Sive Morten
Special Consultant to the FPA
- Messages
- 18,763
Fundamentals
This year could become decisive one for gold market. Global turmoil and uncertainty as political as economical provides friendly background for the gold. My stubborn opinion is gold should rise strongly in perspective of 1-2 years. As a rule the strongest action on the market happens due most simple driving factors. And potential factors that we have are simple - global lack of stability and mass demand of central bank on physical gold. Of course, not demand per se will trigger rally, but the reason why central banks massively start to buy gold. It means that they prepare to something.
Still some risk factors exist and most important is undervaluation of Fed policy that probably will be more hawkish than market expects. But, let's go step by step.
Reuters reports that gold fell on Friday, pulling back from a more than six-month peak hit earlier in the session, as robust U.S. jobs data eased some concerns about an ailing economy. The metal was however on track for a third straight weekly gain, up about 0.2 percent so far, mainly helped by recent strong gains. It touched its highest level since mid-June at $1,298.42 earlier in the day.
U.S. gold futures settled down 0.7 percent at $1,285.80 per ounce, having briefly surpassed the psychological $1,300 per ounce level earlier in the session.
“Industrial commodities and currencies have rebounded therefore the precious metals which have been the safe haven such as gold, silver have retraced today,” said David Meger, director of metals trading at High Ridge Futures. “That is exacerbated by a stronger-than-expected payrolls data.”
Data showed U.S. employers hired the most workers in 10 months in December, suggesting a sustained strength in the economy that could soothe concerns of sharp slowdown in growth.
“Today’s U.S. jobs report throws more uncertainty into the direction of Federal Reserve monetary policy, which had already been seen as murky,” Jim Wyckoff, senior analyst at Kitco Metals, wrote in a note.
Fed Chairman Jerome Powell on Friday moved to mollify financial markets concerned about a U.S. economic slowdown, saying that while momentum is solid, the central bank will be sensitive to the downside risks the market is pricing in.
Powell’s remarks sent investors into riskier assets like stocks, which rallied amid hopes of upcoming trade talks between United States and China, further pressuring bullion.
“Mr. Powell said he is open to a potential view change but so long as the data stays strong in the U.S. we will continue to project hikes in the interest rates in the U.S. by the central bank,” said Bart Melek, head of commodity strategies at TD Securities.
We do not have fresh COT reports due shutdown:
December 22, 2018: During the shutdown of the federal government, the Commitments of Traders report will not be published. When the federal government operations return to normal, CFTC will resume publication of the Commitments of Traders report.
But, we could take a look at recent SPDR fund statistics. It shows healthy performance showing increasing demand on physical gold. Thus, we could suggest that bullish sentiment is still here.
In general, overall background is friendly for gold market - weakness in USD due recent Powell's comments, government shutdown, political turmoil across the world increase demand for safe haven assets, including gold. This situation probably should last for few weeks more.
Still, as we said above, some risk factors exist as well. For its discussion we take a look at new Fathom consulting forecast on 2019.
First is stock market. Although it was widely anticipated that stock market is turning down, Fathom doesn't expect big retracement in 2019. It means that stock market will stay afloat:
"With developed economy equities around 40% overvalued in our judgement, is the bubble about to burst? Probably not. We expect US growth to remain comfortably above trend through 2019. And in that environment, we do not expect to see a meaningful correction, even though volatility is likely to remain elevated — that is more an issue for 2020."
As stock market is big source of liquidity for the gold, when it drops and turns to long-term bear trend - investors turn to savings and big investments flow to gold market. Following Fathom's conclusion, this source will be limited, at least in 2019.
Second is about Fed rate:
"We expect two or three further hikes during 2019 — which is strongly out-of-consensus again, with markets judging a cut to be more likely than a hike, according to Bloomberg.
We expected that the US would be alone among developed economies in hiking rates materially, so that both policy rates and long bond yields would decouple between the US and the rest of the developed world. This has also transpired. We expect further decoupling during 2019."
Gold is very sensitive to interest rates. Although two more hikes are not crucial, especially if they will stand far from each other, but this factor is a headwind for gold and could make short-term bearish effect on it.
Following expectations are mostly supportive to gold market:
"We called for a global recession in 2020, at a time (2018 Q2) when that was a strongly out-of-consensus call. The consensus has since moved towards the Fathom view. We thought we would be alone in calling for a global recession in 2020 but in fact the consensus has moved into line with our view (about six months later). Because of that, the risk of recession has now fallen – if everyone can see it coming, it is less likely to come."
