Sive Morten
Special Consultant to the FPA
- Messages
- 18,732
Fundamentals
Gold rose more than 2 percent to the highest in nearly three weeks on Friday after a U.S. non-farm payrolls report, seen as likely to pave the way for the U.S. Federal Reserve to raise interest rates this month, failed to aid the dollar's ascent.
Non-farm payrolls increased 211,000 in November, the Labor Department said. September and October data was revised to show 35,000 more jobs than previously reported.
"The second consecutive strong jobs report only briefly blunted the gold rally as renewed euro strength and U.S. dollar weakness has driven further short covering in gold," said Tai Wong, director of base and precious metals trading for BMO Capital Markets in New York, adding this was despite the fact that a December rate hike was now more or less guaranteed.
"I'm not sure today's news was so surprising but more confirming," said Rob Haworth, senior investment strategist for U.S. Bank Wealth management in Seattle, adding that it led some holding short positions to book profits.
Bullion prices extended Thursday's bounce from a near-six-year low, buoyed then by monetary easing measures from the European Central Bank that fell short of expectations.
"Shorts were squeezed ... market got way too carried away and over positioned shorts," a London trader said.
"There were two contradicting factors today: NFP, OPEC...oil to zero, gold to the moon."
Brent oil futures lost more than 2 percent, falling below $43 a barrel.
The main focus for the gold market now remains the Fed's meeting on Dec. 15-16 when many expect an interest rate increase, which would be the first in nearly a decade. Higher rates tend to weigh on non-interest-paying gold by increasing the opportunity cost of holding it.
Investors have been positioning for such a move by pulling out of bullion funds. Assets in SPDR Gold Trust, the top gold-backed exchange-traded fund, are at their lowest since September 2008.
CFTC data mostly shows contraction of long position, but last data stands at Wed, so we do not know exactly how it has changed due Friday doom&gloom action. As it stands on Wed, net speculative long position was decreasing with simultaneous diminishing of open interest. It means that investors were closing long positions. Probably this was preparation as for NFP release as for Fed meeting. Now we need just wait and see what current rally is. If market will erase it within 2-3 sessions this will be one situation while if rally will be kept and expanded - this will be quite another tune.
Technicals
Monthly
So, Goldman expect bearish continuation to 1000$ area and we have to return back to medium-term bearish view as drop was really miserable within last 2 weeks. Today we will expand view down a bit, since mostly all our patterns have been completed.
We still think that currently gold should be mostly driven by geopolitics, rather than economics. This driving factor creates absolutely new scale of uncertainty and leads to very fast changes on Globe political situation. That's why we suspect that gold market hardly will fall dramatically, since we're just in the beginning of Middle East tensions. Currently we see clear signs that situation will become worse in nearest 2 months or so. If you would like to see relatively true picture - watch for "zero hedge fund" website materials as on policy as on economy. These guys know what they talk about.
As market gradually will start to come to the same conclusion as gradually situation on gold market will start to change in positive area. Still, 1000$ area is relatively close and these two events do not contradict to each other, just because they are of a bit different time scales.
Speaking on breakeven points between bullish and bearish sentiment - market should show significant upside action and form bullish reversal swing to destroy current bearish domination. It means that gold has to exceed 1310 area.
So, 1050 level has been hit. Minimum target of VOB pattern has been completed and we come to this moment 1-2 years. Also market has hit some other targets. Bearish dynamic pressure also has done well since market has created new low.
Still guys, we have to say that as VOB as pressure patterns are not necessary should stop at minor targets. Gold could continue move down to next ones. Market just has completed what was necessary. And if we will take a look over the horizon a bit, then we will see nice area around 850-890 level - Agreement around major Fib support, and monthly oversold.
If we recall dollar index chart and that it should continue move up, then it will be not a surprise to see gold drop lower.
Actually I see some artificial action in this gold weakness. I can't prove it, but something curious with this move down... it makes me feel uncomfortable.
Anyway, we'll see. Since all major targets have been hit - now it is a question of whether gold will hold below 1050 or not.
On coming week we will be watching for recent rally, how gold will deal with it, whether it will erase it or not.
In fact, guys, "must" bearish targets have been hit, other targets are the kind of "as you wish". So, gold could reach, but this will be some kind of freely action... If this will not happen, strategically we even could turn to "preparation for upside reversal" phase. To get this clarity we will need some time. That's why in nearest term, we mostly will be focus on tactical action.
Weekly
So, not as strong as expected NFP numbers have brought relief to bearish tension on gold market and has triggered bounce up.
At the same time some of our targets have not been reached yet. This is AB-CD, butterfly 1.618 extension. But this move for another 25$ should be treated as sub-product of major action to 1050$.
