Sive Morten
Special Consultant to the FPA
- Messages
- 18,669
Fundamentals
(Reuters) - Gold prices turned up on Friday, as the dollar fell and U.S. Treasury yields came off their highs after Donald Trump was sworn in as U.S. president.
Trump pledged to end the "American carnage" of social and economic woes in an inaugural address that was a populist and nationalist rallying cry, prompting investor concern about protectionist trade policies.
"I think some of the populist issue themes that he's touched on are supportive of gold," said James Steel, chief metals analyst for HSBC Securities in New York.
Spot gold was up 0.5 percent at $1,211.30 an ounce by 3:04 p.m. EST (2004 GMT), while U.S. gold futures
settled up 0.3 percent at $1,204.90 per ounce. The U.S. dollar index, which measures the greenback
against a basket of currencies, fell 0.4 percent after trading higher earlier in the session.
A weaker dollar makes the metal cheaper for holders of other currencies. Gold shrugged off better-than-expected U.S. jobs, housing and factory data that reinforced the view that the U.S. economy is sufficiently robust to warrant interest rate rises.
Philadelphia Federal Reserve President Patrick Harker said on Friday he expected three interest rate increases in 2017 if the labor market improves further and inflation moves to the Federal Reserve's 2 percent goal. Gold is highly sensitive to rising rates, which lift the opportunity cost of holding non-yielding assets such as bullion while boosting the dollar, in which it is priced.
"Gold has dropped back from quite a significant technical level around $1,220, a critical retracement of last year's high to low move. I would say from here the risks are skewed to thedownside in the short term," Mitsubishi's Butler said.
CFTC Report
Recent COT data shows interesting moment. While gold goes up and open interest is growing - net speculative position has dropped. It means that last week traders have opened new shorts and this is worrying moment in bullish sentiment. It could become a first sign that upside tendency comes to an end.
SPDR fund also shows anemic inflows. Thus, since October 2016 overall storages has dropped for 160 tonnes - from 970 to 805 tonnes in the beginning of January. In January there is just 4 tonnes of inflow... Hardly this could be called as bullish rally....
_____________________________________________________________________________________
Here guys, I would like to share with you forecast that was made by most careful predictor of Gold market -
Barnabas Gan, an economist at Singapore-based Oversea-Chinese Banking Corp. He very accurately has predicted 1050$ level by Dec 2016 and precisely from this level new rally has started. Actually, we stand aside from different mistery and kind of guru-treating of any person, but mostly we analyze the basis, background that economist provided. And Mr. Gan tells things that also have mentioned in our reports. That is also supports an idea of two possible reversal patterns - either H&S or Double bottom on monthly chart.
Thus, Barnabas Gan thinks that "Gold will be on the retreat in 2017 on rosier global economic growth and tighter policy from the Federal Reserve, which will hikes rates twice, according to the most accurate bullion forecaster tracked by Bloomberg in the third quarter" Right now we should recall that most recent expectation stands with possible 3 rate hikes in 2017. Also, according to Fathom consulting view, market is underestimated hawkishness of Fed in 2018 and doesn't expect 4 rate hikes. So, impact on gold could be even stronger, than Mr. Gan has announced in December. So, his forecast probably could be treated as base scenario.
"Bulllion will be at $1,175 an ounce in the first quarter, $1,150 between April and June, $1,125 in the third period and $1,100 by the fourth, according to a presentation from Barnabas Gan, an economist at Singapore-based Oversea-Chinese Banking Corp."
“With the U.S. Fed most likely to raise interest rates next week by 25 basis points (he means Dec 2016 hike), the firmer dollar is a very, very strong factor to limit any rally,” Gan said. Aside from the Fed’s decision, the rhetoric markets will be looking for is on the trajectory for rates into 2017, according to Gan.
“Our base case scenario for 2017 is for next year to be rosy, for global growth to pick up, and for the safe haven demand for gold to actually slow down,” said Gan. “But there are very clear risks to this outlook. There are still geopolitical tensions and there are still a lot of issues at play."
So, this explains why we very carefully treat any rally, since situation is a bit tricky on gold market. Now we need to work with current rally. Right now there are big odds that it will become a fake. If this really will happen, then Double bottom monthly pattern will get all chances to become a reality.