"We called for core inflation to rise in the US, in both wages and prices. We expect further increases through 2019."
"We expected the renminbi to depreciate against the dollar in response to the threat of tariffs, to reach almost 7 by year-end. We expect further reminbi depreciation, though at a slower rate, through 2019."
" We remain bearish about the prospects for growth both in China and in the UK, but with less conviction than a year ago."
That's shortly Fathom consulting view on 2019. Very wide combination of driving factors, but we need to focus on three major ones - Fed policy, Inflation and stock market. They are not mutually independent and they probably will set a direction on gold market.
Technical
Monthly
Gold shows good performance in December, which could lay the foundation of new long-term upside trend.
We still keep our harmonic technical model on monthly chart as primary tool of analysis. All other fundamental elements stands the same.
Recent 4 months gold shows tight trading range. Now gold stands in the center of impact of different short-term and long-term factors. Long-term factors mostly are political and suggest changing of global political situation, breaking of Pax Americana global model. Avoiding too much talking on this subject we would say that so strong global shifts never could happen without big political events. This should provide big support to gold market. Now it is widely suggested that these processes should accelerate closer to 2020 year. For example, here is report by Fathom Consulting and their expectations to see world crisis around 2020.
In shorter-term perspective situation is unstable and subject to change. Just few weeks ago everybody thought that it is one more year of active Fed policy, so rate could be 3+% by the end of Fed cycle. Now situation has changed. Some factors appears, some changes and some are gone to passed. All these stuff put the shadow on gold price behavior. Inflation expectations have dropped significantly as in US as in EU now. If Fed will hold rate hike and stock market will keep head above the water - gold market remains under pressure. No interest rate cut and stock market collapse should provide support to gold.
As a result, targets on gold market vary. We keep our specific picture, sometimes it is useful to search for harmony on the market. And we could find it, if we look carefully. In fact, recent action on gold market reminds reverse H&S shape but very choppy and extended it time. Important COP target has been hit and upside action has started. In fact we have mirror action to the right and to the left from COP point. Market forms approximately equal lows on both sides. The speed is also similar. Is it possible that reversal is forming? Why not. Now take a look we have trend line that was broken down here. If market will return back above it - this will be important bullish sign. Conversely, a kind of goodbye kiss will tell that price will drop further. Downside targets also different - from nearest weekly 1113 OP till 890$ of extended butterfly that we've mentioned last week.
Now market has reached this trend line and flirts with it. Within few weeks we probably should get more clarity, depending on whether gold will be able to hold above the trend line or not.
Weekly
As we've said last week and in our daily updates - market shows a lot of bullish signs. For instance, here, on weekly, we have upside acceleration of CD leg and moving above as OP target as major 5/8 Fib resistance. In fact, market almost has tested 1300 area.
Acceleration right to OP target is not typical for reversal and for retracement action. Despite that we have here clear AB-CD action and "222" it is not good moment for taking short position. Chances on re-establishing downside action to 1113 target stands low right now.
Still, despite that overall performance impressive, gold is coiling around solid resistance area - weekly Agreement, MPR1 and near weekly OB. Anyway for new long position we need a retracement, and it seems that it has good chances to happen within 1-2 weeks
Daily
Trend is bullish on daily. First level that we have to consider as potential retracement target is 1260. Here is just 3/8 Fib support, but in reality this is K-support as well - just add more Fib levels from minor reaction points. Second - 1260 is daily Oversold and MPP.
1235-1245 K-support area is also good enough, but it stands below daily OS level and hardly will be reached on next week.
Intraday
Here is not much to consider by far. This is not H&S shape of course, but, we have engulfing pattern on daily, and here, on 1H market has formed bearish reversal swing. Thus, "222" Sell could be formed. Depending where 'C" point will be, we could watch for AB-CD action down. XOP stands around 1255 which is very close to 1259 daily K-support area.
We do not call to trade bearish setup here, as our major aim is to find good moment and take part in upside continuation. But this is not forbidden of course.
Conclusion:
1286 will be vital for long-term perspective of the market as well. Taking in consideration external driving factors, chances on upside breakout stands good.
