Sive Morten
Special Consultant to the FPA
- Messages
- 18,699
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.
(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.