Gold GOLD PRO WEEKLY, August 24 - 28, 2020

Sive Morten

Special Consultant to the FPA
Messages
14,041
Fundamentals

As we've mentioned yesterday, this week finally, economic driving factors have come on a first stage as we've got a lot of different data from EU, UK and US that have brought some surprises. Fed minutes have made temporal impact on the markets but it was rather sensible. Mostly gold right now stands under pressure of technical drivers, such as overextended long position and short-term dollar rebound on background of better than expected data releases.

Gold slumped more than 3% on Wednesday, as the dollar jumped and Treasury yields gained after the U.S. Federal Reserve’s July meeting minutes showed policymakers expressed little support to cap bond yields.

The readout of the Fed’s July 28-29 meeting, published on Wednesday, showed the central bank is considering tweaks to monetary policy that could result in it sticking with aggressive stimulus measures far longer than under its previous rubric. The minutes also showed policymakers concerned that a recovery from the economic downturn triggered by the coronavirus pandemic faces a highly uncertain path. But policymakers downplayed the need for yield caps and targets.

“One of the concerns was that the Fed was possibly going to adopt yield curve control, that would’ve been a strong catalyst for continued dollar weakness, but they said they are not considering it right now,” said Edward Moya, senior market analyst at broker OANDA. “That would have been the most dovish outcome from the minutes, but we didn’t get that,” Moya added.

Capping bond yields could diminish the attractiveness of U.S. Treasury debt and pressure the U.S. currency, boosting the non-yielding metal’s allure.

In recent weeks, the Fed’s steps to counter the economic effects of the coronavirus pandemic have helped lift riskier assets to all-time highs even as it has reduced demand for safe-havens, battering the U.S. dollar. But the minutes, despite the dovish tone, led to a sell-off in stocks, gold and a rally in the dollar.

“The expectation that the Fed would do something more has been the catalyst for the selling at this point,” said Jeffrey Sica, founder of Circle Squared Alternative Investments.“They didn’t give any indication that they are going to create the amount of liquidity the gold investors were hoping for to get the price firmly above $2,000,” Sica added.

Analysts said the jump in the dollar on Wednesday reflected profit-taking in some corners of the market, as well as disappointment from traders who expected an even more dovish perspective from the Fed.

“There were some in the market that thought the Fed would be even more dovish overall,” said John Doyle, vice president of dealing and trading at Tempus, Inc. “And I think that is the one thing that caused stocks to sell off in the aftermath, and the dollar to gain.” “I think that these minutes in a vacuum wouldn’t be enough to cause that move, but that because of where we are at a technical level were seen as a reason to take profits.”

l cannot be ruled out," said Saxo Bank analyst Ole Hansen, adding, the market still sees dips as a buying opportunity. "The direction of the dollar and bond yields will continue to set the agenda." The Fed's economic view prompted a wave of selling in global equity markets.

"The main fundamentals behind gold have not changed," said Edward Meir, an analyst at ED&F Man Capital Markets. "Stimulus is still coming in and it's very pre-mature to say we're recovering globally and should see higher rates and stronger dollar; we are many months away from that."


Gold was also pressured on Wednesday as a senior Trump administration official said a smaller coronavirus relief bill worth around $500 billion could be reached, as opposed to one between $1 trillion and $3 trillion that had been previously expected.

Gold recovered on Thursday from a side of more than 3% in the last session, after U.S. jobless claims unexpectedly topped one million again and the Federal Reserve
minutes reiterated concerns over economic recovery.

Labor Department report on Thursday that showed the number of Americans filing a new claim for unemployment benefits rose unexpectedly to 1.106 million for the week ended Aug. 15, from the 971,000 the week before. The previous week’s level had marked the first time since March that new claims had registered below 1 million.

An unexpected rise in U.S. jobless claims to back above 1 million last week was also helping gold, analysts said. The U.S. economy has regained only 9.3 million of the 22 million jobs lost between February and April.