Not necessary that this has to happen tomorrow, probably this action will be postpone for some time. But existing of untouched targets makes overall situation tricky.
From tactical point of view gold has reached some other targets - 1.618 of First butterfly, 1.0 extension of purple AB-CD (on chart it is purple line), lower border of the wedge. As a result we've got bullish engulfing. This makes situation relatively simple for 1-2 weeks. Market should either drop and erase this pattern by moving below its lows. Or, we will get 2-leg upside retracement on daily chart.
Daily
Daily picture looks really promising and assumes at least 2-3 patterns that could be formed on coming week. First of all we could get some DiNapoli directional pattern - either B&B "Sell" or DRPO "Buy". B&B probably will be the first one that we will be watch for. But it has not been formed yet, since gold has not reached Fib level. So if it will do it on Monday-Tue, then B&B will become reality.
Another chance is DRPO "Buy", if B&B will not be formed and gold will drop without testing 3/8 Fib level.
Both of these patterns agree with weekly engulfing. If we suggest that engulfing will work, then B&B could become the pattern that will form BC leg of possible upside AB-CD. Most probable target of this upside action is 1120-1130.
DRPO, could become the one that will trigger upside action, and it has approximately the same target - 50% Fib resistance.
So, gold already has done initial steps, not let's keep watching what particular patterns we will get:
4-hour
Here we do not have something special. Yes, breakout has happened as soon as market has formed butterfly. Now we're mostly interested in chances on slightly higher action and appearing of B&B on daily chart. If we will treat recent action here as double bottom, then, target stands slightly higher and market could creep a bit more. May be market will form some butterfly "Sell" pattern. It would be perfect, probably.
Hourly
For example, if market will show retracement to WPP first and then turn to forming of butterfly - it's target will stand precisely at daily Fib resistance.
Now market has completed minor 1. 618 AB-CD pattern and retracement to WPP is really possible.
So, today intraday charts show just some possible scenarios. May be we will get some other patterns, but this is not as important. Whatever we will get - we will be able to trade it and get clarity on recent rally and it's durability.
Conclusion:
We think that market participants gradually will start to understand that situation in World is changing, Globe uncertainty is growing and this will lead to re-assessment of gold value. But this is long-term process. In general, gold already has hit "must" long-term targets. Moving lower is possible but it is not necessary from technical point of view. Right now the key factor is gold behavior around recent rally - either it will erase it or keep it.
In short-term perspective we should get multiple patterns on daily chart and will try to trade them.
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 rose more than 2 percent to the highest in nearly three weeks on Friday after a U.S. non-farm payrolls report, seen as likely to pave the way for the U.S. Federal Reserve to raise interest rates this month, failed to aid the dollar's ascent.
Non-farm payrolls increased 211,000 in November, the Labor Department said. September and October data was revised to show 35,000 more jobs than previously reported.
"The second consecutive strong jobs report only briefly blunted the gold rally as renewed euro strength and U.S. dollar weakness has driven further short covering in gold," said Tai Wong, director of base and precious metals trading for BMO Capital Markets in New York, adding this was despite the fact that a December rate hike was now more or less guaranteed.
"I'm not sure today's news was so surprising but more confirming," said Rob Haworth, senior investment strategist for U.S. Bank Wealth management in Seattle, adding that it led some holding short positions to book profits.
Bullion prices extended Thursday's bounce from a near-six-year low, buoyed then by monetary easing measures from the European Central Bank that fell short of expectations.
"Shorts were squeezed ... market got way too carried away and over positioned shorts," a London trader said.
"There were two contradicting factors today: NFP, OPEC...oil to zero, gold to the moon."
Brent oil futures lost more than 2 percent, falling below $43 a barrel.
The main focus for the gold market now remains the Fed's meeting on Dec. 15-16 when many expect an interest rate increase, which would be the first in nearly a decade. Higher rates tend to weigh on non-interest-paying gold by increasing the opportunity cost of holding it.
Investors have been positioning for such a move by pulling out of bullion funds. Assets in SPDR Gold Trust, the top gold-backed exchange-traded fund, are at their lowest since September 2008.
CFTC data mostly shows contraction of long position, but last data stands at Wed, so we do not know exactly how it has changed due Friday doom&gloom action. As it stands on Wed, net speculative long position was decreasing with simultaneous diminishing of open interest. It means that investors were closing long positions. Probably this was preparation as for NFP release as for Fed meeting. Now we need just wait and see what current rally is. If market will erase it within 2-3 sessions this will be one situation while if rally will be kept and expanded - this will be quite another tune.
Technicals
Monthly
So, Goldman expect bearish continuation to 1000$ area and we have to return back to medium-term bearish view as drop was really miserable within last 2 weeks. Today we will expand view down a bit, since mostly all our patterns have been completed.
