Sive Morten
Special Consultant to the FPA
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Fundamentals
Thus, it was short week for all markets, including gold, but gold in particular has shown best performance that was a long time expected from it. In last 1-2 months gold price really stand anemic, it was not natural for gold market per se, because, as a rule, it always stands in motion.
And, while all other markets calm down in expectation of Christmas holidays - gold has shown outstanding rally right at the Eve, as we said in our 24 of December video update. Inform agencies and investors differently treat this action, as you will see below, but our suggestion that this is something fundamental, not just occasional move on thin pre-holiday market.
As Reuters reports, Gold rose above $1,500 an ounce on Tuesday as lingering fears of recession and equity market highs drove investor demand.
"We are still not seeing good (U.S.) numbers come out of the business investment side. We are wholly dependent on consumer spending. But when consumer spending starts to flag a bit, then the economy could really start to slow down more noticeably," Edward Meir, analyst at ED&F Man Capital Markets, said.
New orders for key U.S.-made capital goods barely rose in November and shipments fell, data on Monday showed, suggesting business investment will probably remain a drag on economic growth in the fourth quarter Data from the United States is keenly watched for cues on the central bank's future monetary trajectory. Gold is sensitive to rising interest rates, which lift its opportunity cost.
Meanwhile, optimism on U.S.-China trade talks has lifted equities to record levels. World stocks remained on track for their best year in a decade, while Wall Street dipped from near-record levels.
"The stock market is getting very overbought. If you have a correction in stocks, gold could benefit," Meir added.
U.S. President Donald Trump said on Tuesday he and Chinese President Xi Jinping will have a ceremony to sign the first phase of a trade deal agreed this month.
The 17-month long dispute has driven a 16% rise in gold prices, with putting it on track for its best year since 2010.
Previously, guys, we already have mentioned two major moments by our opinion. First is - high net long position on gold, despite choppy action within 2-3 months and pullback for 200$ from the top. Second - in recent few days simultaneous rise of gold and stock market, which is not typical. As we have no doubts in gold market and for the whole year we talk about overbought on stocks - this could be early sign of reversal, as major capital flow should happen.
In two words, how this works for decades - big whales initiate new trend on stock markets. Once trend passes 50-60% of its potential size - small investors, population, households step in, supporting it. The number of so-called "participants" of the rally gradually increasing. Then when creams are on the cake - big whales slowly start to sell stocks to population, but do this very accurately to not destroy the trend. In fact they buy and sell simultaneously, but sell volume is greater. Once major cash is out of the stocks - they put them into gold, trigger big sell-off on stock market when they take the rest of assets. Gold rallies, stocks collapses. After 1-2 years of "crisis" big whales leave gold and start trend again. As a result - they book profit from stock market in gold and then, when stock market drops for 35 - 50% - they get all the same shares two times cheaper. Then this cycle starts again.
Now, as we suggest, stand somewhere near the end of stock market uptrend and already see this money flow between two markets. We suggest that recent rally on gold market is not occasional.
Gold prices rose above the key $1,500 per ounce level on Thursday to hit their highest in nearly two months, as uncertainty around the signing of a trade deal
between the United States and China boosted safe-haven flows into the metal.
"The data was weak before Christmas from the U.S. and we haven't seen anything signed or concrete yet in terms of the phase one trade deal ... so the market is unsure whether that will come true," said Brian Lan, managing director at dealer GoldSilver Central in Singapore.
China's Commerce Ministry said on Thursday that Beijing and Washington were still in the process of completing necessary procedures while maintaining close communication to sign the deal.
"The catalyst for next year is the U.S.-China trade friction with many unsolved issues, then there's Brexit by January end and the U.S. election in November - all these uncertainties could lead to a temporary spike in gold prices," said Margaret Yang Yan, a market analyst at CMC Markets. "Technically, gold prices have broken out above and trending upwards. It's flipping from a bearish to a bullish trend."
Speaking on consumer activity, this is another moment to take in consideration. All retailers report on record sales in Christmas time, suggesting good consumer demand which theoretically should press on gold. Despite of that - gold jumps.
