Sive Morten
Special Consultant to the FPA
- Messages
- 18,639
Fundamentals
This week doesn't bring something outstanding, no surprises as our long-term view is bullish and gold confirms it by the action. Set aside any sophisticated discussion on fundamental basis and using just common sense we could say that gold should rise. As on financial assets, like bonds as on gold you get now no interest return. This equalizes financial assets and gold from this point of view. While safety of gold is much higher, that makes it attractive for keeping assets in tough times. Keeping physical gold also eliminates any agency risk of broker, bank, exchange whatever stands between you and your money.
We could suggest growth of stock market, by the same reason as it was in recent few years, especially after QE chain in 2008 and later. Sooner or later but all extreme liquidity will appear in banks that they will spend not on economy support, not on help to people and business, but on a stock market as most easy way to blow the new bubble. If Fed will not apply some restrictions, of course. But this is longer-term perspective.
Yesterday in our FX report we discuss current fundamental background in US economy. Two major events this week are drop of consumer prices, and new 2.3 Trln injection from the Fed. Drop of inflation on a background of zero interest rates and extreme level of liquidity looks like friendly environment for gold price rising...
Now it is important to escape "L" shape recovery that could happen if self-isolation will be ineffective, governments provide weak and late support to small and medium business, and most important - if relapse of epidemic will happen.
Britain said on Sunday it was pledging 200 million pounds ($248 million) to the World Health Organisation (WHO) and charities to help slow the spread of the coronavirus in vulnerable countries and so help prevent a second wave of infections. Previously CNN reports on new cases in China and Singapore. If world doesn't escape the second wave - it comes in autumn, by wide experts expectations. Now all global society tries to escape this scenario.
Gold prices climbed 2.5% on Thursday on safe-haven buying ahead of a long weekend and a crucial meeting of top oil producers amid generally more positive markets driven by hopes the coronavirus pandemic is close to peaking and after the U.S. Federal Reserve announced a massive stimulus to combat the economic toll of the coronavirus pandemic.
Gold has, on occasion, risen in tandem with equity markets recently, with wider market selloffs also seeping into precious metals as investors covered losses elsewhere.
“The yellow metal continues to benefit from this calmer environment, even as risk appetite improves,” OANDA analyst Craig Erlam said in a note. “The market is flooded with cash from central banks around the world which is inflating gold prices at this highly uncertain time.”
Holdings of gold by ETFs rose in March to a record high of 3,185 tonnes, worth $165 billion, the World Gold Council said on Wednesday.
“The virus has driven (central banks) to aggressive monetary policy stimulus and that’s driving investors into gold. Safe-haven demand has been increasing, we’re seeing a lot of inflows into exchange traded funds,” said UBS analyst Giovanni Staunovo.
“The Fed unveiled yet another howitzer from its arsenal offering substantial relief to small and medium sized businesses as well as municipalities,” said Tai Wong, head of base and precious metals derivatives trading at BMO.
“Gold’s rallying because this monetary largesse will eventually have to be repaid and that payment may come as sudden higher inflation somewhere down the road.”
The Fed rolled out a broad, $2.3 trillion effort to bolster local governments and small and mid-sized businesses to keep the U.S. economy intact as the country battles the coronavirus pandemic. Fed Chair Jerome Powell said the central bank will continue to use all the tools at its disposal until the U.S. economy begins to fully rebound from the harm caused by the outbreak.
Data showed the number of Americans seeking unemployment benefits in the last three weeks has blown past 15 million, with weekly new claims topping 6 million for the second straight time last week as the pandemic has abruptly grounded the country to halt.
“The economic impact of the pandemic is likely in any case to preoccupy markets for a very long time to come, even once the pandemic has eased,” Commerzbank analysts said in a note. “Gold is likely to profit from the unprecedented glut of central bank money and new debt.”
Major physical bullion hubs saw activity dwindle this week due to coronavirus-led restrictions, with strained supply chains cut off from soaring safe-haven demand in some regions.
