Gold GOLD PRO WEEKLY, December 14 - 18, 2020

Sive Morten

Special Consultant to the FPA
Messages
14,876
Fundamentals

Gold market has spent the week in tight range, and result is indecision type of action as price was rising first on US stimulus anticipation and falling second, when hopes on stimulus faded. On coming week we see two major drivers for the gold market. First is Fed meeting, although we suggest that impact on this factor will be limited. Fed could announce of rebalancing of Bonds' purchasing but hardly it provides new stimulus pack at current moment. So, technically gold keeps moderately bearish short-term context.
Second is our major driving factor that could become a joker, although the problem is it absolutely out of our forecasting and control. This is D. Trump activity on elections' contesting. As we've mentioned yesterday in FX Research - we worry that he could take exceptional measures and, say, call of emergency regime. In fact, this is all that rest, as Supreme Court has not supported Texas case. Since Colleagues vote stands tomorrow, D. Trump has limited time to do something and it seems that "moment of truth" comes. This driver could overwhelm any other and trigger outstanding reaction not only on Gold but on other markets as well. This is the reason, why we still doubt on short positions on Gold, despite that technical background supports them.

Speaking on Brexit - it hardly makes any impact on gold market. Still, today we have make-or-break moment, as Reuters reports. London and Brussels face a make-or-break decision on an elusive trade agreement on Sunday, after a week of tension and deadlock that left a tumultuous ‘no deal’ exit for Britain from the European Union’s orbit on Dec. 31 looking more likely than not.

Negotiators have until the evening to resolve an impasse on arrangements that would guarantee Britain zero-tariff and zero-quota access to the EU’s single market, though talks could carry on if they miss the deadline. British Prime Minister Boris Johnson and the president of the EU’s executive Commission, Ursula von der Leyen, both said on Friday that a ‘no-deal’ was now the most likely outcome. Johnson and von der Leyen are expected to be in touch on Sunday, probably late in the day, to decide whether to abandon the negotiations or keep trying for an eleventh-hour deal.

“Talks are continuing overnight, but as things stand the offer on the table from the EU remains unacceptable,” the British source said. “The prime minister will leave no stone unturned in this process, but he is absolutely clear: any agreement must be fair and respect the fundamental position that the UK will be a sovereign nation in three weeks’ time.”

General background

Liquidation of gold exchange traded funds posed the biggest threat to gold prices, and central demand has been weaker, HSBC analyst James Steel said in a note, cutting the bank’s 2021 price forecast by 3% to $1,907. But while gold’s rally has been blunted by the vaccine news, bullion remains supported by accommodative monetary and fiscal policies and geopolitical risks, the bank added.

The U.S. House of Representatives on Wednesday approved a one-week extension of federal government funding, giving lawmakers more time to agree on a broader coronavirus relief package. But, the U.S. Senate Majority Leader Mitch McConnell said on Wednesday that lawmakers were still looking for a way forward on a relief package. A panel of outside advisers to the U.S. Food and Drug Administration on Thursday overwhelmingly endorsed the emergency use of Pfizer Inc's coronavirus vaccine, paving the way for the agency to authorize it.

Dimming some of the optimism over COVID-19 vaccine, Britain's medicine regulator warned people with significant allergies not to get Pfizer-BioNTech's COVID-19 vaccine after two people suffered adverse reactions. Offering a new glimmer of hope, some U.S. health officials said vaccinations could begin as soon as this weekend, and states have escalated plans for its distribution. A panel of outside advisers to the U.S. Food and Drug Administration on Thursday overwhelmingly endorsed the emergency use of Pfizer Inc's coronavirus vaccine, paving the way for the agency to authorize it.

"The technical failure above $1,850 has buyers less aggressive. The tourists have mostly gotten out and it feels more like real money re-allocating," said Tai Wong, head of base and precious metals derivatives trading at BMO. Looking ahead, gold is searching for a comfortable range with prospects for a gentler rise overall."

