Sive Morten
Special Consultant to the FPA
- Messages
- 18,644
Fundamentals
(Reuters) Gold fell to a two-week low on Friday after data showing faster-than-expected growth in
U.S. consumer prices last month helped support the case for the Federal Reserve to raise interest rates later this year and the dollar jumped.
Inflation is a key factor the U.S. central bank considers when deciding monetary policy. While the prospect of a hike at the Fed's policy meeting next week remains remote, a Reuters poll of 100 economists indicated a 70 percent chance of a December rise.
Spot gold slid to its lowest since Sept. 1 in after the data at $1,306.26 an ounce, and was down 0.4 percent at
$1,308.33 by 2:31 p.m EDT (1831 GMT). U.S. gold futures for December delivery settled down 0.6 percent at $1,310.20. The precious metal is also on track for its first weekly loss in three weeks, down 1.5 percent.
"The U.S. CPI data was positive for the dollar and this has pushed the gold price lower," ThinkMarkets analyst Naeem Aslam said. "We are trading close enough to a technical support level of $1,300, and if we break this level, it will be a bearish signal for the precious metal."
Gold is highly sensitive to rising U.S. interest rates, which increase the opportunity cost of holding non-yielding bullion, while boosting the dollar, in which it is priced. The dollar gained 0.8 percent against a basket of major currencies.
"Dollar strength is the headwind," said Rob Haworth, senior investment strategist for U.S. Bank Wealth management in Seattle. "Today you've got enough in the inflation data to increase odds of a Fed rate increase."
The U.S. and Japanese central banks hold monetary policy meetings on Sept. 20-21. The Fed is scheduled to release a statement at 2 p.m. EDT (1800 GMT) on Wednesday. Investment appetite was soft, with holdings of the world's largest gold-backed exchange-traded fund, SPDR Gold Shares, falling 3.3 tonnes on Thursday.
Demand for gold in India remained lackluster this week as higher prices hampered consumer purchases, though discounts narrowed due to a correction in the spot rate.
COT Report
Recent report brings mostly neutral information, or may be, provides just shy support to bears. As gold still stands above major 1300 area, changes in investors' positions are not significant. Still, net-long positions has decreased for ~25K while open interest has dropped just for ~15K. It means that may be approx. 10K new shorts were opened. But, as we've said - do not overestimate these changes since they are quite small and makes no impact yet on total sentiment balance.
Technicals
Monthly
So guys, as you can see gold slowly but stubbornly is moving lower and almost has reached our major 1300 level. Although this makes shy impact on monthly chart but on daily and intraday charts this issue seems important.
Technically current upward action started in Dec 2015 is first one after long term of decreasing and it should be interrupted by deep retracement sometime. Probably it should happen but this potential downward action has a great chance to become just a retracement. Overall political and financial situation in the world probably will not give a chance to relax. Thus, we have a positive long-term view on gold market.
As market slightly has moved above YPR1 and our K-resistance area, something is starting to form here, I mean pattern by which long-term global trend could change on gold.
Take a careful look at the picture - could you recognize here possible reverse H&S pattern? Besides the shape itself, some features here that in general typical for H&S. For example, relation between head and shoulders - 1.618. Butterfly... very often first part of H&S takes the shape of butterfly pattern...
Finally take a look at action on downward slope and upward one of the head - last move down was slower than current move up. All these moments point on possible H&S pattern here.
If we really will get it - then we could make an assumption on possible depth of retracement. Now the bottom of shoulder stands approximately around 1160 area... Currently we could only gamble what event could push gold as low as 1160 again, but probably something will happen. Right now it seems the major driving factor is rate change in December, and may be, end of financial year, when traders whould like to fix profit to get bonuses. Gold performance is impressive - ~ 20% in current year, thus, traders definitely have reason to grab it. Anticipation of rate hike will force them do this faster.
Now market is approaching to major, all time 3/8 Fib resistance @ 1380 level. First reaction already has followed, as gold has dropped. We even could speak here about bearish engulfing pattern, or at least about Cloud cover. It is interesting that August month has closed below July lows. If market would form new high - this could become a reversal months, more bearish pattern.
Still, drop has not taken the shape of tendency yet. September action now stands as minor back action after engulfing pattern has been formed - this is normal behavior. Taking in consideration all this stuff gold has no capacity to support bullish trend right now. That's why any upward action mostly will become an exhausted emotional activity, based on some event, probably.
It seems that market gravitates to downside retracement by its sentiment
Last week gold has turned down precisely around higher border of daily triangle without any attempt to break it up. As longer gold stands around this top challenging the patience of investors as weaker market will become and downside pressure will gradually increase.
Weekly
On weekly chart shape of the tope has changed slightly and now looks more like flag pattern. We know that on a way up market has completed 0.618 AB-CD target, 1.618 butterfly - both of them stand around 1380 area.
But right now, this flag pattern will take absolutely special meaning for us, due its feature. We know that flags are continuation patterns, which means that gold should show upside breakout. At the same time we know another two things. First is - gold stands at 1380 resistance for a long time already, and long positions are overloaded. Finally we know that market expects rate hike and more hawkish comments on Sep. Fed meeting.
This leads us to following conclusion - market could show either bullish trap, i.e. failure upside breakout of the flag, or, downside breakout directly. Both of them will be a bearish signal. Altghough former is more typical for gold market, but last week action brings some new details and tells that gold could drop without any fake upside breakout.
That's being said, whater will happen - keep an eye on flag and we will get the answer what to do.
Daily
Last week daily trend has turned bearish. Almost whole week market has spent in a downside action. Daily chart shows addtitional nuances of downward action. Last week we've discussed just two of them. 5-wave swing sequence inside the flag suggests downside breakout as market stands in last 5th swing. Price has dropped below MPP and reversed down precisely at the level of MPR1. According to Pivot point framework, it means that upside action was a retracement, but not a bull trend.
If gold market really was bullish, it should continue upward action after it has completed AB=CD pattern inside the flag, but it suddenly stopped and turn down. The way how it has stopped leads us to conclusion that 4th swing is nothing more but reaction on strong support area. Take a look that the top of 4th swing was formed by strong upside session of poor ISM Services data. On next day - small black candle has the same top. That's all - no upside continuation, no rest of upside momentum of the whole previous week - nothing. Just immediate bearish reversal. upside action was stifle by large sell-off probably.
Starting three black candles of 5th swing reminds "3 black crows" pattern that is rather rare and has reversal feature. As a result, gold stands in smooth but stubborn downward action during last 2 weeks with small pause on Wed when it has formed some kind of indecision candle. But right now price alrealy stands below it's lows and gold comes close to former bottom and important 1300 area.
If market will break this level on Fed speech or by some other reason - next support will stand around 1250-1265 area. Currently we do not see any reasons to take long positions on gold market. Chances on breakout looks significant but upside potential of gold market is limited and now looks ghostly.
Anticipation of downward breakout looks also dangerous, because volatility could increase significantly and 1300 still is s strong support - daily K-area and trend line.
The most important thing is what will happen, what patterns will be formed near Fed speech. Hope we will get more clarity closer to Fed meeting. Conclusion that we could make right now - overall situation looks bearish and by technical picture chances on downward breakout look greater than on upside reversal.
Intraday
Here guys, it's very difficult to say something definitely, since action is very choppy and all patterns looks a bit noisy and ugly. Still, on 4-hour chart it seems that market is forming falling wedge pattern that could become a reason for minor upside bounce, say, to nearest Fib resistance around 1323 area:
On hourly chart we could recognize 3-Drive "Buy" inside of the wedge that also takes the shape as side-by-side two butterflies:
As I've said - it is not very easy to catch this pattern since action is very noisy. Minimum target stands above the top of second drive and is very close to 1323 area as well. Take a look that WPR1 and MPP stands 2$ higher around 1325.
Thus, on a retracement up market could reach 1323-1325 area. It is difficult to make any more extended view right now.
Conclusion:
We continue to keep long-term bullish view on gold market. But now chances on deep retracement are very high due combination of as sentiment as technical moments. Partially we even could recognize thrilling pattern on monthly chart which brings more clarity and shows definite levels to watch for. Now is the major question whether it will be formed or not. Yellen speech indicates that pressure on gold from rising rates perspective is growing.
In short-term gold shows bearish action in last 2 weeks. This gives us a hint that may be gold will take downside breakout on coming week during Fed speech. All technical preparation for this scenario have been done already.
