Gold GOLD PRO WEEKLY, January 03 - 07, 2022

Sive Morten

Special Consultant to the FPA
Messages
15,534
Fundamentals

Within a recent couple of weeks, we've put solid fundamental background for expected gold performance in a medium-term perspective. In particular, we've explained in detail why gold could get support within the nearest 4-6 months and why chances for demand are still solid. The sentiment of investors is changing gradually, although it hasn't got the reflection yet in sentiment data and amount of positions opened. Still, on the last week of 2021 we've got solid upward action, haven't seen for a long time, that supports our view for the nearest future.

Market overview

The possibility of faster spread and renewed restrictions loomed large in some countries ahead of the holidays. Since the start of the month, U.S. COVID cases have risen 50%, according to a Reuters tally. The Netherlands went into lockdown on Sunday and the possibility of more COVID-19 restrictions being imposed ahead of the Christmas and New Year holidays loomed over several European countries as the Omicron variant spreads rapidly.

In the United States, White House medical adviser Dr. Anthony Fauci urged people traveling to visit loved ones to get booster shots and always wear masks in crowded public spaces. He said Omicron was "raging through the world" and that traveling will increase the risk of infection even among vaccinated people. Since the start of the month, U.S. COVID cases have risen 50%, according to a Reuters tally.

Dutch urban centers were largely deserted as the country began a snap lockdown that threw people's Christmas plans into disarray. Prime Minister Mark Rutte announced the shutdown on Saturday evening, ordering the closure of all but essential stores, as well as restaurants, hairdressers, gyms, museums, and other public places from Sunday until at least Jan. 14.

While the Netherlands took the plunge and shut down much of public life to prevent its healthcare system from being overwhelmed, several other European governments are considering additional curbs - at a time when businesses count on people spending more heavily than usual on shopping, entertainment and travel.

Overall COVID infections are rising in 64 out of 240 countries and territories tracked by Reuters, with 12 countries recording more cases than at any point during the pandemic, including the United Kingdom.

New restrictions in England to slow the spread of COVID-19 will only be introduced as a last resort, health minister Sajid Javid said, stressing that although hospitalizations were rising, the number of patients in intensive care was stable. The rapid spread of the Omicron variant across the United Kingdom has sent infections to record highs, with close to 190,000 new cases reported on Friday.

"Curbs on our freedom must be an absolute last resort," Javid wrote in an article published in Saturday's Daily Mail newspaper. "We must give ourselves the best chance of living alongside the virus and avoiding strict measures in the future. Numbers in intensive care units are stable and not currently following the trajectory we saw this time last year during the Alpha wave," he wrote.

He acknowledged that due to the time lag between infections and hospitalizations, a big increase in people needing care from the National Health Service (NHS) was inevitable.

"This is likely to test the limits of finite NHS capacity even more than a typical winter," he said, urging citizens to do everything they could to protect themselves.

France became the sixth country in the world to report more than 10 million COVID-19 infections since the outbreak of the pandemic, according to official data published on Saturday. French health authorities reported 219,126 new confirmed cases in a 24-hour period, the fourth day in a row that the country has recorded more than 200,000 cases. France joined the United States, India, Brazil, Britain, and Russia in having had more than 10 million cases.

After meeting with ministers on Dec. 23, Prime Minister Mario Draghi could mandate that people who have been vaccinated also show a negative test to access crowded places, including nightclubs and stadiums, daily Corriere della Sera reported.

Germany's health minister Karl Lauterbach ruled out a Christmas lockdown on Sunday but warned a fifth COVID-19 wave could no longer be stopped, adding that he viewed mandatory vaccination as the only way to end the pandemic.

Gold prices scaled a more than one-week high on Monday, as renewed risks to global economic growth from rising cases of the Omicron coronavirus variant offset pressure from a firmer U.S. dollar.

"Gold faces resistance just above $1,815 and if the recent past is any indication, gold will continue to struggle to hold onto gains at these levels unless the U.S. dollar moves sharply lower this week," said Jeffrey Halley, a senior market analyst at OANDA.

The outlook for gold in the first quarter of 2022 is upbeat, with the main driver being inflation, which is keeping a floor under prices, said Jim Wyckoff, a senior analyst at Kitco Metals. "The underlying support comes from inflation concerns," Wyckoff said, adding "the leanings of the Fed for a little bit tighter monetary policy seems to have assuaged the gold traders a little bit".

