Sive Morten
Special Consultant to the FPA
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- 18,699
Fundamentals
(Reuters) - Gold rose to a three-month high in volatile trade on Friday, as a mixed U.S. jobs report prompted investors to reassess the outlook for U.S. interest rates this year, putting bullion on track for its strongest weekly performance in more than a year.
U.S. employment gains slowed more than expected in January as the boost to hiring from unseasonably mild weather faded, but rising wages and an unemployment rate at an eight-year low suggested the labor market recovery remains firm.
"The futures curve is showing that the probability of a March (rate) hike has fallen to around 10 percent, around the lowest levels last seen in October, but there is a greater than 50 percent probability there will be an additional hike this year," said Suki Cooper, precious metals analyst for Standard Chartered Bank in New York.
"This has buoyed the risk-off sentiment that has boosted gold prices."
The spot market was on track to close the week up 4.2 percent having risen for six straight days.
U.S. gold futures for April settled up 20 cents at $1,157.70 an ounce.
"The data shows a March (interest rate) increase is not totally out of the question, it's probably 50-50," said Robin Bhar, an analyst at Societe Generale. "That's why gold sold off after the report, as the dollar rose."
As a non-interest bearing asset, dollar-denominated gold becomes less attractive if U.S. interest rates rise.
A shaky global economy has lifted buying interest in gold, making it among the best performing assets since the start of 2016 with a gain of nearly 10 percent.
Holdings of SPDR Gold Trust , the world's largest gold-backed exchange-traded fund, rose to 22.3 million ounces on Thursday, the highest since late October.
So CFTC Data shows increasing of net long position, but open interest moves down. It means that upward action mostly stands due short covering. This tendency should change soon or upside rally could meet headwind of insufficient money flow to gold purchasing that supports any rally.
Technicals
Monthly
So since New Year has gold stands with upside action. Reasons could be different - geopolitics, investors' assets distribution in the beginning of the year. Upside action currently is too small to change situation on monthly chart but we will monitor how situation will change.
Changes come slow to monthly chart yet and it is mostly the same by far.
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 time. The fact that gold drops on a background of Middle East turmoil looks a bit artificial and this situation could not stand forever. May be this could be explained as insufficient weight of geopolitics against current weight of Fed policy and statistics. But geopolitical tensions, despite its low weight still makes drop slower. Now we see that this situation is starting to change. Thus, recently gold has risen even on strong NFP data, compares to other assets. Demand on safe haven assets starts to increase - just take a look at JPY and gold.
Not just Middle East stands in our focus. We see that fumes of this conflict spread over planet. Recall Paris terrorist attack, refugees tensions in EU, Brexit voting, a lot of contradiction inside EU as political as economical - North Stream-2, mutual sanctions, Ukraine membership voting in Netherlands, Montenegro NATO membership and a lot of others. China's financial turmoils is isolated theme for discussion. All these stuff is happening on a background of reducing population wealth and solvency. So, we see that entropy is growing.
As market gradually will start to come to the same conclusion as gradually situation on gold market will start to change in positive area. International banks purchase gold in big volumes, mostly PBoC and Russian Central Bank. 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.
Our 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.
So, on long-term charts it could happen, that we will not see clear tendency and gold could turn to some wide range action. Because right now it is too many sources that could initiate impact on gold market. They will push market in one and other sides. Geopolitical situation in the World has reached very high degree of uncertainty and we believe that sooner rather than later it will become a dominating factor for gold market.
Anyway, gold's shift from downward action to flat one, even it will be wide - already will be significant moment.
Finally - monthly chart trend has turned bullish. This is not a big deal yet, but still, this is one of the bricks in the wall, right?
And we're coming to first testing point. Within coming 2 weeks we will understand whether gold will turn down and 1000$ will become reality again, or we will get new long-term bull trend.
As you can see upside action has started right after butterfly "Buy" has been completed. Currently market has reached 3/8 resistance of butterfly 's swing. At the same time this is Yearly Pivot Point. If recent upside action was just reaction on butterfly completion - we will see downward reversal. Since it will happen around YPP - this will confirm bearish sentiment and could lead to solid drop and further downward continuation.
If, instead, market will break this area - this will be the sign of bullish trend and upside party will continue. That's why this is very important area. At the same time, this level is final point of our short-term bullish context that we were trading within recent 2 months. Here we either will get bullish context of bigger scale or opposite one.
Weekly
On coming week we do not expect significant upward action. In addition to existing of Yearly Pivot we have here weekly overbought and major 3/8 Fib resistance. We think that market will hit this area just to complete important targets but hardly will move through it.