Gold prices flipped to a premium this week in India due to limited supplies even as demand remained subdued, while other Asian regions barely saw any holiday purchasing. Indian dealers were charging a premium of up to $1 an ounce over official domestic prices this week, compared to a discount of $2.5 an ounce last week. The domestic price includes a 12.5% import tax and 3% sales tax.
Gold futures in India, the world’s biggest gold consumer after China, rose for a fourth straight session to a nearly 4-month high of 38,980 rupees earlier in the day.
Chinese gold traders offered premiums of $4-$5 an ounce over the benchmark, little higher than last week’s $3-$5 an ounce. Traders in Singapore charged premiums of $0.60- $0.80 an ounce over the benchmark, the same as last week, but demand is expected to improve in January ahead of the Chinese lunar new year, traders said.
Gold edged higher on Friday and was set for its best week in more than four months, as volumes remained thin in cautious holiday trade, supported by global economic
growth concerns and U.S.-China trade uncertainties.
"The U.S.-China trade deal, although it has a lot of positive news flowing in, has nothing yet on paper under a seal. That is keeping investors a little cautious," said Chris
Gaffney, president of world markets at TIAA Bank.
"On the other hand a positive note on the global economic environment is boosting equities and weighing on gold prices. The volumes are also pretty low," Gaffney added. Wall Street opened at a record high on Friday, and world stocks hovered near an all-time peak. Profits at industrial companies in China in November grew at
the fastest pace in eight months, breaking a three-month declining streak, as production and sales quickened.
Investors are optimistic that gold prices will go up in the near future, and are buying when prices go down, said Michael Matousek, head trader at U.S. Global Investors.
Economic and geopolitical uncertainties and a debt environment are also providing support to gold prices, he added.
"At the end of this year and beginning of the next, a lot of investors will take and quit their positions in gold, keeping it kind of steady," said Frederic Panizzutti, managing director at MKS Dubai. "We expect gold prices to be supported by ongoing U.S.-China trade war, geo-political tensions and very low interest rate environment. Central banks are on the buying side and that is not expected to change next year as well."
Gold has rallied this year on the back of the long-drawn U.S.-China trade war that triggered fears of a global economic slowdown and helped the safe-haven metal gain over 17% so far this year. As 2020 approaches, uncertainty is expected to remain high with unresolved U.S.-China trade issues, Brexit and upcoming U.S. Presidential elections.
"With the given uncertainties, $1,500 is quite a good pivot level for gold. If and when the phase one (trade) deal goes through, we might see gold breaking that level and trade in the $1,400s, but only for a short period of time," MKS' Panizzutti said.
Meanwhile, news that Russia could consider a part-investment of its National Wealth Fund in gold provided some further support to the yellow-metal.
"If Russia starts holding gold, being one of the biggest suppliers to the market, that would significantly dampen supplies. This is a significant macro driver," said Stephen
Innes, a market strategist at AxiTrader.
Indicative of investor interest in bullion, holdings in the world's largest gold-backed exchange-traded fund, SPDR Gold Trust, rose 0.4% to 892.37 tonnes, its highest since Nov. 29.
Since October gold market has dropped from 1560$ to ~1450$, i.e. 110$ per Oz. This is approx. 7%. Now take a look at CFTC position - it stands flat at record high level - not just since October but since August, when rally was in most active stage...
Source : cftc.gov
Charting by Investing.com
Following common sense, it is too much coincidence - top high speculative position, growth simultaneously with stock market and on a good consumer demand in US.
We suspect that this might be first stage of cross market money flow - out from stocks to gold and short-term bonds (or money market funds). Besides, as impeachment topic take more spin, and investors start to gamble what the second stage of US/China agreement will be - it is not surprising that we see demand in gold market.
Technical
Monthly
Here, on monthly chart week by week we talk about our bullish view as we treat recent 4-5 months consolidation as temporal pause.