"While there are concerns over the Omicron variant, the investment demand is quite flat. So it is just the year-end rally since there is still some risk-on sentiment present," said Jigar Trivedi, a commodities analyst at Mumbai-based broker Anand Rathi Shares. Gold may not rally too much in the absence of any major economic data and it will remain in this range," Trivedi said, adding that the positive sentiment on gold at the moment is a result of a weaker dollar.

The lack of a rise in bond yields and building inflationary pressures are supportive factors limiting losses for the gold market, said David Meger, director of metals trading at High Ridge Futures. "The ongoing trend (for gold) remains sideways to higher in the near term, and we believe that this trend is coming from the continuation of the inflationary pressures that we see building in the market."

While gold prices are expected to stay around the current levels early next year, rising U.S. interest rates and falling inflation could hit prices, said UBS analyst Giovanni Staunovo, forecasting the metal to end 2022 at around $1,650 per ounce.

Gold edged lower on Wednesday in slim trading as the dollar strengthened and U.S. Treasury yields steadied after falling earlier in the session, though prices remained above the key level of $1,800 per ounce.

Gold could strengthen as "a lot of economists are downgrading growth expectations in the U.S., and arguably we could have a softer end to the year than a lot of people had expected," said Stephen Innes, managing partner at SPI Asset Management.

"Risk appetite might be a little stronger today," said Peter Mooses, a senior market strategist at RJO Futures, adding that the pullback might not be long-term and just last for a couple of days amid uncertainties around the Omicron variant cases. Gold prices are likely to hover around the $1,800-mark for the first quarter in 2022, Mooses said, and that wider price ranges could be seen if news around the Omicron variant worsens.

"With room for inflation to continue its consistent rise on the back of festive buying pressures and constricted supply chain bottlenecks, spot gold could see another move higher before the hawkish tilt from most major central banks weigh negatively on the yellow metal next year," said DailyFX analyst Warren Venketas.

"The $1,800 level seems to be behaving more like a magnet to the market with good buying below that level and good selling above it," said independent analyst Ross Norman. He said $1,814 was acting as technical resistance and $1,835 was "now the big number for the market. Gold is seeing a little bit of buying on the basis of new position-taking and, on the other hand, it's seeing some good selling on the basis of dollar strength in particular," he said.

Gold was set for its worst year since 2015 on Friday as a global economic recovery caused safe-haven flows into the metal to ease and as central banks prepared to raise interest rates to contain inflation.

"Year-end risk hedging has pushed gold higher overnight and is keeping gold supported in Asia, despite a modest U.S. dollar rally overnight. Gold is now just below resistance at $1,820," said Jeffery Halley, a senior market analyst at OANDA.

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Gold prices have declined more than 4% so far this year after rising 48% over the previous two years, as the global economic recovery reduced demand for the safe-haven metal. This year gold traded between $1,676 and $1,959 an ounce, following its best annual performance in a decade last year, which also saw the metal touching an all-time high of about $2,072.50.

"Gold held up reasonably well given all the pro-growth development and all the normalisation in monetary policy," said Dominic Schnider, head of commodities and APAC forex at UBS Wealth Management in Hong Kong. You could argue that if we did not have inflation, gold prices would already be much lower," said Schnider, adding that gold's performance for the year was quite positive for euro or yen investors.

Heading into 2022, while concerns about the effect of the Omicron variant could support gold prices, higher Treasury yields might tarnish the metal's appeal, said Han Tan, chief market analyst at Exinity. Gold could see several catalysts for substantial gains next year, be it a Fed policy mistake, stubbornly elevated inflation, or even a spike in geopolitical tensions."

A Reuters poll in October showed analysts estimated that gold would average about $1,750/ounce in 2022, trimming earlier forecasts citing pressure from potential interest rate hikes.

Sentiment analysis

COT Report this week brings no clarity on how sentiment has changed. The previous two weeks were thin and major traders haven't taken participation in active trading. As a result, CFTC data shows minor changes in sentiment. As you can see from the table below - shifts are mostly bullish, as speculators have closed some shorts while hedgers have increased positions against gold's appreciation. But the scale of the changes is small:

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To get a bit broader view, we could take a look at SPDR Fund statistics. The chart below clearly shows that Fund reserves come in divergence with Gold price. It means that either gold should drop or reserves' tendency should change. To make a correct conclusion on what is more probable to happen - we need to recall our fundamental view. It seems that changes of reserves' tendency now look more probable as widely stands concerned about the reasonability of Fed promises.