Even more. We think that solid downward retracement could happen by two reasons - market stands in upward action with long period already without any solid retracement. On weekly chart it looks like just single swing up. Second - market meets strong resistance.
As we've said above this level will play major role in gold's destiny in nearest term. Gold also stands in a sequence of lower tops and lower lows. Here market has chance to break this tendency if it will form reversal swing. In this case this will be additional indicator of changing sentiment on the market.
Daily
So, we've estimated that market has reached strong resistance and hardly will break it on coming week. Even opposite is more probable. As Gold has reached all major targets of our first stage upside action - it could turn to retracement down.
Since this is first leg up after long period of dropping, market is overbought at weekly and monthly chart - retracement down will be significant probably. We think that gold could drop as far as to 1100 area. So, I'll show you the picture:
This deep retracement will not mean collapse of all bullish hopes, as we've discussed on monthly chart. The identification will come second, after market will finish with normal technical retracement. If market is really bullish it should form some upside reversal pattern, return back and challenge neckline, i.e. YPP again. May be retracement will be slightly smaller - it's OK, but some upside reversal pattern should be formed.
That's being said, currently I wouldn't initiate any new long positions. Shorts are possible only for scalpers. For us is most important level where retracement will end.
Intraday
Here guys, we do not see yet any clues, since rally is under way and market has not reached yet final point and has not started yet to form any patterns.
WPR1 stands at 1198 that agrees with our resistance. That's being said we will have - WPR1, YPP, weekly OB, daily OB and major 3/8 Fib resistance around 1180-1194 area. Here we expect to get final point of our first upside leg that we've traded within recent 2 months.
Also guys, you should understand that our analysis is based on "normal" market that stands on its own where technical analysis works.
But gold now is not quite a market of this quality. If any gepolitical factors will impact the world - market could take irrational action as we saw many times in the past.
Conclusion:
We think that fundamentally gold stands somewhere near bottom and situation is starting to change. But this bottom could be "extended", because the scale of this analysis is long-term. It means that market could drop lower, say to 1000$ , but pace of drop will be significantly slower, or will turn to some wide range fluctuations.
In short-term perspective market has completed first stage of upward action, let's call it initial swing. Some moderate retracement probably should come. Major clarity will come after this retracement. Probably it will take no less than 2-3 weeks
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.
(Reuters) - Gold rose to a three-month high in volatile trade on Friday, as a mixed U.S. jobs report prompted investors to reassess the outlook for U.S. interest rates this year, putting bullion on track for its strongest weekly performance in more than a year.
U.S. employment gains slowed more than expected in January as the boost to hiring from unseasonably mild weather faded, but rising wages and an unemployment rate at an eight-year low suggested the labor market recovery remains firm.
"The futures curve is showing that the probability of a March (rate) hike has fallen to around 10 percent, around the lowest levels last seen in October, but there is a greater than 50 percent probability there will be an additional hike this year," said Suki Cooper, precious metals analyst for Standard Chartered Bank in New York.
"This has buoyed the risk-off sentiment that has boosted gold prices."
The spot market was on track to close the week up 4.2 percent having risen for six straight days.
U.S. gold futures for April settled up 20 cents at $1,157.70 an ounce.
"The data shows a March (interest rate) increase is not totally out of the question, it's probably 50-50," said Robin Bhar, an analyst at Societe Generale. "That's why gold sold off after the report, as the dollar rose."
As a non-interest bearing asset, dollar-denominated gold becomes less attractive if U.S. interest rates rise.
A shaky global economy has lifted buying interest in gold, making it among the best performing assets since the start of 2016 with a gain of nearly 10 percent.
Holdings of SPDR Gold Trust , the world's largest gold-backed exchange-traded fund, rose to 22.3 million ounces on Thursday, the highest since late October.
So CFTC Data shows increasing of net long position, but open interest moves down. It means that upward action mostly stands due short covering. This tendency should change soon or upside rally could meet headwind of insufficient money flow to gold purchasing that supports any rally.
Technicals
Monthly
So since New Year has gold stands with upside action. Reasons could be different - geopolitics, investors' assets distribution in the beginning of the year. Upside action currently is too small to change situation on monthly chart but we will monitor how situation will change.
Changes come slow to monthly chart yet and it is mostly the same by far.
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 time. The fact that gold drops on a background of Middle East turmoil looks a bit artificial and this situation could not stand forever. May be this could be explained as insufficient weight of geopolitics against current weight of Fed policy and statistics. But geopolitical tensions, despite its low weight still makes drop slower. Now we see that this situation is starting to change. Thus, recently gold has risen even on strong NFP data, compares to other assets. Demand on safe haven assets starts to increase - just take a look at JPY and gold.
