Gold GOLD PRO WEEKLY, December 07 - 11, 2020

Sive Morten

Special Consultant to the FPA
Messages
14,217
Fundamentals

We keep our habit practice to split fundamental analysis in two parts. First one stands in our FX report where we discuss common things for all markets. Thus, yesterday we've talked about short-term perspective, coming stimulus decisions and longer-term view on inflation and vaccination results. Short-term and long-term expectations are differ. While within 1-2 months it should be good time for USD rivals and riskier assets, in longer-term situation could change mostly due inflation pressure and uncertainty around vaccination efficiency.
Today, with the gold market analysis, we take a look at additional risks and some specific issues for the gold market.

This was difficult week for the gold market as investors' sentiment was hurt by rising optimism around vaccine and smooth power transition to J. Biden team. Right in the beginning we would like to say that neither former nor latter has happened yet. It means that situation could change drastically on coming week. Vaccine performance mostly relates to longer-term perspective and it is still a question what efficiency will be on industrial capacity production. While power transition meets surprises from D. Trump team and this risk that we've called to keep on the table now is becoming important again.

Gold slipped to a five-month low on Monday and was on track for its worst month in four years as optimism over a swift vaccine-fuelled economic recovery dented allure for safe havens.

"They (investors) are abandoning gold because they feel that the vaccine is going to open up the markets at some point and it looks like the transition is going to be orderly," said George Gero, managing director at RBC Wealth Management. It is going to be a long road ahead for gold because there does not seem to be any need for the haven at this time."

"Traders and investors are exhibiting little risk aversion recently, amid no geopolitical hotspots at present, COVID-19 vaccine hopes and an apparent smoother transition of U.S. presidential duties seen," Kitco Metals senior analyst Jim Wyckoff said in a note. That's all bearish for the safe-haven metals."


This is, in short, the background and investors' mood in the beginning of the week. Both driving factors should be cancelled on coming week, as we suppose. Vaccine euphoria just because of overreaction, while power transition meets problems as D. Trump shows success in contesting the results:

Trump keeps up false claims of widespread fraud at Georgia rally for U.S. senators - They cheated and they rigged our presidential election but we will still win it,” Trump said. “And they’re going to try and rig this election too,” Trump, a Republican, told the crowd, who chanted “Four More Years!” Votes this time will be re-counted with checking the signature verification.

Second thing, why we think that political risks are rising - Justice Department accuses Facebook of discriminating against U.S. workers

Jim Rogers, the investor who co-founded the Quantum Fund with George Soros, said he expected the U.S. central bank to continue printing and spending more money under the Democratic administration led by President-elect Joe Biden. Biden is expected to nominate former Federal Reserve Chair Janet Yellen as U.S. Treasury secretary.

“If Janet Yellen is the next Secretary of the Treasury, she loves to print and spend money,” Rogers said.



Taking a contrarian view, Rogers said he was not bearish on the U.S. dollar after its correction and on its safe haven appeal. Bets against the U.S. dollar were expected to linger or even increase in the aftermath of the Nov. 3 presidential election, a Reuters poll found.

“There are many bears right now, which usually leads to a rally; so, I’m not bearish on the U.S. dollar,” he said.

Rogers said he was not buying gold or silver at current prices, but was looking at declines in both precious metals to add to his portfolio. He was one of the earliest investors to predict the boom in commodities in the early-2000s.

“Silver is much cheaper than gold on a historical basis. I will buy both (silver and gold), but I will buy more silver.

Later gold has shown some upside action, seems to be deriving strength from a tired dollar and mixed comments from U.S. Federal Reserve Chair Jerome Powell and
Treasury Secretary Steve Mnuchin," said Lukman Otunuga, senior research analyst at FXTM. Concerns over spiking coronavirus cases are also contributing to the metal's upside despite the growing optimism around vaccine developments."


In remarks released on Monday, Powell said the U.S. is entering "challenging" few months, while a potential vaccine faces challenges of production and mass distribution before its economic impact becomes clear. Making gold cheaper for investors holding other currencies, the dollar fell, pressured by expectations of more U.S. economic stimulus.

Underlying drivers for gold have not changed, including the dollar, and movements in real yields, which are still at their lowest in about a month, said Saxo Bank analyst Ole Hansen.

