Sive Morten
Special Consultant to the FPA
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Fundamentals
Gold market now stands in the same chain of events that move markets and under impact of the same driving factors that mostly are not market-kind.Yesterday we've put solid foundation in our FX report. In fact, as FX as Gold market mostly have the same fundamental factors right now. In fact now we have the only one link - "gold price = corona-virus"...
Gold prices rose more than 1% on Friday and were on course for their biggest weekly gain since January 2009 as the global spread of the coronavirus dimmed growth
prospects and sent investors scurrying for safe-haven assets.
"The usual out of risky assets into safe havens" flow is fuelling gold's rise, driven by concerns about the economic fallout from the virus, said Peter Fertig, an analyst at
Quantitative Commodity Research.
The pan-European STOXX 600 index slid in tandem with global equities on concerns that the economic impact of the virus will be more severe than anticipated, while U.S. 10-year Treasury yields slumped to new record lows.
"The market has no understanding of what's going on. Investors are buying bonds as well as gold as insurance from the deteriorating economic outlook," said SP Angel analyst Sergey Raevskiy.
Globally, there have been more than 98,000 cases and over 3,300 deaths from the coronavirus. The International Monetary Fund on Wednesday said the outbreak would hold 2020 global output gains to their slowest pace since the 2008-2009 financial crisis. The epidemic poses "evolving risks" to the U.S. economy and central bank officials are monitoring developments closely, New York Federal Reserve President John Williams said on Thursday.
"Gold is looking to be one of the most attractive assets to own now as short term interest rates fall to near zero and most equity earnings are also expected to fall," Phillip Futures analysts said in a note. "However a drastic and prolonged drop in equity prices may not be good for gold as traders cash in from gold to pay off margin calls in equity."
"We are seeing a lot of volatility in the equity markets, fairly large losses and uncertainty bringing the S&P below 3,000. We are most likely seeing liquidation of gold in order to cover margin calls," said Bart Melek, head of commodity strategies at TD Securities. "This is very reminiscent of what happened in the corrections during the financial crisis."
U.S. stocks tanked and the Dow Jones Industrials shed nearly 2%, while government bonds rallied as traders worried about a prolonged economic slowdown. Oil prices also collapsed more than 8% to their lowest levels since mid-2017.
"This dip (in gold) should be bought up fairly quickly as the day goes on. As long as this virus is in the headlines out there, expect gold to continue higher," said Bob Haberkorn, senior market strategist at RJO Futures.
Despite the losses, safe-haven gold is still on course for its biggest weekly gain since February 2016. Nearly 60 new coronavirus cases were confirmed in the United
States on Thursday. Globally, virus cases surpassed 100,000 and over 3,300 deaths have been reported.
The International Monetary Fund on Wednesday said the outbreak would hold 2020 global output gains to the slowest pace since the 2008-2009 financial crisis. The epidemic poses "evolving risks" to the U.S. economy and central bank officials are monitoring developments closely, New York Federal Reserve President John Williams said on Thursday.
The Federal Reserve made an emergency 50-basis-point interest rate cut on Tuesday, its first inter-meeting cut since 2008. Lower interest rates reduce the opportunity cost of holding non-yielding bullion. U.S. nonfarm payrolls data showed a robust increase in hiring in February, but the report may not reflect the full impact from the outbreak.
CFTC Data
Holdings of the largest gold-backed exchange-traded-fund (ETF), New York's SPDR Gold Trust, fell 0.34 percent on Monday from Friday. It looks a bit surprising but CFTC data also shows some decreasing of net long position:
If we take a look at data we see that open interest has dropped for 40K contracts, speculators (non-commercials) have closed more longs than short positions. Here is two things important. First is, this kind of action is more typical for retracement. Net position has changed not because of more shorts opened but because of faster long closing than shorts. Other words, position has dropped on contracts' closing, not opening. Second - take a look at "commercial" i.e. hedgers activity. They add longs. "longs" is a hedge against the drop. Combination of both changes give the hint on possible retracement. Hardly it happens just due single position changing, but we need to keep an eye on possible tendency here...
In general, it is few that we could add here to our yesterday's fundamental view. As any other market - gold probably will be fevered until panic is over. Usually it takes 1.5 years. Currently is no sign that we somewhere near the end of chaos. Everybody are too frightened by epidemic. It is just first steps of virus in EU, UK and other, non-China regions. As it is high density of population there, big migration - now nobody could say what consequences will be there. So, normalization of the market definitely postpones and gold should keep the same trend for some time, with some pauses probably, but the same direction. We should see new calming headlines that epidemic is exhausting, vaccine is under way and we are near to normal life. This will be first signs that crisis is over and trends should change in near term. Currently it is safer to stay with the major tendency and do not struggle it. Momentum is our friend.
Technicals
Monthly
When price moves above major 5/8 Fib resistance and returns back to XOP after minor reaction to it - it means that market prepares to continuation. Especially when it is not at overbought. Price already stands above YPR1, shows that we're in a new long-term extension trend. As monthly XOP is hit we have to appoint new targets. First is previous top, as usual. This is around 1900 area. Next one is all time COP (not shown here), which stands around 2075$.
In nearest time price needs to move above XOP and out from doji pattern that has been formed. If this will not happen - chances on pullback increases.
Weekly
On weekly chart price returns back to the top, but gold is still at overbought. In nowadays everything could happen, but, still market needs really strong factor to overcome weekly overbought level. Besides, we see signs of weakness in CFTC report. Taking '2+2" makes us think that retracement doesn't look like something impossible here.
At the same time - keep an eye on price action. If market turns to consolidation below the top and no moderate pullback starts - this will be clear sign of power accumulation before the next jump up. If pullback starts, then we should pay attention to the level that we've mentioned previously -K support around 1540.
Daily
Here we have only indirect bearish signs, but they are not enough for taking short position, especially in current tricky situation. They are W&R of recent top and hint on MACD divergence, as well as on weekly chart. Also market is overbought as on weekly as on daily but we are not at some major resistance. Theoretically it is possible extended, compound H&S pattern, if market starts dropping to potential neckline, that is also weekly K-support. For long entry we need some pullback as well, at least minor one and signs that gold intends to go higher - as we said, consolidation around the top.
Intraday
Intraday chart brings some additional details for short-term action. As you can see, despite upside action on Friday, gold has not reached OP target around 1705. But price has formed two bullish grabbers. It means that we could consider upside continuation to OP first, and retracement (if any) second. Bearish traders could watch for some reversal patterns at the top, but, as we said, it could be expensive journey, if no retracement starts.
Gold market now stands in the same chain of events that move markets and under impact of the same driving factors that mostly are not market-kind.Yesterday we've put solid foundation in our FX report. In fact, as FX as Gold market mostly have the same fundamental factors right now. In fact now we have the only one link - "gold price = corona-virus"...
Gold prices rose more than 1% on Friday and were on course for their biggest weekly gain since January 2009 as the global spread of the coronavirus dimmed growth
prospects and sent investors scurrying for safe-haven assets.
"The usual out of risky assets into safe havens" flow is fuelling gold's rise, driven by concerns about the economic fallout from the virus, said Peter Fertig, an analyst at
Quantitative Commodity Research.
The pan-European STOXX 600 index slid in tandem with global equities on concerns that the economic impact of the virus will be more severe than anticipated, while U.S. 10-year Treasury yields slumped to new record lows.
"The market has no understanding of what's going on. Investors are buying bonds as well as gold as insurance from the deteriorating economic outlook," said SP Angel analyst Sergey Raevskiy.
Globally, there have been more than 98,000 cases and over 3,300 deaths from the coronavirus. The International Monetary Fund on Wednesday said the outbreak would hold 2020 global output gains to their slowest pace since the 2008-2009 financial crisis. The epidemic poses "evolving risks" to the U.S. economy and central bank officials are monitoring developments closely, New York Federal Reserve President John Williams said on Thursday.
"Gold is looking to be one of the most attractive assets to own now as short term interest rates fall to near zero and most equity earnings are also expected to fall," Phillip Futures analysts said in a note. "However a drastic and prolonged drop in equity prices may not be good for gold as traders cash in from gold to pay off margin calls in equity."
"We are seeing a lot of volatility in the equity markets, fairly large losses and uncertainty bringing the S&P below 3,000. We are most likely seeing liquidation of gold in order to cover margin calls," said Bart Melek, head of commodity strategies at TD Securities. "This is very reminiscent of what happened in the corrections during the financial crisis."
U.S. stocks tanked and the Dow Jones Industrials shed nearly 2%, while government bonds rallied as traders worried about a prolonged economic slowdown. Oil prices also collapsed more than 8% to their lowest levels since mid-2017.
"This dip (in gold) should be bought up fairly quickly as the day goes on. As long as this virus is in the headlines out there, expect gold to continue higher," said Bob Haberkorn, senior market strategist at RJO Futures.
Despite the losses, safe-haven gold is still on course for its biggest weekly gain since February 2016. Nearly 60 new coronavirus cases were confirmed in the United
States on Thursday. Globally, virus cases surpassed 100,000 and over 3,300 deaths have been reported.
The International Monetary Fund on Wednesday said the outbreak would hold 2020 global output gains to the slowest pace since the 2008-2009 financial crisis. The epidemic poses "evolving risks" to the U.S. economy and central bank officials are monitoring developments closely, New York Federal Reserve President John Williams said on Thursday.
The Federal Reserve made an emergency 50-basis-point interest rate cut on Tuesday, its first inter-meeting cut since 2008. Lower interest rates reduce the opportunity cost of holding non-yielding bullion. U.S. nonfarm payrolls data showed a robust increase in hiring in February, but the report may not reflect the full impact from the outbreak.
CFTC Data
Holdings of the largest gold-backed exchange-traded-fund (ETF), New York's SPDR Gold Trust, fell 0.34 percent on Monday from Friday. It looks a bit surprising but CFTC data also shows some decreasing of net long position:
If we take a look at data we see that open interest has dropped for 40K contracts, speculators (non-commercials) have closed more longs than short positions. Here is two things important. First is, this kind of action is more typical for retracement. Net position has changed not because of more shorts opened but because of faster long closing than shorts. Other words, position has dropped on contracts' closing, not opening. Second - take a look at "commercial" i.e. hedgers activity. They add longs. "longs" is a hedge against the drop. Combination of both changes give the hint on possible retracement. Hardly it happens just due single position changing, but we need to keep an eye on possible tendency here...
In general, it is few that we could add here to our yesterday's fundamental view. As any other market - gold probably will be fevered until panic is over. Usually it takes 1.5 years. Currently is no sign that we somewhere near the end of chaos. Everybody are too frightened by epidemic. It is just first steps of virus in EU, UK and other, non-China regions. As it is high density of population there, big migration - now nobody could say what consequences will be there. So, normalization of the market definitely postpones and gold should keep the same trend for some time, with some pauses probably, but the same direction. We should see new calming headlines that epidemic is exhausting, vaccine is under way and we are near to normal life. This will be first signs that crisis is over and trends should change in near term. Currently it is safer to stay with the major tendency and do not struggle it. Momentum is our friend.
Technicals
Monthly
When price moves above major 5/8 Fib resistance and returns back to XOP after minor reaction to it - it means that market prepares to continuation. Especially when it is not at overbought. Price already stands above YPR1, shows that we're in a new long-term extension trend. As monthly XOP is hit we have to appoint new targets. First is previous top, as usual. This is around 1900 area. Next one is all time COP (not shown here), which stands around 2075$.
In nearest time price needs to move above XOP and out from doji pattern that has been formed. If this will not happen - chances on pullback increases.
Weekly
On weekly chart price returns back to the top, but gold is still at overbought. In nowadays everything could happen, but, still market needs really strong factor to overcome weekly overbought level. Besides, we see signs of weakness in CFTC report. Taking '2+2" makes us think that retracement doesn't look like something impossible here.
At the same time - keep an eye on price action. If market turns to consolidation below the top and no moderate pullback starts - this will be clear sign of power accumulation before the next jump up. If pullback starts, then we should pay attention to the level that we've mentioned previously -K support around 1540.
Daily
Here we have only indirect bearish signs, but they are not enough for taking short position, especially in current tricky situation. They are W&R of recent top and hint on MACD divergence, as well as on weekly chart. Also market is overbought as on weekly as on daily but we are not at some major resistance. Theoretically it is possible extended, compound H&S pattern, if market starts dropping to potential neckline, that is also weekly K-support. For long entry we need some pullback as well, at least minor one and signs that gold intends to go higher - as we said, consolidation around the top.
Intraday
Intraday chart brings some additional details for short-term action. As you can see, despite upside action on Friday, gold has not reached OP target around 1705. But price has formed two bullish grabbers. It means that we could consider upside continuation to OP first, and retracement (if any) second. Bearish traders could watch for some reversal patterns at the top, but, as we said, it could be expensive journey, if no retracement starts.
