Sive Morten
Special Consultant to the FPA
- Messages
- 18,659
Fundamentals
(Reuters) - The price of gold turned higher on Friday, hovering below the prior session's seven-week
top as the U.S. dollar weakened and U.S. Treasury yields came off their highs, with the metal on track for a third straight weekly gain.
The greenback and yields were initially higher on the back of strong U.S. retail sales, which reinforced the prospect of the Federal Reserve raising rates this year, perhaps sooner than previously expected, traders said.
Spot gold was 0.2 percent higher at $1,197.99 an ounce by 3:09 p.m. EST (2009 GMT). It was up 2.1 percent on the week. U.S. gold futures settled down 0.3 percent at $1,196.20 per ounce, ahead of the U.S. holiday on Monday, when the market will close early.
The gold price has risen 6.5 percent since a mid-December low and on Thursday reached its highest level since Nov. 23, after President-elect Donald Trump failed to elaborate on his plans to cut taxes and boost infrastructure spending.
"There's clearly plenty of new long positioning that has come into the market and at these (price) levels there's room to take profit," said Mitsubishi analyst Jonathan Butler. "Trump's economic policies, in particular tax cuts for corporates, could lead to ever-higher equity valuations that divert funds away from bullion."
Investors were looking ahead to Trump's inauguration on Jan. 20, when they will again be looking for detail on his plans for the U.S. economy. "Unless you have a good trend narrative, I don't think specs are going to pay much attention, so (the gold market has) reverted back to following the dollar," said Rob Haworth, senior
investment strategist for U.S. Bank Wealth management in Seattle.
"I think that bullish dollar trend is what keeps a lid on gold prices." Analysts at Scotiabank, however, said they expect gold to strengthen further if support at $1,178 an ounce holds. Several Fed officials on Thursday cautioned that Trump's fiscal and tax plans could spur a short-term economic boost that would result in longer-run inflation and debt problems, potentially raising demand for gold as an inflation hedge.
Higher gold prices depressed physical sales in Asia this week.
COT Report
Gold sentiment starts to show some support to current rally. Recent CFTC data shows finally growth on net long speculative position and open interest. It means that not only shorts were closed, but new longs opened as well:
SPDR Fund data also is not quite support current rally. Yes, on Friday we've got +2.0 tonnes to storages, but total storages has dropped for 30 tonnes during current rally. It means that situation theoretically could change, but things that we see right now do not let us to talk on real upside trend. Most part of rally has happened on background of massive sell-off in SDPR fund and flat CFTC numbers.
Technicals
Monthly
Currently gold stands at very fragile basis. One step down further and fragile support will be broken while gold will drop back to 1000$ level. Gold is very specific asset, since it major driving factor for gold is fundamentals, especially inflation and interest rates, and - expectations, rumors. "Buy on rumors" proverb is particularly fair for gold market.
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, especially as he said nothing on recent speech, massive political turmoil in Europe and affer foreign affairs do not let us to estimate clear fundamental picture by far.
This fundamental uncertainty and indecision also reflects on technical picture. Investors are waiting and keep prices around last major support and around invalidation point of reversal H&S pattern. Step up - and gold will re-establish upside trend, step down - H&S will fail and gold will drop to 1000$. This mostly explains, why current rally is not supported by real money flow.
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 onconvergence 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." Right now there is an issue exists that we do not like. They are not critical, but at the same time are not welcome for pattern. I mean too fast drop. Actually right shoulder is an area where bulls should gradually take control over the market and fast drop here is not a good sign.
Still, our task here is relatively simple - just to watch for reversal patterns on daily that confirm bullish reversal and monthly H&S pattern. If we will not get any - then we will not go long, and it will mean that this H&S could fail. The failure of this pattern will lead price below the head, i.e. under 1000$ level.
Here we come to idea of another reversal pattern. If retracement will be too deep, back to 1000$, gold still will keep chances to reverse up, but by another reversal pattern - Double Bottom.
So, as you can see here we've got big journey ahead while we will estimate what we really have - either H&S or Double Bottom. It means that we should be extra careful to patterns that will be formed on daily chart.
