Sive Morten
Special Consultant to the FPA
- Messages
- 18,699
Fundamentals
(Reuters) Gold weakened on Friday as strength in equities prompted investors to cash in some of the previous day's gains, remaining on track for its biggest weekly rise in five weeks as the Federal Reserve remained cautious on U.S. interest rate increases.
Global stock markets rebounded but still were set to end a bruising and volatile week lower, fed by growing uncertainty surrounding the U.S. economic and policy outlook.
The metal has been hemmed into a narrow range by uncertainty about the path the U.S. central bank will take to raising interest rates.
"Gold prices rallied because the market anticipated a change in the Fed's rate hike outlook," said Stefan Wieler, vice president of GoldMoney in Vancouver. "Now the Fed says two hikes, the market thinks zero, and gold prices hover somewhere around $1,200-$1,250 until this question gets answered."
Fed Chair Janet Yellen, in a conversation with former Fed chairmen on Thursday, said the U.S. economy is still on track to warrant further rate rises. But U.S. interest rate futures still indicate a less than 20 percent chance of a rate increase in June.
Higher rates would weigh on gold by lifting the opportunity cost of holding non-yielding bullion. Waning expectations for further rate increases this year helped gold to its best quarter in nearly 30 years in the three months to March.
"Janet Yellen said (the Fed) will be moderate in making hikes in the future, so the markets no longer anticipate the four interest rate hikes they did at the end of 2015," LBBW analyst Thorsten Proettel said.
Proettel said he remains bearish on prices, saying that positioning on the futures markets looks overstretched, while inflows into gold-backed exchange-traded products are drying up.
Data from the world's largest gold-backed exchange-traded fund - New York-listed SPDR Gold Shares - showed its holdings are little changed this week after posting the year's first weekly outflow last week.
Demand for physical gold from Asia also has been muted of late, analysts said.
CFTC data shows moderate bullish information. As price goes down slowly, open interest also slightly has decreased but net long position has increased. It means that some shorts were closed, while new open longs are still smaller than shorts that were closed. Still, this dynamic points on bullish direction of CFTC data changes.
Technicals
Monthly
Last week gold has shown quiet action since it stands in retracement and it mostly has made no impact on monthly chart. Trend is bullish on monthly chart. As market already has moved above YPP, next target based on pivot framework is YPR1 around 1315 area.
Since New Year gold stands in upside action. Reasons could be different - geopolitics, investors' assets distribution in the beginning of the year. Upside action currently has not changed situation drastically yet on but we will monitor how situation will change.
We still think that currently gold should be mostly driven by geopolitics, rather than economics. This driving factor creates absolutely new scale of uncertainty and leads to very fast changes on Globe political situation. That's why we suspect that gold market hardly will fall dramatically, since we're just in the beginning of different geopolitical tensions.
Not just Middle East stands in our focus. We see that fumes of this conflict spread over planet. Recall Paris terrorist attack, Brussels, refugees tensions in EU, Brexit voting, a lot of contradiction inside EU as political as economical - North Stream-2, mutual sanctions, Ukraine membership voting in Netherlands, Montenegro NATO membership, right now Armenia and Azerbaijan conflict and a lot of others. China's financial sphere is isolated theme for discussion. All these stuff is happening on a background of reducing population wealth and solvency and currency wars between major economies. Recent Fed shift just proves this conclusion. So, we see that entropy is growing. Currently we could just gamble what game stands under curtain of political meetings among major leaders.
As market gradually starts to come to the same conclusion as gradually situation on gold market starts to change in positive area. International banks purchase gold in big volumes, mostly PBoC and Russian Central Bank. Besides, as now we see clear signs of currency war - gold will get support here either. Germany stands on a way of own gold repatriation from US and UK, as we've mentioned above. Soon probably will follow other countries, say, Netherlands, France and others.
Speaking on breakeven points between bullish and bearish sentiment - market should show significant upside action and form bullish reversal swing to destroy current bearish domination. It means that gold has to exceed 1380 area.
At the same time gold needs to move above 1308 to break current bearish trend by forming upside reversal swing.
