Sive Morten
Special Consultant to the FPA
- Messages
- 18,655
Fundamentals
Last week was really important to us, guys, because gold has leaved long-term trading range and showed nice rally. This is even more important because we've got price confirmation of our technical bullish pattern Recent action brings more confidence to its validity and reliability.
As Reuters reports - Gold prices on Thursday jumped over 2 percent to more than a two-month high as tumbling global stock markets sent investors rushing to the safe-haven asset.
Bullion broke above a narrow trading range it has been stuck in for the past 1-1/2 months, triggering fresh buying interest and forcing investors to cover their short positions, analysts said.
Wall Street extended its slide to a sixth session on Thursday after European stocks slumped to a 21-month low, pointing to growing risk aversion across global markets.
“A lot of people are running to gold as a safe-haven trade, diversifying into the asset and selling the dollar,” said Michael Matousek, head trader at U.S. Global Investors.
“Now that gold has broken through the strong resistance level at $1,210, a lot of new long positions are coming in.”
Meanwhile, U.S. President Donald Trump, for a second day, criticized the Federal Reserve on Thursday, calling its interest rate increases a “ridiculous” policy that was making it more expensive for his administration to finance its growing deficits.
The Fed increased rates last month for the third time this year and is widely expected to raise them again in December.
“As a stock market selloff continues, gold is once again a desired destination in times of uncertainty. The metal had lost some cache in minds of investors, but when there is no clear safe haven. Funds are flowing to gold,” said Alfonso Esparza, Senior Market Analyst at OANDA.
Gold has fallen more than 10 percent from a peak in April, with investors increasingly switching to the safety of the greenback as the U.S.-China trade war unfolds against a backdrop of rising U.S. interest rates.
But prices have recovered from a 1-1/2-year low of $1,059.96 hit in mid-August, propped up by limited safe-haven buying at lower levels linked to concerns over economic growth and inflationary pressure from soaring oil prices.
Holdings in the SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, rose 1.2 percent to 738.99 tonnes on Wednesday, the first gain since July and the biggest inflow since March. This is very small improvement compares to massive sell-off during previous 3-4 weeks.
Speaking on the reasons gold rally, there was a rumor on the market that China sold valuable pack of US bonds, giving the hint to US that if they will not stop tariffs pressure, the amount for selling could increase.
On a background of tariffs piking, this makes investors nervous and triggered massive sell-off on stock markets across the world.
On Friday, gold has turned to retracement, some traders were hurry to withdraw any bullish perspective, but we think that it is too early for that.
"A rally in the U.S. dollar is putting downward pressure on gold today," said Alex Turro, market strategist at RJO Futures.
"Event-driven rallies usually don't last long," said George Gero, managing director at RBC Wealth Management, adding that a rebound in equities was one of the main factors weighing on gold.
"We need more (ammunition) for gold to move further as it has been very well abandoned with only a few central banks buying besides some retail buyers."
Indeed, gold is not ready right now to change long-term trend and will remain under pressure for some time, but it doesn't mean that it can't show deeper retracement.
"Gold is going to be dictated by the U.S. Federal Reserve. As long as interest rates continue to move higher, it's going to continue to apply a lot of downward pressure on the precious complex," RJO Futures' Turro said.
"Gold is trading fairly close to the 100-day moving average at $1,228. There should be plenty of resistance, but a close above that level could signal a move higher," MKS PAMP Group traders said in a note."
COT Report
Despite strong rally on Thu CFTC data shows that net bearish position has increased last week. This makes to suspect that rally was based mostly on short covering.
Source: cftc.gov
Charting by Investing.com
Indeed, if we take a look at table sheet, then we see that huge amount of speculative bullish positions were closed and a lot of positions were locked in spreads. Few amount of new shorts tells that market doesn't expect downside continuation very soon and this is good sign for us and our trading setup.
Since gold market shows solid sensitivity to US-China tariffs war and shows great volatility when sides use non-economic tools, it makes sense to mention here new Fathom consulting report, dedicated to China. Under the pressure of tariffs, China economy is changing and PBoC has to intrude and apply different reforms to support economy. According to Fathom, there are two major ways to do this. First one is most simple but it will help only in short-term, and later situation could become worse. This is gradual policy easing, decreasing bank reserves etc, i.e. - bring more liquidity to economy. It seems that this is particular the way, that PBoC has chosen.