Right now gold shows very nice bullish engulfing pattern right at crucial area. Last week gold also has tested YPP at 1196 area. January session is not closed yet, but appearing of completed bullish engulfing could play it's role in longer-term price action. In short-term perspective, appearing of clear pattern makes our job a bit easier. Since gold will have to erase this pattern to prove that downward trend is re-established. So, we will get clear border to watch and use line between bullish and bearish setups:
Weekly
Here, as on monthly chart trend stands bearish, price is not at OB/OS. As you can see, market has formed bearish grabber last week. And short-term analysis mostly stands around it. Situation is very similar to EUR that we've discussed yesterday. Thus, stop grabber could become a pattern that will trigger downward action, deep retracement, as we've discussed in our daily videos.
In a bigger picture, drop slightly inside channel could be due existing of 1.618 AB-CD target, but not real price return inside the channel. Although we initially thought that gold has turned to bearish action to 1000$, but now it seems that probably this conclusion was made too early.
Market now stands above MPR1 and YPP. This information, especially about YPP could become important later when downward retracement will be over.
On weekly chart we could specify bullish crucial point. This is obviously 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.
At the same time, even our bounce to 1200 area will mean nothing important, since market could form deep retracement up as it has formed downward reversal swing on weekly chart. We need to get clear signs of relation between price action and investors position in SPDR fund and CFTC data. Only if upside rally will be supported by real money flows we could rely on it. Right now, as we've estimated above current rally looks suspicious and not reliable.
Daily
On daily chart gold stands in strong resistance area - K-resistance, YPP and overbought. Combining strong resistance area with weekly pattern could trigger some changes in price action that we've discussed last week.
Current upside action itself could become a background for DiNapoli direction pattern, say DRPO "Sell". So, now we need to see reaction on weekly pattern and daily resistance on intraday charts. On daily chart it's too few time has passed since market has reached it...
4-hour
On Intraday charts, market has not broken yet uspide tendency - as price still keeps sequence of higher tops and bottoms. First issue that we will monitor is breakout of upside channel. If market will break it down - most probable destination point is 1175 area that incudes K-support and WPS1.
Also it would be nice if gold will form downward reversal swing on a breakout.
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. Currently we're working with H&S, especially when chances appear that gold will form bullish engulfing in January.
On coming week we will be watching for starting of downward retracement, since price stands at strong resistance and formed bearish pattern on weekly chart
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) - The price of gold turned higher on Friday, hovering below the prior session's seven-week
top as the U.S. dollar weakened and U.S. Treasury yields came off their highs, with the metal on track for a third straight weekly gain.
The greenback and yields were initially higher on the back of strong U.S. retail sales, which reinforced the prospect of the Federal Reserve raising rates this year, perhaps sooner than previously expected, traders said.
Spot gold was 0.2 percent higher at $1,197.99 an ounce by 3:09 p.m. EST (2009 GMT). It was up 2.1 percent on the week. U.S. gold futures settled down 0.3 percent at $1,196.20 per ounce, ahead of the U.S. holiday on Monday, when the market will close early.
The gold price has risen 6.5 percent since a mid-December low and on Thursday reached its highest level since Nov. 23, after President-elect Donald Trump failed to elaborate on his plans to cut taxes and boost infrastructure spending.
"There's clearly plenty of new long positioning that has come into the market and at these (price) levels there's room to take profit," said Mitsubishi analyst Jonathan Butler. "Trump's economic policies, in particular tax cuts for corporates, could lead to ever-higher equity valuations that divert funds away from bullion."
Investors were looking ahead to Trump's inauguration on Jan. 20, when they will again be looking for detail on his plans for the U.S. economy. "Unless you have a good trend narrative, I don't think specs are going to pay much attention, so (the gold market has) reverted back to following the dollar," said Rob Haworth, senior
investment strategist for U.S. Bank Wealth management in Seattle.
"I think that bullish dollar trend is what keeps a lid on gold prices." Analysts at Scotiabank, however, said they expect gold to strengthen further if support at $1,178 an ounce holds. Several Fed officials on Thursday cautioned that Trump's fiscal and tax plans could spur a short-term economic boost that would result in longer-run inflation and debt problems, potentially raising demand for gold as an inflation hedge.
Higher gold prices depressed physical sales in Asia this week.
