Gold GOLD PRO WEEKLY, December 09 - 13, 2019

Sive Morten

Special Consultant to the FPA
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Fundamentals

The whole week news agencies were explaining gold motion by change in US/China relationship. And mostly this was true because gold was standing in very tight range showing no reaction to any other events. But in general trading range was really tight and gold couldn't return to upside action that was set last week. Yesterday we've talked a lot about US/China talks and some other topics that stand between these countries, except tariffs. Still, the fat point in last week story has been put by NFP data.

In general week has started for gold on positive mood, following previous tendency, when President Donald Trump said talks could extend until after the presidential elections in November 2020. As a result, gold jumped more than 1% on Tuesday on fading optimism surrounding a U.S.-China trade deal.

"Stock markets are lower and there is flight to safety in gold right now. Gold prices are up with what Trump said about China-U.S. tariffs," said Bob Haberkorn, senior market strategist at RJO Futures. "All signs point towards a move back above $1,485 on the February contract, which could be enough to push it above $1,500."

Trump said a trade deal with China might be delayed until after the November 2020 elections, dashing hopes that an agreement could be reached before another round of tariff hikes take effect on Dec. 15.

Gold prices have gained nearly 15% this year owing to the protracted tariff dispute, which has fanned recessionary fears and prompted central banks around the world to ease interest rates. Risk appetite was also hit on Monday after Trump tweeted he would slap tariffs on Brazil and Argentina for what he saw as both countries' "massive devaluation of their currencies."

Further dampening risk sentiment, Washington also threatened duties on French goods because of a digital services tax imposed by France that could harm U.S. tech companies, to which France and the European Union said they are ready to retaliate, if those threats were to materialize. The U.S. threatened to hit France with up to 100% tariffs on $2.4 billion of U.S. imports of products, including cosmetics and porcelain.

Gold prices steadied on Thursday as the U.S. dollar slipped on the back of a weaker-than-expected job growth data, despite positive signals from Sino-U.S. trade
talks. U.S. private employers added the fewest jobs in six months in November, a report by a payrolls processor showed on Wednesday.

U.S. President Donald Trump said on Wednesday that trade talks with China were going "very well," sounding more positive than on Tuesday when he said a trade deal might have to wait until after the 2020 U.S. presidential election. The world's top two economies are moving closer to agreeing on the amount of tariffs to be rolled back in a phase-one trade deal, Bloomberg reported on Wednesday, citing sources.

"We're seeing safe haven demand for gold," said Quantitative Commodity Research analyst Peter Fertig. "As long as (U.S. President Donald) Trump does not make a
clear statement about what he wants, the markets will remain puzzled," said Fertig.

Tariffs must be cut if Washington and Beijing are to reach an interim trade agreement, the Chinese commerce ministry said on Thursday. This came a day after Trump said trade talks were going "very well," which were in contrast to his previous comments, suggesting a deal might have to wait until after the 2020 U.S. presidential election, denting risk appetite.

On the technical side, a break below the key support around $1,450 could prompt a test of the $1,400 level, Standard Chartered Bank analyst Suki Cooper said in a note. "For now, the physical market is providing a sufficient cushion against the downside, and we believe the macro environment presents upside risk to prices in 2020."

Also helping gold, the dollar slipped versus major currencies, making the metal cheaper for investors holding other currencies. Limiting the upside for safe-haven bullion, however, were positive economic readings from the United States. Data showed initial claims for state unemployment benefits dropped to the lowest level since mid-April for the week ended Nov. 30, while U.S. trade deficit dipped to its lowest level in nearly 1-1/2 years in October.

Warning that American democracy is at stake, House of Representatives Speaker Nancy Pelosi directed a House committee on Thursday to draft articles of impeachment against President Donald Trump, a historic step that sets up a fight over whether to oust him from office.

Pro-democracy protesters were given permission to conduct a rally by the Hong Kong authorities this weekend, following their sweeping victory in local elections.

Gold slid 1% on Friday as strong U.S. jobs data renewed bets the Federal Reserve would stand pat on interest rates and also boosted demand for riskier assets,
while supply-squeezed palladium soared to a new record high. U.S. job growth increased by the most in 10 months in November, confirming the economy remained on a moderate expansion path despite a prolonged manufacturing slump.

