Sive Morten
Special Consultant to the FPA
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Fundamentals
This week was relatively quiet on all markets, and gold was not an exception. Thin liquidity and holidays have become the reason of low activity. Still, gold market was under impact of the same factors that we've mentioned yesterday in FX research - stimulus pack that was not signed by the US President, new virus type, and overall situation in US as a lot of statistics was published.
Gold has started week on a positive tune as U.S. congressional leaders reached agreement on a COVID-19 aid package, while lockdowns in the United Kingdom soured appetite for riskier assets and added to the metal's support.
"Now that we've got fiscal stimulus behind us, gold has enough momentum to close above $1,900 by year-end and it could climb up to $1,925," said Stephen Innes, chief global market strategist at financial services firm Axi, adding that dovish Fed policies signalled last week were also supportive. The Fed last week vowed to keep funnelling cash into financial markets and keep rates low until a U.S. economic recovery is secure.
Although information appeared that D. Trump has not signed it, in general we could pay attention to the levels that analysts mentioned - 1900-1925 in a case of signing that still could happen on coming week. We suggest that if D. Trump will be able to push higher stimulus through Congress - gold could rise more, coming back to 2000 top.
"Even if Donald Trump denies to sign the bill, it is widely expected that Biden will make it pass and therefore we do not see any downside to gold at the moment," Natixis analyst Bernard Dahdah said.
On the technical front, gold may revisit its Nov. 30 low of $1,764.29 per ounce next quarter, according to Reuters analyst Wang Tao.
"Dollar strength has capped some of gold's upward momentum," Standard Chartered Analyst Suki Cooper said. Price risks are skewed to the upside for gold as we enter 2021, given our expectations for the dollar to weaken and monetary policy to remain accommodative, but year-end profit-taking may cap the gains in the near term." Cooper added.
"If the new strain does make its way into the U.S. and does reinfect people, that could really cause some additional economic damage and that could be kind of the next tailwind for gold," said Phillip Streible, chief market strategist at Blue Line Futures in Chicago.
"On the upside, there is no real resistance until $1,900, although the area around $1,875-$1,880 is likely to be the first test for any recovery attempt (for gold)," ActivTrades' chief analyst Carlo Alberto De Casa said in a note.
"The economic data just cements the belief that the economy is slowing down and that should help the negotiations with stimulus. ... It's going to be extremely likely that some type of stimulus deal will still get done," said Edward Moya, senior market analyst at OANDA.
"The slightly weaker dollar has provided a move higher for gold," Moya said, adding the stimulus deal and positive developments on the Brexit front are needed to further cement gold's bullish case.
Gold also shows no dynamic in net position as it mostly stands the same through whole week. As we do not have COT report this week, SPDR data shows that almost nothing has changed:
So, this week makes absolutely no impact on fundamental background. I would say that it was mostly positive for the gold. Despite that D. Trump has not signed the stimulus bill, and it could disappoint investors for a moment, but, indeed, this is the question of time. He sooner or later either signs this bill, or better pack with more spending that will be even more supportive to the gold.
The real important thing this week was statistics, suggesting that the situation in the US economy is becoming worse. Yesterday we've put a lot of information about major indicators, including consumer spending/saving, Home sales, PCE Index, Inflation, Job reports etc. In general data shows slowdown compares to previous periods. It means that IVQ GDP and probably IQ GDP numbers will be worse than expected or even negative. This fact sets far in the future the moment when inflation potentially could start to rise, forming bullish background for gold market. And simultaneously stimulates Fed and other central banks take more aggressive stimulus policy that we should see soon - as soon as Biden administration starts to work.
All these stuff should support gold in medium-term perspective. WE do not dare to count on the rally of the same pace as in 2020, but gradual upward action is very probable. Another our suggestion is worse results and tempo of vaccination. Right now we already see a lot of problems starting with side allergic effect and till lower efficiency, lack of necessary doses number for fast vaccination etc. This will depress the effect and last it for longer time, which means that economy recovery also will be slower. And it seems that we have more chances to get "W" type of recovery rather than "V" or "U". It means that in current situation any meaningful emotional drop could become excellent chance for gold accumulation for medium-term perspective, such as "Pfizer Sell-off" in November, when price has dropped to 1750 area.
Technicals
Monthly
On a technical side there are not too many things that we could add this week. Most intriguing is monthly picture, of course. As we've said last week - gold has shown unexpected positive performance, as we initially thought action to 1900 only. But, as overall background is supportive, on monthly chart we have to keep an eye on bullish grabber. It is just few days till the end of the December. Appearing of the grabber mostly supports our fundamental view. For trading purposes it will mean drastic change and possible action above 2077 top. To confirm the grabber in December gold has to close above 1890.52$ level by FX Choice chart. Your quotes might be slightly different. Also it would be better to take a look at January GC futures contract to check this fact.
