Sive Morten
Special Consultant to the FPA
- Messages
- 18,699
Fundamentals
(Reuters) - Gold rose more than 1 percent on Friday, recovering from its biggest daily loss in five months as stocks and the dollar retreated, but remained near multi-year lows after the Federal Reserve lifted U.S. interest rates.
The metal has recovered some lost ground after bottoming out on Thursday at $1,047.25 an ounce, within a couple dollars of a near six-year low reached on Dec. 3, after the first U.S. rate hike in nearly a decade.
Rising rates lift the opportunity cost of holding non-yielding bullion, while boosting the dollar, in which it is priced.
"There are big volatile swings but the overall tone is still lower," said Bill O'Neill, co-founder of commodities investment firm Logic Advisors in New Jersey.
"It's become more dollar oriented than it has been for much of the year."
O'Neill added that weak stock markets also pressured bullion prices, with global equities falling on concerns about slumping crude oil prices that may be signalling slower growth.
"Next year the macro picture is looking a little less negative for gold and precious," Mitsubishi analyst Jonathan Butler said.
"The Fed, from its forecasts, is anticipating four rate rises next year. The markets are saying something different - the Fed funds futures currently suggests there'll be just two rises, in June and December."
The metal could revisit $1,000 an ounce for the first time in six years if it breaks below its early December low at $1,045 an ounce, according to technical analysts:
Gold's biggest one-day fall in nine months has put prices on track to test $1,000 per ounce for the first time in six years, technical analysts said on Thursday, deepening a years-long rout as loose U.S. monetary policy comes to an end.
"Right now we have a double bottom, but I don't see that holding," said Adam Packard, vice president of operations at brokerage Zaner Group in Chicago.
"If we close below $1,045 tomorrow ... I see more people throwing in the towel."
Technicians noted that bullion's session low of $1,046.80 was just above the Dec. 3 low of $1,045.40, the weakest since October 2009 on a continuation chart.
Packard said the session's sharp move lower was within the range of a double bottom with the Dec. 3 low. A double bottom is when two session lows are the same levels and this pattern often reinforces a support level.
"If we bust through $1,040, we're probably not going to stop for a while," Packard said, noting the next target around $987-$990 and then $950.
Dave Toth, market insights senior analyst for RJO'Brien in Chicago, said it's only a matter of time before the Dec. 3 low is broken.
"The trend is down on virtually all scales and is expected to continue and perhaps even accelerate, with strength above at least $1,078 and preferably $1,088 required to threaten or negate that."
"If we can take the low out, which I don't think is unreasonable, $1,033 is the next stop - that's the high from 2008 - and then $1,006, and the $1,000 figure is really the level you should be talking about," Credit Suisse analyst Christopher Hine said.
"It is achievable (by the end of the year)," he said.
Holdings of the world's largest gold-backed exchange-traded fund, SPDR Gold Shares , fell another 4.5 tonnes on Thursday to 630.17 tonnes, the lowest since September 2008. That brings its monthly outflow to 25 tonnes.
CFTC Data does not show any big shifts. Net long speculative position has contracted again, but this decrease was rather shy. As well as we see minor changes in open interest.
Technicals
Monthly
Last week ABN AMRO has joined Goldman with bearish expectations of gold around 1000$ area. Today we see even more comments with the same expectations.
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. Current gold drop on a background of Middle East turmoil looks a bit artificial and this situation could not stand forever.
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.
Now both as NFP as Fed meeting stand in the past. Overall results for gold market are moderately bearish. As market also stands stubbornly below 1085 level and couldn't even move above it - this mostly suggests further downward continuation.
There is one hope for bulls still - some kind of double bottom, but currently it is not the fact yet that any pattern of this kind will be formed, we'll see...
Weekly
Weekly chart mostly shows two important things. First one is existing of untouched targets around 1036-1038$ area. Second - we could get bullish divergence here. Right now - lines of MACD have not crossed yet, but based on action that we see - chances on getting divergence are nice.
Take a look, last time, when we've got divergence - market showed AB-CD upside retracement. Now as we speak about possible double bottom pattern - appearing of divergence lets us to take a view from different angle on current situation. Also do not forget that market at monthly major 50% support, support of wedge pattern. Also it has completed inner AB-CD big pattern.
It seems that right now our major task will be - to catch right moment of identification upside pattern. Other words - moment, when we could be sure with upside development. Right now there is still some part of uncertainty exists...
Daily
Here, guys, we have very tricky situation. Within a week we've talked about untouched 1038 target and all stuff in relation to it. And on Friday we've come to conclusion that if we wouldn't have this target - appearing of DRPO "Buy" would be clear sign to buy. And what now?
We've got DRPO "Buy" pattern. Yesterday gold has closed above 3x3 DMA for second time. And theoretically we should enter long. So, what we're gonna do - we have bullish pattern but also we have uncompleted targets below it...