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Another factor that could make a direct impact on the gold price is Omicron's fears. Now investors start to suspect that these fears are overpriced a bit, why the dollar has got too much boost in recent few weeks. As concern around Omicron is getting some relief, understanding gradually comes that it is possible to live with it, as well as with the Delta variant before - Dollar could lose some value within a few weeks. We've discussed this recently in relation to the EUR.

The U.S. dollar is trading at a high premium relative to its fundamentals as investors fret over the spread of the Omicron COVID-19 variant and high inflation. But that is unlikely to last, with risks to the currency rising next year, according to The Leuthold Group. The greenback typically trades with a strong positive correlation to consumer sentiment, however, this relationship reverses when confidence is replaced by fear and then panic, as is currently the case, James Paulsen, chief investment strategist said in a report.

In fact, the safe-haven premium currently priced into the U.S. currency is nearly 40%, the second-highest level since 1988. “This strongly suggests the U.S. dollar is poised to decline next year,” Paulsen said. Heading into 2022 investors are concerned about COVID and high inflation but “there is a decent chance some semblance of victory will be declared over both, which would likely boost confidence and cause the safe-haven premium to evaporate.”

The Omicron variant so far appears to be far less virulent than Delta, and there are more tools and treatments now that can address the virus. The pandemic is also likely to morph into an epidemic, which should help ease supply chain problems, reduce inflation pressures and improve confidence, Paulsen said.

That may mean that the dollar will see a year of renewed weakness, which would boost commodity prices and possibly keep inflation above the Federal Reserve’s 2% target, with
10-year Treasury yields possibly rising above 2%, Leuthold said.

This should not be long-lasting action, but some "adjustment" and only for the extra Omicron fears. That's being said, as we've discussed all nuances of the background that we expect to see on the market - now we need just to get the first signs of its realization. First is, via changes of sentiment and net market position, and second - via price change directly.
Now investors also start to keep a close eye on coming statistics in January and February. Any signs of weakness in consumption, sentiment, inflation, or job market should support gold and keep nominal interest rates flat. Next week we already get multiple PMI data and NFP and within 2 weeks - retail sales and inflation data. So, the market should get a big information cluster to think about.

Technicals
Monthly

So, here the time has come to adjust yearly pivots, as we did on EUR. As the gold market was trading tight in 2021 - pivots envelope current price action closely, as well. And take a look - the price stands slightly above the new YPP level of 1821. It means that next week we could get the pullback and testing of this level. The first touch of YPP and price response is always important, especially if this happens right at the beginning of the year.

All in all, December still became an inside month but the price was able to show some progress back to the November top, breaking some important resistance levels on a daily chart.

Once we've mentioned already that overall price performance doesn't look truly bearish in long term. Market stands too close to the top, forming tight consolidation, and has not reached even 3/8 major support. And the potential appearance of the pennant pattern just confirms this. This, in turn, cares signs of bullish dynamic pressure, as the market stands tight while MACD is going down...

In the short-term market is flirting with YPP and breaking of 1875 top might become an important moment. The support line that makes the shape of the triangle here seems to be more important at the current moment. MACD trend stands bearish, so how the price will flirt with the indicator's line is another interesting moment within a few months.

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Weekly

MACD trend has turned bullish, and multiple grabbers that we have here stand as a major part of the background here. Following to swings' calculation, it seems that the next target is around "red" OP and Agreement resistance @ 1920$ area:

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Daily

Friday's performance was just great, the market has closed near the top of the session and around 5/8 local resistance level. As odds suggest some reaction on the resistance - for us it also makes sense to watch for it, especially if you're searching chance for long entry here. Others, who already have long positions - keep stops at breakeven and enjoy the performance.
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Intraday

First is, from the perspective of the 4H H&S pattern, any retracement is preferable to be above the broken neckline. Especially when we see acceleration above COP target and out of the flag consolidation. The best performance for us is just a re-testing of the broken areas, especially when we see the acceleration up.
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On the hourly chart, the 1820$ area has a special meaning. First, it includes multiple local support areas, but the major reason is YPP that stands around it. All together it forms a good support area that is supposedly suitable for our entry task. Besides, it agrees with the 4H neckline. That's being said - 1818-1823 is our primary area to watch for. Drop to 1818 also could give us B&B "Buy" pattern.

