Sive Morten
Special Consultant to the FPA
- Messages
- 18,781
Fundamentals
So, this is just one major event was standing in focus this week - D. Trump tariffs across the Globe, which hurts Mexico this time and expected impact on US economy and Fed policy. These two factors push gold to the sky.
In general, action stands in a row with our long-term expectations. Just to remind in two word - world stands in big political and economical shift. When such events happen - world can't avoid big turmoils and this is very good background for the gold market.
At the same time, as we can't predict political events, external driving factors skew the picture that we get from the charts, changing the order of price action.
As Reuters reports this week, gold prices rose on Friday to remain on track for their first monthly gain since January, with expectations of cuts in U.S. interest rates boosted by inflation data for the first quarter.
Markets were also keeping a close eye on international trade tensions, with U.S. President Donald Trump’s shock move to slap tariffs on Mexico risking tipping the United States, and maybe the whole world, into recession.
U.S. inflation was much weaker than initially thought in the first quarter amid a sharp slowdown in domestic demand, which could cast doubts on the Federal Reserve’s view that the benign price pressures were largely because of temporary factors.
“People are doing fear trade now and running towards gold,” said Michael Matousek, head trader at U.S. Global Investors. He noted investors were unsure of what Trump planned to do.
“That tells you need to have higher allocation to gold in your portfolios.”
Mexico’s president on Friday urged Trump to back down from threats to impose tariffs on its exports to the United States, in a dispute over migration that could create a major economic shock for Mexico.
Wall Street’s main equity indexes fell sharply, hit by fears that Trump’s threat could prove the trigger that pushes the world’s largest economy into recession.
U.S. carmakers and manufacturers were among the worst hit, having built vehicles in Mexico for years, taking advantage of its cheap labour, trade deals and proximity to the United States.
“The dollar index is still in the 98-area, which is normally a headwind for gold but because of the extreme stock tumbling, it seems to be ignoring the normal headwind,” said George Gero, managing director at RBC Wealth Management.
“Gold is probably going to stay in this $1,300 area as long as the selloff (in equities) continues.”
Meanwhile, expectations of a cut in interest rates by the U.S. Federal Reserve increased after recent weak economic readings from the U.S. added to concerns raised by the prolonged U.S.-China trade dispute.
Lower interest rates would support gold because they reduce the opportunity cost of holding non-yielding bullion.
Also adding to economic woes, China’s factory activity shrank more than expected in May, an official survey showed on Friday, heaping pressure on Beijing to roll out more stimulus to support an economy hit by a bruising trade war with the United States.
Next week there are a lot of events, guys, on the table. RahmanSL puts great list of coming political events, but also do not forget on statistics, NFP on Friday as well.
CFTC data shows stable condition, as gold net position stands long but doesn't show big changes. It is interesting to see it next week. As data prepares on Wednesdays, this week it doesn't include results of rally, while next week it will.
Source: cftc.gov
Charting by Investing.com
As US-Sino tariffs piking stands as a core of gold rally, we would like to share Fathom Consulting view on possible perspective of this turmoil. As we talked earlier, and still support this view - tariffs is a robbing tool in the hands of the US. Only US could get meaningful earnings from using it, but not other countries. It comes due dominant role of US Dollar in global trade. Everything that any country needs - it could buy only for USD (majorly). Thus, whatever sanctions and tariffs will be initiated against the US by China or any other country - it barely lead to serious consequences. Slowdown of economy - yes, but not fatal hit. In result, US gets what it want and twist the arms to anybody who will try to object. That's why we think that despite possible impact on US economy - US will win any tariff's war due domination of US dollar. We talked about it in detail last time. The Political reputation also stands on table, as US can't push the back pedal and play everything back - they will lose public face.
Here is what Fathom tells:
While the trade spat will have costs for both economies, the Chinese economy appears to be more vulnerable to a downturn from such a development. As the chart below indicates, China exports to the US account for almost 4% of its GDP, while US exports to China account for around 1% of US GDP. We had previously likened the trade negotiations to a high-stakes game of chicken, which we expected the US to win. However, thus far, China has shown little sign of backing down and a resolution to the dispute now appears some way off.
With the 10% tariff now increased to 25% on US$ 200 billion worth of goods, China’s economy is likely to feel the pain in the coming months.
For gold it is positive sentiment background, no doubts. As China tariffs stand underway, Mexico ones were announced and on the table, and EU, needless to suppress, yet to be launched - this keeps the same driving factors valid for the considerable time. We mean market expectations of Fed rate cut and negative impact on stock market and economy statistics, drop of US interest rates etc. All these factors support demand for the gold.
