Sive Morten
Special Consultant to the FPA
- Messages
- 18,564
Fundamentals
Fundamental background barely has changed for gold last week. Mostly it remains negative, despite recent relief. As Reuters reports - Gold recovered some ground on Friday as a weakening U.S. dollar relieved pressure on prices, but the precious metal remained near 19-month lows and looked poised for its biggest weekly drop since May 2017.
As we've mentioned in our FX research for this week - current pause in dollar appreciation is mostly technical, and stands due over-extension of US dollar, so markets right now are mostly oversold, while dollar is overbought:
“The markets are very oversold and the dollar is overbought,” said John Caruso of RJO Futures. “It looks like some of the shorts are trying to book some profits.”
From a 13-month high on Wednesday against a basket of six major currencies, the dollar has weakened against the currencies of key gold markets, the euro zone and China, helping gold regain its footing, said ABN AMRO analyst Georgette Boele.
“I expect the dollar to peak in the coming weeks ... Gold should bottom out here,” she said.
Investors seeking a safe place to store assets amid trade disputes and a Turkish currency crisis have preferred the dollar to gold, undermining the reputation of bullion as a safe haven.
But news of planned U.S.-China trade talks and a partial recovery of Turkey’s lira have steadied investors’ nerves slightly.
Bets on lower prices on the Comex exchange continue to build and now outweigh bets on higher prices by the largest quantity ever recorded.
Although there is an opinion that pressure from speculators may ease, fundamental background doesn't show any supportive signs to this idea. The problem is gold hasn't have net bearish position within last decade and it has no definitely known lows that could be used as ultimate level. That's why we have yet to see what bottom will be hit. This gives additional risk on position holding. The one thing that still could be used is a gold mining breakeven price, which now stands around 800-900$ per Oz on average. As we've explained in our technical analysis - it will depend on 1100 lows. If gold will break it - levels below 1000$ will become a reality and 800 is one of them.
In technicals, Fibonacci resistance was at $1,185.30 with support at the January 2017 low of $1,146.20, analysts at ScotiaMocatta said, adding that gold would likely fall further.
COT Report
Recent CFTC data shows precisely what we've said - net short position is growing 3rd week in a row and is backed by growing open interest as well. Thus, statement above that "everybody is short already" hardly is true. Besides, largest gold ETF - SPDR fund has lost another 10 tonnes of its stores just for one week. This is above average speed of wash out of stores.
Here is the data - take a look at strong increase of speculators ( non-commercial) short-positions for 21K contracts and growing of open interest for 56K. Hedgers (commercial) also have increased longs for the same amount, which is typical action for bearish trend.
Technical
Monthly
Market stands in upside retracement right now that's why monthly/weekly time frames barely have changed.
Previously we already explain major points of our view on gold market and explained why we worry on acceleration of bearish performance here.
Slowly but stubbornly gold market moves lower and result of this move could be seen even on monthly chart. The crucial, decisive bearish moment happens not now, it has happened at the end of 2017.
Long-term trend line has been broken in July and as we've said last time - "If this line will be broken - gold could start dropping with acceleration."
Fundamental irrational behavior which we've disclosed earlier now starts to show continuation. Recall our conclusion that we've made since the beginning of the year. That was decisive moment that we've mentioned:
"most important moment for long-term gold right now is ability to move higher. 1327 level is long-term COP target of AB-CD started at 1046$, 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. The fact that gold disrespect 1215 major support and Agreement area, but proceeds directly to YPS1 - just proves the weakness. YPS1 is quite important for any market. Breaking of this level will let us to treat gold action as new bear trend, and previous upside action to 1380 as just a retracement. Next target here, on monthly is 1120 lows, but first is - reaction of the market on YPS1:
Weekly
Weekly time frame is the one that gives us the vision for few weeks. In a longer-term view we still have large AB=CD pattern with OP around 1113 area. Sooner or later but probably it should be reached. Just because gold has dropped easily through 1215 major support and has not stopped at 1180 YPS1 but collapsed right to 1160. So, now price action stands between COP and OP target. Usually in such placement, price gravitates to OP, because in fact, it has no strong support lower, its a free space. And the only thing that keeps gold from disaster is Oversold condition, which important for us in short-term view.
Oversold suggests upside bounce at least to 3/8 resistance area - 1238$. It looks far on weekly chart, but in reality, this is just 30% and common response to reaching of OS. Since our major direction is down - we're mostly looking for chances to go short here, and upside bounce to Fib level could give us B&B "Sell". That's particular the pattern that we will be watching for here:
Daily
As on EUR as here - we do not have something special yet, as gold just has turned up. A few additional details though. First, is 1238 is previous lows also, which provides natural resistance as well. Market is not at overbought and easily could proceed upside action. First more or less valuable resistance here is 1217 area:
Intraday
So, our Friday suggestion on upside continuation was correct, guys. Thus, we can't classify 4H setup as B&B "Sell" one, just because it doesn't match to DiNapoli conditions. Still bearish momentum trade setup sooner or later should be formed, because it was outstanding collapse on gold market. But, probably chance for scalp short trade will appear a bit higher.
Personally I think, that we could watch for this kind setup - "222" Sell. It is difficult a bit to say definitely where upside action could stop, but taking in consideration Friday's acceleration, chances on reaching OP are not bad. Besides, this will be Agreement with 1195 Fib resistance:
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.
Now we have two technical setups. We wait chance to go short around 1138 area on weekly chart. At the same time we will take some scalp trades on intraday charts, which could be of different direction.
