Gold GOLD PRO WEEKLY, August 17 - 21, 2020

Sive Morten

Special Consultant to the FPA
Messages
13,820
Fundamentals

This week gold has shown strong plunge, despite that major driving factors remain strong and supportive. Actually, they have not changed much. As low interest rates as money printing are the same. Pandemic situation remains difficult despite news on vaccine that is met with skepticism. Pullback in interest rates did make impact on gold but it was short-term and by the end of the week has exhausted. It means that mostly background for pullback is technical, at least by far. Indeed, there were a lot of talks about possible retracement on gold within recent weeks and technical factors also point on it.

This week guys, we dedicate more space in report to technical analysis as I've got great Gold view from our Elliot Wave expert, Stag. I know that you like all technical stuff and put this into report. Stag's view provides exceptional view on the same charts but at different angle and using different tools.

Gold rose above the $1,900 barrier on Wednesday as dire UK economic data renewed fears over a coronavirus-led slowdown and prompted a rebound in the metal after its steepest sell-off in over seven years in the previous session.

“It’s a little bit like a heavy rain after a good spell of hot weather,” said independent analyst Ross Norman. “Gold is bouncing back very strongly. Sentiment has not been damaged and by extension, you could argue that it’s created an opportunity for those who maybe missed the boat on the rally to get in again.”

Underscoring the economic damage caused by the pandemic, Britain’s economy shrank by a record 20.4% in the second quarter, the most severe contraction reported by any major economy so far.

“There could be some consolidation in the near term, but the fundamental drivers pushing the metal higher remain intact,” said FXTM analyst Lukman Otunuga. “Given U.S. (10-year) real yields have pulled back above minus 1% for the first time this month, this is dulling some of gold’s allure and encouraging (some) investors to offload bullion.”

Yesterday we've talked about rate changes in our FX report. Although it was significant pullback in the rates that have not seen for long time, the common opinion that this pullback doesn't contain any fundamental shifts as real interest rates have not changed and closer to the end of the week, rates gradually were returning back to previous levels. It means that we also should not overvalue the importance of this event and see something decisive as well. Not yet.

Gold fell on Friday, on track for its worst week since March, as an uptick in U.S. Treasury yields and a logjam over a U.S. stimulus bill to help the coronavirus-hit
economy dented the metal's allure.

"The gold market had been in a parabolic state, so when you throw a little pickup in yields along with the impasse on the stimulus bill, it was going to see a bit of a retracement," said David Meger, director of metals trading at High Ridge Futures. "We might have gone a little too far, too fast, and we believe the market is in need of a pause, a consolidation. And that's exactly what we are seeing."

Poor economic data from far and wide, including disappointing U.S. retail sales, also did not help safe-haven gold. The benchmark U.S. 10-year Treasury yield hovered near seven-week highs, while hopes for a fresh round of U.S. coronavirus relief faded as Congress went into recess.

"We're going to hit the all-time highs again on the likelihood of a substantial stimulus package and the possibility of chaos around the election is going to drive people into a flight to safety," said Jeffrey Sica, founder of Circle Squared Alternative Investments.

The dollar’s 5% plunge in five weeks has got gold bugs excited. Prices for the metal vaulted to a record above $2,000 per ounce before retreating as the greenback regained some poise.

Dollar weakness could run further — it remains strong across various trade-weighted indexes. But correlations between gold and the dollar, tenuous at best, have weakened under the impact of central bank stimulus, with 90-day correlations approaching cyclical lows.

Finally, rising inflation expectations boost hedges such as gold. Refinitiv data shows U.S., UK, German and Japanese 10-year real, inflation-adjusted yields in negative territory, a first for all of them simultaneously. So even if gold struggles above $2,000, gold bugs can probably rest assured a big selloff isn’t imminent.

1597576189362.png



CFTC Data

Last week we already said that first signs of rally's tiredness appears on the market, as net long position has dropped despite action above 2K area. This has led to daily 100$ plunge in the beginning of the week. Of course, there was some fundamental background as well. Nevertheless, highly saturated net long position has played its role as well, making drop faster and stronger. As you can see, this week has dropped for 14K contracts more and since the peak of the pandemic crisis net position is declining.