"With efforts to rebalance rarely going smoothly, it is perhaps unsurprising that China’s attempts to transition the economy from the old growth model to new-sector growth have been half-hearted, as evidenced by its love-hate relationship with credit, among others. Indeed, our research shows that growth stalls for an average of two years after other emerging markets have rebalanced. What is more, after the initial impact, we find that GDP growth remains lower than it was prior to rebalancing.
With our monthly CMI suggesting that growth peaked late last year, it is of little surprise that China’s policymakers are doubling down on their old growth strategy, again. Recent monetary and fiscal policy loosening, renminbi depreciation, and a steadying in our CMI all appear to confirm that China is prioritising short-term growth over reform.
Looking ahead, with regard to policy strategy, we expect ‘more of the same’ from China, a middle-of-the-road approach which involves neither going ‘all-in’ on its old growth model nor engaging fully in its efforts to rebalance the economy, with growth slowing further from here as a consequence. In other words, China does what it knows best, avoiding the economic realities of rebalancing while storing up problems for the future. And although that tactic delivered an upswing in growth in 2016, China’s old model is exhibiting diminishing marginal returns. For now, it is offering some support, but ultimately, with past inefficiencies taking their toll and a well-armed Donald Trump on its back, we expect growth to slow further from here, with our CMI averaging 5.9% next year."
Despite, how cynic this sounds, China economy problems should work as supportive factor for Gold in a long-term, especially if from time to time, this problems will take a aggressive shape.
Technical
Monthly
On monthly chart we keep our long-term technical scenario, that could be realized. this is not single possible scenario, but currently it seems as very probable. We will keep it intact for awhile, because it illustrates our fundamental expectations on gold market. Although final downside target could be revised higher someday because as political as economical situation is not static but we keep our direction "down" by far.
Here we try to involve fundamental view in technical analysis, trying to combine patterns with real fundamental situation on gold. So, we will take broader view.
If you follow our weekly updates, you should remember our explanation and why we think that gold inability to break through 1380 resistance should be treated as bulls' defeat and gold failure. This is important in outlook of longer-term perspective.
Fundamental picture suggests two major things. In shorter-term US will keep dominate role in the world, because indirectly it controls EU economy as major EU companies have significant part of their business in US, or on US territory, US dollar is still world major currency and, as we've estimated above, China starts to show signs of chilling their economy. US economy itself feels good. D. Trump by restructuring of political role of US on international arena will safe a lot of "unnecessary" spending, such different programs of opposition financing, military spending of different kind. This should improve US budget, reduce deficit, which also will work on support of US economy.
Second important issue, this long-term relations that stand for decades start changing. Both of these moments, putting together, lead us to following conclusion. Within few years, 2-3 probably gold will remain under pressure of positive interest rates cycle. While gradually, when breaking of long-term economic relations will be seen brighter and brighter and impact not only China, EU but US as well - this will be turning point for the gold, or slightly before that. Because any global crush of any kind triggers demand for gold. That is what we see from fundamentals. The same view we see among other analysis, which they backed with statistics and fundamental research. Thus, Fathom Consulting expects starting of world crisis around 2020.
It could look unbelievable, but technical picture shows approximately the same. Failure of 1380 upside breakout confirms our idea of 2-3 years of US and US Dollar domination. But at the same time gold should show preparation to reversal, and here it is. One of the scenarios that might be formed here is big 1.618 butterfly, which is bullish reversal pattern. It has 1.618 target right around gold price, which is corresponds to extraction spending approximately. So, it is long-term breakeven point.
Finally, butterfly could become large reverse H&S pattern around all time 5/8 Fib support and ~40% of this pattern could be seen on the market. What we see on the chart nicely corresponds to current fundamental background. Alternative scenarios suggest appearing of different patterns, such as "222" Buy, or 1.27 butterfly but it doesn't affect the core and reflects only a degree of global political and economical processes, whether they will be smooth or drastic.
Of course, political life is not static, and it could show fast turns. But right now, everything looks very harmonic.
Here we also have mentioned huge demand on gold from emerging countries - China, Russia and Turkey. Developed countries repatriate gold from US. It means that everybody prepares to something, which should significantly increase demand for a gold. Decisive moment here will be the breakout of YPS1 where gold stands right now.