Top Senate Republican Mitch McConnell urged the U.S. Congress to pass a $1.4 trillion spending bill including coronavirus stimulus, while some senators and House members proposed relief measures worth $908 billion.

2021 will be a mixed year for gold, positive in the first half and negative in the second, said UBS analyst Giovanni Staunovo. Essentially it's driven by the vaccine use influencing central bank activity ... I'm not saying there will be a rate cut, but there'll be some discussion about a change in the policy environment and gold will start to feel the pain (in the second half)," he said.

Although Congressional lawmakers were unable to agree on a fresh U.S. coronavirus relief package, early signs indicate that a $908 billion bipartisan proposal could be gaining traction as a negotiating tool. Stimulus talks, especially over a bipartisan agreement, will support gold in the short term as it will likely weaken the U.S. dollar, said Michael Langford, executive director at corporate advisory and consultancy firm AirGuide. However, optimism over a COVID-19 vaccine could have limited impact on bullion as much of it is priced in, he added.


Health experts in the United States welcomed Britain's emergency approval of Pfizer's vaccine, in a sign that U.S. regulators may soon follow suit.

Vaccinations will take a long time to cure COVID-19," said Kunal Shah, head of research at Nirmal Bang Commodities in Mumbai, India, adding that given the level of monetary debasement, gold could rise to $1875-$1880 in December.

Gold is undervalued given the weaker dollar and low-interest rates and should be trading in the 1900s, Howie Lee, economist at OCBC Bank said, adding it could rally in the near future.


"Gold's reaction to a notably weak U.S. payrolls report - selling off instead of rallying - suggests bargain-hunters might be sated for the moment," adding there could be some modest but steady "program selling" possibly by exchange traded funds. Data on Friday showed the U.S. economy added the fewest workers in six months in November, cementing expectations of more fiscal stimulus that lifted Wall Street's main indexes to all-time highs.

"Beyond near-term corrections, a weaker dollar, negative real rates, concerns surrounding inflation and expectations of further fiscal stimulus amid accommodative monetary policy are likely to keep gold price risk-skewed to the upside," Standard Chartered analyst Suki Cooper said.

CFTC Data

Take a look that gold shows good performance this week. Despite that open interest has dropped, numbers tells that it has happened mostly due massive closing of speculative short and positions and traders' out from spreading. Hedgers have increased possession against gold growth for 15K contracts. In general net long position has increased for 18K contracts:

1607246645481.png


1607246803503.png

Source: cftc.gov
Charting by Investing.com

So, observation of analysts' opinion concerning current situation on the gold repeats the same things that we've mentioned earlier. Markets gradually turn to common sense after euphoria of last week around vaccination. It is still long journey ahead with blur results. As AstraZeneca has put its vaccine under deeper efficiency testing, when its partner Oxford University said it might have just 62-72% of efficiency against earlier mentioned 90-95% explains that even producers do not know the real efficiency in real-time testing. Although Pfizer and others do not talk about it - the tricky moment stands the same. Additionally we need 70+% citizens to be inoculated to support efficiency on adverted levels, while in the US only ~55-60% said they are ready to vaccinate. All these moments postpone the vaccination driving factor on 2nd part of 2021 as we will get first result not early than on summer.

In short-term stimulus factors should support gold, but somehow we suggest big chances of no announcement from Fed in December. This is "before Xmas" time and period of power transition. Fed has no necessity to announce measures in this environment. We treat political risks as more important driving factor right now. Something should happen on coming week as it is the last week before colleagues voting on 14th of December. Lawsuits can't be completed so soon, thus D. Trump should either involve the Supreme Court, or, if it will not help him, announce the Emergency Regime, using the Constitutional right. This could become major driving factor for gold. And this is the reason why we call to not go short on gold for some time. It might become just rumors and disinformation, but it is better to be insured. After 14th of December, if D. Trump will not make the major turn to presidency, his efforts loose the efficiency and it will become harder to turn situation in his favor.

So, as you can see, this is tricky month for the gold. No new stimulus announcement could push gold lower again, as interest rates start rising this week. Conversely D. Trump breakthrough and stimulus could return gold above 1900 or even higher area, mostly on political risks background.


