Sive Morten
Special Consultant to the FPA
- Messages
- 18,527
Fundamentals
Gold enjoys positive background this week, jumped to a two-week high on Friday after weak U.S. economic data boosted expectations the U.S. Federal Reserve would hold pat on monetary tightening, while palladium matched an all-time high on a prolonged deficit.
“Gold (price action) is like watching oil evaporate. The market is continually bearish at lows and bullish at highs with actual breaks infrequent,” said Tai Wong, head of base and precious metals derivatives trading at BMO.
“The end of the (Fed) tightening cycle now looms which improves the overall backdrop for gold significantly. With the Fed on hold, there is less pressure for the rest of the globe to keep pace.”
The metal gained 0.5 percent in the previous session after weak U.S. retail sales data added to disquiet about slowing growth, which could prompt the Fed to hold interest rates steady for a while.
Lower interest rates reduce the opportunity cost of holding non-interest bearing gold and weigh on the dollar.
The disappointing U.S. data followed a spate of weak economic reports from China and Europe.
This helped gold hold its ground amid a rebound in global stocks on hopes of a thaw in the U.S.-China trade dispute.
“The world economy is slowing very rapidly and therefore monetary policy everywhere will be eased, so the outlook is a lot more inflationary, helping gold,” said Alasdair Macleod, head of research at GoldMoney.com.
The world’s two biggest economies reached a consensus in principle on key issues during ongoing talks, China’s state news agency Xinhua said. Negotiations will continue next week in Washington.
COT Report
At the same time, recent CFTC data shows that market is tired a bit from unstoppable upside action and needs to take pause. Net long position has decreased a bit. This is mostly agrees with our technical analysis, as market is coming to major 1330 daily target. It could become an area where retracement will start.
In recent 6-8 month, as soon as US initiated tariffs against China, the US-China relationships stands on the first stage. We do not care much on political component, but we're very interested in China economy situation, because it stands as a big part and large contribution to global economy growth. This factor has big influence on gold price.
Recent data shows that China economy slows, and also new factor appears - China has problem in employment. Here is what Fathom tells in recent report:
According to Fathom’s China Momentum Indicator (CMI), China’s economy grew by 6.2% in the twelve months to December, up slightly from a downwardly revised and near two-year low of 6.1% in November.
Fathom’s measure of the spare capacity in China’s labour market, the proprietary China Underemployment Indicator (CUI), suggests that around 14% of China’s labour force is underutilised or unemployed, performing roles with relatively little or no economic return. A glaring example of this is the time taken to complete the construction of a residential property in China, which according to Fathom’s proprietary measure is now a staggering seven years, reflecting both the mothballing of properties in the construction phase and a reluctance to declare them as ‘vacant’ even when they are complete.
The data were more of a mixed bag than in recent months, but the bulk of ‘old-model’ sub-components included within our CMI firmed, in line with our view that China is doubling down.
A glaring example of China’s reliance on its traditional growth model, as covered in a post several weeks ago, is the time taken to complete the construction of a residential property in China, which according to Fathom’s proprietary measure is now a staggering seven years. This reflects both the mothballing of properties in the construction phase and a reluctance to declare them as ‘vacant’ even when they are complete.
But despite doubling down in a bid to cushion the economy, both labour strikes and internet searches for the phrase “economic recession” are on the up, and are positively correlated. The fact that both are rising indicates that solid growth in aggregate might be masking a lot of churn in the labour market as China’s growth model reorientates.
We know that China keeps silent all domestic problems and very rare information appears in mass media. But, as situation becomes worse, it could blow suddenly. All in all, this factor provides additional support to gold market and tells that it is not only tariffs that drive global financial markets.
Technical
Monthly
Technically, everything stands according to the plan. Gold keeps harmonic picture well by far.
As we've said earlier, we're watching for our so called "symmetrical" model. As we've identified clear symmetry in market action, we have suggested that future action could be a reflection of previous downside action shape. Last week, market has moved more above the trend line, which was a crucial level for long-term technical picture.