Weekly
So, on weekly chart we're looking for long-term pullback as a reaction on oversold. Despite our long term bearish trend on gold, it can't show straight down action without any pauses. And we think that one of these stops we have right now. Although the scale of this "pause" looks impressive 50-70$ per contract bounce, on weekly chart this is just 3/8 pullback, which seems normal when market hits oversold and YPS1 areas. Thus, on weekly we still watch for our directional pattern, based on the thrust down.
Last two weeks we've put detailed analysis of DRPO pattern here, with all nuances and pitfalls that could happen. Although it is not ideal by shape, but it's working. Rally that we have is more than welcome and supportive to DRPO pattern. It means that stops of traders on the "wrong" side were triggered. Now short-term bulls should step in, they just wait for pullback.
Here, on weekly, we do not have any additional inputs. The common target of DRPO is 50% of its thrust, which stands at $1260. But we also will take in consideration nearest $1238 Fib level, because of daily Overbought.
Daily
Daily picture explains why we also keep an eye on 1238 area. In fact, here is two important details. First is Overbought, we've mentioned it on Friday as well, and it tells that right now is not a good are to step in immediately. It's better to wait for a pullback.
Second - 1238... This is strong resistance, including not only Fib level, but OP target and 1.618 butterfly extension. Market also could be overbought there are well. And this is major short-term destination.
It means that right now retracement should not be too deep. Re-testing of broken rectangle border would be just perfect. Market stands between the targets and not at some major resistance. This placement doesn't suggest deep pullback. We have 1.27 butterfly completed, but with price acceleration to it. It means that commonly traders count on 3/8 retracement in this situation.
Around OP target is different story. That's the place where deeper retracement should happen. That's being said, our trading plan for the weeks as follows - minor pullback first, then upside continuation to OP and 1238 area and starting of deep retracement then.
Intraday
Here is the way how we will monitor retracement down. In fact, we have small AB-CD pattern, with XOP precisely around 3/8 Butterfly support. There we also have the border of our former channel and WPP.
In other circumstances we could talk even on smaller retracement, but existence of Overbought condition on daily chart suggests good chances that 1208-1210 area will be reached.
Then, if everything is OK, - upside action should be re-established, because here new buyers should step in.
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.
Last week was really important to us, guys, because gold has leaved long-term trading range and showed nice rally. This is even more important because we've got price confirmation of our technical bullish pattern Recent action brings more confidence to its validity and reliability.
As Reuters reports - Gold prices on Thursday jumped over 2 percent to more than a two-month high as tumbling global stock markets sent investors rushing to the safe-haven asset.
Bullion broke above a narrow trading range it has been stuck in for the past 1-1/2 months, triggering fresh buying interest and forcing investors to cover their short positions, analysts said.
Wall Street extended its slide to a sixth session on Thursday after European stocks slumped to a 21-month low, pointing to growing risk aversion across global markets.
“A lot of people are running to gold as a safe-haven trade, diversifying into the asset and selling the dollar,” said Michael Matousek, head trader at U.S. Global Investors.
“Now that gold has broken through the strong resistance level at $1,210, a lot of new long positions are coming in.”
Meanwhile, U.S. President Donald Trump, for a second day, criticized the Federal Reserve on Thursday, calling its interest rate increases a “ridiculous” policy that was making it more expensive for his administration to finance its growing deficits.
The Fed increased rates last month for the third time this year and is widely expected to raise them again in December.
“As a stock market selloff continues, gold is once again a desired destination in times of uncertainty. The metal had lost some cache in minds of investors, but when there is no clear safe haven. Funds are flowing to gold,” said Alfonso Esparza, Senior Market Analyst at OANDA.
Gold has fallen more than 10 percent from a peak in April, with investors increasingly switching to the safety of the greenback as the U.S.-China trade war unfolds against a backdrop of rising U.S. interest rates.
But prices have recovered from a 1-1/2-year low of $1,059.96 hit in mid-August, propped up by limited safe-haven buying at lower levels linked to concerns over economic growth and inflationary pressure from soaring oil prices.
Holdings in the SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, rose 1.2 percent to 738.99 tonnes on Wednesday, the first gain since July and the biggest inflow since March. This is very small improvement compares to massive sell-off during previous 3-4 weeks.