So, on long-term charts it could happen, that we will not get yet clear tendency and gold could turn to some wide range action. Because right now it is too many sources that could initiate impact on gold market. They will push market in one and other sides. Geopolitical situation in the World has reached very high degree of uncertainty and we believe that sooner rather than later it will become a dominating factor for gold market and already it's becoming.
Anyway, gold's shift from downward action to flat one, even it will be wide - already will be significant moment.
Monthly chart trend has turned bullish.
As you can see upside action has started right after butterfly "Buy" has been completed. Currently market has reached 5/8 resistance of butterfly 's swing. Gold has exceeded Yearly Pivot and this tells on existing bullish trend on monthly chart. As gold is not at overbought here - next logical destination is 1314 area of Yearly PR1.
In general, guys, coming area of 1315-1330 will become a real test of bullish strength. Monthly overbought, YPP and Fib level... hardly market will pass it easily and without solid reactions. May we will even get here extended H&S reversal pattern...
Weekly
So within past week we have appealed to weekly levels many times, finally major resistance has been hit. We not occasionally have said that the ceil now is 1285 area - Fib level and overbought on weekly chart. Currently gold market totally matches our expectations - retracement down has started precisely from predefined level.
Gold has formed something like bearish Stretch pattern on weekly chart, but mostly it is completed already since market has reached the middle between OB and OS bands. Reversal was prepared by forming butterfly "Sell" on daily time frame.
We suggest minimum weekly destination point is 1180-1200 area. As you can see it includes trend line support, Yearly Pivot and major 3/8 support level. MPS1 also stands close. Although at first glance it seems that 1180 area is too deep, in fact this is just 30% retracement. Trend holds bullish on weekly chart.
That's being said re-testing of long-term broken trend line is very typical for gold market. Besides this will be test for bullishness. Real bullish market should hold as above broken line as above MPS1, despite existed YPP and Fib level.
Currently guys, we still have one question here - whether recent upward action is continuation of upside trend, or just temporal bounce, and we will see some kind of AB=CD action to 1193 level still. Unfortunately we haven't got bullish grabber here that could clarify this.
Question appears mostly because upside reversal has happened unexpectedly. Here, as you can see, gold has not reached our major level where this should happen. I mean 1193, MPS1 and trendline. Reversal has happened earlier. That's why chances that gold still will reach this support exist. Absolute clarity we will get only around 1260 area probably, when market either will turn down again or continue upward action.
Daily
On daily chart situation barely has changed. Actually, Friday was an inside session. On Thu market has formed bearish grabber that theoretically suggests return back down below lows, but I'm afraid that grabber has more chances to fail rather than to work.
At first glance on daily chart picture has not changed - the same shape of possible H&S pattern. But major problem with early upward reversal. Neckline stands steep and right slope of the head has not been finished correctly. On 4-hour chart 3-Drive has not been completed, although it's completion should happen and could be logical finish of the head. But suddenly gold has turned north.
It means that current upward action is not simple and logical development of H&S, but in reality it could happen so, that current upward action does not belong to H&S pattern already. And although we do not see it clearly yet, but it might happen that H&S already has failed...So, we still keep it's shape here, but at the same time our major level to watch is the top of right shoulder. Current action significantly increase chances that shoulder will fail and market will continue move higher.
4-hour
So, this chart we already saw previously, it shows how gold has betrayed 3-Drive and turned up earlier. Although theoretically as 3-Drive as butterfly are still valid, but this mostly theoretically only. Large part of work to their failure already has been done - market has broken trend line and stands few cents below invalidation point.
And take a look - on Friday we've got bullish grabber that suggests action above invalidation point. It means that as soon as this will happen - next target will be 1260 area.
1-hour
On hourly chart market stands in upside channel, here we could see clear signs of thrust. On a way up market already has completed AB-CD 1.618 ultimate target, but after retracement down market returned back to upside action, although bearish market should reverse down and drop further. It makes us think that we could get some kind of butterfly pattern that could trigger upside breakout.
On a way down market should not show too deep retracement - move to WPP and 1233 Fib level will be OK. But to keep upside perspectives gold should hold inside the channel.
Conclusion:
We think that fundamentally gold stands somewhere near bottom and situation is starting to change. But this bottom could be "extended" in time.
In short-term perspective gold shows signs of unexpected preterm upward reversal. Now we need to get final confirmation of our suspicions. Probably it should happen around 1260 area.
