Sive Morten
Special Consultant to the FPA
- Messages
- 18,690
Fundamentals
(Reuters) Gold fell on Friday and was set for its first weekly loss since May on improving global risk sentiment and a stronger dollar after better-than-expected U.S. data. European shares edged lower after at least 84 people died in an attack in France, while U.S. Treasury yields jumped as strong economic data renewed prospects of a Federal Reserve interest rate hike. U.S. stocks eased from record highs.
Spot gold was down 0.5 percent at $1,327.91 an ounce by 2:48 p.m EDT (1848 GMT), while U.S. gold settled down 0.4 percent at $1,327.40 per ounce. U.S. retail sales rose 0.6 percent in June, compared to an
expected 0.1 percent rise.
"In the short term, we can see some more pressure towards $1,300 as the focus is back on the U.S. after strong economic data, which increases the probability of a rate hike before the end of the year," Commerzbank analyst Carsten Fritsch said. Higher U.S. rates tend to damage gold prices because they
increase the opportunity cost of holding non-yielding bullion. After six weeks of gains, the longest rally since March 2014, the metal has come under pressure this week, down 2.8 percent so far. It was hit by strong U.S. non-farm payrolls data and as uncertainty around the implications of Britain's Brexit vote eased with the formation of a new government.
"Investors are taking profits, but $1,300 is now a floor for gold and that is going to hold moving forward," ING Bank senior strategist Hamza Khan said. The dollar was set for its biggest weekly gain against the yen in 17 years and was up 0.5 percent versus a basket of six currencies, making gold more expensive to foreign holders.
In Asia, consumers took profits on their gold holdings after last week's price rally helped bullion hit its highest in more than two years. Among other precious metals, spot palladium touched its highest since early November at $652 an ounce. "We favor industrially-oriented precious metals, like platinum and palladium, which should see larger market deficits," said UBS Chief Investment Office Wealth Management in
a note, pointing out low interest rates and abundant central bank liquidity. "Our favored precious metal allocation is 60 percent palladium, 30 percent platinum and 10 percent gold."
COT Report shows picture that we would like to see and talked about it for a long time, but it has started to happen just after superb NFP data. Now we see that last week as net speculative long position as open interest have decreased slightly. Yes, degree of decreasing is small, but this is was just first week. We will keep an eye on tendency, because last week gold has dropped further and this should push traders to more active profit taking:
Technicals
Monthly
July currently has very limited impact on overall picture. Technically current upward action is first one after long term of decreasing and it should be interrupted by deep retracement sometime. Probably it should happen but this potential downward action has a great chance to become just a retracement. Overall political and financial situation in the world probably will not give a chance to relax. Thus, we have a positive long-term view on gold market.
As market slightly has moved above YPP and our K-resistance area, something is starting to form here, I mean pattern by which long-term global trend could change on gold.
Take a careful look at the picture - could you recognize here possible reverse 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...
Finally take a look at action on downward slope and upward one of the head - last move down was slower than current move up. All these moments point on possible H&S pattern here.
If we really will get it - then we could make an assumption on possible depth of retracement. Now the bottom of shoulder stands approximately around 1160 area...
Now market is approaching to major, all time 3/8 Fib resistance @ 1380 level. First reaction already has followed, as gold has dropped. But this drop has not taken the shape of tendency yet. Let's see how situation will change in coming 1-2 weeks:
Weekly
Based on analysis of monthly chart, we probably should be focused on searching downward reversal patterns, that could confirm (or destroy, may be) our thoughts on monthy pattern.
Here guys, again, we have only some hints. It seems that something is forming here, some really important thing will follow, and probably soon, but not yet, as market just has finished upside action.
There are two important things here. First one forbids us to go long - weekly overbought and reaching of 1.618 extension of recent retracement down. Second - again, the same 1.618 ratio and hint on H&S, but now on direct one, bearish reversal pattern.
Weekly chart also shows that the bottom of downward retracement will be around 1160-1170 as here we have major 5/8 Fib support. And also we could get some opinion on the shape of retracement. H&S usually suggests some AB=CD down, based on the head and on right shoulder.
So, everything that we've said last week is valid today as well. Now our former analsys is adjusted by bearish engulfing pattern right at the top of our construction here. This pattern could become even better, but Turkey events have prevented it and market bounced up slightly right before Friday close:
Daily
Trend has shifted bearish here. After we've got "Hanging man" pattern last week - market has dropped as deep as it could and reached Fib support and daily oversold level. As on Thu as on Fri it has challenged this level but it seems that some real support exists here and prices were pulled back both times.