Speaking on the reasons gold rally, there was a rumor on the market that China sold valuable pack of US bonds, giving the hint to US that if they will not stop tariffs pressure, the amount for selling could increase.
On a background of tariffs piking, this makes investors nervous and triggered massive sell-off on stock markets across the world.
On Friday, gold has turned to retracement, some traders were hurry to withdraw any bullish perspective, but we think that it is too early for that.
"A rally in the U.S. dollar is putting downward pressure on gold today," said Alex Turro, market strategist at RJO Futures.
"Event-driven rallies usually don't last long," said George Gero, managing director at RBC Wealth Management, adding that a rebound in equities was one of the main factors weighing on gold.
"We need more (ammunition) for gold to move further as it has been very well abandoned with only a few central banks buying besides some retail buyers."
Indeed, gold is not ready right now to change long-term trend and will remain under pressure for some time, but it doesn't mean that it can't show deeper retracement.
"Gold is going to be dictated by the U.S. Federal Reserve. As long as interest rates continue to move higher, it's going to continue to apply a lot of downward pressure on the precious complex," RJO Futures' Turro said.
"Gold is trading fairly close to the 100-day moving average at $1,228. There should be plenty of resistance, but a close above that level could signal a move higher," MKS PAMP Group traders said in a note."
COT Report
Despite strong rally on Thu CFTC data shows that net bearish position has increased last week. This makes to suspect that rally was based mostly on short covering.
Source: cftc.gov
Charting by Investing.com
Indeed, if we take a look at table sheet, then we see that huge amount of speculative bullish positions were closed and a lot of positions were locked in spreads. Few amount of new shorts tells that market doesn't expect downside continuation very soon and this is good sign for us and our trading setup.
Since gold market shows solid sensitivity to US-China tariffs war and shows great volatility when sides use non-economic tools, it makes sense to mention here new Fathom consulting report, dedicated to China. Under the pressure of tariffs, China economy is changing and PBoC has to intrude and apply different reforms to support economy. According to Fathom, there are two major ways to do this. First one is most simple but it will help only in short-term, and later situation could become worse. This is gradual policy easing, decreasing bank reserves etc, i.e. - bring more liquidity to economy. It seems that this is particular the way, that PBoC has chosen.
"With efforts to rebalance rarely going smoothly, it is perhaps unsurprising that China’s attempts to transition the economy from the old growth model to new-sector growth have been half-hearted, as evidenced by its love-hate relationship with credit, among others. Indeed, our research shows that growth stalls for an average of two years after other emerging markets have rebalanced. What is more, after the initial impact, we find that GDP growth remains lower than it was prior to rebalancing.
With our monthly CMI suggesting that growth peaked late last year, it is of little surprise that China’s policymakers are doubling down on their old growth strategy, again. Recent monetary and fiscal policy loosening, renminbi depreciation, and a steadying in our CMI all appear to confirm that China is prioritising short-term growth over reform.
Looking ahead, with regard to policy strategy, we expect ‘more of the same’ from China, a middle-of-the-road approach which involves neither going ‘all-in’ on its old growth model nor engaging fully in its efforts to rebalance the economy, with growth slowing further from here as a consequence. In other words, China does what it knows best, avoiding the economic realities of rebalancing while storing up problems for the future. And although that tactic delivered an upswing in growth in 2016, China’s old model is exhibiting diminishing marginal returns. For now, it is offering some support, but ultimately, with past inefficiencies taking their toll and a well-armed Donald Trump on its back, we expect growth to slow further from here, with our CMI averaging 5.9% next year."
Despite, how cynic this sounds, China economy problems should work as supportive factor for Gold in a long-term, especially if from time to time, this problems will take a aggressive shape.
Technical
Monthly
On monthly chart we keep our long-term technical scenario, that could be realized. this is not single possible scenario, but currently it seems as very probable. We will keep it intact for awhile, because it illustrates our fundamental expectations on gold market. Although final downside target could be revised higher someday because as political as economical situation is not static but we keep our direction "down" by far.
Here we try to involve fundamental view in technical analysis, trying to combine patterns with real fundamental situation on gold. So, we will take broader view.
If you follow our weekly updates, you should remember our explanation and why we think that gold inability to break through 1380 resistance should be treated as bulls' defeat and gold failure. This is important in outlook of longer-term perspective.