"The better-than-expected jobs report has dented demand for safe-haven products such as gold," said David Meger, director of metals trading at High Ridge Futures.

The jobs data pushed up the dollar, while U.S. stocks jumped as the positive economic readings added to an upbeat mood after U.S. President Donald Trump said trade talks with China were "moving right along". In a positive gesture, China said it will waive import tariffs for some soybeans and pork shipments from the United States.
Looking ahead, the market focus will be on the Fed's meeting on Tuesday and Wednesday next week. The U.S. central bank is expected to keep interest rates on
hold at 1.50% to 1.75%.

"The (jobs) report falls squarely to the camp of the U.S. monetary policy hawks who do not want to see interest rates rise anytime soon, and that is bearish for the metals market," said Kitco Metals senior analyst Jim Wyckoff. Lower interest rates reduce the opportunity cost of holding non-yielding bullion and weigh on the dollar.

"On the technical side, a close below the $1,460-65 area could open gold up to the $1,445-47 November lows, and beyond that towards $1,400-$1,420 congestion area over the summer," said Tai Wong, head of base and precious metals derivatives trading at BMO.

On coming week we will get few events of different importance to gold market but all of them will be in focus. UK elections, tariffs, as usual, C. Lagarde first speech as a president of ECB and Fed meeting.

Speaking on UK elections - people start to worry on its result. It is everything great on surface, but markets start nervous as option volatility on GBP has increased dramatically. It means that a lot of bets are made on "different" voting result, not as polls show.

Polls’ patchy track record worries some people though, and that’s evident in derivative markets where two-week risk reversals - an indicator of bullish to bearish bets - are at two-month highs. And while currency volatility everywhere is at record lows, sterling vol is approaching this year’s highs.

What are the risks? One, that the polls have got it wrong and Britain will get another hung parliament. Second, if a Conservative win is already priced in, traders may be tempted to take profits, pushing sterling lower.

And focus will shift to the 11-month window for Britain to sign trade deals with the European Union. That prospect will likely keep the economy and markets jittery.

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In US/China situation - it is too few time till 15th of December and markets will be highly sensitive to any news on this subject. Gold market is not an exception.
The Dec. 15 deadline for the next round of U.S. tariffs on Chinese goods is fast approaching and that’s keeping markets yo-yo-ing between despair and euphoria.

Signs of trade war damage have started showing up in U.S. data and we will now get the next dose of Chinese numbers on the ebb and flow of cash and goods. Sunday brings trade balance figures and, possibly, some lending stats. They will be the last set of numbers to land before policymakers hunker down at Beijing’s army-run Jingxi Hotel to decide 2020 economic targets. They will be hoping to see a rise in exports for the first time in four months. Loanmaking too should rebound from the 22-month lows of October, a seasonally slow month full of holidays.

But pressure is building for more fiscal and monetary policy measures. Consumer demand is soft, meaning the data may reveal falling imports. It might all hinge on what happens in the run-up to Dec. 15 - authorities will be looking for assurances from Washington on either holding off the tariff hikes or rolling back existing ones. So far there is no sign of either.

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On Thursday, Christine Lagarde will hold her first meeting and news conference as European Central Bank president. She faces no immediate pressure to take any policy action - ECB stimulus announced in September and some stabilization in indicators such as Germany’s Ifo sentiment survey mean markets don’t really expect an interest rate cut through 2020.

Some of the extreme pessimism in bond markets has also abated, lifting German 10-year yields more than 40 basis points off record lows.

Yet Lagarde’s every word will be studied for her thoughts on the monetary policy outlook, the economy and an upcoming strategy review. And after eight years of the straight-talking Mario Draghi, expect the new ECB chief’s communication style to also fall under scrutiny.

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There seems little likelihood the Federal Reserve will move the fed funds target rate at its Dec. 10-11 meeting; after all, it cut rates for the third time this year in October and signaled it would stand pat for a while to monitor the economy.

