GOLD PRO WEEKLY, November 02-06, 2015

[Sive Morten]

Fundamentals

Reuters reports gold fell to a three-week low on Friday, extending two days of losses and heading for its biggest weekly drop since August on the chance the U.S. Federal Reserve may still raise interest rates this year.

The Fed indicated after a two-day policy meeting this week that a December rate rise is still on the table, curbing talk that a run of downbeat economic data and worries about the global economy would push a hike back to 2016.

Rising interest rates tend to weigh on gold because they lift the opportunity cost of holding non-yielding bullion.

"Our economists are expecting the Fed to raise rates in December," Macquarie analyst Matthew Turner said.

"To bring about that expectation, we'd have to see some reasonable economic data, sufficient to show we're not entering a new slowdown, and for some of the other market measures like the Fed Funds futures to be pricing in more of a rate hike expectation. That should see the gold price falling."

"The momentum's building up to the downside here and $1,130 is likely to be put to test," said Eli Tesfaye, senior market strategist for brokerage RJO Futures in Chicago.

Gold fell despite the 0.7 percent drop in the dollar against a basket of currencies, typically a source of support. The yen strengthened after the Bank of Japan made no move on monetary policy.

CFTC data, despite of retracement, shows that speculative long positions stands near the top around 225 K contracts, while shorts continue gradual contraction. At the same time open interest has dropped slightly on last week.
Right now our longs-to-total ratio stands near crucial level of 78% and increases chances on necessary technical retracement. Usually this retracement starts at 80-82% on average, but 78% is also high level.

CFTC data mostly supportive for bulls, because despite bearish action on gold we do not see outflow from speculative long positions. The same is true for SPDR fund data. It does not show inflow but outflow is also stagnating. Storages are still at 694 tonnes as two weeks ago. Chart of hedgers' short positions the same as speculative long, but 3 times greater. It means that recent retracement probably has happened due increasing of shorts position by hedgers. But hedgers take position opposite to trend and this also confirms bullish sentiment on gold market.

Open interest

Speculative Longs:

Speculative shorts:

Guys, we still think that economy stands at second place on gold market and first one belongs to geopolitics. In nearest 2 months we expect escalation of global tensions and even some provocations and falsifications to trigger greater conflict. That's why possible rally on gold is not as impossible as it seems right now. Investors feel it and hold their positions.

Technicals
Monthly

So, Goldman expect bearish continuation on Gold market and as recent rally does not impact significantly monthly chart, we probably should not deny it totally as well. I mean, bearish scenario. At the same time we think that currently gold is mostly driven by geopolitics, rather than economics. This driving factor creates absolutely new scale of uncertainty and leads to very fast changes on Globe political situation. That's why we suspect that gold market hardly will fall, since we're just in the beginning of Middle East tensions. Currently we see clear signs that situation will become worse in nearest 2 months.

As we've said last week - it is difficult to make any far going conclusions yet and mostly right now started upside action looks like tactical bounce from strong support area. To get another status market should show significant upside action and form bullish reversal swing. It means that gold has to exceed 1310 area.

At the same time we can't just ignore big shifts that has happened in recent 2 weeks and are happening now.
They can't totally change overall setup on monthly chart yet, but even recent 2 weeks action was sufficient to cancel our expectation of 1080 level. Yes, monthly bearish grabber was erased.

As soon as grabbers have failed, we have just one long-term pattern in progress that has not achieved it’s target yet. This is VOB pattern. It suggests at least 0.618 AB-CD down. And this target is 1050$. Besides, in the same area we have 1.618 target of most recent butterfly pattern. We probably will keep this patterns valid for some time, because market needs to reach significant higher levels to destroy this pattern totally. While market will stand below 1300 it should treated as retracement still. Yes, it is deep, but this is retracement.

We do not know how long and how far this rally will go. That's why since crucial bearish levels have not been taken yet, let's treat that this upward rally will just postpone bearish action. Besides, we still have extended bearish dynamic pressure here. Although trend shifted bullish in 2014, but market still forms sequence of lower tops. Speaking on VOB again - it assumes reaching of minor 0.618 target and gold stands very close to it. That's why chances are really not small that we could get another drop to 1050 and Goldman could be right. That's why we call to not hurry to write-off bearish strength by far.

Still, it doesn't mean that we will ignore bullish setups and just wait for chances to enter bearish trade. Absolutely not. We will just keep in mind that bearish scenario exists, but we will trade any clear and attractive setups that gold will form, despite whether it will be bullish or bearish. We do not trade on monthly chart directly and just use it for understanding overall picture. Right now monthly chart shows that picture is changing and market shows bullish signs although they do not destroy yet long-term bearish scenario.

Supportive CFTC data provides supports for bullish trades on lower time frames.

Weekly

As market has completed AB=CD pattern it has turned to reasonable retracement down. Now we see nothing curious or suspicious in its way. Trend is bullish here and market is not at oversold. Gold gradually are entering inside of K-support range @ 1137-1147 area. Also on Monday it will open right near November PP.
Painless retracement could stand as far as 1120 Fib level. Any deeper action could be the sign of reversal down.

If you're careful enough, you probably could ask about "222" Sell pattern that has appeared on weekly chart. By shape we indeed this one from Gartley, but, we need to look the root. "222" usually is reversal pattern, and it suggests that AB-CD action should be weak. While right now we have absolutely different situation that does not correspond to nature of "222" Sell pattern.
That's why we call you to avoid taking long-term short positions on weekly chart right now. Since upside action has solid support from real investors purchases, it means that current upside action is not quite preparation for bearish reversal, or better to say is quite not a preparation for bearish reversal.

Next destination here is also based on the same AB-CD and it stands at 1250 level.
At the same time be careful around 1220 - take a look, this is weekly K-resistance and weekly overbought. Hardly market will pass it freely. Thus, we probably should use compound target. First is 1200-1220 action and then - 1220-1250...

Daily

On daily chart we do not see anything new, no patterns have been formed yet. Since we still treat overall setup as bullish on gold market, our major task is to monitor possible bullish reversal patterns and signs. But right now we do not have any of them here. Thus, I just plot pivots, oversold etc... to understand where important levels are. Now is major question how gold will behave inside K-support. We put our hopes on this level, since it is rather strong and we it would be nice if gold will form some reversal patterns inside of it. This would be just perfect from technical point of view... But gold is a kind of market that very rare realize our hopes...

4-hour

Let's see what we have on intraday charts...Nothing special as well. The same picture that we've discussed on Friday. It's important, but we already have put comments on it. The major idea stands around bearish AB=CD. Since CD leg is very fast and mostly looks like plunge but not as gradual retracement, we should not expect any signs of reversal till 1130 probably, when 1.618 target will be hit. Personally I do not want to take shorts positions by far on gold market, mostly due sentiment situation, but taking long is also too early probably.
Thus, until 1120 we will monitor possible upside reversals. If 1120 will be broken, then it will be difficult to speak on bullish setup any longer.

Conclusion:
Although degree of bearishness on higher time frames decreased, but we still have valid powerful bearish patterns on monthly chart, such as VOB and dynamic pressure. Until they are valid, we can't say that gold has made bullish reversal. Changes on monthly chart are too small by far. And we still have to treat upside action right now as retracement.

By keeping in mind long-term bearish scenario, we still could take bullish trades on daily chart, since current rally is confirmed by market sentiment. On coming week we will mostly look for signs of reversal on different important support levels. But if 1120 will be broken, bullish setup will be mostly destroyed.


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.

 

[Sive Morten]

Good morning,

Recent Reuters comments on gold - Gold firmed after a four-day decline on Tuesday but languished near a four-week low as investors dumped the metal on expectations the Federal Reserve would hike U.S. rates this year.

The Fed last week firmly put a December rate rise in play, hurting earlier views that the increase in nearly a decade could be pushed to next year on global growth concerns.

"We remain negative on the overall precious group over the short-term ... The combination of a stronger dollar, soaring U.S. equity markets, ETF liquidation, a jittery Fed, along with a worsening technical picture will all combine to keep the complex on the defensive for a little while longer," said INTL FCStone analyst Edward Meir.

As a non-interest-paying asset, gold demand could take a hit from higher rates, while a stronger greenback makes dollar-denominated gold more expensive for holders of other currencies.

U.S. economic data on Monday was supportive of a rate hike this year. Manufacturing activity in October hit a 2-1/2-year low, but a rise in new orders offered hope the United States might have seen its worst.

Other data showed construction spending rose in September to the highest in 7-1/2 years, indicating the economy remained on firmer ground despite signs of consumer spending cooling.

Investor outflows from exchange traded funds have increased.

Holdings in SPDR Gold Trust , the top gold-backed exchange-traded fund, fell 0.43 percent to 689.28 tonnes on Monday, the lowest in three weeks. The fund hasn't seen any inflow since Oct. 19.

