Sive Morten
Special Consultant to the FPA
- Messages
- 18,655
Fundamentals
Although major topic right now for the gold market is geopolitical one, and recent rally mostly is driven due killing of the commander of Iran's elite Quds Force - gold starts to show upside action even before the Christmas. In our video update on 24th f December we've talked about it and pointed on special situation on XAU/EUR chart.
The same is on this week - despite strong factor on Friday, gold was showing upside action in the beginning of the week as well. This makes us think that market continues long-term bullish trend according to our context. Also we think that the real money flow could stand on the back of this action and they could come from stock market. While people are buying - big players start selling.
Gold prices are set for their strongest annual increase since 2010, as worries over global economic health triggered a surge of interest in precious metals, while palladium soared more than 50% to record highs thanks to supply shortages. Silver and platinum, which like gold are often seen as safe investments in uncertain times, also saw their largest annual gains in several years.
Many analysts say prices are likely to rise further in 2020, with shaky growth and global stock markets potentially looking unsustainable at record highs.
Central banks are also buying more gold and have flipped from tightening to loosening monetary policy, pushing interest rates and bond yields down and making non-yielding precious metals more attractive to investors.
“An environment of low rates, persistent macro uncertainty, and elevated equities makes a case for holding gold as a hedge. This view could likely drive demand for gold higher into 2020 and lend support to the current medium-term uptrend,” said Stephen Innes, a market strategist at AxiTrader.
While the United States and China cooled their trade war earlier this month, several issues remain unresolved and gold should perform well if dollar weakness plays out in 2020, he added.
Spot gold is up more than 18% in 2019, while holdings of gold in exchange traded funds (ETFs) also rose by around 14% this year.
Spot silver, rising in gold’s wake, is up about 15% in 2019 at $17.85 an ounce, its strongest performance since 2016. Platinum at $962.50 an ounce was 21.6% higher this year, its biggest rise since 2009.
But palladium continued to stand out, soaring more than $700 an ounce this year in its fourth consecutive annual gain. The metal is mainly used in car exhaust systems to neutralise emissions, and stricter environmental regulations are adding to demand. Since palladium is produced as a by-product of nickel and platinum mining, supply has been unable to keep up, with further shortfalls expected in the early 2020s.
“The market has been in a structural deficit for a few years now and that’s expected to persist,” said Ryan McKay, a commodity strategist at TD Securities. “We saw deficit this year, even though the auto market has been in terrible shape. On top of that we have increased environmental regulations globally. That contributes to increased PGM loadings in the auto-catalysts.”
Gold prices on Thursday began the year with a healthy start, boosted by doubts surrounding the strength of Wall Street's rally, while platinum added 3% on industrial
demand.
"Investors are coming back from the holidays and repositioning their portfolios," said Jeffrey Christian, managing partner of CPM Group, citing the rally in equities as
the main reason for diversification. "The fact that stock markets are at record highs is continuing to strengthen gold and silver. There is nervousness about why the stock markets are as high as they are, given the economical and political environment."
U.S. stocks kicked off the new year at record levels as fresh stimulus from Beijing to prop up its slowing economy lifted risk appetite. Gold prices were further boosted by uncertainties surrounding the U.S.-China trade negotiations. U.S. President Donald Trump said on Tuesday that a "phase-one" of the deal would be signed on Jan. 15, though considerable confusion remains about its details. The much-awaited trade deal between the world's two largest economies was expected to have been inked by the end of 2019. However, with merely the initial chunk of the deal placed on the table for talks, investors remain apprehensive.
"Technically, the gold bulls have the overall near-term technical advantage as an accelerating price uptrend is in place on the daily chart," Kitco Metals senior analyst Jim Wyckoff said in a note.
"Dollar weakness is the main reason, also the volumes are on the lower side so gold prices are supported," said Hareesh V, head of commodity research at Geojit Financial Services.
The dollar started the New Year under pressure as investors wagered U.S. economic outperformance could be coming to an end as optimism on trade brightens the outlook for growth globally.
"A key thing to lookout for is stock markets, which have been setting new highs and in case there is some correction, we can see some capital flows into gold," said Brian Lan, managing director at dealer GoldSilver Central in Singapore. Brexit, U.S. elections, Hong Kong protests and North Korea tensions will be the other key factors for the market this year, he said.
Investors also took stock of a private survey that showed China's factory activity expanded at a slower clip last month, but production continued to grow at a solid pace and business confidence shot up.
"(Gold) has continued to demonstrate bullish inclinations as prices breached $1,500 last week despite new highs in the U.S. stock market. Bullish technical posturing will likely support prices as trading activities remain soft for the near term," Benjamin Lu, analyst at Phillip Futures, said in a note.
