GOLD PRO WEEKLY , December 05-09, 2016

[Sive Morten]

Fundamentals

(Reuters) Gold edged higher on Friday, climbing for the first time in four sessions as it shrugged off data showing rising U.S. job numbers, with analysts saying that an expected rise in interest rates had already been priced in.

U.S. employers boosted hiring in November, pushing down the unemployment rate to a more than nine-year low of 4.6 percent and increasing the likelihood that the Federal Reserve will raise interest rates this month.
Bullion is highly sensitive to rising interest rates, which make the non-yielding asset less attractive while boosting the dollar, in which it is priced.

"The market is still thinking a December hike is very likely, which has already factored in, and that's why gold is not really moving today," said Natixis' precious metals analyst, Bernard Dahdah.

Spot gold was up 0.3 percent at $1,174.03 an ounce by 2:33 p.m. EST (1933 GMT), bouncing up from Thursday's lowest level since Feb. 5 at $1,160.38. It was on track to record a fourth straight week of losses.
U.S. gold futures settled up 0.7 percent at $1,177.80 per ounce.

Capital Economics commodities economist Simona Gambarini said that U.S. president-elect Donald Trump is uppermost in investors' minds. "Most investors are now looking at 2017 to see what's going to happen with Trump, what policies he will implement and the inflationary impact of those policies," Gambarini said.

The dollar index, which measures the greenback against a basket of major currencies, slipped by about 0.3
percent, helping to support gold prices. "With a rate rise in a couple of weeks almost certain, the dollar will remain firm and gold will remain pressured, although we could see a bit of book-squaring in the run-up," said Marex Spectron's head of precious metals, David Govett.

Commerzbank said that it expects the upward trend of the first half of the year to resume in 2017. "The headwind from U.S. dollar appreciation and the rise of bond yields should abate and investment demand should pick up again also given the numerous risk factors," Commerzbank said. Holdings of the world's largest gold-backed exchange-traded fund, SPDR Gold Trust, fell 1.5 percent on Thursday after dropping more than 6 percent last month.

COT Report
Currently CFTC data mostly supports an idea of deep retracement on gold market rather than new bear trend. Take a look - here we see massive closing of positions while market is moving lower. Investors close longs as net long position is falling. At the same time open interest also shows decreasing. This, in turn, means that no new positions, including shorts were opened. As a result - net position value and open interest move in the same direction. But this usually happens during retracement. If we have bearish trend here, then open interest should rise on a dropping of speculative position. It means that current drop stands mostly due closing of longs rather than opening shorts and this combination is mostly typical for retracement period.

It means that CFTC data currently supports an idea of deep retracement on monthly chart and keeps valid large reversal pattern by far.

SPDR Fund statistics also supports current price drop. It means that although this may be just a retracement, but gold still could drop more, as no signs of recovery stands on charts of CFTC and SPDR:

Technicals
Monthly

Monthly picture currently supports our suggestion on deep retracement, this is just how markets work. Sooner or later but this retracement should have happened and now it stands underway.

Technically recent upward action started in Dec 2015 is first one after long term of decreasing and it should be interrupted by deep retracement sometime. Probably it should happen but this potential downward action has a great chance to become just a retracement. Overall political and financial situation in the world probably will not give a chance to relax. Thus, we have a positive long-term view on gold market.

As market slightly has moved above YPR1 and our K-resistance area, something is starting to form here, I mean pattern by which long-term global trend could change on gold. Price has formed nice bearish engulfing right around this area and now gold is following to its signal

Take a careful look at the picture - here we could recognize H&S pattern. Besides the shape itself, some features here that in general typical for H&S. For example, relation between head and shoulders - 1.618. Butterfly... very often first part of H&S takes the shape of butterfly pattern...

Finally take a look at action on downward slope and upward one of the head - last move down was slower than current move up. All these moments point on possible H&S pattern here.

Now gold stands at the area where the bottom of right shoulder should be formed. Thus, our first step on this long-term time frame has been completed - "we suggest further drop on gold, at least to 1160-1180 area."

