Sive Morten
Special Consultant to the FPA
- Messages
- 18,523
Fundamentals
Despite gold has rallied a bit on Friday, overall conditions still stands depressed. Investors continue close long position. In previous report we've shown some statistics of ETF, dealing with physical gold. Mostly all of them contract gold positions.
Largest gold SPDR fund also is losing equity. It storage drops for another 4 tonnes this week and stands in long-term nose dive for 3-4 months already
Mostly investors support the same view - upside bounce is temporal:
"I think the move up is temporary here. It was the miss in the jobs number and tells you that the jobs market may not be on easy street. It may be having a bump in the road right now," said Phillip Streible, senior market strategist at RJO Futures.
Despite NFP numbers were a bit worse than expected, still it shows 157 K which is above average of 120K that points on growing labour market. Besides, last month it was record high of NFP numbers. Since US employment stands in extension mode almost 2 years, labour market is saturated and decreasing of NFP numbers doesn't tell about weakness. It tells about high density.
As Reuters reports spot gold, which was on track to close the week down 0.3 percent, its seventh weekly decline in the past eight, may fall toward the next support at $1,194, as it has resumed its downtrend from $1,309.30, according to Reuters technical analyst Wang Tao.
"Gold is getting cheap and positioning wise; that should be a reason for bottoming out. The shorts are relatively big," said Georgette Boele, commodity strategist at ABN AMRO in Amsterdam, adding that speculators will probably want to test the $1,200 level.
Recall that this stands very close to our long term 1180 target, which is also YPS1.
Weighing on the market was a report by the World Gold Council showing that global demand fell 6 percent in the first half of the year to the lowest for the period since 2009.
"As long as the dollar remains strong – we believe another couple of months – demand should stay soft and prices should trade rather range-bound," Julius Baer analyst Carsten Menke said in a note.
Recent CFTC data shows that net speculative position has turned negative, but mostly it has happened due long covering, as open interest has decreased. Anyway massive closing of long positions brings nothing good to bulls and keeps bearish sentiment intact:
Technical
Monthly
Technical picture on gold market now is one among most attractive for trading as gold forms a lot of clear patterns and setups. Monthly analysis mostly stands the same as slowly but stubbornly gold market moves lower and result of this move could be seen even on monthly chart. The crucial, decisive bearish moment happens not now, it has happened at the end of 2017.
Although July candle is not finished yet, but market shows downside breakout of major monthly trend line. As we've said last time - "If this line will be broken - gold could start dropping with acceleration."
Fundamental irrational behavior which we've disclosed earlier now starts to show continuation. Recall our conclusion that we've made since the beginning of the year. That was decisive moment that we've mentioned:
"most important moment for long-term gold right now is ability to move higher. 1327 level is long-term COP target of AB-CD started at 1046$, in July 2015. First it was reached in July 2017. After logical minor bounce price returns back to it. But right now it should be an action higher, to next 1450 target, which is OP of the same AB-CD.
If gold will not be able to do it - strong drop is possible, because price will fail to proceed next extension leg, showing inability and lack of strength to do it. This could break whole AB-CD construction. Besides, this standing below "B" point also keep door open for downside butterfly. As longer gold will stand under resistance as weaker it position will be."
Now take a look at price action that we have. Market has failed to break 1360 top, which means that it has failed to proceed to OP target. Which, in turn, means breaking of CD leg. This process has not finished yet, but signs that we see right now makes us worry.
Besides, we have W&R of 1360 COP top, which also has bearish sentiment.
Our hopes to get bulilsh grabber on May were vanished as price has closed below MACDP line. Trend now stands bearish here.
That's being said, on long-term chart gold looks heavy and weak and overall picture is not attractive for taking long-term bullish position. Next target here stands at 1180 of YPS1. As we've mentioned above - now investors on the market carefully start to talk about this level as well.
Weekly
This week gold clearly has touched COP target and MPS1. Weekly is rather long-term time frame, so setup here is changing slowly. Most valuable detail here is strong weekly support and Agreement by DiNapoli framework, as COP target coincides with major 5/8 Fib support. Thus, common sense and normal price behavior suggests at least minor response to support. On weekly chart this could be 1250-1270 retracement.
Second issue is a thrust down from 1365 top. Theoretically it is suitable for DiNapoli directional pattern either DRPO or B&B "Sell". B&B could be formed if market will reach 1270 major 3/8 K-resistance of the thrust.
Right now we're watching for clear pattern that will start upside reversal on daily. We already have got butterfly "Buy" but we have some concern on its perspectives. It is not excluded that another minor leg down could happen before major upside action will start. Actually, we expect the same action as on EUR as on Dollar Index.
Daily
Most interesting setup we have on daily. Mostly it relates to pattern that could be formed and trigger upside retracement and here we will discuss them.
In general, it is not necessary to rely on patterns only. Dealing with patterns lets trader to take position earlier and probably with tighter stop, because invalidation point of the pattern is well-known. Still, it is possible to wait when pattern will start to work, market will show clear bullish action, say, upside reversal swing and take position on some retracement after this will happen.
For instance, here, we could wait upside breakout of the channel, and then try to take position on retracement.
Speaking on patterns scenario, since we have clear butterfly on 4H there are two major continuation for that - H&S and 3-Drive "Buy". These pattern are mutually excluding and 3-Drive starts to work when H&S fails. We do not take in consideration immediate straight up action, just because gold stands in strong downside trend and such drastic sentiment shift is hardly possible.
Finally, market has formed another bearish grabber on daily chart, which doesn't correspond to H&S pattern and mostly supports our Friday's idea - that gold could make final dive before it will be over. Still it was good decision to take profit at 1205.
Intraday
Here is fruit is ripening, as we already have bullish divergence with MACD at major support area. This is our first scenario - possible H&S pattern. Following its logic market should continue upside action to neckline around 1235 and then form right arm around 1216. This should be the moment for long entry.
If market will fail to turn up around 1216 - 3-Drive "Buy" pattern could be formed. In this case we have to wait for 1194 area.
Alternatively, as we have bearish grabber on daily, gold could start dropping immediately. In this case, level that we will watch for is the same - 1194. This will be 1.618 butterfly extension.
That's being said, safest way to go long is around 1194 lows, just because this is invalidation point of bullish setup and it provides tightest stop, so risk/reward is minimum.
If market still will start upward action somewhere around - there are two ways to act. First is - wait for our H&S setup and 1216 bottom of right arm. Second - try to take position right on the head, this scenario is most risky. So, if you still would like to follow it - it is better to get some pattern, for example "222" Buy.
While market stands above 1194 lows - bullish setup will be valid, so, 1194 is invalidation point.
Conclusion
If no geopolitical surprises or natural disaster will happen - gold will remain under pressure in foreseeable future. Currently is very difficult to see some fundamental factor that could support gold.
In short-term perspective we expect to see upside bounce as gold stands at major weekly support.
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.
Despite gold has rallied a bit on Friday, overall conditions still stands depressed. Investors continue close long position. In previous report we've shown some statistics of ETF, dealing with physical gold. Mostly all of them contract gold positions.
Largest gold SPDR fund also is losing equity. It storage drops for another 4 tonnes this week and stands in long-term nose dive for 3-4 months already
Mostly investors support the same view - upside bounce is temporal:
"I think the move up is temporary here. It was the miss in the jobs number and tells you that the jobs market may not be on easy street. It may be having a bump in the road right now," said Phillip Streible, senior market strategist at RJO Futures.
Despite NFP numbers were a bit worse than expected, still it shows 157 K which is above average of 120K that points on growing labour market. Besides, last month it was record high of NFP numbers. Since US employment stands in extension mode almost 2 years, labour market is saturated and decreasing of NFP numbers doesn't tell about weakness. It tells about high density.
As Reuters reports spot gold, which was on track to close the week down 0.3 percent, its seventh weekly decline in the past eight, may fall toward the next support at $1,194, as it has resumed its downtrend from $1,309.30, according to Reuters technical analyst Wang Tao.
"Gold is getting cheap and positioning wise; that should be a reason for bottoming out. The shorts are relatively big," said Georgette Boele, commodity strategist at ABN AMRO in Amsterdam, adding that speculators will probably want to test the $1,200 level.
Recall that this stands very close to our long term 1180 target, which is also YPS1.
Weighing on the market was a report by the World Gold Council showing that global demand fell 6 percent in the first half of the year to the lowest for the period since 2009.
"As long as the dollar remains strong – we believe another couple of months – demand should stay soft and prices should trade rather range-bound," Julius Baer analyst Carsten Menke said in a note.
Recent CFTC data shows that net speculative position has turned negative, but mostly it has happened due long covering, as open interest has decreased. Anyway massive closing of long positions brings nothing good to bulls and keeps bearish sentiment intact:
Technical
Monthly
Technical picture on gold market now is one among most attractive for trading as gold forms a lot of clear patterns and setups. Monthly analysis mostly stands the same as slowly but stubbornly gold market moves lower and result of this move could be seen even on monthly chart. The crucial, decisive bearish moment happens not now, it has happened at the end of 2017.