December month makes no impact on monthly chart as, despite recent rally, it still stands inside flag consolidation. Still it lets us positively look in the future, watching for upside breakout of the bullish flag that we have. Technical situation is very interesting right now. As we've said last time - downside swings on lower time frames are not strong enough to break longer-term picture, which still stands bullish. 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. Result of that we see in price action of this week.
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.
Still as flag pattern is not broken yet and butterfly itself suggests deeper retracement, at least theoretically - it is a bit early for a crow of triumph. We need keep watching what the next step will be.
Weekly
On weekly chart, situation stands just one step from drastic changes. The flag pattern that we had here is broken in opposite direction. Now price stands near "C" point and in a case of move above it - AB-CD pattern will be erased, suggesting upside continuation. Second - we should recall our DRPO "Sell" pattern here, which also stands near its failure.
Both patterns, in a case of failure suggest further gold appreciation above the recent top of "A" point and move to monthly XOP at 1650$ level.
Daily
Friday session was calm and mostly keeps the same setup as in the beginning of the session. 1445 - 1460 K support holds downside action and gold turns up. Price action takes thrusting shape which is good. Now market stands at Agreement resistance and it potentially could become a source of multiple trading - as on intraday chart as here, on daily. Candlestick analysis shows that we've got relatively rare pattern - "Three white soldiers". It usually forms in the beginning of long-term upward action.
Previously we thought to take long position on retracement from K-resistance, but market has broken it as it doesn't exist. Disrespected K-resistance has a feature to act as support, and market tends to test it from opposite side during downside retracement. This level coincides with 1475-1478 area and "B" point. As gold has reached next strong resistance and completed XOP - we again will watch for downside pullback to take long position:
Second pattern that we could recognize on daily chart is reverse H&S on top and drop to 1480 area equals to the bottom of the left arm.
Intraday
On 4H chart our DRPO "Sell" pattern is confirmed as we've got 2nd close below 3x3. This one is excellent example of DRPO and looks perfect. It's target should be at least 50% of thrust action. But we could consider 1488-1490 area, which approximately corresponds to suggestion on daily chart. That's being said - daily traders wait when drop will be over and consider long entry, while intraday traders could think about taking short position, based on DRPO "Sell" pattern:
Thus, it was short week for all markets, including gold, but gold in particular has shown best performance that was a long time expected from it. In last 1-2 months gold price really stand anemic, it was not natural for gold market per se, because, as a rule, it always stands in motion.
And, while all other markets calm down in expectation of Christmas holidays - gold has shown outstanding rally right at the Eve, as we said in our 24 of December video update. Inform agencies and investors differently treat this action, as you will see below, but our suggestion that this is something fundamental, not just occasional move on thin pre-holiday market.
As Reuters reports, Gold rose above $1,500 an ounce on Tuesday as lingering fears of recession and equity market highs drove investor demand.
"We are still not seeing good (U.S.) numbers come out of the business investment side. We are wholly dependent on consumer spending. But when consumer spending starts to flag a bit, then the economy could really start to slow down more noticeably," Edward Meir, analyst at ED&F Man Capital Markets, said.
New orders for key U.S.-made capital goods barely rose in November and shipments fell, data on Monday showed, suggesting business investment will probably remain a drag on economic growth in the fourth quarter Data from the United States is keenly watched for cues on the central bank's future monetary trajectory. Gold is sensitive to rising interest rates, which lift its opportunity cost.
Meanwhile, optimism on U.S.-China trade talks has lifted equities to record levels. World stocks remained on track for their best year in a decade, while Wall Street dipped from near-record levels.
"The stock market is getting very overbought. If you have a correction in stocks, gold could benefit," Meir added.
U.S. President Donald Trump said on Tuesday he and Chinese President Xi Jinping will have a ceremony to sign the first phase of a trade deal agreed this month.
The 17-month long dispute has driven a 16% rise in gold prices, with putting it on track for its best year since 2010.
Previously, guys, we already have mentioned two major moments by our opinion. First is - high net long position on gold, despite choppy action within 2-3 months and pullback for 200$ from the top. Second - in recent few days simultaneous rise of gold and stock market, which is not typical. As we have no doubts in gold market and for the whole year we talk about overbought on stocks - this could be early sign of reversal, as major capital flow should happen.
