Gold GOLD PRO WEEKLY, February 08 - 12, 2021

Sive Morten

Special Consultant to the FPA
Messages
14,521
Fundamentals

In our FX Research we've paid a lot of attention to recent NFP data trying to understand whether report has special meaning and indeed reflects real situation or, its numbers are just an echo of the past. On result of our analysis, we gravitate more to 2nd conclusion as NFP report doesn't correspond to a lot of other statistics and markets reaction was not as strong as it might be, if this would be return to the "old way".

U.S. private payrolls rebounded more than expected in January, suggesting the labour market recovery was back on track after the economy shed jobs in December.

For the gold market the most interesting thing is that we haven't got bearish reaction on interest rates. We treat it as another confirmation that NFP effect might be temporal. While EUR, and partially Gold as well have shown upside bounce, interest rates stand flat:

1612689715352.png


CFTC Data also doesn't show some big changes (although it was released for mid week) and even shows minor contraction of long positions and open interest:

1612689855676.png

Gold rebounded above the $1,800 psychological level on Friday, helped by a retreat in the dollar and data showing slower-than-expected growth in U.S. employment underpinning the need for additional financial support.

"Gold is getting clobbered," said CMC Markets UK's chief market analyst, Michael Hewson, adding higher yields in U.S. Treasuries are much more attractive than holding money in gold. Silver's fate will be similar to gold and it can retest $22 over the next two weeks, although it'll find some support through Biden's solar push," said Jeffrey Halley, a senior market analyst at OANDA.

"Gold continues to primarily take its lead from the dollar and we expect this to remain the case in the coming sessions," said Suki Cooper, analyst at Standard Chartered. Beyond the near term, we believe the outlook remains constructive for gold given the fiscal stimulus is likely to result in large U.S. twin deficits."


U.S. employment growth rebounded moderately in January and job losses in the prior month were deeper than initially thought. The U.S. House of Representatives will take up final approval on Friday of a budget measure that would let Democrats push the $1.9 trillion COVID-19 relief package through Congress.

For the week, however, gold is down 1.9%, its biggest decline since the week ended Jan. 8, in part due to higher U.S. Treasury yields, because they increase the opportunity cost of holding non-yielding bullion. As investors shift their focus toward the U.S. economic outlook and eye riskier assets, gold may weaken in the short
term
, said Lukman Otunuga, senior research analyst at FXTM.

The steepening of the yield curve "ultimately means the cost of holding gold across the curve is increasing. Gold could go even lower and consolidate in response to ... the whole idea that the U.S. and global economy are recovering," said Bart Melek, head of commodity strategies at TD Securities. However, silver could benefit from industrial demand, Melek added.

Making bullion more expensive for holders of other currencies, the dollar scaled a more than two-month peak while longer-term U.S. Treasury yields rose on anticipation of a large pandemic relief package from Washington and a stabilizing U.S. labor market. While gold usually gains from more stimulus, since it is considered a hedge against inflation from widespread stimulus measures, higher yields challenge that status because they increase the opportunity cost of holding non-yielding bullion.

"Growing expectations about a relatively quick end to the pandemic are raising economic recovery hopes and with it the likelihood of central banks reducing the current hyper-dovish monetary stimulus," ActivTrades chief analyst Carlo Alberto De Casa said in a note.

Dollar Smile

Recently
we already have considered this classic behavior of the US Dollar, as some hedge fund managers expect that it should start soon again. Those of you who do not know what "Dollar smile" means could read our FX Course where we've made prediction of strong US Dollar rally in 2011. This was previous Dollar Smile. In two words - Dollar smile is upside reversal of the currency on a background structural shift in economy and turning of the cycle to the growth stage.

So, yesterday we've discussed this in general and what consequences it could bring to the EUR/USD pair, but today I would like to add a bit more on this subject and take a look at it in general, when it could start. Because it directly impacts the value of the gold.

If we take a look at US Dollar index chart, it seems that short term appreciation might be over indeed, as it forms perfect AB-CD retracement.
1612695558358.png


But if we take a look at monthly chart, where Dollar Smile actually, always forming, as it is long-term pattern - the starting point is still stands ahead. Here chart explains, why recent US Dollar growth might be temporal - just because we have uncompleted OP target on monthly chart. And this OP has strong chances to be reached because of another pattern - bearish grabber, that suggests taking out of 88 lows. It means that Smile is not started yet and this should happen later, within 2-3 months. This is approximately corresponds to our suggestion that in April-May global shift in economy should become evident.

For the gold market it means that it could get the chance for last upside effort, where it could climb above 1900-1950 area, or even re-test previous top. But Dollar Index picture tells that it will not become the new long-term rally. At the same time, we have to remember that dollar is not the only driving factor. Mostly gold depends on interest rates performance that is dominant right now. And it might happen, as in November-January when dollar was dropping but interest rates rising and hold gold flat. Other words, weaker dollar is definitely backwind for the gold, but the degree of its support depends from interest rates.
Yeg4EZXd


Alternatively, with corresponding fundamental events, DXY could proceed lower to, say, XOP target. This could happen, if everything appears to be bad - no economy recovery, no vaccination effect - only dry cash in a way of multiple stimulus packs without meaningful effect. Maybe in the future this scenario becomes the reality, but now it seems hardly possible.

