Gold GOLD PRO WEEKLY, August 31 - 04, 2020

Sive Morten

Special Consultant to the FPA
Messages
13,924
Fundamentals

This week fundamental factors were common for all markets - Forex, Stocks, Bonds including commodities and gold in particular and this is understandable as we've got future Fed financial policy on the table. At the same time, gold has shown not as strong reaction as FX market, for example. Fundamental factors remain positive for the gold, but in short-term perspective we see temporal technical limitations that could lead to retracement.

In the beginning of the week gold was under pressure due different factors, such as news on vaccine and improvement of US/China relations.

"Gold is just consolidating right now with stock indexes at record highs. It really needs a bigger catalyst, it needs additional fiscal stimulus, it needs inflation to pick up, in
order to get really going," said Phillip Streible, chief market strategist at Blue Line Futures in Chicago.

The S&P 500 and Nasdaq hit record highs after the U.S. Food and Drug Administration approved the emergency use of blood plasma in COVID-19 patients and on a report the Trump administration may fast-track a vaccine candidate. Meanwhile, talks between top Democrats and Republicans on coronavirus aid legislation remained stalled.

"While COVID-19 vaccine developments and improving economic data present near-term headwinds to gold, low and negative interest rates, a weaker U.S. dollar, and expectations for further stimulus keep the balance of risks to the upside," said Standard Chartered analyst Suki Cooper in a note.

Top U.S. and Chinese trade officials on Tuesday reaffirmed their commitment to a Phase 1 trade deal, adding to positive news over progress in developing a treatment for COVID-19. On Sunday, U.S. President Donald Trump hailed Food and Drug Administration authorization of a virus treatment that uses blood plasma from recovered patients. Data showed U.S. consumer confidence fell in August to a more than six-year low, as households worried about the labor market and incomes.

“We have a little optimism on U.S.-China relations, while there is some optimism regarding the coronavirus (treatment) ... so, little lesser need for safe havens,” said David Meger, director of metals trading at High Ridge Futures.

“That was heavily priced in. Confidence is souring and that is just going to force Congress to deliver more stimulus,” said Edward Moya, senior market analyst at broker OANDA. Because of all the uncertainty ... they can’t let all the efforts go to waste, and that is going to cement the bullish outlook for gold.”


Gold retreated on Thursday, following a sharp rise in the last session, as investors squared positions to focus on whether U.S. Federal Reserve Chairman Jerome Powell signals a change in monetary strategy.

“Gold should find willing buyers on dips to $1,935 an ounce. Overall, we expect gold to trade in a choppy $1,935-$1,970 range ahead of Powell’s speech,” said Jeffrey Halley, a senior market analyst at OANDA.

Gold slumped over 2% on Thursday as U.S. Treasury yields rose after Federal Reserve Chair Jerome Powell laid out an aggressive new strategy to reach the bank’s 2% inflation target.

“The Fed had a chance to update their forward guidance and signal that the labour market may warrant more support but we really didn’t get that,” Edward Moya, senior market analyst at broker OANDA said. “We’re probably going to see the stimulus trade unwind a little bit here and while this has really prompted a strong move with the Treasury curve and the dollar, this provides us with a frustrating consolidation (in gold).”

Longer-term U.S. Treasury yields moved to their highest levels in months after Powell’s remarks.

In a widely expected move, the Fed said it will seek to achieve inflation averaging 2% over time, offsetting below-2% periods with higher inflation “for some time” and rolled out an aggressive new strategy to lift employment. The Fed made no explicit promises on how long it may keep rates low, or how high it would allow inflation to go.

“We expect support for gold prices to remain firm, as Powell’s comments clearly reflect that the economic recovery from the COVID-19 crisis will be long and gradual, with ample central-bank support necessary to avoid backsliding,” said Cailin Birch, global economist at The Economist Intelligence Unit.

Gold rebounded over 2% on Friday, a day after a steep sell-off, as the U.S. dollar weakened and the U.S. Federal Reserve signaled a prolonged low interest rate strategy.

“The sizeable sell-off in the greenback has propped up gold,” said David Madden, market analyst at CMC Markets UK. “The Fed said it can allow inflation to run above its 2% target for some time seems like they are going to keep their monetary policy extremely loose, which should help gold.”

The shift in Fed policy will mostly likely reignite ‘the inflation trade,’ which has historically been bullish for hard assets (like gold),” Kitco Metals senior analyst Jim Wyckoff said in a note.

COT Report

Recent data shows that net long position almost has not changed, but if we take a look at numbers you could see that it has changed a lot. In general, gold follows the tendency of sentiment shift, that we've explained last week - investors book profits, and gold needs some relief after strong rally and long-term CV19 turmoil. Thus, we see that open interest has dropped dramatically as a lot of speculators have closed big amount of long positions. Hedgers, in turn, have closed shorts as well. This tells that strong upside continuation on gold is under question, at least in nearest perspective:

1598783519229.png


1598783567074.png

Source : cftc.gov
Charting by Investing.com



Finally, here is very important stuff, that mostly passed unsigned:

The Chinese government’s top diplomat, State Councillor Wang Yi, said on Sunday it was possible to conclude an EU-China investment accord by the end of 2020. “I am thinking of the investment agreement. We have the possibility of concluding it before the end of the year. It is important more than ever to take a step,” Wang Yi said, speaking at the IFRI think tank in Paris, via an interpreter.

So, let's try to go through all this stuff, that we've mentioned above. First is, despite revolutionary statement, markets are still wonder how particular Fed will achieve their targets, what's the strategy? It seems that some details we should get on September 15-16, when next Fed meeting is scheduled. What things were surprising in Powell's speech and which are not? Well, more or less but markets were ready for "long-term zero interest rates" and " providing supportive measures as much as economy will need". These things already have been said, and not once. Previously Powell told that we're in zero rate environment for years, probably. If so, what particular revolutionary was in Powell's speech? I thing there are two moments. Initially unprecedented liquidity measures were represented as necessary tools against CV19 and its consequences. Now the vector of this rhetoric is changing. CV19 is taking a backseat, while Powell puts liquidity measures and interest rates in direct relation to inflation level and employment market. This is a bit different story. While we could get massive CV19 relief relatively soon, 2% inflation and saturated employment market stands years ahead, if not say decades (as Japan economy shows).
Second important thing, by our thoughts is that Powell lets inflation to climb and stay above 2% for some time, to compensate years of low inflation. It means that if even US inflation hits 2% - Fed not intend to rise rates immediately, but let real economy factors to work, wait a bit when higher inflation starts to suffocate economy and only after that intrude and start rate rising cycle.
Taking it all together, it seems, at least by market reaction, that market undervalues the real dovishness of Fed statement. It was not "as expected", it was significantly more dovish than expected. The final period of Fed plan (if it come ever) when high inflation will be accompanied by yet low Fed rates is promised to be the most powerful time for gold rally.
Everything sounds good for gold market, and only one thing sounds worrying. As we've shown in last report, 5 year forward rates now stand around 1.7%. Based on this information, it means that Fed will keep rates at zero level for next 5 years and more. But from the other point of view, why Fed needs to make such statements five years ahead of the time moment, when this particular policy becomes actual? It means that Fed suggests faster achievement of set targets, so that they need to talk on new policy right now. This, in turn, means, that inflation should accelerate sooner than everybody expects. Next big challenge is US elections and hardly they pass unsigned for the markets.
Thus, despite that we have some technical limitations and we could get some downside retracement in near-term, outlook for gold remains positive and suggests that new tops should be achieved, although they could stand not too far from 2K level. Some analysts, such as Merrill Lynch, suggest 3k level within 18 months, while we recognize closer standing targets of 2.3 and 2.6K levels.


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. Meantime, as sentiment gradually chills out, as it suggested by recent COT report, we keep an eye on whether deeper retracement happens here...

gold_m_31_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 - no significant upward action is expected now. Thus, it means that more probable that we will get continuation to 2 160 area later, once short-term retracement will be over.
gold_w_31_08_20.png


Daily

Trend here stands bearish and Friday session has become an inside one. As Powell statement was not strong enough to trigger thrusting action on gold market, it seems that sentiment change indeed stands under way. With this new inputs, it seems that we still should focus on next strong support areas, where we could consider new long position taking. And the nearest one stands around 1800-1850:
gold_d_31_08_20.png


Intraday

Here we have few things to pay attention to. Friday's price action looks a bit heavy, so that price was not able to overcome the top that has been formed on Powell's doom&gloom action. It means that this is definitely not the upside continuation, or, at least, investors on Friday were not ready yet and haven't made direction decision. Anyway, it means that downside continuation and deeper retracement could start on next week.

