Sive Morten
Special Consultant to the FPA
- Messages
- 18,699
Happy and Prosperous New Year to everybody!
Fundamentals
(Reuters) - Gold extended its rally to a three-month high on Friday, leaping toward its biggest one-year rise in seven years as a wilting U.S. dollar, political tensions and receding concerns over the impact of U.S. interest rate hikes fed into its rally.
Gold’s gains coincide with the greenback, in which gold is priced, sliding toward its worst year since 2003, damaged by tensions over North Korea, the Russian scandal surrounding U.S. President Donald Trump’s election campaign, and persistently low U.S. inflation.
The dollar index touched three-month lows on Friday, lifting bullion to its highest level since late September at $1,307.60 an ounce before paring gains.
Strong charts, the weaker dollar and expectations of bullish fundamental factors ahead have bolstered gold prices in year-end trade, said David Meger, director of metals trading for High Ridge Futures in Chicago.
Spot gold prices were up 0.67 percent at $1,303.37 per ounce by 2:05 p.m. EST (1905 GMT), poised to finish 2017 up 13 percent. Benchmark U.S. gold futures settled up $12.1, or 0.93 percent, at $1,309.30 per ounce, finishing the year 12 percent higher.
“Going back to the last Fed meeting with its slightly more dovish tone, commodities markets have gotten a bit of a green light,” Meger said, referring to indications this month that the U.S. central bank will keep its rate outlook unchanged in the coming year.
“This recent bout of weakness in the dollar certainly is fostering a commodities rally and we’ve seen a light downturn in equities as well.”
The metal will be vulnerable next year to a rebound in the currency, as well as any gains in yields, ABN Amro analyst Georgette Boele said. The opportunity cost of holding non-interest bearing bullion increases when yields rise elsewhere.
Gold’s chart signals look positive after it broke above its 100-day moving average this week at $1,295 an ounce, ScotiaMocatta’s technical team said in a note, pointing to a target of October’s high at $1,306.
COT Report
After massive position closing, we see that investors tun back to buying gold. Last two weeks net long speculative position is growing. Open interest also shows growth but it stands mostly nominal. It means that some bearish positions were reversed to bullish.
Besides, recent drop has re-established total upside potential, as no total position stands relatively far from saturation.
SPDR Fund doesn't show yet any reaction on recent gold rally. This could be due balance close through new year day for taxation. So, investors have not started to re-balance their portfolios. Major activity should come after holidays.
Technicals
Monthly
Situation on gold market is changing very fast. Only in the middle of December we've talked about weakness of gold market but in recent two weeks anything has turned from top to bottom.
Of course, here we should remember that mostly all changes have come in "thin market" period when large hedge funds and big investors were closing financial year balances, and now this process still stands. New portfolios are yet to be created after New Year's Day holidays.
Thus, it will be even more interesting to see whether situation will change somehow or not. Right now gold price action looks really impressive. COT report also points on bullish sentiment and existence of upside potential as well.
December has become a turning point for gold market. There are two important technical issues are accumulated in just one month. They are bullish grabber and reversal candle.
Grabber suggests now action above 1355 top of 2017 year. If you will take even brief look on the chart, you could imagine a lot of different extensions that could be formed with targets above 1355. They are large butterfly, AB-CD's of different scales.
December reversal feature also is very important and bring more confidence with upside continuation. As you can see December low stands under lows of four previous months but it has closed above the top of November.
Our major trend line (green) still stands valid. That's why long-term bull trend stands intact. December candle should provide us a lot of patterns for trading on lower time frames, in addition to large patterns that we could get here later.
Just grabber shows on upside perspective above 1355 and this is sufficient potential for trading on daily chart.
Here I also put new pivots for 2018...
Weekly
Here we have a lot of details, guys. Weekly trend has not turned bullish yet, but with market upside pace that we have now - this is probably just a question of time.
Minimum target request of our "222" Sell pattern was satisfied, as gold has shown 3/8 retracement of "222". So it has not failed and was completed with minimal target right at K-support area.
At the same time gold keeps valid both upside trend lines and harmonic swing. In fact, BC retracement down was the same as previous one.
All these moments point of validity of upside trend, despite that it shows moderate retracements. If you will take a careful look, you'll see that gold stands in rather large triangle pattern.
