Sive Morten
Special Consultant to the FPA
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Fundamentals
(Reuters) - Gold was set for its biggest weekly gain in two months on Friday as a surging euro dragged down the U.S. dollar to its weakest since June 2016, making bullion cheaper for holders of other currencies.
Bond yields fell after European Central Bank President Mario Draghi said on Thursday the ECB was in no rush to scale back its asset purchase program. The greenback retreated against a basket of major currencies, with the dollar index hitting a more than one-year low in afternoon dealings.
Central banks have "taken a more dovish tone and the dollar is working in gold's favor," said Josh Graves, a senior market strategist with RJO Futures in Chicago.
Gold is highly sensitive to rising interest rates. Lower yields help gold prices by reducing the opportunity cost of holding non-yielding bullion.
Spot gold was up 0.87 percent at $1,255.0601 an ounce by 2:21 p.m. EDT (1821 GMT). Prices hit $1,255, the highest since June 26, and were on track for their largest weekly gain since May. U.S. gold futures for August delivery settled up $9.4, or 0.75 percent, at $1,254.90 per ounce and finished the week up 2.2 percent.
While gold was benefiting from the dollar's weakness against the euro and the move in yields, its gains would be limited by expected interest rate rises by the U.S. Federal Reserve and it would remain in a $1,200-$1,250 range, ABN AMRO analyst Georgette Boele said.
The Fed's rate-setting committee is due to meet on July 25 and 26. Gold broke through resistance at its technically important 100- and 50-day moving averages, both around $1,250. Falling bond yields and a weakening dollar have helped gold rise 3.9 percent from a low of $1,204.45 on July 10, but this was driven by short-covering and not physical demand, Julius Baer analyst Carsten Menke said.
Holdings in the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, have fallen 4.3 percent, or 1.2 million tonnes, this month.
COT Report
CFTC data shows very interesting picture, that is not too often to see on market. Take a look that within last 2 months gold mostly was standing in bearish sentiment, as net long speculative position dropping while open interest was rising.
In last two weeks when gold starts to show some attempts to go higher - net position stands flat, while open interest has increased again. It means that bulls/bears status quo has not changed and approximately equal amount of long and shorts were opened.
Theoretically this could become a sign of coming changes on the market but overall it looks weak, because investors open shorts as well and use rally to sell into.
The same information we see on SPDR fund. Gold stands in upside action for send week, but fund continues to loose gold, i.e. investors are selling.
It means that despite the strength of the rally, it has fragile basis and could stop at any moment.
Technical
Monthly
So, market still keeps double-sided setup as bullish as bearish patterns are not destroyed yet by price action. Crucial level for them is 1122 area. As we have discussed recently, upside scenario could lead market to 1330 YPR1 first and back to 1380 second, while bearish scenario you see on the chart...
As we talk about changes in sentiment last two weeks, let's take a look at alternative scenario on gold market, compares to what we've discussed previously. Scenario that we will talk about has not been formed yet and it has some degree of uncertainty as major levels that are crucial for this scenario, have not been broken yet.
In fact, our previous scenario on possible reverse H&S pattern is still valid. The breakeven point between these scenarios stands around 1120 lows. If Price will drop below it - gold siginficantly will increase chances on downside continuation.
Right now trend has turned bearish again on monthly chart. Bullish grabber, that has been formed two months ago was completed. But it has reached just minimal target that has become W&R on weekly and daily charts. Other words speaking we see gold inability to support upside trend.
From Pivot point analysis, gold also shows a bit irrational behavior. Once YPP was broken up - gold was not able to reach YPR1 and suddenly has turned down.
It means that we could get either big Butterfly "Buy" pattern with potential target around 950$ or, at least "222" Buy around 1040 area on monthly chart . Until price stands above 1122 lows - there will be some uncertainty around them as gold also could form opposite pattern, we will take a look at it below. But breaking of 1122 will erase any questions...
Weekly
Last week gold has shown upside action. The range of the week is not too wide, but it shows tail close. Still, it is difficult to make a decision based just on single new candle as it barely impacts on overall picture. Besides, we should keep in mind the weakness in sentiment that CFTC data shows.
In general weekly chart shows alternative scenario that stands in relation to the same 1122 lows. While market stands above this level - big butterfly "Sell" is possible, at least theoretically.
Despite overall bullish action last week - bearish tendency of lower highs and lower lows has not been broken yet. And it means that recent upside action is just a retracement by far and downward action has chances on continuations. Still, it is a bit early to talk whether price will break 1122 or not. Trend is bearish on weekly chart as well.