As we've said in our daily updates, in fact here we have DiNapoli bullish "Stretch" directional pattern. This is your personal decision to trade it or not, but it is strongly recommended to not go againt it. Thus, you may not go long here (as do we), but have to stay aside from short position and wait when Stretch will exhaust. Some upside bounce probably should happen.
This suggestion corresponds to weekly engulfing pattern, because in most cases as pattern has been formed - price shows minor return back inside the body of engulfing
4-hour
This picture probably needs no comments. We've said everything on Friday. Neckline has been hit, bullish divergence, wedge has been broken - thus, upward action on the way. It seems that gold should reached an area around 1350-1360 to form harmonic right shoulder. This moment will be most important for bears as it will be nice oportunity for taking short position:
Hourly
Here guys, we have multiple patterns but no one points precisely at 1360 area. Thus, most recent AB=CD up has too close targets, while butterfly pattern shows agreement with 5/8 major Fib level. 1.618 target stands around 1364.
So, let's focus at this pattern first and then we will see what will happen. The only thing that we should keep in mind as well - possible reverse H&S here. The butterfly is head. In this case, target of this pattern will be precisely 1360 area... so, we'll see.
At the same time, to be honest, we do not care much how precisely market will reach 1360. We're mostly interested what will happen after that and what patterns will be formed at the top of right shoulder, since we mostly think about short position here...
Besides, guys, it is still unclear how gold will react on Monday on Turkish events. Mostly government have taken control over situation but turmoil has not been resolved totally yet...
Conclusion:
We continue to keep long-term bullish view on gold market. But now chances on deep retracement are very high due combination of as sentiment as technical moments. Partially we even could recognize thrilling pattern on monthly chart which brings more clarity and shows definite levels to watch for. Now is the major question whether it will be formed or not.
In short-term perspective first is - wait market reaction on turmoil in Turkey. Do not open any positions right at the market's open. In the beginning of the week, we think that it is better to not go long, and wait when market will leave oversold area and Stretch pattern will work out. Mostly we're watching for 1360 area, where we should get some bearish signal.
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 fell on Friday and was set for its first weekly loss since May on improving global risk sentiment and a stronger dollar after better-than-expected U.S. data. European shares edged lower after at least 84 people died in an attack in France, while U.S. Treasury yields jumped as strong economic data renewed prospects of a Federal Reserve interest rate hike. U.S. stocks eased from record highs.
Spot gold was down 0.5 percent at $1,327.91 an ounce by 2:48 p.m EDT (1848 GMT), while U.S. gold settled down 0.4 percent at $1,327.40 per ounce. U.S. retail sales rose 0.6 percent in June, compared to an
expected 0.1 percent rise.
"In the short term, we can see some more pressure towards $1,300 as the focus is back on the U.S. after strong economic data, which increases the probability of a rate hike before the end of the year," Commerzbank analyst Carsten Fritsch said. Higher U.S. rates tend to damage gold prices because they
increase the opportunity cost of holding non-yielding bullion. After six weeks of gains, the longest rally since March 2014, the metal has come under pressure this week, down 2.8 percent so far. It was hit by strong U.S. non-farm payrolls data and as uncertainty around the implications of Britain's Brexit vote eased with the formation of a new government.
"Investors are taking profits, but $1,300 is now a floor for gold and that is going to hold moving forward," ING Bank senior strategist Hamza Khan said. The dollar was set for its biggest weekly gain against the yen in 17 years and was up 0.5 percent versus a basket of six currencies, making gold more expensive to foreign holders.
In Asia, consumers took profits on their gold holdings after last week's price rally helped bullion hit its highest in more than two years. Among other precious metals, spot palladium touched its highest since early November at $652 an ounce. "We favor industrially-oriented precious metals, like platinum and palladium, which should see larger market deficits," said UBS Chief Investment Office Wealth Management in
a note, pointing out low interest rates and abundant central bank liquidity. "Our favored precious metal allocation is 60 percent palladium, 30 percent platinum and 10 percent gold."