CFTC Report
COT data shows contraction of net long speculative position. This stands on a background of drop in open interest, which means closing of the longs rather than new short positions. Indeed recent data shows that speculators have closed 7.6K long contracts and opened 2.2K new short positions, while hedgers have closed as longs as shorts, although shorts were closed a bit more. Supposedly hedgers suggest that gold should stay in some range and doesn't need significant hedging. Or, they expect slowdown in economy and adjust trading position to expected volumes. It is difficult to say definitely. One is clear - gold could show some retracement in nearest 1-2 weeks:
On a chart it looks like here:
Source: cftc.gov
Charting by Investing.com
SPDR Fund statistics also looks very impressive and currently we do not see real drop in long-term demand for Gold:
Analysis of CFTC data makes us think that drop in gold price should be temporal, while long-term bullish tendency holds.
According to gold.org, that mostly shows the same driving factors as we do, suggest following perspective:
On ETF tendency: "On the heels of the most recent sharp stock selloff this year, the US Federal Reserve (Fed), along with other central banks, instituted new QE programs, labelled by many as ‘QE Infinity’ as most countries have not placed a limit on the amount they are willing to purchase to help the markets. This pushed gold off its lows to close the month flat. Gold ETFs added roughly 109t or 3.7% to assets in 2020 leading up to the 19 February peak in the S&P 500. They have since added 189t, or an additional 6.3% to assets in six weeks. If the trend mirrors the financial crisis, we could see significant inflows in gold ETFs over the coming months, which has been the case to begin the month of April."
Looking forward
"Recent drivers of investment demand are expected to continue: widespread market uncertainty and the improved opportunity cost of holding gold as yields move lower. We have found that lower rates have a postive impact on gold prices and offer the opportunity for additional gold exposure (potentially replacing bonds) in a low-rate environment.
With the Fed taking interest rates to zero for the foreseeable future, gold could do well as it tends to outperform during easing cycles. Additionally, multi-trillion dollar fiscal stimulus policies to combat the economic impact of COVID-19 could prove inflationary – a development that could support gold prices in the long run.
. It is likely, however, that uncertainty and its economic impact will have a negative impact on gold demand for jewellery and bar and coin demand. Despite this, we believe investment demand could more than offset a reduction in consumer demand, as was the case with global gold demand in 2019."
Technicals
Monthly
This week gold shows fast acceleration to the top of the doji. Market already stands above YPR1, and there is no valuable Fib level ahead. Overbought level stands above the market. The only reason to suggest some pullback is CFTC data and speculators' behavior, that suggest possible technical pullback.
Here, as on EUR, direction depends on breakout. Although we tend to bullish scenario, especially on a background of fundamental events, mentioned above, formally gold keeps both scenarios valid. As we have doji - next direction depends on breakout. It's a huge size and correspondingly action after breakout also should be significant. In the situation of upward breakout, I will not surprise if we will see gold at 2K point.
Downside target mostly stands the same - YPS1 and major 5/8 Fib level around 1300 area.
Also guys, I would like to show you another monthly chart - Gold price in EUR. It has different shape, but it is more representative by our opinion. Here we have clear huge AB=CD pattern with 1.8K OP target. While we could suggest that upward action could be due EUR drop, but it seems too much and mostly suggests that gold also should show appreciation.
Weekly
On a weekly chart trend has turned bullish an gold finally has erased bearish context. Last week we've suggested that this is just theoretical standing of bearish setup, but this week price has destroyed even theoretical signs as our former "C" point of AB-CD pattern has been exceeded and trend has turned bullish.
On MACD we have hint on bullish divergence that suggests taking of recent top at some day. At the same time, price stands at weekly overbought. While gold often ignores daily OB level - weekly one holds relatively stable. With CFTC data background - indeed some short-term downside reaction could follow in the beginning of the next week. But with new, bullish environment we suggest a retracement, that should be not too deep, and definitely not the reversal down.
Daily
Trying to combine different type of data that we have - CFTC, weekly analysis, intraday analysis, we think that it could be worthy to consider interesting pattern on daily chart. I mean reverse H&S on top. It satisfies to all conditions that we have - drop net long position, OB on weekly and reaching of intraday targets. First is, we watch for completion of intraday target and downside reversal around 1700 top, and second step is retracement, supposedly to 1600 - 1610 area that mirrors harmonic bottom to the left. Let's see whether we will be correct on this one:
Intraday
Our intraday charts repeat ones that we've discussed on Friday as there was no trading due Good Friday. In fact, on 4H chart - we have rising wedge and MACD divergence, while on 1H chart we're watching for XOP target that coincides with daily top. Moment of truth should come when market hits it.