As we've talked previously, weekly chart shows see some not quite bullish signs. First is, irrational downside reversal in area where were no barriers for upside continuation. Gold has turned down from 1295 area when it has broken all major resistance levels. Second - take a look at large AB-CD pattern. Gold was not able to reach even minor 0.618 extension around 1330 area and dropped. These moments point on weakness on the market.
Thus, gold pretty much space till 1122 while butterfly setup will be valid. If, finally 1122 area will be broken - this butterfly will be erased, and bearish setup that we've talked about on monthly chart could turn to active phase.
Daily
This time frame clearly shows that riddle will not be resolved, until market will remain in consolidation below 1290 area. Yes, we have here some bullish technical hints, as hidden divergence with MACD, but we could talk on re-establishing of bull trend only when we will get sequence on higher tops and higher lows, but this will happen only if price will break 1290 area.
It means that during 1-2 weeks gold probably will stand in consoldation. We could get some intraday patterns for trading, but no answer will be on major question about further trend direction.
Deep retracement that gold now shows is normal feature, as price has dropped below former 1213 lows and formed bearish reversal swing. In fact, we have some widening triangle consoldation and direction mostly will depend on breakout. For us it means that during few weeks we should focus on intraday charts while gold stands inside this daily widening pattern.
On coming week it will be interesting to see what will happen around 1270 area where harmonic swing should finish...
Intraday
So, now market is coming to an area, where we could get some intraday patterns. This will be 1260 resistance. Besides of daily major Fib level, here we have natural support/ resistance area, MPP and WPR1 slightly higher:
Approximately something we could get around 1265 area as hourly AB-CD pattern should be completed there:
Conclusion
Long term charts keep valid two opposite scenarios with thrilling scale. The separate line between them is 1122 area.
In short-term perspective, gold stands in wide consolidation and is forming a kind of widening triangle pattern. That's why hardly we will get clarity about direction within 1-2 weeks.
All that we could do right now on gold market is to watch for short-term intraday patterns, that could appear around major support/resistance levels. One of them is 1260-1265 area that gold should reach on coming week. In general, recent rally looks suspicious - although it looks strong but has no support by SPDR stats and CFTC data...
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 was set for its biggest weekly gain in two months on Friday as a surging euro dragged down the U.S. dollar to its weakest since June 2016, making bullion cheaper for holders of other currencies.
Bond yields fell after European Central Bank President Mario Draghi said on Thursday the ECB was in no rush to scale back its asset purchase program. The greenback retreated against a basket of major currencies, with the dollar index hitting a more than one-year low in afternoon dealings.
Central banks have "taken a more dovish tone and the dollar is working in gold's favor," said Josh Graves, a senior market strategist with RJO Futures in Chicago.
Gold is highly sensitive to rising interest rates. Lower yields help gold prices by reducing the opportunity cost of holding non-yielding bullion.
Spot gold was up 0.87 percent at $1,255.0601 an ounce by 2:21 p.m. EDT (1821 GMT). Prices hit $1,255, the highest since June 26, and were on track for their largest weekly gain since May. U.S. gold futures for August delivery settled up $9.4, or 0.75 percent, at $1,254.90 per ounce and finished the week up 2.2 percent.
While gold was benefiting from the dollar's weakness against the euro and the move in yields, its gains would be limited by expected interest rate rises by the U.S. Federal Reserve and it would remain in a $1,200-$1,250 range, ABN AMRO analyst Georgette Boele said.
The Fed's rate-setting committee is due to meet on July 25 and 26. Gold broke through resistance at its technically important 100- and 50-day moving averages, both around $1,250. Falling bond yields and a weakening dollar have helped gold rise 3.9 percent from a low of $1,204.45 on July 10, but this was driven by short-covering and not physical demand, Julius Baer analyst Carsten Menke said.
Holdings in the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, have fallen 4.3 percent, or 1.2 million tonnes, this month.
COT Report
CFTC data shows very interesting picture, that is not too often to see on market. Take a look that within last 2 months gold mostly was standing in bearish sentiment, as net long speculative position dropping while open interest was rising.
In last two weeks when gold starts to show some attempts to go higher - net position stands flat, while open interest has increased again. It means that bulls/bears status quo has not changed and approximately equal amount of long and shorts were opened.
Theoretically this could become a sign of coming changes on the market but overall it looks weak, because investors open shorts as well and use rally to sell into.