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.
Fundamental background barely has changed for gold last week. Mostly it remains negative, despite recent relief. As Reuters reports - Gold recovered some ground on Friday as a weakening U.S. dollar relieved pressure on prices, but the precious metal remained near 19-month lows and looked poised for its biggest weekly drop since May 2017.
As we've mentioned in our FX research for this week - current pause in dollar appreciation is mostly technical, and stands due over-extension of US dollar, so markets right now are mostly oversold, while dollar is overbought:
“The markets are very oversold and the dollar is overbought,” said John Caruso of RJO Futures. “It looks like some of the shorts are trying to book some profits.”
From a 13-month high on Wednesday against a basket of six major currencies, the dollar has weakened against the currencies of key gold markets, the euro zone and China, helping gold regain its footing, said ABN AMRO analyst Georgette Boele.
“I expect the dollar to peak in the coming weeks ... Gold should bottom out here,” she said.
Investors seeking a safe place to store assets amid trade disputes and a Turkish currency crisis have preferred the dollar to gold, undermining the reputation of bullion as a safe haven.
But news of planned U.S.-China trade talks and a partial recovery of Turkey’s lira have steadied investors’ nerves slightly.
Bets on lower prices on the Comex exchange continue to build and now outweigh bets on higher prices by the largest quantity ever recorded.
Although there is an opinion that pressure from speculators may ease, fundamental background doesn't show any supportive signs to this idea. The problem is gold hasn't have net bearish position within last decade and it has no definitely known lows that could be used as ultimate level. That's why we have yet to see what bottom will be hit. This gives additional risk on position holding. The one thing that still could be used is a gold mining breakeven price, which now stands around 800-900$ per Oz on average. As we've explained in our technical analysis - it will depend on 1100 lows. If gold will break it - levels below 1000$ will become a reality and 800 is one of them.
In technicals, Fibonacci resistance was at $1,185.30 with support at the January 2017 low of $1,146.20, analysts at ScotiaMocatta said, adding that gold would likely fall further.
COT Report
Recent CFTC data shows precisely what we've said - net short position is growing 3rd week in a row and is backed by growing open interest as well. Thus, statement above that "everybody is short already" hardly is true. Besides, largest gold ETF - SPDR fund has lost another 10 tonnes of its stores just for one week. This is above average speed of wash out of stores.
Here is the data - take a look at strong increase of speculators ( non-commercial) short-positions for 21K contracts and growing of open interest for 56K. Hedgers (commercial) also have increased longs for the same amount, which is typical action for bearish trend.
Technical
Monthly
Market stands in upside retracement right now that's why monthly/weekly time frames barely have changed.
Previously we already explain major points of our view on gold market and explained why we worry on acceleration of bearish performance here.
Slowly but stubbornly gold market moves lower and result of this move could be seen even on monthly chart. The crucial, decisive bearish moment happens not now, it has happened at the end of 2017.
Long-term trend line has been broken in July and as we've said last time - "If this line will be broken - gold could start dropping with acceleration."
Fundamental irrational behavior which we've disclosed earlier now starts to show continuation. Recall our conclusion that we've made since the beginning of the year. That was decisive moment that we've mentioned:
"most important moment for long-term gold right now is ability to move higher. 1327 level is long-term COP target of AB-CD started at 1046$, 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. The fact that gold disrespect 1215 major support and Agreement area, but proceeds directly to YPS1 - just proves the weakness. YPS1 is quite important for any market. Breaking of this level will let us to treat gold action as new bear trend, and previous upside action to 1380 as just a retracement. Next target here, on monthly is 1120 lows, but first is - reaction of the market on YPS1:
Weekly
Weekly time frame is the one that gives us the vision for few weeks. In a longer-term view we still have large AB=CD pattern with OP around 1113 area. Sooner or later but probably it should be reached. Just because gold has dropped easily through 1215 major support and has not stopped at 1180 YPS1 but collapsed right to 1160. So, now price action stands between COP and OP target. Usually in such placement, price gravitates to OP, because in fact, it has no strong support lower, its a free space. And the only thing that keeps gold from disaster is Oversold condition, which important for us in short-term view.
Oversold suggests upside bounce at least to 3/8 resistance area - 1238$. It looks far on weekly chart, but in reality, this is just 30% and common response to reaching of OS. Since our major direction is down - we're mostly looking for chances to go short here, and upside bounce to Fib level could give us B&B "Sell". That's particular the pattern that we will be watching for here:
Daily
As on EUR as here - we do not have something special yet, as gold just has turned up. A few additional details though. First, is 1238 is previous lows also, which provides natural resistance as well. Market is not at overbought and easily could proceed upside action. First more or less valuable resistance here is 1217 area:
Intraday
So, our Friday suggestion on upside continuation was correct, guys. Thus, we can't classify 4H setup as B&B "Sell" one, just because it doesn't match to DiNapoli conditions. Still bearish momentum trade setup sooner or later should be formed, because it was outstanding collapse on gold market. But, probably chance for scalp short trade will appear a bit higher.
Personally I think, that we could watch for this kind setup - "222" Sell. It is difficult a bit to say definitely where upside action could stop, but taking in consideration Friday's acceleration, chances on reaching OP are not bad. Besides, this will be Agreement with 1195 Fib resistance:
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.
Now we have two technical setups. We wait chance to go short around 1138 area on weekly chart. At the same time we will take some scalp trades on intraday charts, which could be of different direction.
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.