Sive Morten
Special Consultant to the FPA
- Messages
- 18,646
Fundamentals
Reuters reports Gold turned lower on Friday, ending a two-day bounce up from the lowest level in nearly six years, on the firm dollar and comments from a Federal Reserve policy maker who said the U.S. central bank should "soon" be ready to raise interest rates.
"We hope that relatively soon we will become reasonably confident that inflation will return to our 2 percent objective," said William Dudley, the influential head of the New York Fed.
Gold prices were pressured by Dudley's comments as well as the firm U.S. dollar <.DXY>, said Eli Tesfaye, senior market strategist for brokerage RJO Futures in Chicago.
"I don't see a lot of downside pressure here but I don't see any bullish factor to get this going either," Tesfaye said, remarking on the session's relatively sideways move.
"The market hasn't found any decisive direction."
Bullion prices were firm earlier, when expectations that the Fed will take its time raising rates prompted a wave of short covering after prices hit near six-year lows.
The market had become over extended on the downside after falling to its lowest since February 2010 at $1,064.95 an ounce on Wednesday, analysts said. A suggestion in the minutes of the Fed's last meeting that the bank would move cautiously on rates prompted the short covering.
Speculation that the Fed will lift interest rates for the first time in nearly a decade this year has intensified since the release of strong U.S. jobs data earlier this month, which triggered a sharp drop in gold prices.
Higher rates tend to weigh on gold, as they lift the opportunity cost of holding non-yielding assets, while boosting the dollar.
That is likely to keep up pressure on gold, which has fallen more than 5 percent this month and is down 9 percent so far this year.
In Asia, Chinese banks are growing alarmed by a rising number of defaults among jewelry manufacturers, prompting them to review new gold lending more carefully, according to sources with direct knowledge of the issue.
CFTC numbers shows contraction of net short speculative positions with simultaneous increasing of open interest. This suggests that market participants are no just close longs but open shorts as well.
SPDR Fund shows dramatic outflow for 20 tonnes within couple of weeks. Right now its storage of gold stands around 660 tonnes.
Technicals
So, Goldman expect bearish continuation to 1000$ area and we have to return back to medium-term bearish view as drop was really miserable within last 2 weeks.
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 dramatically, 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 market gradually will start to come to the same conclusion as gradually situation on gold market will start to change in positive area. Still, 1000$ area is relatively close and these two events do not contradict to each other, just because they are of a bit different time scales.
Speaking on breakeven points between bullish and bearish sentiment - market should show significant upside action and form bullish reversal swing to destroy current bearish domination. It means that gold has to exceed 1310 area.
We still 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$. Besides, in the same area we have 1.618 target of most recent butterfly pattern.
Also we have extended bearish dynamic pressure here. Although trend shifted bullish in 2014, but market still forms sequence of lower tops. Speaking on VOB again - it assumes reaching of minor 0.618 target and gold stands very close to it. That's why chances are really not small that we could get another drop to 1050 and Goldman could be right. And as we've said, even when rally was strong - we call to not hurry to write-off bearish strength by far.
Based on monthly chart analysis gold stands as close as never to reaching of 1050 target.
Weekly
Last week market mostly was coiling around former 1080 area consolidation. Trend has turned bearish on weekly chart.
Action here suggests that market should reach 1025-1035 area. Yes, our beacon is 1050, but it stands on monthly chart and +/- 20$ is normal for monthly levels. Besides, if gold will trigger stops below 1050 - this will add fuel to bearish fire and market could drop another 20$ just by momentum.
Here we see that gold stands below MPS1 and this indicates bear trend. Since drop was really significant - we do not take into consideration minor AB-CD extension of "222" Sell pattern but will be watching AB=CD target directly. Besides, market is not at oversold by far, but already has broken all major Fib levels.
If you will take a look carefully at this chart - you will recognize 2 butterflies to the left from "222" pattern. Both of them have 1.618 extensions around our AB=CD. That's why most probable destination is not 1050$ but slightly lower - 1025-1035$.
