GOLD PRO WEEKLY, 19-23 October, 2015

[Sive Morten]

Fundamentals

Gold prices slipped on Friday as a recovering dollar pulled them off a 3-1/2 month high, but the metal still eked out a weekly rise after gaining in recent sessions on bets against a U.S. interest rate hike.

Weak buying support for physical bullion markets since Thursday's rally added to the pressure on gold, traders said.

"I really don't see much progress for gold in the coming week, given that there'll be no meeting or minutes of the Fed that could really move the dollar," said Carlos Sanchez, director of commodities and asset management at New York's CPM Group.

"Barring any untoward move, we could back in a trading range, with $1,190 being the high," he added.

U.S. gold futures for December delivery settled down $4.40, or 0.4 percent, at $1,182.10 an ounce.

For the week, both the futures and spot markets rose by about 2 percent, accounting for gains in five earlier sessions that culminated in Thursday's highs above $1,191, a peak since late June.

The dollar climbed a second day from a seven-week low against a basket of currencies.

Gold is holding near its 200-day moving average, a level it broke this week for the first time since May.

Not many are confident it will rise much further due to conflicting bets that the Federal Reserve will only raise rates next year, versus expectations among some that a hike was still possible by December.

"There is still high uncertainty in the market about when the Fed will raise rates," Commerzbank analyst Daniel Briesemann said. "Until we have seen the first interest rate hike, or at least the announcement of it, gold should still be under pressure."

Holdings in the world's largest gold-backed exchange-traded fund, SPDR Gold shares , rose another 5.1 tonnes on Thursday to 700 tonnes, their highest since mid-July.

"We had slightly better U.S. data which saw the dollar rally, so that seems to have scared off some of the gold buyers for the moment," Societe Generale analyst Robin Bhar said.

"But if it can consolidate around here and build a base, that's a good platform," he said.

On CFTC data we see what we would like to see - superb support of recent rally from investors' money. These pictures even do not need any comments. Open interest shows solid growth as well as explosive jump in speculative long positions, while shorts are contracting. Also we know that SPDR fund shows inflow last week.
The one thing that should be done here is calculation of our CFTC critical ratio. it stands right now at 72%. It means that some room still exists for more long position growth before retracement will start. Usually critical level is 82-85%.

Open interest

Speculative Longs:

Speculative shorts:

Despite what you hear right now on TV and in mass media about Fed rate hike or China growth and other economical stuff, we think that driving factor right now is geopolitics and current Middle East turmoil is far from solution. This will work as supportive factor and we should be ready for 1200 breakout and action to next short-term destination around 1250$.

Technical
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. It means that gold has to exceed 1310 area.

At the same time we can't just ignore big shifts that has happened in recent 2 weeks and are happening now.
They can't totally change overall setup on monthly chart, but even recent 2 weeks action was sufficient to cancel our expectation of 1080 level. Yes, monthly bearish grabber was erased.

Right now we could acknowledge that action has become more serious. As Middle East drop in turmoil, our thought is major driving factor right now is geopolitics. With growing tensions and uncertainty, when major information stands unknown for public - markets become nervous and first of all this will make effect on gold as safe-haven asset. Fed rate and other economical statistics right now moves to backstage.

As soon as grabbers have failed, 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. We probably will keep this patterns valid for some time, because market needs to reach significant higher levels to destroy this pattern totally. While market will stand below 1300 it should treated as retracement still. Yes, it is deep, but this is retracement.

We do not know how long and how far this rally will go. That's why since crucial bearish levels have not been taken yet, let's treat that this upward rally will just postpone bearish action.

Still, it doesn't mean that we will ignore bullish setups and just wait for chances to enter bearish trade. Absolutely not. We will just keep in mind that bearish scenario exists, but we will trade any clear and attractive setups that gold will form, despite whether it will be bullish or bearish. We do not trade on monthly chart directly and just use it for understanding overall picture. Right now monthly chart shows that picture is changing and market shows bullish signs although they do not destroy yet long-term bearish scenario.

Weekly

Trend is bullish here and situation has been resolved with destruction of monthly bearish grabbers. Now trend is bullish on both charts.

Here gold perfectly has completed our suggestion of reaching 1193-1200 target. Thus, our AB=CD next target has been completed. Gold has moved and hold above MPR1 and this tells that current action is not just retracement within bear trend.

