Sive Morten
Special Consultant to the FPA
- Messages
- 18,673
Fundamentals
(Reuters) - Gold prices dipped on Friday as some investors locked in profits at the end of the week, and risk
appetite strengthened, but expectations hovered that gold prices could move higher next week.
Spot gold was down 0.3 percent at $1,287.70 an ounce by 1:46 p.m. EST (1846 GMT), on track for a 0.5 percent weekly decline. U.S. gold futures for December delivery settled down $4.90, or 0.4 percent, at $1,287.30 per ounce.
"There's some liquidation of gold taking place, but light volume," said Bill O’Neill, partner at Logic Advisors in Upper Saddle River, New Jersey. “Next week will be important, because we are close to that $1,300 level and the market has the potential to break through and establish a slightly higher range,” O'Neill added.
A key area of resistance remains at the $1,300 level, traders said.
U.S. Federal Reserve's minutes released Wednesday, regarded as "dovish," supported gold and slightly lowered market expectations of a March rate hike, said Georgette Boele, commodity strategist at ABN AMRO in Amsterdam. A December rate hike has already been priced into the market, traders said.
The Fed's cautious view of inflation could lead to a longer period of low interest rates, providing a solid platform for gold investment, said Cameron Alexander, analyst with Thomson Reuters-owned metals consultancy GFMS.
Higher interest rates tend to boost the U.S. dollar and push bond yields up, pressuring gold prices by increasing the opportunity cost of holding non-yielding bullion. The U.S. dollar index on Thursday hit its lowest since Sept. 26 against a basket of major currencies.
Dollar-priced gold typically rises when the U.S. dollar index dips. Though gold prices were down Thursday, the weaker U.S. dollar kept gold supported and within a range, said Bart Melek, head of commodity strategy at TD Securities in Toronto.
Technology stocks led the S&P 500 and Nasdaq to record high closes during a strong start to holiday shopping in the United States, signaling investor risk appetite returning, traders said.
Some words on unemployment and inflation relation:
News in Charts: The Phillips curve – Rumors of its Death are Greatly Exaggerated
by Fathom Consulting
“Reports of my death have been greatly exaggerated” is one of Mark Twain’s more frequently referenced quips. Leaving aside the fact that it is a slight misquotation, it is an amusing line, and one that neatly captures Fathom’s belief in the continued validity of the Phillips curve. There is a widespread perception that the relationship between labour market slack and inflation is, at best, diminished and, at worst, no longer intact. Fathom does not subscribe to this view. Instead, we believe that the impact of changes in unemployment on a worker’s remuneration has been masked by a sustained decline in the labour share, and by a reduction in the variability of inflation expectations. None of this implies that the Phillips curve is broken — it is merely hidden!
The Phillips curve is named after Alban William Phillips, whose study of UK wage inflation and unemployment between 1861 and 1957 found an inverse relationship between the two variables. Initially, it was believed that this relationship prevailed over the long term, allowing policymakers to trade higher inflation for permanently lower unemployment. Stagflation in the UK during the 1970s and early 1980s blew this theory out of the water, with inflation and unemployment simultaneously breaching 10%. Nowadays the Phillips curve describes a supposed relationship between some measure of real economic slack, be it unemployment relative to the NAIRU, or output relative to potential, and the degree of upward or downward pressure on some nominal quantity, typically wages or prices.
In the decades since Phillips published his research, the redefined Phillips curve has become a cornerstone of modern macroeconomic models. By raising or lowering the real rate of interest to affect aggregate demand, and with it the unemployment rate, monetary policymakers were able to exert some influence over the rate of inflation, relative to expectations. It seemed like a very useful tool for managing business cycles, particularly for inflation-targeting central banks. Until now, that is. Since the global financial crisis, unemployment has fallen back close to, or below, its natural rate in many advanced economies. Yet, to date, sustained wage growth has been elusive. This has led some commentators to propose that the relationship is no longer stable, or worse still, that it has ceased to exist altogether. Proponents of this view point to the US, where despite an almost six percentage point drop in unemployment, there has been only a very small increase in wage or inflation.
