Sive Morten
Special Consultant to the FPA
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Fundamentals
Compares to other markets this week, especially FX, Gold mostly has just one driving factor - this is US/China Agreement. Other markets were under impact of Fed statement, statistics, UK election results, but gold was looking straightforward, right to the Sunday, when new tariffs should have to be imposed, or... agreement signing.
As we know now - the latter has happened. Yesterday in our FX report we have made great discussion on this subject and I just do not want to re-type the same here.
Gold extended gains on Wednesday, rising nearly 1%, after the U.S. Federal Reserve held interest rates steady and signaled borrowing costs are likely to remain unchanged indefinitely, sending the dollar and Treasury yields lower.
After cutting rates three times earlier this year, the Fed left its benchmark rate at the target range of between 1.50% and 1.75%, in a widely expected move.
“Gold is pushing to fresh highs above $1,475 per ounce as Jerome Powell sets a high hurdle to rate increases,” said Tai Wong, head of base and precious metals derivatives trading at BMO.
“Gold approaches $1,480 pivot which had been a durable bottom of the $1,480-$1,520 range from Aug to Oct; a move back higher combined with a bond rally could renew bullish interest which has dissipated somewhat over the past month.”
Fed Chair Powell said in order for the U.S. central bank to move rates up, it would have to see a significant, persistent rise in inflation.
In the wake of Powell’s comments, the dollar index slipped to a four-month low, while U.S. Treasury yields crept lower.
“If we continue to see dollar weakness for the rest of the year, we could see gold make a run back toward the $1,500 an ounce level,” said Edward Moya, a senior market analyst at OANDA, in a note.
Despite news on Agreement and that it should be signed in the beginning of the January - gold reaction was mixed. Initially it has dropped, but, by the end of the session mostly played back the loss.
Gold prices rose on Friday as investors remained cautious about the developments in the United States and China trade negotiations, while political uncertainties in
the world's biggest economy further boosted the metal's safe-haven appeal.
"Although there seems to be some progress, the lack of details is causing a lot of concern that we're not as far along in the trade deal as people would like and as a result we are getting a flight to safety," said Jeffrey Sica, founder of Circle Squared Alternative Investments.
Stocks swung between gains and losses, as investors were confused about signs of progress despite positive comments from both sides.
"The fact that gold is trading near $1,475 shows that there is still good interest in gold market... Although we have seen some risk appetite emerging on the back of phase one trade deal, other uncertainties continue to linger around U.S. political outlook," Standard Chartered Bank analyst Suki Cooper said.
A Democratic-controlled U.S. House of Representatives committee approved charges of abuse of power and obstruction against Republican President Donald Trump on Friday, making it almost certain he will become the third American president in history to be impeached.
Now guys, take a look at CFTC data - it doesn't show any sell off on gold market as we mentioned this previously:
Source: cftc.gov
Charting by Investing.com
SPDR Fund statistics shows action in a row with gold price - some decreasing in gold reserves but not dramatic:
Source: SPDR Fund, FPA calculations
As a bottom line, we could say that fundamental picture totally corresponds to technical one. Yes, gold shows some downside reaction on tensions' relief. At the same time, there are a lot of questions to US/China trading relations, as well as other as political as economical problems around the world, which support interest to gold as safe - haven asset.
Even on Friday, reaction on agreement was moderate. The fact that investors mostly keep long positions through the year change and do not hurry to sell them tells that common sense, in long-term perspective (I mean hedgers) dominates over emotions which are mostly presented by speculators. Our technical view mostly suggests the same. While in short-term perspective downside retracement could continue - we have no doubts on bullish long-term sentiment on the market, at least at current moment.
Besides, US/China precedent is just a beginning. Our long-term followers should remember that we already talked that once US will get everything from the China - they turn to Europe. We already know about car producers tariffs, although they were postponed and luxury goods tariffs that D. Trump imposed on French goods. Now we have more - D. Trump intends to intrude in Boeing vs. Airbus rivalry and impose tariffs on EU plane maker.
D. Trump do not forget about emerging markets as well. Last week, Donald Trump announced via Twitter the restoration of tariffs on Brazilian and Argentinian steel and aluminium imports. The commodities were subject to one of his early rounds of blanket tariffs, but Brazil and Argentina received an exemption. Now that the two countries have been “presiding over a massive devaluation of their currencies”, they are being restored.
It is really naive to suggest that US now leave everybody along and will be happy with things per se. Nope. US has huge negative trade balance and huge Budget deficit, national debt. Partially D. Trump is right as US gets loss on merchant when they theoretically should get profit. China freely uses technologies and patents free of charge and sell electronic made by these patent to US population, although this is actually american electronic, its just made in China. Anyway... this is off-topic a bit. The thing that I really want to say here is D. Trump doesn't intend to stop and continue to improve US statistic. He will twist hands to opponents by tariffs or whatever else, if needed.
Thus, from this point of view, demand for gold and keeping long-term bullish positions looks reasonable. Besides, it is too much to talk here, but we also see problems on stock market which could play its own role in new splash of demand to gold. If you want to know - you could read this article.
Technical
Monthly
December month is very small, barely impacts yet on overall picture. 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.
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.
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 factors currently supports this direction - China agreement, flat Fed position and not bad US statistics could push gold slightly lower. Now we see that price is not at oversold any more.
Another, pure technical reason, is too small pullback from support/oversold area. Market can't move above 50% of weekly black candle, which keeps bearish context valid.
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.
Daily
Technically situation stands difficult. First is, we do not have any clear patterns second - market is clinched between two K-areas on both sides, which makes difficult to show any action. The only more or less sign that we have - a kind of bearish dynamic pressure. Trend has turned bullish long-term ago, but price action mostly stands flat. It brings some advantage to bearish scenario, but again - no clear context yet.
Thus, I would suggest that we should keep going with our last week tactic - watch for intraday patterns, take nearest targets. Longer-term positions could be open around strong levels. We see some similar signs on sideways retracement after "C" point drop and current retracement. They have almost equal shapes.
Intraday
Meantime our tactic works nice. We've got three patterns last week and all of them has hit minimal targets, despite that sometimes context and following events were quite opposite to them. It seems that we could proceed next week with the pattern that we've started this week. Our minor reverse H&S pattern on 1H chart and started upside pullback. As you can see, potential short-entry at OP target has reached minimal target (3/8 retracement), despite that market continues upward action. Now we're coming to XOP - the target that we initially suggested for short entry.
We could treat XOP twofold. As you can see, this is also AB=CD (blue) target, which in broader view gives us "222" Sell pattern here. Once again - if you decide to trade it - focus on nearest target and move stop to breakeven when market hits 3/8 downside retracement level. The common algorithm is as follows - open position, once market hits minimal target - close 50%-100% of position, move stop to breakeven on 2nd 50% if you hold it.
Conclusion
Gold market behavior shows that investors stand caution and keep long-term longs, don't trusting too much in so called relief of US/China piking. And this is wise decision as after China - EU could follow and any other country, say Japan. Another driving factor that could become stronger in nearest weeks is D. Trump impeachment. Now it stands as Congress battle by far, but it becomes tougher with any new round. At least, last year attempt has finished in vain, but this year Democrats pour themselves into this subject. Technical view also doesn't suggest yet any bearish reversal on the market and keep bullish context.
In shorter-term combination of positive US statistics, dovish Fed and breakthrough in US/China tariffs war could lead to some relief and deeper downside action on a background of Christmas holidays sentiment.
Compares to other markets this week, especially FX, Gold mostly has just one driving factor - this is US/China Agreement. Other markets were under impact of Fed statement, statistics, UK election results, but gold was looking straightforward, right to the Sunday, when new tariffs should have to be imposed, or... agreement signing.
As we know now - the latter has happened. Yesterday in our FX report we have made great discussion on this subject and I just do not want to re-type the same here.
Gold extended gains on Wednesday, rising nearly 1%, after the U.S. Federal Reserve held interest rates steady and signaled borrowing costs are likely to remain unchanged indefinitely, sending the dollar and Treasury yields lower.
After cutting rates three times earlier this year, the Fed left its benchmark rate at the target range of between 1.50% and 1.75%, in a widely expected move.
“Gold is pushing to fresh highs above $1,475 per ounce as Jerome Powell sets a high hurdle to rate increases,” said Tai Wong, head of base and precious metals derivatives trading at BMO.
“Gold approaches $1,480 pivot which had been a durable bottom of the $1,480-$1,520 range from Aug to Oct; a move back higher combined with a bond rally could renew bullish interest which has dissipated somewhat over the past month.”
Fed Chair Powell said in order for the U.S. central bank to move rates up, it would have to see a significant, persistent rise in inflation.
In the wake of Powell’s comments, the dollar index slipped to a four-month low, while U.S. Treasury yields crept lower.
“If we continue to see dollar weakness for the rest of the year, we could see gold make a run back toward the $1,500 an ounce level,” said Edward Moya, a senior market analyst at OANDA, in a note.
Despite news on Agreement and that it should be signed in the beginning of the January - gold reaction was mixed. Initially it has dropped, but, by the end of the session mostly played back the loss.
Gold prices rose on Friday as investors remained cautious about the developments in the United States and China trade negotiations, while political uncertainties in
the world's biggest economy further boosted the metal's safe-haven appeal.
"Although there seems to be some progress, the lack of details is causing a lot of concern that we're not as far along in the trade deal as people would like and as a result we are getting a flight to safety," said Jeffrey Sica, founder of Circle Squared Alternative Investments.
Stocks swung between gains and losses, as investors were confused about signs of progress despite positive comments from both sides.
"The fact that gold is trading near $1,475 shows that there is still good interest in gold market... Although we have seen some risk appetite emerging on the back of phase one trade deal, other uncertainties continue to linger around U.S. political outlook," Standard Chartered Bank analyst Suki Cooper said.