That's being said in normal market conditions gold should continue move down, especially after such drop as we saw 2 weeks ago. Last week was minor one and absolutely does not change overall picture:
Daily
Friday action was not really strong, that why our major task here is the same. If you remember the major trick here is opposite patterns that were formed on Thursday. Thus, gold has formed bullish morning star pattern, but its last candle also has become a bearish grabber. Friday action has not brought any clarity in this situation, because minor retracement back inside the body of candlestick pattern does not mean its canceling.
Although we think that bears have better chances to succeed here, upside action also could bring interesting results. Thus, gold stands below solid resistance area of 1080 and particular this moment increases bearish chances.
Still, if upside action will happen - we have superb thrust down and could get DiNapoli pattern. If you would like to trade patterns directly and agree for higher risk, you could try to do this. In this case your major task will be - try to take position as close to invalidation point as possible. Also we will see, may be we will get some more clarity on Monday concerning which pattern will take the lead...
Hourly
Here are some observations concerning bullish and bearish perspectives. If we will not take into consideration gap open after Paris attack - then you will see that resistance of the low of long candle prevents
gold return back above it. Current upside action also does not look like thrust and mostly has a features of retracement. Other words speaking, market looks a bit heavy on a way up and bullish scenario probably could be realized only if market will get "something", some external push from some either fundamental or political event. If everything will be quiet - then downward action seems more probable.
For our trading plan it means that only if market will return back above yellow rectangle - it will be possible to think about long entry on some scalp trade and count on possible deeper upside retracement on daily chart.
Conclusion:
We think that market participants gradually will start to understand that situation in World is changing, Globe uncertainty is growing and this will lead to re-assessment of gold value. But this is long-term process. That's why gold still could drift slightly lower and reach 1000-1050 area.
In short-term perspective we should watch for 1085 area. If market will break it up, then deeper retracement up is possible and we could get some daily pattern probably. Otherwise, market will ruled by bearish grabber.
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 reports Gold turned lower on Friday, ending a two-day bounce up from the lowest level in nearly six years, on the firm dollar and comments from a Federal Reserve policy maker who said the U.S. central bank should "soon" be ready to raise interest rates.
"We hope that relatively soon we will become reasonably confident that inflation will return to our 2 percent objective," said William Dudley, the influential head of the New York Fed.
Gold prices were pressured by Dudley's comments as well as the firm U.S. dollar <.DXY>, said Eli Tesfaye, senior market strategist for brokerage RJO Futures in Chicago.
"I don't see a lot of downside pressure here but I don't see any bullish factor to get this going either," Tesfaye said, remarking on the session's relatively sideways move.
"The market hasn't found any decisive direction."
Bullion prices were firm earlier, when expectations that the Fed will take its time raising rates prompted a wave of short covering after prices hit near six-year lows.
The market had become over extended on the downside after falling to its lowest since February 2010 at $1,064.95 an ounce on Wednesday, analysts said. A suggestion in the minutes of the Fed's last meeting that the bank would move cautiously on rates prompted the short covering.
Speculation that the Fed will lift interest rates for the first time in nearly a decade this year has intensified since the release of strong U.S. jobs data earlier this month, which triggered a sharp drop in gold prices.
Higher rates tend to weigh on gold, as they lift the opportunity cost of holding non-yielding assets, while boosting the dollar.
That is likely to keep up pressure on gold, which has fallen more than 5 percent this month and is down 9 percent so far this year.
In Asia, Chinese banks are growing alarmed by a rising number of defaults among jewelry manufacturers, prompting them to review new gold lending more carefully, according to sources with direct knowledge of the issue.
CFTC numbers shows contraction of net short speculative positions with simultaneous increasing of open interest. This suggests that market participants are no just close longs but open shorts as well.
SPDR Fund shows dramatic outflow for 20 tonnes within couple of weeks. Right now its storage of gold stands around 660 tonnes.