Although July candle is not finished yet, but market shows downside breakout of major monthly trend line. As we've said last time - "If this line will be broken - gold could start dropping with acceleration."
Fundamental irrational behavior which we've disclosed earlier now starts to show continuation. Recall our conclusion that we've made since the beginning of the year. That was decisive moment that we've mentioned:
"most important moment for long-term gold right now is ability to move higher. 1327 level is long-term COP target of AB-CD started at 1046$, in July 2015. First it was reached in July 2017. After logical minor bounce price returns back to it. But right now it should be an action higher, to next 1450 target, which is OP of the same AB-CD.
If gold will not be able to do it - strong drop is possible, because price will fail to proceed next extension leg, showing inability and lack of strength to do it. This could break whole AB-CD construction. Besides, this standing below "B" point also keep door open for downside butterfly. As longer gold will stand under resistance as weaker it position will be."
Now take a look at price action that we have. Market has failed to break 1360 top, which means that it has failed to proceed to OP target. Which, in turn, means breaking of CD leg. This process has not finished yet, but signs that we see right now makes us worry.
Besides, we have W&R of 1360 COP top, which also has bearish sentiment.
Our hopes to get bulilsh grabber on May were vanished as price has closed below MACDP line. Trend now stands bearish here.
That's being said, on long-term chart gold looks heavy and weak and overall picture is not attractive for taking long-term bullish position. Next target here stands at 1180 of YPS1. As we've mentioned above - now investors on the market carefully start to talk about this level as well.
Weekly
This week gold clearly has touched COP target and MPS1. Weekly is rather long-term time frame, so setup here is changing slowly. Most valuable detail here is strong weekly support and Agreement by DiNapoli framework, as COP target coincides with major 5/8 Fib support. Thus, common sense and normal price behavior suggests at least minor response to support. On weekly chart this could be 1250-1270 retracement.
Second issue is a thrust down from 1365 top. Theoretically it is suitable for DiNapoli directional pattern either DRPO or B&B "Sell". B&B could be formed if market will reach 1270 major 3/8 K-resistance of the thrust.
Right now we're watching for clear pattern that will start upside reversal on daily. We already have got butterfly "Buy" but we have some concern on its perspectives. It is not excluded that another minor leg down could happen before major upside action will start. Actually, we expect the same action as on EUR as on Dollar Index.
Daily
Most interesting setup we have on daily. Mostly it relates to pattern that could be formed and trigger upside retracement and here we will discuss them.
In general, it is not necessary to rely on patterns only. Dealing with patterns lets trader to take position earlier and probably with tighter stop, because invalidation point of the pattern is well-known. Still, it is possible to wait when pattern will start to work, market will show clear bullish action, say, upside reversal swing and take position on some retracement after this will happen.
For instance, here, we could wait upside breakout of the channel, and then try to take position on retracement.
Speaking on patterns scenario, since we have clear butterfly on 4H there are two major continuation for that - H&S and 3-Drive "Buy". These pattern are mutually excluding and 3-Drive starts to work when H&S fails. We do not take in consideration immediate straight up action, just because gold stands in strong downside trend and such drastic sentiment shift is hardly possible.
Finally, market has formed another bearish grabber on daily chart, which doesn't correspond to H&S pattern and mostly supports our Friday's idea - that gold could make final dive before it will be over. Still it was good decision to take profit at 1205.
Intraday
Here is fruit is ripening, as we already have bullish divergence with MACD at major support area. This is our first scenario - possible H&S pattern. Following its logic market should continue upside action to neckline around 1235 and then form right arm around 1216. This should be the moment for long entry.
If market will fail to turn up around 1216 - 3-Drive "Buy" pattern could be formed. In this case we have to wait for 1194 area.
Alternatively, as we have bearish grabber on daily, gold could start dropping immediately. In this case, level that we will watch for is the same - 1194. This will be 1.618 butterfly extension.
That's being said, safest way to go long is around 1194 lows, just because this is invalidation point of bullish setup and it provides tightest stop, so risk/reward is minimum.
If market still will start upward action somewhere around - there are two ways to act. First is - wait for our H&S setup and 1216 bottom of right arm. Second - try to take position right on the head, this scenario is most risky. So, if you still would like to follow it - it is better to get some pattern, for example "222" Buy.
While market stands above 1194 lows - bullish setup will be valid, so, 1194 is invalidation point.
Conclusion
If no geopolitical surprises or natural disaster will happen - gold will remain under pressure in foreseeable future. Currently is very difficult to see some fundamental factor that could support gold.
In short-term perspective we expect to see upside bounce as gold stands at major weekly support.
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.