Sive Morten
Special Consultant to the FPA
- Messages
- 18,669
Fundamentals
Reuters) - Gold fell further from an earlier nine-week high but was still on track for its strongest week since August on Friday as stronger-than-expected U.S. payrolls data boosted the dollar and stock markets, shoring up a recovery in equities.
The Labor Department said U.S. job growth surged in December, and revised employment for the prior two months sharply higher, suggesting that a recent manufacturing-led slowdown in economic growth would be temporary.
That surprisingly strong payrolls report initially lifted stocks but they later lost ground. The dollar rose versus the euro.
Spot gold initially rose to the highest since early November in overnight trade at $1,112 an ounce. It was down 0.9 percent at $1,098.84 an ounce at 2:15 p.m. EST (1915 GMT), breaking a four-day winning streak. U.S. gold futures for February delivery settled down 0.9 percent at $1,097.90.
"(These are) very strong numbers, good for the U.S. dollar," said Georgette Boele, analyst at ABN Amro. "The U.S. dollar is the most important negative driver for gold prices, so this will add pressure."
A strong report could be seen as prompting the Federal Reserve to lift interest rates at a faster pace. Rising rates typically weigh on gold, as they lift the opportunity cost of holding non-yielding assets, while boosting the dollar.
"The week provided a good gold rally as stocks were slammed but today (a) 5 percent jobs report added some bears to gold as
(the) Fed seems on path with future rate hikes on this news," said George Gero, precious metals strategist for RBC Capital Markets in New York.
Jitters over the Chinese economy had spooked global stock markets earlier this week, sending investors sprinting to safe-haven assets, and pushing gold sharply higher.
"Although we expect further Fed tightening and dollar strength to prove headwinds for gold over the coming year, the price should be supported by safe-haven demand, a pickup in U.S. inflation and strong buying from emerging economies," said Capital Economics in a note.
Investment appetite for bullion showed signs of picking up this week. Holdings of the world's largest gold-backed exchange-traded fund, New York-listed SPDR Gold Shares , rose 4.2 tonnes on Thursday, data from the fund showed.
CFTC data shows mostly stagnation on speculative positions within last 2 months. Last week, net long position shows shy increase as well as open interest, but this change is too small to make any conclusions. It would be better to say that nothing has changed yet. This is also interesting, since we has significant upside action. So, something should change - either speculative position should rise or market should lost the pace and turn down...
Technicals
Monthly
So New Year has started with upside action. Reasons could be different - geopolitics, investors' assets distribution in the beginning of the year. Upside action currently is too small to change situation on monthly chart but we will monitor how situation will change.
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.
Not just Middle East stands in our focus. We see that fumes of this conflict spread over planet. Recall Paris terrorist attack, not it is a Cologne tragedy with mass raping action on New Year, Brexit procedure a lot of contradiction inside EU as political as economical - North Stream-2, mutual sanctions, Ukraine membership voting, Montenegro NATO membership and a lot of others. All these stuff is happening on a background of reducing population wealth and solvency. So, we see that entropy is growing.
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.
Our 1050 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.
So, on long-term charts it could happen, that we will not see clear tendency and gold could turn to some wide range action. Because right now it is too many sources that could initiate impact on gold market. They will push market in one and other sides. For example, Fed has raised rate and push gold down, after that Turkey has hit Russian warplane. Now it is, say, NFP positive numbers, and conflict escalation between Iran and S.Arabia. But in reality there are more sources that could impact gold right now. But geopolitical situation in the World has reached very high degree of uncertainty and we believe that sooner rather than later it will become a dominating factor for gold market.
Weekly
So, last week we've estimated that 1050 area is rather strong support - monthly 50% Fib level, YPS1, lower border of wedge pattern and inner large AB=CD target. The one of the patterns that we've discussed, should be bullish divergence and right now we have it confirmed. So, upside bounce has got confirmation and could continue further. Last time, when divergence has been formed - Gold has shown AB-CD upside action.
Still, right now possible target of upside retracement stands at 1150 area first, because there we have weekly overbought level and probably Fib level as well (we will check it on daily chart).