Further proof of a stalling labor market recovery, data showed that the number of Americans filing first-time claims for unemployment benefits surged last week with the United States in the throes of a fresh wave of infections and resultant lockdowns. Gold initially rose after the jobs data and a further accommodative stance from the European Central Bank. In an attempt to aid a euro zone economy suffering due to the second wave of the pandemic, the ECB eased policy again and kept government, corporate borrowing costs at record lows.

But "there was some disappointment with the expectations that they (ECB) were going to extend the programme (by) not nine, but 12 months," said Edward Moya, senior market analyst at OANDA. A lot of investors are more cautious heading into the holidays, you'll see more erratic moves because we're not going to have steady volumes," Moya added.

"You're going to see gold move higher next year, but this year, it will be fairly choppy going into year end," said Chris Gaffney, president of world markets at TIAA Bank.

"We will get a stimulus deal by the end of the month and the U.S. Federal Reserve will maintain its very loose monetary stance, and that should help underpin gold into 2021," said Michael Hewson, chief market analyst at CMC Markets UK.


COT Report

Despite recent drop on Gold market overall background doesn't look bearish by far. This could mean that either we're dealing just with the retracement, or the sentiment should change later. But, as we've discussed earlier, in short-term perspective of 2-3 months we do not see serious reasons for gold to be totally bearish.
Recent report shows big jump in open interest and increasing of bullish positions. As hedgers as speculators prepare for upward action on gold. It is difficult to make conclusion on reasons, as on a surface we do not have any to suggest the rocket jump. Maybe, indirectly this could be the sign of rising other risks, such as political ones.

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That's being said, keeping extreme scenarios aside, we agree that gold price remains choppy till the end of 2020 or even in January 2021. Stimulus discussion is stuck on Congress and hardly somebody does something before Xmas holidays and with uncertainty around new President's team and his government. It means that if we exclude D. Trump shocking scenario, gold should remain under pressure - vaccination is started, stimulus are not provided, real interest rates stagnate, US economy data looks not too bad.
As we've said yesterday - keep an eye on political reports next week, as situation could explode in the US, and control your risks on gold market, do not marry any position.


Technicals
Monthly


Gold shows limited performance this week, that barely impacts on technical picture. 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 1685-1735 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. In a case of Trump's success, Fed hardly announce any measures. These two events are not mutually exclusive and do not relay to each other. But, political stability is the most important thing that is determine all other things.
gold_m_14_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.

Recent week takes "indecision" shape as it results in doji action on weekly chart. Next direction here mostly depends on the breakout of this pattern.
gold_w_14_12_20.png


Daily

So, as Thu and Fri action has become anemic - there is nothing that we could add to daily chart, and it seems that next week, we keep our journey with the same "Evening star" pattern. As doji on weekly as Evening star here are the same, and have the same invalidation points. Thus, rally above its top suggests upside breakout and continuation while downside action, which is normal for Evening star suggests AB-CD shape on lower time frames. Technically we do not have any signs of risk by far, as trend stands bearish and pattern has been formed right around strong resistance area. Political risks could intrude but we can't forecast them, and focus only things that we do know by this moment.

gold_d_14_12_20.png



Intraday

In fact, we already discussed short entry and those who would like to, already should have bearish position from 1856 area. Evening star is pleasant to deal with, as it has clear shape and clear vital points. Thus, on 4H chart we have a kind of H&S pattern. So, invalidation is, as usual, the top of the head around 1875. Additional level to keep an eye on is the top of the right arm - price should not move too high from 1855 area where theoretical top of the shoulder should be. Thus, if it starts moving to 1860 and above - something is wrong. Appearing of bullish reversal candle here suggests, that price could return back to the 1856 resistance before it turns down again (if it happens at all). So, here is routine action with H&S...
gold_4h_14_12_20.png


The potential price shape keeps our model well, although "BC" leg is becoming longer, taking the shape of sideways consolidation and rectangle. Minor W&R stands right at the bottom of 4H reversal candle that also suggests higher price action. Bearish dynamic pressure on MACD is still valid here. So, if you would like to go short - you should try to do this as closer to 1856 resistance as possible. Maybe we could get the same W&R on top that could become a good signal. Be aware of upward breakout and move above 1860 as it this will be the sign of H&S failure and sentiment change.
gold_1h_14_12_20.png
 

