Sive Morten
Special Consultant to the FPA
- Messages
- 18,763
Fundamental
(Reuters) Gold slid 1 percent to a three-month low on Friday, extending losses after Federal Reserve Chair Janet Yellen indicated the U.S. central bank could raise interest rates within months if the economy continues to improve, boosting the dollar.
The economy is continuing to improve ... growth looks to be picking up," Yellen said in remarks in Boston. "If that continues and if the labor market continues to improve, and I expect those things to occur ... in the coming months such a move would be appropriate."
The remarks lifted the U.S. dollar index to a two-month high. "You couldn't really say it was uber hawkish, but it keeps the door open for a July hike, and as far as gold is concerned, that means that there was a bit of a higher cost of carry in U.S. dollar terms," said Bart Melek, head of commodity strategy for TD Securities in Toronto.
Spot gold was down 0.9 percent at $1,208.90 an ounce at 3:01 p.m. EDT (1901 GMT), off an earlier low of $1,206.45, the lowest level since Feb. 22. It was on track to close the week down 3.5 percent, the biggest fall since early November and the fourth straight weekly decline after minutes of the Fed's latest policy meeting indicated last week that a rate rise may be on the cards sooner rather than later.
An increase in U.S. rates would raise the opportunity cost of holding gold, while boosting the dollar, in which it is priced. U.S. gold futures for June delivery settled down 0.5 percent at $1,213.80 an ounce.
"Yellen reinforced the currently prevailing view that a Fed rate hike in June was clearly on the menu though perhaps not yet the blue-plate special," said Tai Wong, director of base and precious metals trading for BMO Capital Markets in New York. "The hurdle to a June hike remains formidable with July favored as Brexit will then be out of the way and the committee will have seen more data."
On Thursday, Fed Governor Jerome Powell said he felt the economy was on a "solid footing" and within reach of the Fed's inflation goals.
Now, guys, you can see what we have on CFTC report. Gold was not able to increase long positions any more, since they were right at all time high, as well as open interest. We have started to talk that retracement inavoidale 2-3 weeks ago, although it was a question about final leg up.
Right now we see as gold has dropped significantly last week - speculative net long positions dropped for 50K contracts and open interest also has decreased. It means that some shorts probably were opened but major drop has happened due closing of long positions. Since we will come closer and closer to Fed meeting, investors could take a pause in re-establishing them and could postpone it on a time after Fed meeting in June and Brexit. Other words speaking, as we are closer to Fed and Brexit as less chances that gold will turn up soon. Mostly this tells that retracement will last at least for a month or so...
Technicals
Monthly
So, guys, gold has taken a pause in upward action around 1300 area. We've warned about it 3 weeks ago when we've got specific numbers from CFTC. Based on situation in sentiment and existence of strong resistance area makes problems for gold on a way up.
Current uward action is first one after long term of decreasing and it should be interrupted by deep retracement sometime. Probably it will happen very soon and may be already is happening. Still 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.
On Friday market has dropped significantly. Taking in consideration overall situation that mostly supportive for USD and difficult position according to CFTC data, hardly gold will be able to rebound immediately. On monthly chart we will get nice bearish engulfing pattern. Usually it leads to comounded retracement down, equals to the length of the bars. Thus, following this logic we could see gold @ 1130 area very soon. But after that it could become a right shoulder of pattern that could be formed here.
Weekly
Trend has turned bearish on weekly time frame. Also we see here small bearish devergence right at major Fib resistance and YPR1. This just confirms that market was not able to pass through it.
On Friday market has broken upside flag pattern in opposite direction that probably could be treated as starting of long-term downward retracement. The same conclusion we could make on fact of MPS1 breakout.
Still this action will not be smooth. As you can see gold right now has limited downside potential, since it almost has reached 1205 Fib support and weekly oversold. As a result, we can't exclude some upside retracement and appearing of some H&S pattern. And particularly this pattern will lead market to retracement destination, somewhere around 1230 area, or may be 1245 Fib support. We will estimate it later with more precision.
The one thing that we could say is retracement probably should be deep, as first upside swing has come to an end. By the same reason move down probably will take 2-leg shape, some AB-CD may be...
It seems that next week we will expect the same behavior as on EUR - ending of current move down and starting upside bounce.
