Gold GOLD PRO WEEKLY, January 11-15, 2021

Sive Morten

Special Consultant to the FPA
Messages
14,876
Fundamentals

So the first week of the year has become tough for the gold market, because the interest rates become a major driver. Yesterday, in our FX research we've considered major fundamental factors that stand in action right now. As interest rates are coming on the first stage again, it could impact on Gold market even stronger as gold is very sensitive to inflation.

Gold has started well on Monday, and investors were mostly watching for Senate elections, expecting wider stimulus pack. In general, results of this elections stands in favor of more stimulus.
As it was said - if President-elect Joe Biden's Democrats gain control of both houses of the U.S. Congress, his administration would find it easier to push policies such as rewriting the tax code to boosting stimulus and infrastructure spending.

Additionally, it is tougher lockdown restrictions are expected in Britain and Japan, as COVID-19 cases mount. The coronavirus variant in South Africa is likely to have an impact on precious metals prices, said StoneX analyst Rhona O'Connell. "The ban on flights out of South Africa is going to hit precious metals exports - certainly gold, platinum and palladium ... which are transported by air, and the majority of that is on passenger flights," she said.

The major tragedy of this week has happened on Wednesday, when gold has collapsed after elections and strong rise in interest rates.

"Higher (bond) yields have boosted the dollar and triggered a selloff in gold that accelerated with stops under $1,935-40," said Tai Wong, head of base and precious metals derivatives trading at BMO. $1,900 is an important pivot that needs to hold to maintain the short term bullish narrative." But BMO's Wong said this was a buying opportunity. "A Democratic Congress with Biden in the White House is a license to spend, and that's not a lower gold environment."

The 10-year U.S. Treasury yield rose above 1% for the first time since March, increasing the opportunity cost of holding non-interest bearing gold. The dollar index firmed after a dive to 2-1/2-year lows, making gold less attractive for those holding other currencies.

With investors expecting more fiscal stimulus as the Democrats lead in runoff votes that will determine control of the U.S. Senate, gold remains underpinned as an inflationary hedge.

David Meger, director of metals trading at High Ridge Futures, said the pullback was a short-term move as a potential "Blue Wave" in the U.S. Senate would be dollar negative and "supportive to gold and silver from a longer term perspective".

U.S. inflation expectations rose in anticipation of more stimulus after Democrats gained control of the Senate with victories in Georgia's two runoff elections.

Jeffrey Halley, a senior market analyst at OANDA, said, "U.S. yields would have to move quite a bit higher to derail the dollar bear market." The dollar is going to depreciate all through 2021, U.S. yields may move slightly higher from here, but they're not going to run away to the top, in that environment gold should
flourish."


Minutes from the Federal Reserve's December meeting showed policymakers were nearly unanimous in their decision to leave its bond-buying programme unchanged. A recent rise in U.S. bond yields and market inflation expectations has bolstered Federal Reserve officials' hopes that the central bank's new monetary policy approach is taking hold and could be further buoyed if Congress rolls out more spending.

"I see this as a consolidation after a very strong start to the year. The market has caught a bit of a cold because of the (bond yields) rally and they are rallying for the reasons that we're actually seeing gold continue to be supported, so it's a bit of a catch 22 right now," said Saxo Bank analyst Ole Hansen. "The U.S. economy is nowhere near any level where we can start to talk about a full recovery and that will require additional stimulus or spending which will potentially drive yields higher, but it will also drive inflation expectations higher."

A Democrat victory in the U.S. Senate runoffs fueled inflation expectations as investors hoped for more fiscal stimulus, while the U.S. Congress certified President-elect Joe Biden's win.

Gold fell below the key $1,900 technical level on Friday and slumped more than 4% (silver followed with a near 10% plunge) as prospects for a smooth transition of power in Washington and a jump in U.S. Treasury yields hammered the precious complex.

“We can only see the dollar gaining from here followed by the yields, which are rising because markets are anticipating interest rates to go up on economic recovery prospects,” said Kunal Shah, head of research at Nirmal Bang Commodities in Mumbai.