Gold dropped to its lowest in over a week and was en route to its second straight weekly decline on Friday, as a strong rebound in the dollar and a resurgence in U.S. business activity dented bullion's allure.

"Prices have endured a roller-coaster week amid weak positioning, delayed stimulus package agreement, a bounce in the U.S. dollar and real rates," said Standard Chartered analyst Suki Cooper. "Barring further profit-taking, we think the longer-term uptrend (for gold) is intact given our expectations for further U.S. dollar weakness and the scale of stimulus, and as we expect interest rates to remain low or negative," Standard Chartered's Cooper said.

"We're seeing some better than expected economic data in some facets, yet there clearly are still concerns in regards to the pandemic, in regards to the employment situation," said David Meger, director of metals trading at High Ridge Futures.


CFTC Data

This week we do not have massive change in speculative positions. Despite significant rise in open interest, more than 33K contracts - all of them mostly belong to hedgers. Closing of 2K long contracts supposedly belongs to short-term speculators. Although speculative position has not changed significantly, data of this week is very important. Massive opening of new positions in both directions by hedgers point on expectations of big volatility and strong action in one or other direction. It means that long-term players treat current action mostly as temporal consolidation. Thus, we should follow to their example.

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Source: cftc.gov

So, what do we have in dry residual. Long-term driving factors and trends still stands intact, as many analysts point on. Indeed, interest rates are promised to be low for a long time. The new stimulus has more chances to come rather than not to come, although the amount of new money per time unit probably should decrease. D. Trump already has pointed that new help pack is two times lower than initially was planned. Within two months US will dive in President's run turmoil. With a lot of uncertainty and possible postage way of voting idea and everything that could follow - we could get the new spiral of political instability. We foresee a lot of screams and probes about falsifications from both sides. J. Biden's victory should be in favor of Gold as in this case the new political elite starts re-building of political system and take some reforms that could lead to more spending and uncertainty, weaker dollar. At the same time, other factors is loosing the strength. Slowly but stubbornly world returns back to normal life after pandemic and US is not an exception. It means that we still suggest new top on gold but upside pace hardly will be the same as before - action should slow down a bit and we should appoint more realistic targets, not too far from current levels.
Recent pullback on gold stands due overload long positions and rebound of US dollar on a background of Fed minutes and some statistics. Investors' view suggest that markets mostly treat this as temporal situation and consolidation before upside trend continuation. Drop also is explained by psychological factor as investors have expected more dovish measures from the Fed.
Net long position of the gold now is not at extreme high. So this barrier is eliminated. Taking in consideration the reasons for pullback, at seems that we should not exclude the scenario of immediate upside continuation, when gold turns up from consolidation without forming deeper retracement.


Next week we mostly will keep an eye on two days meeting in Wyoming, Jackson's Hole. This is the only major planned event that could impact on Gold market. The major thing that will stand beyond this meeting is question of rising inflation. It is a suicide to start rising rates, and Fed many times tells that rates will stay zero for years ahead. Still - forward interest rates are rising and whether Fed wants or not but inflationary expectations are rising as well. Somehow Fed has to deal with it and do something, maybe not this year but in foreseeable future. Rates are below 2% but they're going climbing higher. There is nothing best for gold than combination of zero rates and rising inflation...

The dollar, slipping to more than two year lows in recent days, looks out of favour thanks to negative inflation-adjusted yields, weaker macro-economic data and tensions between Washington and Beijing. The downward move has fueled familiar talk about the dollar’s decline as the world’s reserve currency.

Investors are trying to gauge where next for the greenback. Intraday volatility has increased across the currency complex suggesting bearish positioning versus the dollar may be at extremes.

And unlike July, when virtually all non-dollar currencies and precious metals gained on the dollar’s 4% fall, August has been a mixed bag. The yen and the Aussie have struggled. Even gold’s eye-watering rally is showing signs of exhaustion after hitting a record near $2,100 per ounce earlier this month.

Throw in a U.S. Federal Reserve wary of pumping in more stimulus just yet, approaching U.S. elections and the greenback may find some fresh legs.