Technicals
Monthly


Monthly trend has turned bearish, but it is not confirmed yet as December is not over. Upside bounce now stands from 3/8 Fib level that is not shown on the monthly chart. D. Trump contesting efforts could have "bomb" effect, but keeping situation reasonable, if nothing will happen and Fed announces no new stimulus this month, we suggest that 1685 level could be reached and it looks attractive for position taking as it is accompanied by monthly oversold as well. In fact, we have few areas where "last bounce" could start, and on monthly chart this is 1685 area.

In a case of Fed stimulus announcement and D. Trump success price action could be unpredictable, supposedly to upside and above 1900 area. At least we do know that Fed takes meeting not on the coming week, and depending on D. Trump efforts, we could judge about the Fed. In a case of Trump's success, Fed hardly announce any measures.

gold_m_07_12_20.png


Weekly

Weekly trend stands bearish. It is difficult to relay pullback to 1836 level, as it has been broken more than for 50$. More probable that upside reaction stands due oversold and important daily extension targets.

Here we keep our "perfect" scenario that suggests excellent long entry chance around 1740 Agreement area with stops below 1690-1730 K-area. It is not the fact that we will get it, but if no extraordinary driving factors intrude - technically it is not bad chance to get it. Market overreaction on vaccination should help us to get gold at good price.
gold_w_07_12_20.png


Daily

Daily trend stands bullish and, as we've mentioned earlier, price hits natural 1850 resistance area, that also includes Fib levels. Odds suggest that some response should follow and gold supposedly should show some pullback in the beginning of the week. Next upside target stands around 1880 that includes K-area and daily Overbought level. But even to 1900 - it still should be treated as retracement. To make real break of the tendency gold has to erase Pfizer sell-off and climb above 1965 top.

gold_d_07_12_20.png


Intraday

3- Drive pattern that we've discussed on Friday, still could be formed, although recent drop does not match to usual performance of the pattern. But, anyway, as we have no plans to go short, it is not important how downside action starts. Here, on 1H chart we have to keep an eye on 1820 support cluster. Gold has to stay above this area to keep bullish context. Otherwise it might become the first signs of downside continuation. This probably happens if bullish rumors will not be confirmed - Fed provides no stimulus and D. Trump loses.

gold_1h_07_12_20.png
 

PassPP

Private, 1st Class
Messages
26
dear Sive, great writing , may I can ask your opinion of CFTC s Disaggregated report on Gold.Do you suggest to consider its Managed money category in fundamentals ? thanks


CFTC Data

Take a look that gold shows good performance this week. Despite that open interest has dropped, numbers tells that it has happened mostly due massive closing of speculative short and positions and traders' out from spreading. Hedgers have increased possession against gold growth for 15K contracts. In general net long position has increased for 18K contracts:

View attachment 60043
 

Sive Morten

Special Consultant to the FPA
Messages
14,217
dear Sive, great writing , may I can ask your opinion of CFTC s Disaggregated report on Gold.Do you suggest to consider its Managed money category in fundamentals ? thanks
Hi Mate, haven't seen you for a long time here :)

Yes, Managers stand in category of "Speculators" in contradiction to hedgers. In fact, there are two types of report of CFTC - old type includes just two categories Non-commercial which are Speculators and Commercial - they are hedgers. While new type splits both groups on additional parts. I just in habit with elder type and use it most of all. Here is detailed information on this subject
I use disaggregated futures+options short type of report.
 

Sive Morten

Special Consultant to the FPA
Messages
14,217
Greetings everybody,

we're keep going with our trading plan. The first stage is done accurately, as after pullback to 1820 area gold has turned up again on anticipation of more stimulus from US government. Still, these stimulus mostly are priced-in as they probably should be less than expected, and currently gold is coming to vital resistance area of 1890-1900.
D, Trump promises something outstanding this week. As you know we treat political risks this week as the major ones that could easily push gold for 50+$ in a blink of an eye. This is the reason why we call to not take any short positions, at least until 14th of December.
gold_d_08_12_20.png


On 4H chart we have steep AB-CD pattern with 1907 OP and wide resistance cluster around 1900 area, that supposedly is nearest short-term target. Meantime market is coming to COP where minor reaction could happen:
gold_4h_08_12_20.png


As we see upside acceleration, most probable that pullback hardly become deeper than nearest 1850 support level. While 1820-1840 is vital range for bullish context, as gold has to stay above it to keep the positive mood:
gold_1h_08_12_20.png
 

PassPP

Private, 1st Class
Messages
26
Hi Mate, haven't seen you for a long time here :)

