Sive Morten
Special Consultant to the FPA
- Messages
- 18,699
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.
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.