Sive Morten
Special Consultant to the FPA
- Messages
- 18,628
Fundamentals
Gold enjoys by new fundamental environment as fears of sooner and faster inflation are stepped back, supported by stubborn Fed comments and dropping of US Dollar. Based on recent comments on the market and general price behavior of different assets, statistics - it seems that background should hold for some time and gold keeps chances to proceed higher in near term.
Market Overview
Gold prices steadied near a two-month high on Thursday, a whisker away from the key $1,800 threshold as the U.S. dollar faltered with easing Treasury yields
“Gold’s recent upward momentum has been driven by the fact that bonds are well bid and the USD is under pressure,” said Tai Wong, head of base and precious metals derivatives trading at BMO. Gold is likely to hold in the new range of $1,760-$1,810 until we get another clear market driver. We may need to wait for the FOMC (Federal Open Market Committee) and see if there’s a change in tone as well as how the next round of Treasury auctions go, but overall bonds feel in demand,” Wong said.
On a technical note, gold’s failure to break resistance at $1,785 may drive it back to a range of $1,744 to $1,758, Reuters technical analyst Wang Tao said.
"What's obviously underpinning the upswing (in gold) is the dynamic in U.S. Treasuries ... which is sort of pushing lower in the very short term," said IG Market analyst Kyle Rodda, adding that a drop below 1.5% in yields could help push gold above $1,800, a key psychological level.
Gold prices could easily move above $1,800 in the next couple of days because there is still a lot of uncertainty in the global markets, said Harshal Barot, a senior research consultant for South Asia at Metals Focus. "COVID-19 cases continue to be at record highs in a lot of countries and there is this whole revaluation about global
growth prospects that should help safe haven assets (like gold)."
Gold gained on Friday and was poised for a third straight weekly rise as a softer U.S. dollar, falling Treasury yields and a dip in equities after U.S. President Joe Biden's proposal to hike capital gains tax encouraged investors to flock towards bullion. Markets also are awaited a U.S. Federal Reserve policy meeting next week.
Precious metal funds faced their lowest outflow in 10 weeks, helped by lower bond yields and a sagging dollar.
"The focus is turning to the Fed as in recent times we have seen significant improvement in U.S. data. That's raising speculation that the Fed might signal its intention to reduce its emergency stimulus measures in the coming months," said Fawad Razaqzada, market analyst with ThinkMarkets. There's an element of hesitation as people are just waiting to see what the Fed says before decisively stepping in on the long side."
The Fed's next meeting ends on April 28, and while no major policy changes are expected, investors are paying close attention to any comments on possible scaling back of monetary easing in the future.
"The upcoming rise in inflation in April-May 2021 will most likely keep gold prices supported in the near term," Fitch Solutions said in a note. However, prices will find strong resistance at the $1,850/oz level and will struggle to break above this level as inflation pressures will be temporary in our view."
Some of Wall Street's biggest names are predicting a pause in a rally that has taken the S&P 500 to fresh records this year, leaving investors trying to determine whether to lock in some of the breathtaking gains or stay the course.
Among the most recent has been Goldman Sachs, whose analysts on Wednesday said an expected second-quarter peak in U.S. growth could be tied to weaker stock returns. Morgan Stanley earlier this week warned stocks would soon face headwinds. Deutsche Bank this month called for a pullback of as much as 10% in the S&P 500 as growth decelerates, and BofA Global Research backed a year-end target for the index about 8% below current levels.
A comparatively long period without a serious drop in stocks has also made some investors uneasy. The S&P 500 has declined at least 5% every 177 calendar days, according to Sam Stovall, chief investment strategist at CFRA. The latest market advance has lasted 211 days without such a drop.
"I wouldn't be surprised to see some kind of pullback for no particular reason other than people start to think maybe this is a little bit ahead of itself," said Robert Pavlik, senior portfolio manager at Dakota Wealth.
CFTC Report
This week report mostly positive. Gold shows the next round of open interest rising and net long position has increased. But, at the same time, investors' performance is mixed as both side positions were increased. As a result - net long position mostly stands the same and changed just for 1.5 K contracts.
A three hub view of the global recovery – who is winning?
(By Fathom consulting)
The global recovery from the COVID-19 pandemic is well under way, with global GDP outperforming consensus forecasts in 2020 Q2 through to 2021 Q1. With several highly effective vaccines being deployed across a wide set of countries, the world is well on the path out of this crisis.