The best way to act here is to take long position but with less size. Say, if you usually trade with 1.0 lot, you could take 0.5. If market will go to 1110 - that's great, this is the target of DRPO. But most difficult thing if it will not...
Existing of untouched target makes very probable shifting of direct DRPO pattern to DRPO "Failure". The trick is DRPO "Failure" is also directional pattern, but not just "failure" acknowledgement of direct DRPO.
That's being said, after taking long position - we have to watch closely on "Failure". If this will happen - we have to immediately reverse our position and may be even increase volume to normal one.
This scenario is for those who likes trade this stuff. This setup is rather complex, that why just few percent of traders will understand what is really going on and will be able to trade it correctly. That's why if you will do everything correct - you'll make money.
We will try to lead you through this turmoil with our daily updates...If of cause reversal will not be miserable and gold will drop to 1038 in a blink of an eye.
Somehow I feel guys, that DRPO "Failure" will happen. My experience tells that on gold market DRPO mostly fails rather than works, but who knows what will happen this time... I would be absolutely happy if we would get scenario that I've posted on Fri - when second part of DRPO is butterfly and it reaches 1038 target before upside reversal. But this has not happened and situation has become significantly more complex.
Hourly
For long entry we probably should use one of the Fib support levels. 1056 will be also theoretical invalidation point for DRPO pattern. If Gold will drop below it - don't be long. It will be perfect if retracement will reach 1060 area - 50% Fib support.
If it will be OK and we will get longs - our next task will be move our stops to breakeven as soon as market will let us to do it.
Take a look that market has formed reversal swing - upside rally is greater than previous sell-off. If you will take a look at 15-min chart, you'll see that current consolidation takes shape of triangle or better say pennant. It means that market could continue move up with minor retracement, say to WPP, or even without any retracement.
Still I have to say that this trading of DRPO on long side is a real gamble, very dangerous... but interesting.
So, be careful and diligent, discipline will be major issue in this trade.
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. Our assumption is gold stands somewhere near bottom and by our assessment metal could stop bearish trend around 890-1000$.
In shorter-term, suddenly we've got the pattern that theoretically could trigger upside retracement at least to 1110 area and we will try to trade it. But since DRPO is a two-sided pattern, it's failure means also directional pattern but not just cancellation of direct one - to trade it you have to be extra careful and disciplined. We have created trading plan. Your success will depend on how careful you will follow it.
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.
(Reuters) - Gold rose more than 1 percent on Friday, recovering from its biggest daily loss in five months as stocks and the dollar retreated, but remained near multi-year lows after the Federal Reserve lifted U.S. interest rates.
The metal has recovered some lost ground after bottoming out on Thursday at $1,047.25 an ounce, within a couple dollars of a near six-year low reached on Dec. 3, after the first U.S. rate hike in nearly a decade.
Rising rates lift the opportunity cost of holding non-yielding bullion, while boosting the dollar, in which it is priced.
"There are big volatile swings but the overall tone is still lower," said Bill O'Neill, co-founder of commodities investment firm Logic Advisors in New Jersey.
"It's become more dollar oriented than it has been for much of the year."
O'Neill added that weak stock markets also pressured bullion prices, with global equities falling on concerns about slumping crude oil prices that may be signalling slower growth.
"Next year the macro picture is looking a little less negative for gold and precious," Mitsubishi analyst Jonathan Butler said.
"The Fed, from its forecasts, is anticipating four rate rises next year. The markets are saying something different - the Fed funds futures currently suggests there'll be just two rises, in June and December."
The metal could revisit $1,000 an ounce for the first time in six years if it breaks below its early December low at $1,045 an ounce, according to technical analysts:
Gold's biggest one-day fall in nine months has put prices on track to test $1,000 per ounce for the first time in six years, technical analysts said on Thursday, deepening a years-long rout as loose U.S. monetary policy comes to an end.
"Right now we have a double bottom, but I don't see that holding," said Adam Packard, vice president of operations at brokerage Zaner Group in Chicago.
"If we close below $1,045 tomorrow ... I see more people throwing in the towel."
Technicians noted that bullion's session low of $1,046.80 was just above the Dec. 3 low of $1,045.40, the weakest since October 2009 on a continuation chart.
Packard said the session's sharp move lower was within the range of a double bottom with the Dec. 3 low. A double bottom is when two session lows are the same levels and this pattern often reinforces a support level.
"If we bust through $1,040, we're probably not going to stop for a while," Packard said, noting the next target around $987-$990 and then $950.
Dave Toth, market insights senior analyst for RJO'Brien in Chicago, said it's only a matter of time before the Dec. 3 low is broken.
"The trend is down on virtually all scales and is expected to continue and perhaps even accelerate, with strength above at least $1,078 and preferably $1,088 required to threaten or negate that."
