Sive Morten
Special Consultant to the FPA
- Messages
- 18,655
Fundamentals
This week gold stands in focus as safe haven assets because of growing political turbulence. Global situation is becoming noisy due all this stuff around tariffs. Its becoming wider and gaining momentum. Especially it regards Turkey and China while EU is frightened that sooner rather than later it will impact them as well. These processes make an impact on pure financial factors - dollar liquidity, EU banking sector and funds flows.
As Reuters reports - Gold prices gave up earlier gains on Friday, with the crisis engulfing Turkey’s lira boosting demand for bullion as a safe investment while at the same time bolstering the U.S. dollar, making gold more expensive for buyers with other currencies.
Investors rushed to the safety of the greenback as the lira collapsed as much as 23 percent to a record low, Russia’s rouble crumbled to its lowest in more than two years and the euro and pound touched their weakest levels in a year.
With the turmoil in Turkey spreading to other markets, gold - traditionally used as a safe investment in times of uncertainty - also saw some extra interest, Saxo Bank analyst Ole Hansen said.
“There is a battle going on between the strengthening dollar and some safe-haven demand emerging from the contagion risk following the collapse of the lira.”
But what is really important here, guys, is a grade of reaction. Gold shows weak reaction, while it seems that it should stand among major beneficiaries. Since major fundamental background stands not in favor of gold market, we think that current reaction is temporal issue, and when speculators will stop shaking boat, gold will turn back to its major trend, which stands down right now.
Meantime, this reaction amazingly coincides with our technical view, when we've talked about upside bounce within previous two weeks...
Other traders also treat weak gold reaction as low demand for metal:
“The price action is telling us that people don’t want to buy gold now. It’s in a downtrend, so that’s adding more weight to push it down further,” said Michael Matousek, head trader at U.S. Global Investors.
“You need to see it above $1,260, before you see that trend turn around,” close to the $1,265.87 per ounce July high.
Expectations that the U.S. Federal Reserve will raise interest rates next month bolstered the dollar and U.S. bond yields and damaged the appeal of non-yielding gold.
Momentum indicators suggest prices will fall further, analysts at ScotiaMocatta said, with support at gold’s July 2017 low of $1,204.90.
In our previous report we already mentioned that Gold ETF are loosing stores across the board and expect further drop. Thus largest gold funds has lost another 8 tonnes with this week:
Demand for bonds of investment grade (above BBB-) as government as corporate is growing:
This makes us think that recent gold action is mostly emotional reaction on ongoing process rather than shift in investors' priorities. Major fundamental picture has not changed and it tells about strong dollar perspectives. Thus, downtrend probably will continue sooner rather than later.
COT report shows big jump in speculative net short position just with one week, open interest also has jumped significantly. It means that investors are taking new shorts and this will be additional negative factor for recent rally, because people will use any rally to sell into:
That's being said, sentiment on gold still stands bearish, but it takes just pause due recent tariffs turmoil.
Technical
Monthly
This week has become inside one and shows no effect on monthly chart as August range stands the same. Major conclusions that we've made earlier are still valid.
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.
Long-term trend line has been broken in July and 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. Market stands very close to it right now, thus for monthly chart this is minor distance and price will gravitate to it. The only question we have right now - whether we will get respect of our 1215 weekly area, or gold will proceed to 1180 immediately.
Weekly
Here is also, as we've mentioned already - we have inside week. Perspective here looks thrilling, so our major setup stands the same. Market has hit large COP target, major 5/8 Fib level and MPS1. Common sense and normal price behavior suggests at least minor response to support. On weekly chart this could be 1250-1270 retracement. But weekly is rather long-term time frame, so setup here is changing slowly.
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.
As last week as 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. Since gold shows insipid action on loud events, when all financial markets are boiling - it brings more confidence to this view.
Daily
This week, guys we have unique situation, when even daily chart shows minimum changes compares to previous week. Gold action was so tight, as it barely impacts on daily chart.
Taking in consideration this behavior we have to acknowledge one thing - this is not normal action for market, when it stands in bullish reversal stage. It's too slow, too heavy and too tight, despite recent shake events.
This makes us to keep recent view untouched - another leg down has great chances to happen.
As last week as now we could act in two ways. Conservative approach suggests upside breakout of the channel, and then attempt to take position on retracement.
While patterns-based scenario suggests watching for clear patterns been formed and use them for position taking. Now we're watching for butterfly and reverse H&S.
We still have valid bearish grabbers on daily chart and they suggest drop below 1205. Flat standing could be treated as bearish dynamic pressure as well, because trend has turned bullish but price action is not.
Finally - gold was not able to complete upside harmonic retracement from major weekly support. Usually it completes with 5 sessions.
Intraday
We keep the same scenario on intraday charts - reversed H&S and butterfly "Buy" but need to adjust the level, where upside action could start. Now this is 1.618 extension and 1195 area. All other things stand the same.
4H time frame also shows bearish dynamic pressure, reaction on 1.27 butterfly target is weak. Besides, on Friday we have bearish grabber that suggests downside breakout of triangle.
But, long-term bullish setup gradually is forming - bullish MACD divergence is ripen.
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 poor reaction on Friday's events give us more confidence to expect drop to 1196 area in the beginning of the week.