Fathom’s latest macroeconomic model, the Centrality Tracker, is built on the premise that there are three major economic hubs — the US, EU and China — and that economic outcomes for other countries (hereafter referred to as ‘spoke economies’) are largely determined by growth outcomes in these hubs.
The number of cases sharply fell in the US and Europe after the second wave of COVID-19 infections towards the end of 2020. Weekly new infections are elevated compared to other advanced economies, but have been relatively flat since March with an implied R value around 1. In comparison, China has been reporting close to zero new cases.
However, the US is ahead of the EU and China on vaccines administered. The US vaccination programme is on track to have offered at least an initial dose of a vaccine to the adult population by the end of Q2 2021, in line with stated objectives by the Biden administration. The European Union, by contrast, has borne the brunt of vaccine production shortfalls, and lags the US by about one quarter. China is currently behind, but its vaccination programme has picked up pace and has been administering an average of 4.5 million doses per day since 29 March. At this rate, China will have administered at least a single dose to its 1.4 billion population by the end of the year.
So, while the US and Europe have persistent new cases of infections, the US is more likely to avoid a third wave this year thanks to its faster rollout of vaccines. The EU vaccination programme is also more likely to be held back by high levels of vaccine hesitancy among its population. A recent YouGov poll suggests that only 45% of the French would be willing to take a vaccine, raising the prospect of a two-speed health recovery. China, with zero reported cases and a proven willingness to act swiftly to impose strict restrictions to contain signs of resurgence of the virus, appears in a good position, but remains at risk until a larger share of the population is vaccinated.
The US governments has also provided more fiscal support through the crisis than the other global hubs. The Fathom Macroeconomic Policy Indicator (FMPI) shows the impact of macro policy on the output gap, with a more positive value representing looser policy. Since the start of the crisis the US government’s fiscal responses have been amongst the most generous globally, particularly in cash handouts as opposed to loan guarantees. The chart above also excludes the US fiscal package introduced by President Biden earlier this year. Fiscal measures have boosted household and corporate incomes, which have barely fallen in aggregate and have even increased in some cases. As restrictions are removed, the household savings that have built up during lockdown are likely to be unleashed, boosting post-COVID aggregate demand. Fathom estimates that, in the first quarter of this year, the euro area was holding 2-3% of annual GDP as excess savings, with the US holding 6-8%.
Fathom’s forecast for GDP growth in each of the hubs is shown in the chart above. The recovery in the US, with the expected boost from fiscal support and the rapid rollout of vaccines, happens earlier than the EU. The EU is facing the impact of further and longer restrictions whilst the vaccine rollout stagnates. Using Fathom’s Centrality Tracker, ‘spoke’ countries with closer relationships with the US are boosted by spill-over effects earlier, with country groups closest to the EU getting a spill-over boost a quarter later.
China, meanwhile, has already recovered its lost output from the pandemic, and is expected to continue growing roughly in line with our pre-COVID expectations. China is set to benefit from external tailwinds from the US and EU, as well as favourable base effects which are sufficient for China to achieve its 6% GDP target for 2021 without additional sequential quarterly growth this year.
Despite that gold enjoys the positive mood right now, long term risks for the market has not disappeared. Inflation fears, expectations of faster action from the Fed and ECB (that we've discussed yesterday), widely confirmed global economy recovery that is not a question any more - all these moments put the shadow on long-term perspective of a gold market. Although investors agree that gold could climb to 1850$ or even higher, but the rally is viewed through the prism of interest rates dynamic. Besides, CFTC data is mixed. It shows activity, rising interest to the gold but dynamic is not straight forward and shows increasing of both positions, especially by hedgers. This points on retracement character of upward action, making it fragile in long-term.
Now this dynamic totally corresponds to our long-term economy cycle analysis, as US economy stands at the eve of the booming that should start soon by our opinion. Technically it stands in tight relation with DXY 87.40 long-term targets and probably will be strongly related to the end of downside retracement on the US interest rates. It seems that gold has few months when this reversal might begin.
Technicals
Monthly
April shows nice performance but context on monthly chart remains bearish due multiple factors - MACD trend stands bearish, price is below YPP and downside action shows acceleration on CD leg. Still, as price shows the first touch of strong support area - we're in tactical bounce environment. As we've said gold keeps ability of propriate reaction on meaningful technical conditions by far, such as strong K-areas on long-term charts. And in general we could pretend on stronger reaction from the level of such scale. Especially when fundamental background stands supportive to this action in short-term. On coming week market tries to break through YPP resistance around 1810$ area.
As we've said last week, although 10-year interest rates climb to 1.75% area - this is the first upside action after long-term downside tendency and technically, after first bounce we always get deep retracement because of existed bearish momentum. It seems that right it stands in progress and now investors talk about possible 1.5% level downside breakout that should support gold and help it to break above 1800$ resistance area toward 1850+.
At the same time, around 1655$ we have an OP target of monthly AB-CD pattern that has not been hit yet. With current tendency on the market it seems that it could be reached later, when major bearish trend on the gold market starts.
Weekly
Weekly picture barely has changed. It seems it is tough time ahead as gold will try to pass through K-area and YPP resistance.
MACD has turned bullish here and market is breaking out of tight flag consolidation. Now price stands nearest resistance level of 1784$. We have no overbought barriers by far. Here we could apply only classic way for target estimation based on broken flag - supposedly market could double its height and reach major 1828-1851$ resistance area. This should be major challenge for the gold, as it is also accompanied by overbought area.
Daily
Trend remains bullish by far, but gold was not able to break 1800$ area resistance and complete XOP target that we were waiting for. Before switching to 1850$ level, market has to resolve problem with 1800$ barrier as well.
Major technical points mostly remain the same. Ultimate vital level is 1723$ lows, but as gold shows bullish performance and it is widely suggested that market is moderately bullish - it is preferable to keep situation out of the edge and downside action stops around some support level above 1723 lows. For instance, it might be 1750$ support area. Whatever it will be - gold has to stay inside 1723$ swing:
Intraday
Although we were waiting that market hit 1805 target, including 4H OP target - this has not happened yet. Gold had not enough power and turned to deeper retracement, leaving targets untouched by far. Still as we've said above - it is preferable that price remains above support area and 1750 looks good for this purpose. As sell-off was relatively strong, it could continue on Monday to ab-cd XOP target around 1760$
On 1H chart it is possible even deeper downside action, if H&S pattern will be formed:
In the case of H&S - its downside target precisely coincides with 1950$ area. Thus, we intend to not hurry up with long entry on the gold market and wait for clarity on downside retracement target.
Gold enjoys by new fundamental environment as fears of sooner and faster inflation are stepped back, supported by stubborn Fed comments and dropping of US Dollar. Based on recent comments on the market and general price behavior of different assets, statistics - it seems that background should hold for some time and gold keeps chances to proceed higher in near term.
Market Overview
Gold prices steadied near a two-month high on Thursday, a whisker away from the key $1,800 threshold as the U.S. dollar faltered with easing Treasury yields
“Gold’s recent upward momentum has been driven by the fact that bonds are well bid and the USD is under pressure,” said Tai Wong, head of base and precious metals derivatives trading at BMO. Gold is likely to hold in the new range of $1,760-$1,810 until we get another clear market driver. We may need to wait for the FOMC (Federal Open Market Committee) and see if there’s a change in tone as well as how the next round of Treasury auctions go, but overall bonds feel in demand,” Wong said.
On a technical note, gold’s failure to break resistance at $1,785 may drive it back to a range of $1,744 to $1,758, Reuters technical analyst Wang Tao said.
"What's obviously underpinning the upswing (in gold) is the dynamic in U.S. Treasuries ... which is sort of pushing lower in the very short term," said IG Market analyst Kyle Rodda, adding that a drop below 1.5% in yields could help push gold above $1,800, a key psychological level.
Gold prices could easily move above $1,800 in the next couple of days because there is still a lot of uncertainty in the global markets, said Harshal Barot, a senior research consultant for South Asia at Metals Focus. "COVID-19 cases continue to be at record highs in a lot of countries and there is this whole revaluation about global
growth prospects that should help safe haven assets (like gold)."
Gold gained on Friday and was poised for a third straight weekly rise as a softer U.S. dollar, falling Treasury yields and a dip in equities after U.S. President Joe Biden's proposal to hike capital gains tax encouraged investors to flock towards bullion. Markets also are awaited a U.S. Federal Reserve policy meeting next week.
Precious metal funds faced their lowest outflow in 10 weeks, helped by lower bond yields and a sagging dollar.
