Sive Morten
Special Consultant to the FPA
- Messages
- 18,792
Fundamentals
(Reuters) - Gold eased on Friday as investors cashed in some of the previous day's 2 percent gains, though expectations that rock-bottom interest rates would persist served to keep prices above $1,225 an ounce.
Prices remain up nearly 16 percent so far this year, with turmoil in the wider financial markets fuelling interest in the metal as a store of value while reducing the likelihood of further interest rate rises by the U.S. Federal Reserve.
That is continuing to underpin gold as it consolidates below last week's one-year high of $1,260.60.
"Momentum is strong. Yesterday gold moved up even when the dollar was stronger, so for me that signals that it is mainly central bank-policy driven," ABN Amro analyst Georgette Boele said.
Gold tends to benefit from lower interest rates, which cut the opportunity cost of holding non-yielding assets.
"It just continues to build a base well above $1,200," said James Steel, chief metals analyst for HSBC Securities in New York.
"It's been quite impressive. It's actually ignored some bearish developments."
Rising rents and healthcare costs lifted underlying U.S. inflation in January by the most in nearly 4-1/2 years, signs of a pick-up in price pressures that could allow the Federal Reserve to gradually raise interest rates this year.
"Gold moved up pretty sharply and a period of reflection and sideways trading would seem appropriate," said Simon Weeks, head of precious metals at the Bank of Nova Scotia.
Global equity markets retreated but were off earlier lows as oil prices weakened, while short-dated U.S. bond prices rose after economic data raised the possibility of a U.S. rate hike this year.
Bullion has been supported by inflows into gold-backed exchange-traded funds (ETFs), holdings of which have already risen this year by more than they fell in the whole of 2015.
In the physical markets, Asian gold demand slowed this week with discounts in key consumer India at a record high.
The value of gold compared with silver reached its highest in more than seven years on Friday, with an ounce of gold worth 80 ounces of silver.
CFTC data also shows good and supportive bullish picture. Net long positions is growing in a row with open interest:
So guys from fundamental and technical view everything looks fine and retracement down seems logical. But today, briefing Syria new I've found interesting article:
B1 Lancer Bombers Leave Syria What this could mean? Actually I'm worry that chances of Turkey invasion has increased significantly and US forces just put out their planes awaring of possible big war turmoil. Now just think what will happen to gold... And how really valuable will be our today's analysis?
Technicals
Monthly
So since New Year gold stands in upside action. Reasons could be different - geopolitics, investors' assets distribution in the beginning of the year. Upside action currently is not sufficient yet to change situation on monthly chart but we will monitor how situation will change.
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 was dropping recently on a background of Middle East turmoil looks a bit artificial and this situation already is changing. 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, CHF 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 starts to come to the same conclusion as gradually situation on gold market starts to change in positive area. International banks purchase gold in big volumes, mostly PBoC and Russian Central Bank.
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 1380 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. Currently this subject is not very interesting since gold stands on upside march. But it has not cancelled yet bearish scenario totally. Gold needs to move above 1380 to do this.
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 and already it's becoming.
Anyway, gold's shift from downward action to flat one, even it will be wide - already will be significant moment.
Monthly chart trend has turned bullish.
As you can see upside action has started right after butterfly "Buy" has been completed. Currently market has reached 5/8 resistance of butterfly 's swing. Gold has exceeded Yearly Pivot and this points on existing bullish trend on monthly chart. As gold is not at overbought here - next logical destination is 1314 area of Yearly PR1.
Weekly
On weekly chart we do not have a lot of subjects to discuss. Trend is bullish here. Market strongly overbought around 5/8 Fib resistance. Most important here is breakout of 1200 area. This was really strong resistance, including upper border of long-term consolidation. This is very important breakout also because gold has created upside reversal swing and broken downward tendency.
Despite of overbought (and, guys, we also have bearish "Stretch" pattern here, right?), gold holds very well - although it has moved down, but returned right back up and close as above broken trend as above 1200 level. This tells that bullishness of gold market is still here.