In order to better understand the dynamics driving wages, we at Fathom estimated equations linking real wage inflation to the unemployment rate over the period from 1960 to 2008. The estimated equations subsequently overpredicted real wage inflation when used to forecast out of sample across a range of major economies. Why? To start with, inflation-adjusted wage growth will be determined in part by productivity growth — a worker is unlikely to be paid more in real terms, for a given labour share of income, unless he or she is able to produce more. The dearth of productivity growth is an important factor, but not the sole explanation for lower-than-expected real wage growth. Instead, long-term factors putting downward pressure on the labour share are also to blame. Meanwhile, inflation-targeting central banks have been successful in lowering both the level and volatility of inflation expectations in advanced economies. This has caused the Phillips curve to shift down, giving the appearance of its slope having flattened.
The labour share refers to the part of national income that is allocated to labour. A range of issues, such as globalisation, technological developments and de-unionisation have put downward pressure on this share of income in advanced economies in recent decades. While we believe that some of the factors driving down the labour share, such as demographic changes and de-unionisation, have peaked, this background noise has hidden the Phillips curve and made it appear that the impact of labour market slack on wages has disappeared. Trust in your macroeconomic training- that is not, and cannot be, the case.
COT Report
There are no big changes in sentiment yet, guys. Right now it is very difficult to identify any changes, as open interest and net position are changing week by week but at very small value. Last 6 weeks position mostly stands flat. So, here nothing has changed significantly, and situation still could be described as "indecision". It is difficult to say, why this happens - either because gold itself stands flat, in consolidation, or due coming end of financial year, or by some other reason.
Technical
Monthly
On monthly chart November still is inside candle and makes shy impact on overall situation here.
Recent events, guys, make us take critical look at action on gold market. Key markets show hints on dollar strength that could last for 6-8 months. As we coming closer to 2018 and December Fed meeting, as stronger pressure of anticipating of dollar strength becomes.
Thus, last time we've shown long-term charts on 10-year Notes, Dollar Index. They are suggest strong growth of US Interest rates that will be supportive for dollar, but deadly for gold market. Currently we see temporal relief but we still treat it as preparation for reversal in favor of USD.
And now perspectives of upside action do not look as promising as it was 2-3 months ago.
Currently gold has formed "222" Sell pattern on monthly chart. When price has started up from 1050 lows - long-term bear trend line has been broken and re-tested later. But after that upside action has slowed significantly. Besides, this upside action has taken the shape of AB-CD pattern, that is typical for retracement.
This makes us doubt on upside continuation here and we suspect that this AB-CD action of "222" pattern mostly should be treated as retracement after drop out from 1380 area rather than new upside leg.
September month has shown reversal shape and if it would have closed slightly lower, we could call it as "reversal candle".
October doesn't bring a lot of new inputs as trading range is rather small and mostly as September as October still stand in August range. November stands even smaller inside October range. this nested action indicates market's contraction and sooner or later will lead to fast breakout in one or other direction.
Besides, market stands at strong resistance area around 1330. It already has been tested once, but it is still valid. This is not just 3/8 major monthly Fib level. This is also Yearly Pivot Resistance 1.
Year is coming to an end and the fact that upside action was stopped by YPR1 tells that 2017 upside price action mostly a retracement of long-term bear trend.
Yes, we have bullish scenario as well. Next major target will stand around 50% Fib level and Agreement, as it coincides with upside AB=CD objective point as well. Market could take the shape of butterfly to get there, if our "222" pattern will fail. 1.27 extension also stands in the same area. But to keep this scenario valid price should not drop too deep. If gold will break 1205 lows, it will suggest deeper downside continuation and put butterfly and any upside continuation under question.
Finally, gold is turning to seasonal bearish trend that starts in February, but most active stage of bullish trend ends in August - October. As you we can see market was not able to get some advantage from it.
Weekly
Here trend still stands bearish. Market stands in contraction phase as most recent swing is smaller than preceding one. In this kind of action price usually keeps valid opposite scenarios, and our case is not at exception.