This week doesn't bring something outstanding, no surprises as our long-term view is bullish and gold confirms it by the action. Set aside any sophisticated discussion on fundamental basis and using just common sense we could say that gold should rise. As on financial assets, like bonds as on gold you get now no interest return. This equalizes financial assets and gold from this point of view. While safety of gold is much higher, that makes it attractive for keeping assets in tough times. Keeping physical gold also eliminates any agency risk of broker, bank, exchange whatever stands between you and your money.
We could suggest growth of stock market, by the same reason as it was in recent few years, especially after QE chain in 2008 and later. Sooner or later but all extreme liquidity will appear in banks that they will spend not on economy support, not on help to people and business, but on a stock market as most easy way to blow the new bubble. If Fed will not apply some restrictions, of course. But this is longer-term perspective.
Yesterday in our FX report we discuss current fundamental background in US economy. Two major events this week are drop of consumer prices, and new 2.3 Trln injection from the Fed. Drop of inflation on a background of zero interest rates and extreme level of liquidity looks like friendly environment for gold price rising...
Now it is important to escape "L" shape recovery that could happen if self-isolation will be ineffective, governments provide weak and late support to small and medium business, and most important - if relapse of epidemic will happen.
Britain said on Sunday it was pledging 200 million pounds ($248 million) to the World Health Organisation (WHO) and charities to help slow the spread of the coronavirus in vulnerable countries and so help prevent a second wave of infections. Previously CNN reports on new cases in China and Singapore. If world doesn't escape the second wave - it comes in autumn, by wide experts expectations. Now all global society tries to escape this scenario.
Gold prices climbed 2.5% on Thursday on safe-haven buying ahead of a long weekend and a crucial meeting of top oil producers amid generally more positive markets driven by hopes the coronavirus pandemic is close to peaking and after the U.S. Federal Reserve announced a massive stimulus to combat the economic toll of the coronavirus pandemic.
Gold has, on occasion, risen in tandem with equity markets recently, with wider market selloffs also seeping into precious metals as investors covered losses elsewhere.
“The yellow metal continues to benefit from this calmer environment, even as risk appetite improves,” OANDA analyst Craig Erlam said in a note. “The market is flooded with cash from central banks around the world which is inflating gold prices at this highly uncertain time.”
Holdings of gold by ETFs rose in March to a record high of 3,185 tonnes, worth $165 billion, the World Gold Council said on Wednesday.
“The virus has driven (central banks) to aggressive monetary policy stimulus and that’s driving investors into gold. Safe-haven demand has been increasing, we’re seeing a lot of inflows into exchange traded funds,” said UBS analyst Giovanni Staunovo.
“The Fed unveiled yet another howitzer from its arsenal offering substantial relief to small and medium sized businesses as well as municipalities,” said Tai Wong, head of base and precious metals derivatives trading at BMO.
“Gold’s rallying because this monetary largesse will eventually have to be repaid and that payment may come as sudden higher inflation somewhere down the road.”
The Fed rolled out a broad, $2.3 trillion effort to bolster local governments and small and mid-sized businesses to keep the U.S. economy intact as the country battles the coronavirus pandemic. Fed Chair Jerome Powell said the central bank will continue to use all the tools at its disposal until the U.S. economy begins to fully rebound from the harm caused by the outbreak.
Data showed the number of Americans seeking unemployment benefits in the last three weeks has blown past 15 million, with weekly new claims topping 6 million for the second straight time last week as the pandemic has abruptly grounded the country to halt.
“The economic impact of the pandemic is likely in any case to preoccupy markets for a very long time to come, even once the pandemic has eased,” Commerzbank analysts said in a note. “Gold is likely to profit from the unprecedented glut of central bank money and new debt.”
Major physical bullion hubs saw activity dwindle this week due to coronavirus-led restrictions, with strained supply chains cut off from soaring safe-haven demand in some regions.