Fundamental picture suggests two major things. In shorter-term US will keep dominate role in the world, because indirectly it controls EU economy as major EU companies have significant part of their business in US, or on US territory, US dollar is still world major currency and, as we've estimated above, China starts to show signs of chilling their economy. US economy itself feels good. D. Trump by restructuring of political role of US on international arena will safe a lot of "unnecessary" spending, such different programs of opposition financing, military spending of different kind. This should improve US budget, reduce deficit, which also will work on support of US economy.
Second important issue, this long-term relations that stand for decades start changing. Both of these moments, putting together, lead us to following conclusion. Within few years, 2-3 probably gold will remain under pressure of positive interest rates cycle. While gradually, when breaking of long-term economic relations will be seen brighter and brighter and impact not only China, EU but US as well - this will be turning point for the gold, or slightly before that. Because any global crush of any kind triggers demand for gold. That is what we see from fundamentals. The same view we see among other analysis, which they backed with statistics and fundamental research. Thus, Fathom Consulting expects starting of world crisis around 2020.
It could look unbelievable, but technical picture shows approximately the same. Failure of 1380 upside breakout confirms our idea of 2-3 years of US and US Dollar domination. But at the same time gold should show preparation to reversal, and here it is. One of the scenarios that might be formed here is big 1.618 butterfly, which is bullish reversal pattern. It has 1.618 target right around gold price, which is corresponds to extraction spending approximately. So, it is long-term breakeven point.
Finally, butterfly could become large reverse H&S pattern around all time 5/8 Fib support and ~40% of this pattern could be seen on the market. What we see on the chart nicely corresponds to current fundamental background. Alternative scenarios suggest appearing of different patterns, such as "222" Buy, or 1.27 butterfly but it doesn't affect the core and reflects only a degree of global political and economical processes, whether they will be smooth or drastic.
Of course, political life is not static, and it could show fast turns. But right now, everything looks very harmonic.
Here we also have mentioned huge demand on gold from emerging countries - China, Russia and Turkey. Developed countries repatriate gold from US. It means that everybody prepares to something, which should significantly increase demand for a gold. Decisive moment here will be the breakout of YPS1 where gold stands right now.
Weekly
So, on weekly chart we're looking for long-term pullback as a reaction on oversold. Despite our long term bearish trend on gold, it can't show straight down action without any pauses. And we think that one of these stops we have right now. Although the scale of this "pause" looks impressive 50-70$ per contract bounce, on weekly chart this is just 3/8 pullback, which seems normal when market hits oversold and YPS1 areas. Thus, on weekly we still watch for our directional pattern, based on the thrust down.
Last two weeks we've put detailed analysis of DRPO pattern here, with all nuances and pitfalls that could happen. Although it is not ideal by shape, but it's working. Rally that we have is more than welcome and supportive to DRPO pattern. It means that stops of traders on the "wrong" side were triggered. Now short-term bulls should step in, they just wait for pullback.
Here, on weekly, we do not have any additional inputs. The common target of DRPO is 50% of its thrust, which stands at $1260. But we also will take in consideration nearest $1238 Fib level, because of daily Overbought.
Daily
Daily picture explains why we also keep an eye on 1238 area. In fact, here is two important details. First is Overbought, we've mentioned it on Friday as well, and it tells that right now is not a good are to step in immediately. It's better to wait for a pullback.
Second - 1238... This is strong resistance, including not only Fib level, but OP target and 1.618 butterfly extension. Market also could be overbought there are well. And this is major short-term destination.
It means that right now retracement should not be too deep. Re-testing of broken rectangle border would be just perfect. Market stands between the targets and not at some major resistance. This placement doesn't suggest deep pullback. We have 1.27 butterfly completed, but with price acceleration to it. It means that commonly traders count on 3/8 retracement in this situation.
Around OP target is different story. That's the place where deeper retracement should happen. That's being said, our trading plan for the weeks as follows - minor pullback first, then upside continuation to OP and 1238 area and starting of deep retracement then.
Intraday
Here is the way how we will monitor retracement down. In fact, we have small AB-CD pattern, with XOP precisely around 3/8 Butterfly support. There we also have the border of our former channel and WPP.
In other circumstances we could talk even on smaller retracement, but existence of Overbought condition on daily chart suggests good chances that 1208-1210 area will be reached.
Then, if everything is OK, - upside action should be re-established, because here new buyers should step in.
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.
