Gold GOLD PRO WEEKLY, February 01 - 05, 2021

Sive Morten

Special Consultant to the FPA
Messages
14,521
Fundamentals

As ongoing processes in global economy make impact on all markets - gold is not an exception. Yesterday we've put in-depth foundation to explain what's going on and why markets' reaction on recent GDP and other statistics was a bit "curious". Gold market, in general, reflects all these things as well, but with higher degree of dependence from interest rates.

Take a look - it is very specific positions' dynamic this week:
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First of all - we see massive closing of "Spread positions" by speculators. Although total Open Interest stands around 700K, but closing of 35K this means anything more or anything less than 2% total market volume. Short-term shifts are mostly bullish - as speculators as hedgers have contracted positions against downside action. But within a week - both shorts and longs where closed for 33K contracts. Hardly it could be treated as positive sign for the gold.

SPDR Fund outflow continues. Fund thins for around 115 tonnes when gold was dropping from the top, which is equal to 10% of total storages. Take a look that this week SPDR reserves sets the new low while gold still holds above it:
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This action totally matches to the theory or hypothesis that we've discussed yesterday. The new concept of global trend is "improvement", "turning up", "running out of pandemic" and "recovery". This puts interest rates on the first stage, suggesting more inflationary pressure and goes on for the moment of interest rates change. Otherwise, market reaction on recent data should be the opposite - more stimulus, weak economy, flat Fed should have to push gold prices higher that has not happened.

Globally - gold demand for gold fell to its lowest in 11 years in 2020, while India's consumption fell to its lowest in 26 years, the World Gold Council said on
Thursday.

Gold prices traded in a tight range on Friday, but prices were on track to post a weekly and monthly decline as a stronger dollar took some shine off the precious metal.

“Gold is largely going to continue to tread water as it is waiting for a proper catalyst,” said Michael McCarthy, chief market strategist at CMC Markets. The passage of a U.S. stimulus, potential for increase in inflation and next set of actions from global central banks will be key for gold, he said.

The greenback has risen 0.8% for the month helped by higher U.S. Treasury yields. Higher yields on bonds make gold a less attractive investment because it pays no interest. Here is what has happened on the bond market when GDP has been released - yields have jumped, showing that markets do not treat 4% GDP numbers as a bad result, although the day before yields has dropped significantly:
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In short-term investors opted for the relative shelter of the U.S. dollar from waning risk-on sentiment and after the U.S. Federal Reserve expressed worries over the slow pace of economic recovery.

"The (Fed) meeting yesterday had no positive impact on gold because, before and after the meeting, the dollar strengthened as it was sought after as a safe-haven due to other concerns in financial markets and that weighed on gold prices," said Commerzbank analyst Daniel Briesemann.

The Fed said the pace of the recovery in U.S. economic activity and employment had moderated in recent months, but kept its key interest rates and monthly bond purchases unchanged. The dollar hovered near a one-week high hit in the previous session after a sharp sell-off on Wall Street on Wednesday and with European equities hitting one-month lows in early Thursday trade. The delay in a $1.9 trillion U.S. coronavirus stimulus deal, which has not received a green signal from Republicans, weighed further on gold.

"The $1.9 trillion (U.S. stimulus) was pretty ambitious and I don't think (President) Biden has the support to pass it," said Bob Haberkorn, senior market strategist at RJO Futures. "That is another reason why gold is not trying to get back above $1,900."

"If you have a sharp decline in equities, you'd expect gold to come down with it...meaning that quite often people who are looking at the possibility of margin calls raise cash by selling their gold holdings," said StoneX analyst Rhona O'Connell.

"Maybe (market players) are waiting a little bit longer to see if gold can regain the 200-day moving average or, if it'll fall further to $1,800, which should be quite an attractive buying opportunity," added Commerzbank's Briesemann.

"To drive gold towards the upper end of the (narrow) range, (the Fed) will need to adopt a fairly dovish tone, which will push U.S. 10-year yields back below 1% - that will help gold," CMC Markets UK's chief market analyst Michael Hewson said.

"The new round of fiscal stimulus may not arrive before mid-March, which is later than what the market had expected... so eventually we may see a delayed and smaller stimulus, which is not good for gold," said DailyFX strategist Margaret Yang. Gold will trade between $1,810 and $1,870 in the near term, said DailyFX strategist Margaret Yang, adding that in the medium term, the economic recovery might push yields higher along with inflation, which would be bearish for bullion.

"If they do reach a deal it might be a watered down version to get it through Congress, so that's also weighing on (the gold) market," said Saxo Bank analyst Ole Hansen.

