Gold GOLD PRO WEEKLY, February 15 - 19, 2021

Sive Morten

Special Consultant to the FPA
Messages
14,378
Fundamentals

Last weekend we had great discussion on fundamental background and set milestones of our long-term view on the gold market. In two words speaking - while global economy is still preparing to major shift, gold has chance to show upside jump of some scale. The scale, in turn, depends on dynamic of interest rates, despite that we anticipate downside action on Dollar Index - that is supportive but not sufficient condition.
Yesterday, in our FX research among other topics we've considered the market's sentiment analysis that is based on recent Reuters poll of multiple economists and majority expect faster recovery of US economy in this year compares to previous expectations. It means that on gold market we intend to act in the same manner as on FX market - follow short-term bullish pattern, (if we get any), and watching how major statistics change in March-April period. We expect that reversal becomes more evident soon. Currently we already have few factors that point on it.

Overall situation overview

Gold jumped more than 1% on Monday as expectations of a large U.S. economic stimulus package bolstered bullion’s appeal as an inflation hedge. U.S. President Joe Biden and his Democratic allies in Congress cleared the path for a $1.9 trillion COVID-19 relief package as lawmakers approved a budget outline that will allow them to muscle the plan through without Republican support.

U.S. Treasury Secretary Janet Yellen said on Sunday the country would get back to full employment next year if Congress approves the stimulus package.

Yellen talking about full employment by 2022 with $2 trillion in stimulus is driving the likelihood of a surge in inflation, which is good for gold,” said Tai Wong, head of base and precious metals derivatives trading at BMO.

"Inflation expectations are rising and the dollar is starting to weaken a little bit after a string of recent gains," said CMC Markets UK's chief market analyst, Michael Hewson. Gold prices will still trade in a broad range from $1,760-$1,960 for the foreseeable future and the only reason for gold to break higher will be if stock markets suddenly came crashing off, which is unlikely at the moment, Hewson added.

"The reflation trade is really starting to settle in," and gold is benefiting from the dollar weakening again, and stimulus being the big focus, said Edward Moya, senior market analyst at OANDA. Gold is "going to attract a significant amount of flows because of just the uncertainty with the global economic recovery and also, the U.S. Federal Reserve is going to be very accommodative for quite some time."


U.S. consumer prices rose moderately in January as higher gasoline prices were blunted by a slump in airline fares amid a relentless pandemic, tempering expectations for a sustained acceleration in inflation this year.

India's gold imports in January surged 72% from a year earlier, a government source said on Wednesday, as a correction in prices from a record high drew retail buyers and jewellers.

Gold eased on Friday as the U.S. dollar and Treasury yields rose, but prices were on course for their best week in three underpinned by hopes of more stimulus in the
world's largest economy.

"The U.S. jobs numbers sort of talked some sense of inflation risk out of the market and that may have weighed on gold," said IG Market analyst Kyle Rodda. U.S. jobless claims fell slightly last week, but were stuck at elevated levels. The bigger picture should be positive for gold because of the current monetary and fiscal policy mix, but despite all the tailwind gold's just grinding lower, so it's not a very constructive view for the time being," Rodda said.

The macro backdrop remains supportive, with gold prices "likely to resume their uptrend in coming weeks given our expectations for the dollar to weaken further alongside real yields remaining low or negative," said Standard Chartered analyst Suki Cooper. Market focus remains on the size and timing of the U.S. fiscal stimulus, inflation expectations and progress of the vaccine rollout," she added.

"As far as this stimulus goes it's positive for gold but it's not new... The market is not reacting to it at the moment," said HSBC analyst James Steel, adding gold prices are likely to average $1,907 for the year.


But, personally I do not share the long-term optimism around gold market. Yesterday we already said that long-term interest rates stand around 2.23% and EU yields are jumped out from the zero level. Interest rates have turned to stable growth right after vaccines pack have been released. As Fathom consulting reports - Early on, bond markets disagreed with that assessment, with even the thirty-year inflation expectation embedded in bond markets falling sharply. But those expectations have since recovered and now stand slightly higher than they were, at all maturities, ahead of the crisis. Bond markets see inflation coming, if only modestly for now. Fathom would agree.
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And the sentiment - in the past week, investors’ concerns about the volatility created by retail investors have dissipated as markets moved into a risk-on stance. Oil prices, which have positive exposure to the macro cycle and inflation and negative exposure to liquidity, led the way, rising 6.3% in the week. Brent crude is now at its highest level since February last year, at the beginning of the pandemic. Meanwhile the price of gold, which tends to have positive exposure to liquidity and inflation and negative exposure to the economic cycle, fell during in the week. These two movements, alongside the rise in equities, suggest that the key driver of markets last week was positive investor sentiment about the economic recovery.

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COT Report

Recent data shows minor changes in net position. Mostly it was negative as speculators have closed some long positions. Open interest has dropped slightly as well:

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These things - gold price performance, rising of interest rates perfectly fits to our long-term scenario of global shift of the economy, and now we do not see any reasons to change it. Detail description of our long-term view we've provided in previous few weekly reports. In two words speaking - gold has limited time to show last upside jump before major reversal. This is around 1-2 months, and how strong this action will be totally depends on interest rates performance.

Technicals
Monthly


Currently battlefield stands on daily and lower time frames, thus long-term picture stands untouched. 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.