_____________________________________________________________________________________
Technicals
Monthly
Currently gold stands at very fragile basis. One step down further and fragile support will be broken while gold will drop back to 1000$ 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 and stands above YPP. 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
So, bearish grabber has been erased last week as gold has moved slightly higher. As a result trend also has turned bullish, but gold is not at OB here.
As upward rally lasts for 3-4 weeks already - gold stands above Yearly Pivot and MPR1. This could become relative sign of bullish trend, since usually retracement should be held by MPR1. At the same time moving above MPR1 is not sufficient to take a decision, since there are other bearish moments around this rally that do not let us to join it lightly.
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
Trend is bullish as well. Just to clarify a bit our view on gold... all stuff that we talk about right now mostly has tactical value, it's short-term. These patterns that we've discussed last week - bearish engulfing and possible DiNapoli pattern, DRPO "Sell" or B&B. They could give us nice setup for trading here and we will use it.
But... we're mostly interested in reversal issue on monthly chart. That's why major object that we will monitor here is big pattern. For instance - this rally could become initial swing of large butterfly "buy" pattern. May be it will turn to H&S pattern later, it could finalize second bottom of large monthly pattern around 1050 area. Or may be this swing will be the 1st in 3-Drive pattern... That's what we're looking here guys. If we will get this pattern - we will get long-term direction and clarity, on which side we should take position.
DRPO's, engulfings - they are just small parts of price swings here and they have shy relation to big patterns. Still, we will keep an eye on them either. Besides, I have some feeling that something should change around this rally on coming week. It seems that driving factors that were keeping investors tight are exhausting gradually.
4-hour
Although trend still stands bullish here, but gold definitely has some difficulties with upward continuation. Price has not dropped yet under "point of no return", but upside action is stuck. Channel has been broken down, and on Friday, gold was not able to break minor 5/8 Fib resistance level.
Here also we could recognize steep H&S pattern, but mostly we should care of 2 moments - drop below WPS1 and 1190 lows. This will be clear sign that retracement up is over and we finally should get some bearish reversal pattern here. Also, if this rally was artificial as we've suggested - be aware of fast collapse.
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. But starting moment of this bull trend is rather extended.
In shorter term perspective our major task is to get large reversal pattern on daily chart. Recent rally could become just first siwng in it's shape. While we're watching for it - we mostly will deal with tactical setups as DiNapoli patterns on daily chart and others.
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 turned up on Friday, as the dollar fell and U.S. Treasury yields came off their highs after Donald Trump was sworn in as U.S. president.
Trump pledged to end the "American carnage" of social and economic woes in an inaugural address that was a populist and nationalist rallying cry, prompting investor concern about protectionist trade policies.
"I think some of the populist issue themes that he's touched on are supportive of gold," said James Steel, chief metals analyst for HSBC Securities in New York.
Spot gold was up 0.5 percent at $1,211.30 an ounce by 3:04 p.m. EST (2004 GMT), while U.S. gold futures
settled up 0.3 percent at $1,204.90 per ounce. The U.S. dollar index, which measures the greenback
against a basket of currencies, fell 0.4 percent after trading higher earlier in the session.
A weaker dollar makes the metal cheaper for holders of other currencies. Gold shrugged off better-than-expected U.S. jobs, housing and factory data that reinforced the view that the U.S. economy is sufficiently robust to warrant interest rate rises.
Philadelphia Federal Reserve President Patrick Harker said on Friday he expected three interest rate increases in 2017 if the labor market improves further and inflation moves to the Federal Reserve's 2 percent goal. Gold is highly sensitive to rising rates, which lift the opportunity cost of holding non-yielding assets such as bullion while boosting the dollar, in which it is priced.
"Gold has dropped back from quite a significant technical level around $1,220, a critical retracement of last year's high to low move. I would say from here the risks are skewed to thedownside in the short term," Mitsubishi's Butler said.
CFTC Report
Recent COT data shows interesting moment. While gold goes up and open interest is growing - net speculative position has dropped. It means that last week traders have opened new shorts and this is worrying moment in bullish sentiment. It could become a first sign that upside tendency comes to an end.
SPDR fund also shows anemic inflows. Thus, since October 2016 overall storages has dropped for 160 tonnes - from 970 to 805 tonnes in the beginning of January. In January there is just 4 tonnes of inflow... Hardly this could be called as bullish rally....