Not just Middle East stands in our focus. We see that fumes of this conflict spread over planet. Recall Paris terrorist attack, refugees tensions in EU, Brexit voting, a lot of contradiction inside EU as political as economical - North Stream-2, mutual sanctions, Ukraine membership voting in Netherlands, Montenegro NATO membership and a lot of others. China's financial turmoils is isolated theme for discussion. All these stuff is happening on a background of reducing population wealth and solvency. So, we see that entropy is growing.
As market gradually will start to come to the same conclusion as gradually situation on gold market will start to change in positive area. International banks purchase gold in big volumes, mostly PBoC and Russian Central Bank. 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.
Our 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.
So, on long-term charts it could happen, that we will not see clear tendency and gold could turn to some wide range action. Because right now it is too many sources that could initiate impact on gold market. They will push market in one and other sides. Geopolitical situation in the World has reached very high degree of uncertainty and we believe that sooner rather than later it will become a dominating factor for gold market.
Anyway, gold's shift from downward action to flat one, even it will be wide - already will be significant moment.
Finally - monthly chart trend has turned bullish. This is not a big deal yet, but still, this is one of the bricks in the wall, right?
And we're coming to first testing point. Within coming 2 weeks we will understand whether gold will turn down and 1000$ will become reality again, or we will get new long-term bull trend.
As you can see upside action has started right after butterfly "Buy" has been completed. Currently market has reached 3/8 resistance of butterfly 's swing. At the same time this is Yearly Pivot Point. If recent upside action was just reaction on butterfly completion - we will see downward reversal. Since it will happen around YPP - this will confirm bearish sentiment and could lead to solid drop and further downward continuation.
If, instead, market will break this area - this will be the sign of bullish trend and upside party will continue. That's why this is very important area. At the same time, this level is final point of our short-term bullish context that we were trading within recent 2 months. Here we either will get bullish context of bigger scale or opposite one.
Weekly
On coming week we do not expect significant upward action. In addition to existing of Yearly Pivot we have here weekly overbought and major 3/8 Fib resistance. We think that market will hit this area just to complete important targets but hardly will move through it.
Even more. We think that solid downward retracement could happen by two reasons - market stands in upward action with long period already without any solid retracement. On weekly chart it looks like just single swing up. Second - market meets strong resistance.
As we've said above this level will play major role in gold's destiny in nearest term. Gold also stands in a sequence of lower tops and lower lows. Here market has chance to break this tendency if it will form reversal swing. In this case this will be additional indicator of changing sentiment on the market.
Daily
So, we've estimated that market has reached strong resistance and hardly will break it on coming week. Even opposite is more probable. As Gold has reached all major targets of our first stage upside action - it could turn to retracement down.
Since this is first leg up after long period of dropping, market is overbought at weekly and monthly chart - retracement down will be significant probably. We think that gold could drop as far as to 1100 area. So, I'll show you the picture:
This deep retracement will not mean collapse of all bullish hopes, as we've discussed on monthly chart. The identification will come second, after market will finish with normal technical retracement. If market is really bullish it should form some upside reversal pattern, return back and challenge neckline, i.e. YPP again. May be retracement will be slightly smaller - it's OK, but some upside reversal pattern should be formed.
That's being said, currently I wouldn't initiate any new long positions. Shorts are possible only for scalpers. For us is most important level where retracement will end.
Intraday
Here guys, we do not see yet any clues, since rally is under way and market has not reached yet final point and has not started yet to form any patterns.
WPR1 stands at 1198 that agrees with our resistance. That's being said we will have - WPR1, YPP, weekly OB, daily OB and major 3/8 Fib resistance around 1180-1194 area. Here we expect to get final point of our first upside leg that we've traded within recent 2 months.
Also guys, you should understand that our analysis is based on "normal" market that stands on its own where technical analysis works.
But gold now is not quite a market of this quality. If any gepolitical factors will impact the world - market could take irrational action as we saw many times in the past.
Conclusion:
We think that fundamentally gold stands somewhere near bottom and situation is starting to change. But this bottom could be "extended", because the scale of this analysis is long-term. It means that market could drop lower, say to 1000$ , but pace of drop will be significantly slower, or will turn to some wide range fluctuations.
In short-term perspective market has completed first stage of upward action, let's call it initial swing. Some moderate retracement probably should come. Major clarity will come after this retracement. Probably it will take no less than 2-3 weeks
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.