Jerome Powell’s post-meeting press conference may yield more interesting headlines. He could address tightness in the short-term interbank lending markets that sent repo rates briefly to 10% in September. Since then, the Fed has been stabilizing repo markets by offering to buy securities nearly every day. But given traders’ fears of another spike at year-end, the central bank is considering a standing repo facility that would allow banks to borrow as needed instead of queuing up in daily operations.

Reporters may also seek cues from Powell on mooted changes to the Fed’s monetary policy framework, especially after Fed Governor Lael Brainard’s recent comments endorsing a move to targeting average inflation, from the current 2% upper limit. The question is all the more likely because it will come hours after the release of the November Consumer Price Index. Core CPI is running above 2% but the Fed’s preferred gauge - the core Personal Consumption Expenditure - is undershooting.

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Speaking directly on gold market, we already mentioned interesting situation. Despite downside action within few months already - investors hold long positions near the top level and do not hurry to close them. Simultaneously S&P net position has turned to bearish and is dropping few weeks in a row. With all positive relations - this combination looks curious a bit, which suggests that investors worry about something and foresee factors that increase risk.

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Source: cftc.gov
Charting by Investing.com


Technical
Monthly


Technical situation is very interesting right now. Short-term price action looks bearish and shows strong downside swings, but all of them are not strong enough to break longer-term picture, which still stands bullish. That's what we've said above on difference between long-term and short-term situation. This is also confirmed by CFTC data. It means that although we've traded gold long first and short then - now is a moment when we have to be delicate and careful with any bearish position. Price comes to the limits and the edge where downside action starts directly confront with longer term bullish context.

On monthly chart situation mostly stands the same and gold keeps bullish context by far. MACD trend stands bullish and price action is forming tight flag consolidation right under resistance area. In general we keep 1530-1585 range as major monthly resistance here.

Butterfly pattern suggests at least 3/8 retracement, which seems solid pullback on lower time frames. It could look scaring but in reality this is normal technical reaction on achievement important target.

That's being said monthly chart keeps long term bullish tendency intact by far.
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Weekly

Weekly trend stands bearish. Although market has shown the reaction on Fib support and weekly Oversold area, that we could call as bullish "Stretch" pattern here, but price wasn't able to climb too high. Now, as NFP report pushes gold price lower - we have completed "222" Sell pattern on daily chart. It is perfectly fits to role of reversal and finish of upside retracement.

By taking a broader view on situation - we have two support areas. First one is hit already at 1447, next one is K-support area of 1377-1405. K-area is also the target suggested by monthly butterfly pattern. Taking in consideration the momentum, it seems that drop should continue, especially when it seems that upside bounce is over. Fundamental factor also points on this scenario as market widely expects positive result in US/China negotiations. Additionally, recent US statistics was relatively positive. Now we see that price is not at oversold any more.

Here we keep going with AB-CD pattern. Its COP target already has been hit, upside reaction is over. Next target is OP @1419 level.

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Daily

NFP sell-off is strong and in general it suits to weekly setup perfectly, suggesting downside continuation. But, as we've said yesterday in EUR analysis, and here, on gold, formally we have the same story - daily trend still stands bullish and market above major K-support level. So, we need to get some confirmation signs on lower time frame.

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Intraday

While EUR has not hit similar XOP target, gold has shown stronger action and now stands right at support. Drop has solid downside momentum and definitely this is not the situation for long entry, despite that minor bounce is still possible. Here we need to keep an eye on possible bearish continuation patterns, such as "222" Sell and for two decisive bearish moments - drop below XOP and later long-term support line. These two issues should be good confirmation of deeper downside action according to our weekly setup.
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Conclusion

We do not expect strong impact on the market as from C. Lagarde as from Fed meeting. The only factor that is moving gold is US/China negotiations. As we come closer to 15th of December, when new pack of tariffs should be imposed on China goods, everybody cross fingers to get agreement before this date. Depending on whether it will be achieved or not should become decisive factor for the gold in short-term perspective.

Technically situation looks bearish due strong momentum right after "222" Sell pattern has been formed, which is matched to weekly setup. This is the reason why we gravitate more to bearish trading on coming week.
 
Looking back silver again. Market reached the level that we were looking for a long term setup.

Monthly trend is up.