Technical
Monthly
Technically, gold also shows good performance, keeping our long term view valid. Our fundamental and sentiment analysis shows that no big changes have happened and gold still stands positive. Despite technical retracement, we do not have reasons yet to cancel our long-term positive view on gold. On monthly chart see price stands at Yearly Pivot which holds overall situation balanced.
As market stands in tight range 4th month in a row, the shape of price action more and more reminds bullish flag pattern, which corresponds to our long-term view. Now gold starts strong action and comes to grips with upside breakout.
The only concern that we have is mostly technical. Upside reversal that we've got last week, looks nice, but it has happened a bit early to what we've expected. And the question is - whether we still get downside continuation a bit later to hit major target, or not. Right now it is difficult to imagine that this will happen, but gold stands at our predefined 1306 resistance and price action on next week should become a decisive one.
As we've said earlier, we're watching for our so called "symmetrical" model. It could be clear symmetry in market action, and we have suggested that future action could be a reflection of previous downside action shape.
Gold has shown good performance in December - February, which could put the foundation of new long-term upside trend. We still keep our harmonic technical model on monthly chart as primary tool of analysis. Current retracement down looks strong on daily chart, but it is just 30% of major swing up which is minimal level.
Fundamental reasons for gold rising mostly relate to changing of global political and economical situation. Strong global shifts never could happen without big political events. This should provide big support to gold market. Now it is widely suggested that these processes should accelerate closer to 2020 year, or even in second half of 2019. Right now we see that it also has impact on economy.
Here is explanation of our "symmetrical" model and scenario.In two words we could describe it as "compounded reverse H&S" shape. Important COP target has been hit and upside action has started. In fact we have mirror action to the right and to the left from COP point. Market forms approximately equal lows on both sides. The speed is also similar. Is it possible that reversal is forming? Why not.
Among bullish signs we could mention MACD hidden divergence which suggests action above 1380 top in long-term perspective.
Thus, overall situation on monthly chart shows bullish sentiment.
Weekly
Last time we've explained in details, why we have concern here and come to the only solution -
"Trying to find a solution here, we suggest that it might be two-leg upside action, and gold still could form 3-Drive pattern. This is the only compromise - how to combine possible upside action with overall bearish setup on weekly chart."
Thus red AB-CD upside action is done as gold hits predefined 1306 target. Despite that suggestion was correct our mood is mixed as it was real challenge to catch it. Anyway, now market stands at decision point - upside breakout, action to 1322 area of "C" point means that now downside continuation will be and we should start to think about challenge of 1350 top. Downside reversal with acceleration confirms validity of our 3-Drive pattern.
Definitely that advantage on bullish side, because as fundamentally as technically gold looks strong. One single candle right to 1306 level suggests further continuation due very strong momentum.
For the truth sake, technical factors now takes backseat. As last week it was difficult to imagine the gold rally, due weak performance as this week it is difficult to imagine sharp downside reversal, but D. Trump words get water from a flint...
Daily
Here is our tricky pattern, "222" Sell. Obviously, in current circumstance we can't talk on major reversal, but only on retracement. We have technical background for it - daily Overbought, AB=CD target and MPR1. But this setup is for scalp traders only, on intraday charts. Daily context is bullish and here we mostly should wait for meaningful retracement to consider long entry.
XOP target stands above the "C" point of our initial downside AB-CD pattern. It means that if gold still continue to climb higher - it will erase AB-CD pattern and all uncompleted targets that right now act as disturbing factor for us.
But, hardly this will happen this week as market already stands at overbought. Also we have 1316 major Fib resistance.
By pivot point framework - breaking above MPR1 means that major upside trend continues. PR1 usually holds retracements, but major trend continuation breaks them.
Intraday
Here is not much to comment. Upside action is unstoppable, it is no reversal patterns have been formed yet, our XOP has been hit as well.
Thus, we could try to use the thrust - any DiNapoli directional patterns are subject for trading, B&B's, DRPO "Sell", DRPO Failure etc. Once retracement will be done - as usual, we watch for "222" patterns etc. Now we could approximately tell that retracement should stuck somewhere in 1287-1295 area, as solid support cluster stands there.
Conclusion
No doubts, gold keeps positive mood, shows great upside impulse and fundamental background for continuation. But, this is also the weakness, as political factors are easy to come but also easy to go. And this is the major risk. Current rally has no persistence, compares to action, driving by stable gradually increasing demand. It could turn 180 degrees in a blink of an eye once D. Trump says opposite things.