Now we're coming to second step how we've specified it - "watch for validity of H&S pattern." Right now there is an issue exists that we do not like. This is too fast drop. Actually right shoulder is an area where bulls should gradually take control over the market and fast drop here is not a good sign. Still, our task here is relatively simple - just to watch for reversal patterns on daily that confirm bullish reversal and monthly H&S pattern. If we will not get any - then we will not go long, and it will mean that this H&S could fail. The failure of this pattern will lead price below the head, i.e. under 1000$ level.

Conversely If H&S really will work, we expect new long-term bullish trend on gold market that should lead to new highs on 2000$+ levels. It means that 1160-1200 area should be treated as strategical point for long entry.

So, you could imagine the value of bets around this pattern...

Weekly

As gold has reached pre-defined support on weekly chart, and H&S pattern here has completed its mission, we will take a look at weekly chart from different angle today. Since our task right now is to estimate validity of monthly H&S pattern, this picture could help us to specify important moments in this task:

As this rally has started gold has broken up long-term downward channel. This was a sign of changing trend on gold. Right now market returns back to re-test it from opposite side. In general, this is very typical action for gold market. Gold has some habits, such as deep retracements, early reversal traps and others. And one of them is re-testing important levels.
So, around 1170 area we have not just broken channel border, but also major 5/8 Fib level and weekly oversold. Border itself stands slightly lower, around 1150$. Here we should understand two things. First - the strength of this support is sufficient to hold real bullish market and to stop downward retracement. Second - price drop right back into channel will be bearish sign, and this could give us early alarm, even prior monthly H&S will fail.
That's being said, right now on gold we will not just watch for bullish reversal patterns on daily but also keep an eye on 1150-1170 area and control, whether gold will hold above it or not.

Daily

So, as we've estimated above, the strength of current level is sufficient to hold any retracement for really bullish market. Breakout will happen only, if gold will stop to remain bullish. In the beginning of last week gold has completed some intraday bearish patterns. As a result - it has dropped slightly lower and reached AB-CD 1.27 target and major Fib level.
Now it is a question about patterns, guys... First pattern that we will be watching here definitely will be DiNapoli DRPO "Buy", because it is faster than any classical patterns and needs significantly less time on creation.
At the same time, to be honest, I'm a bit worry about abscence of any signs of upside action. This is not very good sign, if bullish market stands at strong support and if this support also is a crucial area:

4-hour
As we can see on intraday charts, there is no suprise why we do not see any reversal signs yet. Gold stands in gradual downward channel and no patterns will appear until it stands inside of it. As you can see it shows very harmonic action inside of it and I've marked the same shapes by rectangle. Following to harmonic action gold should show another drop to keep the same shape, but the problem is, gold stands at strong support. So, it means, that may be on coming week we will get a bit more clarity here.
Obviously that any bullish pattern here have to start from upside channel breakout. Thus, we will keep an eye on this event:

Hourly

Here guys, we have butterfly, and bullish divergence around major support area. Action after NFP release doesn't look really impressive right now, but it is logical to watch for potential H&S pattern here as we're speaking about any reversal patterns etc.
BTW, Italy referendum, if it will bring unexpected results, could add political uncertainty and push gold higher. So, it could be catalyst for upside start. But will gold have enough power to support this upside push...?

Conclusion:
As market has completed first step of our long term analysis - dropped to 1170 area, now we're turning to second step - estimating of validity of monthly H&S pattern.

Our task on short term charts are relatively simple - watch for patterns that either will confirm monthly H&S pattern or refute it. Currently gold stands OK, and everything is fine, except lack of bullish patterns...

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.

 

[Sive Morten]

Good morning,

(Reuters) - Gold edged up in early Asian trade on Monday as jitters over the resignation of Italian Prime Minister Matteo Renzi after losing a referendum on constitutional reform induced safe-haven buying.