Following grabber's idea, here we could focus on nearest target above 1355 tops. It is 1384 AB-CD objective point. And, in general 1380-1390 area will be very important. Market could stand there for a long time. This is major Fib level on monthly chart (1380), new YPR1 @ 1391, multiple targets and extensions around 1380-1390 area.
Thus, it is logical to expect some brief taking around 1380-1390 area and use this area as indicator. Because if market will break it up - this will be very important signal.
Daily
On daily chart we will use the same AB-CD pattern as on weekly, but different extension. Here we will use COP - 5/8 extension that points on 1334 target. As you can see this target also coincides with January MPR1.
Now is a question how market will reach it. In fact there are just two ways - either direct action with breaking 1311 area, or some retracement first and then upside continuation.
In current circumstances, I would bet on retracement. First, major players will return on market in January. Second - technically market stands at major 5/8 resistance @ 1311 and daily OB. In fact, we have DiNapoli bearish "Stretch" pattern. It suggests retracement and it will be difficult for market to continue upside action immediately.
If retracement indeed will start - we could get reverse H&S pattern here that we've mentioned previously. It's AB-CD target should get approximately the same destination around 1330-1335 area, as it is shown on the chart:
Finally, recent rally is a good thrust for DiNapoli directional patterns - they are also will be in focus...
Intraday
Here we do not have something bearish yet, except may be engulfing pattern on hourly chart and W&R here, on 4-hour chart. By this W&R gold has exceeded 1305 top and, in fact, we have upside reversal swing...
If retracement indeed will happen - it probably will be deep. Now it seems that it will be either 1280 or even 1265. Fist level is K-support area, while second is harmonic low of potential H&S pattern. Now it seems a bit unbelievable that drop could be so deep, but the shape of the pattern tells that it is possible.
1265-1307 recent rally is suitable for DiNapoli patterns as well. Actually appearing of DRPO "Sell" could be logical here.
Conclusion
Long term situation has turned from top to bottom and we still need to find out what was that - some obsession due thin market and absence of major players or real shift in sentiment. This drastic changes open impressive perspectives for trading in long-term period.
Even in short-term perspective now we have a lot of potential patterns. We will start week from 4-hour thrust and start watching for bearish reversal patterns, if they will appear, of course. Then we will be watching for upside reversal moment to take a position in direction of 1380 level.
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.
Fundamentals
(Reuters) - Gold extended its rally to a three-month high on Friday, leaping toward its biggest one-year rise in seven years as a wilting U.S. dollar, political tensions and receding concerns over the impact of U.S. interest rate hikes fed into its rally.
Gold’s gains coincide with the greenback, in which gold is priced, sliding toward its worst year since 2003, damaged by tensions over North Korea, the Russian scandal surrounding U.S. President Donald Trump’s election campaign, and persistently low U.S. inflation.
The dollar index touched three-month lows on Friday, lifting bullion to its highest level since late September at $1,307.60 an ounce before paring gains.
Strong charts, the weaker dollar and expectations of bullish fundamental factors ahead have bolstered gold prices in year-end trade, said David Meger, director of metals trading for High Ridge Futures in Chicago.
Spot gold prices were up 0.67 percent at $1,303.37 per ounce by 2:05 p.m. EST (1905 GMT), poised to finish 2017 up 13 percent. Benchmark U.S. gold futures settled up $12.1, or 0.93 percent, at $1,309.30 per ounce, finishing the year 12 percent higher.
“Going back to the last Fed meeting with its slightly more dovish tone, commodities markets have gotten a bit of a green light,” Meger said, referring to indications this month that the U.S. central bank will keep its rate outlook unchanged in the coming year.
“This recent bout of weakness in the dollar certainly is fostering a commodities rally and we’ve seen a light downturn in equities as well.”
The metal will be vulnerable next year to a rebound in the currency, as well as any gains in yields, ABN Amro analyst Georgette Boele said. The opportunity cost of holding non-interest bearing bullion increases when yields rise elsewhere.
Gold’s chart signals look positive after it broke above its 100-day moving average this week at $1,295 an ounce, ScotiaMocatta’s technical team said in a note, pointing to a target of October’s high at $1,306.
COT Report
After massive position closing, we see that investors tun back to buying gold. Last two weeks net long speculative position is growing. Open interest also shows growth but it stands mostly nominal. It means that some bearish positions were reversed to bullish.
Besides, recent drop has re-established total upside potential, as no total position stands relatively far from saturation.