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 fell to a two-week low on Friday after data showing faster-than-expected growth in
U.S. consumer prices last month helped support the case for the Federal Reserve to raise interest rates later this year and the dollar jumped.
Inflation is a key factor the U.S. central bank considers when deciding monetary policy. While the prospect of a hike at the Fed's policy meeting next week remains remote, a Reuters poll of 100 economists indicated a 70 percent chance of a December rise.
Spot gold slid to its lowest since Sept. 1 in after the data at $1,306.26 an ounce, and was down 0.4 percent at
$1,308.33 by 2:31 p.m EDT (1831 GMT). U.S. gold futures for December delivery settled down 0.6 percent at $1,310.20. The precious metal is also on track for its first weekly loss in three weeks, down 1.5 percent.
"The U.S. CPI data was positive for the dollar and this has pushed the gold price lower," ThinkMarkets analyst Naeem Aslam said. "We are trading close enough to a technical support level of $1,300, and if we break this level, it will be a bearish signal for the precious metal."
Gold is highly sensitive to rising U.S. interest rates, which increase the opportunity cost of holding non-yielding bullion, while boosting the dollar, in which it is priced. The dollar gained 0.8 percent against a basket of major currencies.
"Dollar strength is the headwind," said Rob Haworth, senior investment strategist for U.S. Bank Wealth management in Seattle. "Today you've got enough in the inflation data to increase odds of a Fed rate increase."
The U.S. and Japanese central banks hold monetary policy meetings on Sept. 20-21. The Fed is scheduled to release a statement at 2 p.m. EDT (1800 GMT) on Wednesday. Investment appetite was soft, with holdings of the world's largest gold-backed exchange-traded fund, SPDR Gold Shares, falling 3.3 tonnes on Thursday.
Demand for gold in India remained lackluster this week as higher prices hampered consumer purchases, though discounts narrowed due to a correction in the spot rate.
COT Report
Recent report brings mostly neutral information, or may be, provides just shy support to bears. As gold still stands above major 1300 area, changes in investors' positions are not significant. Still, net-long positions has decreased for ~25K while open interest has dropped just for ~15K. It means that may be approx. 10K new shorts were opened. But, as we've said - do not overestimate these changes since they are quite small and makes no impact yet on total sentiment balance.
Technicals
Monthly
So guys, as you can see gold slowly but stubbornly is moving lower and almost has reached our major 1300 level. Although this makes shy impact on monthly chart but on daily and intraday charts this issue seems important.
Technically current upward action started in Dec 2015 is first one after long term of decreasing and it should be interrupted by deep retracement sometime. Probably it should happen but this potential downward action has a great chance to become just a retracement. Overall political and financial situation in the world probably will not give a chance to relax. Thus, we have a positive long-term view on gold market.
As market slightly has moved above YPR1 and our K-resistance area, something is starting to form here, I mean pattern by which long-term global trend could change on gold.
Take a careful look at the picture - could you recognize here possible reverse H&S pattern? Besides the shape itself, some features here that in general typical for H&S. For example, relation between head and shoulders - 1.618. Butterfly... very often first part of H&S takes the shape of butterfly pattern...
Finally take a look at action on downward slope and upward one of the head - last move down was slower than current move up. All these moments point on possible H&S pattern here.
If we really will get it - then we could make an assumption on possible depth of retracement. Now the bottom of shoulder stands approximately around 1160 area... Currently we could only gamble what event could push gold as low as 1160 again, but probably something will happen. Right now it seems the major driving factor is rate change in December, and may be, end of financial year, when traders whould like to fix profit to get bonuses. Gold performance is impressive - ~ 20% in current year, thus, traders definitely have reason to grab it. Anticipation of rate hike will force them do this faster.
Now market is approaching to major, all time 3/8 Fib resistance @ 1380 level. First reaction already has followed, as gold has dropped. We even could speak here about bearish engulfing pattern, or at least about Cloud cover. It is interesting that August month has closed below July lows. If market would form new high - this could become a reversal months, more bearish pattern.
Still, drop has not taken the shape of tendency yet. September action now stands as minor back action after engulfing pattern has been formed - this is normal behavior. Taking in consideration all this stuff gold has no capacity to support bullish trend right now. That's why any upward action mostly will become an exhausted emotional activity, based on some event, probably.