Gold is having a major fundamental shift for many investors and they’re starting to abandon their safe haven trade,” said Edward Moya, senior market analyst at OANDA. “You’re probably going to see that the Treasury market sees some strong flows and that’s taking away some of the appeal from gold.”

“We’re going to see a lot more of stimulus and that ultimately moved interest rates higher,” said Bart Melek, head of commodity strategies at TD Securities.


Some analysts also said a few investors could have also diverted funds to Bitcoin, which has extended a meteoric rally.

In general, guys, I could put here additional information on vaccination, perspective of more stimulus from new Biden administration and other stuff, that we've discussed yesterday. I just do not want to double it again here. The major thing is clear without additional information and a lot of pictures - invisibly, markets meet decisive turn that has come from interest rates market and it was mostly unexpectedly as market was not preparing to this action, it was not pricing in gradually possible jump of interest rates, although they are rising since summer. And this rally could compare to Bitcoin - it is 200%+ growth since August and 25% rally in last week:
1610183624477-png.61011


Probably rates has reached some "pain" barrier where other markets, especially gold just can't ignore its rally. They start to press on gold market. Although this is the situation's turn that we are waited for, but initially we thought that this should happen later, in the 2nd half of 2021. But it seems, there are big expectations on stimulus from new administration and it makes interest rates jump. Indeed, higher rates increases interest to US assets that generate higher return, this in turn, triggers demand for US currency to buy these assets. And this makes negative impact on gold market. Second moment - a lot of stimulus leads to massive spending as from population as from corporations which, in turn, warms up economic activity and leads to the out from the crisis. This atmosphere is negative to the precious metals, with less degree to Palladium, maybe.
As a result, now we can't rely on stimulus background any more, as it doesn't mean that necessary gold appreciation. How said that stimulus will flow to the gold market? Risks are moving down, vaccination is started, spending are rising, inflation is growing - all these stuff suggests bullish cycle in economy that makes gold less attractive. The nature of the stimulus are changing right now. Take a look - stimulus with negative virus background and economy depression is quite different thing compares to the same stimulus but when situation is improving.
Still, it doesn't mean that everything is lost and we have to sell the gold immediately. This is long-term trends, guys. Gold has strong momentum, as well as Interest rates have downside momentum. Both need time to break it. So, we should be consistent. If we have trading scenario, we intend to follow it until it is valid.



Technicals
Monthly


So, on monthly chart we have central pattern - bullish grabber that suggests upward continuation above the top. Invalidation point we know with certainty - this is 1770 lows. Although 1900 has been mentioned above and is important, but only for short-term setup. Here, we should pay attention to 1807 area as well. This is yearly pivot point and major 5/8 Fib support area. Supposedly bullish market should not break it down. Since recent fundamental data has hurt gold market strongly, now our task is to watch how market will response to major support areas. Monthly setup needs proper entry point that we do not have yet.

gold_m_11_01_21.png


Weekly

Here, on weekly chart we have another serious reason to concern on bullish scenario destiny. This week has brought bearish reversal candle and grabber at once. Grabber in particular suggests drop below recent lows and stays in direct confrontation with monthly one. Also grabber stands in a row with AB-CD pattern as OP target has not been reached when gold has turned up. Obviously one of the patterns has to fail.

gold_w_11_01_21.png


Daily

Here we have specific situation, guys, when we are totally right, but anyway this is not the suitable moment for position taking. Indeed, price has pulled back from 1860 predefined level, indeed it has dropped right to 1850 area as we would like to. But - the way how it has happened, makes us stay aside from position taking by far. It was too fast miserable plunge. Only getting some bullish reversal patterns around support area we could try to buy gold. We should do it carefully and move stops to breakeven as soon as possible, because weekly pattern could take the lead at any time.
At first glance, level is interesting as we stand at major support and oversold. But still, without the pattern it is risky. Next week we sit on the hands and see what happens around 1807-1837 area. Preferably if we would get bullish patterns there. Otherwise no long entry is possible

gold_d_11_01_21.png


Intraday

On intraday chart price has hit our XOP target of the same AB-CD. Now price stands at daily oversold and Agreement support. Nothing has been formed yet here:

gold_1h_11_01_21.png
 

Sive Morten

Special Consultant to the FPA
Messages
14,876
Greetings everybody,

So, in our weekly report we've estimated that situation stands tricky, as we have two contradictive long-term patterns and it is unclear in what direction market follows in the short-term. As NFP sell-off on daily chart was too strong, we have to get as much bullish confirmation as we can for long entry. Because our reverse H&S is still valid, despite the strong drop recently.

