Gold GOLD PRO WEEKLY, August 23 - 28, 2021

Sive Morten

Special Consultant to the FPA
Messages
15,180
Fundamentals

Yesterday we've taken in-depth view on current market sentiment and events of last week. In general we could say that it was supportive to the gold as well. Overall sentiment has not changed, despite that Fed minutes shows some argue among members concerning tapering. US statistics of recent two weeks also mostly was supportive to all dollar rivals. Now it becomes clear that hardly we get any drastic decisions from the Fed by the end of this week and importance of coming NFP report magnifies.

Market overview

Gold extended its recovery on Monday, buoyed by a pullback in U.S. Treasury yields and some safe-haven buying spurred by COVID-19-related concerns, with investors looking for more direction from the Federal Reserve on monetary policy. Prices jumped more than 1% on Friday after data showed U.S. consumer sentiment plummeted in August, helping the metal recover from steep declines in the earlier part of last week after bets for tapering got a fillip from recent strong labor data.

While COVID-19-related safe-haven buying has been seen in Europe, the U.S. market has not seen the same level of interest, said TD Securities commodity strategist Daniel Ghali, adding a rising trend of higher gold purchases from central banks are providing underlying support to bullion.

"We're seeing an aftermath of a significant positioning squeeze in gold" with the large amount of short positions accumulated as Fed taper talks grew louder now being covered, Ghali added.

Markets are also keeping a close watch on turmoil in Afghanistan.
"The quick escalation of events in Afghanistan should not really impact the gold market," said Nicky Shiels, group head of metals strategy at MKS PAMP Group.
"There's usually an asymmetric response in prices to geopolitical events; it responds more favorably as a hedge when the U.S. enters into new wars, not the withdrawal of U.S. troops and presence."

“The elephant in the room is this Delta variant and whether it does materially affect the global recovery. In that situation, gold is likely to find more haven buying,” said Jeffrey Halley, a senior market analyst, Asia Pacific at OANDA. “Gold’s fate will be decided by the FOMC and whether they signal imminent tapering in September. If that leads to a higher dollar and U.S. yields gold is likely to fall back below $1,700,” Halley added.

Also hinting at a slowdown in the economy, U.S. retail sales fell more than expected in July.

On Tuesday Minneapolis Fed President Neel Kashkari said it could be “reasonable” to start tapering later this year, but will depend on progress in the labour market.
Fed chief Jerome Powell said it remains unclear whether the heightened outbreak of the Delta variant will have a noticeable impact on the economy.

Gold turned positive after the release of the U.S. Federal Reserve’s July policy meeting minutes on Wednesday, although a firm dollar limited any safe haven inflows into bullion in response to the spread of the Delta coronavirus variant.

According to the Fed’s July meeting minutes, officials said they still had faith in the U.S. economic recovery despite a troubling rise in Delta variant cases and continued laying plans for the eventual end of the central bank’s monthly purchases of Treasury bonds and mortgage-backed securities (MBS).

“Ultimately the focus is on the Jackson Hole symposium and the next non-farm payroll numbers, which will be very crucial for the market,” said Jigar Trivedi, commodities analyst at Mumbai-based broker Anand Rathi Shares.

“Gold lost a little bit of upside momentum as market participants increasingly grew wary of the risk that the Fed could start tapering its bond-buying by the end of the year,” IG Market analyst Kyle Rodda said. Over the next few days, gold’s price action would be determined by the speculation relating to Fed tapering and what they might say about tapering at Jackson Hole symposium, Rodda added.

The minutes from July meeting showed U.S. central bank officials saw the potential to ease bond-buying programme this year if the economy continues to improve as expected. However, the minutes also magnified the importance of the next few months’ jobs reports, with solid gains needed to meet the Fed’s expectations and show that the coronavirus has not begun to again slow the economy.

“In the short term, this taper talk may put pressure on the gold price but I believe gold has priced in the spectre of higher rates,” said Vincent Tie, sales manager at Singapore dealer, Silver Bullion.

Gold prices eased on Thursday as a stronger dollar and bets over an early policy tapering by the U.S. Federal Reserve weighed on sentiment, although losses for the safe-haven metal were limited by concerns that rising COVID-19 cases will slow global growth.

Weighing on gold, the U.S. dollar rose to nine-month highs after minutes from the Fed’s July meeting showed officials largely expected they could ease stimulus this year, even though consensus on other key issues appeared elusive.

“The only thing that is not clear as yet is when this (taper) might happen. Nonetheless, tapering has once again been priced into gold now,” Commerzbank analyst Daniel Briesemann said.

Data earlier showed the number of Americans filing new claims for unemployment benefits fell to a 17-month low last week, underscoring recent views from Fed officials about labour market recovery.

Growth in factory activity in the U.S. mid-Atlantic region slowed for the fourth consecutive month in August after hitting its highest pace in nearly half a century earlier this spring, a survey showed on Thursday.

“Gold is certainly benefiting from its safe haven status. While equity markets are falling heavily, gold is back in demand. Clearly COVID nerves are coming through,” OANDA analyst Craig Erlam said. A move above $1,800 looks more achievable,” Erlam added. “In the medium-term, downside pressure will remain on gold but that won’t stop it reaping the benefits of the jitters.”