Weekly
Weekly trend stands bearish. This week we've got indecision type of action as price was coiling around local high. The point might be crucial by few reasons. The first one is because of potential monthly grabber. But also we have to recall harmonic swings tool here. And now we see that gold has completed another one and put price in a moment where either swing has to be doubled with upward continuation or gold holds existed tendency and another drop to OP (probably) should start.
As we've said last week - with no monthly grabber by far and harmonic pullback - we still should treat this action as retracement only. Mood is fragile right now, as we have only one short-term driver, which is stimulus pack. No D. Trump sign or failure to push through the Senate/Congress better stimulus pack could push gold down again, as $900 Bln aid is priced-in already. Other bullish factors are longer term and mostly have indirect impact, keeping under pressure key economical indicators. With the untouched OP here, we must be careful with any long position that we take, at least until grabber signal's clarity.
Daily
Here situation barely has changed in last trading day before Xmas. Trend stands bullish, but recent three sessions stand inside to high wave pattern that we've mentioned before, showing market's indecision. Further market direction, as we've said depends on breakout of high wave pattern. In a few days till the New Year all eyes will be on stimulus pack discussion in the US, because we do not have any other important events. But the tricky moment is stimulus pack already is priced-in and its signing by the President could either have no effect or even trigger profit taking before the holidays again. The only thing that could trigger upward action around stimulus is the aid pack of larger size. But it is too few time and hardly the new bill passes the Congress.
Maybe some other factors could appear on the horizon. For instance, we still keep our attention to political situation as it is not resolved totally yet. But this is mostly from rumors category.
On EUR we also point on some bearish signs as on daily chart as on intraday ones. Thus, it might be important for gold as well as it points on potential Dollar strength on coming week. For instance, on the Dollar Index we have completed butterfly "Buy" pattern that could trigger a bit stronger upside reaction. As 3/8 pullback is a minimal response to butterflies:
Intraday
On the next week we intend to keep an eye on the same 1H chart that we've discussed already. Overall price action looks too choppy and heavy and doesn't encourage us to thing about long entry. The same type of action, by the way we have on EUR intraday chart. With the monthly grabber in mind, we should control 1887-1890 $ Agreement resistance. First is - it coincides with grabber validity level. Second - this is the level where retracement of bearish scenario has to stop. Otherwise, scenario stops to stay bearish, because price action above it doesn't fit to normal price action with bearish context. So, if you would like to buy gold - wait for bearish context failure. Those who have sold or intend to sell - use an area above this level for stop placement.
This week was relatively quiet on all markets, and gold was not an exception. Thin liquidity and holidays have become the reason of low activity. Still, gold market was under impact of the same factors that we've mentioned yesterday in FX research - stimulus pack that was not signed by the US President, new virus type, and overall situation in US as a lot of statistics was published.
Gold has started week on a positive tune as U.S. congressional leaders reached agreement on a COVID-19 aid package, while lockdowns in the United Kingdom soured appetite for riskier assets and added to the metal's support.
"Now that we've got fiscal stimulus behind us, gold has enough momentum to close above $1,900 by year-end and it could climb up to $1,925," said Stephen Innes, chief global market strategist at financial services firm Axi, adding that dovish Fed policies signalled last week were also supportive. The Fed last week vowed to keep funnelling cash into financial markets and keep rates low until a U.S. economic recovery is secure.
Although information appeared that D. Trump has not signed it, in general we could pay attention to the levels that analysts mentioned - 1900-1925 in a case of signing that still could happen on coming week. We suggest that if D. Trump will be able to push higher stimulus through Congress - gold could rise more, coming back to 2000 top.
"Even if Donald Trump denies to sign the bill, it is widely expected that Biden will make it pass and therefore we do not see any downside to gold at the moment," Natixis analyst Bernard Dahdah said.
On the technical front, gold may revisit its Nov. 30 low of $1,764.29 per ounce next quarter, according to Reuters analyst Wang Tao.
"Dollar strength has capped some of gold's upward momentum," Standard Chartered Analyst Suki Cooper said. Price risks are skewed to the upside for gold as we enter 2021, given our expectations for the dollar to weaken and monetary policy to remain accommodative, but year-end profit-taking may cap the gains in the near term." Cooper added.
"If the new strain does make its way into the U.S. and does reinfect people, that could really cause some additional economic damage and that could be kind of the next tailwind for gold," said Phillip Streible, chief market strategist at Blue Line Futures in Chicago.
"On the upside, there is no real resistance until $1,900, although the area around $1,875-$1,880 is likely to be the first test for any recovery attempt (for gold)," ActivTrades' chief analyst Carlo Alberto De Casa said in a note.
"The economic data just cements the belief that the economy is slowing down and that should help the negotiations with stimulus. ... It's going to be extremely likely that some type of stimulus deal will still get done," said Edward Moya, senior market analyst at OANDA.