It seems that market gravitates to downside retracement by its sentiment
Last week gold has turned down precisely around higher border of daily triangle without any attempt to break it up. As longer gold stands around this top challenging the patience of investors as weaker market will become and downside pressure will gradually increase.
Weekly
On weekly chart shape of the tope has changed slightly and now looks more like flag pattern. We know that on a way up market has completed 0.618 AB-CD target, 1.618 butterfly - both of them stand around 1380 area.
But right now, this flag pattern will take absolutely special meaning for us, due its feature. We know that flags are continuation patterns, which means that gold should show upside breakout. At the same time we know another two things. First is - gold stands at 1380 resistance for a long time already, and long positions are overloaded. Finally we know that market expects rate hike and more hawkish comments on Sep. Fed meeting.
This leads us to following conclusion - market could show either bullish trap, i.e. failure upside breakout of the flag, or, downside breakout directly. Both of them will be a bearish signal. Altghough former is more typical for gold market, but last week action brings some new details and tells that gold could drop without any fake upside breakout.
That's being said, whater will happen - keep an eye on flag and we will get the answer what to do.
Daily
Last week daily trend has turned bearish. Almost whole week market has spent in a downside action. Daily chart shows addtitional nuances of downward action. Last week we've discussed just two of them. 5-wave swing sequence inside the flag suggests downside breakout as market stands in last 5th swing. Price has dropped below MPP and reversed down precisely at the level of MPR1. According to Pivot point framework, it means that upside action was a retracement, but not a bull trend.
If gold market really was bullish, it should continue upward action after it has completed AB=CD pattern inside the flag, but it suddenly stopped and turn down. The way how it has stopped leads us to conclusion that 4th swing is nothing more but reaction on strong support area. Take a look that the top of 4th swing was formed by strong upside session of poor ISM Services data. On next day - small black candle has the same top. That's all - no upside continuation, no rest of upside momentum of the whole previous week - nothing. Just immediate bearish reversal. upside action was stifle by large sell-off probably.
Starting three black candles of 5th swing reminds "3 black crows" pattern that is rather rare and has reversal feature. As a result, gold stands in smooth but stubborn downward action during last 2 weeks with small pause on Wed when it has formed some kind of indecision candle. But right now price alrealy stands below it's lows and gold comes close to former bottom and important 1300 area.
If market will break this level on Fed speech or by some other reason - next support will stand around 1250-1265 area. Currently we do not see any reasons to take long positions on gold market. Chances on breakout looks significant but upside potential of gold market is limited and now looks ghostly.
Anticipation of downward breakout looks also dangerous, because volatility could increase significantly and 1300 still is s strong support - daily K-area and trend line.
The most important thing is what will happen, what patterns will be formed near Fed speech. Hope we will get more clarity closer to Fed meeting. Conclusion that we could make right now - overall situation looks bearish and by technical picture chances on downward breakout look greater than on upside reversal.
Intraday
Here guys, it's very difficult to say something definitely, since action is very choppy and all patterns looks a bit noisy and ugly. Still, on 4-hour chart it seems that market is forming falling wedge pattern that could become a reason for minor upside bounce, say, to nearest Fib resistance around 1323 area:
On hourly chart we could recognize 3-Drive "Buy" inside of the wedge that also takes the shape as side-by-side two butterflies:
As I've said - it is not very easy to catch this pattern since action is very noisy. Minimum target stands above the top of second drive and is very close to 1323 area as well. Take a look that WPR1 and MPP stands 2$ higher around 1325.
Thus, on a retracement up market could reach 1323-1325 area. It is difficult to make any more extended view right now.
Conclusion:
We continue to keep long-term bullish view on gold market. But now chances on deep retracement are very high due combination of as sentiment as technical moments. Partially we even could recognize thrilling pattern on monthly chart which brings more clarity and shows definite levels to watch for. Now is the major question whether it will be formed or not. Yellen speech indicates that pressure on gold from rising rates perspective is growing.
In short-term gold shows bearish action in last 2 weeks. This gives us a hint that may be gold will take downside breakout on coming week during Fed speech. All technical preparation for this scenario have been done already.
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.