Speculators have trimmed bullish bets on gold from an 8-1/2-month high, data last week showed.

Charts point to further price declines, according to analysts.

The next support for gold comes in at $1,121, ScotiaMocatta analysts said in a note.

While gold holds below $1,156, there is a risk of a deeper correction to the October-low near $1,105, they said.

From the technical point of view yesterday situation has not changed. As we've said in our weekly research, we continue to watch for 1130 area been hit. Only after that some changes could come. May be they will coincide with NFP release, or at least ADP one... Here we see that trend is bearish, market has dropped below MPP.

On 4-hour we still see that market has not quite reached 1130 target and AB-CD 1.618 extension. At the same time here we have support cluster of WPS1, and 2 Fib levels. Probably some reversal pattern should be formed on hourly chart, say, butterfly - to complete AB-CD target and start response on support.
At the same time, currently we cant' talk on possible drastical reversal here, since no patterns have been formed yet. Thus, only technical respect of support is possible by far:

 

[Sive Morten]

Good morning,

Recent Reuters comments - Gold steadied after a five-day slide on Wednesday, but stayed within striking distance of a four-week low as investors positioned for a U.S. rate hike this year.

Prices could remain under pressure from weak technicals and outflows from exchange-traded funds (ETFs) that have hit precious metals across the board.

A breach of key technical levels could send prices even lower ahead of a U.S. jobs report this week that could be key in determining the timing of a rate hike.

"After breaking through trendline support around $1,119 overnight, the next downside target for gold currently sits around $1,105," said MKS Group trader Sam Laughlin.

Bullion has been under pressure since the Federal Reserve last week hinted at a rate hike in December, reversing earlier market expectations that the first U.S. rate increase in nearly a decade could be delayed to next year on global growth concerns.

Gold tends to benefit from very low rates as a non-interest-paying asset.

Markets continue to adjust to the possibility of a December rate hike, sending U.S. debt yields and the dollar higher. Strength in equity markets was also dragging on gold.

Soft economic data on Tuesday failed to support gold. New orders for U.S. factory goods fell for a second straight month in September.

Bullion traders are waiting for more U.S. data to gauge the strength of the economy and its impact on the Fed's monetary policy.

All eyes will be on the U.S. non-farm payrolls report due on Friday, while the ADP employment report and ISM report on services sector sentiment due later on Wednesday could also be market movers.

Assets in SPDR Gold Trust , the top bullion ETF, fell to a five-week low of 6.30 tonnes on Tuesday.

Investor are exiting precious metals across the board. In October, platinum and palladium-backed ETFs tracked by Reuters posted their biggest monthly outflows since the data series began in 2010.

Platinum slid to its lowest in nearly four weeks on Tuesday, while palladium fell to a five-week low. Both metals were slightly higher on Wednesday.

The bulk of the losses in the platinum group metals (PGMs) has been driven by liquidations out of exchange-traded funds, HSBC said in a note.

"Until ETFs show signs of stabilisation, PGMs may remain under pressure near term," it said.

As market has dropped lower, our short-term bullish setup stands at the edge of failure. Right now market stands around 5/8 Fib support, but it seems that only oversold has kept gold from further drop. In current situation and at the eve of major data releases it would be better to stay aside for some time.
As market has dropped below 1130 - the scale is too large for intraday charts and we gradually will turn directly to daily one. As you can see, thrust down is not bad and we could monitor for DiNapoli directional patterns here.
Another bearish signs - move below WPS1 and MPP.

As market has dropped below our 1.618 AB=CD target all that we could do is just watch for thrust down, if any DiNapoli patterns will be formed here as well. But this is mostly tactical approach, that has shy relation to overall situation on gold and mostly stands on individual pattern:

 

[Sive Morten]

Good morning,

Recent Reuters comments - Gold held near a one-month low on Thursday and looked likely to drop below the $1,100-an-ounce level after Federal Reserve Chair Janet Yellen bolstered market expectations for a U.S. interest rate hike in December.

Yellen pointed to a possible December interest rate lift-off and laid out what now appears the base case at the U.S. central bank - that low unemployment, continued growth and faith in a coming return of inflation means the country is ready for higher interest rates.

Another Fed official voiced similar opinions, sending non-interest-paying bullion lower for a sixth straight session on Wednesday.

Gold is about $30 shy of a 5-1/2-year trough of $1,077 hit in July. It has lost nearly $60 over the past six sessions.