Gold prices edged higher on Friday and was on course for a second straight week of gains as growing concern over the spread of the Delta variant of the coronavirus and its impact on economic recovery soured risk sentiment.

Pessimism about medium-term economic outlook was supporting gold prices, said Nicholas Frappell, global general manager at ABC Bullion. “However, the market is struggling somewhat with concerns over the timing over tapering,” he added.

Meanwhile, rival safe haven the dollar held near a more than a nine-month high supported by concerns about the coronavirus and expectations that the U.S. Federal Reserve could start to taper stimulus this year.

“As we head into Jackson Hole, some of those corrective gains that we saw in gold are likely to get retraced,” said Daily FX currency strategist Ilya Spivak. The markets are positioning for the Fed to continue to build on the narrative that tapering is becoming imminent and a formal announcement could be made as soon as this September, Spivak added.
At a Federal Reserve symposium next week in Jackson Hole, Wyoming, U.S. central bank chief Jerome Powell will speak on “the economic outlook”, when he is expected to lay out a clearer roadmap on plans for tapering.

“As soon as the Fed announced that it will start to reduce its bond purchases, an important obstacle for the gold price should disappear,” Commerzbank analysts said in a note. “During the further course of the year it should benefit from the comparatively cheap valuation of gold and the (record low) real yields.”

COT Report


CFTC data not reflects the impact of last Friday when we've got weak US Statistics on Sentiment and CPI. As a result, net long position has increased significantly, although net interest shows light inflows on the market. In general gold shows better reaction than FX market as we've mentioned yesterday.

Still, Precious metal funds faced outflows worth $675 million, the biggest weekly outflow in more than four months, as gold prices slumped to a more than four-month low last week. As we've said previously - despite short term positive mood on the market, investors gradually prepare to leave it, understanding that Fed policy change is just a question of time and unavoidable now.

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source: cftc.gov, charting by Investing.com

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So, currently analysts and investors are very gentle in any forecasts at the eve of Central bankers meeting in Wyoming. At the same time everything stands not as mysterious as it seems at the first glance. We could make some conclusions based on the data that we have. Let's start from the Friday of last week - based on CFTC data gold shows nice response to weaker than expected Sentiment and inflation numbers. This week we've got another decrease in data - retail sales and personal consumption numbers show stagnation and decreased from the peak of recent month. So, we see some chilling in data for the second month, suggesting that it might be ceiling for awhile and confirms that Fed might be right in assessment of inflation that it is temporal. Currently Fed feels more comfortable and has space for decision making.
Second is Fed minutes. Major concern now stands not around the inflation but around the employment as US economy still has 5-6 Mln gap to pre-pandemic level. Economists decrease forecast for basic numbers of GDP, Inflation till the end of 2021 and for 2022-2023. Sentiment now is changing toward later tapering announcement and based on Reuters poll big companies and banks expect that no tapering announcement happens in Wyoming and in September but it postpones to November meeting.
Finally, delta variant and fears around its impact on economy starts disturbing investors, supporting interest to gold market.
Taking its all together it seems that Fed is not in the dead way and has no obligation to announce tapering right now to satisfy pressure from the markets. In fact, now this pressure is easing. At the same time, as Commerzbank said - tapering is partially priced-in already in current price level. We also suppose that no tapering will be announced in Wyoming. Combination of these two moments could give solid boost to the gold and let it to reach our short-term target at least around 1825$ area. In the beginning of the week we could get slow downside drift as investors could out of the market reducing positions before Jackson Hole.


Technicals
Monthly

Monthly chart barely has changed this week. Overall context remains bearish but with coming events we should focus on lower time frames. Here, to cancel bearish background price has to climb above 1925$ area that seems hardly possible within a week.

On a long term picture engulfing target is missed for ~ 30$. Here we also can't say that its target is completed. MACD stands bearish and targets of 1650$ and 1540$ are still valid. Targets are based as on initial "small" AB-CD as on the large one. Thus "small" OP agrees with "large" COP around 1650$, next is "large" OP agrees with YPS1. Finally "small" XOP agrees with 1540 K-support area. Thus, first destination point is re-testing of 1680 K-support area and reaching of "small" OP.

Market probably should start forming something different here, to re-shape of price action after the spike. For example, we do not exclude bearish butterfly to form here, that lets price to complete all the targets. It doesn't contradict our suggestion that gold could climb higher if J. Powell makes no tapering announcement on Friday.

gold_m_23_08_21.png


Weekly

Recent week has very small trading range and overall picture remains the same. As we suggest upward continuation on gold market next weak and reaching of our 1825$ target at least, here we should pay attention to MACDP level. Once our target is completed and price touches MACD line - we could get the bearish grabber that perfectly fits to idea of the monthly and weekly butterfly. So, this week could set the top of right wing for the pattern.

