Sive Morten
Special Consultant to the FPA
- Messages
- 18,644
Fundamentals
(Reuters) - Gold bounced up from a two-month low on Friday, on concerns stoked by a Russian report
that North Korea is preparing to test a long-range missile and on support from the U.S. dollar's shift into negative territory.
"The Russian report of a looming North Korean missile test that could reach the west coast of the United States combined with a weakening dollar goosed gold from two-month lows," said Tai Wong, head of base and precious metals trading at BMO Capital Markets in New York.
"Gold has slumped 7 percent over the past month, which is making speculative shorts wary at current levels so we may see $1,300 before $1,250."
Spot gold rose 0.4 percent at $1,273.06 an ounce by 2:40 p.m. EDT (1840 GMT). U.S. December gold futures settled up 0.1 percent at $1,274.90. The dollar index fell from a 2-1/2-month high.
"The dollar's initial gains evaporated as market participants made a more sober assessment of the jobs report and realized that the sharp rise in average hourly earnings may have been driven by a sizeable drop in low-paid and hurricane-hit jobs rather than an actual rise in earnings," said Fawad Razaqzada, technical analyst for Forex.com.
"As the dollar fell, buck-denominated precious metals went up in value." Earlier, bullion fell to a two-month low at $1,260.16 an ounce on an upbeat reading of the U.S. unemployment rate and wage growth last month that supported expectations for a further U.S. interest rate hike in December. This pushed the dollar and Treasury yields higher.
Gold prices have fallen 0.5 percent this week and are facing their fourth straight week of decline, the metal's longest run of weekly losses this year.
Holdings of the world's largest gold-backed exchange-traded fund, SPDR Gold Shares , have fallen 13.6 tonnes so far this week, their first weekly outflow in nine weeks and the largest since late July. Demand for physical gold in India improved slightly this week because of a correction in local prices, but restrictions
on the industry and increased smuggling took the sheen off the bullion market.
COT Report
Within last month, 3-4 weeks, market shows typical changes for retracement. Net long position gradually drops together with open interest - speculators slowly close long positions. At the same time decreasing of longs is not significant. In general, this also could be technical off-load as net position stands near highs - 250K contracts and has to be reduced. Thus, CFTC mostly shows light bearish sentiment:
Technical
Monthly
As September action, as October one stands inside the August by far. Trend is bullish on monthly chart, and changes come slow here.
The one thing that may be will be useful for us in coming weeks is close standing of MACDP line. This could give us bullish grabber within October-November. All other things stand mostly the same as in previous weekly reports.
On July and August we have tail close. Right now market has reached solid 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 and 0.618 AB-CD target. Right now market still stands close to it.
Next major target will stand around 50% Fib level and Agreement, as it coincides with AB=CD objective point as well. Market could take the shape of butterfly to get there. 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 as we already have "222" Sell pattern here:
Weekly
So, Here we have two AB-CD patterns of different scale. First one is large monthly AB-CD that we've mentioned above and this is 0.618 target that has been hit at 1326$.
Second AB-CD is a minor one and it stands inside CD leg of larger one.
Recent price action around these two AB-CD's looks interesting and mostly it is bearish. Market has turned down a bit curiously, that is not typical for normal behavior. In fact, market has turned down after gap up and when as 1326 target as YPR1 were passed already. 1360$ area where market has turned down, actually, was a free space - no resistance above.
Second moment - price has turned but not completed minor AB=CD. In fact, we've got "222" Sell pattern that we've mentioned above. "222" doesn't need necessary AB equal CD inside, it could be different and it still will be "222" pattern.
Finally CD leg was faster and market was tending to CD target, but suddenly turned down. All these moments point on bearish nature of this action and this is not some fluctuations inside upside swing probably.
So, as you can see our last week suggestion mostly was correct - price indeed has reached 1263 K-support area. At the same time market has completed here weekly harmonic swing of retracement. As 1263-1267 is rather strong weekly support area - some clear respect should be shown by price action. It means that we should be ready for upside reaction. New spiral of tensions around N. Korea and mystic D. Trump statements of "You'll find out" and "there is only one thing will work" with N. Korea makes investors worry on possible radical solution of this situation. And these statements appear right at the moment when gold has reached important support area.