Thus, here we could get the same conclusion as on FX market yesterday. Recent NFP data is a part of transition stage when numbers could be contradictive, and reflect as previous stage as some signs of a new one. NFP probably not the last one and we see more of the same kind in February and March. In these two months gold potentially could sing its swansong and make last upside effort.


Technicals
Monthly


So, gold was able to stay above Yearly Pivot this time, thankfully to NFP data. The bullish grabber that we have here makes sense from perspective of dollar smile theory. Despite that trend has turned bearish, but bullish grabber is still valid. 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.

gold_m_08_02_21.png


Weekly

Despite the Friday's pullback, weekly chart brings nothing new by far. We remain cautious on taking long positions here as due fundamentals, as due technical picture. 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.
gold_w_08_02_21.png


Daily

Here, despite the NFP pullback, picture still looks bearish. Interest rates shows no reaction on NFP data at all and this puts the limit on gold appreciation in short-term. First thing that we have to do on Monday - take a look at 10 year yield and check, whether Mr. Bond has changed their mind. In a case of downside reversal - gold might show stronger upward bounce. On EUR, by the way, our trading plan suggests deeper upward action as well:

gold_d_08_02_21.png


Intraday

On 4H chart everything stands with our trading plan that we've discussed on Friday. Price is coming to first 1820 resistance where we could get B&B "Sell" trade. Primary level to watch is 1840-1850 resistance. Real bearish market has to stay below it. If gold breaks it up - it changes short-term sentiment and should continue upward action:

gold_4h_08_02_21.png


On 1H chart we have more details on B&B setup. Obviously we have AB=CD shape and this is great, because it makes upward action gradual. Second - OP target perfectly matches to K-resistance area. Hopefully we get no surprises on Monday's open.
gold_1h_08_02_21.png
 

Sive Morten

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

As we've discussed in weekly report - there are big events stand on the gold market right now, that ultimately could lead price above 1950 if interest rates drop, following the US dollar, or, at least postpone downside reversal.

On daily chart it is almost the same situation as on EUR - market is around intraday K-resistance and daily grabber could be formed. Although fundamental picture doesn't support it. With the new environment on the gold market - butterfly pattern probably changes the shape or even might be cancelled if upside action will be really strong.
gold_d_09_02_21.png


On 4H chart price stands at 1840-1850 K-resistance area, making unattractive immediate long entry, suggesting waiting for some pullback. Here we also could recognize large reverse H&S pattern, that potentially could happen in a case of our ultimate scenario:
gold_4h_09_02_21.png


On 1H chart we have changed AB-CD pattern as all targets of the previous one have been completed. Now price stands at OP, making Agreement resistance with 4H K-area. Another reason to sit on the hands and watch for retracement. XOP, by the way nicely agrees with potential neckline...
gold_1h_09_02_21.png
 

Sive Morten

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

Gold reflects actually the same way as EUR but shows a bit slower action as it has indirect relation to USD. Compares to EUR, here, we've got bearish grabber on daily right around intraday K-resistance area, which is additional risk factor, especially as we get CPI and triple Central Banks speeches today, and FOMC minutes tomorrow.

Still, as DXY is dropping and Interest rates stands flat with minor downside tick, gold has support.
gold_d_10_02_21.png


On 4H chart gold stands at the same resistance as yesterday, while EUR has broken it already. This is actually the reason why we think that currently it is not good moment for new long position. In fact, we have only two options - either watch for minor pullback to long entry, or wait for appearing of big reverse H&S pattern and take position on the right arm's bottom, when price starts bounce out from 1875 neckline, later in the month:
gold_4h_10_02_21.png


For tactical entry, we could consider K-support area, if gold drops there. If not - price proceeds in the same way as EUR, right to XOP and potential neckline of 4H chart pattern.
gold_1h_10_02_21.png
 

Sive Morten

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

Today we have more reasons to worry on Gold short-term perspective by few reasons. Despite CPI data mostly was friendly to current upward action, gold was not able to break through intraday K-area. The grabber that we have on daily chart is still valid. Besides, today we could get grabber on 10-year yield daily chart as well.
gold_d_11_02_21.png


On 4H chart price stuck in K-resistance area:
gold_4h_11_02_21.png


On 1H chart we could get the H&S pattern that suggests at least some pullback or, ultimately, if grabbers start to work - reversal:
gold_1h_11_02_21.png


This is the reason why today we suggest to sit on the hands and see whether we get grabber on interest rates. If we will - do not take long position. Alternative scenario suggests direct upside continuation to XOP. In this case we switch to 4H large reverse H&S and wait for entry around right arm's bottom, as usual.
 

Sive Morten

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

So, yesterday we're not just occasionally warned you about possible weakness on the gold - with the bullish grabber on the board of interest rates, ultimately, gold could take out recent 1785 lows as well. And first reaction has come fast.
Actually on gold we have the same grabber as on US 10-year yield:
gold_d_12_02_21.png


As a result, we said that most probable progress here is appearing of H&S pattern on 1H chart that has happened. The taking out of 1785 lows we postpone on next week, while today, we do not see big problem to the market to hit XOP around 1811 Fib support area, and complete H&S pattern. After that some upside bounce could start:

gold_1h_12_02_21.png
 
Top