H&S or Double Bottom. It means that we should be extra careful to patterns that will be formed on daily chart.
Weekly
Recent upside rally confirms that our suggestion on upside continuation was correct, as gold on a way up erased B&B "Sell" potential setup and reversal week.
As market is not at overbought - next logical destination point is 1278 Fib resistance. Price has no barriers on a way right to it. Also pay attention that overall thrust up has 8 bars and is suitable for DiNapoli directional patterns. For example, gold could form B&B "Buy" right around 1278 area if reaction on resistance will follow.
In general gold stands well on long-term weekly chart - channel has broken up and re-tested by 1.618 AB=CD target. Then gold has turned up again, erased reversal week and B&B and re-tested 1251 lows. This action looks very well from bullish point of view. Long-term bullish crucial point is 1130 lows. Logic is simple here. From perspective of H&S pattern - gold has completed all necessary targets to form right shoulder - downward AB-CD 1.618 extension has been completed and also price has reached 5/8 major Fib support. It means that if gold will drop below this level - it will mean that H&S has failed.
Daily
So, 1245$ area consolidation was absolutely reasonable, this was rather strong resistance and Agreement area. It includes MPR1, Fib level and minor AB-CD target. But right now gold has broken through it. Next logical destination is AB=CD target and Agreement around 1278 weekly Fib resistance.
Still, daily overbought level stands rather close to current market and actually 1278 area is slightly above it, thus, it is more probable that gold will not move straight up to the target, but will should gradual performance.
But 1278 area has good chances to be hit on coming week.
Another important issue here (we've mentioned it on Friday) - gold has moved above MPR1. It tells that gold stands not just with upside retracement, but in new bull trend. As gold likes to re-test previous tops on a way up during retracements - re-testing of broken 1245 area seems reasonable:
4-hour
The first pause on a way up market could take rather soon. Although we thought on Friday that retracement will start somewhere around 1255, as multiple intraday targets were hit there, gold has climbed slightly higher. But right now 1.618 butterfly target almost has been hit and on Monday gold could start retracement down.
As you can see we have solid support cluster around previous top that supports an idea of re-testing broken levels. Thus, 1240-1245 area includes K-support, previous tops and WPP. This is a trading plan for Mon-Tue - completion of butterfly and retracement to 1240 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 and Friday action stands strong - gold keeps good chances to form H&S pattern still. At least currently we do not have any visible reasons to doubt upside action. We agree that more agressive Fed policy could stop this rally, as well as agressive D. Trump stimulus program could lead to faster inflation. These issues are beyond of forecasting. That's why we will take them in consideration if&when they will appear.
In shorter term perspective our trading plan is based on large hourly butterfly and daily AB-CD patterns. Thus, we suggest retracement back to 1240-1245 area in the beginning of the week and upside continuation to 1278 target closer to weekend.
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 reached its highest in 3-1/2 months on Friday as the dollar fell to a one-week low after the new U.S. Treasury chief poured cold water on the "Trumpflation trade" that had boosted the greenback this year.
Treasury Secretary Steven Mnuchin said on Thursday that any steps U.S. President Donald Trump's administration takes on policy would probably have only limited impact this year, though he wants to see tax reform passed by August. The comments suggested much work was still needed on the sweeping tax plan that Mnuchin called his main priority, and which investors had bet would stoke growth and inflation this
year.
"We've got a vacuum of (U.S. domestic) policy, real (interest) rates going down, the dollar going sideways and geopolitical (jitters) around the world ... all helping gold," ICBC Standard Bank analyst Tom Kendall said.
"There is apparently a move of institutional investor money into gold and there are usually very good reasons for that."
Spot gold was up 0.6 percent at $1,256.75 an ounce by 2:26 p.m. EST (1926 GMT), having touched its highest since Nov. 11 at $1,260.10 earlier, zeroing in on the 200-day moving average. It was on track to finish the week higher for the fourth straight week. U.S. gold futures settled up 0.55 percent at $1,258.30.
Tempering gains in bullion, a poll on Friday suggested French presidential candidate Emmanuel Macron would beat far-right leader Marine Le Pen, who has promised a referendum on European Union membership.
Key global stock markets fell as investors scaled back bets that Trump's policies would benefit economic growth. The dollar later pared losses.