This fact makes gold trading extremely difficult now.
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.
So, this is just one major event was standing in focus this week - D. Trump tariffs across the Globe, which hurts Mexico this time and expected impact on US economy and Fed policy. These two factors push gold to the sky.
In general, action stands in a row with our long-term expectations. Just to remind in two word - world stands in big political and economical shift. When such events happen - world can't avoid big turmoils and this is very good background for the gold market.
At the same time, as we can't predict political events, external driving factors skew the picture that we get from the charts, changing the order of price action.
As Reuters reports this week, gold prices rose on Friday to remain on track for their first monthly gain since January, with expectations of cuts in U.S. interest rates boosted by inflation data for the first quarter.
Markets were also keeping a close eye on international trade tensions, with U.S. President Donald Trump’s shock move to slap tariffs on Mexico risking tipping the United States, and maybe the whole world, into recession.
U.S. inflation was much weaker than initially thought in the first quarter amid a sharp slowdown in domestic demand, which could cast doubts on the Federal Reserve’s view that the benign price pressures were largely because of temporary factors.
“People are doing fear trade now and running towards gold,” said Michael Matousek, head trader at U.S. Global Investors. He noted investors were unsure of what Trump planned to do.
“That tells you need to have higher allocation to gold in your portfolios.”
Mexico’s president on Friday urged Trump to back down from threats to impose tariffs on its exports to the United States, in a dispute over migration that could create a major economic shock for Mexico.
Wall Street’s main equity indexes fell sharply, hit by fears that Trump’s threat could prove the trigger that pushes the world’s largest economy into recession.
U.S. carmakers and manufacturers were among the worst hit, having built vehicles in Mexico for years, taking advantage of its cheap labour, trade deals and proximity to the United States.
“The dollar index is still in the 98-area, which is normally a headwind for gold but because of the extreme stock tumbling, it seems to be ignoring the normal headwind,” said George Gero, managing director at RBC Wealth Management.
“Gold is probably going to stay in this $1,300 area as long as the selloff (in equities) continues.”
Meanwhile, expectations of a cut in interest rates by the U.S. Federal Reserve increased after recent weak economic readings from the U.S. added to concerns raised by the prolonged U.S.-China trade dispute.
Lower interest rates would support gold because they reduce the opportunity cost of holding non-yielding bullion.
Also adding to economic woes, China’s factory activity shrank more than expected in May, an official survey showed on Friday, heaping pressure on Beijing to roll out more stimulus to support an economy hit by a bruising trade war with the United States.
Next week there are a lot of events, guys, on the table. RahmanSL puts great list of coming political events, but also do not forget on statistics, NFP on Friday as well.
CFTC data shows stable condition, as gold net position stands long but doesn't show big changes. It is interesting to see it next week. As data prepares on Wednesdays, this week it doesn't include results of rally, while next week it will.
Source: cftc.gov
Charting by Investing.com
As US-Sino tariffs piking stands as a core of gold rally, we would like to share Fathom Consulting view on possible perspective of this turmoil. As we talked earlier, and still support this view - tariffs is a robbing tool in the hands of the US. Only US could get meaningful earnings from using it, but not other countries. It comes due dominant role of US Dollar in global trade. Everything that any country needs - it could buy only for USD (majorly). Thus, whatever sanctions and tariffs will be initiated against the US by China or any other country - it barely lead to serious consequences. Slowdown of economy - yes, but not fatal hit. In result, US gets what it want and twist the arms to anybody who will try to object. That's why we think that despite possible impact on US economy - US will win any tariff's war due domination of US dollar. We talked about it in detail last time. The Political reputation also stands on table, as US can't push the back pedal and play everything back - they will lose public face.
Here is what Fathom tells:
While the trade spat will have costs for both economies, the Chinese economy appears to be more vulnerable to a downturn from such a development. As the chart below indicates, China exports to the US account for almost 4% of its GDP, while US exports to China account for around 1% of US GDP. We had previously likened the trade negotiations to a high-stakes game of chicken, which we expected the US to win. However, thus far, China has shown little sign of backing down and a resolution to the dispute now appears some way off.
With the 10% tariff now increased to 25% on US$ 200 billion worth of goods, China’s economy is likely to feel the pain in the coming months.
For gold it is positive sentiment background, no doubts. As China tariffs stand underway, Mexico ones were announced and on the table, and EU, needless to suppress, yet to be launched - this keeps the same driving factors valid for the considerable time. We mean market expectations of Fed rate cut and negative impact on stock market and economy statistics, drop of US interest rates etc. All these factors support demand for the gold.
