Sive Morten
Special Consultant to the FPA
- Messages
- 18,673
Fundamentals
(Reuters) - Gold was steady on Thursday, ending the year down 10 percent for its third straight annual decline, ahead of another potentially challenging year in 2016 amid the prospect of higher U.S. interest rates and a robust dollar.
Largely influenced by U.S. monetary policy and dollar flows, the price of gold fell 10 percent in 2015 as some investors sold the precious metal to buy assets that pay a yield, such as equities.
The most-active U.S. gold futures for February delivery settled at $1,060.2 per ounce on Thursday, almost flat compared with Wednesday's close of $1,059.8 and close to six-year lows of $1,046 per ounce earlier in December.
"The key factor for gold remains the strong dollar and that ultimately trumps all other issues including the economy and the geopolitics," said Ross Norman, chief executive of bullion broker Sharps Pixley.
The dollar was on track for a 9 percent gain this year against a basket of major currencies, making dollar-denominated gold more expensive for holders of other currencies.
Following the U.S. Federal Reserve's first interest rate rise in nearly a decade earlier this month and indications the central bank would resort to gradual increases in 2016, the outlook for gold does not look bullish.
2016 will start very much more of the same, which is to say, ongoing Western paper selling, ongoing Eastern physical buying," Sharps Pixley's Norman said.
Other fundamentals were not supportive either. Assets of SPDR Gold Trust , the top gold-backed exchange-traded fund, were near a seven-year low while short positions on COMEX gold contracts were close to a record high.
A bearish outlook for oil could also pile pressure on gold. Gold is often seen as a hedge against oil-led inflation. [O/R]
"My concern is that gold prices could remain in the $1,000-$1,200 an ounce range for a prolonged period of time as the drivers continue to be the same, including global monetary policies and euro/dollar strength," Commerzbank managing director Adrien Biondi said.
COT numbers also has not changed significantly. Net-long positions has increased slightly, but nothing special yet. Probably COT data near Christmas holidays was a bit distorted by low activity.
Technicals
Monthly
Last week trading was lazy, price didn't show any solid changes due short week and Christmas holiday. That's why we see minimal changes on big scaled charts - monthly and weekly.
We still think that currently gold should be mostly driven by geopolitics, rather than economics. This driving factor creates absolutely new scale of uncertainty and leads to very fast changes on Globe political situation. That's why we suspect that gold market hardly will fall dramatically, since we're just in the beginning of Middle East tensions. Currently we see clear signs that situation will become worse in nearest time. Current gold drop on a background of Middle East turmoil looks a bit artificial and this situation could not stand forever. May be this could be explained as insufficient weight of geopolitics against current weight of Fed policy and statistics. But geopolitical tensions, despite its low weight still makes drop slower.
As market gradually will start to come to the same conclusion as gradually situation on gold market will start to change in positive area. Still, 1000$ area is relatively close and these two events do not contradict to each other, just because they are of a bit different time scales.
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 1310 area.
Our1050 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.
Bullish patterns that have been formed within December now shows some flaws. Although currently it is a bit difficult to estimate whether this is due lack of liquidity or, indeed, they will fail. Coming week, as we hope should clarify this moment.
Weekly
This was minor trading week. Weekly chart mostly shows two important things. First one is existing of untouched targets around 1036-1038$ area. Second - we could get bullish divergence here. Right now - lines of MACD have not crossed yet, but based on action that we see - chances on getting divergence are nice.
Take a look, last time, when we've got divergence - market showed AB-CD upside retracement. Now as we speak about possible double bottom pattern - appearing of divergence lets us to take a view from different angle on current situation. Also do not forget that market at monthly major 50% support, support of wedge pattern. Also it has completed inner AB-CD big pattern.
So, weekly chart is not very useful for us now. We know that gold stands at support, but this chart does not show any clear patterns that could shed more light on perspectives on gold. Within last month we mostly have some narrow consolidation that absolutely does not clarify what could happen next.
Gold will open right at Yearly Pivot Support 1 level. It will be interesting to watch on market's behavior around it. Last week of 2015 shows downward action. Could it become a turn to untouched targets? We will see.
Daily
Now we're coming to most interesting picture. Trend has turned bearish on last trading session of 2015. On Friday we've come to conclusion that market shows too much bearish signs to be just an occasion.
