Sive Morten
Special Consultant to the FPA
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- 18,673
Fundamentals
Gold market mostly is driven by the same factors as FX market. Yesterday, in our FX research we've talked about major ones - coming Fed meeting, US interest rate rally and NFP data. For the gold market conclusion will be the same, these factors are dollar supportive by far. Still, impact on gold market could be slightly different, because it has the feature of safe haven and additional support from difficult political situation and tariffs piking. That's why Friday reversal there was not as sharp as on FX market.
As Reuters reports - Gold slipped on Friday as the dollar regained some ground on the back of strong U.S. jobs data, but the metal was still on track for a fifth week of gains.
The dollar index gained after data showed U.S. job growth rebounded sharply in October and wages recorded their largest annual gain in 9-1/2 years.
“Strong data helped the dollar, which put some pressure on gold. The fact that the data is strong despite storm-related disruptions, suggests the economy is humming along strongly and that the Fed will continue to hike interest rates,” said Tai Wong, head of metals trading at BMO.
“Given the fact that we had a very strong rally yesterday, we are going to struggle towards the $1,240-$1,245 highs off this move unless we get a sustained downward movement on the dollar,” Wong said.
World shares rallied on hopes that the United States and China were starting to repair their damaged trade relations.
“People who would generally buy gold out of fear as a safe-haven are lightening up on it now. There’s less of a reason to own it under that fear gauge,” said Michael Matousek, head trader at U.S. Global Investors.
Attention is now turning to the U.S. congressional elections on Nov. 6, which will determine whether the Republican or Democratic party controls Congress, with some predicting increased market volatility on the outcome.
“The return of risk appetite could be a bearish sign for gold, given how it’s benefited from its safe-haven status as of late,” Craig Erlam, senior market analyst at OANDA in London, said in a note.
Holdings in SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, rose to their highest since late August on Thursday. Weekly increase stands for ~10 tonnes, which is good amount for weekly change.
At the same time COT report shows that sentiment is not quite bullish. As speculators as hedgers have closed big amount of bullish positions. As a result open interest has dropped, but it doesn't make overall sentiment weaker. This kind of change suggests that investors do not believe much in upside continuation of gold, at least in short-term perspective:
As a result net long position has dropped:
Source: CFTC.gov
Charting by Investing.com
So, conclusion on gold market mostly stands the same as for FX one. Although we do not have absolutely clear signs of bearish reversal, but news and fundamental background doesn't look too friendly for the market.
Technical
Monthly
Monthly picture barely has changed. 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. But last few weeks we see that gold, oppositely, holds well and even bounces higher, up from it.
Weekly
On weekly chart we do not have any significant advance in the same direction. Market is mostly stuck around major resistance. At the same time no signs of failure of our major setup. DRPO is still valid and we still keep our 1260 target valid. Despite that retracement could happen on next week - it doesn't cancel yet later upside continuation:
Still, In a broader picture, as we've mentioned earlier, DRPO itself is a 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.
The common target of DRPO is 50% of its thrust, which stands at $1260. Still, 1238 level is also important, because market now shows pause right below it. That's being said - weekly chart keeps bullish context.
But DRPO action is just a retracement within our large AB=CD pattern, which potentially has OP target around 1113$...
Daily
Recent upside action very well agrees with overall bullish context. As soon as major target has been hit, we've got meaningful retracement to K-support area and fast upside jump. That is how bullish market should behave. Following this logic and technical picture we should follow bullish tendency and search chance to go long.
At the same time, we need to keep in mind not quite friendly fundamental background and coming Fed meeting on 8th of November next week. With any light signs of failure of bullish scenario, it would be better take a pause and see what will happen.
Besides, MACD trend now is bearish on daily and recent rally could be deep retracement before second leg down.
Intraday
It is easy to recognize reverse H&S pattern on top, which suggest some retracement first, before any upside continuation, somewhere to 1223 area, if we would follow the harmony of left shoulder. This pattern could become good assistance to us, because if market will fail and start dropping back to 1212 lows, it will mean that bearish background is taking the lead and 2 leg daily retracement is possible.
Also before taking any long position, it is better to get additionally "222" Buy for example.
As soon as OP target has been hit, market turns to sideways retracement. Now it is forming a kind of diamond pattern (although I try to avoid this formation as it oftener fails than works). Here we have minor ab-cd pattern and its xop stands around K-support area.
The first area where retracement might be over is 1226-1227 Agreement and K-support level.
But, as usual, if drop will be very fast - don't take any long position.
Conclusion:
As on Forex market, Gold technically looks nice and keeps bullish sentiment. But, fundamental background could bring unwelcome adjustments. And the point where we could find out this will be 1226 area. Market either will confirm our reverse H&S pattern and re-establish upside action, or, two leg downside action will start.