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Weekly

Here is as well - we've got just an inside week. As a week before - 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.

Besides, recent performance of interest rates that you could see below, stand in favor of possible drop right in the beginning of the next week.

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Daily

Take a look - if daily interest rates perfectly have completed our grabber target, jumping above the top for daily 4%, gold shows significantly smaller reaction. It could mean that if interest rates remain stable on Monday - downside reversal on gold market is probable and it could try to follow the senior brother, as it is usually lagging a bit behind the yields performance.
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But, at the same time we've got the opposite pattern on the gold itself, and this is the major intrigue right now - as one of these patterns have to fail. Pullback of interest rates out of the top means upside action on gold and grabber could work. Conversely, gold follows to interest rates.

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Intraday

So, how we could play this tricky "dual" situation. Unfortunately we can't exclude risk totally, but it is possible to minimize it. On 1H chart market perfectly has completed XOP target that we've set on Friday and jumped up from Agreement support. This is actually the daily grabber is. Since overall background depends on interest rates, that has shown strong performance, the context of buying gold is risky and could be acceptable only if we get as minimal risk as possible and with some corresponding bullish patterns on the back.

Thus, if we get another leg of downside retracement and price comes close to invalidation point of the daily grabber (i.e. recent lows), forming, say, "222" Buy pattern - it is possible to consider long entry, if interest rates remain flat or start dropping. In this case risk will be minimal. I'm not sure about real grabber's target, but upside AB-CD pattern could be completed and gold could re-test former neckline of our H&S pattern and 1835 Fib level. With our circumstances - if gold jumps on opening or interest rates start to rise on Monday - it would be better to ignore this setup.

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Sive Morten

Special Consultant to the FPA
Messages
14,378
Greetings everybody,

So, we're keep going with our trading plan. On daily chart we have the grabber and actually we've got another one yesterday, although it is not quite legal as gold market was closed yesterday. Today, by the way, we could get another one...

Anyway - in weekend we said that it could be traded, if gold completes few conditions. All of them are met right now:
gold_d_16_02_21.png


Interest rates are dropping by far, not too strong, but at least they are not growing and this supports gold. 1H setup was completed perfectly as gold indeed has formed "222" Buy and upside action started right from the point that we've discussed with minimal stop loss. Now take a look - on a way up we also have two bullish grabbers, that suggest further upward continuation. Mostly we're aimed on minimal AB-CD target around 1835 level. With current situation gold has good chances to reach it. Then, we will see what to do:
gold_1h_16_02_21.png
 

Sive Morten

Special Consultant to the FPA
Messages
14,378
Greetings everybody,

As we've said in weekly report - situation is going to change and start changing already. But it seems that evidence comes much faster, especially with recent J. Bullard hints. Technically daily bullish context is destroyed. Market was not able to hold above YPP, breaking the bottom of H&S right arm. It means that drop below the 1750 is a question of time. Context turns to bearish and any upside action now is a retracement to us.

Today-tomorrow market could get some relief after recent shock, as interest rates are also retracing now. But the new background is already put, and next week we could get more downside action ,as more investors start to understand what is going on.
gold_d_17_02_21.png


On 4H chart the nearest target is COP that should be reached today, then some pullback might happen. OP stands around 1720:
gold_4h_17_02_21.png


In a case of pullback - the most probable level that market could reach is 1812 K-resistance and natural resistance area:
gold_1h_17_02_21.png
 

Sive Morten

Special Consultant to the FPA
Messages
14,378
Greetings everybody,

Although we do not have a lot of reasons for optimism on gold market as mostly we now watching for final collapse of potential H&S pattern that now stands in a process of failure and drop below 1950 lows - in short-term perspective it might be tricky action around it.

Take a look that daily Oversold level stands close to 1950 and once stops will be grabbed, gold could turn to upside pullback:
gold_d_18_02_21.png


On 4H chart it could take the shape of 3-Drive Buy pattern as low stands precisely at 3rd Drive point. Here we have bullish divergence as well:
gold_4h_18_02_21.png


On 1H chart we have XOP that stands in the same area:
gold_1h_18_02_21.png


So, if you would like to go short - it would be better to wait and see how gold will deal with 1950 lows. As not bad chances on pullback exist - it might be chance to sell at better price.

For scalp traders - it is possible to consider tactical long trade and keep an eye on bullish reversal patterns around XOP once 3-Drive will be set and 1950 low washed.
 

Sive Morten

Special Consultant to the FPA
Messages
14,378
Good morning,

While EUR shows positive mood and completes all our conditions to get confidence with upside direction - gold can't show the same. As Interest rates are coiling around the top, it makes holding effect on gold prices. Still, it comes to most interesting moment - trigger point of our 3-Drive pattern on 4H chart. COP is hit, lows are washed, what else?
gold_4h_19_02_21.png


Actually on one thing left - reaching of XOP on 1H chart and the pattern... we do not have neither butterfly nor H&S, but we could get another, minor 3-Drive here as well, that finalize XOP. Thus, potential entry point is 1957. Chances on success could be better, as overall context stands bearish and we're aiming on 1685 in longer-term. But tactic pullback could happen. 1957 is culmination point - "Pain or gain" situation.
gold_1h_19_02_21.png
 
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