Sive Morten

Special Consultant to the FPA
Messages
14,876
Greetings everybody,

So, Colleagues have confirmed elections results and, as J. Biden is becoming the President with 99% odds, markets gradually turn attention to possible stimulus and Fed meeting in particular this week. This makes gold to rise probably, as we do not have any other reasons for upward action by far.
gold_d_15_12_20.png


Previously we have talked a lot about our doubts on any short position on gold market and now we see some problems with daily bearish pattern. As it takes the shape of H&S pattern, downside extension should have to start already as minor pullback and right arm are formed already. But we do not see it, as price is moving up instead. this is worrying sign - so, protect your bearish positions, if you have any:
gold_4h_15_12_20.png


On 1H chart price is ready to challenge flag consolidation. MACD shows bullish divergence. Here is 1853 level seems crucial. In a case of upward breakout be prepared to challenging of 1880-1900 area again. Conversely, bearish setup keeps chances to succeed if price stays below 1853 and returns back to current consolidation.
gold_1h_15_12_20.png
 

Sive Morten

Special Consultant to the FPA
Messages
14,876
Greetings everybody,

as J. Biden 99% becomes the President, markets again start watching for stimulus, making all markets across the board to raise. And gold is not an exception. On daily chart, bearish pattern holds but market comes very close to invalidation point:
gold_d_16_12_20.png


On 4H chart, if bearish context will be broken we consider two major targets COP, that creates Agreement with daily K-resistance area and OP at 1930. This week, 1890 could become the ceil as resistance is rather strong around it:
gold_4h_16_12_20.png


That's being said, currently the moment of truth stands, as price is flirting around vital area - 5/8 Fib resistance level. Upside breakout means that we're going to COP, while appearing of bearish pattern and downside reversal suggests that daily "Evening star" is still valid and we need to adjust downside AB-CD target.
gold_1h_16_12_20.png


Thus, if you have long position - protect it with b/e stop, at least, while for short entry watch for the patterns.
 

Sive Morten

Special Consultant to the FPA
Messages
14,876
Greetings everybody,

So, our intraday scenario shows positive performance by far. Fed statement mostly was supportive to Dollar's rivals and triggered upward action across the board as more stimulus are expected from J. Biden's team in the future.

Here, on daily, we're aimed on ~1885 K-resistance area as most probable destination area of this week. We have some higher stand targets but hardly they will be reached within two sessions:
gold_d_17_12_20.png


On 4H chart we're keep going with our AB-CD and its nearest COP target that makes an Agreement with daily K-area:
gold_4h_17_12_20.png


Volatility during Fed statement was not too strong, and market has set important tactic intraday low. It is not big upside potential till 1885, as market is 1870 already, but, if somehow tactic pullback happens, it is possible to consider 1860 level for entry with stops below the K-support here. If everything stands good - gold has to hold above these levels and show no deep pullback until it hits daily target:
gold_1h_17_12_20.png
 

Sive Morten

Special Consultant to the FPA
Messages
14,876
Greetings everybody,

So, all our weekly targets are met - on EUR, Gold and BTC. Additionally, gold hits daily K-resistance area that we've mentioned before. It means that at least some technical response is very probable here and it would be better to wait for pullback if you intend to take a long position:
gold_d_18_12_20.png


Still, despite that we're just at COP target, we see healthy acceleration and pressure, so that CD leg is faster than AB. It means that further upward action to OP is highly probable on next week, after reaction to COP will be over. Most probable targets of this reaction are two nearest support levels 1866 and 1850 K-area. Also be aware of possible grabber here, on 4H chart, as it could change the shape of the reaction and form new top before retracement starts. This might be important for scalp traders
gold_4h_18_12_20.png



If no grabber will be formed, then we could get AB-CD pattern on 1H chart. Its OP creates Agreement with 1866 area, that is also the K-area here. And this is the primary level that we intend to consider on next week:

gold_1h_18_12_20.png
 
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