Gold prices surged on Friday to a four-month peak, racing past the key $1,550 an ounce level after a U.S. air strike in Iraq killed the commander of Iran's elite
Quds Force, prompting a rush into safety assets.
The overnight attack was a dramatic escalation in a "shadow war" in the Middle East between Iran and the United States and its allies, principally Israel and Saudi Arabia. Iran threatened to retaliate after the air strike.
"With the U.S. air strikes overnight in Iraq from orders of President Trump and Iran's leader vowed revenge as a result, the equity markets are down and safe-havens are higher, causing a move higher in the precious metals," said David Meger, director of metals trading at High Ridge Futures. "The market has been trading well since we broke out above the $1,490 level, making new recent highs this morning up above $1,550."
U.S. 10-year yields fell sharply, while the Japanese yen hit a two-month high against the U.S. dollar. Gold, like other safe-haven assets, benefits during times of
political uncertainty. The metal was set for its best week since early-August, up more than 2.5%.
"We are seeing gold and silver continue to build on the gains we saw towards the end of December and there is no doubt that the latest developments with the attack in Iraq has taken us up to this level," Saxo Bank analyst Ole Hansen said.
U.S. manufacturing sector data, which contracted in December by the most in more than a decade, further supported gold.
CFTC data has not changed at all this week and it will be interesting to take a look at next report.
Technical
Monthly
Most time, week by week fluctuation has minor impact on monthly chart, and situation on long-term charts rare changes. But currently, on a gold market situation is opposite. Longer-term charts are more important.
Here, on monthly chart week by week we talk about our bullish view as we treat recent 4-5 months consolidation as temporal pause.
Last time we said that overall situation here lets us positively look in the future, watching for upside breakout of the bullish flag that we have. Technical situation is very interesting right now. As we've said last time - downside swings on lower time frames are not strong enough to break longer-term picture, which still stands bullish. This is also confirmed by CFTC data.
This week gold market breaks out of the flag. Reaction on monthly butterfly target was ultimately humble, which hints on strong background power. This is not about recent political event, because gold has turned to rally two weeks ago. Our nearest target is 1586 Fib resistance , while AB-CD extension points on XOP at 1655 area.
Weekly
Coming week probably will be most tricky on a gold market for a long time. It is time to recall our uncompleted XOP target here. When gold just has turned down, we thought that XOP will be hit and we will get DRPO "Sell" pattern, but gold market, ignoring it, has shown slow downside 3/8 retracement. Now it shows thrusting action coming back to the tops.
Second important moment is weekly overbought. We know that on commodities OB/OS levels are not as strong barriers as on financial markets, but still, it is important.
Combination of XOP and OB level easily could trigger downside drop once stops will be washed out above the top. I'm aware of wash & rinse guys. Besides, MACD probably will show the divergence there. W&R even more probable just because of the driving factor now - it is political one.
At the same time, W&R and pullback is good for us as well, since we're looking for long entry. And pullback could give us this chance. Still, if you keep long position already - be careful.
Daily
Unstoppable rally here gives us no chances to trade on daily chart. Only intraday tactic based on minor harmonic retracement that we've mentioned on Friday, could let to take part in recent rally. Here gold is overbought as well. Our nearest target stands around 1560 area, close to weekly XOP and also above the recent top.
It means that definitely gold should take recent top out. Here all eyes on recent thrust and any DiNapoli pattern that could be formed here - either B&B "Buy" on DRPO "Sell". Both of them lets us step in at acceptable price level and take part in rally. Right in the beginning of the week we probably will have nothing to do here...
Intraday
Here guys we do not have any patterns or something that could get more clarity on situation as gold rally is too strong and we see just vertical price shape. Once it starts response on daily/weekly resistance and targets - here should appear something.
Conclusion:
Thus, it seems that gold continues long-term upside trend and shows next stage of our long-term scenario. As we've said above, we suggest that it is solid driving factors stand on a background of this action and stock market is the first one which should feel the pressure of this rally. Despite of solid political factors that hit market few days ago - rally has started much earlier. This is the reason why we think that upside action should not end when this political factor will exhaust. Even despite political shakes - gold has enough factors of geopolitical instability.
Coming week will be tricky by many reasons. We should get economical data - inflation (PPI, CPI) as in EU as US, Retail Sales in US which are very important as they are predictor of GDP numbers and Q4 GDP in China. Second - some response from Iran probably should follow which is promised to be major event of coming week. Finally - overall technical picture also shows very tricky context on weekly chart.
