GOLD PRO Weekly February 23-27, 2015

[Sive Morten]

Fundamentals

Weekly Gold Trading Report prepared by Sive Morten exclusively for ForexPeaceArmy.com

Gold turned lower in choppy dealings on Friday, flirting with a seven-week low after the euro zone discussed extending the Greek bailout by just four months, while prices headed for their fourth straight weekly drop.

A draft text on extending Greece's bailout from its international creditors proposes prolonging the program by four months rather than a previously suggested six, officials from Greece and other euro zone states said on Friday.

"Overall, gold is lower as the market grows increasingly optimistic about a positive resolution, hence less need for a safe haven investment," said Tai Wong, director of base and precious metals trading for BMO Capital Markets in New York.

The euro traded near session highs against the U.S. dollar after the Greek bailout was drafted.

Traders were set to focus on the U.S. Federal Reserve and its monetary policy for clues on a possible interest rates hike by June, despite caution evident in the minutes from the latest Fed policy meeting.

Any hike by the Fed, which has kept rates near zero since 2008 to stimulate the U.S. economy, could hurt demand for non-interest-bearing bullion.

Liquidity was thin in Asia as No.2 consumer China and several other Asian countries were shut for the Lunar New Year holiday.

Gold prices had received some support from Chinese buying ahead of the holiday, when gold is bought for gift giving.

"A lot hinges on the return of China next Wednesday as many participants are expecting them to be on the bid following their New Year festivities," MKS Group said in a note.

"If this fails to be the case, the complex would likely continue its slide lower."


Recent CFTC data shows contraction of positions as in terms of open interest as in terms of net long position. Speculative shorts, oppositely, has grown a bit. Our long-to-total position ratio has dropped to 77-78% and this should be sufficient correction for upside continuation. Other worlds, ratio right now stands at levels that do not prevent market from further upside action.
SPDR fund, despite solid drop on spot market, reports on 3 tonnes inflow to 771 tonnes. Here is important not the value of growth per se, but the fact of growth on dropping market. Mostly this analysis of CFTC and SPDR data does not care something special and leads us again to crucial 1200 level. Although SPDR dynamic hints on retracement nature of recent drop, but at the same time we see significant decrease of net long positions and this could be also a sign of reversal. Thus, this data does not clarify much what should happen.

Here is detailed breakdown of speculative positions:
Open interest:

Shorts:

Longs:

Technicals
Monthly
So, drop on recent couple of weeks looks significant. Here we still have last big pattern in progress that is Volatility breakout (VOB). It suggests at least 0.618 AB-CD down. And this target is 1050$.
Since the beginning of the year market shows solid upside action. Market was able to exceed yearly pivot, passed half way to Yearly Pivot resistance 1 but right now has turned to retracement and right now has closed below YPP. From technical point of view this is bearish sign. This could be very significant moment and next logical destination will be yearly pivot support 1 around 1083$.
At the same time the major driving factor for Gold is inflation. Previous data has shown anemic pace of it or even decreasing. But last NFP data has value not just because of increasing of employment but increasing of cost of labor. Data has shown 12 cent growth and this is approximately 2,2% of annual inflation Currently this numbers have negative effect on gold, since they simultaneously increase chance of rate hike, but when rate will be increased and inflation will show gradual upside pace – this will be supportive factor for gold. Especially if this will be accompanied by reversal on crude oil. But this is future talks and currently we do not see reasons yet to cancel our 1050$ target or at least possible big AB-CD down.
Shortly speaking gold now will fluctuate in difficult period. If coming data will be gradual and supportive for rate hike – NFP will continue show upside trend, inflation will grow, GDP will keep high pace – gold will remain under pressure till first rate hike. After that inflation will be supportive factor for gold.
If data will be mixed as it was recently – then it could lead to local strength on gold market.
Still, if we will take into consideration geopolitical situation and risks that have appeared recently, it could happen that situation will change, especially if situation in Ukraine will escalate and peaceful regulation will fail.
That’s being said, economical data supports further gold decreasing but geopolicy could bring significant adjustment. But unfortunately the geopolicy is sphere where we can’t do much. Right now our major attention will stand on 1200 level that could become a clue to medium-term perspective of gold market.

Weekly
Trend here still holds bullish and market has come rather close to MACDP line. Thus, on coming week we will be watching also for bullish grabbers on weekly chart. DiNapoli bearish “Stretch” pattern has worked nice and market has reached it’s target – middle point between overbought and oversold bands.
Recent drop looks a bit scaring, but drastical breakout has not happened yet. We even could say that most important event that has happened recently is downward breakout of YPP.
As previously we think that 1200 area has major importance. Gold likes to show deep retracements and now it comes down from overbought. 1200 is MPS1 and 5/8 Fib support. Until pivot support holds retracement – previous trend is valid and MACD confirms this by far. Also do not forget about former big ratio of CFTC data that was supportive for retracement down. Conclusion here is as follows – bulls has lost nothing yet, at least until market stands above 1200. Breaking through 1200 will suggest changing in weekly trend. Now we are coming to culmination that will clarify trend direction for gold.

Daily
Daily chart does not provide us anything really special. Market just has completed our former analysis and has reached 1200 support level. Trend holds bearish here. Our tactical trading plan is based on possible bounce up as respect of 1200 strong support. If this really will happen market could reach as far as 1250 level, since gold likes to show 5/8 retracements and re-test former extreme points. This also will be overbought and MPP. Thus, in short-term perspective we continue to watch for reversal patterns here that could let us to take scalp long position with minimum risk.

4-hour
Here finally, we have pattern that may be trigger upside reaction on strong support area. This is butterfly “buy” pattern. Probably it should be 1.27 pattern since this will be enough to reach 1.618 AB-CD major target.

Conclusion:
From technical point of view we have no reasons yet to abandon possible long-term downward AB-CD as VoB (Volatility breakout) development. Fundamental background is not very supportive for gold right now and one cluster of events that could bring unexpected bullish surprise is geopolitical tensions.
In short-term perspective trend will depend on 1200 level. If market will hold above it – upside trend will be valid and gold could turn to 1340 next target, while failure around 1200 will bring market to former 1130 lows first.

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.

 

[Sive Morten]

Gold Daily Update Tue 24, February 2015

Good morning,


Recent Reuters news on gold:
Gold slipped to a near seven-week low on Tuesday as investors looked to Federal Reserve Chair Janet Yellen's Senate testimony for signs of when the U.S. central bank could raise interest rates.

Expectations the Fed will hike rates this year amid signals of a strengthening U.S. economy have curbed gold's safe-haven appeal.

But investors are keen to see if Yellen will echo the minutes of the Fed's January meeting, when policymakers expressed the view that raising interest rates too soon may pour cold water on the U.S. recovery.

Gold has fallen more than 6 percent this month, nearly erasing January's 8.4 percent gain, which was its biggest in three years.

"With a healthy U.S. economy, that gives the impetus for the Fed to start normalising interest rates and this is a very bearish signal for gold," said OCBC Bank analyst Barnabas Gan, who sees the metal at $1,000 by the year-end.

With recent data pointing to a buoyant U.S. labour market, Yellen could be less hesitant about interest rate hikes than the minutes of the Fed's meeting last month suggested, Mizuho Bank said in a note.

"While still data-dependent in timing the moves, the Fed is unwavering in its commitment to ultimately tighten," the bank said.

The U.S. housing sector, however, remains fragile, lagging the overall economic recovery. More evidence of weakness surfaced on Monday when data showed U.S. home resales fell sharply to their lowest level in nine months in January amid a shortage of properties on the market.

Yellen will discuss the outlook for the U.S. economy and monetary policy in her semiannual testimony before the Senate Banking Committee on Tuesday and then before the House Financial Services Committee on Wednesday.



So, Gold still is pressing on 1200 level and Yellen testimony could provide some clarity on short-term perspectives. Any dovish hints and gold could turn up while keeping moderately hawkish view and confirming plans on rate hike in mid 2015 could push gold lower because fundamental and seasonal situation stands not in favor of gold right now.
As we've said in our weekly research - only serious geopolitical tensions could change situation drastically.
On daily chart market has formed high wave candle that indicates either indecision or just pause. Current action stands inside of its range by far:

On 4-hour chart we see reaction on final completion of 1.618 AB-CD pattern and daily Agreement. Technically market has no reasons to move lower except real breakout, because all targets have been met - AB-CD, 1.27 butterlfy, stops are grabbed, MPS1 etc...
IF any retracement will start - it probably should start from current levels. Theoretically market could move to 1.618 of butterfly due fast plunge right to 1.27 target, but we can't say that this definitely will happen, mostly because major AB-CD extended target has been hit already:

Also we've thought we could get 3-Drive buy here, but right now market does not match ratios of 3-Drive. So, we stand at the moment of truth - all stakes were made, now we just could wait for result. That's it.