We still think that currently gold should be mostly driven by geopolitics, rather than economics. This driving factor creates absolutely new scale of uncertainty and leads to very fast changes on Globe political situation. That's why we suspect that gold market hardly will fall dramatically, since we're just in the beginning of Middle East tensions. Currently we see clear signs that situation will become worse in nearest 2 months or so. If you would like to see relatively true picture - watch for "zero hedge fund" website materials as on policy as on economy. These guys know what they talk about.
As market gradually will start to come to the same conclusion as gradually situation on gold market will start to change in positive area. Still, 1000$ area is relatively close and these two events do not contradict to each other, just because they are of a bit different time scales.
Speaking on breakeven points between bullish and bearish sentiment - market should show significant upside action and form bullish reversal swing to destroy current bearish domination. It means that gold has to exceed 1310 area.
So, 1050 level has been hit. Minimum target of VOB pattern has been completed and we come to this moment 1-2 years. Also market has hit some other targets. Bearish dynamic pressure also has done well since market has created new low.
Still guys, we have to say that as VOB as pressure patterns are not necessary should stop at minor targets. Gold could continue move down to next ones. Market just has completed what was necessary. And if we will take a look over the horizon a bit, then we will see nice area around 850-890 level - Agreement around major Fib support, and monthly oversold.
If we recall dollar index chart and that it should continue move up, then it will be not a surprise to see gold drop lower.
Actually I see some artificial action in this gold weakness. I can't prove it, but something curious with this move down... it makes me feel uncomfortable.
Anyway, we'll see. Since all major targets have been hit - now it is a question of whether gold will hold below 1050 or not.
On coming week we will be watching for recent rally, how gold will deal with it, whether it will erase it or not.
In fact, guys, "must" bearish targets have been hit, other targets are the kind of "as you wish". So, gold could reach, but this will be some kind of freely action... If this will not happen, strategically we even could turn to "preparation for upside reversal" phase. To get this clarity we will need some time. That's why in nearest term, we mostly will be focus on tactical action.
Weekly
So, not as strong as expected NFP numbers have brought relief to bearish tension on gold market and has triggered bounce up.
At the same time some of our targets have not been reached yet. This is AB-CD, butterfly 1.618 extension. But this move for another 25$ should be treated as sub-product of major action to 1050$.
Not necessary that this has to happen tomorrow, probably this action will be postpone for some time. But existing of untouched targets makes overall situation tricky.
From tactical point of view gold has reached some other targets - 1.618 of First butterfly, 1.0 extension of purple AB-CD (on chart it is purple line), lower border of the wedge. As a result we've got bullish engulfing. This makes situation relatively simple for 1-2 weeks. Market should either drop and erase this pattern by moving below its lows. Or, we will get 2-leg upside retracement on daily chart.
Daily
Daily picture looks really promising and assumes at least 2-3 patterns that could be formed on coming week. First of all we could get some DiNapoli directional pattern - either B&B "Sell" or DRPO "Buy". B&B probably will be the first one that we will be watch for. But it has not been formed yet, since gold has not reached Fib level. So if it will do it on Monday-Tue, then B&B will become reality.
Another chance is DRPO "Buy", if B&B will not be formed and gold will drop without testing 3/8 Fib level.
Both of these patterns agree with weekly engulfing. If we suggest that engulfing will work, then B&B could become the pattern that will form BC leg of possible upside AB-CD. Most probable target of this upside action is 1120-1130.
DRPO, could become the one that will trigger upside action, and it has approximately the same target - 50% Fib resistance.
So, gold already has done initial steps, not let's keep watching what particular patterns we will get:
4-hour
Here we do not have something special. Yes, breakout has happened as soon as market has formed butterfly. Now we're mostly interested in chances on slightly higher action and appearing of B&B on daily chart. If we will treat recent action here as double bottom, then, target stands slightly higher and market could creep a bit more. May be market will form some butterfly "Sell" pattern. It would be perfect, probably.
Hourly
For example, if market will show retracement to WPP first and then turn to forming of butterfly - it's target will stand precisely at daily Fib resistance.
Now market has completed minor 1. 618 AB-CD pattern and retracement to WPP is really possible.
So, today intraday charts show just some possible scenarios. May be we will get some other patterns, but this is not as important. Whatever we will get - we will be able to trade it and get clarity on recent rally and it's durability.
Conclusion:
We think that market participants gradually will start to understand that situation in World is changing, Globe uncertainty is growing and this will lead to re-assessment of gold value. But this is long-term process. In general, gold already has hit "must" long-term targets. Moving lower is possible but it is not necessary from technical point of view. Right now the key factor is gold behavior around recent rally - either it will erase it or keep it.
In short-term perspective we should get multiple patterns on daily chart and will try to trade them.
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.