It is difficult to make any forecast with such geopolitical situation as we have, guys, but base on technical picture purely, we should get some AB=CD retracement down. 1200 area already has been re-tested, but gold still returned back to overbought condition. If 2nd leg of retracement will happen, then we could reach even 1167 area (as we will see on daily picture). But, guys, this is based purely on technical picture, what really will happen in the World on next week, this is big concern...
Daily
Action on Friday was not very significant, that's why our previous daily and intraday analysis mostly is still valid. On daily chart market has formed 2 bullish grabbers that suggest taking out of recent top. Still overbought condition will press on gold and if nothing awful will happen - we could expect W&R of the top as max. This daily picture is a mirror to JPY that we've talked in weekly research. Retracement could take different shapes - AB-CD, DRPO "Sell" or even butterfly. We will deal with these scenarios one by one and start from AB-CD, if it will fail - turn to DRPO or Double Top and the last one will be Butterfly. Just because to start next one, market should destroy previous one.
4-hour
Two scenarios I have drawn here. They are simple AB=CD and butterfly "Sell'. Trend is bullish here. First we will be watching for AB=CD, at least until gold stands below 1240 area. Red circles are crucial points for these scenarios. If market will break 1240 - then AB-CD will be cancelled and we will have just 2 rest - DRPO or Buttefly.
Conversely if gold will drop below 1190, butterfly will be cancelled and we could watch for AB=CD target that creates an Agreement with daily 5/8 Fib support around 1167:
Actually guys, we do not care how definitely this retracement will happen. The major desire is to get entry point as lower as better. And 1167 area looks just perfect for this purpose...
Hourly
Here we see just minor details. On Friday we've explained why current level is suitable for downward continuation within retracement. First is - B&B "Buy" has completed here. Also this is Agreement resistance of AB-CD target and Fib level. Gold also has formed butterfly "Sell", although it's target was exceeded slightly because market was gravitating to 1.618 AB-CD point.
By the way - on JPY this target has not been met yet...
Current action looks so that downward CD leg really could start here. That's being said, first we will be watching for our current scenario of AB=CD down. If it will fail we will turn to another one - DRPO and Butterfly:
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. But with current pressure of geopolitical factors it is very difficult to say definitely when it will happen and how deep retracement will be.
On coming week we will watch for 1167 Fib support level as a target of this retracement.
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 eased on Friday as investors cashed in some of the previous day's 2 percent gains, though expectations that rock-bottom interest rates would persist served to keep prices above $1,225 an ounce.
Prices remain up nearly 16 percent so far this year, with turmoil in the wider financial markets fuelling interest in the metal as a store of value while reducing the likelihood of further interest rate rises by the U.S. Federal Reserve.
That is continuing to underpin gold as it consolidates below last week's one-year high of $1,260.60.
"Momentum is strong. Yesterday gold moved up even when the dollar was stronger, so for me that signals that it is mainly central bank-policy driven," ABN Amro analyst Georgette Boele said.
Gold tends to benefit from lower interest rates, which cut the opportunity cost of holding non-yielding assets.
"It just continues to build a base well above $1,200," said James Steel, chief metals analyst for HSBC Securities in New York.
"It's been quite impressive. It's actually ignored some bearish developments."
Rising rents and healthcare costs lifted underlying U.S. inflation in January by the most in nearly 4-1/2 years, signs of a pick-up in price pressures that could allow the Federal Reserve to gradually raise interest rates this year.
"Gold moved up pretty sharply and a period of reflection and sideways trading would seem appropriate," said Simon Weeks, head of precious metals at the Bank of Nova Scotia.
Global equity markets retreated but were off earlier lows as oil prices weakened, while short-dated U.S. bond prices rose after economic data raised the possibility of a U.S. rate hike this year.
Bullion has been supported by inflows into gold-backed exchange-traded funds (ETFs), holdings of which have already risen this year by more than they fell in the whole of 2015.
In the physical markets, Asian gold demand slowed this week with discounts in key consumer India at a record high.
The value of gold compared with silver reached its highest in more than seven years on Friday, with an ounce of gold worth 80 ounces of silver.
CFTC data also shows good and supportive bullish picture. Net long positions is growing in a row with open interest:
So guys from fundamental and technical view everything looks fine and retracement down seems logical. But today, briefing Syria new I've found interesting article:
B1 Lancer Bombers Leave Syria What this could mean? Actually I'm worry that chances of Turkey invasion has increased significantly and US forces just put out their planes awaring of possible big war turmoil. Now just think what will happen to gold... And how really valuable will be our today's analysis?