That's being said, as gold mostly has completed our destination point - now it is not good time to go short here. If you're bearish it would be better to wait for meaningful pullback:
Daily
On Friday gold indeed has made minor spike, completed 1263 target and turned up. Here we could speak about upside reversal session. As we've estimated above - upside action should be significant here. Now we could talk about two possible levels. First one is obviously K-resistance area around 1293-1297. We probably could say that market should at least reach this area.
Second one is area around MPP and daily OB. It stands around 1305. This probably will be ceil for coming week.
At finally, another important issue to keep an eye on - "C" point of our AB-CD. Since we treat possible upside action as "retracement", theoretically price should stay below "C". Otherwise, AB-CD pattern will be erased. This will point on possible higher upside action, at least to 1320 area and later could give us larger downside AB-CD. But, on coming week let's focus just on two mentioned levels, this should be enough.
Intraday
So, market perfectly has completed butterfly "Buy" pattern that we've discussed on Friday. Now there are two ways how we could take position if we've missed opportunity with butterfly entry. First one is (as we've said previously) - waiting for upside breakout of the channel, forming of upside reversal swing and then wait for retracement down, may be re-testing of broken channel:
Second is, try to use hourly chart. Nearest resistance, according to 4-hour picture stands around 1280 - this is Fib level and channel's line. Hence, market could move slightly higher (~4$) and then minor retracement could start. You could use it for entry:
Currently, drop below 1260 will be irrational for bullish setup as all targets have been met there. If somehow price still will break it - forget about long trades, this will totally erase bullish scenario. In fact, recent lows is invalidation point for bullish setup that we have right now.
Conclusion
As monthly/weekly trend stands bullish and downside action has no signs of collapse, we treat this action as retracement by far.
In shorter-term perspective, gold has met our major 1260 target and already has formed bullish reversal pattern. Thus, we mostly suggest bullish scenario for 1-2 weeks on gold. If you're bearish, it would be better to wait for some pullback for better entry levels. As gold market stands at weekly support this is not friendly moment to go short...
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 bounced up from a two-month low on Friday, on concerns stoked by a Russian report
that North Korea is preparing to test a long-range missile and on support from the U.S. dollar's shift into negative territory.
"The Russian report of a looming North Korean missile test that could reach the west coast of the United States combined with a weakening dollar goosed gold from two-month lows," said Tai Wong, head of base and precious metals trading at BMO Capital Markets in New York.
"Gold has slumped 7 percent over the past month, which is making speculative shorts wary at current levels so we may see $1,300 before $1,250."
Spot gold rose 0.4 percent at $1,273.06 an ounce by 2:40 p.m. EDT (1840 GMT). U.S. December gold futures settled up 0.1 percent at $1,274.90. The dollar index fell from a 2-1/2-month high.
"The dollar's initial gains evaporated as market participants made a more sober assessment of the jobs report and realized that the sharp rise in average hourly earnings may have been driven by a sizeable drop in low-paid and hurricane-hit jobs rather than an actual rise in earnings," said Fawad Razaqzada, technical analyst for Forex.com.
"As the dollar fell, buck-denominated precious metals went up in value." Earlier, bullion fell to a two-month low at $1,260.16 an ounce on an upbeat reading of the U.S. unemployment rate and wage growth last month that supported expectations for a further U.S. interest rate hike in December. This pushed the dollar and Treasury yields higher.
Gold prices have fallen 0.5 percent this week and are facing their fourth straight week of decline, the metal's longest run of weekly losses this year.
Holdings of the world's largest gold-backed exchange-traded fund, SPDR Gold Shares , have fallen 13.6 tonnes so far this week, their first weekly outflow in nine weeks and the largest since late July. Demand for physical gold in India improved slightly this week because of a correction in local prices, but restrictions
on the industry and increased smuggling took the sheen off the bullion market.
