Sive Morten
Special Consultant to the FPA
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Fundamentals
(Reuters) - Gold firmed on Friday after U.S. Federal Reserve Chair Janet Yellen made no mention of monetary policy in her much-anticipated speech, while investors awaited clues from European Central Bank President Mario Draghi.
U.S. short-term interest rate futures rose slightly, reflecting reduced expectations that the Fed will raise interest rates further this year, after Yellen skipped mention of it when speaking in Jackson Hole, Wyoming.
"That relieved the market of a little bit of concern about that," said Bill O'Neill, partner with Logic Advisors in Saddle River, New Jersey, adding this was positive for gold prices and pressured the dollar. "She clearly came off dovish, saying maybe we need a few changes in bank regulation, but they should be modest."
Gold is highly sensitive to rising interest rates, which increase the opportunity cost of holding non-yielding bullion while boosting the greenback.
Monday is a bank holiday in the United Kingdom.
Spot gold was up 0.5 percent at $1,292.14 an ounce by 2:00 p.m. EST (1800 GMT) and was on track to close the week up 0.6 percent. U.S. gold futures settled up 0.5 percent at $1,297.90.
Earlier, Dallas Fed President Robert Kaplan called for patience on raising interest rates any further but urged speed in reducing the Federal Reserve's balance sheet. U.S. data showed home resales unexpectedly fell in July to an 11-month low as a chronic shortage of properties boosted prices, the latest sign that the housing market recovery was slowing. Weekly jobless claims rose, and new orders for key U.S.-made capital goods were better than expected in July.
Escalating geopolitical concerns were also preventing gold prices from retreating significantly, market participants said.
U.S. President Donald Trump said on Thursday that congressional leaders could have avoided a "mess" over raising the U.S. debt ceiling if they had taken his advice. Gold is used as an alternative investment during times of political and financial uncertainty.
COT Report
Sentiment analysis shows positive mood on gold among investors. Last three weeks as open interest as net long position are growing. It means that new purchases come to market. In general coming 2-3 months should be positive to gold market. Seasonally, gold is bullish, since late August till February and September-October is most active seasonal period, mostly due rising in physical demand mostly in India. In September we also will get elections in Germany that should add some thrilling and support gold.
Also we should not forget that this is final term for Yellen and it expires in February. Also we will get debt ceil voting in Congress in October as well. Even without other mentioned factors, this creates supportive background for gold.
SPDR Fund shows slow but positive statistics as it has added 5 tonnes more last week, although gold price mostly was flat:
Technical
Monthly
Monthly chart was barely impacted by recent price action as it was rather tight and gold has spent most time in consolidation. Today we're mostly interested in daily and intraday chart and should try to understand what recent Friday action could bring on coming week...
So I will keep picture of our bearish scenario, but in the light of recent events, chances that it will be realized have diminished significantly. Trend has turned bullish again and it's really big chances that gold will break 1380 top. But as technically this has not happened yet - let's keep it for awhile as it stands right now.
Theoretically market still keeps double-sided setup as bullish as bearish patterns are not destroyed yet by price action. Crucial level for them is 1122 area. As we have discussed recently, upside scenario could lead market to 1330 YPR1 first and back to 1380 second, while bearish scenario you see on the chart...
As we talk about changes in sentiment last two weeks, let's take a look at alternative scenario on gold market, compares to what we've discussed previously. Scenario that we will talk about has not been formed yet and it has some degree of uncertainty as major levels that are crucial for this scenario, have not been broken yet.
In fact, our previous scenario on possible reverse H&S pattern is still valid. The breakeven point between these scenarios stands around 1120 lows. If Price will drop below it - gold siginficantly will increase chances on downside continuation.
It means that we could get either big Butterfly "Buy" pattern with potential target around 950$ or, at least "222" Buy around 1040 area on monthly chart . Until price stands above 1122 lows - there will be some uncertainty around them as gold also could form opposite pattern, we will take a look at it below. But breaking of 1122 will erase any questions...
Breaking of 1330 highs will cancel all questions on further direction of gold market:
Weekly
Here again we have to keep previous analysis as, indeed, picture has not changed at all. In fact, we have inside week this time.
Previously, when gold has failed to break through 1300 for 3rd time, it was seemed that deeper retracement will follow, but right now price turns up again and comes back to 1300 area on a positive mood for gold - no mention about rate increase from Fed, etc. It could mean that recent pullback was temporal and gold could make another attept of breakout on coming week.
The only thing that looks a bit curious here is sudden stop around 1295. There are no meaningful resistance above this area and market already has broken through 1278 Fib level. Nearest target stands higher - around 1330. So, technically it is unclear what holds market here, may be only psychological moment - 1300 level...
In general weekly chart shows alternative scenario that stands in relation to the same 1122 lows. While market stands above this level - big butterfly "Sell" is possible, at least theoretically. It's first destination point stands at 1440.
Daily
On daily chart price action mostly looks bullish. Indeed, market has shown spike down, out from our pennant pattern, but this was just a spike. Price has closed above pennant. Spike should be treated as failure breakout and it means that on coming week gold could continue upside action.
Our bullish grabber is also valid. Although during the day price was below it's lows but close price was in grabber's range. But even without grabber overall situation looks mostly bullish. You can see that although trend stands bearish here, but price stabbornly holds in tight range without any signs of bearish reversal. This action reminds consolidation right under 1300 area. Usually this kind of consolidation happens when price prepares for breakout:
Intraday
On 4-hour chart market has shown fake breakout of channel by completion our butterfly "Buy". To be honest, on Friday it was difficult to imagine how it is possible to complete butterfly and keep bullish sentiment simultaneously. But, market has shown how it is possible...
4-hour price behavior brings another important moment. This is a lows of Friday's dramatic action, let's call it "Friday engulfing". As market by it's action mostly shown rejection of this price level, it's lows will be important signal area. While market stands bullish it should not drop below it. Thus, we could buy on some retracement against them. Dropping below this lows will tell that deeper downside action will follow:
On hourly chart market also has erased H&S. Yes, we've got neckline breakout but price has not reached AB=CD target and mostly this H&S should be treated as "failure". This is also bullish moment.
Now, we could focus only on most recent upside swing. here we have 2 levels - 1287+WPP and 1283. Overall this consolidation reminds broken wedge and re-testing of broken lines seems to be more logical bullish action. That's what we could watch in the beginning of the next week:
Conclusion
Long term charts keep valid two opposite scenarios with thrilling scale. The separate line between them is 1122 area. Although theoretically both are possible by far - recent global events and political affairs bring more chances on upside breakout.
In short-term charts on Friday gold has shown inability to go lower. Thus, it seems that new challenge of 1300 area could happen on coming 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.
Gold has reached our weekly 1326 target. Also do not forget that 1330 is Yearly PR1. All this stuff stands at daily OB area. Of course new spiral of political tensions could push gold higher again, but it stands beyond of our ability to forecast them. Technical picture suggests retracement. Thus, it is not good idea to go long here. Probably we should be ready for meaninful bounce here, may be market will re-test broken 1300 tops:
