Sive Morten
Special Consultant to the FPA
- Messages
- 18,699
Fundamentals
Overall background stands optimistic for gold market. Global tensions stand here and there, Brexit mess stands in the hot stage, Fed policy now is under dovish revision and stock market with few steps from collapse.
As Reuters reports - Gold prices held range-bound on Friday as the dollar trod water after U.S. President Donald Trump sent mixed signals about the prospects for a trade deal with Beijing, while palladium notched a record high.
Donald Trump and Chinese leader Xi Jinping are expected to discuss trade on the sidelines of the G20 summit in Argentina on Saturday, where global trade tensions are expected to dominate the agenda.
However, Trump sent mixed signals on Thursday about the trade deal, saying an agreement was close but he was not sure he wanted one, just as he left for Argentina for a meeting with President Xi.
“The gold market shall be closely looking ahead to further cues from the G20 summit this weekend,” said Sugandha Sachdeva, vice president of metals, energy and currency research at Religare Broking Ltd.
“Any positive development will be negative for the dollar index, which has benefited as a safe haven this year whenever tensions were seen escalating. On the contrary, if the trade spat intensifies, the stage will be set for further decline in gold prices.”
We do not know definite results of meeting, as D. Trump has missed press conference, but overall comments stands as follows:
"The relationship is very special, the relationship I have with President Xi," Trump said. "And I think that is going to be very primary reason why we'll probably end up -- end up getting something that will be good for China and good for the United States."
Xi echoed the President's remarks, saying the meeting is "a manifestation of our personal friendship."
So, maybe they have come to some agreement and results we should see within few weeks.
Second important issue is Fed rate cycle. J. Powell words last week has triggered mass review of Fed rate change in 2019 and now market prices in only single rate increase in 2019, according to CME Fed watch
tool. This is another supportive factor for the gold market.
“Gold seems to be moving sideward at this point of time... A lot depends on how the dollar will move,” said Brian Lan, managing director at Singapore dealer GoldSilver Central.
Minutes from the U.S. Federal Reserve’s November meeting indicated that another interest rate hike is warranted. However, Fed officials also kept the debate open on when the U.S. central bank might pause its monetary tightening and how it would relay those plans to the public.
“Gold has held its 100-day moving average at around $1,211 and $1,215 to the 50-day moving average, so we definitely are moving into supports at the $1,215-$1,230 area,” a Hong Kong-based trader said.
COT Report
Recent CFTC data doesn't bring a long of clarity. Open interest has dropped significantly, more than 115K contracts. Reducing of longs and shorts was approximately equal amount. The huge part of closed position come from hedgers. Speculators closed 6.5K of shorts. Thus net position stands neutral around zero. It means that speculative long and short positions are almost equal:
The same data you could see in table. It is difficult to explain this phenomenon with any reason but anticipated drop of volatility on gold market.
Final driving factor for gold is stock market. This is old and well-known relation that earned profits on stock markets flow to gold when crisis starts. When stock bubble blows within 1-2 years, this cycle repeats.
Fathom consulting suggests that blow should happen rather soon and this coincides with our view as well. Not once we put DJIA, NASDAQ and DAX charts with huge reversal patterns on the top.
The uncertainty which has been a feature of 2018, has spiked even higher in recent months. Equity markets have been volatile. Does this signal the end of the equity bull market? Notably, the US has significantly outperformed other developed market equities this year, even throughout the volatile market corrections last month, pushing relative valuations to near-record levels. As we have set out to clients in our latest quarterly forecast, a narrowing of the performance gap between the US and other developed market equities represents one of a number of developments that, were they to occur within the next few weeks or months, would raise our confidence that there is time for ‘one more party’ before the equity market bull run comes to an end. Indeed, last week US equities, as measured by the S&P 500, underperformed other developed market equities, as measured by the MSCI World excluding US.
Technical
Monthly
Monthly picture barely has changed as November action stands as inside one to October candle. On monthly chart we keep our long-term technical scenario, that could be realized. this is not single possible scenario, but currently it seems as very probable. We will keep it intact for awhile, because it illustrates our fundamental expectations on gold market. Although final downside target could be revised higher someday because as political as economical situation is not static but we keep our direction "down" by far.
Here we try to involve fundamental view in technical analysis, trying to combine patterns with real fundamental situation on gold. So, we will take broader view.
If you follow our weekly updates, you should remember our explanation and why we think that gold inability to break through 1380 resistance should be treated as bulls' defeat and gold failure. This is important in outlook of longer-term perspective.
Fundamental picture suggests two major things. In shorter-term US will keep dominate role in the world, because indirectly it controls EU economy as major EU companies have significant part of their business in US, or on US territory, US dollar is still world major currency and, as we've estimated above, China starts to show signs of chilling their economy.
Second important issue, this long-term relations that stand for decades start changing. Both of these moments, putting together, lead us to following conclusion. Within few years gold should remain under pressure of positive interest rates cycle. While gradually, when breaking of long-term economic relations will be seen brighter and brighter and impact not only China, EU but US as well - this will be turning point for the gold, or slightly before that. Because any global crush of any kind triggers demand for gold. That is what we see from fundamentals. The same view we see among other analysis, which they backed with statistics and fundamental research. Thus, Fathom Consulting expects starting of world crisis around 2020.
It could look unbelievable, but technical picture shows approximately the same. Failure of 1380 upside breakout confirms our idea of 2-3 years of US and US Dollar domination. But at the same time gold should show preparation to reversal, and here it is. One of the scenarios that might be formed here is big 1.618 butterfly, which is bullish reversal pattern. It has 1.618 target right around gold price, which is corresponds to extraction spending approximately. So, it is long-term breakeven point.
Finally, butterfly could become large reverse H&S pattern around all time 5/8 Fib support and ~40% of this pattern could be seen on the market. What we see on the chart nicely corresponds to current fundamental background.
Alternative scenarios suggest appearing of different patterns, such as "222" Buy, or 1.27 butterfly but it doesn't affect the core and reflects only a degree of global political and economical processes, whether they will be smooth or drastic.
Of course, political life is not static, and it could show fast turns. But right now, everything looks very harmonic.
Here we also have mentioned huge demand on gold from emerging countries - China, Russia and Turkey. Developed countries repatriate gold from US. It means that everybody prepares to something, which should significantly increase demand for a gold. Decisive moment here will be the breakout of YPS1 where gold stands right now. But last few weeks we see that gold, oppositely, holds well and even bounces higher, up from it.
Weekly
Here gold keeps the same scenario. Weekly trend stands bullish. Once gold has completed AB=CD upside target - we've got "222" Sell pattern, which minimal target is 3/8 retracement been done. Now market turns up again and here we could suggest different action. Retracement down was harmonic and almost equal to BC leg. Thus, if harmony will hold further, upside leg also could be approximately the same. In this case, the target will be 1260 - the one that we've initially discussed.
Bullish setup will be valid until market holds above "C" point of our AB-CD pattern, keeps upside tendency and stands above major 5/8 Fib support. But also we have to keep in mind that this action is just a retracement of larger scale bearish trend. In fact, we have long term OP target around 1113 and it is still valid.
Daily
Here we have similar setup to EUR. Market stands in upside channel on daily chart and formed bullish grabber. Bullish context demands upside continuation, because major retracement was done already. Any return back to trend line support and especially breakout is the sign of weakness and tells that market has no ability to continue upside action. If we see this - a lot bearish patterns could get starting point, and one of them is huge downside butterfly.
Here everything will depend on market ability to proceed upside action, keep recent lows intact and start moving to upside border of the channel and our 1260 target:
Intraday
That's the patterns that we have to keep an eye on. First is our 4H setup. Here we have our small initial AB-CD with XOP target around 1240, H&S reverse shape with AB-CD target around 1245 and butterfly with the same 1.618 destination point. To make all this stuff working, gold has to keep valid 1210 lows, and preferably recent 1215 lows as well, because this is daily grabber's lows. Once market will drop below 1210 bullish scenario will be destroyed at high degree.
On 1H chart we see retracement down to major 5/8 Fib support and Agreement area as we've suggested on Friday. Although it could hit 1214 XOP target without any harm to overall bullish context, but somehow we suggest that gold either will start upside action right from here or bullish scenario will be destroyed. If Agreement can't hold market, XOP far less can do it alone.
This clearly shows us the trading plan. Bullish position could be taken against 1210 lows. Once it will be broken context will turn to bearish.
Conclusion:
Sentiment stands moderately positive for gold market as there are a lot of different factors that support gold demand. This keeps on the table action to 1260 area.
This week 1210 lows play exceptional role and stands as a border between bullish and bearish context. We start the week with attempt to go long as we have bullish patterns and relatively positive fundamental background. If somehow 1210 lows will be broken - context will turn to bearish.
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.
Overall background stands optimistic for gold market. Global tensions stand here and there, Brexit mess stands in the hot stage, Fed policy now is under dovish revision and stock market with few steps from collapse.
As Reuters reports - Gold prices held range-bound on Friday as the dollar trod water after U.S. President Donald Trump sent mixed signals about the prospects for a trade deal with Beijing, while palladium notched a record high.
Donald Trump and Chinese leader Xi Jinping are expected to discuss trade on the sidelines of the G20 summit in Argentina on Saturday, where global trade tensions are expected to dominate the agenda.
However, Trump sent mixed signals on Thursday about the trade deal, saying an agreement was close but he was not sure he wanted one, just as he left for Argentina for a meeting with President Xi.
“The gold market shall be closely looking ahead to further cues from the G20 summit this weekend,” said Sugandha Sachdeva, vice president of metals, energy and currency research at Religare Broking Ltd.
“Any positive development will be negative for the dollar index, which has benefited as a safe haven this year whenever tensions were seen escalating. On the contrary, if the trade spat intensifies, the stage will be set for further decline in gold prices.”
We do not know definite results of meeting, as D. Trump has missed press conference, but overall comments stands as follows:
"The relationship is very special, the relationship I have with President Xi," Trump said. "And I think that is going to be very primary reason why we'll probably end up -- end up getting something that will be good for China and good for the United States."
Xi echoed the President's remarks, saying the meeting is "a manifestation of our personal friendship."
So, maybe they have come to some agreement and results we should see within few weeks.
Second important issue is Fed rate cycle. J. Powell words last week has triggered mass review of Fed rate change in 2019 and now market prices in only single rate increase in 2019, according to CME Fed watch
tool. This is another supportive factor for the gold market.
“Gold seems to be moving sideward at this point of time... A lot depends on how the dollar will move,” said Brian Lan, managing director at Singapore dealer GoldSilver Central.
Minutes from the U.S. Federal Reserve’s November meeting indicated that another interest rate hike is warranted. However, Fed officials also kept the debate open on when the U.S. central bank might pause its monetary tightening and how it would relay those plans to the public.
“Gold has held its 100-day moving average at around $1,211 and $1,215 to the 50-day moving average, so we definitely are moving into supports at the $1,215-$1,230 area,” a Hong Kong-based trader said.
COT Report
Recent CFTC data doesn't bring a long of clarity. Open interest has dropped significantly, more than 115K contracts. Reducing of longs and shorts was approximately equal amount. The huge part of closed position come from hedgers. Speculators closed 6.5K of shorts. Thus net position stands neutral around zero. It means that speculative long and short positions are almost equal:
The same data you could see in table. It is difficult to explain this phenomenon with any reason but anticipated drop of volatility on gold market.
Final driving factor for gold is stock market. This is old and well-known relation that earned profits on stock markets flow to gold when crisis starts. When stock bubble blows within 1-2 years, this cycle repeats.
Fathom consulting suggests that blow should happen rather soon and this coincides with our view as well. Not once we put DJIA, NASDAQ and DAX charts with huge reversal patterns on the top.
The uncertainty which has been a feature of 2018, has spiked even higher in recent months. Equity markets have been volatile. Does this signal the end of the equity bull market? Notably, the US has significantly outperformed other developed market equities this year, even throughout the volatile market corrections last month, pushing relative valuations to near-record levels. As we have set out to clients in our latest quarterly forecast, a narrowing of the performance gap between the US and other developed market equities represents one of a number of developments that, were they to occur within the next few weeks or months, would raise our confidence that there is time for ‘one more party’ before the equity market bull run comes to an end. Indeed, last week US equities, as measured by the S&P 500, underperformed other developed market equities, as measured by the MSCI World excluding US.
Technical
Monthly
Monthly picture barely has changed as November action stands as inside one to October candle. On monthly chart we keep our long-term technical scenario, that could be realized. this is not single possible scenario, but currently it seems as very probable. We will keep it intact for awhile, because it illustrates our fundamental expectations on gold market. Although final downside target could be revised higher someday because as political as economical situation is not static but we keep our direction "down" by far.
Here we try to involve fundamental view in technical analysis, trying to combine patterns with real fundamental situation on gold. So, we will take broader view.
If you follow our weekly updates, you should remember our explanation and why we think that gold inability to break through 1380 resistance should be treated as bulls' defeat and gold failure. This is important in outlook of longer-term perspective.