If you're careful enough, you probably could ask about "222" Sell pattern that has appeared on weekly chart. By shape we indeed this one from Gartley, but, we need to look the root. "222" usually is reversal pattern, and it suggests that AB-CD action should be weak. While right now we have absolutely different situation that does not correspond to nature of "222" Sell pattern.
That's why we call you to avoid taking long-term short positions on weekly chart right now. Since upside action has solid support from real investors purchases, it means that current upside action is not quite preparation for bearish reversal, or better to say is quite not a preparation for bearish reversal .

Here probably we could suggest logical short-term retracement on daily chart and watch for possible continuation to next target area around 1250.

At the same time be careful around 1220 - take a look, this is weekly K-resistance and weekly overbought. Hardly market will pass it freely. Thus, we probably should use compound target. First is 1200-1220 action and then - 1220-1250...

Daily

Daily trend is also bullish, but market has reached temporal limit of upside action here. As you can see, second part of AB=CD pattern has taken the shape of butterfly "sell" pattern and market has hit overbought. It means that in the beginning of next week we should see retracement down.
Knowing the habit of gold market to re-test broken tops, we could suggest that most probable destination for retracement will be 1147-1155. This range includes as former tops as will be sufficient to complete butterfly target and minimum retracement after AB=CD pattern.

4-hour

So now we've estimated trading plan for daily traders - wait for retracement to 1147-1155 area. Right now we mostly will take a look at setups on intraday charts for scalp traders. Actually combination of some Fib extension and overbought calls as Kibby "Sell" trade. This is also DiNapoli invention and has common ideas with Stretch pattern.
If you're searching for some bearish trade on intraday charts, you could use Kibby setup. It suggests waiting for intraday trend shifting bearish (done), and taking short position on first retracement up (done). Target usually is AB=CD objective point.
Since we expect to see gold at least around 1155, the potential of this trade has not been utilized yet. Also, guys, on 4-hour chart we see that 1155 area will be K-support and WPS1. If we call recent pattern as 3-Drive, although it is not quite 3-Drive, because upside swings are a bit longer than 1.618 extensions of drives, we could say that it's target also stands around 1155.
It would be better if market will hold above WPS1. This will prove that current action down is just retracement and upward continuation should happen.

Conclusion:
Currently gold shows nice and well supportive by CFTC data upside action which has not bad chances to be continued in nearest perspective. Meantime in short-term charts, we will be watching for retracement at least to 1155 area that should become preparation for next upside leg

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.

 

[Sive Morten]

Good morning,

Reuters reports today Gold struggled after three days of losses on Tuesday, hurt by a stronger dollar and fears the Federal Reserve could still raise U.S. interest rates this year.

Gold touched a 3-1/2-month high last week on bets the Fed would not raise U.S. rates amid concerns about the global economy. But the rally lost steam after robust U.S. economic data, and as gold failed to break past the key $1,200-level.

"There has been more uncertainty in recent days about the timing of a rate hike, and that is not helping gold," said a trader in Sydney. "We are just taking cues from the dollar."

The dollar was trading near its highest in over a week against a basket of major currencies. A stronger greenback makes gold expensive for holders of other currencies.

"Technically, things aren't very good at the moment as we broke below the 200-day moving average near $1,175," the trader said.

Gold may break support at $1,168 and fall towards the next support level at $1,155, said Reuters technicals analyst Wang Tao:
Spot gold may break a support at $1,168 per ounce and fall towards the next support at $1,155, as indicated by its wave pattern and a Fibonacci projection analysis.

A three-wave cycle from the July 24 low of $1,077 has completed, for its third component wave labeled C traveled a similar distance as the first wave labeled A.

The completion of the corrective wave cycle indicates the downtrend from the Oct. 15 high of $1,190.63 could eventually extend to $1,077 over the next few weeks. The 76.4 percent Fibonacci projection level of the wave C at $1,168 works as a temporary support, blocking the way towards the 61.8 percent level at $1,155.

Resistance is at $1,177, the 86.4 percent level, a break above which could lead to a limited gain to $1,190, the 100 percent level.

Investors have been frustrated by the mixed messages from the U.S. central bank in recent weeks.

Fed Chair Janet Yellen and other officials have said they expect a rate hike will be needed by the end of this year, but two Fed governors last week urged caution. The Fed has kept interest rates near zero for nearly seven years.