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.
Gold market mostly is driven by the same factors as FX market. Yesterday, in our FX research we've talked about major ones - coming Fed meeting, US interest rate rally and NFP data. For the gold market conclusion will be the same, these factors are dollar supportive by far. Still, impact on gold market could be slightly different, because it has the feature of safe haven and additional support from difficult political situation and tariffs piking. That's why Friday reversal there was not as sharp as on FX market.
As Reuters reports - Gold slipped on Friday as the dollar regained some ground on the back of strong U.S. jobs data, but the metal was still on track for a fifth week of gains.
The dollar index gained after data showed U.S. job growth rebounded sharply in October and wages recorded their largest annual gain in 9-1/2 years.
“Strong data helped the dollar, which put some pressure on gold. The fact that the data is strong despite storm-related disruptions, suggests the economy is humming along strongly and that the Fed will continue to hike interest rates,” said Tai Wong, head of metals trading at BMO.
“Given the fact that we had a very strong rally yesterday, we are going to struggle towards the $1,240-$1,245 highs off this move unless we get a sustained downward movement on the dollar,” Wong said.
World shares rallied on hopes that the United States and China were starting to repair their damaged trade relations.
“People who would generally buy gold out of fear as a safe-haven are lightening up on it now. There’s less of a reason to own it under that fear gauge,” said Michael Matousek, head trader at U.S. Global Investors.
Attention is now turning to the U.S. congressional elections on Nov. 6, which will determine whether the Republican or Democratic party controls Congress, with some predicting increased market volatility on the outcome.
“The return of risk appetite could be a bearish sign for gold, given how it’s benefited from its safe-haven status as of late,” Craig Erlam, senior market analyst at OANDA in London, said in a note.
Holdings in SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, rose to their highest since late August on Thursday. Weekly increase stands for ~10 tonnes, which is good amount for weekly change.
At the same time COT report shows that sentiment is not quite bullish. As speculators as hedgers have closed big amount of bullish positions. As a result open interest has dropped, but it doesn't make overall sentiment weaker. This kind of change suggests that investors do not believe much in upside continuation of gold, at least in short-term perspective:
As a result net long position has dropped:
Source: CFTC.gov
Charting by Investing.com
So, conclusion on gold market mostly stands the same as for FX one. Although we do not have absolutely clear signs of bearish reversal, but news and fundamental background doesn't look too friendly for the market.
Technical
Monthly
Monthly picture barely has changed. 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. But last few weeks we see that gold, oppositely, holds well and even bounces higher, up from it.
Weekly
On weekly chart we do not have any significant advance in the same direction. Market is mostly stuck around major resistance. At the same time no signs of failure of our major setup. DRPO is still valid and we still keep our 1260 target valid. Despite that retracement could happen on next week - it doesn't cancel yet later upside continuation:
Still, In a broader picture, as we've mentioned earlier, DRPO itself is a 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.
The common target of DRPO is 50% of its thrust, which stands at $1260. Still, 1238 level is also important, because market now shows pause right below it. That's being said - weekly chart keeps bullish context.
But DRPO action is just a retracement within our large AB=CD pattern, which potentially has OP target around 1113$...
Daily
Recent upside action very well agrees with overall bullish context. As soon as major target has been hit, we've got meaningful retracement to K-support area and fast upside jump. That is how bullish market should behave. Following this logic and technical picture we should follow bullish tendency and search chance to go long.
At the same time, we need to keep in mind not quite friendly fundamental background and coming Fed meeting on 8th of November next week. With any light signs of failure of bullish scenario, it would be better take a pause and see what will happen.
Besides, MACD trend now is bearish on daily and recent rally could be deep retracement before second leg down.
Intraday
It is easy to recognize reverse H&S pattern on top, which suggest some retracement first, before any upside continuation, somewhere to 1223 area, if we would follow the harmony of left shoulder. This pattern could become good assistance to us, because if market will fail and start dropping back to 1212 lows, it will mean that bearish background is taking the lead and 2 leg daily retracement is possible.
Also before taking any long position, it is better to get additionally "222" Buy for example.
As soon as OP target has been hit, market turns to sideways retracement. Now it is forming a kind of diamond pattern (although I try to avoid this formation as it oftener fails than works). Here we have minor ab-cd pattern and its xop stands around K-support area.
The first area where retracement might be over is 1226-1227 Agreement and K-support level.
But, as usual, if drop will be very fast - don't take any long position.
Conclusion:
As on Forex market, Gold technically looks nice and keeps bullish sentiment. But, fundamental background could bring unwelcome adjustments. And the point where we could find out this will be 1226 area. Market either will confirm our reverse H&S pattern and re-establish upside action, or, two leg downside action will start.
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.