"People are going into bonds and dollar, shying away from gold," said Stephen Innes, chief global market strategist at financial services firm Axi. "There's a risk that the stimulus could get delayed until after (former U.S. President Donald) Trump's impeachment ... leaving gold on the mercy of the U.S. central bank's whim."

"Optimism around a $1.9 trillion fiscal stimulus may fuel expectations of the Fed tapering some of its ongoing support. Any taper talk could steepen the U.S. Treasury yield curve, which may provide support to the dollar, ultimately pressuring gold prices," said Lukman Otunuga, senior research analyst at FXTM. "However, if the Fed expresses a willingness to maintain its ultra-accommodative monetary policy stance, gold is likely to shine."


So, by overview of recent economical data, events and investors opinions it becomes relatively clear few things. First is, market wants to see US 10 year yields below 1%, as fast as possible approvement of 1.9Trln Biden's pack and keeping of Fed accommodative policy as long as possible. This is the general setup for upside continuation of gold market in short-term. Now nobody talks about action above 2K level, but mostly expectations are twisting around 1900$ area. But this is "would be nice if..." scenario.

What do we have in reality - delay in stimulus and high probability of dilution of 1.9 Trln, probably it will smaller. Once it will be finally approved, it will be difficult to convince market that this is what they would like to get. 10-year yields stubbornly stand above 1% and with no action from the Fed they will rise once Biden's pack will be approved. Fed hardly will stay aside and just watch how rates are climbing. They should tense the rhetoric, at least.

Simple comparison on "what market would like to get" and "what we have now" leads to conclusion that strong rally is hardly possible in near term. Taking in consideration the recent CFTC data that investors are leaving Gold and that some investors are becoming suspicious on perspectives -

"in the medium term, the economic recovery might push yields higher along with inflation, which would be bearish for bullion."


"Risk aversion supporting the dollar is a healthy correction after a one-way rise in risk assets," said Masafumi Yamamoto, chief currency strategist at Mizuho Securities. The base scenario of economic acceleration in the second half of the year remains intact.

Finally, the way how market reacts on the data, that we've discussed in detail yesterday shows that long-term sentiment is changing and recent drivers, such as stimulus and Fed dovish policy are loosing supportive strength to the market. Thus, gold probably could stay in wide range for awhile, trying to show "goodbye" jump to 1870-1900 area, but we probably should forget about new highs and be cautious on any long positions that we take on daily and above time frames.

Technicals
Monthly


Long-term charts mostly stand intact. Here trend has turned bearish, but bullish grabber is still valid. Also price was able to stay above YPP in January. The vital level here is 1750 lows of the grabber. Downside breakout opens road to deeper stand levels. As we've mentioned previously 1685 K-support might become an excellent area for tactic gold buying on daily and intraday charts.

Thus, it would be nice if we able to recognize early signs of either failure or validity of monthly grabber by analysis of lower time frames. In this case we could act in advance.

gold_m_01_02_21.png


Weekly

While above we've explained why we're cautious on taking long positions by fundamentals, weekly chart explains technical side. Trend stands bearish here, we have major AB-CD and valid bearish grabber with invalidation point above 1950$. Right now most brave expectations stand around 1900$, so it is highly likely that grabber keeps its validity, if major background remains the same. This, in turn, shows high chances finally to see drop and reaching of OP target around 1740$ area.

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Daily

Keep going with this logical sequence - this is the reason why we're watching for bearish butterfly on daily chart as well. Recently we've got another two grabbers here that give market phantom chances to reverse the situation and show upside action that we've discussed earlier. Market barely holds at vital 1807-1838 support area showing no ability to jump out of it.

With mentioned problems that bullish driving factors have, bullish scenario seems mostly theoretical right now, just because price has not broken yet the major support. Once it happens, we consider 1.27 butterfly target around 1710 that perfectly agrees with weekly OP.

Chart shows that any action below 1956 stands inside the downside swing and means just the retracement, making no impact on overall context.

gold_d_01_02_21.png


Intraday

The process of short position taking could be extended in time as market has a lot of room to fluctuate without harming of major context. Theoretically our task is to take position as closer to 1956 top as possible, just to minimize the risk, as the wing of daily butterfly could change. Currently it is unnaturally low. Unfortunately we do not know it definitely, and we have no choice, but to follow those bearish setups that we've got.

Next week we try to play out the grabbers. So, on 4H chart price stands at 1875-1879 resistance area, forming puny W&R on Friday:
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With the daily grabbers in mind, we could consider possible B&B "Sell" Look-alike pattern on 1H, trying to go short. It is "look-alike" because we have 7 downside bars, not 8, but these bars are rather long and straight, so, it might work like B&B and first level that we intend to watch is 1853-1855 K-resistance.