As we have the grabber, it means that price should climb slightly more, to take out recent local spike. It could happen in two ways - either minor action happens, and market hits OP around 5/8 level, forming "222" Sell and then turns down. Or, it could go slightly higher to complete COP target of a larger scale. Any of these scenarios are suitable for our view.
Conversely, only if price jumps above 2015 top again, it could mean that trading plan is changing and price at least should reach OP around 2055, or even goes higher. But now this scenario doesn't look very probable.
gold_4h_31_08_20.png
 
Messages
198
Fundamentals

This week fundamental factors were common for all markets - Forex, Stocks, Bonds including commodities and gold in particular and this is understandable as we've got future Fed financial policy on the table. At the same time, gold has shown not as strong reaction as FX market, for example. Fundamental factors remain positive for the gold, but in short-term perspective we see temporal technical limitations that could lead to retracement.

In the beginning of the week gold was under pressure due different factors, such as news on vaccine and improvement of US/China relations.

"Gold is just consolidating right now with stock indexes at record highs. It really needs a bigger catalyst, it needs additional fiscal stimulus, it needs inflation to pick up, in
order to get really going," said Phillip Streible, chief market strategist at Blue Line Futures in Chicago.

The S&P 500 and Nasdaq hit record highs after the U.S. Food and Drug Administration approved the emergency use of blood plasma in COVID-19 patients and on a report the Trump administration may fast-track a vaccine candidate. Meanwhile, talks between top Democrats and Republicans on coronavirus aid legislation remained stalled.

"While COVID-19 vaccine developments and improving economic data present near-term headwinds to gold, low and negative interest rates, a weaker U.S. dollar, and expectations for further stimulus keep the balance of risks to the upside," said Standard Chartered analyst Suki Cooper in a note.

Top U.S. and Chinese trade officials on Tuesday reaffirmed their commitment to a Phase 1 trade deal, adding to positive news over progress in developing a treatment for COVID-19. On Sunday, U.S. President Donald Trump hailed Food and Drug Administration authorization of a virus treatment that uses blood plasma from recovered patients. Data showed U.S. consumer confidence fell in August to a more than six-year low, as households worried about the labor market and incomes.

“We have a little optimism on U.S.-China relations, while there is some optimism regarding the coronavirus (treatment) ... so, little lesser need for safe havens,” said David Meger, director of metals trading at High Ridge Futures.

“That was heavily priced in. Confidence is souring and that is just going to force Congress to deliver more stimulus,” said Edward Moya, senior market analyst at broker OANDA. Because of all the uncertainty ... they can’t let all the efforts go to waste, and that is going to cement the bullish outlook for gold.”


Gold retreated on Thursday, following a sharp rise in the last session, as investors squared positions to focus on whether U.S. Federal Reserve Chairman Jerome Powell signals a change in monetary strategy.

“Gold should find willing buyers on dips to $1,935 an ounce. Overall, we expect gold to trade in a choppy $1,935-$1,970 range ahead of Powell’s speech,” said Jeffrey Halley, a senior market analyst at OANDA.

Gold slumped over 2% on Thursday as U.S. Treasury yields rose after Federal Reserve Chair Jerome Powell laid out an aggressive new strategy to reach the bank’s 2% inflation target.

“The Fed had a chance to update their forward guidance and signal that the labour market may warrant more support but we really didn’t get that,” Edward Moya, senior market analyst at broker OANDA said. “We’re probably going to see the stimulus trade unwind a little bit here and while this has really prompted a strong move with the Treasury curve and the dollar, this provides us with a frustrating consolidation (in gold).”

Longer-term U.S. Treasury yields moved to their highest levels in months after Powell’s remarks.

In a widely expected move, the Fed said it will seek to achieve inflation averaging 2% over time, offsetting below-2% periods with higher inflation “for some time” and rolled out an aggressive new strategy to lift employment. The Fed made no explicit promises on how long it may keep rates low, or how high it would allow inflation to go.

“We expect support for gold prices to remain firm, as Powell’s comments clearly reflect that the economic recovery from the COVID-19 crisis will be long and gradual, with ample central-bank support necessary to avoid backsliding,” said Cailin Birch, global economist at The Economist Intelligence Unit.

Gold rebounded over 2% on Friday, a day after a steep sell-off, as the U.S. dollar weakened and the U.S. Federal Reserve signaled a prolonged low interest rate strategy.

