Sive Morten
Special Consultant to the FPA
- Messages
- 18,669
Fundamentals
Guys, today just few things that we could add to fundamental picture. Political part we've discussed yesterday in our FX research. Currently new spiral of North Korea relations is treated as minor factor for gold market. Yes its could be some "head breeze" for gold, but hardly will make solid impact on the market.
Major driving factor for gold market is inflation. Recent NFP release has affirmed investors' view on at least 3 times of rate change by Fed. At the same time low pace of wage growth doesn't provide any guarantee on 4th rate increase. And this is mostly treated as supportive sign.
But It seems that this is double edged sword. People somehow look only at one side - that rate will be raised for 4rh time, but, they do not pay attention to inflation per se. Wages tell that inflation is as not as strong as it is expected. This, in turn, also could become a barrier for gold appreciation in medium-term perspective.
That's why reaction on gold market was limited. Yes, it is shown some growth, but it was not fast and furious. Besides, if you will take a look at 10-year US yield - it has increased also. Nevertheless that March stands as inside month for February yields, but still, Friday NFP was treated as positive sign by bond traders.
It means that as on FX market as on gold we should be careful with decision making right now. Although long-term setup stands bullish here, but on daily/intraday charts retracement could be deeper.
CFTC data also doesn't bring a long of positive signs. Take a look that since the beginning of the 2017 we have clear divergence between price and net long position. While price has reached new top in this year - net position was not able to do this. Open interest shows the same value. It means that while gold has climbed to top again - more shorts have been opened.
The same is true in relation of SPDR Fund statistics and gold:
All these moments care a kind of phantom menace 
D) for gold market. Besides, despite that overall net long position stands below ultimate values, but still it stands above average top value and it could be treated as saturated and overextended.
So, all these moments bring some complexity in understanding of future of gold market. Despite it looks positive, there are risk factors that could change situation if they will take some ultimate meaning. As we mentioned in our previous research, one of the best gold analysis in the world, Barnabas Gan, expects downside reversal on gold market in this year:
"The high interest rate environment would be key driver that would drive gold prices lower," said OCBC analyst Barnabas Gan. "Since gold remains a zero yielding asset, higher interest rate environment could stimulate risk appetite and yield-chasing behaviour," said Gan, whose year-end outlook for gold is at
$1,100.
So, as you can see, situation stands not as easy as we would like it to be...
Technicals
So, not as easy situation we have in technical sphere as well.
Monthly
February and March by far stand as inside month for January. To change picture on monthly chart, market should show really significant swings.
Major resistance still stands at 1380-1391 that includes 2016 top, major Fib level and YPR1.
In fact, most important moment for long-term gold right now is ability to move higher. 1327 level is long-term COP target of AB-CD started at 1046$, in July 2015. First it was reached in July 2017. After logical minor bounce price returns back to it. But right now it should be an action higher, to next 1450 target, which is OP of the same AB-CD. If gold will not be able to do it - strong drop is possible, because price will fail to proceed next extension leg, showing inability and lack of strength to do it. This could break whole AB-CD construction.
Currently monthly gold stands in "Buy" mode. At the same time, appearing a kind of bearish engulfing and W&R of September top do not bring a lot of confidence on upside perspectives.
So, destiny of gold market will resolve on lower time frames. Most important is 1300 area. If gold will break it down - this will confirm our worryings and could push gold back to 1250 area.
Weekly
Last week was inside one, and, in general, it doesn't break our bullish scenario. Although trend has turned bearish but market holds above 3/8 level after AB-CD retracement down has been completed. Besides, we have bullish grabber that is still valid. Finally, our major OP target - it has not been hit and it keeps our expectations that, at least theoretically, it should be reached before major reversal will happen.
At the same time we have bearish signs of larger scale here. First is MACD bearish divergence, second - W&R of previous top.
These factors together point on 1300 lows as major low to watch for. Until gold will stand above it, it will keep chances to proceed upward action. Breaking of 1300 will push price below area of AB=CD retracement. It will mean that it is not AB=CD retracement any more, and open road to next support around 1250-1260 K-area.
Daily
Yesterday we have discussed situation on EUR, and it stands a bit difficult for understanding of direction right now. The same is on gold. Although daily/weekly bullish setup stands valid, gold has shown deeper retracement than expected and that should happen for normal bullish market.
This brings concern on upside expectations. Trend has turned bearish and on Friday we've got bearish grabber pattern. Besides, gold has closed below MPP. In this circumstances we need to get some real signs of upside continuation:
Intraday
On 4-hour chart recently we've got bearish progress, as gold was not able to hold at harmonic low of potential H&S pattern and dropped further. Now downside action was stopped by major 5/8 support area and some bounce has happened on Friday. Potentially we could get AB-CD pattern here with OP target around 1350. Here is "C" point low will be very important. Breaking of this low will significantly diminish chances on upside continuation:
So, when market is broken price behavior that I have expected, but at the same time it keeps valid major scenario - I need to get more confirmation. On hourly chart market has turned to "Buy" mode, and we even have got some W&R around major 5/8 and Agreement. But this is not sufficient in current circumstances to make a decision on long entry. To confirm that 1317 is a "real" low and market will start upside action right from here, we need to get clear bullish reversal pattern around it and/or breaking above "C" point. Potentially this could create reversal swing up and lead to appearing of minor reverse H&S pattern, where "BC" will be left arm.
Conclusion
Although long term situation has not changed significantly, and bullish setup has not been erased, in shorter-term perspective gold has approximately the same problems as FX market - existence of strong support level is not sufficient now for position taking...