COT Report shows picture that we would like to see and talked about it for a long time, but it has started to happen just after superb NFP data. Now we see that last week as net speculative long position as open interest have decreased slightly. Yes, degree of decreasing is small, but this is was just first week. We will keep an eye on tendency, because last week gold has dropped further and this should push traders to more active profit taking:
Technicals
Monthly
July currently has very limited impact on overall picture. Technically current upward action is first one after long term of decreasing and it should be interrupted by deep retracement sometime. Probably it should happen but this potential downward action has a great chance to become just a retracement. Overall political and financial situation in the world probably will not give a chance to relax. Thus, we have a positive long-term view on gold market.
As market slightly has moved above YPP and our K-resistance area, something is starting to form here, I mean pattern by which long-term global trend could change on gold.
Take a careful look at the picture - could you recognize here possible reverse 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...
Finally take a look at action on downward slope and upward one of the head - last move down was slower than current move up. All these moments point on possible H&S pattern here.
If we really will get it - then we could make an assumption on possible depth of retracement. Now the bottom of shoulder stands approximately around 1160 area...
Now market is approaching to major, all time 3/8 Fib resistance @ 1380 level. First reaction already has followed, as gold has dropped. But this drop has not taken the shape of tendency yet. Let's see how situation will change in coming 1-2 weeks:
Weekly
Based on analysis of monthly chart, we probably should be focused on searching downward reversal patterns, that could confirm (or destroy, may be) our thoughts on monthy pattern.
Here guys, again, we have only some hints. It seems that something is forming here, some really important thing will follow, and probably soon, but not yet, as market just has finished upside action.
There are two important things here. First one forbids us to go long - weekly overbought and reaching of 1.618 extension of recent retracement down. Second - again, the same 1.618 ratio and hint on H&S, but now on direct one, bearish reversal pattern.
Weekly chart also shows that the bottom of downward retracement will be around 1160-1170 as here we have major 5/8 Fib support. And also we could get some opinion on the shape of retracement. H&S usually suggests some AB=CD down, based on the head and on right shoulder.
So, everything that we've said last week is valid today as well. Now our former analsys is adjusted by bearish engulfing pattern right at the top of our construction here. This pattern could become even better, but Turkey events have prevented it and market bounced up slightly right before Friday close:
Daily
Trend has shifted bearish here. After we've got "Hanging man" pattern last week - market has dropped as deep as it could and reached Fib support and daily oversold level. As on Thu as on Fri it has challenged this level but it seems that some real support exists here and prices were pulled back both times.
As we've said in our daily updates, in fact here we have DiNapoli bullish "Stretch" directional pattern. This is your personal decision to trade it or not, but it is strongly recommended to not go againt it. Thus, you may not go long here (as do we), but have to stay aside from short position and wait when Stretch will exhaust. Some upside bounce probably should happen.
This suggestion corresponds to weekly engulfing pattern, because in most cases as pattern has been formed - price shows minor return back inside the body of engulfing
4-hour
This picture probably needs no comments. We've said everything on Friday. Neckline has been hit, bullish divergence, wedge has been broken - thus, upward action on the way. It seems that gold should reached an area around 1350-1360 to form harmonic right shoulder. This moment will be most important for bears as it will be nice oportunity for taking short position:
Hourly
Here guys, we have multiple patterns but no one points precisely at 1360 area. Thus, most recent AB=CD up has too close targets, while butterfly pattern shows agreement with 5/8 major Fib level. 1.618 target stands around 1364.
So, let's focus at this pattern first and then we will see what will happen. The only thing that we should keep in mind as well - possible reverse H&S here. The butterfly is head. In this case, target of this pattern will be precisely 1360 area... so, we'll see.
At the same time, to be honest, we do not care much how precisely market will reach 1360. We're mostly interested what will happen after that and what patterns will be formed at the top of right shoulder, since we mostly think about short position here...
Besides, guys, it is still unclear how gold will react on Monday on Turkish events. Mostly government have taken control over situation but turmoil has not been resolved totally yet...
Conclusion:
We continue to keep long-term bullish view on gold market. But now chances on deep retracement are very high due combination of as sentiment as technical moments. Partially we even could recognize thrilling pattern on monthly chart which brings more clarity and shows definite levels to watch for. Now is the major question whether it will be formed or not.
In short-term perspective first is - wait market reaction on turmoil in Turkey. Do not open any positions right at the market's open. In the beginning of the week, we think that it is better to not go long, and wait when market will leave oversold area and Stretch pattern will work out. Mostly we're watching for 1360 area, where we should get some bearish signal.
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.
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