On coming week we're mostly focused on market respect of strong resistance area.
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.
This year could become decisive one for gold market. Global turmoil and uncertainty as political as economical provides friendly background for the gold. My stubborn opinion is gold should rise strongly in perspective of 1-2 years. As a rule the strongest action on the market happens due most simple driving factors. And potential factors that we have are simple - global lack of stability and mass demand of central bank on physical gold. Of course, not demand per se will trigger rally, but the reason why central banks massively start to buy gold. It means that they prepare to something.
Still some risk factors exist and most important is undervaluation of Fed policy that probably will be more hawkish than market expects. But, let's go step by step.
Reuters reports that gold fell on Friday, pulling back from a more than six-month peak hit earlier in the session, as robust U.S. jobs data eased some concerns about an ailing economy. The metal was however on track for a third straight weekly gain, up about 0.2 percent so far, mainly helped by recent strong gains. It touched its highest level since mid-June at $1,298.42 earlier in the day.
U.S. gold futures settled down 0.7 percent at $1,285.80 per ounce, having briefly surpassed the psychological $1,300 per ounce level earlier in the session.
“Industrial commodities and currencies have rebounded therefore the precious metals which have been the safe haven such as gold, silver have retraced today,” said David Meger, director of metals trading at High Ridge Futures. “That is exacerbated by a stronger-than-expected payrolls data.”
Data showed U.S. employers hired the most workers in 10 months in December, suggesting a sustained strength in the economy that could soothe concerns of sharp slowdown in growth.
“Today’s U.S. jobs report throws more uncertainty into the direction of Federal Reserve monetary policy, which had already been seen as murky,” Jim Wyckoff, senior analyst at Kitco Metals, wrote in a note.
Fed Chairman Jerome Powell on Friday moved to mollify financial markets concerned about a U.S. economic slowdown, saying that while momentum is solid, the central bank will be sensitive to the downside risks the market is pricing in.
Powell’s remarks sent investors into riskier assets like stocks, which rallied amid hopes of upcoming trade talks between United States and China, further pressuring bullion.
“Mr. Powell said he is open to a potential view change but so long as the data stays strong in the U.S. we will continue to project hikes in the interest rates in the U.S. by the central bank,” said Bart Melek, head of commodity strategies at TD Securities.
We do not have fresh COT reports due shutdown:
December 22, 2018: During the shutdown of the federal government, the Commitments of Traders report will not be published. When the federal government operations return to normal, CFTC will resume publication of the Commitments of Traders report.
But, we could take a look at recent SPDR fund statistics. It shows healthy performance showing increasing demand on physical gold. Thus, we could suggest that bullish sentiment is still here.
In general, overall background is friendly for gold market - weakness in USD due recent Powell's comments, government shutdown, political turmoil across the world increase demand for safe haven assets, including gold. This situation probably should last for few weeks more.
Still, as we said above, some risk factors exist as well. For its discussion we take a look at new Fathom consulting forecast on 2019.
First is stock market. Although it was widely anticipated that stock market is turning down, Fathom doesn't expect big retracement in 2019. It means that stock market will stay afloat:
"With developed economy equities around 40% overvalued in our judgement, is the bubble about to burst? Probably not. We expect US growth to remain comfortably above trend through 2019. And in that environment, we do not expect to see a meaningful correction, even though volatility is likely to remain elevated — that is more an issue for 2020."
As stock market is big source of liquidity for the gold, when it drops and turns to long-term bear trend - investors turn to savings and big investments flow to gold market. Following Fathom's conclusion, this source will be limited, at least in 2019.
Second is about Fed rate:
"We expect two or three further hikes during 2019 — which is strongly out-of-consensus again, with markets judging a cut to be more likely than a hike, according to Bloomberg.
We expected that the US would be alone among developed economies in hiking rates materially, so that both policy rates and long bond yields would decouple between the US and the rest of the developed world. This has also transpired. We expect further decoupling during 2019."
Gold is very sensitive to interest rates. Although two more hikes are not crucial, especially if they will stand far from each other, but this factor is a headwind for gold and could make short-term bearish effect on it.
Following expectations are mostly supportive to gold market:
"We called for a global recession in 2020, at a time (2018 Q2) when that was a strongly out-of-consensus call. The consensus has since moved towards the Fathom view. We thought we would be alone in calling for a global recession in 2020 but in fact the consensus has moved into line with our view (about six months later). Because of that, the risk of recession has now fallen – if everyone can see it coming, it is less likely to come."