_____________________________________________________________________________________
Here guys, I would like to share with you forecast that was made by most careful predictor of Gold market -
Barnabas Gan, an economist at Singapore-based Oversea-Chinese Banking Corp. He very accurately has predicted 1050$ level by Dec 2016 and precisely from this level new rally has started. Actually, we stand aside from different mistery and kind of guru-treating of any person, but mostly we analyze the basis, background that economist provided. And Mr. Gan tells things that also have mentioned in our reports. That is also supports an idea of two possible reversal patterns - either H&S or Double bottom on monthly chart.
Thus, Barnabas Gan thinks that "Gold will be on the retreat in 2017 on rosier global economic growth and tighter policy from the Federal Reserve, which will hikes rates twice, according to the most accurate bullion forecaster tracked by Bloomberg in the third quarter" Right now we should recall that most recent expectation stands with possible 3 rate hikes in 2017. Also, according to Fathom consulting view, market is underestimated hawkishness of Fed in 2018 and doesn't expect 4 rate hikes. So, impact on gold could be even stronger, than Mr. Gan has announced in December. So, his forecast probably could be treated as base scenario.
"Bulllion will be at $1,175 an ounce in the first quarter, $1,150 between April and June, $1,125 in the third period and $1,100 by the fourth, according to a presentation from Barnabas Gan, an economist at Singapore-based Oversea-Chinese Banking Corp."
“With the U.S. Fed most likely to raise interest rates next week by 25 basis points (he means Dec 2016 hike), the firmer dollar is a very, very strong factor to limit any rally,” Gan said. Aside from the Fed’s decision, the rhetoric markets will be looking for is on the trajectory for rates into 2017, according to Gan.
“Our base case scenario for 2017 is for next year to be rosy, for global growth to pick up, and for the safe haven demand for gold to actually slow down,” said Gan. “But there are very clear risks to this outlook. There are still geopolitical tensions and there are still a lot of issues at play."
So, this explains why we very carefully treat any rally, since situation is a bit tricky on gold market. Now we need to work with current rally. Right now there are big odds that it will become a fake. If this really will happen, then Double bottom monthly pattern will get all chances to become a reality.
_____________________________________________________________________________________
Technicals
Monthly
Currently gold stands at very fragile basis. One step down further and fragile support will be broken while gold will drop back to 1000$ 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 and stands above YPP. 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
So, bearish grabber has been erased last week as gold has moved slightly higher. As a result trend also has turned bullish, but gold is not at OB here.
As upward rally lasts for 3-4 weeks already - gold stands above Yearly Pivot and MPR1. This could become relative sign of bullish trend, since usually retracement should be held by MPR1. At the same time moving above MPR1 is not sufficient to take a decision, since there are other bearish moments around this rally that do not let us to join it lightly.
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
Trend is bullish as well. Just to clarify a bit our view on gold... all stuff that we talk about right now mostly has tactical value, it's short-term. These patterns that we've discussed last week - bearish engulfing and possible DiNapoli pattern, DRPO "Sell" or B&B. They could give us nice setup for trading here and we will use it.
But... we're mostly interested in reversal issue on monthly chart. That's why major object that we will monitor here is big pattern. For instance - this rally could become initial swing of large butterfly "buy" pattern. May be it will turn to H&S pattern later, it could finalize second bottom of large monthly pattern around 1050 area. Or may be this swing will be the 1st in 3-Drive pattern... That's what we're looking here guys. If we will get this pattern - we will get long-term direction and clarity, on which side we should take position.
DRPO's, engulfings - they are just small parts of price swings here and they have shy relation to big patterns. Still, we will keep an eye on them either. Besides, I have some feeling that something should change around this rally on coming week. It seems that driving factors that were keeping investors tight are exhausting gradually.
4-hour
Although trend still stands bullish here, but gold definitely has some difficulties with upward continuation. Price has not dropped yet under "point of no return", but upside action is stuck. Channel has been broken down, and on Friday, gold was not able to break minor 5/8 Fib resistance level.
Here also we could recognize steep H&S pattern, but mostly we should care of 2 moments - drop below WPS1 and 1190 lows. This will be clear sign that retracement up is over and we finally should get some bearish reversal pattern here. Also, if this rally was artificial as we've suggested - be aware of fast collapse.
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. But starting moment of this bull trend is rather extended.
In shorter term perspective our major task is to get large reversal pattern on daily chart. Recent rally could become just first siwng in it's shape. While we're watching for it - we mostly will deal with tactical setups as DiNapoli patterns on daily chart and others.
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.