Despite strong headwinds from overseas that are holding down U.S. inflation, the Fed should soon begin to raise interest rates to slow economic growth before it becomes unsustainable, San Francisco Fed President John Williams said on Monday.

The Fed holds two more policy meets this year: next week and in December. Market expectations for a rate hike have shifted to next year in recent weeks, though some haven't completely ruled out a hike in December.

"The key factor driving the (gold) price is the market's expectations with respect to the Fed's first interest rate hike," Commerzbank analysts said in a note. "We only envisage a sustained price rise once the uncertainty over the first rate hike has dissipated."

It expects to see gold at $1,150 by the end of the year.

So, guys, despite that many analysts worry for gold's perspectives, we definitely know why this retracement has come. As we've talked in weekly research - market has completed some major targets and hit overbought. That's why for us it is not surprise with this bounce. We've estimated by some reasons that 1150-1155 area will be fair for current retracement down. Right now market has reached the upper border of consolidation that we've discussed yesterday:

Today we will make just shy comments here on intraday chart, since situation has not changed much.
This is the same chart as in weekly research. It definitely shows that current action is not reversal - move down is very smooth and gradual. It shows all signs of retracement. Our short-term Kibby "Sell" trade also does well by far...
That's being said we still watch for K-support and WPS1 as destination point of current retracement:

 

[Sive Morten]

Good morning,

Reuters reports today Gold retained overnight gains on Wednesday, as a softer dollar increased the metal's appeal as a hedge, with investors waiting for stronger clues on when the Federal Reserve will raise U.S. rates.

Bullion gained as the euro rose against the dollar on Tuesday, bolstered by solid regional economic data and comments from European Central Bank (ECB) officials suggesting further monetary easing may not be imminent

A weaker greenback makes dollar-denominated gold cheaper for holders of other currencies, while also increasing its appeal as a hedge. Sluggishness in equity markets also triggered some safe-haven bids for gold.

With gold now close to its 200-day moving average near $1,175, some expect more gains though trading could be quiet ahead of the ECB policy meeting on Thursday and Fed meeting next week.

Bullion's rise above its 200-day moving-average "is a technical sign, no doubt, suggesting some upside risk for gold," said OCBC analyst Barnabas Gan.

"(But) a potential higher interest rate environment, better growth story into 2016, are strong fundamental drivers underpinning a bear gold story going forward," Gan said.

Despite the overnight gains, gold was still trading below a 3-1/2-month high of $1,190.63 hit last week, held back by uncertainty over the timing of the first U.S. rate hike in nearly a decade.

Market expectations for a hike have shifted to next year in recent weeks amid concerns about the global economy, although some haven't completely ruled out a rate rise in December on recent robust U.S. economic data.

Data on Tuesday showed U.S. housing starts rose solidly in September on soaring demand for rental apartments, a sign that the housing market continues to steadily improve.

Investors will be closely monitoring U.S. data and comments from Fed officials on monetary policy to gauge when the central bank would raise rates. The Fed holds two more policy meetings this year: next week and in December.

Gold prices are expected to slip to $1,159.88 by October 2016, delegates to the London Bullion Market Association's annual gathering predicted on Tuesday.

So, situation develops slow here. While market stands flat - MACDP line comes very close to it. And it could happen that we will get bullish grabber instead of deeper retracement to 1155. This will not change our overall opinion, but oblige us to correct our entry setup. But, may be we still will get action to 1155 area...

On intraday charts market is flirting around WPP that indicates indecision or just absence of driving factors. By looking at current shape, in general we could get some kind of AB-CD right to our 1155 area.

That's being said, we just need to specify how current retracement will end - either 1155 level or say, daily bullish grabber.

 

[Sive Morten]

Good morning,

Recent Reuters comments - Gold was trading near its lowest in more than a week on Thursday, hurt by a stronger dollar and uncertainty over when the Federal Reserve will begin to raise U.S. rates.


Bullion, as a non-interest-paying asset, has been weighed by uncertainty over the timing of the first U.S. rate hike in nearly a decade, losing about 1.5 percent for the year.

Market expectations for a hike have shifted to next year in recent weeks amid concerns about the global economy, although some haven't completely ruled out a rate rise in December on recent robust U.S. economic data.