CFTC Report
COT data shows contraction of net long speculative position. This stands on a background of drop in open interest, which means closing of the longs rather than new short positions. Indeed recent data shows that speculators have closed 7.6K long contracts and opened 2.2K new short positions, while hedgers have closed as longs as shorts, although shorts were closed a bit more. Supposedly hedgers suggest that gold should stay in some range and doesn't need significant hedging. Or, they expect slowdown in economy and adjust trading position to expected volumes. It is difficult to say definitely. One is clear - gold could show some retracement in nearest 1-2 weeks:
On a chart it looks like here:
Source: cftc.gov
Charting by Investing.com
SPDR Fund statistics also looks very impressive and currently we do not see real drop in long-term demand for Gold:
Analysis of CFTC data makes us think that drop in gold price should be temporal, while long-term bullish tendency holds.
According to gold.org, that mostly shows the same driving factors as we do, suggest following perspective:
On ETF tendency: "On the heels of the most recent sharp stock selloff this year, the US Federal Reserve (Fed), along with other central banks, instituted new QE programs, labelled by many as ‘QE Infinity’ as most countries have not placed a limit on the amount they are willing to purchase to help the markets. This pushed gold off its lows to close the month flat. Gold ETFs added roughly 109t or 3.7% to assets in 2020 leading up to the 19 February peak in the S&P 500. They have since added 189t, or an additional 6.3% to assets in six weeks. If the trend mirrors the financial crisis, we could see significant inflows in gold ETFs over the coming months, which has been the case to begin the month of April."
Looking forward
"Recent drivers of investment demand are expected to continue: widespread market uncertainty and the improved opportunity cost of holding gold as yields move lower. We have found that lower rates have a postive impact on gold prices and offer the opportunity for additional gold exposure (potentially replacing bonds) in a low-rate environment.
With the Fed taking interest rates to zero for the foreseeable future, gold could do well as it tends to outperform during easing cycles. Additionally, multi-trillion dollar fiscal stimulus policies to combat the economic impact of COVID-19 could prove inflationary – a development that could support gold prices in the long run.
. It is likely, however, that uncertainty and its economic impact will have a negative impact on gold demand for jewellery and bar and coin demand. Despite this, we believe investment demand could more than offset a reduction in consumer demand, as was the case with global gold demand in 2019."
Technicals
Monthly
This week gold shows fast acceleration to the top of the doji. Market already stands above YPR1, and there is no valuable Fib level ahead. Overbought level stands above the market. The only reason to suggest some pullback is CFTC data and speculators' behavior, that suggest possible technical pullback.
Here, as on EUR, direction depends on breakout. Although we tend to bullish scenario, especially on a background of fundamental events, mentioned above, formally gold keeps both scenarios valid. As we have doji - next direction depends on breakout. It's a huge size and correspondingly action after breakout also should be significant. In the situation of upward breakout, I will not surprise if we will see gold at 2K point.
Downside target mostly stands the same - YPS1 and major 5/8 Fib level around 1300 area.
Also guys, I would like to show you another monthly chart - Gold price in EUR. It has different shape, but it is more representative by our opinion. Here we have clear huge AB=CD pattern with 1.8K OP target. While we could suggest that upward action could be due EUR drop, but it seems too much and mostly suggests that gold also should show appreciation.
Weekly
On a weekly chart trend has turned bullish an gold finally has erased bearish context. Last week we've suggested that this is just theoretical standing of bearish setup, but this week price has destroyed even theoretical signs as our former "C" point of AB-CD pattern has been exceeded and trend has turned bullish.
On MACD we have hint on bullish divergence that suggests taking of recent top at some day. At the same time, price stands at weekly overbought. While gold often ignores daily OB level - weekly one holds relatively stable. With CFTC data background - indeed some short-term downside reaction could follow in the beginning of the next week. But with new, bullish environment we suggest a retracement, that should be not too deep, and definitely not the reversal down.
Daily
Trying to combine different type of data that we have - CFTC, weekly analysis, intraday analysis, we think that it could be worthy to consider interesting pattern on daily chart. I mean reverse H&S on top. It satisfies to all conditions that we have - drop net long position, OB on weekly and reaching of intraday targets. First is, we watch for completion of intraday target and downside reversal around 1700 top, and second step is retracement, supposedly to 1600 - 1610 area that mirrors harmonic bottom to the left. Let's see whether we will be correct on this one:
Intraday
Our intraday charts repeat ones that we've discussed on Friday as there was no trading due Good Friday. In fact, on 4H chart - we have rising wedge and MACD divergence, while on 1H chart we're watching for XOP target that coincides with daily top. Moment of truth should come when market hits it.