A lot has been riding on the Fed in recent months: risk assets have surged on the back of its do-whatever-it-takes approach to propping up the economy with asset purchases and zero-bound rates during the pandemic crisis.

Now a key challenge is how to spur inflation. Fed Chair Jerome Powell may give hints on Thursday on the opening day of the Jackson Hole conference, where he will discuss the central bank’s monetary policy framework review.

The review looks at how to revamp Fed tools to guide the economy. As part of that, investors have been anticipating details on possible changes to how it targets inflation.

To guard against the possibility of higher prices ahead, investors have loaded up on assets like gold and TIPs. Still, while five-year five-year forwards - an inflation gauge - have been rising, the measure remains below the Fed’s 2% target.
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Technical
Monthly


We've dedicated a lot of time to consider long-term view, involving Stag's view and his Elliot Waves analysis that suggests new top on Gold but at the same time suggesting fade out of long-term upside action as Gold might be in 5th upside wave that has limited upside potential. In general everything stands the same as market turns to contracting type of action, showing no progress yet after reaching of monthly COP target.

In particular, Stag's view suggests temporal pullback to 1400-1600$ levels (depending on strength of downside thrust) and then upside action to new top around 2700$+ level. As this is really long-term picture (for years), downside action could be extended in time and developed differently, depending on fundamental background picture.
1598178727108.png


Our monthly chart is just a small part of Stag's one and indicates AB-CD pattern started in 90's. COP is hit at monthly Overbought area and now we're waiting for reaction that already stands in progress. Here we do not have any signs that long term tendency is over already. It is interesting but OP target stands around the same 2600-2700$ area.

gold_m_24_08_20.png


Weekly

On weekly chart market also is Overbought. Recent week brings no clarity on further direction as it has become inside one. No patterns have been formed yet as well, despite that thrust in general is suitable for DiNapoli patterns. On weekly chart we also have the tricky moment due existence of untouched butterfly target around 2160$. In general combination of monthly and weekly overbought on a background of decreasing pressure of major driving factors suggest deeper retracement.
Still, as we've seen above, in CFTC report - hedger prepare for strong action, although no clear evidence stand for direction by far. Thus, it might happen that we still will get short-term upside spike, when butterfly will be completed and then major retracement could start. I can't say that this scenario has better probability, but information that we have makes me think about it... Besides, situation on daily chart also doesn't exclude this scenario.
gold_w_24_08_20.png


Daily

The hedgers' behavior makes me consider different scenario on daily chart. Previously we already have discussed possible downside AB-CD pattern, but now it seems that we could get something different - triangle consolidation. Triangle shape has continuation features and supports idea of downside continuation rather than deeper retracement.

Price behavior in last 2-3 days of previous week shows that gold has limited reaction on dollar supportive factors. While EUR and GBP has shown solid downside action, gold mostly was standing flat and was not able to reach COP target that we've specified. From this perspective, it seems that downside drop from "C" point is rest of momentum of previous collapse. We will see a bit more but now it seems that gold is loosing downside momentum on intraday charts. At current moment it is possible to hold existed shorts (if you have any) - just protect them with profit lock stops, but I wouldn't consider new short position by far.
Finally, if we are correct on this suggestion - upside butterfly could be formed with the same targets as on weekly chart. If not - we know where OP target and next strong K-support stands, that is our next level to consider for long entry.

gold_d_24_08_20.png


Intraday

Here you can see Friday's reaction. While FX has shown massive collapse (especially GDP), Gold stands tight and shows response to 5/8 Fib support area. Now we could recognize minor H&S pattern forming around it, that could become the starting point of some upside action. To return back to bearish scenario market has to drop below recent lows and break 1920 support area.

gold_1h_24_08_20.png
 

Sive Morten

Special Consultant to the FPA
Messages
14,041
Greetings everybody,

Based on recent reaction on intraday support, we could make some conclusions about possible action on Gold market. In weekend we said that overall background for recent drop was mostly psychological rather than fundamental and investors have positive look at gold while were a bit disappointed by not as expected dovish Fed steps. This lets us to suggest that maybe upside action could start earlier.