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.
This week gold stands in focus as safe haven assets because of growing political turbulence. Global situation is becoming noisy due all this stuff around tariffs. Its becoming wider and gaining momentum. Especially it regards Turkey and China while EU is frightened that sooner rather than later it will impact them as well. These processes make an impact on pure financial factors - dollar liquidity, EU banking sector and funds flows.
As Reuters reports - Gold prices gave up earlier gains on Friday, with the crisis engulfing Turkey’s lira boosting demand for bullion as a safe investment while at the same time bolstering the U.S. dollar, making gold more expensive for buyers with other currencies.
Investors rushed to the safety of the greenback as the lira collapsed as much as 23 percent to a record low, Russia’s rouble crumbled to its lowest in more than two years and the euro and pound touched their weakest levels in a year.
With the turmoil in Turkey spreading to other markets, gold - traditionally used as a safe investment in times of uncertainty - also saw some extra interest, Saxo Bank analyst Ole Hansen said.
“There is a battle going on between the strengthening dollar and some safe-haven demand emerging from the contagion risk following the collapse of the lira.”
But what is really important here, guys, is a grade of reaction. Gold shows weak reaction, while it seems that it should stand among major beneficiaries. Since major fundamental background stands not in favor of gold market, we think that current reaction is temporal issue, and when speculators will stop shaking boat, gold will turn back to its major trend, which stands down right now.
Meantime, this reaction amazingly coincides with our technical view, when we've talked about upside bounce within previous two weeks...
Other traders also treat weak gold reaction as low demand for metal:
“The price action is telling us that people don’t want to buy gold now. It’s in a downtrend, so that’s adding more weight to push it down further,” said Michael Matousek, head trader at U.S. Global Investors.
“You need to see it above $1,260, before you see that trend turn around,” close to the $1,265.87 per ounce July high.
Expectations that the U.S. Federal Reserve will raise interest rates next month bolstered the dollar and U.S. bond yields and damaged the appeal of non-yielding gold.
Momentum indicators suggest prices will fall further, analysts at ScotiaMocatta said, with support at gold’s July 2017 low of $1,204.90.
In our previous report we already mentioned that Gold ETF are loosing stores across the board and expect further drop. Thus largest gold funds has lost another 8 tonnes with this week:
Demand for bonds of investment grade (above BBB-) as government as corporate is growing:
This makes us think that recent gold action is mostly emotional reaction on ongoing process rather than shift in investors' priorities. Major fundamental picture has not changed and it tells about strong dollar perspectives. Thus, downtrend probably will continue sooner rather than later.
COT report shows big jump in speculative net short position just with one week, open interest also has jumped significantly. It means that investors are taking new shorts and this will be additional negative factor for recent rally, because people will use any rally to sell into:
That's being said, sentiment on gold still stands bearish, but it takes just pause due recent tariffs turmoil.
Technical
Monthly
This week has become inside one and shows no effect on monthly chart as August range stands the same. Major conclusions that we've made earlier are still valid.
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.
Long-term trend line has been broken in July and 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. Market stands very close to it right now, thus for monthly chart this is minor distance and price will gravitate to it. The only question we have right now - whether we will get respect of our 1215 weekly area, or gold will proceed to 1180 immediately.
Weekly
Here is also, as we've mentioned already - we have inside week. Perspective here looks thrilling, so our major setup stands the same. Market has hit large COP target, major 5/8 Fib level and MPS1. Common sense and normal price behavior suggests at least minor response to support. On weekly chart this could be 1250-1270 retracement. But weekly is rather long-term time frame, so setup here is changing slowly.
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.
As last week as 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. Since gold shows insipid action on loud events, when all financial markets are boiling - it brings more confidence to this view.
Daily
This week, guys we have unique situation, when even daily chart shows minimum changes compares to previous week. Gold action was so tight, as it barely impacts on daily chart.
Taking in consideration this behavior we have to acknowledge one thing - this is not normal action for market, when it stands in bullish reversal stage. It's too slow, too heavy and too tight, despite recent shake events.
This makes us to keep recent view untouched - another leg down has great chances to happen.
As last week as now we could act in two ways. Conservative approach suggests upside breakout of the channel, and then attempt to take position on retracement.
While patterns-based scenario suggests watching for clear patterns been formed and use them for position taking. Now we're watching for butterfly and reverse H&S.
We still have valid bearish grabbers on daily chart and they suggest drop below 1205. Flat standing could be treated as bearish dynamic pressure as well, because trend has turned bullish but price action is not.
Finally - gold was not able to complete upside harmonic retracement from major weekly support. Usually it completes with 5 sessions.
Intraday
We keep the same scenario on intraday charts - reversed H&S and butterfly "Buy" but need to adjust the level, where upside action could start. Now this is 1.618 extension and 1195 area. All other things stand the same.
4H time frame also shows bearish dynamic pressure, reaction on 1.27 butterfly target is weak. Besides, on Friday we have bearish grabber that suggests downside breakout of triangle.
But, long-term bullish setup gradually is forming - bullish MACD divergence is ripen.
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 poor reaction on Friday's events give us more confidence to expect drop to 1196 area in the beginning of the week.
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.