If we will take careful look at the chart - we will see that here are possible as butterfly "Buy", as multiple "222" patterns as butterfly "sell". This situation guys, reminds me GBP setup that we've discussed yesterday.
As on GBP, gold here also has completed harmonic retracement, after minor bounce up it showed deep retracement, but kept lows valid, and now shows upside action.
As on GBP, here price stands also near strong support area and forms triangle on daily chart. So, a lot of similarity in price action of Gold market and GBP. It means that our task here is the same - watch for patterns and try to find safe way to trade it.
Still, major difference with GBP market is exist. Here gold has not broken triangle pattern yet on daily chart, while GBP already did it.
Daily
On daily we have first pattern - Butterfly "Buy". While market stands below 1305 lows - gold will keep chances to form it.
Currently market is coiling below upper border of triangle. Whole upside action is kept by MPR1. Usually, consolidation below trend line suggests energy building for breakout attempt. And here we need to be careful to bearish patterns that were forming on intraday charts. If they will fail - this will be early sign of upside breakout.
But, in larger scale until market will stand below 1355 top - any AB-CD extension will give us "222" Sell pattern. It means that it is too far till major change in sentiment.
Intraday
If gold still will break 1305 up, then there are other two patterns that we will start to watch, as we've mentioned above - "222" "Sell". First is around AB=CD target, second one is around 1.618:
Meantime on hourly chart we will watch for 1295 level. This will be key moment for short term perspective and daily bearish butterfly. Because if market will not turn down there - triangle probably will be broken up and butterfly "Buy" will be erased. This will lead to further upside action.
As market has not completed yet 1.618 extension - we expect minor upside continuation first. Besides, here we also have inner "222" Buy as minor AB-CD retracement has been finished on Friday:
Conclusion
On longer term perspective now more factors have appeared that indicate more pressure on gold due coming USD strength. Now long term perspectives look even more blur.
In shorter-term perspective we have 2-3 different patterns could be formed, and next week we will deal with first scenario - either downside reversal or upside breakout of 1305 level, as market is coming to culmination 1295 level.
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 prices dipped on Friday as some investors locked in profits at the end of the week, and risk
appetite strengthened, but expectations hovered that gold prices could move higher next week.
Spot gold was down 0.3 percent at $1,287.70 an ounce by 1:46 p.m. EST (1846 GMT), on track for a 0.5 percent weekly decline. U.S. gold futures for December delivery settled down $4.90, or 0.4 percent, at $1,287.30 per ounce.
"There's some liquidation of gold taking place, but light volume," said Bill O’Neill, partner at Logic Advisors in Upper Saddle River, New Jersey. “Next week will be important, because we are close to that $1,300 level and the market has the potential to break through and establish a slightly higher range,” O'Neill added.
A key area of resistance remains at the $1,300 level, traders said.
U.S. Federal Reserve's minutes released Wednesday, regarded as "dovish," supported gold and slightly lowered market expectations of a March rate hike, said Georgette Boele, commodity strategist at ABN AMRO in Amsterdam. A December rate hike has already been priced into the market, traders said.
The Fed's cautious view of inflation could lead to a longer period of low interest rates, providing a solid platform for gold investment, said Cameron Alexander, analyst with Thomson Reuters-owned metals consultancy GFMS.
Higher interest rates tend to boost the U.S. dollar and push bond yields up, pressuring gold prices by increasing the opportunity cost of holding non-yielding bullion. The U.S. dollar index on Thursday hit its lowest since Sept. 26 against a basket of major currencies.
Dollar-priced gold typically rises when the U.S. dollar index dips. Though gold prices were down Thursday, the weaker U.S. dollar kept gold supported and within a range, said Bart Melek, head of commodity strategy at TD Securities in Toronto.
Technology stocks led the S&P 500 and Nasdaq to record high closes during a strong start to holiday shopping in the United States, signaling investor risk appetite returning, traders said.