Although major topic right now for the gold market is geopolitical one, and recent rally mostly is driven due killing of the commander of Iran's elite Quds Force - gold starts to show upside action even before the Christmas. In our video update on 24th f December we've talked about it and pointed on special situation on XAU/EUR chart.
The same is on this week - despite strong factor on Friday, gold was showing upside action in the beginning of the week as well. This makes us think that market continues long-term bullish trend according to our context. Also we think that the real money flow could stand on the back of this action and they could come from stock market. While people are buying - big players start selling.
Gold prices are set for their strongest annual increase since 2010, as worries over global economic health triggered a surge of interest in precious metals, while palladium soared more than 50% to record highs thanks to supply shortages. Silver and platinum, which like gold are often seen as safe investments in uncertain times, also saw their largest annual gains in several years.
Many analysts say prices are likely to rise further in 2020, with shaky growth and global stock markets potentially looking unsustainable at record highs.
Central banks are also buying more gold and have flipped from tightening to loosening monetary policy, pushing interest rates and bond yields down and making non-yielding precious metals more attractive to investors.
“An environment of low rates, persistent macro uncertainty, and elevated equities makes a case for holding gold as a hedge. This view could likely drive demand for gold higher into 2020 and lend support to the current medium-term uptrend,” said Stephen Innes, a market strategist at AxiTrader.
While the United States and China cooled their trade war earlier this month, several issues remain unresolved and gold should perform well if dollar weakness plays out in 2020, he added.
Spot gold is up more than 18% in 2019, while holdings of gold in exchange traded funds (ETFs) also rose by around 14% this year.
Spot silver, rising in gold’s wake, is up about 15% in 2019 at $17.85 an ounce, its strongest performance since 2016. Platinum at $962.50 an ounce was 21.6% higher this year, its biggest rise since 2009.
But palladium continued to stand out, soaring more than $700 an ounce this year in its fourth consecutive annual gain. The metal is mainly used in car exhaust systems to neutralise emissions, and stricter environmental regulations are adding to demand. Since palladium is produced as a by-product of nickel and platinum mining, supply has been unable to keep up, with further shortfalls expected in the early 2020s.
“The market has been in a structural deficit for a few years now and that’s expected to persist,” said Ryan McKay, a commodity strategist at TD Securities. “We saw deficit this year, even though the auto market has been in terrible shape. On top of that we have increased environmental regulations globally. That contributes to increased PGM loadings in the auto-catalysts.”
Gold prices on Thursday began the year with a healthy start, boosted by doubts surrounding the strength of Wall Street's rally, while platinum added 3% on industrial
demand.
"Investors are coming back from the holidays and repositioning their portfolios," said Jeffrey Christian, managing partner of CPM Group, citing the rally in equities as
the main reason for diversification. "The fact that stock markets are at record highs is continuing to strengthen gold and silver. There is nervousness about why the stock markets are as high as they are, given the economical and political environment."
U.S. stocks kicked off the new year at record levels as fresh stimulus from Beijing to prop up its slowing economy lifted risk appetite. Gold prices were further boosted by uncertainties surrounding the U.S.-China trade negotiations. U.S. President Donald Trump said on Tuesday that a "phase-one" of the deal would be signed on Jan. 15, though considerable confusion remains about its details. The much-awaited trade deal between the world's two largest economies was expected to have been inked by the end of 2019. However, with merely the initial chunk of the deal placed on the table for talks, investors remain apprehensive.
"Technically, the gold bulls have the overall near-term technical advantage as an accelerating price uptrend is in place on the daily chart," Kitco Metals senior analyst Jim Wyckoff said in a note.
"Dollar weakness is the main reason, also the volumes are on the lower side so gold prices are supported," said Hareesh V, head of commodity research at Geojit Financial Services.
The dollar started the New Year under pressure as investors wagered U.S. economic outperformance could be coming to an end as optimism on trade brightens the outlook for growth globally.
"A key thing to lookout for is stock markets, which have been setting new highs and in case there is some correction, we can see some capital flows into gold," said Brian Lan, managing director at dealer GoldSilver Central in Singapore. Brexit, U.S. elections, Hong Kong protests and North Korea tensions will be the other key factors for the market this year, he said.
Investors also took stock of a private survey that showed China's factory activity expanded at a slower clip last month, but production continued to grow at a solid pace and business confidence shot up.
"(Gold) has continued to demonstrate bullish inclinations as prices breached $1,500 last week despite new highs in the U.S. stock market. Bullish technical posturing will likely support prices as trading activities remain soft for the near term," Benjamin Lu, analyst at Phillip Futures, said in a note.