1597576506010.png

Source: cftc.gov
Charting by Investing.com


Table shows massive closing of longs and drop of open interest. Hedgers have closed shorts as well. This supports our view on retracement on the gold:

1597576668857.png


SPDR Fund, was showing great dynamic, totally supporting gold action, but this week it also shows tick down:
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Technical
Monthly


So, let's start most interesting thing in this report - long-term technical view on Gold. If you remember, last time, I've expressed some worryings that we might be in last upside effort that later could be replaced by new big collapse as Gold will increase the cycle. Recall this chart:
1597577293856.png


Here is our Elliot Wave expert, Stag's opinion on this subject:

Hi guys, Sive asked me to share my Elliott Wave Principle based view on Gold so let me show you how I see it.

The bottomline: The advance's internal structure off 1454 lows along with the Kennedy channels suggest at least one more new high is probable before a major corrective setback starts towards the sub 1700 area.

Monthly / Weekly

One probable interpretation is that a major top is in the making, possibly an Ending Diagonal. This pattern occurs primarily in the fifth wave position at times when the preceding move has gone too far too fast – and as you can see Gold meets this criteria.

Subwaves of an ED always subdivide into zigzags or double zigzags which are corrective patterns but they are building a terminal move in the direction of the ruling trend – up. The internal structure suggests that this terminal sequence is not complete yet – we can expect new highs this year and beyond.

1597577936108.png


Our monthly picture mostly stands the same as Gold starts to show reaction on reaching COP target. Turning back to our "normal" scale, it seems that we should not look too far from here. Yes, OP target is around 2.6K, but currently it makes no sense to discuss it. Currently gold already stands at "Big achievement", reaching the first all time COP at 2.1K area and historical Overbought level. Hardly this level will be ignored, especially when we already see some technical hints on exhausting of upside pace.

gold_m_17_08_20.png


Weekly

On weekly chart we see first reaction after reaching COP, and it seems that weekly chart now is our major time frame. As last week, we consider two major levels for long entry - first one around 1836 (which is also K-area on daily /weekly chart) and 1690-1737 K-support area. Roger also has pointed on this levels. Second level, currently is more potential rather than actual for coming week, as it stands below Oversold area. It seems that our trading range stands above 1836 on coming week.
Finally, here we have another target - 1.618 butterfly extension around 2160, which could become the next object point in case of price fluctuation around monthly COP:

gold_w_17_08_20.png


Take a look that Stag by EW approach also points support around 1700 area, where upside pullback is very probable - look at first yellow rectangle:
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Daily

Situation on gold now looks like nested doll - we have similar patterns and potential scenarios on different time frames. Here, on daily we already have B&B "Buy" in progress from first support area. Thus, first object to consider is completion of this trade. Next, we have 1825-1836 K-area that now stands below daily oversold, but potentially this could become an area where weekly B&B could start. As our other experts mostly suggest deeper retracement, here, with first trade we probably should be focused on minimal B&B target around 1980-1990 area.
gold_d_17_08_20.png



Continued in next post... (can't upload more than just 10 charts)
 

Sive Morten

Special Consultant to the FPA
Messages
13,820
...Stag suggests approximately the same price behavior. Here is his comments:

Zooming in on the decline from 2070 it does look impulse in nature so my working assumption is that this decline is just wave “A” of a still unfolding ABC pattern. That would likely be the case if this ABC decline will complete near to 1860 (upper yellow zone) touching it two times - keep an eye on whether prices breach this zone or not. At time of writing we can use 1860 area as working support for higher.

As long as 1860 area stays intact against a complete ABC pullback, I will keep the focus on higher to complete five waves above the previous top.

1597581102702.png


So, Stag suggests that as our daily B&B trade, we could get even more extended target than our minimal one.

Intraday


Here we still consider AB-CD target that should finalize our B&B trade. OP creates Agreement with major 5/8 Fib resistance level around 1993. In general, we consider 1978-1993 area as B&B target.
gold_4h_17_08_20.png


Finally, on 1H chart Friday's pullback looks very gradual that doesn't suggest reversal and mostly shows retracement features. Let's see whether upside continuation follows on Monday or not. Alternatively, if Stag is right, we could get drop back to the lows before completion of B&B... In this case we will be out at breakeven and will have to consider new attempt to enter.
gold_1h_17_08_20.png


Conclusion:
Long-term fundamental factors mostly stand intact, and if even we have got some relief of pressure - it is a little bit. Technical factors that suggest pullback, exist indeed and we mostly focused on them.