Fundamental picture suggests two major things. In shorter-term US will keep dominate role in the world, because indirectly it controls EU economy as major EU companies have significant part of their business in US, or on US territory, US dollar is still world major currency and, as we've estimated above, China starts to show signs of chilling their economy.
Second important issue, this long-term relations that stand for decades start changing. Both of these moments, putting together, lead us to following conclusion. Within few years gold should remain under pressure of positive interest rates cycle. While gradually, when breaking of long-term economic relations will be seen brighter and brighter and impact not only China, EU but US as well - this will be turning point for the gold, or slightly before that. Because any global crush of any kind triggers demand for gold. That is what we see from fundamentals. The same view we see among other analysis, which they backed with statistics and fundamental research. Thus, Fathom Consulting expects starting of world crisis around 2020.
It could look unbelievable, but technical picture shows approximately the same. Failure of 1380 upside breakout confirms our idea of 2-3 years of US and US Dollar domination. But at the same time gold should show preparation to reversal, and here it is. One of the scenarios that might be formed here is big 1.618 butterfly, which is bullish reversal pattern. It has 1.618 target right around gold price, which is corresponds to extraction spending approximately. So, it is long-term breakeven point.
Finally, butterfly could become large reverse H&S pattern around all time 5/8 Fib support and ~40% of this pattern could be seen on the market. What we see on the chart nicely corresponds to current fundamental background.
Alternative scenarios suggest appearing of different patterns, such as "222" Buy, or 1.27 butterfly but it doesn't affect the core and reflects only a degree of global political and economical processes, whether they will be smooth or drastic.
Of course, political life is not static, and it could show fast turns. But right now, everything looks very harmonic.
Here we also have mentioned huge demand on gold from emerging countries - China, Russia and Turkey. Developed countries repatriate gold from US. It means that everybody prepares to something, which should significantly increase demand for a gold. Decisive moment here will be the breakout of YPS1 where gold stands right now. But last few weeks we see that gold, oppositely, holds well and even bounces higher, up from it.
Weekly
Here gold keeps the same scenario. Weekly trend stands bullish. Once gold has completed AB=CD upside target - we've got "222" Sell pattern, which minimal target is 3/8 retracement been done. Now market turns up again and here we could suggest different action. Retracement down was harmonic and almost equal to BC leg. Thus, if harmony will hold further, upside leg also could be approximately the same. In this case, the target will be 1260 - the one that we've initially discussed.
Bullish setup will be valid until market holds above "C" point of our AB-CD pattern, keeps upside tendency and stands above major 5/8 Fib support. But also we have to keep in mind that this action is just a retracement of larger scale bearish trend. In fact, we have long term OP target around 1113 and it is still valid.
Daily
Here we have similar setup to EUR. Market stands in upside channel on daily chart and formed bullish grabber. Bullish context demands upside continuation, because major retracement was done already. Any return back to trend line support and especially breakout is the sign of weakness and tells that market has no ability to continue upside action. If we see this - a lot bearish patterns could get starting point, and one of them is huge downside butterfly.
Here everything will depend on market ability to proceed upside action, keep recent lows intact and start moving to upside border of the channel and our 1260 target:
Intraday
That's the patterns that we have to keep an eye on. First is our 4H setup. Here we have our small initial AB-CD with XOP target around 1240, H&S reverse shape with AB-CD target around 1245 and butterfly with the same 1.618 destination point. To make all this stuff working, gold has to keep valid 1210 lows, and preferably recent 1215 lows as well, because this is daily grabber's lows. Once market will drop below 1210 bullish scenario will be destroyed at high degree.
On 1H chart we see retracement down to major 5/8 Fib support and Agreement area as we've suggested on Friday. Although it could hit 1214 XOP target without any harm to overall bullish context, but somehow we suggest that gold either will start upside action right from here or bullish scenario will be destroyed. If Agreement can't hold market, XOP far less can do it alone.
This clearly shows us the trading plan. Bullish position could be taken against 1210 lows. Once it will be broken context will turn to bearish.
Conclusion:
Sentiment stands moderately positive for gold market as there are a lot of different factors that support gold demand. This keeps on the table action to 1260 area.
This week 1210 lows play exceptional role and stands as a border between bullish and bearish context. We start the week with attempt to go long as we have bullish patterns and relatively positive fundamental background. If somehow 1210 lows will be broken - context will turn to bearish.
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.
