Sive Morten
Special Consultant to the FPA
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Fundamentals
Reuters reports - gold fell from one-month highs on Friday after Federal Reserve Chair Janet Yellen kept the door open to an increase in U.S. interest rates this year, sparking a dollar rally, while palladium was on track for its biggest weekly rise in almost four years.
Yellen said in a speech on Thursday that she expected the U.S. central bank to start raising rates later in 2015, as long as inflation remained stable and the U.S. economy was strong enough to boost employment.
Expectations for a rise in ultra-low rates, which have cut the opportunity cost of holding gold while weighing on the dollar, have helped push the metal down 5 percent this year.
Gold rallied after the Fed opted at its September policy meeting to keep rates on hold, hitting its highest since Aug. 25 on Thursday as dollar weakness prompted a wave of short covering. It has failed to maintain those gains, however.
Prices will likely meet resistance around the $1,150 per ounce mark, the 100-day moving average, traders said.
"The sell-off is most likely on the clarity from the Fed on a rate hike in December," Pradeep Unni at Richcomm Global Services said. "It's clear from (Yellen's) talk that the Fed paused in September only for the global markets' sake."
The speech sent the dollar to a five-week high against a basket of major currencies <.DXY>. The U.S. currency extended gains after data showed the U.S. economy expanded more than previously estimated in the second quarter.
CFTC data in general shows some increasing in speculative long positions, but this growth was not significant, open interest in general stands the same. So, currently we do not see extreme support of current rally by investors' money.
At the same time SPDR fund shows better results. Its storage has increased for 6 tonnes last week. It is not too big, but it is also not small increase. As result, we could say we would like to see more inflows but nevertheless this rally has the chances, still some support exists
Technicals
Monthly
As we've said last week - it is difficult to make any far going conclusions yet and mostly right now started upside action looks like tactical bounce from strong support area. To get another status market should show significant upside action and form bullish reversal swing.
Also changes barely have touched monthly time frame yet, currently trend is turning bullish but September month is not closed yet and it stands as inside candle. We've got very important detail here - the close of August candle. As a result, we've got bearish grabber on monthly chart that suggests moving below 1080 area. This is the answer on our questions - how far upside action could climb. To erase this bearish setup - market should erase the grabber first and form reversal swing second, i.e. move above 1300 area.
Until market keeps grabber valid, it suits logical picture very well. When market has started explosive upside action three weeks ago, I was a bit confused, since we have very important targets around 1050 and I couldn't believe that gold just turn up, it would be too unnatural and untypical for gold, or even for any market. And appearing of the grabber explains everything and works as linking tool between 1050 target and current market action.
We 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.
If somehow gold will drop below 1050. Next destination will be 890-900$ area - major 5/8 Fib support and Agreement !!! with AB=CD pattern down, the same one that points VOB target.
So, currently despite on solid upside rally, bearish monthly setup is still valid and current upside action is still retracement. Whether it will shift to reversal - we will see...
Weekly
As we've mentioned last time Weekly chart in fact shows tricky picture and makes overall situation a bit complex. Trend here is bullish and we have two in a row bullish grabbers. It means that theoretically we can't take short until these grabbers will fail and trend will shift bearish.
The trick stands around grabbers. The point is they assume taking out of 1180 top, i.e. erasing of monthly pattern. So, we have two opposite patterns in different time frames. Some of them should fail probably. Taking in consideration COT numbers - situation should change on weekly chart.
At the same time we have pattern of another sort. This is upward AB-CD with 1193 target.
Last week we've talked on minor 0.618 target of this pattern at 1155. This target has been reached and now market stands in reasonable pause. And gradually we're approaching to major question - what direction market will choose, what grabbers will fail weekly or monthly. And currently, guys, we do not clear answer. COT data and SPDR shows more or less but support to current rally, which means that it could continue further.
All that we could do right now is just a narrow the task - let's say that if market will move above 1155-1165, then we probably will see 1193-1200 area and monthly grabber will be erased. If market will not be able to do it and will start dropping, especially below 1100 area, this will be clear signal of bearish reversal and road to 1050 target.
Daily
Daily context mostly is bullish. We have upside trend and upside action. Right now market has met solid resistance - K-area, minor AB-CD target (which creates an Agreement resistance) and daily overbought. Whether market will pass through it? We'll see. But first gold could show some bounce, since we have bearish Stretch pattern.
If market still will continue move up, then next destination will stand somewhere around 1190 - AB-CD target and this also could be 1.27 Butterfly "sell". In general 1160 area will be really big challenge for Gold, since it's really very strong resistance.
4-hour
Here market stands with upside AB-CD pattern, it has not quite completed it. It is very probable that before deep retracement down market will try to complete this pattern and reach WPR1.
Downward retracement that we're waiting for probably will be deep and most probable levels that could be reached are - K-support+WPP (they will drift slightly higher if market will complete AB-CD) and second one is WPS1+5/8 Fib support.
That's being said, in the beginning of the week we will watch for completion of AB-CD. Next step should be downward retracement. Still we retracement could start right now (because daily AB-CD target has been hit). But this is not really big deal for us. Our major object to watch is support levels where we could take long position:
Conclusion:
To make final judgement on long-term perspective we need to see breakout of major levels, because gold has formed opposite patterns on monthly and weekly time frames and currently it is very difficult to say definitely which one will prevail.
Meantime daily context is bullish, but market stands at resistance. On coming week we will wait for retracement down first and think about taking long position second
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 fell from one-month highs on Friday after Federal Reserve Chair Janet Yellen kept the door open to an increase in U.S. interest rates this year, sparking a dollar rally, while palladium was on track for its biggest weekly rise in almost four years.
Yellen said in a speech on Thursday that she expected the U.S. central bank to start raising rates later in 2015, as long as inflation remained stable and the U.S. economy was strong enough to boost employment.
Expectations for a rise in ultra-low rates, which have cut the opportunity cost of holding gold while weighing on the dollar, have helped push the metal down 5 percent this year.
Gold rallied after the Fed opted at its September policy meeting to keep rates on hold, hitting its highest since Aug. 25 on Thursday as dollar weakness prompted a wave of short covering. It has failed to maintain those gains, however.
Prices will likely meet resistance around the $1,150 per ounce mark, the 100-day moving average, traders said.
"The sell-off is most likely on the clarity from the Fed on a rate hike in December," Pradeep Unni at Richcomm Global Services said. "It's clear from (Yellen's) talk that the Fed paused in September only for the global markets' sake."
The speech sent the dollar to a five-week high against a basket of major currencies <.DXY>. The U.S. currency extended gains after data showed the U.S. economy expanded more than previously estimated in the second quarter.
CFTC data in general shows some increasing in speculative long positions, but this growth was not significant, open interest in general stands the same. So, currently we do not see extreme support of current rally by investors' money.
At the same time SPDR fund shows better results. Its storage has increased for 6 tonnes last week. It is not too big, but it is also not small increase. As result, we could say we would like to see more inflows but nevertheless this rally has the chances, still some support exists
Technicals
Monthly
As we've said last week - it is difficult to make any far going conclusions yet and mostly right now started upside action looks like tactical bounce from strong support area. To get another status market should show significant upside action and form bullish reversal swing.
Also changes barely have touched monthly time frame yet, currently trend is turning bullish but September month is not closed yet and it stands as inside candle. We've got very important detail here - the close of August candle. As a result, we've got bearish grabber on monthly chart that suggests moving below 1080 area. This is the answer on our questions - how far upside action could climb. To erase this bearish setup - market should erase the grabber first and form reversal swing second, i.e. move above 1300 area.
Until market keeps grabber valid, it suits logical picture very well. When market has started explosive upside action three weeks ago, I was a bit confused, since we have very important targets around 1050 and I couldn't believe that gold just turn up, it would be too unnatural and untypical for gold, or even for any market. And appearing of the grabber explains everything and works as linking tool between 1050 target and current market action.
We 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.
If somehow gold will drop below 1050. Next destination will be 890-900$ area - major 5/8 Fib support and Agreement !!! with AB=CD pattern down, the same one that points VOB target.
So, currently despite on solid upside rally, bearish monthly setup is still valid and current upside action is still retracement. Whether it will shift to reversal - we will see...
Weekly
As we've mentioned last time Weekly chart in fact shows tricky picture and makes overall situation a bit complex. Trend here is bullish and we have two in a row bullish grabbers. It means that theoretically we can't take short until these grabbers will fail and trend will shift bearish.
The trick stands around grabbers. The point is they assume taking out of 1180 top, i.e. erasing of monthly pattern. So, we have two opposite patterns in different time frames. Some of them should fail probably. Taking in consideration COT numbers - situation should change on weekly chart.
At the same time we have pattern of another sort. This is upward AB-CD with 1193 target.
Last week we've talked on minor 0.618 target of this pattern at 1155. This target has been reached and now market stands in reasonable pause. And gradually we're approaching to major question - what direction market will choose, what grabbers will fail weekly or monthly. And currently, guys, we do not clear answer. COT data and SPDR shows more or less but support to current rally, which means that it could continue further.
All that we could do right now is just a narrow the task - let's say that if market will move above 1155-1165, then we probably will see 1193-1200 area and monthly grabber will be erased. If market will not be able to do it and will start dropping, especially below 1100 area, this will be clear signal of bearish reversal and road to 1050 target.
Daily
Daily context mostly is bullish. We have upside trend and upside action. Right now market has met solid resistance - K-area, minor AB-CD target (which creates an Agreement resistance) and daily overbought. Whether market will pass through it? We'll see. But first gold could show some bounce, since we have bearish Stretch pattern.
If market still will continue move up, then next destination will stand somewhere around 1190 - AB-CD target and this also could be 1.27 Butterfly "sell". In general 1160 area will be really big challenge for Gold, since it's really very strong resistance.
4-hour
Here market stands with upside AB-CD pattern, it has not quite completed it. It is very probable that before deep retracement down market will try to complete this pattern and reach WPR1.
Downward retracement that we're waiting for probably will be deep and most probable levels that could be reached are - K-support+WPP (they will drift slightly higher if market will complete AB-CD) and second one is WPS1+5/8 Fib support.
That's being said, in the beginning of the week we will watch for completion of AB-CD. Next step should be downward retracement. Still we retracement could start right now (because daily AB-CD target has been hit). But this is not really big deal for us. Our major object to watch is support levels where we could take long position:
Conclusion:
To make final judgement on long-term perspective we need to see breakout of major levels, because gold has formed opposite patterns on monthly and weekly time frames and currently it is very difficult to say definitely which one will prevail.
Meantime daily context is bullish, but market stands at resistance. On coming week we will wait for retracement down first and think about taking long position second
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.