A Democratic-controlled U.S. House of Representatives committee approved charges of abuse of power and obstruction against Republican President Donald Trump on Friday, making it almost certain he will become the third American president in history to be impeached.
Now guys, take a look at CFTC data - it doesn't show any sell off on gold market as we mentioned this previously:
Source: cftc.gov
Charting by Investing.com
SPDR Fund statistics shows action in a row with gold price - some decreasing in gold reserves but not dramatic:
Source: SPDR Fund, FPA calculations
As a bottom line, we could say that fundamental picture totally corresponds to technical one. Yes, gold shows some downside reaction on tensions' relief. At the same time, there are a lot of questions to US/China trading relations, as well as other as political as economical problems around the world, which support interest to gold as safe - haven asset.
Even on Friday, reaction on agreement was moderate. The fact that investors mostly keep long positions through the year change and do not hurry to sell them tells that common sense, in long-term perspective (I mean hedgers) dominates over emotions which are mostly presented by speculators. Our technical view mostly suggests the same. While in short-term perspective downside retracement could continue - we have no doubts on bullish long-term sentiment on the market, at least at current moment.
Besides, US/China precedent is just a beginning. Our long-term followers should remember that we already talked that once US will get everything from the China - they turn to Europe. We already know about car producers tariffs, although they were postponed and luxury goods tariffs that D. Trump imposed on French goods. Now we have more - D. Trump intends to intrude in Boeing vs. Airbus rivalry and impose tariffs on EU plane maker.
D. Trump do not forget about emerging markets as well. Last week, Donald Trump announced via Twitter the restoration of tariffs on Brazilian and Argentinian steel and aluminium imports. The commodities were subject to one of his early rounds of blanket tariffs, but Brazil and Argentina received an exemption. Now that the two countries have been “presiding over a massive devaluation of their currencies”, they are being restored.
It is really naive to suggest that US now leave everybody along and will be happy with things per se. Nope. US has huge negative trade balance and huge Budget deficit, national debt. Partially D. Trump is right as US gets loss on merchant when they theoretically should get profit. China freely uses technologies and patents free of charge and sell electronic made by these patent to US population, although this is actually american electronic, its just made in China. Anyway... this is off-topic a bit. The thing that I really want to say here is D. Trump doesn't intend to stop and continue to improve US statistic. He will twist hands to opponents by tariffs or whatever else, if needed.
Thus, from this point of view, demand for gold and keeping long-term bullish positions looks reasonable. Besides, it is too much to talk here, but we also see problems on stock market which could play its own role in new splash of demand to gold. If you want to know - you could read this article.
Technical
Monthly
December month is very small, barely impacts yet on overall picture. 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.
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.
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 factors currently supports this direction - China agreement, flat Fed position and not bad US statistics could push gold slightly lower. Now we see that price is not at oversold any more.
Another, pure technical reason, is too small pullback from support/oversold area. Market can't move above 50% of weekly black candle, which keeps bearish context valid.
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.
Daily
Technically situation stands difficult. First is, we do not have any clear patterns second - market is clinched between two K-areas on both sides, which makes difficult to show any action. The only more or less sign that we have - a kind of bearish dynamic pressure. Trend has turned bullish long-term ago, but price action mostly stands flat. It brings some advantage to bearish scenario, but again - no clear context yet.
Thus, I would suggest that we should keep going with our last week tactic - watch for intraday patterns, take nearest targets. Longer-term positions could be open around strong levels. We see some similar signs on sideways retracement after "C" point drop and current retracement. They have almost equal shapes.
Intraday
Meantime our tactic works nice. We've got three patterns last week and all of them has hit minimal targets, despite that sometimes context and following events were quite opposite to them. It seems that we could proceed next week with the pattern that we've started this week. Our minor reverse H&S pattern on 1H chart and started upside pullback. As you can see, potential short-entry at OP target has reached minimal target (3/8 retracement), despite that market continues upward action. Now we're coming to XOP - the target that we initially suggested for short entry.
We could treat XOP twofold. As you can see, this is also AB=CD (blue) target, which in broader view gives us "222" Sell pattern here. Once again - if you decide to trade it - focus on nearest target and move stop to breakeven when market hits 3/8 downside retracement level. The common algorithm is as follows - open position, once market hits minimal target - close 50%-100% of position, move stop to breakeven on 2nd 50% if you hold it.
Conclusion
Gold market behavior shows that investors stand caution and keep long-term longs, don't trusting too much in so called relief of US/China piking. And this is wise decision as after China - EU could follow and any other country, say Japan. Another driving factor that could become stronger in nearest weeks is D. Trump impeachment. Now it stands as Congress battle by far, but it becomes tougher with any new round. At least, last year attempt has finished in vain, but this year Democrats pour themselves into this subject. Technical view also doesn't suggest yet any bearish reversal on the market and keep bullish context.
In shorter-term combination of positive US statistics, dovish Fed and breakthrough in US/China tariffs war could lead to some relief and deeper downside action on a background of Christmas holidays sentiment.