Depending on how it goes we either get good short position or have to consider something else above 1875 area...

gold_1h_01_02_21.png
 

Sive Morten

Special Consultant to the FPA
Messages
14,521
Greetings everybody,

While EUR and GBP have shown drop yesterday, gold was standing on guard, but today the status-quo is setting back. As interest rates jumps back and keep rising - chances on upside action on gold market seems phantom. Thus, we're keep going with our trading plan, based on the grabbers that we have on daily, suggesting drop below 1830 then 1805 then 1750 etc.

The butterfly that stands in the center of our scenario could change the shape of the wings, but currently we do not see the signs that it might happen today. So, it could remain steep as it stands right now:
gold_d_02_02_21.png


On 4H chart today we keep an eye on breakout of trend line, that should open the way to 1805 lows. Interest rates, by the way have the same trend line and it is also challenging right now:
gold_4h_02_02_21.png


If we get lucky and gold shows some response to 1848 support - then we could consider 1855 K-area for short entry. Market has not formed B&B "Sell " setup yesterday. It is obvious strong bearish pressure around 1870 area.
gold_1h_02_02_21.png
 

Sive Morten

Special Consultant to the FPA
Messages
14,521
Greetings everybody,

So, minimum target of daily grabbers is completed and market right now stands at tricky moment. For the bears it is crucial the price return back to YPP - this should put the foundation of longer downside action. But right now market still stands in the area where resurrection of bullish scenario is possible, or, if not the scenario but deeper upside retracement:
gold_d_03_02_21.png


On 4H chart we see the range that it is vital to break down for the bears. And while price stands inside - it keeps chances on upside reversal:
gold_4h_03_02_21.png



Interest rates today do not show strong dynamic and yield has to break 1.12% level to push gold lower. As a result - today we could get upside bounce, supposedly in a way of AB-CD pattern. Keep an eye on MACDP here as we could get the grabber. Second- think what to do with your positions if you keep them since yesterday:
gold_1h_03_02_21.png


Another reason, why we're cautious on gold - it is strong support on EUR where it could bounce up. While yesterday we've suggested same direction for both markets.
 

Sive Morten

Special Consultant to the FPA
Messages
14,521
Greetings everybody,

Hopefully you've tried yesterday to trade gold in relation to US interest rates. Now, guys, this is the new reality. As Interest rates goes slightly ahead of gold, even on intraday charts - they do great work to us and it is obvious on intraday charts and our yesterday trading setup in particular.

On the daily chart we have nothing really new by far. Some clarity should come in a case of breakout below YPP. Maybe we get something tomorrow, on NFP data:
gold_d_04_02_21.png


Meantime we're dealing with the same range that yesterday has been broken down. So, bullish context could appear if market will be able to return back, while bearish setup appears on upside retracement back to the border of the range.
gold_4h_04_02_21.png


Here is the price action that we've got yesterday - while US 10 year yield was standing below 1.12% resistance - everything was great, few bullish grabbers have been formed, we've stepped in. Gold has shown 10$ upside bounce - more than enough to move stops to b/e.
But, then rally has fizzled and it has happened right at the moment when 1.12% level has been broken. Now interest rates stand in retracement, that lets gold to show upside bounce as well.
gold_1h_04_02_21.png


Currently setup is very clear - we could consider short entry at 1st K-area with stops above the second, suggesting that gold holds outside the range. Conversely - short-term bearish setup will be broken and gold gets the chance on higher upward action. In particular - reverse H&S pattern could be formed, making downside breakout fake. As usual - avoid straight white candles and keep an eye on US Bonds...
 

Sive Morten

Special Consultant to the FPA
Messages
14,521
Greetings everybody,

It might be an occasion of course, but it seems that gold has proved efficiency of our theory with interest rates pretty fast. Market now shows minor relief as interest rates jumps for 13% this week and speculators book the result before NFP.
By market mechanics, gold has broken the foundation of medium-term bullish context. It means that drop below 1764 lows is just a question of time:
gold_d_05_02_21.png


On 4H chart the only thing that we could consider is tactical DiNapoli patterns - either DRPO "Buy" or B&B "Sell" that could be formed, depending on NFP release. It is better to use both for short position only, as any bullish trade is tricky now as price is not at support or oversold. Actually this is free space just below the market.
Thus, if DRPO will be formed (with bad NFP numbers and low earnings inflation) - it just mean that upside bounce could be a bit greater:
gold_4h_05_02_21.png


At first glance and for B&B - 1820 former support area and now it is K-resistance looks suitable. But only if we do not see explosive upward action through it...
gold_1h_05_02_21.png
 
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