Gold GOLD PRO WEEKLY, January 04 - 08, 2021

Sive Morten

Special Consultant to the FPA
Messages
14,236
Fundamentals

Gold market enters new year on a positive tone as short-term factors stand supportive. Recently we've taken in depth view on them, as they mostly stands the same as for FX market - vaccination results, stimulus, Inflation and US economy performance in IV Q 2020 and IQ of 2021. All of them stand supportive to gold by far. Additionally we still keep on the table political risks that yet should be resolved somehow on 6th of January when we should get official results of US elections from Congress. But situation around it stands tough. According to the law Congress has to confirm/approve (or do not conf/apprv.) election's result. This time the hot debates are expected as D. Trump team has promised to provide stunning facts of "fraud of all times" to Congress. If Congress splits in decision - they will have 14 hours to come to agreement on elections' results.

U.S. Senator Ted Cruz on Saturday said he will spearhead a drive by nearly a dozen Republican senators to challenge President-elect Joe Biden’s victory when Electoral College results are tallied in Congress on Jan. 6 – a largely symbolic move that has virtually no chance of preventing Biden from taking office.

In a statement, Cruz, the U.S. senator from Texas, and the other 10 senators said they intend to vote to reject electors from states that have been at the center of President Donald Trump’s unproven assertions of election fraud. They said Congress should immediately appoint a commission to conduct an emergency 10-day audit of election results in those states.

“Once completed, individual states would evaluate the commission’s findings and could convene a special legislative session to certify a change in their vote, if needed,” they said.

The push for an audit is a political stunt that will not affect the outcome of the election, said Derek Muller, a law professor at the University of Iowa. Muller said that, while the 1887 law governing how lawmakers validate the election is murky, most scholars believe that Congress lacks the legal authority to require the audit.

Even if lawmakers had that power, a majority of both chambers would need to support the audit, and there is virtually no chance of the proposal having that level of support, he said.

So, we see what will happen. Yes, chances are mostly theoretical, but some risk exists still. In a case of unprecedented decision - initially it probably provokes huge demand for the USD as safe haven but later gold could benefit from political turmoil if it will not be resolved fast.

After a spectacular year, precious metals are set for further gains in 2021, with silver tipped to outperform, but analysts are growing more cautious about the prospects for gold as the global economy recovers from the impact of the coronavirus. The pandemic triggered stockpiling by investors looking to protect their wealth. This, alongside supply deficits, pushed gold and palladium prices up by more than 20% this year, while silver rose 47%, and platinum 10%.

“We are going to see new record highs for gold and palladium (in 2021),” said Philip Newman at consultants Metals Focus. But silver will see the chunkiest gains,” he said.

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Traditionally seen as a safe place to store money, gold began to rise as economic growth slowed in 2019, but the pandemic accelerated the rally and in August prices hit a record high of $2,072.50.

While demand for physical gold was hammered as the virus forced shutdowns, investment demand surged as reflected in the holdings of the world’s largest gold-backed exchange-traded fund, SPDR Gold Trust, which recorded its biggest yearly gain since 2009 at about 30%.

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Prices then dipped to around $1,900 as investors stopped buying and vaccines were deployed against the virus, encouraging investment in assets that perform well during periods of economic growth.

Huge government debt, negative real returns on bonds and threats of inflation and market turbulence, all of which support gold, will persist in 2021, said Ross Norman, an independent analyst. Gold could rise another 20% next year, he said.

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A safe-haven asset like gold, but also an industrial metal used in products including solar panels, silver climbed from $18 an ounce in January to almost $30 in August before slipping to around $25. Analysts say its dual role and its greater volatility mean it could fare better than gold as economic growth picks up, and as U.S. President-elect Joe Biden’s push into clean energy prompts more usage.

A daily close for the gold/silver ratio below 69.50 would be a bullish technical development for both metals, implying further meaningful gains lie ahead, OANDA's Halley said.

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Capping bullion's gains was a marathon COVID-19 vaccination campaign across the euro zone, cheering up prospects of global growth in 2021. Broader markets will run with the economic recovery story next year but expansionary fiscal and loose monetary policy will keep gold prices pinned near current levels, said Hitesh Jain,
lead analyst at Mumbai-based Yes Securities. The metal should trade in a range between $1,850-$2,000 in the next three to six months, he said.

"Gold could reclaim the $2,000 handle in 2021, depending on the U.S. inflation outlook. Further rounds of fiscal stimulus under the (Joe) Biden administration should translate into more upside," said FXTM market analyst Han Tan.