FUNDAMENTALS
Spot gold was up 0.3 percent at $1,180.20 an ounce by 0050 GMT. U.S. gold futures gained 0.4 percent to $1,182.40 per ounce. The euro sank to 20-months lows in Asia on Monday after Italian Prime Minister Matteo Renzi said he would resign in the wake of a stinging defeat on constitutional reform that could destabilise the country's shaky banking system.

The U.S. unemployment rate fell to a nine-year low of 4.6 percent in November, as employers added another 178,000 jobs, making it almost certain that the Federal Reserve will raise interest rates later this month.

Deutsche Bank AG has agreed to pay $60 million to settle private U.S. antitrust litigation by traders and other
investors who accused the German bank of conspiring to manipulate gold prices at their expense. Russian Prime Minister Dmitry Medvedev has signed an order to sell rights for the development of the giant Sukhoi Log gold deposit in Siberia in an auction in 2017, the government said in a statement on Friday.

President Tayyip Erdogan on Friday called on Turks to convert their foreign exchange into gold or the Turkish lira and said there was "no option" other than cutting interest rates to spur growth - comments that helped send the lira to a new low.
Turquoise Hill Resources Ltd said on Friday it has suspended concentrate shipments from its giant copper-gold Oyu Tolgoi mine in Mongolia across the Chinese border, blaming problems with a crossing route.

Gold premiums in China held near three-year highs this week amid limited supply of the precious metal with traders saying Beijing was restricting imports, while prices in India swung to a discount as a severe cash crunch dampened appetite.

Speculators reduced their net long position in gold futures and options by 17,843 lots to 103,392 lots, the lowest since February, the U.S. Commodity Futures Trading Commission (CFTC) data showed.

So, on gold market we continue wait for changes. Yesterday gold dived slightly on Italy referendum results, but 1170 support still holds market well. Since we know how important this area is, we continue to watch for reversal patterns here and first one could be DiNapoli directional pattern.

Any "new" action should start on intraday charts first. Here we've decided to watch for channel, or better to say, its possible breakout. On weekly research we've recognized harmonic pattern inside of it, but existance of 1170 daily support makes it difficult to repeat it again. And this indeed has happened - gold was not able to show harmonic drop here, tested WPS1 and jumped right back. This is at least something new and we will keep watching what will happen next:

On hourly chart it is clear W&R of recent lows. Right now gold is forming small bullish grabber. In general gold could take a shape of Double Bottom pattern and this, in turn could lead to some larger pattern on daily chart. Although current steps on changing overall situation here looks blur, may be something will change closer to the end of the week...

 

[Sive Morten]

Good morning,

Guys, today we will take a look at CAD instead of Gold, since Gold shows nothing new by far but on CAD very interesting setup is forming.

Our journey with OPEC meeting, following crude oil reaction and CAD analysis becomes a long-term journey. OPEC extraction freezing leads to boom again among Shale oil producers in US:

http://www.bloomberg.com/news/videos/2016-12-06/how-does-u-s-shale-oil-respond-to-opec-cuts

As a result, it seems that it is not done yet with our idea of 1.36 breakout of CAD... But this is a bit longer-term perspective. Right now we're interested in current action.

Daily chart shows that CAD stands in retracement out from strong 1.36 resistance. And now it has hit good support area - Fib level, MPS1 and natural support:

As a result it could lead to upside bounce that could take a shape of H&S pattern on 4-hour chart:

Following the logic of H&S pattern upside bounce could reach 1.34-1.3450 level to keep the harmony the pattern. But most interesting thing will happen, when it will reach it. Because the failure of H&S will mean breakout of 1.36 level, especially if Crude oil prices will stop raisng and drop below 50$ level again. This could happen very easy, since now we have ultimate demand on delivery futures in 2018 that shows backwardation line of Crude Oil futures.

That's being said, two major points here - completion of H&S first, and watching what will happen, or better to say, watching whether H&S will fail or not, its a second...