COT Report
Gold sentiment starts to show some support to current rally. Recent CFTC data shows finally growth on net long speculative position and open interest. It means that not only shorts were closed, but new longs opened as well:
SPDR Fund data also is not quite support current rally. Yes, on Friday we've got +2.0 tonnes to storages, but total storages has dropped for 30 tonnes during current rally. It means that situation theoretically could change, but things that we see right now do not let us to talk on real upside trend. Most part of rally has happened on background of massive sell-off in SDPR fund and flat CFTC numbers.
Technicals
Monthly
Currently gold stands at very fragile basis. One step down further and fragile support will be broken while gold will drop back to 1000$ level. Gold is very specific asset, since it major driving factor for gold is fundamentals, especially inflation and interest rates, and - expectations, rumors. "Buy on rumors" proverb is particularly fair for gold market.
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, especially as he said nothing on recent speech, massive political turmoil in Europe and affer foreign affairs do not let us to estimate clear fundamental picture by far.
This fundamental uncertainty and indecision also reflects on technical picture. Investors are waiting and keep prices around last major support and around invalidation point of reversal H&S pattern. Step up - and gold will re-establish upside trend, step down - H&S will fail and gold will drop to 1000$. This mostly explains, why current rally is not supported by real money flow.
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 onconvergence 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." Right now there is an issue exists that we do not like. They are not critical, but at the same time are not welcome for pattern. I mean too fast drop. Actually right shoulder is an area where bulls should gradually take control over the market and fast drop here is not a good sign.
Still, our task here is relatively simple - just to watch for reversal patterns on daily that confirm bullish reversal and monthly H&S pattern. If we will not get any - then we will not go long, and it will mean that this H&S could fail. The failure of this pattern will lead price below the head, i.e. under 1000$ level.
Here we come to idea of another reversal pattern. If retracement will be too deep, back to 1000$, gold still will keep chances to reverse up, but by another reversal pattern - Double Bottom.
So, as you can see here we've got big journey ahead while we will estimate what we really have - either H&S or Double Bottom. It means that we should be extra careful to patterns that will be formed on daily chart.
Right now gold shows very nice bullish engulfing pattern right at crucial area. Last week gold also has tested YPP at 1196 area. January session is not closed yet, but appearing of completed bullish engulfing could play it's role in longer-term price action. In short-term perspective, appearing of clear pattern makes our job a bit easier. Since gold will have to erase this pattern to prove that downward trend is re-established. So, we will get clear border to watch and use line between bullish and bearish setups:
Weekly
Here, as on monthly chart trend stands bearish, price is not at OB/OS. As you can see, market has formed bearish grabber last week. And short-term analysis mostly stands around it. Situation is very similar to EUR that we've discussed yesterday. Thus, stop grabber could become a pattern that will trigger downward action, deep retracement, as we've discussed in our daily videos.
In a bigger picture, drop slightly inside channel could be due existing of 1.618 AB-CD target, but not real price return inside the channel. Although we initially thought that gold has turned to bearish action to 1000$, but now it seems that probably this conclusion was made too early.
Market now stands above MPR1 and YPP. This information, especially about YPP could become important later when downward retracement will be over.
On weekly chart we could specify bullish crucial point. This is obviously 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.
At the same time, even our bounce to 1200 area will mean nothing important, since market could form deep retracement up as it has formed downward reversal swing on weekly chart. We need to get clear signs of relation between price action and investors position in SPDR fund and CFTC data. Only if upside rally will be supported by real money flows we could rely on it. Right now, as we've estimated above current rally looks suspicious and not reliable.
Daily
On daily chart gold stands in strong resistance area - K-resistance, YPP and overbought. Combining strong resistance area with weekly pattern could trigger some changes in price action that we've discussed last week.
Current upside action itself could become a background for DiNapoli direction pattern, say DRPO "Sell". So, now we need to see reaction on weekly pattern and daily resistance on intraday charts. On daily chart it's too few time has passed since market has reached it...
4-hour
On Intraday charts, market has not broken yet uspide tendency - as price still keeps sequence of higher tops and bottoms. First issue that we will monitor is breakout of upside channel. If market will break it down - most probable destination point is 1175 area that incudes K-support and WPS1.
Also it would be nice if gold will form downward reversal swing on a breakout.
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. Currently we're working with H&S, especially when chances appear that gold will form bullish engulfing in January.
On coming week we will be watching for starting of downward retracement, since price stands at strong resistance and formed bearish pattern on weekly chart
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.
