Sive Morten
Special Consultant to the FPA
- Messages
- 18,699
Fundamentals
Reuters) - Gold fell more than 1 percent on Friday, as the dollar and global shares rose, but fund buying persisted as investors expected a G20 summit would produce little in the way of a coordinated stimulus program.
Financial leaders from G20 nations gathered in Shanghai against a backdrop of worsening economic conditions and a lack of wider consensus on how to fix the problems.
"The increase in price this year has been supported by physical purchases, very strong in the funds and concerns are more global in nature, with increasing probability that there will be a recession in the U.S.," Julius Baer analyst Warren Kreyzig said.
Concerns that a slowing global economy could eventually push the United States into recession eased as data showed U.S. economic growth slowed less than expected in the fourth quarter.
"The GDP data came out better than expected, so it gives strength to the rate debate. If rates go higher, gold goes lower," said Bob Haberkorn, senior market strategist at RJO Futures in Chicago.
Despite Friday's losses, gold has rediscovered its role as a shelter for risk-averse investors. Assets of SPDR Gold Trust , the top bullion exchange-traded fund, held steady on Thursday, after rising to their highest since March 2015 on Wednesday.
Gold funds accumulated their largest inflows since 2009 in the last week as financial market turmoil continued to unnerve investors, Bank of America Merrill Lynch said.
While prices could fall back a bit if, as we expect, the Fed hikes rates later in the year, strong buying from both consumers and central banks in emerging economies, coupled with supply cuts, should offer solid support," Capital Economics said in a research note.
Gold prices have developed a bullish technical formation called the 'golden cross,' where the 50-day moving average goes above the 200-day moving average.
So, we have no questions to CFTC data - clear bullish sentiment - net long position grows simultaneously with price and open interest. Still, it stands rather far from historical record and has room to grow more. At the same time hardly this process will be without pauses. Currently it is interesting to see what will happen within 1-2 weeks. Take a look, 2 recent rallies on gold have shown the same peaks of net long position but withdrawn very fast. It is interesting has something changed in sentiment or not? And what retracement on long position will happen?
Technicals
Monthly
So ceasefire in Syria has started and it seems that it holds not bad at all. GDP revision was positive and this is another point in favor of some relief on gold market. It will be great if we finally will get our entry point...
At the same time monthly picture has not changed significantly last week, since mostly gold stand in consolidation. Technically price coiling around 1260 monthly Fib resistance.
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 has not changed situation drastically yet on 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. Recent reaction on GDP revision also was as strong as it could be or as it was some time ago. Demand on safe haven assets starts to increase - just take a look at JPY, CHF and gold, SDPR and other gold funds stats.
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.
At the same time gold needs to move above 1380 to break current bearish trend by forming upside reversal swing.
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 tells 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. Last two week was inside ones and do not bring any really new information.
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. Current fundamental background stands in favor of this scenario, and if nothing really awful will happen next week, probably we should get our entry point.
Daily
Despite nice GDP revision market was not able to close below 3x3 DMA for 2nd time and give us DRPO "Sell" pattern. At the same time, since Syria ceasefire has started only 27th of Feb - this was not played out by the price yet. And effect we could get on Monday. That's why DRPO still takes major part of our attention as pattern that could trigger retracement down that, in turn, we would like to get and use for long entry.
Also you could try to trade DRPO directly, but we should treat it only as sub-product of our major object. That's why here we do not call you to do this.
Now guys we suggest there are a lot of stops stand below 1190 area. Second top that has been formed last week - in fact bullish short-term capitulation. When stops will be triggered, gold will accelerate drop down and could reach our K-support area. As market strongly overbought on weekly - daily oversold looses it's domination and could be overcome. Other words speaking, market could drop through Oversold, if it will get really strong impulse, say, stop triggering, some positive geopolitical news and statistics.
That's being said, we continue to monitor DRPO pattern here.
4-hour
This chart shows what we would like to get - classical continuation of "222" Sell pattern right to 100% extension target. We've specified 2 confirmation signs on a way down. First was bullish grabber failure and this has happened, second - price return inside triangle consolidation, but this issue has not been achieved yet. Gold stubbornly holds above it, and just re-tested it's border.
Interesting that this "222" target leads us directly to 1180 level - part of our daily K-support range.
Hourly
Here, guys, we also have very interesting situation. As we've discussed on Friday, here we have another one, but minor AB=CD down. Thus, market has completed 100% target and no stands in upside retracement that has stopped around K-resistance and future WPP. But here we're mostly interested in 1.618 extension. The point is it stands right around 1st lows of DRPO pattern and stop conjunction. As soon as 1.618 target will be hit - stops could be triggered and we could get downward acceleration.
I do not know will you trade this setup down or not, but even to watch how it will develop - is very useful and interesting:
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 we mostly are watchers of downward retracement (although it is not forbidden to trade it). Our primary object is to get good area for long entry.