Let's talk first on our DRPO "Buy" pattern. After 2 days up market has turned to sideways consolidation that is absolutely not typical for DRPO action. DRPO should trigger explosive move up. So, we write-off it on insufficient depth of the market when gold has turned to flag pattern. But later, price has broken flag in opposite direction and held there. Later trend has turned bearish and right now gold stands right at invalidation point of DRPO. If price will close sightly lower - then we will turn to DRPO "Failure" trading.
Second bearish moment - dynamic pressure. Since trend has turned bullish in November - price action mostly was flat and right now even has turned bearish again. This coincides with some unnatural behavior of DRPO pattern. If drop will follow - minimum target will be 1146 lows.
The question is - could this mess be triggered by low liquidity - we will see. But personally I think that it is too much for "low liquidity". It means that right from this moment we should avoid long positions. Before going short we will wait for DRPO Failure still...
4-hour
This is major chart for us right now. It confirms our fears on possible DRPO Failure. Normally, when market forms upside reversal swing - it shows AB-CD retracement down after it. But now we see that this retracement is overextended down. This action is not normal for bullish market.
But this is not just simple overextension. On a way down gold has broken as AB=CD pattern by dropping below it's target as 3-Drive Buy pattern that was absolutely perfect for bullish scenario and that should upside reversal. Also minor butterfly has chances to fail, because we see solid downward acceleration and this is very bad sign for bullish scenario. Usually when such acceleration takes place - bullish reversal patterns as AB=CD, butterfly are doomed.
If you will take a look at hourly chart - you'll see W&R of 1060 level. Market makers have grabbed stops. That's why for us important to see close below this level but not penetration of it inside the session.
That's being said, situation is not very positive for bulls, and in the beginning of the week we will watch for final clarity for DRPO results. Also depending on how market will open in 2016 - we will think, may be even will try to take short position on minor retracement...
Conclusion:
We think that fundamentally gold stands somewhere near bottom. But this bottom could be "long", because the scale of this analysis is long-term. It means that market could drop lower, say to 1000 or even 900$, but pace of drop will be significantly slower.
In short-term perspective market has confirmed DRPO "Buy" pattern and even has started action with it.But recently gold shows warning signs that are not match to normal bullish behavior and put under question perspectives of any upside action. This interestingly coincides with our Forex view...
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 was steady on Thursday, ending the year down 10 percent for its third straight annual decline, ahead of another potentially challenging year in 2016 amid the prospect of higher U.S. interest rates and a robust dollar.
Largely influenced by U.S. monetary policy and dollar flows, the price of gold fell 10 percent in 2015 as some investors sold the precious metal to buy assets that pay a yield, such as equities.
The most-active U.S. gold futures for February delivery settled at $1,060.2 per ounce on Thursday, almost flat compared with Wednesday's close of $1,059.8 and close to six-year lows of $1,046 per ounce earlier in December.
"The key factor for gold remains the strong dollar and that ultimately trumps all other issues including the economy and the geopolitics," said Ross Norman, chief executive of bullion broker Sharps Pixley.
The dollar was on track for a 9 percent gain this year against a basket of major currencies, making dollar-denominated gold more expensive for holders of other currencies.
Following the U.S. Federal Reserve's first interest rate rise in nearly a decade earlier this month and indications the central bank would resort to gradual increases in 2016, the outlook for gold does not look bullish.
2016 will start very much more of the same, which is to say, ongoing Western paper selling, ongoing Eastern physical buying," Sharps Pixley's Norman said.
Other fundamentals were not supportive either. Assets of SPDR Gold Trust , the top gold-backed exchange-traded fund, were near a seven-year low while short positions on COMEX gold contracts were close to a record high.
A bearish outlook for oil could also pile pressure on gold. Gold is often seen as a hedge against oil-led inflation. [O/R]
"My concern is that gold prices could remain in the $1,000-$1,200 an ounce range for a prolonged period of time as the drivers continue to be the same, including global monetary policies and euro/dollar strength," Commerzbank managing director Adrien Biondi said.
COT numbers also has not changed significantly. Net-long positions has increased slightly, but nothing special yet. Probably COT data near Christmas holidays was a bit distorted by low activity.
Technicals
Monthly
Last week trading was lazy, price didn't show any solid changes due short week and Christmas holiday. That's why we see minimal changes on big scaled charts - monthly and weekly.