"Our base case remains for higher U.S. real rates and lower gold prices, albeit with there being risks that the gold price weakness is pushed out further should the Fed surprise us and remain on hold in December," Goldman Sachs said in a note. Its economists are about 60 percent confident regarding a December hike.

Goldman kept its forecasts unchanged, expecting gold prices at $1,100 in three months, $1,050 in six months and $1,000 in 12 months.

Traders will be eyeing U.S. data due later in the session for clues about the strength of the economy and how it could impact the Fed's monetary policy.

Focus will also be on the currency markets as the dollar and euro awaited the European Central Bank meet later in the day. The ECB is likely to stop short of actually taking new policy steps as it awaits fresh indications about the outlook for flagging euro zone inflation.

The dollar was steady, holding gains from the previous session as investors clamoured for safety against emerging market currencies and commodity-linked units following a slide in the Chinese stock market.

A stronger greenback makes dollar-denominated gold expensive for holders of other currencies.

Charts weren't looking very good for gold.

Bullion briefly burst through its 200-day moving average around $1,175 per ounce on Wednesday for a sixth straight day, before easing back more than $10 to a session low.

Its failure to hold above long-term resistance undermined sentiment and increased selling pressure, traders said.

Gold may drop to $1,155, as it has broken a support at $1,168, Reuters technicals analyst Wang Tao said.
The support was provided by the 76.4 percent Fibonacci projection level of an upward wave C, the third wave of a three-wave cycle from the July 24 low of $1,077. The next support will be at $1,155, the 61.8 percent level.

This cycle has completed, as the projection analysis reveals that the wave C has travelled a similar distance as the first wave labelled A. The downtrend from the Oct. 15 high of $1,190.63 could eventually extend to $1,077. A break above $1,168, now a resistance, may lead to a gain limited to $1,177, the 86.4 percent level.

So guys, really interesting comments, especially from Goldman. Still, by taking a look at short-term picture, it does not look so awful yet. Yesterday we've discussed the grabber and we've got it. Now all attention should be at it's bottom. IF market will drop further - then our expectation on 1155 retracement probably will be achieved. If not - then upside continuation could start immediately:

Yes, may be it sounds a bit too drastically compares to comments of Goldman, but it just what picture shows at current moment.

On 4-hour chart we mostly have the same picture - possible AB=CD that should create Agreement with WPS1, and K-support area. This probably will happen if grabber will be erased:

 

[Sive Morten]

Good morning,

Reuters reports today - Gold edged higher from its lowest in over a week on Friday as the dollar gave back some of its overnight gains, but the metal was poised to snap two straight weekly gains on a boost to expectations for a U.S. rate rise this year.

For the week, the metal is down 0.3 percent, after posting two straight weekly gains. U.S. gold futures eased about 1 percent for the week, the biggest loss in six weeks.

The dollar climbed to its highest in nearly a month on Thursday against a basket of major currencies, but dropped 0.1 percent on Friday.

Upbeat U.S. housing and labour market data, and stronger equity markets, however, capped gains in gold.

"The general expectation is for the Fed to raise rates next year, but in recent days we have seen some robust data from the U.S. and cannot completely rule out a December rate hike," said a trader in Hong Kong.

Some long positions have been liquidated since the metal failed to hold above $1,190 an ounce, he said.

Bullion has been hurt by uncertainty over the timing of the first U.S. rate hike in nearly a decade. Investors believe higher rates could hurt demand for non-interest-paying gold.

Rate rise expectations have largely been pushed out to next year over concerns about the health of the global economy, but recent U.S. data has been strong.

U.S. home resales rebounded strongly in September and new applications for unemployment benefits hovered around 42-year lows last week, data on Thursday showed.

Bullion wasn't seeing much support from the physical markets. Festive demand for gold in India, the second biggest consumer, got off to a tepid start, with local prices heavily discounted to the global benchmark.

Demand in top consumer China was also lacklustre, dealers said, while premiums in Hong Kong dropped.

So, on daily chart we see upward bounce and our grabber is still valid. Two days ago market has formed doji that indicates indecision but today gold moves above its top and this could lead to upside continuation.

Still on intraday chart upward currently does look too impressive and here I've marked the major top to watch. Until market will not take it out, we can't totally be sure that upside continuation was re-established.
Also if market will fail to move above WPP, we could get 3-Drive "Buy" pattern precisely at the area that we've specified earlier. So, the solution of the riddle stands close...