"The focus is turning to the Fed as in recent times we have seen significant improvement in U.S. data. That's raising speculation that the Fed might signal its intention to reduce its emergency stimulus measures in the coming months," said Fawad Razaqzada, market analyst with ThinkMarkets. There's an element of hesitation as people are just waiting to see what the Fed says before decisively stepping in on the long side."
The Fed's next meeting ends on April 28, and while no major policy changes are expected, investors are paying close attention to any comments on possible scaling back of monetary easing in the future.
"The upcoming rise in inflation in April-May 2021 will most likely keep gold prices supported in the near term," Fitch Solutions said in a note. However, prices will find strong resistance at the $1,850/oz level and will struggle to break above this level as inflation pressures will be temporary in our view."
Some of Wall Street's biggest names are predicting a pause in a rally that has taken the S&P 500 to fresh records this year, leaving investors trying to determine whether to lock in some of the breathtaking gains or stay the course.
Among the most recent has been Goldman Sachs, whose analysts on Wednesday said an expected second-quarter peak in U.S. growth could be tied to weaker stock returns. Morgan Stanley earlier this week warned stocks would soon face headwinds. Deutsche Bank this month called for a pullback of as much as 10% in the S&P 500 as growth decelerates, and BofA Global Research backed a year-end target for the index about 8% below current levels.
A comparatively long period without a serious drop in stocks has also made some investors uneasy. The S&P 500 has declined at least 5% every 177 calendar days, according to Sam Stovall, chief investment strategist at CFRA. The latest market advance has lasted 211 days without such a drop.
"I wouldn't be surprised to see some kind of pullback for no particular reason other than people start to think maybe this is a little bit ahead of itself," said Robert Pavlik, senior portfolio manager at Dakota Wealth.
CFTC Report
This week report mostly positive. Gold shows the next round of open interest rising and net long position has increased. But, at the same time, investors' performance is mixed as both side positions were increased. As a result - net long position mostly stands the same and changed just for 1.5 K contracts.
A three hub view of the global recovery – who is winning?
(By Fathom consulting)
The global recovery from the COVID-19 pandemic is well under way, with global GDP outperforming consensus forecasts in 2020 Q2 through to 2021 Q1. With several highly effective vaccines being deployed across a wide set of countries, the world is well on the path out of this crisis.
Fathom’s latest macroeconomic model, the Centrality Tracker, is built on the premise that there are three major economic hubs — the US, EU and China — and that economic outcomes for other countries (hereafter referred to as ‘spoke economies’) are largely determined by growth outcomes in these hubs.
The number of cases sharply fell in the US and Europe after the second wave of COVID-19 infections towards the end of 2020. Weekly new infections are elevated compared to other advanced economies, but have been relatively flat since March with an implied R value around 1. In comparison, China has been reporting close to zero new cases.
However, the US is ahead of the EU and China on vaccines administered. The US vaccination programme is on track to have offered at least an initial dose of a vaccine to the adult population by the end of Q2 2021, in line with stated objectives by the Biden administration. The European Union, by contrast, has borne the brunt of vaccine production shortfalls, and lags the US by about one quarter. China is currently behind, but its vaccination programme has picked up pace and has been administering an average of 4.5 million doses per day since 29 March. At this rate, China will have administered at least a single dose to its 1.4 billion population by the end of the year.
So, while the US and Europe have persistent new cases of infections, the US is more likely to avoid a third wave this year thanks to its faster rollout of vaccines. The EU vaccination programme is also more likely to be held back by high levels of vaccine hesitancy among its population. A recent YouGov poll suggests that only 45% of the French would be willing to take a vaccine, raising the prospect of a two-speed health recovery. China, with zero reported cases and a proven willingness to act swiftly to impose strict restrictions to contain signs of resurgence of the virus, appears in a good position, but remains at risk until a larger share of the population is vaccinated.
The US governments has also provided more fiscal support through the crisis than the other global hubs. The Fathom Macroeconomic Policy Indicator (FMPI) shows the impact of macro policy on the output gap, with a more positive value representing looser policy. Since the start of the crisis the US government’s fiscal responses have been amongst the most generous globally, particularly in cash handouts as opposed to loan guarantees. The chart above also excludes the US fiscal package introduced by President Biden earlier this year. Fiscal measures have boosted household and corporate incomes, which have barely fallen in aggregate and have even increased in some cases. As restrictions are removed, the household savings that have built up during lockdown are likely to be unleashed, boosting post-COVID aggregate demand. Fathom estimates that, in the first quarter of this year, the euro area was holding 2-3% of annual GDP as excess savings, with the US holding 6-8%.