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Sive Morten

Special Consultant to the FPA
Messages
15,534
Morning everybody,

So, despite nice first reaction on predefined support area - gold still dropped. The answer you could find on
the performance of 10-year interest rates that boosted the dollar value and put down all its rivals as gold as currencies. BTC also stand under pressure now.

Still, as we said today in EUR video - we should not to overvalue this drop as it has more psychological and emotional background and looks like attempt to shake the boat when investors have no significant information. The major statistics is yet to come this week and next week, Omicron impact is not reflected yet. So, with any signs that economy is weaker than markets expect should support the gold and recent plunge could be reversed.

But this happen after some time. Right now it is definitely that price shape is becoming more difficult and we might need to watch for different setup. Thus, on daily chart price keeps bullish tendency but it has formed bearish reversal swing and retracement might be deeper. The first thing that we need to do here is to watch for bullish grabbers, as price comes to MACDP line:

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On 4H chart it seems that we've got 3-Drive "Sell", at least extensions stand accurately around the top. This pattern also suggests deeper action and clearing of the lows between 2nd and 3rd drives. So, the K-support here is the only bullish thing that we have by far. But obviously it is not enough for new long entry:
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The first reaction on YPP and our entry area was nice but later this pullback has become the shoulder of small H&S pattern that has triggered the collapse. On 1H chart we need clear bullish reversal patterns, in addition to strong support and daily grabber to get more or less sufficient bullish context. Now it would be better to do nothing and wait when market calm down a bit;
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Sive Morten

Special Consultant to the FPA
Messages
15,534
Good morning,

Gold has shown nice bounce recently but still, it could be treated on both sides and now we have to point to the red line that segregates the bullish scenario from the bearish one.

On the daily chart unfortunately we haven't got any grabber, and despite that, we have a bullish MACD direction, the recent pullback could be treated, for instance, as retracement after the collapse. Especially because we have a bearish reversal bar:
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On the 4H chart, we also have just bounce from the strong K-support area, but potentially bearish patterns are valid. In the case of downside action the most probable destination point is the 1782 support area:
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On the 1H chart, the market stands at the vital point for the bears. This is strong resistance and Agreement area. And normally, the bearish market should start dropping again right from there. Thus, if you have a bearish view - this is an area for entry consideration. In other words speaking, the bearish market should not break this area down.
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As we do not have any other patterns here - bulls have no sufficient context for an immediate long entry. In fact, they have to watch for the failure of bearish context, i.e. upside breakout of this 1816-1820 area and moving back to the top, which will be a clear signal of upside continuation.
 

Sive Morten

Special Consultant to the FPA
Messages
15,534
Greetings everybody,

So, gold, like other markets yesterday has fell like a victim of Fed minutes protocol. Release discovers more hawkish sentiment of the Fed that could act faster and stronger. If coming NFP becomes more or less positive - gold market could get the second hit this week.

Still, longer-term bullish context is still valid here. We go step by step and at the first stage consider recent collapse as a step of deeper retracement by far. As daily trend has turned bearish, we temporary take bullish setups off the table:
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On 4H chart, now there is a big chance that our 3-Drive should hit the target. Although price still stands around support area and OP is also just below it, we suppose that 10-year yields should rise more, to 1.8% area. Which it turn should make pressure on the gold and push it down to 1775-1780 Agreement area.
Thus, despite nicely looking support area, chances that it will be broken are significant.
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As we do not consider any long position taking, we could follow only bearish side. In current condition as market stands near strong support area, we suggest that potential B&B "Sell" setup might be the good option to follow, as it provides very low risk. But it is important to move stops to breakeven as soon as possible. Now we're watching for pullback to 1805-1808 area. Adjust fib levels if market drops lower
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Sive Morten

Special Consultant to the FPA
Messages
15,534
Greetings everybody,

So, gold indeed has moved slightly lower. Although NFP could change the price shape, but by current picture - it seems that 1275-1282$ support area, as the next destination point, looks reasonable.
gold_d_07_01_22.png


On 4H chart we have important bearish signs. Once market has hit OP target it hasn't jumped back above the K- support, but remains under it. It means that current action is not just OP hunting, but downside breakout. 3-Drive target is completed as well.
gold_4h_07_01_22.png


1H B&B "Sell" yesterday has worked nicely. So, we suggest no long positions by far. If you have short with B&B - you could keep it until the 1275 target or close the 50% before NFP and keep the rest, which seems like a healthy compromise.
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