“With reduced market participants activity on the last day of the year, I expect gold to move in a narrow range. Some modest support is coming from a slightly weaker U.S. dollar and modestly lower U.S. real rates,” said UBS analyst Giovanni Staunovo. “We look for a move towards $1,950 in the first quarter of 2021, with the expansionary monetary and fiscal policy pushing inflation expectations up and with U.S. real rates falling further.”

The U.S. Federal Reserve will remain extraordinarily accommodative through 2022 and an increasingly progressive Democratic Party is looking to borrow and spend aggressively, said Tai Wong, head of base and precious metals derivatives trading at BMO. Based on that, the U.S. dollar has been slumping badly and can’t manage any rally, which is bullish gold,” he said. “However, if the vaccine really is effective and we have the pandemic beat by summer, that may limit gold gains.”

We forecast further silver outperformance in 2021 on the basis of additional tailwinds from the green transformation driving increased industrial demand, together with the expected economic recovery benefiting silver more than gold,” said Saxo Bank analyst Ole Hansen.



Investors now await Jan. 5 Georgia runoff elections that would determine which political party will control the U.S. Senate with expectations for more stimulus under a
Democrat-controlled Senate and House. Meanwhile, coronavirus cases continued to soar globally, with the first case of a new infectious virus variant being detected in the United States.

The distribution of an initial 200 million doses of the COVID-19 vaccine developed by Pfizer and BioNTech across the European Union will be completed by September.


COT Report

Hedge funds and money managers raised bullish positions in COMEX gold and silver contracts in the week to Dec. 21, the U.S. Commodity Futures Trading Commission (CFTC) said on Monday. Holdings in SPDR's Gold Trust, the world's largest gold-backed exchange-traded fund, rose 0.2% to 1,169.86 tonnes
on Monday from 1,167.53 tonnes on Thursday.

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Source: cftc.gov
Charting by Investing.com


That's being said, guys, short-term situation stands positive for the gold. As US economy data is expected to be depressed in IVQ and IQ of 2021 with low NFP data on coming week but also with GDP numbers below expectations. As lockdowns holds across the country and vaccination effect is yet to be assessed somewhere in the future, not early than summer, hardly we will get meaningful improvement in economy condition. This in turn means, that inflation remains under pressure at least for few month. At the same time, demand for stimulus holds and with new J. Biden administration and J. Yellen as a Secretary of Treasury the amount of stimulus should rise.
Additionally we see three problems for fast vaccination effect - not sufficient capacity for production of necessary amount of doses, lower efficiency ratio comparing to laboratory tests and lower population agreement on inoculation. All these factors together delays vaccination performance and postpones it to the end of 2021.
All these moments makes us think that if even situation starts to change and inflation starts to rise - this could happen in a 2nd half of 2021. While in the 1st half fundamental background stands moderately positive to the gold.

The major risks that gold could meet are political, if still D. Trump's efforts become successful this week and inflationary pressure. Markets can't swallow huge money emission for too long and sooner rather than later inflation shows its claws. And the major intrigue here stands around the timing. As Central Banks have no choice but have to send stimulus to the markets - whether vaccine will be effective enough to improve situation and reduce stimulus amount (which, in turn, should make pressure on inflation) before inflation starts rising meaningfully. If not - rising inflation and real interest rates becomes headwind for the gold market. But again, this is "if-then" situation that is not clear yet, and it becomes important question only in a 2nd half of the year.


Technicals
Monthly


The most intriguing thing on technical side is monthly grabber of course. And now we've got the answer - grabber has been formed. In general, its appearing is logical on current fundamental background. If gold follows with the grabber - it should move at least above 1965 local top here, but also it could aim on major top and exceed COP level. Here we also plot new pivot levels for 2021 year.
Thus, with the monthly grabber on the back, we consider overall context as bullish, at least until price stands above 1775 lows. Any downside action we should treat as retracement, estimate levels where is comfortable to take long position:
gold_m_04_01_21.png


Weekly

Pre-holidays week has become an inside one and makes no significant impact on weekly picture by far. Price still stands around the top of harmonic swing and inside doji candle. Trend stands bearish by MACD.