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 weakened on Friday as strength in equities prompted investors to cash in some of the previous day's gains, remaining on track for its biggest weekly rise in five weeks as the Federal Reserve remained cautious on U.S. interest rate increases.
Global stock markets rebounded but still were set to end a bruising and volatile week lower, fed by growing uncertainty surrounding the U.S. economic and policy outlook.
The metal has been hemmed into a narrow range by uncertainty about the path the U.S. central bank will take to raising interest rates.
"Gold prices rallied because the market anticipated a change in the Fed's rate hike outlook," said Stefan Wieler, vice president of GoldMoney in Vancouver. "Now the Fed says two hikes, the market thinks zero, and gold prices hover somewhere around $1,200-$1,250 until this question gets answered."
Fed Chair Janet Yellen, in a conversation with former Fed chairmen on Thursday, said the U.S. economy is still on track to warrant further rate rises. But U.S. interest rate futures still indicate a less than 20 percent chance of a rate increase in June.
Higher rates would weigh on gold by lifting the opportunity cost of holding non-yielding bullion. Waning expectations for further rate increases this year helped gold to its best quarter in nearly 30 years in the three months to March.
"Janet Yellen said (the Fed) will be moderate in making hikes in the future, so the markets no longer anticipate the four interest rate hikes they did at the end of 2015," LBBW analyst Thorsten Proettel said.
Proettel said he remains bearish on prices, saying that positioning on the futures markets looks overstretched, while inflows into gold-backed exchange-traded products are drying up.
Data from the world's largest gold-backed exchange-traded fund - New York-listed SPDR Gold Shares - showed its holdings are little changed this week after posting the year's first weekly outflow last week.
Demand for physical gold from Asia also has been muted of late, analysts said.
CFTC data shows moderate bullish information. As price goes down slowly, open interest also slightly has decreased but net long position has increased. It means that some shorts were closed, while new open longs are still smaller than shorts that were closed. Still, this dynamic points on bullish direction of CFTC data changes.
Technicals
Monthly
Last week gold has shown quiet action since it stands in retracement and it mostly has made no impact on monthly chart. Trend is bullish on monthly chart. As market already has moved above YPP, next target based on pivot framework is YPR1 around 1315 area.
Since New Year gold stands in upside action. Reasons could be different - geopolitics, investors' assets distribution in the beginning of the year. Upside action currently has not changed situation drastically yet on but we will monitor how situation will change.
We still think that currently gold should be mostly driven by geopolitics, rather than economics. This driving factor creates absolutely new scale of uncertainty and leads to very fast changes on Globe political situation. That's why we suspect that gold market hardly will fall dramatically, since we're just in the beginning of different geopolitical tensions.
Not just Middle East stands in our focus. We see that fumes of this conflict spread over planet. Recall Paris terrorist attack, Brussels, refugees tensions in EU, Brexit voting, a lot of contradiction inside EU as political as economical - North Stream-2, mutual sanctions, Ukraine membership voting in Netherlands, Montenegro NATO membership, right now Armenia and Azerbaijan conflict and a lot of others. China's financial sphere is isolated theme for discussion. All these stuff is happening on a background of reducing population wealth and solvency and currency wars between major economies. Recent Fed shift just proves this conclusion. So, we see that entropy is growing. Currently we could just gamble what game stands under curtain of political meetings among major leaders.
As market gradually starts to come to the same conclusion as gradually situation on gold market starts to change in positive area. International banks purchase gold in big volumes, mostly PBoC and Russian Central Bank. Besides, as now we see clear signs of currency war - gold will get support here either. Germany stands on a way of own gold repatriation from US and UK, as we've mentioned above. Soon probably will follow other countries, say, Netherlands, France and others.
Speaking on breakeven points between bullish and bearish sentiment - market should show significant upside action and form bullish reversal swing to destroy current bearish domination. It means that gold has to exceed 1380 area.
At the same time gold needs to move above 1308 to break current bearish trend by forming upside reversal swing.
So, on long-term charts it could happen, that we will not get yet clear tendency and gold could turn to some wide range action. Because right now it is too many sources that could initiate impact on gold market. They will push market in one and other sides. Geopolitical situation in the World has reached very high degree of uncertainty and we believe that sooner rather than later it will become a dominating factor for gold market and already it's becoming.