The same information we see on SPDR fund. Gold stands in upside action for send week, but fund continues to loose gold, i.e. investors are selling.
It means that despite the strength of the rally, it has fragile basis and could stop at any moment.
Technical
Monthly
So, market still keeps double-sided setup as bullish as bearish patterns are not destroyed yet by price action. Crucial level for them is 1122 area. As we have discussed recently, upside scenario could lead market to 1330 YPR1 first and back to 1380 second, while bearish scenario you see on the chart...
As we talk about changes in sentiment last two weeks, let's take a look at alternative scenario on gold market, compares to what we've discussed previously. Scenario that we will talk about has not been formed yet and it has some degree of uncertainty as major levels that are crucial for this scenario, have not been broken yet.
In fact, our previous scenario on possible reverse H&S pattern is still valid. The breakeven point between these scenarios stands around 1120 lows. If Price will drop below it - gold siginficantly will increase chances on downside continuation.
Right now trend has turned bearish again on monthly chart. Bullish grabber, that has been formed two months ago was completed. But it has reached just minimal target that has become W&R on weekly and daily charts. Other words speaking we see gold inability to support upside trend.
From Pivot point analysis, gold also shows a bit irrational behavior. Once YPP was broken up - gold was not able to reach YPR1 and suddenly has turned down.
It means that we could get either big Butterfly "Buy" pattern with potential target around 950$ or, at least "222" Buy around 1040 area on monthly chart . Until price stands above 1122 lows - there will be some uncertainty around them as gold also could form opposite pattern, we will take a look at it below. But breaking of 1122 will erase any questions...
Weekly
Last week gold has shown upside action. The range of the week is not too wide, but it shows tail close. Still, it is difficult to make a decision based just on single new candle as it barely impacts on overall picture. Besides, we should keep in mind the weakness in sentiment that CFTC data shows.
In general weekly chart shows alternative scenario that stands in relation to the same 1122 lows. While market stands above this level - big butterfly "Sell" is possible, at least theoretically.
Despite overall bullish action last week - bearish tendency of lower highs and lower lows has not been broken yet. And it means that recent upside action is just a retracement by far and downward action has chances on continuations. Still, it is a bit early to talk whether price will break 1122 or not. Trend is bearish on weekly chart as well.
As we've talked previously, weekly chart shows see some not quite bullish signs. First is, irrational downside reversal in area where were no barriers for upside continuation. Gold has turned down from 1295 area when it has broken all major resistance levels. Second - take a look at large AB-CD pattern. Gold was not able to reach even minor 0.618 extension around 1330 area and dropped. These moments point on weakness on the market.
Thus, gold pretty much space till 1122 while butterfly setup will be valid. If, finally 1122 area will be broken - this butterfly will be erased, and bearish setup that we've talked about on monthly chart could turn to active phase.
Daily
This time frame clearly shows that riddle will not be resolved, until market will remain in consolidation below 1290 area. Yes, we have here some bullish technical hints, as hidden divergence with MACD, but we could talk on re-establishing of bull trend only when we will get sequence on higher tops and higher lows, but this will happen only if price will break 1290 area.
It means that during 1-2 weeks gold probably will stand in consoldation. We could get some intraday patterns for trading, but no answer will be on major question about further trend direction.
Deep retracement that gold now shows is normal feature, as price has dropped below former 1213 lows and formed bearish reversal swing. In fact, we have some widening triangle consoldation and direction mostly will depend on breakout. For us it means that during few weeks we should focus on intraday charts while gold stands inside this daily widening pattern.
On coming week it will be interesting to see what will happen around 1270 area where harmonic swing should finish...
Intraday
So, now market is coming to an area, where we could get some intraday patterns. This will be 1260 resistance. Besides of daily major Fib level, here we have natural support/ resistance area, MPP and WPR1 slightly higher:
Approximately something we could get around 1265 area as hourly AB-CD pattern should be completed there:
Conclusion
Long term charts keep valid two opposite scenarios with thrilling scale. The separate line between them is 1122 area.
In short-term perspective, gold stands in wide consolidation and is forming a kind of widening triangle pattern. That's why hardly we will get clarity about direction within 1-2 weeks.
All that we could do right now on gold market is to watch for short-term intraday patterns, that could appear around major support/resistance levels. One of them is 1260-1265 area that gold should reach on coming week. In general, recent rally looks suspicious - although it looks strong but has no support by SPDR stats and CFTC data...
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.
