Gold GOLD PRO WEEKLY, December 31 - 04, 2019

Sive Morten

Special Consultant to the FPA
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Fundamentals

Gold is one of my favorite market in recent months guys. It shows healthy sentiment and good price action from technical point of view. At the same time, it keeps thrilling perspectives. Last week it shows good performance as well.

As Reuters reports - Gold prices held near six-month highs hit earlier on Friday, helped by a softer dollar, concerns over slowing economic growth and wild swings in equities, putting bullion on track for a second straight week of gains.

“A weaker U.S. dollar is fueling higher gold prices and the volatility in the stock markets is worrying people about the prospects in 2019, which is also moving people to gold,” said Walter Pehowich, executive vice president of investment services at Dillon Gage Metals. “But prices are not able to extend gains as there is less liquidity in the markets and not many people want to put positions ahead of the long weekend.”

There have been wild swings in equities in the final week of 2018, with the CBOE Volatility Index, Wall Street’s main fear gauge, hitting its highest level since early February before easing slightly.

Financial markets are expecting U.S. growth to slow next year due to rising interest rates. On Thursday, a measure of U.S. consumer confidence posted its sharpest decline in more than three years in December, rattling already nervous investors.

A darkening outlook for global economic growth, a simmering trade war between the United States and China, as well as Brexit-linked uncertainty, may trigger renewed risk aversion and help lift gold prices in 2019, said Ilya Spivak, a currency strategist at DailyFx.

“As long as the U.S. government continues to remain shut, it may invoke some safe-haven bids and help gold to touch new highs,” said Afshin Nabavi, senior vice president at MKS SA.

Both chambers of the U.S. Congress convened for only a few minutes late on Thursday but took no steps to end a partial federal government shutdown triggered by an impasse over a spending measure before adjourning until next week.

This week we do not have fresh CFTC report guys, but SPDR fund statistics shines through. It shows healthy physical demand that supports price appreciations. This is very important for our long-term analysis, as we watch for gold major upside reversal, although technically it could happen by different patterns, depending on external driving factors.
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Since now there are a lot of attention is paid to US stock market, and for gold it is crucially to have it depressed, we provide some extractions of Fathom consulting analysis on this subject.

"At Fathom, one question that has occupied our minds for quite some time is whether US equities can continue their record outperformance against other developed markets (DMs). While we have been expecting a turbulent equity market since Q1 and turned more broadly risk off in our asset allocation in Q2 of this year, the continued resilience and large outperformance of the US equity market in the face of emerging market meltdowns and the escalating trade war rhetoric has been one aspect that has puzzled us throughout the year. We think this is a trend that has potentially stretched too far and now poses an ongoing risk to market calmness."

Fathom believes that US market outperformance of other developed market has too significant deviation, which creates potentially unstable situation and limits continuation of this tendency in the future. Particular speaking, by Fathom calculations - its more than 1.7 standard deviations above other developed markets. 2 standard deviations (of normal distribution) keeps 95% of action. It means that US equities, in fact has no room to outperform more.

"We flagged to clients how such occurrences have been inherently unstable and have been short-lived, reverting over 90% of the time over the course of the next year."

Actually we already see accelerating drop of the US markets last week. The strong outperformance of the US market has also pushed US relative valuations to near-record levels not seen since the dot-com bubble.

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Since US markets are mostly momentum-based, compares to their value-based rivals, they outperform others developed markets. But now, due massive impact from Fed Reserve and liquidity dry - previous tendency starts to change and value equities outperform momentum-based ones.
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"Tighter than expected monetary cycle from the Fed has been one of the main contributors to the weakening market liquidity, with the unexpected Chinese renminbi devaluation being the other systemically important liquidity event.
Overall, we argue that a ‘perfect storm’ of tighter global liquidity, trade war uncertainties and a peaking global growth cycle have created an environment where value should outperform momentum. As a result, we also believe that the momentum-driven US equity market might be primed for a continued and long overdue underperformance over the next months."


That's actually what gold market needs...

Finally, guys take a look at market anticipation of Fed rate change. All these talks about firing of J. Powell and D. Trump unsatisfaction of Fed policy leeds to expectation of no rate changes in 2019. Here is the chart of Dec 2019 meeting anticipation. Right now, Fed fund futures shows that rate will remain the same with 78% probability. This could mean, in turn, anticipation of economy slowdown and first signs of recession that we expect in 2020. This is also supportive gold factor and increase chances on real upside reversal of the market:
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Technical
Monthly


Gold shows good performance in December, which could lay the foundation of new long-term upside trend.
We still keep our harmonic technical model on monthly chart as primary tool of analysis. All other fundamental elements stands the same.

Recent 4 months gold shows tight trading range. Now gold stands in the center of impact of different short-term and long-term factors. Long-term factors mostly are political and suggest changing of global political situation, breaking of Pax Americana global model. Avoiding too much talking on this subject we would say that so strong global shifts never could happen without big political events. This should provide big support to gold market. Now it is widely suggested that these processes should accelerate closer to 2020 year. For example, here is report by Fathom Consulting and their expectations to see world crisis around 2020.

