Sive Morten
Special Consultant to the FPA
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- 18,699
Fundamentals
Gold rose on Thursday, recouping some of the ground lost of the past two sessions, while silver hit a three-week high amid low volumes as the dollar softened ahead of the Christmas holiday break, and a recovery in oil prices helped sentiment.
In a shortened pre-holiday session, U.S. gold futures for February delivery settled at $1,075.9 per ounce, up 0.71 percent. Trading will be closed on Friday, reopening at the normal time on Sunday evening.
Bullion prices have shed 9 percent so far this year, a third year of losses, mostly due to expectations the U.S. Federal Reserve would raise interest rates, which it did this month.
"Leading into this rate hike, there was a lot of negative sentiment but now that's rebalancing, which is price supportive in the short term," Julius Baer analyst Warren Kreyzig said.
"But when people start to focus on the fundamentals of low inflation, economic growth in the U.S., the impact on gold will be bearish again," Kreyzig added.
With the first U.S. rate increase in nearly a decade out of the way, the focus is now on the pace of future hikes, analysts said.
Higher rates dent demand for non-interest paying gold, for which the outlook remains largely on the downside, with many predicting a drop below $1,000 by the end of next year.
The dollar slipped 0.4 percent against a basket of leading currencies, down for a fourth session out of five.
Data on Thursday showed U.S. weekly jobless claims slipped more than forecast near a 42-year low.
However, recent data has not been uniformly strong, with new orders for U.S. manufactured capital goods down in November and consumer sentiment at a five-month high in December.
Gold is positively correlated to oil as the metal is seen as a hedge against oil-led inflation.
"Next year is all about inflation. The Fed's own view on interest rates is more hawkish than the market measures because the Fed is more optimistic that inflation is going to pick up quite quickly," Macquarie analyst Matthew Turner said.
"This would be good for gold ... one condition for that is the oil price remaining stable or increasing."
CFTC data does not show any significant changes. In recent 4 weeks net long positions stands approximately at the same level. Activity drops in recent 2 weeks, so, open interest has contracted a bit. In general, decreasing of net long positions stands on background of decreasing open interest. It means that no new shorts were opened and drop mostly has happened due closing of longs probably. But last month situation stabilizes.
Technicals
Monthly
Last week trading was lazy, price didn't show any solid changes due short week and Christmas holiday. That's why we see minimal changes on big scaled charts - monthly and weekly.
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.
Right now we have bullish pattern in place that could at least trigger moderate upside bounce. Now we will not talk on reversal by far. If market will not be able to do this and gold will stay below 1085 area, then, probably we will get another leg down.
Weekly
This was minor trading week. 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.
So, weekly chart is not very useful for us now. We know that gold stands at support, but this chart does not show any clear patterns that could shed more light on perspectives on gold. Within last month we mostly have some narrow consolidation that absolutely does not clarify what could happen next.
Daily
As we've got confirmed DRPO "Buy" pattern last week and prepared detailed analysis and trading plan on both scenarios - as on direct DRPO trading as on possible reversal with DRPO "Failure" pattern. Situation has not changed significantly. Yes, gold has started week nice by upside action, but closer to Holidays activity has dropped significantly and market mostly stopped at achieved levels.
Advantage of current situation stands in its simplicity. As we already have bullish setup, we need just control it will not shift to bearish one.
Recent action does not look tremendous and very fast and this is not good for DRPO. Usually this pattern triggers acceleration, but it is not much time passed since DRPO has been triggered and 3x3 DMA envelop price action well still. Anyway key level will be 1085. We need to see it broken up to keep bullish position. If market will not able to do this on next week then chances on upside retracement will decrease significantly.
4-hour
Here, as we've suggested deeper downward retracement could follow. Market has formed reversal swing and usually it forms 2-leg retracement after. Picture that we see on lower time frames also confirms this perspective:
Hourly
This possibility (of 2-leg retracement down) is also confirmed by hourly chart. Here we could get "222" Sell pattern. If you will drop time frame even more, you probably will find steep butterfly "Sell" on CD leg of upward action. It means that it is too early to drop away possibility of downward continuation. Of course, I also prefer to get upside continuation immediately, but right now for us major condition is - gold standing above 1060 after retracement down will be done:
Conclusion:
We think that fundamentally gold stands somewhere near bottom. But this bottom could be "long", because the scale of this analysis is long-term. It means that market could drop lower, say to 1000 or even 900$, but pace of drop will be significantly slower.
In short-term perspective market has confirmed DRPO "Buy" pattern and even has started action with it. Now we treat it conservatively and count only on retracement to 1100-1110 area. May be it will lead to something greater we will see.
Our major task in short-term perspective is to control validity of DRPO. If price will close below 1060 - this will give us DRPO "Failure" instead and demand from us drastic shift in trading process.
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.
Gold rose on Thursday, recouping some of the ground lost of the past two sessions, while silver hit a three-week high amid low volumes as the dollar softened ahead of the Christmas holiday break, and a recovery in oil prices helped sentiment.
In a shortened pre-holiday session, U.S. gold futures for February delivery settled at $1,075.9 per ounce, up 0.71 percent. Trading will be closed on Friday, reopening at the normal time on Sunday evening.
Bullion prices have shed 9 percent so far this year, a third year of losses, mostly due to expectations the U.S. Federal Reserve would raise interest rates, which it did this month.
"Leading into this rate hike, there was a lot of negative sentiment but now that's rebalancing, which is price supportive in the short term," Julius Baer analyst Warren Kreyzig said.
"But when people start to focus on the fundamentals of low inflation, economic growth in the U.S., the impact on gold will be bearish again," Kreyzig added.
With the first U.S. rate increase in nearly a decade out of the way, the focus is now on the pace of future hikes, analysts said.
Higher rates dent demand for non-interest paying gold, for which the outlook remains largely on the downside, with many predicting a drop below $1,000 by the end of next year.
The dollar slipped 0.4 percent against a basket of leading currencies, down for a fourth session out of five.
Data on Thursday showed U.S. weekly jobless claims slipped more than forecast near a 42-year low.
However, recent data has not been uniformly strong, with new orders for U.S. manufactured capital goods down in November and consumer sentiment at a five-month high in December.
Gold is positively correlated to oil as the metal is seen as a hedge against oil-led inflation.
"Next year is all about inflation. The Fed's own view on interest rates is more hawkish than the market measures because the Fed is more optimistic that inflation is going to pick up quite quickly," Macquarie analyst Matthew Turner said.
"This would be good for gold ... one condition for that is the oil price remaining stable or increasing."
CFTC data does not show any significant changes. In recent 4 weeks net long positions stands approximately at the same level. Activity drops in recent 2 weeks, so, open interest has contracted a bit. In general, decreasing of net long positions stands on background of decreasing open interest. It means that no new shorts were opened and drop mostly has happened due closing of longs probably. But last month situation stabilizes.
Technicals
Monthly
Last week trading was lazy, price didn't show any solid changes due short week and Christmas holiday. That's why we see minimal changes on big scaled charts - monthly and weekly.
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.
Right now we have bullish pattern in place that could at least trigger moderate upside bounce. Now we will not talk on reversal by far. If market will not be able to do this and gold will stay below 1085 area, then, probably we will get another leg down.
Weekly
This was minor trading week. 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.
So, weekly chart is not very useful for us now. We know that gold stands at support, but this chart does not show any clear patterns that could shed more light on perspectives on gold. Within last month we mostly have some narrow consolidation that absolutely does not clarify what could happen next.
Daily
As we've got confirmed DRPO "Buy" pattern last week and prepared detailed analysis and trading plan on both scenarios - as on direct DRPO trading as on possible reversal with DRPO "Failure" pattern. Situation has not changed significantly. Yes, gold has started week nice by upside action, but closer to Holidays activity has dropped significantly and market mostly stopped at achieved levels.
Advantage of current situation stands in its simplicity. As we already have bullish setup, we need just control it will not shift to bearish one.
Recent action does not look tremendous and very fast and this is not good for DRPO. Usually this pattern triggers acceleration, but it is not much time passed since DRPO has been triggered and 3x3 DMA envelop price action well still. Anyway key level will be 1085. We need to see it broken up to keep bullish position. If market will not able to do this on next week then chances on upside retracement will decrease significantly.
4-hour
Here, as we've suggested deeper downward retracement could follow. Market has formed reversal swing and usually it forms 2-leg retracement after. Picture that we see on lower time frames also confirms this perspective:
Hourly
This possibility (of 2-leg retracement down) is also confirmed by hourly chart. Here we could get "222" Sell pattern. If you will drop time frame even more, you probably will find steep butterfly "Sell" on CD leg of upward action. It means that it is too early to drop away possibility of downward continuation. Of course, I also prefer to get upside continuation immediately, but right now for us major condition is - gold standing above 1060 after retracement down will be done:
Conclusion:
We think that fundamentally gold stands somewhere near bottom. But this bottom could be "long", because the scale of this analysis is long-term. It means that market could drop lower, say to 1000 or even 900$, but pace of drop will be significantly slower.
In short-term perspective market has confirmed DRPO "Buy" pattern and even has started action with it. Now we treat it conservatively and count only on retracement to 1100-1110 area. May be it will lead to something greater we will see.
Our major task in short-term perspective is to control validity of DRPO. If price will close below 1060 - this will give us DRPO "Failure" instead and demand from us drastic shift in trading process.
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.