Holdings of the largest gold-backed exchange-traded fund, New York's SPDR Gold Trust , have risen more than 5 percent this month on geopolitical risk.
"These dollar-denominated and perceived safe-haven precious metals have risen during a time when Wall Street has repeatedly hit new all-time highs and despite the dollar holding near its multi-year highs," said Fawad Razaqzada, technical analyst for Forex.com, adding that precious metals appeared poised to rise
further in the coming weeks.
"The metals' remarkable performance may suggest that investors are positioning themselves up for a major risk-off event – such as a collapse in the US stock markets."
COT Report
Recent CFTC data mostly supports current upside action. SPDR fund storages stand stable last week and has not changed, while COT report shows that net long position has increased slightly as well as open interest. It means that traders have taken new long positions. Overall picture looks not as bright as on EUR, but still last 2-3 weeks sentiment analysis mostly supports rally that we see:
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 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). At the same time many world top analysts (such as Barnabas Gan) worry about more active Fed policy and think that gold could finish 2017 around 1100$. But Fed is out of our control and prediction.
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, 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 Russian 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, it holds rather well, but it seems that it is still lack of confidence a bit.
Here we come to idea of another reversal pattern. If retracement will be too deep, back to 1000$, gold still will keep chances to reverse up, but by another reversal pattern - Double Bottom.
So, as you can see here we've got big journey ahead while we will estimate what we really have - either H&S or Double Bottom. It means that we should be extra careful to patterns that will be formed on daily chart.
Weekly
Recent upside rally confirms that our suggestion on upside continuation was correct, as gold on a way up erased B&B "Sell" potential setup and reversal week.
As market is not at overbought - next logical destination point is 1278 Fib resistance. Price has no barriers on a way right to it. Also pay attention that overall thrust up has 8 bars and is suitable for DiNapoli directional patterns. For example, gold could form B&B "Buy" right around 1278 area if reaction on resistance will follow.
In general gold stands well on long-term weekly chart - channel has broken up and re-tested by 1.618 AB=CD target. Then gold has turned up again, erased reversal week and B&B and re-tested 1251 lows. This action looks very well from bullish point of view. Long-term bullish crucial point is 1130 lows. Logic is simple here. From perspective of H&S pattern - gold has completed all necessary targets to form right shoulder - downward AB-CD 1.618 extension has been completed and also price has reached 5/8 major Fib support. It means that if gold will drop below this level - it will mean that H&S has failed.
Daily
So, 1245$ area consolidation was absolutely reasonable, this was rather strong resistance and Agreement area. It includes MPR1, Fib level and minor AB-CD target. But right now gold has broken through it. Next logical destination is AB=CD target and Agreement around 1278 weekly Fib resistance.
Still, daily overbought level stands rather close to current market and actually 1278 area is slightly above it, thus, it is more probable that gold will not move straight up to the target, but will should gradual performance.
But 1278 area has good chances to be hit on coming week.
Another important issue here (we've mentioned it on Friday) - gold has moved above MPR1. It tells that gold stands not just with upside retracement, but in new bull trend. As gold likes to re-test previous tops on a way up during retracements - re-testing of broken 1245 area seems reasonable:
4-hour
The first pause on a way up market could take rather soon. Although we thought on Friday that retracement will start somewhere around 1255, as multiple intraday targets were hit there, gold has climbed slightly higher. But right now 1.618 butterfly target almost has been hit and on Monday gold could start retracement down.
As you can see we have solid support cluster around previous top that supports an idea of re-testing broken levels. Thus, 1240-1245 area includes K-support, previous tops and WPP. This is a trading plan for Mon-Tue - completion of butterfly and retracement to 1240 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 and Friday action stands strong - gold keeps good chances to form H&S pattern still. At least currently we do not have any visible reasons to doubt upside action. We agree that more agressive Fed policy could stop this rally, as well as agressive D. Trump stimulus program could lead to faster inflation. These issues are beyond of forecasting. That's why we will take them in consideration if&when they will appear.
In shorter term perspective our trading plan is based on large hourly butterfly and daily AB-CD patterns. Thus, we suggest retracement back to 1240-1245 area in the beginning of the week and upside continuation to 1278 target closer to weekend.
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.