Any monthly pivots are useless right now, since gold already has broken all of them.
Second moment that we've discussed is untouched targets around 1000-1050$ area. They are AB-CD and butterfly extension. Currently it is too early to say that market totally left them, since upside action still looks like upside retracement. As volatility could rise significantly soon - market still has chances to drop.
Still, on coming week we mostly will deal with most recent upside action, probably.
Daily
On daily chart trend is bullish, but market still stands around daily Overbought and Fib resistance. Positive NFP data had shy impact on gold price. Initially it has pushed prices lower but as soon as it has shown no wage growth (i.e. absence of inflation) gold has returned right back up.
Still, even ignoring fundamental numbers and following just technical ones, retracement should be deeper probably. As we've said already, we have DiNapoli bearish "Stretch" pattern, and when some market hits overbought it has a tendency to show deeper retracement. Also we know the feature of gold market - re-testing of important levels and extreme points, we expect that market still re-test 1085 area.
At the same time we still stand on our opinion and do not call you to trade market right now on short side. Our major task here is to wait for 1085 and then assess attractiveness of long entry around it. Our DRPO "Buy" pattern has hit minimal target - 50% resistance of the whole thrust range.
So, on daily trading plan is the same - wait for retracement down, probably to 1085 level.
4-hour
Trend turned bearish here. Currently market behavior confirms possibility of compound 2-leg retracement down. Here we will not argue on what we have on a top - whether this is DRPO "Sell", B&B or could we get H&S. In fact - we do not care what it will be. We just care to see gold around 1085 area. This is what we really would like to see...
That's being said - AB-CD pattern that now is forming on top has target precisely at 1085 and our K-support area. On coming week we will see will it happen or not...
Conclusion:
We think that fundamentally gold stands somewhere near bottom. But this bottom could be "extended", 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, or will turn to some wide range fluctuations.
In short-term perspective market shows upside retracement and currently it nearest destination stands around 1150 resistance. That's why on coming week we mostly will be watching for 1085 area as potential comfortable level for long entry.
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 fell further from an earlier nine-week high but was still on track for its strongest week since August on Friday as stronger-than-expected U.S. payrolls data boosted the dollar and stock markets, shoring up a recovery in equities.
The Labor Department said U.S. job growth surged in December, and revised employment for the prior two months sharply higher, suggesting that a recent manufacturing-led slowdown in economic growth would be temporary.
That surprisingly strong payrolls report initially lifted stocks but they later lost ground. The dollar rose versus the euro.
Spot gold initially rose to the highest since early November in overnight trade at $1,112 an ounce. It was down 0.9 percent at $1,098.84 an ounce at 2:15 p.m. EST (1915 GMT), breaking a four-day winning streak. U.S. gold futures for February delivery settled down 0.9 percent at $1,097.90.
"(These are) very strong numbers, good for the U.S. dollar," said Georgette Boele, analyst at ABN Amro. "The U.S. dollar is the most important negative driver for gold prices, so this will add pressure."
A strong report could be seen as prompting the Federal Reserve to lift interest rates at a faster pace. Rising rates typically weigh on gold, as they lift the opportunity cost of holding non-yielding assets, while boosting the dollar.
"The week provided a good gold rally as stocks were slammed but today (a) 5 percent jobs report added some bears to gold as
(the) Fed seems on path with future rate hikes on this news," said George Gero, precious metals strategist for RBC Capital Markets in New York.
Jitters over the Chinese economy had spooked global stock markets earlier this week, sending investors sprinting to safe-haven assets, and pushing gold sharply higher.
"Although we expect further Fed tightening and dollar strength to prove headwinds for gold over the coming year, the price should be supported by safe-haven demand, a pickup in U.S. inflation and strong buying from emerging economies," said Capital Economics in a note.
Investment appetite for bullion showed signs of picking up this week. Holdings of the world's largest gold-backed exchange-traded fund, New York-listed SPDR Gold Shares , rose 4.2 tonnes on Thursday, data from the fund showed.