Now we have few interesting patterns around. First is, on daily chart we have DiNapoli bullish "Stretch" pattern, as combination of Fib support and daily oversold level - very similar to EUR...
gold_d_12_01_21.png


4H chart shows that this level is Agreement support as well because of our XOP. Overall noisy action around this area yesterday shows DRPO "Buy" pattern. Although both patterns are not the guarantee that gold goes to the new top, but they could trigger meaningful upside retracement, somewhere to 1900 area:
gold_4h_12_01_21.png


Hourly chart shows that the bottom takes the shape of minor H&S pattern and nearest target is 1870 Agreement resistance. If you have missed entry with H&S, you could keep an eye on pullback out from 1870. It might be significant as it keeps features of B&B "Sell" pattern. So, it is likely that we should get another chance to buy. Thus, lets take a look how gold plays this scenario:

gold_1h_12_01_21.png
 

Sive Morten

Special Consultant to the FPA
Messages
14,876
Greetings everybody,

So, there was a bit of volatility on intraday chart but price finished session where it has started it. Today our task a bit easier and below we explain why.

It is not needed to repeat about importance of current level for bullish context. In fact, 1807-1840 area is final bullish outpost and gold has to stay above it to keep chances on upward continuation. Otherwise, daily context could chance drastically. Now we're mostly watching for price action around it and follow very short-term patterns that we've got. For example, yesterday it was daily bullish "Stretch" as on the EUR:
gold_d_13_01_21.png


On 4H chart our a bit ugly DRPO "Buy" pattern is valid as well. The minor sell-off was done accurately and price returns back:
gold_4h_13_01_21.png


Now about why situation is more simple today. Because major pullback is done yesterday, price re-tested former trend line and now no other reasons exist for pullback except reversal. Besides price action of two sessions takes the shape of bullish engulfing pattern, and deep drop back to the trendline or lower will erase the pattern. Thus, we could accept only minor pullback and price has to stay inside the upside swing and above its lows to keep bullish context:
gold_1h_13_01_21.png
 

Sive Morten

Special Consultant to the FPA
Messages
14,876
Greetings everybody,

So, on gold market situation is very similar to EUR as it has not enough power to keep the shape of perfect bullish performance. Pullback recently was too deep, and brings more bearish signs, increasing chances of downside continuation.

On daily chart we still keep on the table the idea of H&S pattern just because market has not erased it totally and price still tries to hold above crucial support area. But intraday charts shows that overall price action doesn't look absolutely bullish anymore:
gold_d_14_01_21.png


For instance, on 4H chart price is taking the shape of the flag, and it has bearish features, because this is continuation pattern and it is formed after collapse:
gold_4h_14_01_21.png


We could get some upside action inside the flag, such as "222" Buy and potential upside AB=CD, but they do not change the core. To return bullish context market has to break the flag up, showing acceleration. Without this, potential upside AB-CD gives us only bearish "222" Sell soon:
gold_1h_14_01_21.png


So, currently I'm not inspiring to take new long position on the gold market. It would be better to wait 1-2 sessions and see what will happen
 

Sive Morten

Special Consultant to the FPA
Messages
14,876
Greetings everybody,

Very similar situation to EUR as Gold stands above crucial support and let's bulls to keep theoretical chances to rebound. Still, price action stands in tight range with no signs of power. This makes us think that context could change:
gold_d_15_01_21.png


Despite our "222' Buy hits minimum target and we could go up more with AB-CD pattern - all this action stands inside the flag and doesn't make impact on context. While price stands inside - bearish chances are greater. Besides, with return back to 1870 we get "222" Sell pattern as well:
gold_4h_15_01_21.png


Additionally we could get even weaker scenario if gold turns to butterfly type of action, when price drops below YPP and hits major lows:
gold_1h_15_01_21.png


So, currently we do not see enough reasons to buy and it would be better to wait a bit longer.
 
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