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 fell more than 1 percent on Friday, as the dollar and global shares rose, but fund buying persisted as investors expected a G20 summit would produce little in the way of a coordinated stimulus program.
Financial leaders from G20 nations gathered in Shanghai against a backdrop of worsening economic conditions and a lack of wider consensus on how to fix the problems.
"The increase in price this year has been supported by physical purchases, very strong in the funds and concerns are more global in nature, with increasing probability that there will be a recession in the U.S.," Julius Baer analyst Warren Kreyzig said.
Concerns that a slowing global economy could eventually push the United States into recession eased as data showed U.S. economic growth slowed less than expected in the fourth quarter.
"The GDP data came out better than expected, so it gives strength to the rate debate. If rates go higher, gold goes lower," said Bob Haberkorn, senior market strategist at RJO Futures in Chicago.
Despite Friday's losses, gold has rediscovered its role as a shelter for risk-averse investors. Assets of SPDR Gold Trust , the top bullion exchange-traded fund, held steady on Thursday, after rising to their highest since March 2015 on Wednesday.
Gold funds accumulated their largest inflows since 2009 in the last week as financial market turmoil continued to unnerve investors, Bank of America Merrill Lynch said.
While prices could fall back a bit if, as we expect, the Fed hikes rates later in the year, strong buying from both consumers and central banks in emerging economies, coupled with supply cuts, should offer solid support," Capital Economics said in a research note.
Gold prices have developed a bullish technical formation called the 'golden cross,' where the 50-day moving average goes above the 200-day moving average.
So, we have no questions to CFTC data - clear bullish sentiment - net long position grows simultaneously with price and open interest. Still, it stands rather far from historical record and has room to grow more. At the same time hardly this process will be without pauses. Currently it is interesting to see what will happen within 1-2 weeks. Take a look, 2 recent rallies on gold have shown the same peaks of net long position but withdrawn very fast. It is interesting has something changed in sentiment or not? And what retracement on long position will happen?
Technicals
Monthly
So ceasefire in Syria has started and it seems that it holds not bad at all. GDP revision was positive and this is another point in favor of some relief on gold market. It will be great if we finally will get our entry point...
At the same time monthly picture has not changed significantly last week, since mostly gold stand in consolidation. Technically price coiling around 1260 monthly Fib resistance.
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 has not changed situation drastically yet on 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. Recent reaction on GDP revision also was as strong as it could be or as it was some time ago. Demand on safe haven assets starts to increase - just take a look at JPY, CHF and gold, SDPR and other gold funds stats.
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.
At the same time gold needs to move above 1380 to break current bearish trend by forming upside reversal swing.
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 tells 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. Last two week was inside ones and do not bring any really new information.
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. Current fundamental background stands in favor of this scenario, and if nothing really awful will happen next week, probably we should get our entry point.
Daily
Despite nice GDP revision market was not able to close below 3x3 DMA for 2nd time and give us DRPO "Sell" pattern. At the same time, since Syria ceasefire has started only 27th of Feb - this was not played out by the price yet. And effect we could get on Monday. That's why DRPO still takes major part of our attention as pattern that could trigger retracement down that, in turn, we would like to get and use for long entry.
Also you could try to trade DRPO directly, but we should treat it only as sub-product of our major object. That's why here we do not call you to do this.
Now guys we suggest there are a lot of stops stand below 1190 area. Second top that has been formed last week - in fact bullish short-term capitulation. When stops will be triggered, gold will accelerate drop down and could reach our K-support area. As market strongly overbought on weekly - daily oversold looses it's domination and could be overcome. Other words speaking, market could drop through Oversold, if it will get really strong impulse, say, stop triggering, some positive geopolitical news and statistics.
That's being said, we continue to monitor DRPO pattern here.
4-hour
This chart shows what we would like to get - classical continuation of "222" Sell pattern right to 100% extension target. We've specified 2 confirmation signs on a way down. First was bullish grabber failure and this has happened, second - price return inside triangle consolidation, but this issue has not been achieved yet. Gold stubbornly holds above it, and just re-tested it's border.
Interesting that this "222" target leads us directly to 1180 level - part of our daily K-support range.
Hourly
Here, guys, we also have very interesting situation. As we've discussed on Friday, here we have another one, but minor AB=CD down. Thus, market has completed 100% target and no stands in upside retracement that has stopped around K-resistance and future WPP. But here we're mostly interested in 1.618 extension. The point is it stands right around 1st lows of DRPO pattern and stop conjunction. As soon as 1.618 target will be hit - stops could be triggered and we could get downward acceleration.
I do not know will you trade this setup down or not, but even to watch how it will develop - is very useful and interesting:
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 we mostly are watchers of downward retracement (although it is not forbidden to trade it). Our primary object is to get good area for long entry.
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.
Put results as reply in thread. You can do it.