 

[Sive Morten]

Good morning,

(Reuters) Gold extended its rise on Wednesday, rebounding from this week's 10-month low as the dollar eased against the euro ahead of a European Central Bank meeting and on the view that a U.S. rate rise next week was already reflected in prices.

In November, the yellow metal posted its biggest monthly fall in more than three years. The losing streak spilled into December as fears of U.S. rate rise, an increased appetite for risk and a stronger dollar all weighed on prices at a time of waning demand from top consumers, China and India.

Gold prices found solid support, however, at the $1,172 level, a chart retracement of its December-to-July rally. Spot gold was up 0.3 percent at $1,173.32 an ounce by 2:47 p.m. EST (1947 GMT), up 0.6 percent, up from Monday's 10-month low at $1,157. U.S. gold futures for February delivery settled up 0.6 percent at $1,177.50.

"The metal lost 8 percent during the month of November, thanks to the Fed, which is expected to increase the interest rate this month," said Naeem Aslam, Think Markets' chief market analyst. "We think that the interest rate story is largely baked into the gold price, and when the Fed increases rates, we may not see much of a move," Aslam added.

Any shift in gold prices will likely be dictated by the currency markets. The dollar edged 0.1 percent lower against the euro on Wednesday ahead of key central bank meetings. "Today is a little more of a pause," said Rob Haworth, senior investment strategist for U.S. Bank Wealth management in Seattle. "I think rates moving higher is the primary headwind to gold moving into next year and the market doesn't really get the benefit from rising inflation," he said, referring to expectations for the Federal Reserve to raise U.S. interest rates.

The Fed is expected to hike rates at its meeting next week, a move seen as negative for gold, as higher U.S. rates lift the opportunity cost of holding non-yielding bullion, while boosting the dollar, in which it is priced.
The European Central Bank is expected to extend its quantitative easing program when it meets on Thursday, but questions remain over whether it will send a formal signal on the eventual end of that program.

So, guys, on Gold market situation is very similar to JPY setup that we've discussed today, but in opposite direction. On daily chart we see nothing really new. Market still stands at support and shows lazy fluctuations around. We continue to watch for DRPO "Buy" pattern here. Trend has turned bullish, formally and price stands above 3x3 DMA, so may be today we will get 1st close above it...

Since daily action is not impressive, we mostly will discuss intraday price action. As we've said in weekly research - "If something will start, it will start from breakout of channel on 4-hour chart" and this has happened. As you can see price right now stands out of it:

The only reversal pattern that could recognize here and that could be useful is H&S:

As with our today's JPY scenario, our major point to watch for is the bottom of right shoulder around 1170 by 2 reasons. First - this is safest point for taking long position, since it provides minimal loss if H&S will fail. Second, when price will be around bottom of right shoulder - H&S pattern will be well-recognizable and daily DRPO probably will be formed. Thus, we will have clear patterns on our back.

 

[Sive Morten]

Good morning,

Since gold shows absolutely anemic action, we will take a look at JPY again. Just to remind you, gold stands at strong weekly resistance and odds suggest some respect of this resistance by bounce down of some degree:

On daily chart appearing of DRPO "Sell" is still possible. Due recent events of FX markets, this setup has become weaker, as CHF DRPO has failed, we suggest further drop on EUR. But at the same time, suggested EUR action should happen due EUR weakness itself, thus, may be JPY will complete setup that we expect to see. Now we have close below 3x3 DMA, above... Now we need close below to comfirm DRPO...

But on 4-hour chart we have important detail. Currently yen is forming bullish dynamic pressure, that suggests taking out of the top. It could be either real upside breakout or W&R. Latter seems more probable, since market is OB on weekly chart. Anyway, we continue watching and still keep valid analysis, when we suggest potential entry point at right shoulder of H&S pattern, if it will be formed of course...

Upside spike doesn't contradict idea of DRPO pattern, if it will be just W&R. If you plan to take position right in head consolidation and do not wait for appearing of shoulder - just keep in mind this bullish dynamic pressure scenario.