"If we can take the low out, which I don't think is unreasonable, $1,033 is the next stop - that's the high from 2008 - and then $1,006, and the $1,000 figure is really the level you should be talking about," Credit Suisse analyst Christopher Hine said.
"It is achievable (by the end of the year)," he said.
Holdings of the world's largest gold-backed exchange-traded fund, SPDR Gold Shares , fell another 4.5 tonnes on Thursday to 630.17 tonnes, the lowest since September 2008. That brings its monthly outflow to 25 tonnes.
CFTC Data does not show any big shifts. Net long speculative position has contracted again, but this decrease was rather shy. As well as we see minor changes in open interest.
Technicals
Monthly
Last week ABN AMRO has joined Goldman with bearish expectations of gold around 1000$ area. Today we see even more comments with the same expectations.
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. Current gold drop on a background of Middle East turmoil looks a bit artificial and this situation could not stand forever.
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.
Now both as NFP as Fed meeting stand in the past. Overall results for gold market are moderately bearish. As market also stands stubbornly below 1085 level and couldn't even move above it - this mostly suggests further downward continuation.
There is one hope for bulls still - some kind of double bottom, but currently it is not the fact yet that any pattern of this kind will be formed, we'll see...
Weekly
Weekly chart mostly shows two important things. First one is existing of untouched targets around 1036-1038$ area. Second - we could get bullish divergence here. Right now - lines of MACD have not crossed yet, but based on action that we see - chances on getting divergence are nice.
Take a look, last time, when we've got divergence - market showed AB-CD upside retracement. Now as we speak about possible double bottom pattern - appearing of divergence lets us to take a view from different angle on current situation. Also do not forget that market at monthly major 50% support, support of wedge pattern. Also it has completed inner AB-CD big pattern.
It seems that right now our major task will be - to catch right moment of identification upside pattern. Other words - moment, when we could be sure with upside development. Right now there is still some part of uncertainty exists...
Daily
Here, guys, we have very tricky situation. Within a week we've talked about untouched 1038 target and all stuff in relation to it. And on Friday we've come to conclusion that if we wouldn't have this target - appearing of DRPO "Buy" would be clear sign to buy. And what now?
We've got DRPO "Buy" pattern. Yesterday gold has closed above 3x3 DMA for second time. And theoretically we should enter long. So, what we're gonna do - we have bullish pattern but also we have uncompleted targets below it...
The best way to act here is to take long position but with less size. Say, if you usually trade with 1.0 lot, you could take 0.5. If market will go to 1110 - that's great, this is the target of DRPO. But most difficult thing if it will not...
Existing of untouched target makes very probable shifting of direct DRPO pattern to DRPO "Failure". The trick is DRPO "Failure" is also directional pattern, but not just "failure" acknowledgement of direct DRPO.
That's being said, after taking long position - we have to watch closely on "Failure". If this will happen - we have to immediately reverse our position and may be even increase volume to normal one.
This scenario is for those who likes trade this stuff. This setup is rather complex, that why just few percent of traders will understand what is really going on and will be able to trade it correctly. That's why if you will do everything correct - you'll make money.
We will try to lead you through this turmoil with our daily updates...If of cause reversal will not be miserable and gold will drop to 1038 in a blink of an eye.
Somehow I feel guys, that DRPO "Failure" will happen. My experience tells that on gold market DRPO mostly fails rather than works, but who knows what will happen this time... I would be absolutely happy if we would get scenario that I've posted on Fri - when second part of DRPO is butterfly and it reaches 1038 target before upside reversal. But this has not happened and situation has become significantly more complex.
Hourly
For long entry we probably should use one of the Fib support levels. 1056 will be also theoretical invalidation point for DRPO pattern. If Gold will drop below it - don't be long. It will be perfect if retracement will reach 1060 area - 50% Fib support.
If it will be OK and we will get longs - our next task will be move our stops to breakeven as soon as market will let us to do it.
Take a look that market has formed reversal swing - upside rally is greater than previous sell-off. If you will take a look at 15-min chart, you'll see that current consolidation takes shape of triangle or better say pennant. It means that market could continue move up with minor retracement, say to WPP, or even without any retracement.
Still I have to say that this trading of DRPO on long side is a real gamble, very dangerous... but interesting.
So, be careful and diligent, discipline will be major issue in this trade.
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. Our assumption is gold stands somewhere near bottom and by our assessment metal could stop bearish trend around 890-1000$.
In shorter-term, suddenly we've got the pattern that theoretically could trigger upside retracement at least to 1110 area and we will try to trade it. But since DRPO is a two-sided pattern, it's failure means also directional pattern but not just cancellation of direct one - to trade it you have to be extra careful and disciplined. We have created trading plan. Your success will depend on how careful you will follow it.
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.