 

[Sive Morten]

Gold Daily Update Wed 25, February 2015

Good morning,


Reuters reports Gold jumped 1 percent on Wednesday after dropping to a seven-week low the session before, with Federal Reserve Chair Janet Yellen indicating flexibility in raising U.S. interest rates.

The dollar weakened after Yellen held back from giving a clear view on when the Fed may begin hiking rates, fuelling a rally in precious metals with silver rising more than 3 percent and palladium hitting a six-week high.

China's return from a week-long Lunar New Year holiday also buoyed gold prices, with premiums on the Shanghai Gold Exchange rising.

Yellen said on Tuesday that while the Fed is preparing to consider rate hikes on a "meeting-by-meeting basis", an increase is not likely for at least the next couple of meetings.

Gold rose as the overall tone of Yellen's comments was "a bit dovish", said Howie Lee, investment analyst at Phillip Futures.

"But we don't think this rally will be sustainable. Yellen also made it abundantly clear that the U.S. economy is recovering and she will be looking to normalise interest rates at one point. In the longer term that doesn't spell much optimism for gold."

Lee sees $1,230 as the initial resistance level for gold, but predicts the metal could test $1,100 this year.

A U.S. rate hike, which would be the first since 2006, reduces the appeal of non-interest bearing assets such as gold.

"Overall, the Fed is still on track to lift its policy rate this year. June or September remains on the table," Mizuho Bank said in a note.

Yellen is likely to take the same stance she made before the Senate Banking Committee when she testifies before the House Financial Services Committee on Wednesday.

In China, premiums on the Shanghai Gold Exchange rose to $5-$6 an ounce over global spot prices from $3-$4 before the New Year break there that began on Feb. 18, reflecting firm demand from the world's No. 2 gold consumer.

Lee sees $1,230 as the initial resistance level for gold, but predicts the metal could test $1,100 this year.

A U.S. rate hike, which would be the first since 2006, reduces the appeal of non-interest bearing assets such as gold.

"Overall, the Fed is still on track to lift its policy rate this year. June or September remains on the table," Mizuho Bank said in a note.

Yellen is likely to take the same stance she made before the Senate Banking Committee when she testifies before the House Financial Services Committee on Wednesday.

In China, premiums on the Shanghai Gold Exchange rose to $5-$6 an ounce over global spot prices from $3-$4 before the New Year break there that began on Feb. 18, reflecting firm demand from the world's No. 2 gold consumer.


So, as we've said dovish comments could trigger retracement on gold but we agree that this upside action will not be sustainable. Still, it could provide nice oportunity to make money for scalp traders.
On daily gold we see upside bounce from 1200 level. Right now our major task is to estimate most probable destination of this retracement. If, of cause, it will not fade our right at the beginning. First of all - put your stops to breakeven.
Based on daily picture most probable target is K-resistance area at 1235-1238. Also keep an eye on possible bearish grabber. If it will appear - then upside action could finish even earlier:

On hourly chart we see that gold is struggling with WPP and the only pattern that we see here by far is double bottom. If it will work properly then market should reach WPR1 @1230 area. As current reaction on Yellen statement looks really fragile - that's why we call you to move stops to breakeven, since there is no confidence that this pattern will work:

 

[Sive Morten]

Gold Daily Update Thu 26, February 2015

Good morning,


Reuters reports Gold rose for a second session on Thursday as recent comments from Federal Reserve Chair Janet Yellen pushed back expectations for the first U.S. rate hike in nearly a decade to later in the year.

Firm Chinese physical demand also supported bullion as buyers from the world's No. 2 consumer trickled back into the market after the long Lunar New Year break.

Yellen told the Senate Banking Committee on Tuesday that while the Fed was preparing to consider rate hikes on a

"meeting-by-meeting basis", an increase was not likely for at least the next couple of meetings.

Since Yellen's congressional testimony, some analysts shifted expectations for the first U.S. rate hike since 2006 to happen in September or later this year instead of June previously.

The comments support "market thinking that the Fed may hike rates later this year and the path will be a little flatter than what was previously expected," said ANZ Bank analyst Victor Thianpiriya.

"It's certainly taken a bit of the wind out of the U.S. dollar's sails and that's been positive for gold."

Yellen did not offer any additional insight on the timing of a rate increase before the House of Representatives' Financial Services Committee on Wednesday.