"The slightly weaker dollar has provided a move higher for gold," Moya said, adding the stimulus deal and positive developments on the Brexit front are needed to further cement gold's bullish case.
Gold also shows no dynamic in net position as it mostly stands the same through whole week. As we do not have COT report this week, SPDR data shows that almost nothing has changed:
So, this week makes absolutely no impact on fundamental background. I would say that it was mostly positive for the gold. Despite that D. Trump has not signed the stimulus bill, and it could disappoint investors for a moment, but, indeed, this is the question of time. He sooner or later either signs this bill, or better pack with more spending that will be even more supportive to the gold.
The real important thing this week was statistics, suggesting that the situation in the US economy is becoming worse. Yesterday we've put a lot of information about major indicators, including consumer spending/saving, Home sales, PCE Index, Inflation, Job reports etc. In general data shows slowdown compares to previous periods. It means that IVQ GDP and probably IQ GDP numbers will be worse than expected or even negative. This fact sets far in the future the moment when inflation potentially could start to rise, forming bullish background for gold market. And simultaneously stimulates Fed and other central banks take more aggressive stimulus policy that we should see soon - as soon as Biden administration starts to work.
All these stuff should support gold in medium-term perspective. WE do not dare to count on the rally of the same pace as in 2020, but gradual upward action is very probable. Another our suggestion is worse results and tempo of vaccination. Right now we already see a lot of problems starting with side allergic effect and till lower efficiency, lack of necessary doses number for fast vaccination etc. This will depress the effect and last it for longer time, which means that economy recovery also will be slower. And it seems that we have more chances to get "W" type of recovery rather than "V" or "U". It means that in current situation any meaningful emotional drop could become excellent chance for gold accumulation for medium-term perspective, such as "Pfizer Sell-off" in November, when price has dropped to 1750 area.
Technicals
Monthly
On a technical side there are not too many things that we could add this week. Most intriguing is monthly picture, of course. As we've said last week - gold has shown unexpected positive performance, as we initially thought action to 1900 only. But, as overall background is supportive, on monthly chart we have to keep an eye on bullish grabber. It is just few days till the end of the December. Appearing of the grabber mostly supports our fundamental view. For trading purposes it will mean drastic change and possible action above 2077 top. To confirm the grabber in December gold has to close above 1890.52$ level by FX Choice chart. Your quotes might be slightly different. Also it would be better to take a look at January GC futures contract to check this fact.
Weekly
Weekly trend stands bearish. This week we've got indecision type of action as price was coiling around local high. The point might be crucial by few reasons. The first one is because of potential monthly grabber. But also we have to recall harmonic swings tool here. And now we see that gold has completed another one and put price in a moment where either swing has to be doubled with upward continuation or gold holds existed tendency and another drop to OP (probably) should start.
As we've said last week - with no monthly grabber by far and harmonic pullback - we still should treat this action as retracement only. Mood is fragile right now, as we have only one short-term driver, which is stimulus pack. No D. Trump sign or failure to push through the Senate/Congress better stimulus pack could push gold down again, as $900 Bln aid is priced-in already. Other bullish factors are longer term and mostly have indirect impact, keeping under pressure key economical indicators. With the untouched OP here, we must be careful with any long position that we take, at least until grabber signal's clarity.
Daily
Here situation barely has changed in last trading day before Xmas. Trend stands bullish, but recent three sessions stand inside to high wave pattern that we've mentioned before, showing market's indecision. Further market direction, as we've said depends on breakout of high wave pattern. In a few days till the New Year all eyes will be on stimulus pack discussion in the US, because we do not have any other important events. But the tricky moment is stimulus pack already is priced-in and its signing by the President could either have no effect or even trigger profit taking before the holidays again. The only thing that could trigger upward action around stimulus is the aid pack of larger size. But it is too few time and hardly the new bill passes the Congress.
Maybe some other factors could appear on the horizon. For instance, we still keep our attention to political situation as it is not resolved totally yet. But this is mostly from rumors category.
On EUR we also point on some bearish signs as on daily chart as on intraday ones. Thus, it might be important for gold as well as it points on potential Dollar strength on coming week. For instance, on the Dollar Index we have completed butterfly "Buy" pattern that could trigger a bit stronger upside reaction. As 3/8 pullback is a minimal response to butterflies:
Intraday
On the next week we intend to keep an eye on the same 1H chart that we've discussed already. Overall price action looks too choppy and heavy and doesn't encourage us to thing about long entry. The same type of action, by the way we have on EUR intraday chart. With the monthly grabber in mind, we should control 1887-1890 $ Agreement resistance. First is - it coincides with grabber validity level. Second - this is the level where retracement of bearish scenario has to stop. Otherwise, scenario stops to stay bearish, because price action above it doesn't fit to normal price action with bearish context. So, if you would like to buy gold - wait for bearish context failure. Those who have sold or intend to sell - use an area above this level for stop placement.