Fathom’s forecast for GDP growth in each of the hubs is shown in the chart above. The recovery in the US, with the expected boost from fiscal support and the rapid rollout of vaccines, happens earlier than the EU. The EU is facing the impact of further and longer restrictions whilst the vaccine rollout stagnates. Using Fathom’s Centrality Tracker, ‘spoke’ countries with closer relationships with the US are boosted by spill-over effects earlier, with country groups closest to the EU getting a spill-over boost a quarter later.
China, meanwhile, has already recovered its lost output from the pandemic, and is expected to continue growing roughly in line with our pre-COVID expectations. China is set to benefit from external tailwinds from the US and EU, as well as favourable base effects which are sufficient for China to achieve its 6% GDP target for 2021 without additional sequential quarterly growth this year.
Despite that gold enjoys the positive mood right now, long term risks for the market has not disappeared. Inflation fears, expectations of faster action from the Fed and ECB (that we've discussed yesterday), widely confirmed global economy recovery that is not a question any more - all these moments put the shadow on long-term perspective of a gold market. Although investors agree that gold could climb to 1850$ or even higher, but the rally is viewed through the prism of interest rates dynamic. Besides, CFTC data is mixed. It shows activity, rising interest to the gold but dynamic is not straight forward and shows increasing of both positions, especially by hedgers. This points on retracement character of upward action, making it fragile in long-term.
Now this dynamic totally corresponds to our long-term economy cycle analysis, as US economy stands at the eve of the booming that should start soon by our opinion. Technically it stands in tight relation with DXY 87.40 long-term targets and probably will be strongly related to the end of downside retracement on the US interest rates. It seems that gold has few months when this reversal might begin.
Technicals
Monthly
April shows nice performance but context on monthly chart remains bearish due multiple factors - MACD trend stands bearish, price is below YPP and downside action shows acceleration on CD leg. Still, as price shows the first touch of strong support area - we're in tactical bounce environment. As we've said gold keeps ability of propriate reaction on meaningful technical conditions by far, such as strong K-areas on long-term charts. And in general we could pretend on stronger reaction from the level of such scale. Especially when fundamental background stands supportive to this action in short-term. On coming week market tries to break through YPP resistance around 1810$ area.
As we've said last week, although 10-year interest rates climb to 1.75% area - this is the first upside action after long-term downside tendency and technically, after first bounce we always get deep retracement because of existed bearish momentum. It seems that right it stands in progress and now investors talk about possible 1.5% level downside breakout that should support gold and help it to break above 1800$ resistance area toward 1850+.
At the same time, around 1655$ we have an OP target of monthly AB-CD pattern that has not been hit yet. With current tendency on the market it seems that it could be reached later, when major bearish trend on the gold market starts.
Weekly
Weekly picture barely has changed. It seems it is tough time ahead as gold will try to pass through K-area and YPP resistance.
MACD has turned bullish here and market is breaking out of tight flag consolidation. Now price stands nearest resistance level of 1784$. We have no overbought barriers by far. Here we could apply only classic way for target estimation based on broken flag - supposedly market could double its height and reach major 1828-1851$ resistance area. This should be major challenge for the gold, as it is also accompanied by overbought area.
Daily
Trend remains bullish by far, but gold was not able to break 1800$ area resistance and complete XOP target that we were waiting for. Before switching to 1850$ level, market has to resolve problem with 1800$ barrier as well.
Major technical points mostly remain the same. Ultimate vital level is 1723$ lows, but as gold shows bullish performance and it is widely suggested that market is moderately bullish - it is preferable to keep situation out of the edge and downside action stops around some support level above 1723 lows. For instance, it might be 1750$ support area. Whatever it will be - gold has to stay inside 1723$ swing:
Intraday
Although we were waiting that market hit 1805 target, including 4H OP target - this has not happened yet. Gold had not enough power and turned to deeper retracement, leaving targets untouched by far. Still as we've said above - it is preferable that price remains above support area and 1750 looks good for this purpose. As sell-off was relatively strong, it could continue on Monday to ab-cd XOP target around 1760$
On 1H chart it is possible even deeper downside action, if H&S pattern will be formed:
In the case of H&S - its downside target precisely coincides with 1950$ area. Thus, we intend to not hurry up with long entry on the gold market and wait for clarity on downside retracement target.