"We think that a December rate hike is more likely than not and an appropriate market reaction is a lightening up of risk, weaker commodities, higher yields and a firmer dollar," ANZ said in a note.

Yellen's remarks caused investors to reset their expectations of a December rate hike above 60 percent.

Another top Fed official said on Wednesday that a policy meeting set for Dec. 15-16 is a "live possibility" for raising U.S. interest rates for the first time in nearly a decade.

"Bullion weakened after perceivably hawkish monetary policy comments by ... Yellen," said HSBC analyst James Steel. "The next focus for the gold market may shift to the upcoming release of nonfarm payrolls data on Nov. 6."

A robust U.S. jobs report on Friday could trigger another sell-off in gold, already facing weak technicals and investor outflows.

Assets in SPDR Gold Trust , the top gold-backed exchange-traded fund, fell to 680.11 tonnes on Wednesday - the lowest in six weeks.

"Price action is very bearish, but we expect to find initial support at the October low of $1,105 and the September low of $1,100," ScotiaMocatta analysts said.

So, our short-term bullish setup probably has failed, since we didn't get any reasonable setup for long entry. All that we've got is just a miserable drop and gold keeps dropping. This action probably opens road to 1080 lows or even 1050 area as we've discussed yesterday. However we still think that geopolicy could make impact as soon as some unexpected turnings will appear. Right now situation is relatively quiet and makret is mostly driven by economical factors.
As we've discussed, the scale of dropping is too big for intraday chart and we probably start to search for patterns here, on daily. Most obvious that we could get is DiNapoli directional patterns, since thrust down looks suitable for this purpose.
Still, hardly any bounce will happen until market will reach MPS1 and "C" point of our AB=CD pattern around 1090. At the same time, breakout below this lows will give another confirmation that market wil follow to lower targets:

On intraday charts we do not see anything interesting by far. Probably we could speak on retracement only when market will move out from this channel on hourly chart:

 

[Sive Morten]

Good morning,

Reuters reports today - Gold languished near an eight-week low on Friday and was set to post its biggest weekly drop since July as investors positioned themselves for a possible U.S. rate hike this year, pulling money out of bullion funds.

Market participants are now waiting for the U.S. non-farm payrolls report due later in the day for indications on the strength of the economy and how it would affect the Federal Reserve's monetary policy.

"Gold continues to trend lower with rising bets on a Fed rate hike in December. The recent trend looks entrenched with sentiment weakening in recent days," ANZ said in a note.

Assets in SPDR Gold Trust , the top gold-backed exchange-traded fund, tumbled to 671.77 tonnes, the lowest since mid-August. On Thursday alone, the fund saw outflows of 8.34 tonnes, the biggest daily drop since July 17.

Fed Chair Janet Yellen said on Wednesday that a rise in rates in December was a "live possibility" if justified by upcoming economic data.

The Fed in its October policy statement was deliberately trying to convince investors of a possible December interest rate hike, and was successful in doing so, Atlanta Fed President Dennis Lockhart said on Thursday.

Earlier, after the U.S. central bank's September meeting, investors believed the Fed would delay the first U.S. rate hike in nearly a decade to next year on global growth concerns.

Gold as a non-interest-paying asset could see demand take a hit from higher rates.

Solid payrolls data later in the session could seal the case for a December rate hike. According to a survey of economists, non-farm payrolls probably increased by 180,000, well above the 139,000 jobs per month average for August and September.

"The $1,100 handle is the key figure on the downside whilst a spike back above $1,110 could signal a technical turnaround or at least a consolidation," said MKS Group trader James Gardiner.

Among other precious metals, silver and platinum were headed for their third straight weekly decline.

With a 10-percent slide, palladium was on track for its worst week since September 2011, hurt by sharp outflows from exchange traded funds.

Today, guys, we've got another kind of confirmation that bullish short-term setup is over - SPDR Fund storages are dropped for 15 tonnes in 1 week. This is big drop. Average decrease stands around 5-7 tonnes per week, even on bear trends.
On daily chart we see minor bounce up. Market right now stands at support - MPS1 and oversold. Also thrust down looks nice for DiNapoli directional patterns, say B&B "Sell" would be nice here.

But again, as we've said yesterday, the first sign of starting retracement should be upside breakout of bearish channel on hourly chart. Right now we do see nothing of this kind yet. May be some relief will start in the beginning of next week, especially if NFP data will be positive.