Gold shows good performance in December- January, 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.
Fundamental reasons for gold rising mostly relate to changing of global political and economical situation. 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, or even in second half of 2019. For example, here is report by Fathom Consulting and their expectations to see world crisis around 2020.
Here is explanation of our "symmetrical" model and scenario. 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.
On monthly chart we keep watching whether gold will be able to hold above trend line. Now price stands above YPP as well, but it has not been tested yet by price. So,as soon as any meaningful retracement will happen here - YPP could work as nearest destination point. For example, it could happen right after completion of our 1330 target.
Weekly
Since market mostly stands flat in recent few weeks, analysis here is the same.
Trend stands bullish here, market is not at Overbought, at least on weekly chart. Here we do not need to make many comments. Gold has no fib levels ahead, just XOP target, which is coincides with MPR1 around 1330-1340 area.
We suggest reaching of this target before any other action, such as retracement that we've mentioned above.
Daily
On daily chart market keeps trading plan as well. As harmonic retracement has been completed - upside action is re-established. Gold also holds above upside trend line. Daily overbought stands above the XOP target, so, no real barriers exist ahead. It's not really big distance to the XOP. As we have Fed minutes on Wed, dovish protocol could help gold to reach the target.
Intraday
Here, on intraday charts, price action with W&R that we've mentioned on Friday, looks like double bottom pattern and its target coincides with daily XOP. We can't use here butterfly shape, just because of the same W&R action, but if we could, 1.27 butterfly could finalize upside action:
Since we suggest that upside action is re-established, pullbacks should be smaller and action faster. Once market will hit XOP around 1323, minor pullback is possible, somewhere to K-support area. Then upside action should continue.
Conclusion:
Here we repeat the same conclusion - as we're coming to major 1330 target and sentiment analysis shows that gold market a bit tired from unstoppable rally, retracement could be right around the corner.
In longer term perspective, it seems that all economies that were previously flagman of global grows - have fundamental problems. This should support healthy demand on gold market and brings more confidence to our suggestion that may be we see now new long-term bull trend starting...
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.
Gold enjoys positive background this week, jumped to a two-week high on Friday after weak U.S. economic data boosted expectations the U.S. Federal Reserve would hold pat on monetary tightening, while palladium matched an all-time high on a prolonged deficit.
“Gold (price action) is like watching oil evaporate. The market is continually bearish at lows and bullish at highs with actual breaks infrequent,” said Tai Wong, head of base and precious metals derivatives trading at BMO.
“The end of the (Fed) tightening cycle now looms which improves the overall backdrop for gold significantly. With the Fed on hold, there is less pressure for the rest of the globe to keep pace.”
The metal gained 0.5 percent in the previous session after weak U.S. retail sales data added to disquiet about slowing growth, which could prompt the Fed to hold interest rates steady for a while.
Lower interest rates reduce the opportunity cost of holding non-interest bearing gold and weigh on the dollar.
The disappointing U.S. data followed a spate of weak economic reports from China and Europe.
This helped gold hold its ground amid a rebound in global stocks on hopes of a thaw in the U.S.-China trade dispute.
“The world economy is slowing very rapidly and therefore monetary policy everywhere will be eased, so the outlook is a lot more inflationary, helping gold,” said Alasdair Macleod, head of research at GoldMoney.com.
The world’s two biggest economies reached a consensus in principle on key issues during ongoing talks, China’s state news agency Xinhua said. Negotiations will continue next week in Washington.
COT Report
At the same time, recent CFTC data shows that market is tired a bit from unstoppable upside action and needs to take pause. Net long position has decreased a bit. This is mostly agrees with our technical analysis, as market is coming to major 1330 daily target. It could become an area where retracement will start.
In recent 6-8 month, as soon as US initiated tariffs against China, the US-China relationships stands on the first stage. We do not care much on political component, but we're very interested in China economy situation, because it stands as a big part and large contribution to global economy growth. This factor has big influence on gold price.
Recent data shows that China economy slows, and also new factor appears - China has problem in employment. Here is what Fathom tells in recent report:
According to Fathom’s China Momentum Indicator (CMI), China’s economy grew by 6.2% in the twelve months to December, up slightly from a downwardly revised and near two-year low of 6.1% in November.
Fathom’s measure of the spare capacity in China’s labour market, the proprietary China Underemployment Indicator (CUI), suggests that around 14% of China’s labour force is underutilised or unemployed, performing roles with relatively little or no economic return. A glaring example of this is the time taken to complete the construction of a residential property in China, which according to Fathom’s proprietary measure is now a staggering seven years, reflecting both the mothballing of properties in the construction phase and a reluctance to declare them as ‘vacant’ even when they are complete.
The data were more of a mixed bag than in recent months, but the bulk of ‘old-model’ sub-components included within our CMI firmed, in line with our view that China is doubling down.
A glaring example of China’s reliance on its traditional growth model, as covered in a post several weeks ago, is the time taken to complete the construction of a residential property in China, which according to Fathom’s proprietary measure is now a staggering seven years. This reflects both the mothballing of properties in the construction phase and a reluctance to declare them as ‘vacant’ even when they are complete.
But despite doubling down in a bid to cushion the economy, both labour strikes and internet searches for the phrase “economic recession” are on the up, and are positively correlated. The fact that both are rising indicates that solid growth in aggregate might be masking a lot of churn in the labour market as China’s growth model reorientates.
We know that China keeps silent all domestic problems and very rare information appears in mass media. But, as situation becomes worse, it could blow suddenly. All in all, this factor provides additional support to gold market and tells that it is not only tariffs that drive global financial markets.
Technical
Monthly
Technically, everything stands according to the plan. Gold keeps harmonic picture well by far.
As we've said earlier, we're watching for our so called "symmetrical" model. As we've identified clear symmetry in market action, we have suggested that future action could be a reflection of previous downside action shape. Last week, market has moved more above the trend line, which was a crucial level for long-term technical picture.
Gold shows good performance in December- January, 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.
Fundamental reasons for gold rising mostly relate to changing of global political and economical situation. 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, or even in second half of 2019. For example, here is report by Fathom Consulting and their expectations to see world crisis around 2020.
Here is explanation of our "symmetrical" model and scenario. 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.
On monthly chart we keep watching whether gold will be able to hold above trend line. Now price stands above YPP as well, but it has not been tested yet by price. So,as soon as any meaningful retracement will happen here - YPP could work as nearest destination point. For example, it could happen right after completion of our 1330 target.
Weekly
Since market mostly stands flat in recent few weeks, analysis here is the same.
Trend stands bullish here, market is not at Overbought, at least on weekly chart. Here we do not need to make many comments. Gold has no fib levels ahead, just XOP target, which is coincides with MPR1 around 1330-1340 area.
We suggest reaching of this target before any other action, such as retracement that we've mentioned above.
Daily
On daily chart market keeps trading plan as well. As harmonic retracement has been completed - upside action is re-established. Gold also holds above upside trend line. Daily overbought stands above the XOP target, so, no real barriers exist ahead. It's not really big distance to the XOP. As we have Fed minutes on Wed, dovish protocol could help gold to reach the target.
Intraday
Here, on intraday charts, price action with W&R that we've mentioned on Friday, looks like double bottom pattern and its target coincides with daily XOP. We can't use here butterfly shape, just because of the same W&R action, but if we could, 1.27 butterfly could finalize upside action:
Since we suggest that upside action is re-established, pullbacks should be smaller and action faster. Once market will hit XOP around 1323, minor pullback is possible, somewhere to K-support area. Then upside action should continue.
Conclusion:
Here we repeat the same conclusion - as we're coming to major 1330 target and sentiment analysis shows that gold market a bit tired from unstoppable rally, retracement could be right around the corner.
In longer term perspective, it seems that all economies that were previously flagman of global grows - have fundamental problems. This should support healthy demand on gold market and brings more confidence to our suggestion that may be we see now new long-term bull trend starting...
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.