Technicals
So, Goldman expect bearish continuation to 1000$ area and we have to return back to medium-term bearish view as drop was really miserable within last 2 weeks.
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 dramatically, 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 market gradually will start to come to the same conclusion as gradually situation on gold market will start to change in positive area. Still, 1000$ area is relatively close and these two events do not contradict to each other, just because they are of a bit different time scales.
Speaking on breakeven points between bullish and bearish sentiment - market should show significant upside action and form bullish reversal swing to destroy current bearish domination. It means that gold has to exceed 1310 area.
We still 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$. Besides, in the same area we have 1.618 target of most recent butterfly pattern.
Also we have extended bearish dynamic pressure here. Although trend shifted bullish in 2014, but market still forms sequence of lower tops. Speaking on VOB again - it assumes reaching of minor 0.618 target and gold stands very close to it. That's why chances are really not small that we could get another drop to 1050 and Goldman could be right. And as we've said, even when rally was strong - we call to not hurry to write-off bearish strength by far.
Based on monthly chart analysis gold stands as close as never to reaching of 1050 target.
Weekly
Last week market mostly was coiling around former 1080 area consolidation. Trend has turned bearish on weekly chart.
Action here suggests that market should reach 1025-1035 area. Yes, our beacon is 1050, but it stands on monthly chart and +/- 20$ is normal for monthly levels. Besides, if gold will trigger stops below 1050 - this will add fuel to bearish fire and market could drop another 20$ just by momentum.
Here we see that gold stands below MPS1 and this indicates bear trend. Since drop was really significant - we do not take into consideration minor AB-CD extension of "222" Sell pattern but will be watching AB=CD target directly. Besides, market is not at oversold by far, but already has broken all major Fib levels.
If you will take a look carefully at this chart - you will recognize 2 butterflies to the left from "222" pattern. Both of them have 1.618 extensions around our AB=CD. That's why most probable destination is not 1050$ but slightly lower - 1025-1035$.
That's being said in normal market conditions gold should continue move down, especially after such drop as we saw 2 weeks ago. Last week was minor one and absolutely does not change overall picture:
Daily
Friday action was not really strong, that why our major task here is the same. If you remember the major trick here is opposite patterns that were formed on Thursday. Thus, gold has formed bullish morning star pattern, but its last candle also has become a bearish grabber. Friday action has not brought any clarity in this situation, because minor retracement back inside the body of candlestick pattern does not mean its canceling.
Although we think that bears have better chances to succeed here, upside action also could bring interesting results. Thus, gold stands below solid resistance area of 1080 and particular this moment increases bearish chances.
Still, if upside action will happen - we have superb thrust down and could get DiNapoli pattern. If you would like to trade patterns directly and agree for higher risk, you could try to do this. In this case your major task will be - try to take position as close to invalidation point as possible. Also we will see, may be we will get some more clarity on Monday concerning which pattern will take the lead...
Hourly
Here are some observations concerning bullish and bearish perspectives. If we will not take into consideration gap open after Paris attack - then you will see that resistance of the low of long candle prevents
gold return back above it. Current upside action also does not look like thrust and mostly has a features of retracement. Other words speaking, market looks a bit heavy on a way up and bullish scenario probably could be realized only if market will get "something", some external push from some either fundamental or political event. If everything will be quiet - then downward action seems more probable.
For our trading plan it means that only if market will return back above yellow rectangle - it will be possible to think about long entry on some scalp trade and count on possible deeper upside retracement on daily chart.
Conclusion:
We think that market participants gradually will start to understand that situation in World is changing, Globe uncertainty is growing and this will lead to re-assessment of gold value. But this is long-term process. That's why gold still could drift slightly lower and reach 1000-1050 area.
In short-term perspective we should watch for 1085 area. If market will break it up, then deeper retracement up is possible and we could get some daily pattern probably. Otherwise, market will ruled by bearish grabber.
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.