In two words, how this works for decades - big whales initiate new trend on stock markets. Once trend passes 50-60% of its potential size - small investors, population, households step in, supporting it. The number of so-called "participants" of the rally gradually increasing. Then when creams are on the cake - big whales slowly start to sell stocks to population, but do this very accurately to not destroy the trend. In fact they buy and sell simultaneously, but sell volume is greater. Once major cash is out of the stocks - they put them into gold, trigger big sell-off on stock market when they take the rest of assets. Gold rallies, stocks collapses. After 1-2 years of "crisis" big whales leave gold and start trend again. As a result - they book profit from stock market in gold and then, when stock market drops for 35 - 50% - they get all the same shares two times cheaper. Then this cycle starts again.
Now, as we suggest, stand somewhere near the end of stock market uptrend and already see this money flow between two markets. We suggest that recent rally on gold market is not occasional.
Gold prices rose above the key $1,500 per ounce level on Thursday to hit their highest in nearly two months, as uncertainty around the signing of a trade deal
between the United States and China boosted safe-haven flows into the metal.
"The data was weak before Christmas from the U.S. and we haven't seen anything signed or concrete yet in terms of the phase one trade deal ... so the market is unsure whether that will come true," said Brian Lan, managing director at dealer GoldSilver Central in Singapore.
China's Commerce Ministry said on Thursday that Beijing and Washington were still in the process of completing necessary procedures while maintaining close communication to sign the deal.
"The catalyst for next year is the U.S.-China trade friction with many unsolved issues, then there's Brexit by January end and the U.S. election in November - all these uncertainties could lead to a temporary spike in gold prices," said Margaret Yang Yan, a market analyst at CMC Markets. "Technically, gold prices have broken out above and trending upwards. It's flipping from a bearish to a bullish trend."
Speaking on consumer activity, this is another moment to take in consideration. All retailers report on record sales in Christmas time, suggesting good consumer demand which theoretically should press on gold. Despite of that - gold jumps.
Gold prices flipped to a premium this week in India due to limited supplies even as demand remained subdued, while other Asian regions barely saw any holiday purchasing. Indian dealers were charging a premium of up to $1 an ounce over official domestic prices this week, compared to a discount of $2.5 an ounce last week. The domestic price includes a 12.5% import tax and 3% sales tax.
Gold futures in India, the world’s biggest gold consumer after China, rose for a fourth straight session to a nearly 4-month high of 38,980 rupees earlier in the day.
Chinese gold traders offered premiums of $4-$5 an ounce over the benchmark, little higher than last week’s $3-$5 an ounce. Traders in Singapore charged premiums of $0.60- $0.80 an ounce over the benchmark, the same as last week, but demand is expected to improve in January ahead of the Chinese lunar new year, traders said.
Gold edged higher on Friday and was set for its best week in more than four months, as volumes remained thin in cautious holiday trade, supported by global economic
growth concerns and U.S.-China trade uncertainties.
"The U.S.-China trade deal, although it has a lot of positive news flowing in, has nothing yet on paper under a seal. That is keeping investors a little cautious," said Chris
Gaffney, president of world markets at TIAA Bank.
"On the other hand a positive note on the global economic environment is boosting equities and weighing on gold prices. The volumes are also pretty low," Gaffney added. Wall Street opened at a record high on Friday, and world stocks hovered near an all-time peak. Profits at industrial companies in China in November grew at
the fastest pace in eight months, breaking a three-month declining streak, as production and sales quickened.
Investors are optimistic that gold prices will go up in the near future, and are buying when prices go down, said Michael Matousek, head trader at U.S. Global Investors.
Economic and geopolitical uncertainties and a debt environment are also providing support to gold prices, he added.
"At the end of this year and beginning of the next, a lot of investors will take and quit their positions in gold, keeping it kind of steady," said Frederic Panizzutti, managing director at MKS Dubai. "We expect gold prices to be supported by ongoing U.S.-China trade war, geo-political tensions and very low interest rate environment. Central banks are on the buying side and that is not expected to change next year as well."