Technical
Monthly
Technically, gold also shows good performance, keeping our long term view valid. Our fundamental and sentiment analysis shows that no big changes have happened and gold still stands positive. Despite technical retracement, we do not have reasons yet to cancel our long-term positive view on gold. On monthly chart see price stands at Yearly Pivot which holds overall situation balanced.
As market stands in tight range 4th month in a row, the shape of price action more and more reminds bullish flag pattern, which corresponds to our long-term view. Now gold starts strong action and comes to grips with upside breakout.
The only concern that we have is mostly technical. Upside reversal that we've got last week, looks nice, but it has happened a bit early to what we've expected. And the question is - whether we still get downside continuation a bit later to hit major target, or not. Right now it is difficult to imagine that this will happen, but gold stands at our predefined 1306 resistance and price action on next week should become a decisive one.
As we've said earlier, we're watching for our so called "symmetrical" model. It could be clear symmetry in market action, and we have suggested that future action could be a reflection of previous downside action shape.
Gold has shown good performance in December - February, which could put the foundation of new long-term upside trend. We still keep our harmonic technical model on monthly chart as primary tool of analysis. Current retracement down looks strong on daily chart, but it is just 30% of major swing up which is minimal level.
Fundamental reasons for gold rising mostly relate to changing of global political and economical situation. Strong global shifts never could happen without big political events. This should provide big support to gold market. Now it is widely suggested that these processes should accelerate closer to 2020 year, or even in second half of 2019. Right now we see that it also has impact on economy.
Here is explanation of our "symmetrical" model and scenario.In two words we could describe it as "compounded reverse H&S" shape. Important COP target has been hit and upside action has started. In fact we have mirror action to the right and to the left from COP point. Market forms approximately equal lows on both sides. The speed is also similar. Is it possible that reversal is forming? Why not.
Among bullish signs we could mention MACD hidden divergence which suggests action above 1380 top in long-term perspective.
Thus, overall situation on monthly chart shows bullish sentiment.
Weekly
Last time we've explained in details, why we have concern here and come to the only solution -
"Trying to find a solution here, we suggest that it might be two-leg upside action, and gold still could form 3-Drive pattern. This is the only compromise - how to combine possible upside action with overall bearish setup on weekly chart."
Thus red AB-CD upside action is done as gold hits predefined 1306 target. Despite that suggestion was correct our mood is mixed as it was real challenge to catch it. Anyway, now market stands at decision point - upside breakout, action to 1322 area of "C" point means that now downside continuation will be and we should start to think about challenge of 1350 top. Downside reversal with acceleration confirms validity of our 3-Drive pattern.
Definitely that advantage on bullish side, because as fundamentally as technically gold looks strong. One single candle right to 1306 level suggests further continuation due very strong momentum.
For the truth sake, technical factors now takes backseat. As last week it was difficult to imagine the gold rally, due weak performance as this week it is difficult to imagine sharp downside reversal, but D. Trump words get water from a flint...
Daily
Here is our tricky pattern, "222" Sell. Obviously, in current circumstance we can't talk on major reversal, but only on retracement. We have technical background for it - daily Overbought, AB=CD target and MPR1. But this setup is for scalp traders only, on intraday charts. Daily context is bullish and here we mostly should wait for meaningful retracement to consider long entry.
XOP target stands above the "C" point of our initial downside AB-CD pattern. It means that if gold still continue to climb higher - it will erase AB-CD pattern and all uncompleted targets that right now act as disturbing factor for us.
But, hardly this will happen this week as market already stands at overbought. Also we have 1316 major Fib resistance.
By pivot point framework - breaking above MPR1 means that major upside trend continues. PR1 usually holds retracements, but major trend continuation breaks them.
Intraday
Here is not much to comment. Upside action is unstoppable, it is no reversal patterns have been formed yet, our XOP has been hit as well.
Thus, we could try to use the thrust - any DiNapoli directional patterns are subject for trading, B&B's, DRPO "Sell", DRPO Failure etc. Once retracement will be done - as usual, we watch for "222" patterns etc. Now we could approximately tell that retracement should stuck somewhere in 1287-1295 area, as solid support cluster stands there.
Conclusion
No doubts, gold keeps positive mood, shows great upside impulse and fundamental background for continuation. But, this is also the weakness, as political factors are easy to come but also easy to go. And this is the major risk. Current rally has no persistence, compares to action, driving by stable gradually increasing demand. It could turn 180 degrees in a blink of an eye once D. Trump says opposite things.
This fact makes gold trading extremely difficult now.
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.