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.
Guys, today just few things that we could add to fundamental picture. Political part we've discussed yesterday in our FX research. Currently new spiral of North Korea relations is treated as minor factor for gold market. Yes its could be some "head breeze" for gold, but hardly will make solid impact on the market.
Major driving factor for gold market is inflation. Recent NFP release has affirmed investors' view on at least 3 times of rate change by Fed. At the same time low pace of wage growth doesn't provide any guarantee on 4th rate increase. And this is mostly treated as supportive sign.
But It seems that this is double edged sword. People somehow look only at one side - that rate will be raised for 4rh time, but, they do not pay attention to inflation per se. Wages tell that inflation is as not as strong as it is expected. This, in turn, also could become a barrier for gold appreciation in medium-term perspective.
That's why reaction on gold market was limited. Yes, it is shown some growth, but it was not fast and furious. Besides, if you will take a look at 10-year US yield - it has increased also. Nevertheless that March stands as inside month for February yields, but still, Friday NFP was treated as positive sign by bond traders.
It means that as on FX market as on gold we should be careful with decision making right now. Although long-term setup stands bullish here, but on daily/intraday charts retracement could be deeper.
CFTC data also doesn't bring a long of positive signs. Take a look that since the beginning of the 2017 we have clear divergence between price and net long position. While price has reached new top in this year - net position was not able to do this. Open interest shows the same value. It means that while gold has climbed to top again - more shorts have been opened.
The same is true in relation of SPDR Fund statistics and gold:
D) for gold market. Besides, despite that overall net long position stands below ultimate values, but still it stands above average top value and it could be treated as saturated and overextended. So, all these moments bring some complexity in understanding of future of gold market. Despite it looks positive, there are risk factors that could change situation if they will take some ultimate meaning. As we mentioned in our previous research, one of the best gold analysis in the world, Barnabas Gan, expects downside reversal on gold market in this year:
"The high interest rate environment would be key driver that would drive gold prices lower," said OCBC analyst Barnabas Gan. "Since gold remains a zero yielding asset, higher interest rate environment could stimulate risk appetite and yield-chasing behaviour," said Gan, whose year-end outlook for gold is at
$1,100.
So, as you can see, situation stands not as easy as we would like it to be...
Technicals
So, not as easy situation we have in technical sphere as well.
Monthly
February and March by far stand as inside month for January. To change picture on monthly chart, market should show really significant swings.
Major resistance still stands at 1380-1391 that includes 2016 top, major Fib level and YPR1.
In fact, most important moment for long-term gold right now is ability to move higher. 1327 level is long-term COP target of AB-CD started at 1046$, in July 2015. First it was reached in July 2017. After logical minor bounce price returns back to it. But right now it should be an action higher, to next 1450 target, which is OP of the same AB-CD. If gold will not be able to do it - strong drop is possible, because price will fail to proceed next extension leg, showing inability and lack of strength to do it. This could break whole AB-CD construction.
Currently monthly gold stands in "Buy" mode. At the same time, appearing a kind of bearish engulfing and W&R of September top do not bring a lot of confidence on upside perspectives.
So, destiny of gold market will resolve on lower time frames. Most important is 1300 area. If gold will break it down - this will confirm our worryings and could push gold back to 1250 area.
Weekly
Last week was inside one, and, in general, it doesn't break our bullish scenario. Although trend has turned bearish but market holds above 3/8 level after AB-CD retracement down has been completed. Besides, we have bullish grabber that is still valid. Finally, our major OP target - it has not been hit and it keeps our expectations that, at least theoretically, it should be reached before major reversal will happen.
At the same time we have bearish signs of larger scale here. First is MACD bearish divergence, second - W&R of previous top.
These factors together point on 1300 lows as major low to watch for. Until gold will stand above it, it will keep chances to proceed upward action. Breaking of 1300 will push price below area of AB=CD retracement. It will mean that it is not AB=CD retracement any more, and open road to next support around 1250-1260 K-area.
Daily
Yesterday we have discussed situation on EUR, and it stands a bit difficult for understanding of direction right now. The same is on gold. Although daily/weekly bullish setup stands valid, gold has shown deeper retracement than expected and that should happen for normal bullish market.
This brings concern on upside expectations. Trend has turned bearish and on Friday we've got bearish grabber pattern. Besides, gold has closed below MPP. In this circumstances we need to get some real signs of upside continuation:
Intraday
On 4-hour chart recently we've got bearish progress, as gold was not able to hold at harmonic low of potential H&S pattern and dropped further. Now downside action was stopped by major 5/8 support area and some bounce has happened on Friday. Potentially we could get AB-CD pattern here with OP target around 1350. Here is "C" point low will be very important. Breaking of this low will significantly diminish chances on upside continuation:
So, when market is broken price behavior that I have expected, but at the same time it keeps valid major scenario - I need to get more confirmation. On hourly chart market has turned to "Buy" mode, and we even have got some W&R around major 5/8 and Agreement. But this is not sufficient in current circumstances to make a decision on long entry. To confirm that 1317 is a "real" low and market will start upside action right from here, we need to get clear bullish reversal pattern around it and/or breaking above "C" point. Potentially this could create reversal swing up and lead to appearing of minor reverse H&S pattern, where "BC" will be left arm.
Conclusion
Although long term situation has not changed significantly, and bullish setup has not been erased, in shorter-term perspective gold has approximately the same problems as FX market - existence of strong support level is not sufficient now for position taking...
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.