COT Report
Within last month, 3-4 weeks, market shows typical changes for retracement. Net long position gradually drops together with open interest - speculators slowly close long positions. At the same time decreasing of longs is not significant. In general, this also could be technical off-load as net position stands near highs - 250K contracts and has to be reduced. Thus, CFTC mostly shows light bearish sentiment:
Technical
Monthly
As September action, as October one stands inside the August by far. Trend is bullish on monthly chart, and changes come slow here.
The one thing that may be will be useful for us in coming weeks is close standing of MACDP line. This could give us bullish grabber within October-November. All other things stand mostly the same as in previous weekly reports.
On July and August we have tail close. Right now market has reached solid 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 and 0.618 AB-CD target. Right now market still stands close to it.
Next major target will stand around 50% Fib level and Agreement, as it coincides with AB=CD objective point as well. Market could take the shape of butterfly to get there. 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 as we already have "222" Sell pattern here:
Weekly
So, Here we have two AB-CD patterns of different scale. First one is large monthly AB-CD that we've mentioned above and this is 0.618 target that has been hit at 1326$.
Second AB-CD is a minor one and it stands inside CD leg of larger one.
Recent price action around these two AB-CD's looks interesting and mostly it is bearish. Market has turned down a bit curiously, that is not typical for normal behavior. In fact, market has turned down after gap up and when as 1326 target as YPR1 were passed already. 1360$ area where market has turned down, actually, was a free space - no resistance above.
Second moment - price has turned but not completed minor AB=CD. In fact, we've got "222" Sell pattern that we've mentioned above. "222" doesn't need necessary AB equal CD inside, it could be different and it still will be "222" pattern.
Finally CD leg was faster and market was tending to CD target, but suddenly turned down. All these moments point on bearish nature of this action and this is not some fluctuations inside upside swing probably.
So, as you can see our last week suggestion mostly was correct - price indeed has reached 1263 K-support area. At the same time market has completed here weekly harmonic swing of retracement. As 1263-1267 is rather strong weekly support area - some clear respect should be shown by price action. It means that we should be ready for upside reaction. New spiral of tensions around N. Korea and mystic D. Trump statements of "You'll find out" and "there is only one thing will work" with N. Korea makes investors worry on possible radical solution of this situation. And these statements appear right at the moment when gold has reached important support area.
That's being said, as gold mostly has completed our destination point - now it is not good time to go short here. If you're bearish it would be better to wait for meaningful pullback:
Daily
On Friday gold indeed has made minor spike, completed 1263 target and turned up. Here we could speak about upside reversal session. As we've estimated above - upside action should be significant here. Now we could talk about two possible levels. First one is obviously K-resistance area around 1293-1297. We probably could say that market should at least reach this area.
Second one is area around MPP and daily OB. It stands around 1305. This probably will be ceil for coming week.
At finally, another important issue to keep an eye on - "C" point of our AB-CD. Since we treat possible upside action as "retracement", theoretically price should stay below "C". Otherwise, AB-CD pattern will be erased. This will point on possible higher upside action, at least to 1320 area and later could give us larger downside AB-CD. But, on coming week let's focus just on two mentioned levels, this should be enough.
Intraday
So, market perfectly has completed butterfly "Buy" pattern that we've discussed on Friday. Now there are two ways how we could take position if we've missed opportunity with butterfly entry. First one is (as we've said previously) - waiting for upside breakout of the channel, forming of upside reversal swing and then wait for retracement down, may be re-testing of broken channel:
Second is, try to use hourly chart. Nearest resistance, according to 4-hour picture stands around 1280 - this is Fib level and channel's line. Hence, market could move slightly higher (~4$) and then minor retracement could start. You could use it for entry:
Currently, drop below 1260 will be irrational for bullish setup as all targets have been met there. If somehow price still will break it - forget about long trades, this will totally erase bullish scenario. In fact, recent lows is invalidation point for bullish setup that we have right now.
Conclusion
As monthly/weekly trend stands bullish and downside action has no signs of collapse, we treat this action as retracement by far.
In shorter-term perspective, gold has met our major 1260 target and already has formed bullish reversal pattern. Thus, we mostly suggest bullish scenario for 1-2 weeks on gold. If you're bearish, it would be better to wait for some pullback for better entry levels. As gold market stands at weekly support this is not friendly moment to go short...
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.