We still think that currently gold should be mostly driven by geopolitics, rather than economics. This driving factor creates absolutely new scale of uncertainty and leads to very fast changes on Globe political situation. That's why we suspect that gold market hardly will fall dramatically, since we're just in the beginning of Middle East tensions. Currently we see clear signs that situation will become worse in nearest time. Current gold drop on a background of Middle East turmoil looks a bit artificial and this situation could not stand forever. May be this could be explained as insufficient weight of geopolitics against current weight of Fed policy and statistics. But geopolitical tensions, despite its low weight still makes drop slower.
As market gradually will start to come to the same conclusion as gradually situation on gold market will start to change in positive area. Still, 1000$ area is relatively close and these two events do not contradict to each other, just because they are of a bit different time scales.
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 1310 area.
Our1050 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.
Bullish patterns that have been formed within December now shows some flaws. Although currently it is a bit difficult to estimate whether this is due lack of liquidity or, indeed, they will fail. Coming week, as we hope should clarify this moment.
Weekly
This was minor trading week. Weekly chart mostly shows two important things. First one is existing of untouched targets around 1036-1038$ area. Second - we could get bullish divergence here. Right now - lines of MACD have not crossed yet, but based on action that we see - chances on getting divergence are nice.
Take a look, last time, when we've got divergence - market showed AB-CD upside retracement. Now as we speak about possible double bottom pattern - appearing of divergence lets us to take a view from different angle on current situation. Also do not forget that market at monthly major 50% support, support of wedge pattern. Also it has completed inner AB-CD big pattern.
So, weekly chart is not very useful for us now. We know that gold stands at support, but this chart does not show any clear patterns that could shed more light on perspectives on gold. Within last month we mostly have some narrow consolidation that absolutely does not clarify what could happen next.
Gold will open right at Yearly Pivot Support 1 level. It will be interesting to watch on market's behavior around it. Last week of 2015 shows downward action. Could it become a turn to untouched targets? We will see.
Daily
Now we're coming to most interesting picture. Trend has turned bearish on last trading session of 2015. On Friday we've come to conclusion that market shows too much bearish signs to be just an occasion.
Let's talk first on our DRPO "Buy" pattern. After 2 days up market has turned to sideways consolidation that is absolutely not typical for DRPO action. DRPO should trigger explosive move up. So, we write-off it on insufficient depth of the market when gold has turned to flag pattern. But later, price has broken flag in opposite direction and held there. Later trend has turned bearish and right now gold stands right at invalidation point of DRPO. If price will close sightly lower - then we will turn to DRPO "Failure" trading.
Second bearish moment - dynamic pressure. Since trend has turned bullish in November - price action mostly was flat and right now even has turned bearish again. This coincides with some unnatural behavior of DRPO pattern. If drop will follow - minimum target will be 1146 lows.
The question is - could this mess be triggered by low liquidity - we will see. But personally I think that it is too much for "low liquidity". It means that right from this moment we should avoid long positions. Before going short we will wait for DRPO Failure still...
4-hour
This is major chart for us right now. It confirms our fears on possible DRPO Failure. Normally, when market forms upside reversal swing - it shows AB-CD retracement down after it. But now we see that this retracement is overextended down. This action is not normal for bullish market.
But this is not just simple overextension. On a way down gold has broken as AB=CD pattern by dropping below it's target as 3-Drive Buy pattern that was absolutely perfect for bullish scenario and that should upside reversal. Also minor butterfly has chances to fail, because we see solid downward acceleration and this is very bad sign for bullish scenario. Usually when such acceleration takes place - bullish reversal patterns as AB=CD, butterfly are doomed.
If you will take a look at hourly chart - you'll see W&R of 1060 level. Market makers have grabbed stops. That's why for us important to see close below this level but not penetration of it inside the session.
That's being said, situation is not very positive for bulls, and in the beginning of the week we will watch for final clarity for DRPO results. Also depending on how market will open in 2016 - we will think, may be even will try to take short position on minor retracement...
Conclusion:
We think that fundamentally gold stands somewhere near bottom. But this bottom could be "long", because the scale of this analysis is long-term. It means that market could drop lower, say to 1000 or even 900$, but pace of drop will be significantly slower.
In short-term perspective market has confirmed DRPO "Buy" pattern and even has started action with it.But recently gold shows warning signs that are not match to normal bullish behavior and put under question perspectives of any upside action. This interestingly coincides with our Forex view...
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.