Anyway, gold's shift from downward action to flat one, even it will be wide - already will be significant moment.
Monthly chart trend has turned bullish.
As you can see upside action has started right after butterfly "Buy" has been completed. Currently market has reached 5/8 resistance of butterfly 's swing. Gold has exceeded Yearly Pivot and this tells on existing bullish trend on monthly chart. As gold is not at overbought here - next logical destination is 1314 area of Yearly PR1.
In general, guys, coming area of 1315-1330 will become a real test of bullish strength. Monthly overbought, YPP and Fib level... hardly market will pass it easily and without solid reactions. May we will even get here extended H&S reversal pattern...
Weekly
So within past week we have appealed to weekly levels many times, finally major resistance has been hit. We not occasionally have said that the ceil now is 1285 area - Fib level and overbought on weekly chart. Currently gold market totally matches our expectations - retracement down has started precisely from predefined level.
Gold has formed something like bearish Stretch pattern on weekly chart, but mostly it is completed already since market has reached the middle between OB and OS bands. Reversal was prepared by forming butterfly "Sell" on daily time frame.
We suggest minimum weekly destination point is 1180-1200 area. As you can see it includes trend line support, Yearly Pivot and major 3/8 support level. MPS1 also stands close. Although at first glance it seems that 1180 area is too deep, in fact this is just 30% retracement. Trend holds bullish on weekly chart.
That's being said re-testing of long-term broken trend line is very typical for gold market. Besides this will be test for bullishness. Real bullish market should hold as above broken line as above MPS1, despite existed YPP and Fib level.
Currently guys, we still have one question here - whether recent upward action is continuation of upside trend, or just temporal bounce, and we will see some kind of AB=CD action to 1193 level still. Unfortunately we haven't got bullish grabber here that could clarify this.
Question appears mostly because upside reversal has happened unexpectedly. Here, as you can see, gold has not reached our major level where this should happen. I mean 1193, MPS1 and trendline. Reversal has happened earlier. That's why chances that gold still will reach this support exist. Absolute clarity we will get only around 1260 area probably, when market either will turn down again or continue upward action.
Daily
On daily chart situation barely has changed. Actually, Friday was an inside session. On Thu market has formed bearish grabber that theoretically suggests return back down below lows, but I'm afraid that grabber has more chances to fail rather than to work.
At first glance on daily chart picture has not changed - the same shape of possible H&S pattern. But major problem with early upward reversal. Neckline stands steep and right slope of the head has not been finished correctly. On 4-hour chart 3-Drive has not been completed, although it's completion should happen and could be logical finish of the head. But suddenly gold has turned north.
It means that current upward action is not simple and logical development of H&S, but in reality it could happen so, that current upward action does not belong to H&S pattern already. And although we do not see it clearly yet, but it might happen that H&S already has failed...So, we still keep it's shape here, but at the same time our major level to watch is the top of right shoulder. Current action significantly increase chances that shoulder will fail and market will continue move higher.
4-hour
So, this chart we already saw previously, it shows how gold has betrayed 3-Drive and turned up earlier. Although theoretically as 3-Drive as butterfly are still valid, but this mostly theoretically only. Large part of work to their failure already has been done - market has broken trend line and stands few cents below invalidation point.
And take a look - on Friday we've got bullish grabber that suggests action above invalidation point. It means that as soon as this will happen - next target will be 1260 area.
1-hour
On hourly chart market stands in upside channel, here we could see clear signs of thrust. On a way up market already has completed AB-CD 1.618 ultimate target, but after retracement down market returned back to upside action, although bearish market should reverse down and drop further. It makes us think that we could get some kind of butterfly pattern that could trigger upside breakout.
On a way down market should not show too deep retracement - move to WPP and 1233 Fib level will be OK. But to keep upside perspectives gold should hold inside the channel.
Conclusion:
We think that fundamentally gold stands somewhere near bottom and situation is starting to change. But this bottom could be "extended" in time.
In short-term perspective gold shows signs of unexpected preterm upward reversal. Now we need to get final confirmation of our suspicions. Probably it should happen around 1260 area.
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.