At the same time here is huge hidden bullish MACD divergence is growing. Besides, with the monthly grabber we should ignore downside AB-CD OP target, as it stands below the grabber. As price has not turned down immediately by completion of harmonic swing, it keeps chances to double it and reach at least 1975 target:

gold_w_04_01_21.png


Daily

Trend stands bullish here. Despite that price still stands inside the "high wave" candle, it is slowly but stubbornly creeping higher. One of the possible scenarios that we could get with the monthly grabber is extended reverse H&S here, on daily chart. It is unclear yet how market response to current wide resistance area and 1960 level, but we need to keep this scenario in mind, as it doesn't contradict to the monthly pattern.
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Intraday

Here we keep going with our AB-CD pattern. Last time we've said that pennant shape doesn't correspond to idea of bearish reversal and this was the reason why we're aimed now on upside continuation to OP target around 1930. As price was out of the pennant right on Thursday, we could get butterfly pattern that completes OP target. With all these stuff that we have, I wouldn't be surprised if we get gap up open tomorrow.
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On the 1H chart market creeps to our XOP target around 1908 keeping valid ugly butterfly shape. So, for new long position it would be better to wait meaningful pullback to Fib support level once XOP around 1908-1915 area will be reached.

gold_1h_04_01_21.png
 

Sive Morten

Special Consultant to the FPA
Messages
14,236
Good morning,

Gold actively starts the new year, jumping above important resistance area. This type of action agrees as with the monthly grabber that we have as with possible H&S pattern that we've discussed. Now we're watching for ~1965 resistance where neckline of our pattern stands:

gold_d_05_01_21.png


Invalidation point for short-term scenario stands around 1900 area that splits two trading zones. To keep bullish context pure price has to stay above this area. Despite that price is completed few local targets, currently we do not expect to see deep pullback and mostly watch for 1920 and 1930 Fib levels
gold_4h_05_01_21.png


Because price already has broken major resistance and aimed on next one. On 4H chart we have acceleration to OP target that doesn't correspond to idea of sharp reversal and significant drop:
gold_1h_05_01_21.png
 

Sive Morten

Special Consultant to the FPA
Messages
14,236
Greetings everybody,

So, Gold has reached major 1956 Fib level recently and now stands at important area to us - potential neckline of our reverse H&S pattern. In general 1956-1965 is technically significant not only because of Fib level, but also due "Pfizer Sell-off" top.

The only thing that is worthy to mention today is US political risks. Currently chances stand small but if D. Trump indeed takes some trick out of his sleeve - Gold could show direct upside breakout of this area. Using Stop "Buy" order here is not safe as overbought level is close, but we should take in consideration this scenario as well.

Still our basic scenario suggests the pullback from current level back to 1880 support where the bottom of right shoulder should stand and which should become excellent area for position taking:
gold_d_06_01_21.png


On 4H chart we do not see any reaction on our OP and butterfly targets, mentioned yesterday. But price action is slowing down. As the best area for pullback we consider the same 1880 K-area + range around 1900 level, that splits trading space in two parts. To keep pure bullish context it is preferable if gold stays above these levels:
gold_4h_06_01_21.png


On 1H chart we have additional minor Fib levels as well, but they area mostly for those who trade on 1H and lower time frames. Personally I do not consider short entry on gold due bullish context but if you do - wait at least until price forms clear bearish patterns here. Currently we do not have anything yet. And again guys - be aware any political news from the US today:

gold_1h_06_01_21.png
 

Sive Morten

Special Consultant to the FPA
Messages
14,236
Greetings everybody,

So, whether due US events or not, but Gold accurately follows to our plan with reverse H&S pattern on daily chart. Our perfect scenario suggests long entry around 1875 area. Bounce from neckline has started:
gold_d_07_01_21.png


On 4H chart we have K-support around 1870-1880 area which is very good area for the potential right arm's bottom:
gold_4h_07_01_21.png


Although scenario of direct upside continuation exists as well, we're mostly focused on downside extension in a shape of AB=CD pattern. Here I draw two possible ways how this could happen. As gold likes to show deep retracements - it could be extended upside AB-CD action first, before reversal. Anyway, both scenarios give us acceptable OP's around 4H K-area and doesn't impact on final result:
gold_1h_07_01_21.png
 

Sive Morten

Special Consultant to the FPA
Messages
14,236
Greetings everybody,

So as you could see, gold accurately follows to our scenario by far, keep dropping lower to predefined level around 1870. Now price is flirting with MACDP and with NFP on horizon today, we could get bullish grabber as well, which could become additional plus to us.
gold_d_08_01_21.png


On 4H chart price hits our major K-support, but we're watching for a bit lower level, mostly around its lower border of 1871 because of hourly chart:
gold_4h_08_01_21.png


On 1H chart we've considered two ways of downside action, but as you can see market has chosen the first one with direct drop. Thus, we're following the same AB-CD with OP around 1869. Once it will be hit, we consider long entry. We do not need to hurry up as daily pattern is extended and we could take position within few sessions. For example, today we could nothing, just look how price will close and make decision on entry on next week:
gold_1h_08_01_21.png
 
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