Some words on unemployment and inflation relation:
News in Charts: The Phillips curve – Rumors of its Death are Greatly Exaggerated
by Fathom Consulting
“Reports of my death have been greatly exaggerated” is one of Mark Twain’s more frequently referenced quips. Leaving aside the fact that it is a slight misquotation, it is an amusing line, and one that neatly captures Fathom’s belief in the continued validity of the Phillips curve. There is a widespread perception that the relationship between labour market slack and inflation is, at best, diminished and, at worst, no longer intact. Fathom does not subscribe to this view. Instead, we believe that the impact of changes in unemployment on a worker’s remuneration has been masked by a sustained decline in the labour share, and by a reduction in the variability of inflation expectations. None of this implies that the Phillips curve is broken — it is merely hidden!
The Phillips curve is named after Alban William Phillips, whose study of UK wage inflation and unemployment between 1861 and 1957 found an inverse relationship between the two variables. Initially, it was believed that this relationship prevailed over the long term, allowing policymakers to trade higher inflation for permanently lower unemployment. Stagflation in the UK during the 1970s and early 1980s blew this theory out of the water, with inflation and unemployment simultaneously breaching 10%. Nowadays the Phillips curve describes a supposed relationship between some measure of real economic slack, be it unemployment relative to the NAIRU, or output relative to potential, and the degree of upward or downward pressure on some nominal quantity, typically wages or prices.
In the decades since Phillips published his research, the redefined Phillips curve has become a cornerstone of modern macroeconomic models. By raising or lowering the real rate of interest to affect aggregate demand, and with it the unemployment rate, monetary policymakers were able to exert some influence over the rate of inflation, relative to expectations. It seemed like a very useful tool for managing business cycles, particularly for inflation-targeting central banks. Until now, that is. Since the global financial crisis, unemployment has fallen back close to, or below, its natural rate in many advanced economies. Yet, to date, sustained wage growth has been elusive. This has led some commentators to propose that the relationship is no longer stable, or worse still, that it has ceased to exist altogether. Proponents of this view point to the US, where despite an almost six percentage point drop in unemployment, there has been only a very small increase in wage or inflation.
In order to better understand the dynamics driving wages, we at Fathom estimated equations linking real wage inflation to the unemployment rate over the period from 1960 to 2008. The estimated equations subsequently overpredicted real wage inflation when used to forecast out of sample across a range of major economies. Why? To start with, inflation-adjusted wage growth will be determined in part by productivity growth — a worker is unlikely to be paid more in real terms, for a given labour share of income, unless he or she is able to produce more. The dearth of productivity growth is an important factor, but not the sole explanation for lower-than-expected real wage growth. Instead, long-term factors putting downward pressure on the labour share are also to blame. Meanwhile, inflation-targeting central banks have been successful in lowering both the level and volatility of inflation expectations in advanced economies. This has caused the Phillips curve to shift down, giving the appearance of its slope having flattened.
The labour share refers to the part of national income that is allocated to labour. A range of issues, such as globalisation, technological developments and de-unionisation have put downward pressure on this share of income in advanced economies in recent decades. While we believe that some of the factors driving down the labour share, such as demographic changes and de-unionisation, have peaked, this background noise has hidden the Phillips curve and made it appear that the impact of labour market slack on wages has disappeared. Trust in your macroeconomic training- that is not, and cannot be, the case.
COT Report
There are no big changes in sentiment yet, guys. Right now it is very difficult to identify any changes, as open interest and net position are changing week by week but at very small value. Last 6 weeks position mostly stands flat. So, here nothing has changed significantly, and situation still could be described as "indecision". It is difficult to say, why this happens - either because gold itself stands flat, in consolidation, or due coming end of financial year, or by some other reason.
Technical
Monthly
On monthly chart November still is inside candle and makes shy impact on overall situation here.
Recent events, guys, make us take critical look at action on gold market. Key markets show hints on dollar strength that could last for 6-8 months. As we coming closer to 2018 and December Fed meeting, as stronger pressure of anticipating of dollar strength becomes.
Thus, last time we've shown long-term charts on 10-year Notes, Dollar Index. They are suggest strong growth of US Interest rates that will be supportive for dollar, but deadly for gold market. Currently we see temporal relief but we still treat it as preparation for reversal in favor of USD.