Daily
Here we see that market is forming extended reversal pattern. The major uncertainty here is not about pattern but mostly in real numbers and destination points. Downward action has stopped as market has hit daily oversold and almost has reached first major Fib support. This could create bullish Stretch pattern and trigger upside retracement.
Most expected pattern here is H&S probably. Thus, market needs to form right shoulder. Depending what height it will get - downside target could be different. Right now we have only one target - ultimate 1.618 extension of Butterfly that stands precisely around major 5/8 Fib support @ 1245 area.
So, our first task is upside retracement that should happen on next week... In general, guys, last part of drop has sufficient number of candles to become a thrust for some DiNapoli pattern - B&B "Sell" or DRPO "Buy", so let's watch for this opportunity as well...
4-hour
Here market has completed our AB-CD 1.618 target, but nothing else has happened yet. Whether market will turn down, what pattern will be formed - is still unclear. Here we could recongnize fast H&S shape that potentially could lead gold to 1260 area - most probable destination point of upside retracement, but this will happen only if market will turn up immediately. But will it happen? Major Fib support on daily chart still has not been touched a bit. Still 1205 is rather wide support area since we have multiple minor Fib levels around, because on daily chart there are a lot of minor lows stand around major one in Dec 2015. Thus, you could draw minor levels as well or, even thurst levels from 1070 level where thrust up really has started...
That's why probably some Fib support has been touched...
Hourly
Finally, here we have clear 3-Drive "buy" pattern, but will it become the one that will start upside retracement - we will see on next week:
Conclusion:
We think that fundamentally gold stands somewhere near bottom and situation is starting to change. But this bottom could be "extended" in time. Thus right now we call to not take long-term bullish positions since CFTC data and technical picture tell that gold stands at the edge of solid retracement, that probably already has started. It is difficult to estimate its target with high precision but we think that aprox. it should reach 1130-1145 area.
Still this move down will be extended in time and could take month or more and will not be straight down. Mostly it should take some shape of AB-CD and should start from reversal pattern on daily chart. That's why on next week we expect to get upside retracement that later could lead to appearing of H&S pattern on daily. And only after that drop to 1130-1145 should start. Something like that...
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 slid 1 percent to a three-month low on Friday, extending losses after Federal Reserve Chair Janet Yellen indicated the U.S. central bank could raise interest rates within months if the economy continues to improve, boosting the dollar.
The economy is continuing to improve ... growth looks to be picking up," Yellen said in remarks in Boston. "If that continues and if the labor market continues to improve, and I expect those things to occur ... in the coming months such a move would be appropriate."
The remarks lifted the U.S. dollar index to a two-month high. "You couldn't really say it was uber hawkish, but it keeps the door open for a July hike, and as far as gold is concerned, that means that there was a bit of a higher cost of carry in U.S. dollar terms," said Bart Melek, head of commodity strategy for TD Securities in Toronto.
Spot gold was down 0.9 percent at $1,208.90 an ounce at 3:01 p.m. EDT (1901 GMT), off an earlier low of $1,206.45, the lowest level since Feb. 22. It was on track to close the week down 3.5 percent, the biggest fall since early November and the fourth straight weekly decline after minutes of the Fed's latest policy meeting indicated last week that a rate rise may be on the cards sooner rather than later.
An increase in U.S. rates would raise the opportunity cost of holding gold, while boosting the dollar, in which it is priced. U.S. gold futures for June delivery settled down 0.5 percent at $1,213.80 an ounce.
"Yellen reinforced the currently prevailing view that a Fed rate hike in June was clearly on the menu though perhaps not yet the blue-plate special," said Tai Wong, director of base and precious metals trading for BMO Capital Markets in New York. "The hurdle to a June hike remains formidable with July favored as Brexit will then be out of the way and the committee will have seen more data."
On Thursday, Fed Governor Jerome Powell said he felt the economy was on a "solid footing" and within reach of the Fed's inflation goals.
Now, guys, you can see what we have on CFTC report. Gold was not able to increase long positions any more, since they were right at all time high, as well as open interest. We have started to talk that retracement inavoidale 2-3 weeks ago, although it was a question about final leg up.