As a result, we consider not only downside AB-CD pattern, but triangle consolidation as well:
gold_d_25_08_20.png


At the same time, recent reaction on 5/8 Fib support area on 4H chart makes me think that chances on downside continuation look better. At least bullish context here is very weak, despite that 5/8 level still holds.
Yesterday gold was able to reach minor AB-CD target but failed to continue upside action. It means that currently we have flag consolidation that potentially a continuation pattern. So, gold could reach daily 1883 COP target at least.
Anyway, IMO we have not sufficient bullish context for position taking and need more bullish action to change this view.
gold_4h_25_08_20.png


Still, if you see some perspective - it is not forbidden of course to follow minor reverse H&S pattern on 1H chart, as gold still holds the support and overall risk is small. Just make your own conclusion on this subject:
gold_1h_25_08_20.png
 

Sive Morten

Special Consultant to the FPA
Messages
14,041
Greetings everybody,

Well, not just EUR looks boring today, but Gold and other markets as well. This is normal as everybody are waiting for Wyoming speech. As we've said yesterday, Gold shows irrational behavior for supposedly bullish market and we've suggested downside continuation instead. Now it stands very slow. But it seems that we again could start speaking about COP 1883 target. It has good chances to be reached this week:
gold_d_26_08_20.png


It seems that markets know something, or at least, expect that Powell will tell something about inflation, as recent monthly Fed statement was blank. If any word about inflation will be said - that will be dollar supportive and downside action could accelerate.

Even by technical view, Gold definitely breaks bullish context on 4H chart, showing downside drift and smashing potential puny reverse H&S pattern that we've mentioned previously. It means that we do not have any bullish context by far. But for the truth sake - taking any position mostly will be the gambling, and bet on Fed words... This might be interesting only for event traders.

For us the task is clear - we do know where next strong support areas are on daily chart and should wait when market comes to it and wait for Fed results on Friday.
gold_4h_26_08_20.png
 

Sive Morten

Special Consultant to the FPA
Messages
14,041
Greetings everybody,

Gold follows the common tendency, as markets anticipate dovish Fed statement. From this point of view, technical picture looks bullish, as price has formed bullish reversal session recently as well.

Still, is something will go different and J. Powell will touch the topic of inflation and interest rates, it could lead to collapse. That's why here we also show you alternative scenario, although now it looks like less probable.
If you intend to take long position - it is not needed to place too far stops, so you could stick with just reversal day's lows.
gold_d_27_08_20.png


On 4H chart we have two targets. COP is for the case, if statement will be blank, while dovish notes could push gold higher, to OP around 2050.
gold_4h_27_08_20.png


On 1H chart our sideways consolidation is ready to be broken up, as it is accompanied with MACD divergence and recent W&R of previous lows. The targets of upside breakout coincide with 4H COP around 1990 area:
gold_1h_27_08_20.png


Thus, overall technical picture looks not bad. The only thing is bad - situation anyway depends on Fed statement. Whether you're ready to trade in this environment or not - that's very personal relation to risk.
 

Sive Morten

Special Consultant to the FPA
Messages
14,041
Greetings everybody,

So, as we've said in GBP update, Powell has provided some clarity on Fed future policy and mostly it is gold supportive as Fed intends not to struggle inflation but stimulate it and lead to 2% level. Yes, gold has its own temporal limitations, but, in general, overall situation is positive for the gold.

Thus, on daily chart we still keep both scenarios, but based on current action, it seems that gold intends to climb higher, and in the case of action above "C" point - butterfly will be cancelled.
gold_d_28_08_20.png


On 4H chart we've got grabber that increases chances of reaching at least COP target here:
gold_4h_28_08_20.png


While on 1H chart, we have to adjust our initial AB-CD pattern, although OP target mostly stands the same.
gold_1h_28_08_20.png


More probable that major activity will start on the next week, but today gold also could keep drifting, supported by final Powell's statement at closing party of Wyoming meeting.
 
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