Technicals
Monthly
So since New Year gold stands in upside action. Reasons could be different - geopolitics, investors' assets distribution in the beginning of the year. Upside action currently is not sufficient yet to change situation on monthly chart but we will monitor how situation will change.
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 was dropping recently on a background of Middle East turmoil looks a bit artificial and this situation already is changing. 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, CHF 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 starts to come to the same conclusion as gradually situation on gold market starts to change in positive area. International banks purchase gold in big volumes, mostly PBoC and Russian Central Bank.
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 1380 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. Currently this subject is not very interesting since gold stands on upside march. But it has not cancelled yet bearish scenario totally. Gold needs to move above 1380 to do this.
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 and already it's becoming.
Anyway, gold's shift from downward action to flat one, even it will be wide - already will be significant moment.
Monthly chart trend has turned bullish.
As you can see upside action has started right after butterfly "Buy" has been completed. Currently market has reached 5/8 resistance of butterfly 's swing. Gold has exceeded Yearly Pivot and this points on existing bullish trend on monthly chart. As gold is not at overbought here - next logical destination is 1314 area of Yearly PR1.
Weekly
On weekly chart we do not have a lot of subjects to discuss. Trend is bullish here. Market strongly overbought around 5/8 Fib resistance. Most important here is breakout of 1200 area. This was really strong resistance, including upper border of long-term consolidation. This is very important breakout also because gold has created upside reversal swing and broken downward tendency.
Despite of overbought (and, guys, we also have bearish "Stretch" pattern here, right?), gold holds very well - although it has moved down, but returned right back up and close as above broken trend as above 1200 level. This tells that bullishness of gold market is still here.
It is difficult to make any forecast with such geopolitical situation as we have, guys, but base on technical picture purely, we should get some AB=CD retracement down. 1200 area already has been re-tested, but gold still returned back to overbought condition. If 2nd leg of retracement will happen, then we could reach even 1167 area (as we will see on daily picture). But, guys, this is based purely on technical picture, what really will happen in the World on next week, this is big concern...
Daily
Action on Friday was not very significant, that's why our previous daily and intraday analysis mostly is still valid. On daily chart market has formed 2 bullish grabbers that suggest taking out of recent top. Still overbought condition will press on gold and if nothing awful will happen - we could expect W&R of the top as max. This daily picture is a mirror to JPY that we've talked in weekly research. Retracement could take different shapes - AB-CD, DRPO "Sell" or even butterfly. We will deal with these scenarios one by one and start from AB-CD, if it will fail - turn to DRPO or Double Top and the last one will be Butterfly. Just because to start next one, market should destroy previous one.
4-hour
Two scenarios I have drawn here. They are simple AB=CD and butterfly "Sell'. Trend is bullish here. First we will be watching for AB=CD, at least until gold stands below 1240 area. Red circles are crucial points for these scenarios. If market will break 1240 - then AB-CD will be cancelled and we will have just 2 rest - DRPO or Buttefly.
Conversely if gold will drop below 1190, butterfly will be cancelled and we could watch for AB=CD target that creates an Agreement with daily 5/8 Fib support around 1167:
Actually guys, we do not care how definitely this retracement will happen. The major desire is to get entry point as lower as better. And 1167 area looks just perfect for this purpose...
Hourly
Here we see just minor details. On Friday we've explained why current level is suitable for downward continuation within retracement. First is - B&B "Buy" has completed here. Also this is Agreement resistance of AB-CD target and Fib level. Gold also has formed butterfly "Sell", although it's target was exceeded slightly because market was gravitating to 1.618 AB-CD point.
By the way - on JPY this target has not been met yet...
Current action looks so that downward CD leg really could start here. That's being said, first we will be watching for our current scenario of AB=CD down. If it will fail we will turn to another one - DRPO and Butterfly:
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. But with current pressure of geopolitical factors it is very difficult to say definitely when it will happen and how deep retracement will be.
On coming week we will watch for 1167 Fib support level as a target of this retracement.
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.