Right now we see as gold has dropped significantly last week - speculative net long positions dropped for 50K contracts and open interest also has decreased. It means that some shorts probably were opened but major drop has happened due closing of long positions. Since we will come closer and closer to Fed meeting, investors could take a pause in re-establishing them and could postpone it on a time after Fed meeting in June and Brexit. Other words speaking, as we are closer to Fed and Brexit as less chances that gold will turn up soon. Mostly this tells that retracement will last at least for a month or so...
Technicals
Monthly
So, guys, gold has taken a pause in upward action around 1300 area. We've warned about it 3 weeks ago when we've got specific numbers from CFTC. Based on situation in sentiment and existence of strong resistance area makes problems for gold on a way up.
Current uward action is first one after long term of decreasing and it should be interrupted by deep retracement sometime. Probably it will happen very soon and may be already is happening. Still 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.
On Friday market has dropped significantly. Taking in consideration overall situation that mostly supportive for USD and difficult position according to CFTC data, hardly gold will be able to rebound immediately. On monthly chart we will get nice bearish engulfing pattern. Usually it leads to comounded retracement down, equals to the length of the bars. Thus, following this logic we could see gold @ 1130 area very soon. But after that it could become a right shoulder of pattern that could be formed here.
Weekly
Trend has turned bearish on weekly time frame. Also we see here small bearish devergence right at major Fib resistance and YPR1. This just confirms that market was not able to pass through it.
On Friday market has broken upside flag pattern in opposite direction that probably could be treated as starting of long-term downward retracement. The same conclusion we could make on fact of MPS1 breakout.
Still this action will not be smooth. As you can see gold right now has limited downside potential, since it almost has reached 1205 Fib support and weekly oversold. As a result, we can't exclude some upside retracement and appearing of some H&S pattern. And particularly this pattern will lead market to retracement destination, somewhere around 1230 area, or may be 1245 Fib support. We will estimate it later with more precision.
The one thing that we could say is retracement probably should be deep, as first upside swing has come to an end. By the same reason move down probably will take 2-leg shape, some AB-CD may be...
It seems that next week we will expect the same behavior as on EUR - ending of current move down and starting upside bounce.
Daily
Here we see that market is forming extended reversal pattern. The major uncertainty here is not about pattern but mostly in real numbers and destination points. Downward action has stopped as market has hit daily oversold and almost has reached first major Fib support. This could create bullish Stretch pattern and trigger upside retracement.
Most expected pattern here is H&S probably. Thus, market needs to form right shoulder. Depending what height it will get - downside target could be different. Right now we have only one target - ultimate 1.618 extension of Butterfly that stands precisely around major 5/8 Fib support @ 1245 area.
So, our first task is upside retracement that should happen on next week... In general, guys, last part of drop has sufficient number of candles to become a thrust for some DiNapoli pattern - B&B "Sell" or DRPO "Buy", so let's watch for this opportunity as well...
4-hour
Here market has completed our AB-CD 1.618 target, but nothing else has happened yet. Whether market will turn down, what pattern will be formed - is still unclear. Here we could recongnize fast H&S shape that potentially could lead gold to 1260 area - most probable destination point of upside retracement, but this will happen only if market will turn up immediately. But will it happen? Major Fib support on daily chart still has not been touched a bit. Still 1205 is rather wide support area since we have multiple minor Fib levels around, because on daily chart there are a lot of minor lows stand around major one in Dec 2015. Thus, you could draw minor levels as well or, even thurst levels from 1070 level where thrust up really has started...
That's why probably some Fib support has been touched...
Hourly
Finally, here we have clear 3-Drive "buy" pattern, but will it become the one that will start upside retracement - we will see on next week:
Conclusion:
We think that fundamentally gold stands somewhere near bottom and situation is starting to change. But this bottom could be "extended" in time. Thus right now we call to not take long-term bullish positions since CFTC data and technical picture tell that gold stands at the edge of solid retracement, that probably already has started. It is difficult to estimate its target with high precision but we think that aprox. it should reach 1130-1145 area.
Still this move down will be extended in time and could take month or more and will not be straight down. Mostly it should take some shape of AB-CD and should start from reversal pattern on daily chart. That's why on next week we expect to get upside retracement that later could lead to appearing of H&S pattern on daily. And only after that drop to 1130-1145 should start. Something like that...
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.