Stag concludes that the advance's internal structure off 1454 lows along with the Kennedy channels suggest at least one more new high is probable before a major corrective setback starts towards the sub 1700 area.
At the same time, he sheds some light on
longer-term multiple potential scenarios.
 

Sive Morten

Special Consultant to the FPA
Messages
13,820
Greetings everybody,

So, our minimum target of B&B is done now and price is creeping higher still. Personally I've got fill at open (as I trade futures and they have the break in trading times) and my trade here is over. You could manage this trade by your own view. A few hints we discuss below. On daily chart, price is not at overbought, major 5/8 Fib level is broken so, while markets wait for Fed minutes tomorrow, gold could creep a bit higher:
gold_d_18_08_20.png


Here is 4H you could see few targets. Our OP is passed already. Based on the same AB-CD we have XOP around 2047 and also we have AB=CD of larger scale with OP around 2030. Thus, if you still keep longs - just manage stops and you could focus on these targets.
gold_4h_18_08_20.png
 

Sive Morten

Special Consultant to the FPA
Messages
13,820
Greetings everybody,

Well, gold has tried to move slightly higher but wasn't able to reach 2030 target. Still, it doesn't mean that it is capitulated already...
On daily chart, indeed, currently is not good position for taking new longs. Our view, Stag's EW view suggest deeper retracement in nearest time. In our weekly reports every time we talk about changing sentiment by CFTC reports. But, today, in very short-term perspective, some upside spikes is still possible. On daily chart, in turn, we probably should consider some AB-CD pattern down, at least theoretically by far:
gold_d_19_08_20.png


On 4H chart, I think that we should not be too hasty with short position. Right down we have 1957 K-support area and short-term trend line. On Fed minutes release we could get volatility spike and gold could try to hit 2030 OP target still. So, do not hurry to sell, at least till Fed minutes release. Also, it would be preferable if gold breaks K-support area to take short-position.
EUR also has not reached yet 1.20, and there we also wait for some spike. So, be patient, let's see what will happen today.
gold_4h_19_08_20.png
 

Sive Morten

Special Consultant to the FPA
Messages
13,820
Greetings everybody,

So, Fed minutes has brought nothing new and gold was tending in the same previous trend, i.e. down. On daily chart this price action fits perfect to our weekly analysis as we've said that sentiment is changing and Gold indeed is ready for some pullback. Stag's EW view also suggests return back to lows, before any other type of action happens.

Thus, on daily chart we do nothing, watch what will happen around our first K-support area and potentially keep an eye on next K-area. On daily /weekly chart all that we want is to take long position at good level.
gold_d_20_08_20.png


While intraday we could consider different setups as well. Thus, on daily we have COP target around 1883. As Sell-off was rather strong, this target could be reached till the end of the week. Market right now stands at 5/8 support area, so some bounce up is possible:
gold_4h_20_08_20.png


This, in turn could result in appearing of "222" Sell pattern, if gold re-tests previously broken support, that we've talked about yesterday. That potentially should be good short-term setup:
In this case target appears approximately around daily COP as well. So, let's keep watching...
gold_1h_20_08_20.png
 

Sive Morten

Special Consultant to the FPA
Messages
13,820
Greetings everybody,

Yesterday Gold has shown minor upside retracement from intraday 5/8 support level, which is very good for our scenario of retracement. On daily chart we could consider COP around 1884 as it stands above daily OS level. Maybe market hits it today, who knows:
gold_d_21_08_20.png


On 4H chart we intentionally keep broken K-support area as we've mentioned it yesterday as potential upside target of retracement.
gold_4h_21_08_20.png


As a result Pullback has become even flatter as price barely has reached K-area, forming flat "222" Sell pattern, that mostly looks like just flag consolidation. Trend line even has not been re-tested.
gold_1h_21_08_20.png


Now let's keep watching for the progress. Hopefully market hits COP... For those who have taken shorts yesterday - think about stop moving to breakeven.
 
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