In shorter-term perspective situation is unstable and subject to change. Just few weeks ago everybody thought that it is one more year of active Fed policy, so rate could be 3+% by the end of Fed cycle. Now situation has changed. Some factors appears, some changes and some are gone to passed. All these stuff put the shadow on gold price behavior. Inflation expectations have dropped significantly as in US as in EU now. If Fed will hold rate hike and stock market will keep head above the water - gold market remains under pressure. No interest rate cut and stock market collapse should provide support to gold.

As a result, targets on gold market vary. Today we take a look at specific picture, sometimes it is useful to search for harmony on the market. And we could find it, if we look carefully. In fact, recent action on gold market reminds reverse H&S shape but very choppy and extended it time. Important COP target has been hit and upside action has started. In fact we have mirror action to the right and to the left from COP point. Market forms approximately equal lows on both sides. The speed is also similar. Is it possible that reversal is forming? Why not. Now take a look we have trend line that was broken down here. If market will return back above it - this will be important bullish sign. Conversely, a kind of goodbye kiss will tell that price will drop further. Downside targets also different - from nearest weekly 1113 OP till 890$ of extended butterfly that we've mentioned last week.
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Weekly

This time frame is our major one for making trading plan. As we've suggested last week, upside action indeed, continues. Now gold market stands at very important area, that splits two opposite scenarios. Either downside reversal, which means that curent upside action is retracement only, or upside breakout and continuation, which, in turn, means that we are at new bull trend on gold with perspective go back to previous 1380 tops.

Conversely downside reversal will form "222' Sell and lead us to 1113 OP target of large AB-CD pattern.

Still, as we have clear acceleration right to "d" 1280$ target of minor ab-cd pattern, it makes us to stay away from taking any short position by far. And adds more points to further upside continuation to 1330$ xop target. Gold is not at overbought here and has no other strong Fib levels ahead.

Despite that we have no intention to deal with bearish scenario - it is rather long-term and keeps theoretical validity while gold stands below "C" tops.
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Daily

On daily chart we do not have something really new, since our last discussion guys. Market has moved slightly higher, above OP target and broken channel's border. It creeps with overbought but there is still some room to 1286 Fib level. Now patterns or reaction on resistance has followed yet.

Technically daily picture is important because it warns us to keep aside from long entry for awhile.
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Intraday

That's the pattern that could finalize current upside leg, as we come to major Fib resistance and Daily overbought. We've talked about it on Friday as well. Since our major context is bullish we do not consider bearish intraday setups, although they are not forbidden, of course.

Major support stands around 1250 K-area. Previously this was K-resistance as well, so, we will see, but, now it seems that it could become most probable retracement destination, if it will start. MACD divergence also stands in place already.
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Conclusion:

1286 will be vital for long-term perspective of the market as well. Taking in consideration external driving factors, chances on upside breakout stands above zero.

Our first occupation after New Year's holidays will be reaction on 1286 level, which should take the shape of some retracement down.


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.
 
Greetings everybody,

Gold market supports our expectations of positive sentiment and good performance as overall background stands friendly for the gold. Recent flash crash on Asia-Pacific currencies and demand for safe haven assets yesterday, another drop of US 10-year yields and downward action on stock market supports gold performance.

On daily chart market stands rather close to our major level that we agree to call as the "border" between bearish and bullish trends. Now we have a lot of bullish signs that suggest upside continuation. Price already stands above major 5/8 Fib resistance level, CD leg shows clear acceleration up and reaction on major OP target was very small. This leads us to some conclusions. First is - upside action will continue and next target is 1330. Second - we should not count on deep retracements, market mostly creeps with overbought, showing very small intraday pullbacks:
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Just take a look at reaction of major daily AB=CD target and butterfly here - minor 3/8 retracement of butterfly swing and up again. In such circumstances harmonic swings usually works very well. It should be combined with minor bullish continuation patterns, such as "222" Buy inside the channel:
gold_1h_03_01_19.png
 
Greetings everybody, guys,

As you can see we do not have big changes on gold. Thus, today we will take a look at CAD, which provides really thrilling setup.

On weekly chart market hits rock hard resistance. This is major XOP target and Agreement around 5/8 Fib level, accompanied by weekly overbought. Last swing of upside action is thrust, and it means that could watch for weekly B&B "Buy" here. This is one of the trades that we will keep an eye on. Since we have bearish "Stretch" pattern here, it suggests downside continuation.
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3/8 Fib support is an area where potentially weekly B&B could start. But right now price stands at OS. Here we expect deep upside pullback first, and leg to 1.3326 second. If you add more Fib levels, you'll see that OS is accompanied by Fib support and 1.3326 level is a K-area.
cad_d_04_01_19.png


As upside retracement should be deep, on hourly chart we mostly should focus on 5/8 resistance:
cad_1h_04_01_19.png


So, as you can see a lot of setups that you could follow. Scalp traders could watch for bullish reversal patterns on 1H chart with expectation to reach 1.3570 area. Bearish traders could wait when pullback will be over and watch for bearish continuation pattern with target at daily major 3/8. After that we turn to weekly B&B pattern and see what will happen.
 
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