Gold prices surged on Friday to a four-month peak, racing past the key $1,550 an ounce level after a U.S. air strike in Iraq killed the commander of Iran's elite
Quds Force, prompting a rush into safety assets.
The overnight attack was a dramatic escalation in a "shadow war" in the Middle East between Iran and the United States and its allies, principally Israel and Saudi Arabia. Iran threatened to retaliate after the air strike.
"With the U.S. air strikes overnight in Iraq from orders of President Trump and Iran's leader vowed revenge as a result, the equity markets are down and safe-havens are higher, causing a move higher in the precious metals," said David Meger, director of metals trading at High Ridge Futures. "The market has been trading well since we broke out above the $1,490 level, making new recent highs this morning up above $1,550."
U.S. 10-year yields fell sharply, while the Japanese yen hit a two-month high against the U.S. dollar. Gold, like other safe-haven assets, benefits during times of
political uncertainty. The metal was set for its best week since early-August, up more than 2.5%.
"We are seeing gold and silver continue to build on the gains we saw towards the end of December and there is no doubt that the latest developments with the attack in Iraq has taken us up to this level," Saxo Bank analyst Ole Hansen said.
U.S. manufacturing sector data, which contracted in December by the most in more than a decade, further supported gold.
CFTC data has not changed at all this week and it will be interesting to take a look at next report.
Technical
Monthly
Most time, week by week fluctuation has minor impact on monthly chart, and situation on long-term charts rare changes. But currently, on a gold market situation is opposite. Longer-term charts are more important.
Here, on monthly chart week by week we talk about our bullish view as we treat recent 4-5 months consolidation as temporal pause.
Last time we said that overall situation here lets us positively look in the future, watching for upside breakout of the bullish flag that we have. Technical situation is very interesting right now. As we've said last time - downside swings on lower time frames are not strong enough to break longer-term picture, which still stands bullish. This is also confirmed by CFTC data.
This week gold market breaks out of the flag. Reaction on monthly butterfly target was ultimately humble, which hints on strong background power. This is not about recent political event, because gold has turned to rally two weeks ago. Our nearest target is 1586 Fib resistance , while AB-CD extension points on XOP at 1655 area.
Weekly
Coming week probably will be most tricky on a gold market for a long time. It is time to recall our uncompleted XOP target here. When gold just has turned down, we thought that XOP will be hit and we will get DRPO "Sell" pattern, but gold market, ignoring it, has shown slow downside 3/8 retracement. Now it shows thrusting action coming back to the tops.
Second important moment is weekly overbought. We know that on commodities OB/OS levels are not as strong barriers as on financial markets, but still, it is important.
Combination of XOP and OB level easily could trigger downside drop once stops will be washed out above the top. I'm aware of wash & rinse guys. Besides, MACD probably will show the divergence there. W&R even more probable just because of the driving factor now - it is political one.
At the same time, W&R and pullback is good for us as well, since we're looking for long entry. And pullback could give us this chance. Still, if you keep long position already - be careful.
Daily
Unstoppable rally here gives us no chances to trade on daily chart. Only intraday tactic based on minor harmonic retracement that we've mentioned on Friday, could let to take part in recent rally. Here gold is overbought as well. Our nearest target stands around 1560 area, close to weekly XOP and also above the recent top.
It means that definitely gold should take recent top out. Here all eyes on recent thrust and any DiNapoli pattern that could be formed here - either B&B "Buy" on DRPO "Sell". Both of them lets us step in at acceptable price level and take part in rally. Right in the beginning of the week we probably will have nothing to do here...
Intraday
Here guys we do not have any patterns or something that could get more clarity on situation as gold rally is too strong and we see just vertical price shape. Once it starts response on daily/weekly resistance and targets - here should appear something.
Conclusion:
Thus, it seems that gold continues long-term upside trend and shows next stage of our long-term scenario. As we've said above, we suggest that it is solid driving factors stand on a background of this action and stock market is the first one which should feel the pressure of this rally. Despite of solid political factors that hit market few days ago - rally has started much earlier. This is the reason why we think that upside action should not end when this political factor will exhaust. Even despite political shakes - gold has enough factors of geopolitical instability.
Coming week will be tricky by many reasons. We should get economical data - inflation (PPI, CPI) as in EU as US, Retail Sales in US which are very important as they are predictor of GDP numbers and Q4 GDP in China. Second - some response from Iran probably should follow which is promised to be major event of coming week. Finally - overall technical picture also shows very tricky context on weekly chart.