gold_w_23_08_21.png


Daily

So, last week market was not able to break the border of consolidation. In general, it is nothing wrong with downside retracement now as previous sell-off was rather strong. 1768-1777 area now should work like support as price has broken it without any respect. Price is not at overbought anymore, but OB level moves to 1820-1825$ area suggesting that hardly price jumps too high. Another important detail - upper border of weekly triangle agrees with MACDP weekly level and stands around 1837$ area.

gold_d_23_08_21.png


Intraday

As we already mentioned it through the week - 4H chart shows bullish continuation flag pattern. Price action inside the flag is perfect for bullish context - it is very slow and choppy:
gold_4h_23_08_21.png


In the beginning of the week some downside action is possible as investors start to contract positions before Wyoming meeting. Here, on 1H chart we have two minor grabbers. At first glance it seems that if price throw out from the consolidation - it should not drop below 1762-1765 K area that agrees with broken daily one. Maybe some bullish patterns will be formed as well.

gold_1h_23_08_21.png
 

Sive Morten

Special Consultant to the FPA
Messages
15,180
Greetings everybody,

On Gold market situation is more simple than on FX and EUR in particular. Upward breakout that we've discussed in weekend has happened very accurately. On daily chart now market stands in new trading range that opens road to 1828 area - previous local top, 5/8 Fib levels cluster and daily Overbought:
gold_d_24_08_21.png


4H chart shows that breakout has happened right from the flag and now 1795 area should be considered twofold. First is - as support level for long entry. Second - as vital point for bullish context. Once breakout has happened and market stands inside of it - it should not drop back down again and return to broken flag consolidation. So, keep an eye on this.
gold_4h_24_08_21.png


On 1H chart price erases totally previous collapse that is positive moment for sentiment. We also could see that retracements through the all way up looks harmonic and of very similar distance. Thus, here we want to see the same - minor, slow harmonic pullback to re-test previous top and broken levels. Otherwise stronger drop back to rectangle here - also will be bearish suggesting that it would be better to not buy.
Upside target is the same XOP @1825
gold_1h_24_08_21.png
 

Sive Morten

Special Consultant to the FPA
Messages
15,180
Greetings everybody,

So, gold follows to our setup accurately by far and starts the pullback that we've discussed recently. Now we have to watch that gold stands in the new trading range and not drops out of it. Drop out not necessary destroys the bullish context totally but it changes the context as we have to search for different patterns and price shape will change.

Now, price should stay in 1790-1795 range to keep short-term context valid:
gold_d_25_08_21.png


On 4H chart market is re-testing previous top and the bottom of the new trading range:
gold_4h_25_08_21.png


Speaking on trading process, there are two options. Market now stands at most suitable area for position taking. Although it doesn't promise success but it provides minimal potential risk for the trade. First option is to buy and hide stop below 1783 K-area. This gives market some room to breath as K-support is major vital point. In a case of downside breakout market returns back in broken 4H flag and destroys short-term bullish context.
If this is too far stop for you - second way is to stick with the patterns. Drop the time frame and watch for the bullish reversal patterns on 15 min chart, for example. (Now it seems that H&S pattern is forming there). In a case of failure your risk is just ~3$ per contract. If price drops down - you do nothing and wait for another pattern around next support.
gold_1h_25_08_21.png
 

Sive Morten

Special Consultant to the FPA
Messages
15,180
Good morning,

So, daily chart has not changed but on intraday ones we have few moments to discuss.
gold_d_26_08_21.png


First is, on 4H chart market now is testing the support area that is vital for the short-term bullish context and gold has to stay above it to keep it valid. Price re-testing broken flag border. Potentially if support survives, we could get 1.618 3-Drive pattern that finalizes our XOP target at 1825 and, in general, leads gold to 1820-1828 resistance cluster:
gold_4h_26_08_21.png


On 1H chart market also stands at K-support that we've specified yesterday. So, here choice is up to you whether to buy gold or not. As we stand at vital point, it means that stop order could be placed very close, but at the same time we do not have a lot of bullish signs around it, especially before Jackson Hole start. So, this trade might be difficult. Maybe it makes sense to wait additionally for bullish patterns at the support on lower time frames as well...
I'm a bit worry on results also because on EUR we have untouched OP and we suggest another swing down there. So, it could impact gold as well via USD strength...
gold_1h_26_08_21.png
 

Sive Morten

Special Consultant to the FPA
Messages
15,180
Greetings everybody,

So our upward setup is started. On daily chart we see that the major barrier stands around 1820-1830 area including two Fib levels, intraday targets and daily OB area. So, currently market should not have any strong barriers for upward continuation:
gold_d_27_08_21.png


4H shows that price was able to stay above vital support area and outside of flag consolidation. This keeps short-term bullish context valid. Thus, we're keep watching for potential 3-Drive pattern that could lead price to the upper border of consolidation and daily resistance area
gold_4h_27_08_21.png


On 1H chart we have nothing to do by far. K-support area has held price retracement well. Now it would be better to move stops to breakeven as it is difficult to say how Wyoming meeting results impact the market later:
gold_1h_27_08_21.png


Theoretically it is exist another chance to step in, using Stop 'Buy" order above 1809 level at the moment of upside breakout with the same 1826-1828 target. But with the external risks from central banks this way is not suitable to everybody. Especially before weekend.
 
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