“The sizeable sell-off in the greenback has propped up gold,” said David Madden, market analyst at CMC Markets UK. “The Fed said it can allow inflation to run above its 2% target for some time seems like they are going to keep their monetary policy extremely loose, which should help gold.”

The shift in Fed policy will mostly likely reignite ‘the inflation trade,’ which has historically been bullish for hard assets (like gold),” Kitco Metals senior analyst Jim Wyckoff said in a note.

COT Report

Recent data shows that net long position almost has not changed, but if we take a look at numbers you could see that it has changed a lot. In general, gold follows the tendency of sentiment shift, that we've explained last week - investors book profits, and gold needs some relief after strong rally and long-term CV19 turmoil. Thus, we see that open interest has dropped dramatically as a lot of speculators have closed big amount of long positions. Hedgers, in turn, have closed shorts as well. This tells that strong upside continuation on gold is under question, at least in nearest perspective:

View attachment 57275

View attachment 57276
Source : cftc.gov
Charting by Investing.com



Finally, here is very important stuff, that mostly passed unsigned:

The Chinese government’s top diplomat, State Councillor Wang Yi, said on Sunday it was possible to conclude an EU-China investment accord by the end of 2020. “I am thinking of the investment agreement. We have the possibility of concluding it before the end of the year. It is important more than ever to take a step,” Wang Yi said, speaking at the IFRI think tank in Paris, via an interpreter.

So, let's try to go through all this stuff, that we've mentioned above. First is, despite revolutionary statement, markets are still wonder how particular Fed will achieve their targets, what's the strategy? It seems that some details we should get on September 15-16, when next Fed meeting is scheduled. What things were surprising in Powell's speech and which are not? Well, more or less but markets were ready for "long-term zero interest rates" and " providing supportive measures as much as economy will need". These things already have been said, and not once. Previously Powell told that we're in zero rate environment for years, probably. If so, what particular revolutionary was in Powell's speech? I thing there are two moments. Initially unprecedented liquidity measures were represented as necessary tools against CV19 and its consequences. Now the vector of this rhetoric is changing. CV19 is taking a backseat, while Powell puts liquidity measures and interest rates in direct relation to inflation level and employment market. This is a bit different story. While we could get massive CV19 relief relatively soon, 2% inflation and saturated employment market stands years ahead, if not say decades (as Japan economy shows).
Second important thing, by our thoughts is that Powell lets inflation to climb and stay above 2% for some time, to compensate years of low inflation. It means that if even US inflation hits 2% - Fed not intend to rise rates immediately, but let real economy factors to work, wait a bit when higher inflation starts to suffocate economy and only after that intrude and start rate rising cycle.
Taking it all together, it seems, at least by market reaction, that market undervalues the real dovishness of Fed statement. It was not "as expected", it was significantly more dovish than expected. The final period of Fed plan (if it come ever) when high inflation will be accompanied by yet low Fed rates is promised to be the most powerful time for gold rally.
Everything sounds good for gold market, and only one thing sounds worrying. As we've shown in last report, 5 year forward rates now stand around 1.7%. Based on this information, it means that Fed will keep rates at zero level for next 5 years and more. But from the other point of view, why Fed needs to make such statements five years ahead of the time moment, when this particular policy becomes actual? It means that Fed suggests faster achievement of set targets, so that they need to talk on new policy right now. This, in turn, means, that inflation should accelerate sooner than everybody expects. Next big challenge is US elections and hardly they pass unsigned for the markets.
Thus, despite that we have some technical limitations and we could get some downside retracement in near-term, outlook for gold remains positive and suggests that new tops should be achieved, although they could stand not too far from 2K level. Some analysts, such as Merrill Lynch, suggest 3k level within 18 months, while we recognize closer standing targets of 2.3 and 2.6K levels.


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. Meantime, as sentiment gradually chills out, as it suggested by recent COT report, we keep an eye on whether deeper retracement happens here...

View attachment 57277

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 - no significant upward action is expected now. Thus, it means that more probable that we will get continuation to 2 160 area later, once short-term retracement will be over.
View attachment 57278

Daily

Trend here stands bearish and Friday session has become an inside one. As Powell statement was not strong enough to trigger thrusting action on gold market, it seems that sentiment change indeed stands under way. With this new inputs, it seems that we still should focus on next strong support areas, where we could consider new long position taking. And the nearest one stands around 1800-1850:
View attachment 57279

Intraday

Here we have few things to pay attention to. Friday's price action looks a bit heavy, so that price was not able to overcome the top that has been formed on Powell's doom&gloom action. It means that this is definitely not the upside continuation, or, at least, investors on Friday were not ready yet and haven't made direction decision. Anyway, it means that downside continuation and deeper retracement could start on next week.