Gold has rallied this year on the back of the long-drawn U.S.-China trade war that triggered fears of a global economic slowdown and helped the safe-haven metal gain over 17% so far this year. As 2020 approaches, uncertainty is expected to remain high with unresolved U.S.-China trade issues, Brexit and upcoming U.S. Presidential elections.
"With the given uncertainties, $1,500 is quite a good pivot level for gold. If and when the phase one (trade) deal goes through, we might see gold breaking that level and trade in the $1,400s, but only for a short period of time," MKS' Panizzutti said.
Meanwhile, news that Russia could consider a part-investment of its National Wealth Fund in gold provided some further support to the yellow-metal.
"If Russia starts holding gold, being one of the biggest suppliers to the market, that would significantly dampen supplies. This is a significant macro driver," said Stephen
Innes, a market strategist at AxiTrader.
Indicative of investor interest in bullion, holdings in the world's largest gold-backed exchange-traded fund, SPDR Gold Trust, rose 0.4% to 892.37 tonnes, its highest since Nov. 29.
Since October gold market has dropped from 1560$ to ~1450$, i.e. 110$ per Oz. This is approx. 7%. Now take a look at CFTC position - it stands flat at record high level - not just since October but since August, when rally was in most active stage...
Source : cftc.gov
Charting by Investing.com
Following common sense, it is too much coincidence - top high speculative position, growth simultaneously with stock market and on a good consumer demand in US.
We suspect that this might be first stage of cross market money flow - out from stocks to gold and short-term bonds (or money market funds). Besides, as impeachment topic take more spin, and investors start to gamble what the second stage of US/China agreement will be - it is not surprising that we see demand in gold market.
Technical
Monthly
Here, on monthly chart week by week we talk about our bullish view as we treat recent 4-5 months consolidation as temporal pause.
December month makes no impact on monthly chart as, despite recent rally, it still stands inside flag consolidation. Still it lets us positively look in the future, watching for upside breakout of the bullish flag that we have. Technical situation is very interesting right now. As we've said last time - downside swings on lower time frames are not strong enough to break longer-term picture, which still stands bullish. 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. Result of that we see in price action of this week.
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.
Still as flag pattern is not broken yet and butterfly itself suggests deeper retracement, at least theoretically - it is a bit early for a crow of triumph. We need keep watching what the next step will be.
Weekly
On weekly chart, situation stands just one step from drastic changes. The flag pattern that we had here is broken in opposite direction. Now price stands near "C" point and in a case of move above it - AB-CD pattern will be erased, suggesting upside continuation. Second - we should recall our DRPO "Sell" pattern here, which also stands near its failure.
Both patterns, in a case of failure suggest further gold appreciation above the recent top of "A" point and move to monthly XOP at 1650$ level.
Daily
Friday session was calm and mostly keeps the same setup as in the beginning of the session. 1445 - 1460 K support holds downside action and gold turns up. Price action takes thrusting shape which is good. Now market stands at Agreement resistance and it potentially could become a source of multiple trading - as on intraday chart as here, on daily. Candlestick analysis shows that we've got relatively rare pattern - "Three white soldiers". It usually forms in the beginning of long-term upward action.
Previously we thought to take long position on retracement from K-resistance, but market has broken it as it doesn't exist. Disrespected K-resistance has a feature to act as support, and market tends to test it from opposite side during downside retracement. This level coincides with 1475-1478 area and "B" point. As gold has reached next strong resistance and completed XOP - we again will watch for downside pullback to take long position:
Second pattern that we could recognize on daily chart is reverse H&S on top and drop to 1480 area equals to the bottom of the left arm.
Intraday
On 4H chart our DRPO "Sell" pattern is confirmed as we've got 2nd close below 3x3. This one is excellent example of DRPO and looks perfect. It's target should be at least 50% of thrust action. But we could consider 1488-1490 area, which approximately corresponds to suggestion on daily chart. That's being said - daily traders wait when drop will be over and consider long entry, while intraday traders could think about taking short position, based on DRPO "Sell" pattern:
