Sive Morten
Special Consultant to the FPA
- Messages
- 18,840
Fundamentals
This week gold was driven by the same factors which are common right now for all markets. Yesterday we've discussed their impact on FX market and EUR in particular. Today we consider their effect on gold market.
In general, there are only two of them have greater value - NFP and ISM statistics that was mostly positive and anticipation of US/China tariff agreement signing. The latter one in particular keeps investors in positive mood, supporting demand for risky assets and pushing stock market higher. At the same time, its effect on gold market was negative.
As Reuters reports - Gold extended losses to a three-month low on Friday as positive developments in U.S.-China trade tarnished the metal’s safe-haven appeal, putting it on track for the biggest weekly decline in three years.
“We are seeing a rally in risk markets, dollar surge and equities reaching an all time high. There had been a portion of long positions built up in the last few months and we are starting to see those liquidating,” said Ryan McKay, a commodity strategist at TD Securities.
“(Also,) we have had a lot of optimism on the trade front, a lot of news on potential rollback on tariffs and the China deal, which had been the major headwind for growth throughout the last year.”
Tariffs could be lifted if a U.S.-China trade agreement is reached, a White House spokeswoman said, giving no further details.
The dollar hit a three-week high against key rivals, while global equity markets slid, a day after they surged to a 21-month high.
Uncertainty about the trade talks, however, prevailed as U.S. President Donald Trump on Friday told reporters that he had not agreed to roll back tariffs on China.
“We are trading on a lot of speculation right now and there’s no solid evidence or anything specific,” said Craig Erlam, OANDA senior market analyst.
The trade war was one of the key reasons for bullion, which is considered a safer asset during economic and political uncertainties, rising about 14% so far this year.
Gold also benefited from dovish monetary policies by global central banks, but the Fed’s recent decision to hold back on further cuts until the economy takes a downturn weighed on bullion, analysts said.
“There’s expectation for resolution of the trade war and that is the main story behind this fall in gold,” said Carlo Alberto De Casa, chief analyst at ActivTrades.
A risk-on scenario, stronger dollar and Thursday’s breakdown of the key support level of $1,480 also weighed on bullion as many traders were looking at gold in a $1,480-$1,520 trading range, De Casa said.
Gold fell below its 100-day moving average for the first time since end-May on Thursday.
Reflecting sentiment, holdings in the world’s largest gold-backed exchange-traded fund, SPDR Gold Trust, dipped 0.16% to 914.38 tonnes on Thursday.
“While subdued global economic growth and low interest rates should keep gold prices elevated, positive developments for gold have now largely played out,” analysts at Capital Economics said in a note.
That's being said now we see the process which we usually name as "Buy on rumors" (although in our case it is more "sell" on rumors). Once agreement will be signed massive profit taking should happen and further direction will depend on Agreement details and degree of matching to expectations. If Agreement will be signed but it will appear to be "faltering giant" - big events will follow. But now, while investors stand in euphoria anticipating real breakthrough and prosperous future for US/China mutual trading - gold will stay under pressure.
This caution we could see in investors' positions. Take a look that despite huge drop CFTC data shows that investors do not hurry to sell-off gold and keep net long position at high levels. Thus, net long position is rising four weeks in a row. Last week we also discussed SPDR fund position. This week it has decreased but at very small value, so we could discount this decrease:
Source: cftc.gov
Charting by Investing.com
Technical
Monthly
Although we see that fundamental factors make mixed impact on the market - we see downside action, but at the same time long-term positions of big players stand intact - technical picture shows more significant changes.
On monthly chart gold keeps bullish context by far. MACD trend stands bullish and price action is forming tight flag consolidation right under resistance area. In general we keep 1530-1585 range as major monthly resistance here.
Butterfly pattern suggests at least 3/8 retracement, which seems solid pullback on lower time frames. It could look scaring but in reality this is normal technical reaction on achievement important target.
That's being said monthly chart keeps long term bullish tendency intact by far
Weekly
Weekly trend stands bearish. Here we have to acknowledge confirmation of DRPO "Sell" LAL pattern. Unfortunately gold was not able to hit XOP target and form perfect shape of DRPO with approx. equal 2nd top, but starts dropping instead.
Still, we've got DRPO two closes around 3x3 DMA which let's us talk on Look-alike pattern. Here we have two support areas. First one is 1447, which is almost hit, next one is K-support area of 1362-1380. K-area is also the target suggested by monthly butterfly pattern.
Although we've suggested a bit different price shape on downside reversal (reaching XOP, forming DRPO then collapse) - result stands the same, gold starts dropping finally out from resistance area. Taking in consideration the momentum, it seems that drop should continue after technical bounce as market stands at weekly oversold and near Fib support level.
Once relief will be over - gold supposedly should continue downside action, if of course, investors' expectations on US/Sino agreement will be satisfied.
XOP target is still valid and could be reached later, if gold will keep "C" point intact.
Daily
On daily time frame gold totally fulfilled our plan, challenging recent lows around 1458$ area. Our former upside AB-CD has been erased, as price has dropped below "C" point. Now we have to consider more extended AB-CD pattern. Price has hit its COP target. OP stands at 1421$ and coincides with 1.618 extension of butterfly pattern.
Here we also have strong support around 1447. This is 5/8 Fib level here, but also recall that we have weekly 3/8 level as well - thus, we have K-support, which is accompanied by 1.27 butterfly target as well.
Here market also stands at oversold. It means that for taking short position on daily/weekly basis we need to wait for upside retracement from K-support area. Intraday traders could try to take short positions on minor pullbacks until price has not reached 1447-1448 area and butterfly target. Once both of them will be hit - we could consider short-term long entry as well:
Intraday
Our 4H XOP has been reached accurately right on Friday. As gold stands at oversold on daily chart - minor pullback could happen. At the same time, as major daily support cluster has not been reached yet - price will tending to it, thus, retracement should not be too significant:
If nothing will change in political sphere - in current circumstances retracement should not exceed 1475 area, which is K-resistance on 1H chart. Minor XOP creates an Agreement with it. We already have puny "222" Buy pattern.
Conclusion
While investors anticipate breakout in US/China trading agreement - gold will stay under pressure. Currently we do not see any hazard to long-term bullish tendency, big traders still keep longs on gold, but in shorter-term perspective gold supposedly should show deeper downside retracement. The same thing is suggested by monthly/weekly technical picture.
This week gold was driven by the same factors which are common right now for all markets. Yesterday we've discussed their impact on FX market and EUR in particular. Today we consider their effect on gold market.
In general, there are only two of them have greater value - NFP and ISM statistics that was mostly positive and anticipation of US/China tariff agreement signing. The latter one in particular keeps investors in positive mood, supporting demand for risky assets and pushing stock market higher. At the same time, its effect on gold market was negative.
As Reuters reports - Gold extended losses to a three-month low on Friday as positive developments in U.S.-China trade tarnished the metal’s safe-haven appeal, putting it on track for the biggest weekly decline in three years.
“We are seeing a rally in risk markets, dollar surge and equities reaching an all time high. There had been a portion of long positions built up in the last few months and we are starting to see those liquidating,” said Ryan McKay, a commodity strategist at TD Securities.
“(Also,) we have had a lot of optimism on the trade front, a lot of news on potential rollback on tariffs and the China deal, which had been the major headwind for growth throughout the last year.”
Tariffs could be lifted if a U.S.-China trade agreement is reached, a White House spokeswoman said, giving no further details.
The dollar hit a three-week high against key rivals, while global equity markets slid, a day after they surged to a 21-month high.
Uncertainty about the trade talks, however, prevailed as U.S. President Donald Trump on Friday told reporters that he had not agreed to roll back tariffs on China.
“We are trading on a lot of speculation right now and there’s no solid evidence or anything specific,” said Craig Erlam, OANDA senior market analyst.
The trade war was one of the key reasons for bullion, which is considered a safer asset during economic and political uncertainties, rising about 14% so far this year.
Gold also benefited from dovish monetary policies by global central banks, but the Fed’s recent decision to hold back on further cuts until the economy takes a downturn weighed on bullion, analysts said.
“There’s expectation for resolution of the trade war and that is the main story behind this fall in gold,” said Carlo Alberto De Casa, chief analyst at ActivTrades.
A risk-on scenario, stronger dollar and Thursday’s breakdown of the key support level of $1,480 also weighed on bullion as many traders were looking at gold in a $1,480-$1,520 trading range, De Casa said.