CFTC data shows mostly stagnation on speculative positions within last 2 months. Last week, net long position shows shy increase as well as open interest, but this change is too small to make any conclusions. It would be better to say that nothing has changed yet. This is also interesting, since we has significant upside action. So, something should change - either speculative position should rise or market should lost the pace and turn down...
Technicals
Monthly
So New Year has started with upside action. Reasons could be different - geopolitics, investors' assets distribution in the beginning of the year. Upside action currently is too small to change situation on monthly chart but we will monitor how situation will change.
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.
Not just Middle East stands in our focus. We see that fumes of this conflict spread over planet. Recall Paris terrorist attack, not it is a Cologne tragedy with mass raping action on New Year, Brexit procedure a lot of contradiction inside EU as political as economical - North Stream-2, mutual sanctions, Ukraine membership voting, Montenegro NATO membership and a lot of others. All these stuff is happening on a background of reducing population wealth and solvency. So, we see that entropy is growing.
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.
Our 1050 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.
So, on long-term charts it could happen, that we will not see clear tendency and gold could turn to some wide range action. Because right now it is too many sources that could initiate impact on gold market. They will push market in one and other sides. For example, Fed has raised rate and push gold down, after that Turkey has hit Russian warplane. Now it is, say, NFP positive numbers, and conflict escalation between Iran and S.Arabia. But in reality there are more sources that could impact gold right now. But geopolitical situation in the World has reached very high degree of uncertainty and we believe that sooner rather than later it will become a dominating factor for gold market.
Weekly
So, last week we've estimated that 1050 area is rather strong support - monthly 50% Fib level, YPS1, lower border of wedge pattern and inner large AB=CD target. The one of the patterns that we've discussed, should be bullish divergence and right now we have it confirmed. So, upside bounce has got confirmation and could continue further. Last time, when divergence has been formed - Gold has shown AB-CD upside action.
Still, right now possible target of upside retracement stands at 1150 area first, because there we have weekly overbought level and probably Fib level as well (we will check it on daily chart).
Any monthly pivots are useless right now, since gold already has broken all of them.
Second moment that we've discussed is untouched targets around 1000-1050$ area. They are AB-CD and butterfly extension. Currently it is too early to say that market totally left them, since upside action still looks like upside retracement. As volatility could rise significantly soon - market still has chances to drop.
Still, on coming week we mostly will deal with most recent upside action, probably.
Daily
On daily chart trend is bullish, but market still stands around daily Overbought and Fib resistance. Positive NFP data had shy impact on gold price. Initially it has pushed prices lower but as soon as it has shown no wage growth (i.e. absence of inflation) gold has returned right back up.
Still, even ignoring fundamental numbers and following just technical ones, retracement should be deeper probably. As we've said already, we have DiNapoli bearish "Stretch" pattern, and when some market hits overbought it has a tendency to show deeper retracement. Also we know the feature of gold market - re-testing of important levels and extreme points, we expect that market still re-test 1085 area.
At the same time we still stand on our opinion and do not call you to trade market right now on short side. Our major task here is to wait for 1085 and then assess attractiveness of long entry around it. Our DRPO "Buy" pattern has hit minimal target - 50% resistance of the whole thrust range.
So, on daily trading plan is the same - wait for retracement down, probably to 1085 level.
4-hour
Trend turned bearish here. Currently market behavior confirms possibility of compound 2-leg retracement down. Here we will not argue on what we have on a top - whether this is DRPO "Sell", B&B or could we get H&S. In fact - we do not care what it will be. We just care to see gold around 1085 area. This is what we really would like to see...
That's being said - AB-CD pattern that now is forming on top has target precisely at 1085 and our K-support area. On coming week we will see will it happen or not...
Conclusion:
We think that fundamentally gold stands somewhere near bottom. But this bottom could be "extended", 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, or will turn to some wide range fluctuations.
In short-term perspective market shows upside retracement and currently it nearest destination stands around 1150 resistance. That's why on coming week we mostly will be watching for 1085 area as potential comfortable level for long entry.
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.