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As per our dinapoli standard trade plan; We are looking to fade weekly sell against monthly buy at strong agreement zone. We can place our stop below daily controlling XOP at 15.10.

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Greetings guys,

On gold market we continue to watch - what response market will show on intraday major Agreement support area. Bullish market theoretically should start climbing higher, erasing NFP collapse. Conversely we could get downside breakout and action to 1420 area, where is daily/weekly OP target stands.

Personally I do not feel confident enough to take long position right now by few reasons. First is downside momentum. Not only recent NFP one, but in general - all sell-offs on daily/weekly chart are strong, while recent retracement stands in relatively tight range, forming AB-CD retracement, which is look like flag and "222" Sell pattern. That's why, it seems that probability is still not small, that we will get downside action to OP target.
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On 4H chart market has dropped to XOP in one candle. So, sharp upside reversal here looks difficult to get, at least without external driving factor. For example, if US/China will fail stage 1 agreement and US will impose new tariffs pack on 15th of December - situation could change. But right now it seems that bears have some advantage:
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Overall reaction on support now also doesn't look too strong. So, we do not think that bullish view is wrong, but right now it is too few context for taking long position, at least for me personally.
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Greetings everybody,

Situation on gold market stands so that we could follow only local setups on 1H chart, while major direction should be set as soon as clarity on US/Sino agreement and 15th December tariffs will come. On daily chart overall setup still looks bearish by the reasons that we've discussed already. So, we keep OP target on the table still. As drop to OP as erasing of bearish setup will happen only by external impact by strong factor. Now we have only tariffs one.
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On 4H chart market keep showing upside bounce and reaction on Agreement support area. Thus, if you keep long position - move stops to breakeven.
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On 1H chart, as I said we could follow only short-term setups. They suggest fast profit taking as well, as minimal targets. Yesterday, for example - we have minor "222" Sell at COP target, which shows 30% retracement, then larger "222" from OP, which also has triggered 30% retracement as well. Thus, if you search chances to go short - next area is 1470, which is XOP and Fib level. Minimal target again will be 30% pullback.

The same story with long positions. Watch for clear patterns or buy AB-CD retracement around K-areas. Following moving stops at breakeven absolutely necessary in current conditions. This type of trading will last probably until major information on US/China negotiations will be released:
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Greetings everybody,

So we keep our strategy by far to deal only with short-term patterns and take minimal targets as major event for gold market still stands ahead - I mean new tariffs pack of December 15th and/or 1st stage Agreement between US and China. This explains why overall reaction on Fed statement was positive but not too strong and gold remains in flag consolidation on daily chart.

Theoretically gold keeps bullish context on daily as trend stands bullish and price has the room till 1490 resistance area:
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That's why we keep watching for small patterns. This week we've got two setups with '222" Sell patterns and they have shown themselves well, reaching minimum 3/8 retracement both times. Yesterday it has happened again - potential butterfly around OP also has shown 3/8 retracement right before Fed statement.

Today we keep an eye on possible "222" Buy around 1470 K-support with XOP target around 1480 area. This setup is comfortable as it provides very tight stop - just below the K-support. Gold has to keep it, otherwise, drop will erase Fed rally and short-term bullish context wil be destroyed.
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Greetings everybody,

So, while FX stands in euphoria of UK elections - Gold has its own driving factor, which is US/Sino situation. Recent collapse on gold has happened due rumors on sign off of December 15 tariffs and revision of former tariffs in exchange of more agriculture products buying from China. But this is just a rumors. Nobody saw signed document yet. This is the reason why we keep going with our tactic - trading short-term patterns with minimal targets.
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This tactic works perfect this week. All patterns that have been formed have reached minimal target. Yesterday as well, our setup on "222" Buy from 1470 has done perfectly, reaching 1H XOP before collapse has happened.

Today we consider two different setup. First one is very short-term and i'm not sure that you could use it. Anyway - minor reverse H&S pattern which suggests upside retracement with two possible targets OP = 1474 and XOP 1479. Second scenario - "222" Sell, (most probable from XOP area). On "sell' trade we also conside only 30% downside action - minimal target again. It would be better to close gold positions in the evening and do not hold them through weekend, at least this week...
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