Yes, Managers stand in category of "Speculators" in contradiction to hedgers. In fact, there are two types of report of CFTC - old type includes just two categories Non-commercial which are Speculators and Commercial - they are hedgers. While new type splits both groups on additional parts. I just in habit with elder type and use it most of all. Here is detailed information on this subject
I use disaggregated futures+options short type of report.
thank you Sive ,that s something interesting for me , based on the commitment report L vs S positons are 6.7k vs -12k (for me bullish) on the Money managers side is almost draw -3k in both direction (futures only), futures and options combined data is different again...
Képernyőfotó 2020-12-08 - 11.44.12.png

maybe i give too much significance to this discrepancy but which data do you consider more reliable trading wise ?
 

Sive Morten

Special Consultant to the FPA
Messages
14,217
maybe i give too much significance to this discrepancy but which data do you consider more reliable trading wise ?
Well, I'm usually watching for more valuable changes. First is - Open interest. Its dynamic shows the trend. If you have tendency in positions and it is supported by open interest dynamic - this is trend. If not supported, this is mostly due closing of opposite positions rather than new tendency.
Second - compare position changing to Open interest. 6-10K for Gold is very small change, that is near weekly fluctuation. It should be 20K+ changes.
Also take a look at the hedgers - tendency is more reliable, if hedgers increase opposite positions.
Finally - keep an eye on ultimate levels. If net position is close to the top/bottom - reversal or meaningful retracement is near. Treat this numbers roughly, approximately.
 

Sive Morten

Special Consultant to the FPA
Messages
14,217
Greetings everybody,

Well, we have minimal changes on Gold. Positive news flow concerning stimulus is exhausting, while no new driving factors appeared. It makes gold to slow down the action stand indecision. We still offer to not take any shorts positions due political risks. If we wouldn't have them - currently, price is coming to an area where makes sense to consider short-term bearish positions as daily K-resistance area stands ahead:
gold_d_09_12_20.png



On 4H chart, as you can see, reaction on COP was minimal indeed. As we have acceleration on CD leg to COP, gold should climb slightly higher before reaction on resistance starts.
gold_4h_09_12_20.png


It means that if you hold longs, you need to tight stops a bit. Those who wants to sell - wait when bearish patterns will be formed and keep in mind our warning on possible political risks. Next week short position should be more safer to take.
 

Sive Morten

Special Consultant to the FPA
Messages
14,217
Greetings everybody,

So, Gold is driven by its own technicals by far as political risks/news delayed. As we've said, if we wouldn't have any political component right now, we would say that it is good setup to go short on Gold as it comes to strong resistance area. Now we can see that technicals are working, pushing price lower while no news have been released.

Still, we think that we already have the first bell - Republicans Block Inaugural Resolution Recognizing Biden’s Win, as it could be just a beginning. on 21st of December massive hearings are expected in Congress on this subject. So, situation is becoming hotter but very slow, so market shows no reaction by far.

So, keeping risks aside, technical picture suggests that price could drop a bit more, at least to 1800 area, as we've got "Evening star" pattern on daily chart, suggesting downside AB-CD action on lower time frames.
gold_d_10_12_20.png


Using classical shape - it could happen like that:
gold_1h_10_12_20.png


First we expect upside bounce, somewhere to 1850 as previous upside momentum is not bad and should be strong enough to push price higher. Thus, 5/8 Fib resistance will be invalidation point for this setup. If gold starts tending above it, moving back to the top - setup is cancelled. Once upside pullback is done - we get "222" Sell pattern where you could consider taking of short position, if you want. Minimum target is 1806 Agreement area.
 

Sive Morten

Special Consultant to the FPA
Messages
14,217
Greetings everybody,

Today is just minor update on gold as scenario stands the same and price has completed first part of it. So, I keep intact yesterday's chart here. We've got entry point for short position as upside AB-CD retracement and "222" Sell patterns have been formed around 1856 Fib resistance. Now you could move stops to breakeven.
If you've missed the entry - currently it is also possible to do with the same stop above 1856 level. Hopefully, price hits 1806 target today. Because although technically picture looks clear, political risks are still here and could hit through the weekend. Thus, it could be expensive journey and this is the reason why we call to avoid short positions, at least through the weekend. But technically, again, everything looks nice:
gold_1h_11_12_20.png
 
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