Sive Morten
Special Consultant to the FPA
- Messages
- 18,648
Fundamentals
(Reuters) - Gold prices turned lower on Friday as U.S. Treasury bond yields rose, but losses were
limited by weaker stock markets and the dollar, which fell due to uncertainty over U.S. tax reform.
A rise in U.S. bond yields pressures gold by reducing the attractiveness of non-yielding bullion, while a weaker dollar makes bullion cheaper for holders of other currencies.
"A higher yield tends to increase the cost to carry gold, and we had a little uptick in the yield curve slope," said Bart Melek, head of commodity strategy at TD Securities in Toronto. Two-year yields were at a nine-year high as traders closed out curve-flattener positions and dealers reduced their holdings of longer-date debt following this weeks auctions.
Spot gold was down 0.7 percent at $1,275.60 an ounce by 1:55 p.m. EST (1855 GMT). It touched $1,288.34 on Thursday, its highest since Oct. 20 and was on track for a 0.5 percent weekly rise. U.S. gold futures for December delivery settled down $13.30, or 1 percent, at $1,274.20 per ounce, a 0.4 percent weekly rise.
The dollar was set for its first weekly fall in a month as disappointment that a landmark U.S. tax overhaul may be delayed until 2019 put a brake on the currency's recent rally. Uncertainty over the tax plans also hit U.S. stock markets and helped end the longest run of global share price gains since 2003. Expectations of lower taxes, one of President Donald Trump's key promises, have helped power the S&P more than 20 percent since the 2016 presidential election.
Political or economic uncertainty often prompts investors to buy gold to protect their assets from declining yields, since gold is a non-yielding commodity. Further share price falls would likely increase the price of gold, said Saxo Bank analyst Ole Hansen.
Bitcoin bubble, toil and trouble
by Fathom Consulting
Despite being intrinsically worthless, the price of one Bitcoin has now surged through $7100, meaning it is now worth almost six times as much as an ounce of gold. As the most well-known and widely-traded virtual currency, Bitcoin allows users to bypass banks and other payment processes to pay for goods and services directly, without the need for an intermediary. Proponents say this gives it value, along with the blockchain technology it’s built on. But the question remains, is it in a bubble? Using the tipping point for Bitcoin of 2013 where its usage had begun to level off, we calculated that its current price is almost six standard deviations above its long term average.
COT Report
In last 3-4 weeks we see mixed dynamic of CFTC data. While gold stands around extreme levels of long position, now some bearish sighs are started to appear. For example, on the chart we can see weeks when open interest has risen while net long position has dropped. It means that "careful" shorts start to appear, although this reversal doesn't get strength yet.
Mostly current sentiment could be described as "indecision". While some reducing of net long position has started but it stands quite unstable yet. People do not buy gold but at the same time are not hurry to sell it.
Approximately the same picture we see on SPDR fund statistics. Although gold shows significant volatility in recent 3-4 weeks, but SPDR storages shows slow but stable decreasing:
Technical
Monthly
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.
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
Weekly analysis also mostly stands the same as price is coiling around major 1260 K-support area.
This chart shows that gold has dropped back to major K-support area. And this recent drop is important, if we will take a look first at the strength of preceding upside action. Rally from 1205 to 1350 was rather strong, a lot of tail closing candles. In our "morning star" pattern 3rd candle was also rather strong.
Gold has uncompleted AB-CD pattern inside "222" and all these reasons were not enough to start upside action. Market has dropped back to K-support area and mostly erased "morning star". This price action mostly shows weakness rather than normal bullish market behavior. This is most important detail here, on weekly chart.
Besides, gold has completed harmonic swing of retracement once "morning star" has been formed, but it was not able to re-establish upside action yet. Trend by MACD still stands bearish here:
Daily
Now we're coming to most interesting thing here. Within last 2 weeks there were nothing to do on daily chart as price has turned to triangle consolidation, and our analysis mostly was focused on intraday patterns.
We just said that here, on daily, we need to watch for signs of weakness. And one of them that we've mentioned could be inability of gold prices to reach upper border of triangle. Now it seems that we could get it. At least, Friday action pushed price below MPP again and overlaps action of half of the week.
Overall upside action is rather choppy and it is difficult to treat it as new upside trend. If things indeed stand so, then we could get downside breakout and butterfly pattern with first target around MPS1 and 1250 area:
Intraday
So, our setup on intraday action mostly was correct and we've got our "222" Sell pattern on 4-hour chart. Drop down has started accurately by 3-Drive "Sell" pattern on hourly chart. Of course, as gold is driven by political factors mostly - everything could happen. But, based on technical picture that we have here, I would suggest further downside action. AB=CD part of "222" pattern is rather harmonic and make pattern more reliable, downside action was rather strong on Friday.
So, on hourly chart we probably could watch for some bounce. Retracement should not be too strong as downside action just has started. Market has reached 5/8 Fib support area and this could become a reason for minor bounce:
Conclusion
On longer term perspective now more factors have appeared that indicate more pressure on gold due coming USD strength.
As on Friday gold has shown fastest action within last 2 week, probably it could become a starting point of daily triangle breakout.
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 turned lower on Friday as U.S. Treasury bond yields rose, but losses were
limited by weaker stock markets and the dollar, which fell due to uncertainty over U.S. tax reform.
A rise in U.S. bond yields pressures gold by reducing the attractiveness of non-yielding bullion, while a weaker dollar makes bullion cheaper for holders of other currencies.
"A higher yield tends to increase the cost to carry gold, and we had a little uptick in the yield curve slope," said Bart Melek, head of commodity strategy at TD Securities in Toronto. Two-year yields were at a nine-year high as traders closed out curve-flattener positions and dealers reduced their holdings of longer-date debt following this weeks auctions.
Spot gold was down 0.7 percent at $1,275.60 an ounce by 1:55 p.m. EST (1855 GMT). It touched $1,288.34 on Thursday, its highest since Oct. 20 and was on track for a 0.5 percent weekly rise. U.S. gold futures for December delivery settled down $13.30, or 1 percent, at $1,274.20 per ounce, a 0.4 percent weekly rise.
The dollar was set for its first weekly fall in a month as disappointment that a landmark U.S. tax overhaul may be delayed until 2019 put a brake on the currency's recent rally. Uncertainty over the tax plans also hit U.S. stock markets and helped end the longest run of global share price gains since 2003. Expectations of lower taxes, one of President Donald Trump's key promises, have helped power the S&P more than 20 percent since the 2016 presidential election.
Political or economic uncertainty often prompts investors to buy gold to protect their assets from declining yields, since gold is a non-yielding commodity. Further share price falls would likely increase the price of gold, said Saxo Bank analyst Ole Hansen.
Bitcoin bubble, toil and trouble
by Fathom Consulting
Despite being intrinsically worthless, the price of one Bitcoin has now surged through $7100, meaning it is now worth almost six times as much as an ounce of gold. As the most well-known and widely-traded virtual currency, Bitcoin allows users to bypass banks and other payment processes to pay for goods and services directly, without the need for an intermediary. Proponents say this gives it value, along with the blockchain technology it’s built on. But the question remains, is it in a bubble? Using the tipping point for Bitcoin of 2013 where its usage had begun to level off, we calculated that its current price is almost six standard deviations above its long term average.
COT Report
In last 3-4 weeks we see mixed dynamic of CFTC data. While gold stands around extreme levels of long position, now some bearish sighs are started to appear. For example, on the chart we can see weeks when open interest has risen while net long position has dropped. It means that "careful" shorts start to appear, although this reversal doesn't get strength yet.
Mostly current sentiment could be described as "indecision". While some reducing of net long position has started but it stands quite unstable yet. People do not buy gold but at the same time are not hurry to sell it.
Approximately the same picture we see on SPDR fund statistics. Although gold shows significant volatility in recent 3-4 weeks, but SPDR storages shows slow but stable decreasing:
Technical
Monthly
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.
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
Weekly analysis also mostly stands the same as price is coiling around major 1260 K-support area.
This chart shows that gold has dropped back to major K-support area. And this recent drop is important, if we will take a look first at the strength of preceding upside action. Rally from 1205 to 1350 was rather strong, a lot of tail closing candles. In our "morning star" pattern 3rd candle was also rather strong.
Gold has uncompleted AB-CD pattern inside "222" and all these reasons were not enough to start upside action. Market has dropped back to K-support area and mostly erased "morning star". This price action mostly shows weakness rather than normal bullish market behavior. This is most important detail here, on weekly chart.
Besides, gold has completed harmonic swing of retracement once "morning star" has been formed, but it was not able to re-establish upside action yet. Trend by MACD still stands bearish here:
Daily
Now we're coming to most interesting thing here. Within last 2 weeks there were nothing to do on daily chart as price has turned to triangle consolidation, and our analysis mostly was focused on intraday patterns.
We just said that here, on daily, we need to watch for signs of weakness. And one of them that we've mentioned could be inability of gold prices to reach upper border of triangle. Now it seems that we could get it. At least, Friday action pushed price below MPP again and overlaps action of half of the week.
Overall upside action is rather choppy and it is difficult to treat it as new upside trend. If things indeed stand so, then we could get downside breakout and butterfly pattern with first target around MPS1 and 1250 area:
Intraday
So, our setup on intraday action mostly was correct and we've got our "222" Sell pattern on 4-hour chart. Drop down has started accurately by 3-Drive "Sell" pattern on hourly chart. Of course, as gold is driven by political factors mostly - everything could happen. But, based on technical picture that we have here, I would suggest further downside action. AB=CD part of "222" pattern is rather harmonic and make pattern more reliable, downside action was rather strong on Friday.
So, on hourly chart we probably could watch for some bounce. Retracement should not be too strong as downside action just has started. Market has reached 5/8 Fib support area and this could become a reason for minor bounce:
Conclusion
On longer term perspective now more factors have appeared that indicate more pressure on gold due coming USD strength.
As on Friday gold has shown fastest action within last 2 week, probably it could become a starting point of daily triangle breakout.
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.