"We called for core inflation to rise in the US, in both wages and prices. We expect further increases through 2019."
"We expected the renminbi to depreciate against the dollar in response to the threat of tariffs, to reach almost 7 by year-end. We expect further reminbi depreciation, though at a slower rate, through 2019."
" We remain bearish about the prospects for growth both in China and in the UK, but with less conviction than a year ago."
That's shortly Fathom consulting view on 2019. Very wide combination of driving factors, but we need to focus on three major ones - Fed policy, Inflation and stock market. They are not mutually independent and they probably will set a direction on gold market.
Technical
Monthly
Gold shows good performance in December, which could lay the foundation of new long-term upside trend.
We still keep our harmonic technical model on monthly chart as primary tool of analysis. All other fundamental elements stands the same.
Recent 4 months gold shows tight trading range. Now gold stands in the center of impact of different short-term and long-term factors. Long-term factors mostly are political and suggest changing of global political situation, breaking of Pax Americana global model. Avoiding too much talking on this subject we would say that so strong global shifts never could happen without big political events. This should provide big support to gold market. Now it is widely suggested that these processes should accelerate closer to 2020 year. For example, here is report by Fathom Consulting and their expectations to see world crisis around 2020.
In shorter-term perspective situation is unstable and subject to change. Just few weeks ago everybody thought that it is one more year of active Fed policy, so rate could be 3+% by the end of Fed cycle. Now situation has changed. Some factors appears, some changes and some are gone to passed. All these stuff put the shadow on gold price behavior. Inflation expectations have dropped significantly as in US as in EU now. If Fed will hold rate hike and stock market will keep head above the water - gold market remains under pressure. No interest rate cut and stock market collapse should provide support to gold.
As a result, targets on gold market vary. We keep our specific picture, sometimes it is useful to search for harmony on the market. And we could find it, if we look carefully. In fact, recent action on gold market reminds reverse H&S shape but very choppy and extended it time. Important COP target has been hit and upside action has started. In fact we have mirror action to the right and to the left from COP point. Market forms approximately equal lows on both sides. The speed is also similar. Is it possible that reversal is forming? Why not. Now take a look we have trend line that was broken down here. If market will return back above it - this will be important bullish sign. Conversely, a kind of goodbye kiss will tell that price will drop further. Downside targets also different - from nearest weekly 1113 OP till 890$ of extended butterfly that we've mentioned last week.
Now market has reached this trend line and flirts with it. Within few weeks we probably should get more clarity, depending on whether gold will be able to hold above the trend line or not.
Weekly
As we've said last week and in our daily updates - market shows a lot of bullish signs. For instance, here, on weekly, we have upside acceleration of CD leg and moving above as OP target as major 5/8 Fib resistance. In fact, market almost has tested 1300 area.
Acceleration right to OP target is not typical for reversal and for retracement action. Despite that we have here clear AB-CD action and "222" it is not good moment for taking short position. Chances on re-establishing downside action to 1113 target stands low right now.
Still, despite that overall performance impressive, gold is coiling around solid resistance area - weekly Agreement, MPR1 and near weekly OB. Anyway for new long position we need a retracement, and it seems that it has good chances to happen within 1-2 weeks
Daily
Trend is bullish on daily. First level that we have to consider as potential retracement target is 1260. Here is just 3/8 Fib support, but in reality this is K-support as well - just add more Fib levels from minor reaction points. Second - 1260 is daily Oversold and MPP.
1235-1245 K-support area is also good enough, but it stands below daily OS level and hardly will be reached on next week.
Intraday
Here is not much to consider by far. This is not H&S shape of course, but, we have engulfing pattern on daily, and here, on 1H market has formed bearish reversal swing. Thus, "222" Sell could be formed. Depending where 'C" point will be, we could watch for AB-CD action down. XOP stands around 1255 which is very close to 1259 daily K-support area.
We do not call to trade bearish setup here, as our major aim is to find good moment and take part in upside continuation. But this is not forbidden of course.
Conclusion:
1286 will be vital for long-term perspective of the market as well. Taking in consideration external driving factors, chances on upside breakout stands good.
On coming week we're mostly focused on market respect of strong resistance area.
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.