Premiums on the Shanghai Gold Exchange remained firm around $4-$5 an ounce over the global spot price as buyers returned to the market after the Feb. 18-24 holiday in China.

"China remains a supportive factor for the market. But whether it's enough to really get prices rocketing higher, I don't think so, because what you really need for that is a supply shortage and we just don't have that at the moment," said Thianpiriya.


So, gold has got more short-term support from dovish Yellen comment in Senate. Still right now this rally does not seem to be sustainable. Generally speaking - rate hike is a question of coming data and most important are Wages and employment growth, CPI, PPI inflation and Consumption. If this data will show suprise improvement gold will turn down rather fast.
Anyway, in short-term perspective we're mostly interested with upside potential of current motion. On daily chart situation is the same: we continue to count on 1230 area but at the same time closely watch for possible bearish grabber that actually could appear today:

On hourly chart market is struggling with WPP and now it seems that it has chances to pass through it. Yesterday we have discussed existence of Double bottom, may be it is indeed here, although recent retracement down is not very typical for its shape. At the same time it is difficult to recognize something else here, may be H&S...
Anyway, upside breakout through WPP probably will make possible reaching of 1230 daily resistance:

 

[Sive Morten]

Gold Daily Update Fri 27, February 2015

Good morning,


Reuters reports Gold advanced for a third straight session on Friday and was on track to end a four-week losing streak, supported by firm Chinese demand and a softer dollar.

However, the gains were limited, with hopes that a looming U.S. rate rise would be delayed until later this year after dovish signals from Federal Reserve Chair Janet Yellen fizzling out after upbeat U.S. data and comments from other Fed officials.

Gold has fallen more than 7 percent from a five-month high above $1,300 hit in January as expectations of a U.S. rate increase dimmed bullion's safe-haven appeal. But it has found support at around $1,200, thanks to demand from No. 2 consumer China.

"The downside risk for gold is quite limited because buying interest from emerging markets like China will support the price at low levels," said Chen Min, an analyst at Jinrui Futures in Shenzhen.

Premiums on the Shanghai Gold Exchange remained around $4 an ounce over the global spot price on Friday, slightly less than earlier this week after Chinese buyers returned to the market following the Feb. 18-24 Lunar New Year holiday.

But the metal is still headed for its biggest monthly loss since September, having fallen nearly 6 percent in February, reflecting the U.S. rate rise worries.

Chinese buying interest tends to weaken when gold is above $1,200 an ounce, said Chen, explaining the limited upside for spot gold prices. "When the price goes below $1,150, Chinese buying should be more aggressive," she said.

China's gold imports from Hong Kong rebounded in January from a three-month low in December, reflecting increased demand ahead of the Lunar New Year.

U.S. durable goods orders jumped 2.8 percent in January and core consumer prices rose more than expected, putting the prospect of a mid-year rate rise back on the table.

In addition, San Francisco Fed President John Williams and St. Louis Fed chief James Bullard both suggested the U.S. central bank might end its near-zero interest rate policy sooner than some traders expect.

But the fact that gold was holding up above $1,200 indicated

"that an eventual (U.S.) rate rise has been largely digested by the market and may therefore be largely priced in", HSBC analyst James Steel said in a note.



So, guys, as we've called yesterday - watch for bearish grabber. Right now we've got it and we think that it is not bad idea to close longs on gold:

Still theoretically upside action could happen, if market will confirm H&S pattern. For that purpose market should hold above 1200$ where the bottom of right shoulder should appear. If market will not hold there and drop further - in this case bearish grabber will work and we should be ready for return back to 1130 lows in medium-term perspective:

 

[S.chakrabortty2011]

@ sive morten

Dear sir

in your every analysis you use cftc data chart.
can you please explain their uses and also if possible can you please provide me the link of where i can find those charts??

i have surfed U.S. Commodity Futures Trading Commission this site but failed to find chart like yours

Regards
Shishir

 

[Sive Morten]

@ sive morten

Dear sir

in your every analysis you use cftc data chart.
can you please explain their uses and also if possible can you please provide me the link of where i can find those charts??

i have surfed U.S. Commodity Futures Trading Commission this site but failed to find chart like yours

Regards
Shishir

Hi, Shishir
Unfortunately you will not find my charts, because they are from Reuters Datastream software that is rather expensive. Except may be this one that is free:Net positions and open interest
Still you can download data from CFTC to Excell and plot charts there.
Also you can search for other services in the net, who also provide CFTC charts, just google for them.