Gold fell below its 100-day moving average for the first time since end-May on Thursday.
Reflecting sentiment, holdings in the world’s largest gold-backed exchange-traded fund, SPDR Gold Trust, dipped 0.16% to 914.38 tonnes on Thursday.
“While subdued global economic growth and low interest rates should keep gold prices elevated, positive developments for gold have now largely played out,” analysts at Capital Economics said in a note.
That's being said now we see the process which we usually name as "Buy on rumors" (although in our case it is more "sell" on rumors). Once agreement will be signed massive profit taking should happen and further direction will depend on Agreement details and degree of matching to expectations. If Agreement will be signed but it will appear to be "faltering giant" - big events will follow. But now, while investors stand in euphoria anticipating real breakthrough and prosperous future for US/China mutual trading - gold will stay under pressure.
This caution we could see in investors' positions. Take a look that despite huge drop CFTC data shows that investors do not hurry to sell-off gold and keep net long position at high levels. Thus, net long position is rising four weeks in a row. Last week we also discussed SPDR fund position. This week it has decreased but at very small value, so we could discount this decrease:
Source: cftc.gov
Charting by Investing.com
Technical
Monthly
Although we see that fundamental factors make mixed impact on the market - we see downside action, but at the same time long-term positions of big players stand intact - technical picture shows more significant changes.
On monthly chart gold keeps bullish context by far. MACD trend stands bullish and price action is forming tight flag consolidation right under resistance area. In general we keep 1530-1585 range as major monthly resistance here.
Butterfly pattern suggests at least 3/8 retracement, which seems solid pullback on lower time frames. It could look scaring but in reality this is normal technical reaction on achievement important target.
That's being said monthly chart keeps long term bullish tendency intact by far
Weekly
Weekly trend stands bearish. Here we have to acknowledge confirmation of DRPO "Sell" LAL pattern. Unfortunately gold was not able to hit XOP target and form perfect shape of DRPO with approx. equal 2nd top, but starts dropping instead.
Still, we've got DRPO two closes around 3x3 DMA which let's us talk on Look-alike pattern. Here we have two support areas. First one is 1447, which is almost hit, next one is K-support area of 1362-1380. K-area is also the target suggested by monthly butterfly pattern.
Although we've suggested a bit different price shape on downside reversal (reaching XOP, forming DRPO then collapse) - result stands the same, gold starts dropping finally out from resistance area. Taking in consideration the momentum, it seems that drop should continue after technical bounce as market stands at weekly oversold and near Fib support level.
Once relief will be over - gold supposedly should continue downside action, if of course, investors' expectations on US/Sino agreement will be satisfied.
XOP target is still valid and could be reached later, if gold will keep "C" point intact.
Daily
On daily time frame gold totally fulfilled our plan, challenging recent lows around 1458$ area. Our former upside AB-CD has been erased, as price has dropped below "C" point. Now we have to consider more extended AB-CD pattern. Price has hit its COP target. OP stands at 1421$ and coincides with 1.618 extension of butterfly pattern.
Here we also have strong support around 1447. This is 5/8 Fib level here, but also recall that we have weekly 3/8 level as well - thus, we have K-support, which is accompanied by 1.27 butterfly target as well.
Here market also stands at oversold. It means that for taking short position on daily/weekly basis we need to wait for upside retracement from K-support area. Intraday traders could try to take short positions on minor pullbacks until price has not reached 1447-1448 area and butterfly target. Once both of them will be hit - we could consider short-term long entry as well:
Intraday
Our 4H XOP has been reached accurately right on Friday. As gold stands at oversold on daily chart - minor pullback could happen. At the same time, as major daily support cluster has not been reached yet - price will tending to it, thus, retracement should not be too significant:
If nothing will change in political sphere - in current circumstances retracement should not exceed 1475 area, which is K-resistance on 1H chart. Minor XOP creates an Agreement with it. We already have puny "222" Buy pattern.
Conclusion
While investors anticipate breakout in US/China trading agreement - gold will stay under pressure. Currently we do not see any hazard to long-term bullish tendency, big traders still keep longs on gold, but in shorter-term perspective gold supposedly should show deeper downside retracement. The same thing is suggested by monthly/weekly technical picture.