And now perspectives of upside action do not look as promising as it was 2-3 months ago.
Currently gold has formed "222" Sell pattern on monthly chart. When price has started up from 1050 lows - long-term bear trend line has been broken and re-tested later. But after that upside action has slowed significantly. Besides, this upside action has taken the shape of AB-CD pattern, that is typical for retracement.
This makes us doubt on upside continuation here and we suspect that this AB-CD action of "222" pattern mostly should be treated as retracement after drop out from 1380 area rather than new upside leg.
September month has shown reversal shape and if it would have closed slightly lower, we could call it as "reversal candle".
October doesn't bring a lot of new inputs as trading range is rather small and mostly as September as October still stand in August range. November stands even smaller inside October range. this nested action indicates market's contraction and sooner or later will lead to fast breakout in one or other direction.
Besides, market stands at strong resistance area around 1330. It already has been tested once, but it is still valid. This is not just 3/8 major monthly Fib level. This is also Yearly Pivot Resistance 1.
Year is coming to an end and the fact that upside action was stopped by YPR1 tells that 2017 upside price action mostly a retracement of long-term bear trend.
Yes, we have bullish scenario as well. Next major target will stand around 50% Fib level and Agreement, as it coincides with upside AB=CD objective point as well. Market could take the shape of butterfly to get there, if our "222" pattern will fail. 1.27 extension also stands in the same area. But to keep this scenario valid price should not drop too deep. If gold will break 1205 lows, it will suggest deeper downside continuation and put butterfly and any upside continuation under question.
Finally, gold is turning to seasonal bearish trend that starts in February, but most active stage of bullish trend ends in August - October. As you we can see market was not able to get some advantage from it.
Weekly
Here trend still stands bearish. Market stands in contraction phase as most recent swing is smaller than preceding one. In this kind of action price usually keeps valid opposite scenarios, and our case is not at exception.
If we will take careful look at the chart - we will see that here are possible as butterfly "Buy", as multiple "222" patterns as butterfly "sell". This situation guys, reminds me GBP setup that we've discussed yesterday.
As on GBP, gold here also has completed harmonic retracement, after minor bounce up it showed deep retracement, but kept lows valid, and now shows upside action.
As on GBP, here price stands also near strong support area and forms triangle on daily chart. So, a lot of similarity in price action of Gold market and GBP. It means that our task here is the same - watch for patterns and try to find safe way to trade it.
Still, major difference with GBP market is exist. Here gold has not broken triangle pattern yet on daily chart, while GBP already did it.
Daily
On daily we have first pattern - Butterfly "Buy". While market stands below 1305 lows - gold will keep chances to form it.
Currently market is coiling below upper border of triangle. Whole upside action is kept by MPR1. Usually, consolidation below trend line suggests energy building for breakout attempt. And here we need to be careful to bearish patterns that were forming on intraday charts. If they will fail - this will be early sign of upside breakout.
But, in larger scale until market will stand below 1355 top - any AB-CD extension will give us "222" Sell pattern. It means that it is too far till major change in sentiment.
Intraday
If gold still will break 1305 up, then there are other two patterns that we will start to watch, as we've mentioned above - "222" "Sell". First is around AB=CD target, second one is around 1.618:
Meantime on hourly chart we will watch for 1295 level. This will be key moment for short term perspective and daily bearish butterfly. Because if market will not turn down there - triangle probably will be broken up and butterfly "Buy" will be erased. This will lead to further upside action.
As market has not completed yet 1.618 extension - we expect minor upside continuation first. Besides, here we also have inner "222" Buy as minor AB-CD retracement has been finished on Friday:
Conclusion
On longer term perspective now more factors have appeared that indicate more pressure on gold due coming USD strength. Now long term perspectives look even more blur.
In shorter-term perspective we have 2-3 different patterns could be formed, and next week we will deal with first scenario - either downside reversal or upside breakout of 1305 level, as market is coming to culmination 1295 level.
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.