As we have the grabber, it means that price should climb slightly more, to take out recent local spike. It could happen in two ways - either minor action happens, and market hits OP around 5/8 level, forming "222" Sell and then turns down. Or, it could go slightly higher to complete COP target of a larger scale. Any of these scenarios are suitable for our view.
Conversely, only if price jumps above 2015 top again, it could mean that trading plan is changing and price at least should reach OP around 2055, or even goes higher. But now this scenario doesn't look very probable.
View attachment 57280
thanks Sive
 

Sive Morten

Special Consultant to the FPA
Messages
13,924
Greetings everybody,

As we've suggested, gold indeed is creeping higher and almost has hit our COP target. Thus, in few hours supposedly, we should get clarity on how reliable our hypothesis on downside reversal, based on COT data.

Since overall context stands bullish and if any retracement still happen - we consider it only as temporal pause in upside action. That's why, if you intend to go short - do not hurry and wait clear signs of short-term bearish reversal. Say, on daily it could be bearish grabber by the end of today's session:
gold_d_01_09_20.png


On 4H chart, we need to see sharp reversal down from our COP target, based on "222" Sell. Upside breakout above "B" point significantly reduce chances of downside scenario. Next target in this case is OP around 2055$
gold_4h_01_09_20.png
 

Sive Morten

Special Consultant to the FPA
Messages
13,924
Greetings everybody,

So, on gold market today situation is much better. The grabber that we've mentioned yesterday has been formed and now short-term traders could consider taking of bearish position. For daily traders this setup means nothing special, as we do not intend to sell the gold. But it is also good thing as it suggests that we should get gold at better price.
As grabber suggests drop below recent lows, it means that we could see gold at next strong support area around 1800 level and this is our next area for buying.
gold_d_02_09_20.png


Meantime, intraday traders have very clear bearish setup that easy to trade. Invalidation point is clear and stands above the top of the grabber. Entry setup is clear - it is 1H H&S pattern. Thus, once market turns to upside pullback you could start accumulate bearish positions between 3/8 - 5/8 Fib levels with stops against the top...
gold_1h_02_09_20.png
 

Sive Morten

Special Consultant to the FPA
Messages
13,924
Greetings everybody,

our setup has started well and intraday H&S already hits OP target, actually. Still, as we have grabber on daily, we hope that drop will be stronger. Besides, tomorrow we will get NFP release and better numbers could push gold stronger to the downside.
gold_d_03_09_20.png


On 4H chart market stands at support of large triangle pattern. So, within few hours upside pullback is possible. Following the classic way of triangle breakout, this pullback should stop somewhere between the borders and turn down again:
gold_4h_03_09_20.png


On 1H chart this is also Agreement support area where OP of our H&S pattern is done. As we see signs of W&R here, now it is logical to suggest that pullback could reach K-resistance level and re-test the neckline of the pattern. They stand precisely in the middle of 4H triangle. Upside breakout of these levels is quite unwelcome as it put under question the whole bearish context. Thus, if you want to tight stops - move them slightly above the neckline. Those who would like to go short - keep an eye on this area too.
gold_1h_03_09_20.png
 

Sive Morten

Special Consultant to the FPA
Messages
13,924
Greetings everybody,

as other markets gold has completed first downside reaction, reaching support area and now is waiting for NFP release, at price needs new push. At the same time, daily chart has patterns that suggest downside continuation - bearish grabber, almost the same as EUR:
gold_d_04_09_20.png


On 4H chart price mostly is consolidating around the border of the triangle, instead of showing minor pullback, as we've suggested yesterday. This doesn't change the overall idea as both scenarios have bearish character.
gold_4h_04_09_20.png


Still, upside pullback before NFP release is still possible. On 1 H chart we have small 3-Drive Buy pattern, instead of H&S pattern that we've discussed yesterday. This pattern could be completed even on some volatility spikes. Theoretically it suggests action above the top between 2nd and 3rd drives. Thus, it might be some AB-CD pattern with target around K-resistance area:
gold_1h_04_09_20.png


Overall entry process could be tricky due data release, but, theoretically gold should turn down again around this K-resistance area, if NFP will be dollar friendly.
 
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