SPDR Fund doesn't show yet any reaction on recent gold rally. This could be due balance close through new year day for taxation. So, investors have not started to re-balance their portfolios. Major activity should come after holidays.
Technicals
Monthly
Situation on gold market is changing very fast. Only in the middle of December we've talked about weakness of gold market but in recent two weeks anything has turned from top to bottom.
Of course, here we should remember that mostly all changes have come in "thin market" period when large hedge funds and big investors were closing financial year balances, and now this process still stands. New portfolios are yet to be created after New Year's Day holidays.
Thus, it will be even more interesting to see whether situation will change somehow or not. Right now gold price action looks really impressive. COT report also points on bullish sentiment and existence of upside potential as well.
December has become a turning point for gold market. There are two important technical issues are accumulated in just one month. They are bullish grabber and reversal candle.
Grabber suggests now action above 1355 top of 2017 year. If you will take even brief look on the chart, you could imagine a lot of different extensions that could be formed with targets above 1355. They are large butterfly, AB-CD's of different scales.
December reversal feature also is very important and bring more confidence with upside continuation. As you can see December low stands under lows of four previous months but it has closed above the top of November.
Our major trend line (green) still stands valid. That's why long-term bull trend stands intact. December candle should provide us a lot of patterns for trading on lower time frames, in addition to large patterns that we could get here later.
Just grabber shows on upside perspective above 1355 and this is sufficient potential for trading on daily chart.
Here I also put new pivots for 2018...
Weekly
Here we have a lot of details, guys. Weekly trend has not turned bullish yet, but with market upside pace that we have now - this is probably just a question of time.
Minimum target request of our "222" Sell pattern was satisfied, as gold has shown 3/8 retracement of "222". So it has not failed and was completed with minimal target right at K-support area.
At the same time gold keeps valid both upside trend lines and harmonic swing. In fact, BC retracement down was the same as previous one.
All these moments point of validity of upside trend, despite that it shows moderate retracements. If you will take a careful look, you'll see that gold stands in rather large triangle pattern.
Following grabber's idea, here we could focus on nearest target above 1355 tops. It is 1384 AB-CD objective point. And, in general 1380-1390 area will be very important. Market could stand there for a long time. This is major Fib level on monthly chart (1380), new YPR1 @ 1391, multiple targets and extensions around 1380-1390 area.
Thus, it is logical to expect some brief taking around 1380-1390 area and use this area as indicator. Because if market will break it up - this will be very important signal.
Daily
On daily chart we will use the same AB-CD pattern as on weekly, but different extension. Here we will use COP - 5/8 extension that points on 1334 target. As you can see this target also coincides with January MPR1.
Now is a question how market will reach it. In fact there are just two ways - either direct action with breaking 1311 area, or some retracement first and then upside continuation.
In current circumstances, I would bet on retracement. First, major players will return on market in January. Second - technically market stands at major 5/8 resistance @ 1311 and daily OB. In fact, we have DiNapoli bearish "Stretch" pattern. It suggests retracement and it will be difficult for market to continue upside action immediately.
If retracement indeed will start - we could get reverse H&S pattern here that we've mentioned previously. It's AB-CD target should get approximately the same destination around 1330-1335 area, as it is shown on the chart:
Finally, recent rally is a good thrust for DiNapoli directional patterns - they are also will be in focus...
Intraday
Here we do not have something bearish yet, except may be engulfing pattern on hourly chart and W&R here, on 4-hour chart. By this W&R gold has exceeded 1305 top and, in fact, we have upside reversal swing...
If retracement indeed will happen - it probably will be deep. Now it seems that it will be either 1280 or even 1265. Fist level is K-support area, while second is harmonic low of potential H&S pattern. Now it seems a bit unbelievable that drop could be so deep, but the shape of the pattern tells that it is possible.
1265-1307 recent rally is suitable for DiNapoli patterns as well. Actually appearing of DRPO "Sell" could be logical here.
Conclusion
Long term situation has turned from top to bottom and we still need to find out what was that - some obsession due thin market and absence of major players or real shift in sentiment. This drastic changes open impressive perspectives for trading in long-term period.
Even in short-term perspective now we have a lot of potential patterns. We will start week from 4-hour thrust and start watching for bearish reversal patterns, if they will appear, of course. Then we will be watching for upside reversal moment to take a position in direction of 1380 level.
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.