Sive Morten
Special Consultant to the FPA
- Messages
- 18,819
Fundamentals
As we've mentioned in CAD report yesterday, last week has not provided us something really new. Mostly everything was turning around the same stories - shutdown, Fed policy, China negotiations etc. Investors had a field week with these topics.
It means that nothing has changed for gold market, which is still look positive.As Reuters reports - gold edged higher on Friday and was on track for its fourth successive weekly gain, as U.S. stocks slipped and expectations rose that the U.S. Federal Reserve might halt its monetary policy tightening cycle.
“With equities down slightly heading into the weekend, there is some flight to safety in gold,” said Bob Haberkorn, senior market strategist at RJO Futures.
An index of world stock markets eased on Friday after a five-day winning streak.
“The equities are looking a little heavy up at these levels and yesterday’s speech by Fed Chairman Powell felt like Fed might adopt a dovish stance on rates moving forward, which is lending a lot of support to gold,” Haberkorn added.
Fed Chairman Jerome Powell said on Thursday the U.S. central bank could be patient on rate policy.
Data on Friday showed U.S. consumer prices fell for the first time in nine months in December, which likely supports recent remarks by several policymakers, including Powell, for caution about raising interest rates this year.
Gold tends to gain on expectations of lower interest rates, as they reduce the opportunity cost of holding non-yielding bullion.
“Recent inflation data from around the globe points to a tamer outlook on rising prices in the coming months,” Jim Wyckoff, senior analyst at Kitco Metals, wrote in a note.
“That should allow world central banks to be less hawkish on their monetary policies, which would be a bullish element for the precious metals markets.”
Gold is up about 0.3 percent for the week, mainly supported by a weaker dollar, which slipped to about three-month lows on Thursday against the backdrop of dovish views from the Fed and a de-escalation in the U.S.-China trade dispute.
U.S. officials expect China’s top trade negotiator to visit Washington this month after this week’s talks with mid-level officials in Beijing.
“The $1,300 resistance level for gold is looking very vulnerable. Risk aversion has been supportive, but as we’re seeing now, its primary driver is the dollar,” said OANDA senior market analyst Craig Erlam.
Since CFTC currently doesn't update its report due shutdown we take a look at SPDR Fund reserves. They stand mostly the same as last week.
World Gold Council released report concerning their expectations on coming 2019 year. Although we have to take in consideration some bias, as they are "Gold Council", but their point on driving factors looks reasonable. Here is some extractions from it.
"As we look ahead, we expect that the interplay between market risk and economic growth in 2019 will drive gold demand. And we explore three key trends that we expect will influence its price performance:
• financial market instability
• monetary policy and the US dollar
• structural economic reforms.
Against this backdrop, we believe that gold has an increasingly relevant role to play in investors' portfolios.
We expect:
• increased market uncertainty and the expansion of protectionist economic policies will make gold
increasingly attractive as a hedge;
• while gold may face headwinds from higher interest rates and US dollar strength, these effects are expected to be limited as the Fed has signalled a more neutral stance;
• structural economic reforms in key markets will continue to support demand for gold in jewellery, technology and as means of savings.
We believe that in 2019 global investors will continue to favour gold as an effective diversifier and hedge against systemic risk. And we see higher levels of risk and uncertainty on multiple global metrics:
• expensive valuations and higher market volatility
• political and economic instability in Europe
• potential higher inflation from protectionist policies
• increased likelihood of a global recession.
Despite the recent market correction, many stock valuations remain elevated, especially in the US, after
almost a decade of almost uninterrupted price appreciation. Yet bond yields remain stubbornly low.
European growth has recovered from the aftermath of the sovereign debt crisis it has failed to reach
the level of the US economy, making it more vulnerable to shocks – and explaining why Europeans have been adding gold to their portfolios steadily since early 2016.
More and more governments around the world seem to be embracing protectionist policies as a counter
movement after decades of globalization. And while many of these policies can have a temporary positive effect, there are longer term consequences that investors will likely grapple with in the coming years; for example, higher inflation.
Combined, these trends have increased the risk of recession. For example, in the US there are a few signs that investors are becoming wary. A good percentage of the growth seen in 2018 was a byproduct of tax cuts. But similar measures may be more difficult to enact with a split congress. There has also been a deterioration of credit markets with spreads widening by more than 70bps (+50%) since the January 2018 lows, while credit conditions for consumers are tightening.
And here is the conclusion that they make:
Gold’s performance in the near term is heavily influenced by perceptions of risk, the direction of the dollar, and the impact of structural economic reforms. As it stands, we believe that these factors likely will continue to make gold attractive. In the longer term, gold will be supported by the development of the middle class in emerging markets, its role as an asset of last resort, and the ever-expanding use of gold in technological applications. In addition, central banks continue to buy gold to diversify their foreign reserves and counterbalance fiat currency risk, particularly as emerging market central banks tend to have high allocations of US treasuries. Central bank demand for gold in 2018 alone was the highest since 2015, as a wider set of countries added gold to their foreign reserves for diversification and safety. More generally, there are four attributes that make gold a valuable strategic asset by providing investors with:
• a source of return
• low correlation to major asset classes in both expansionary and recessionary periods
• a mainstream asset that is as liquid as other financial securities
• a history of improved portfolio risk-adjusted returns.
Although this is not new for us, as we mention this every time in our weekly reports -
gold speculative positioning in futures markets remains low by historical standards after hitting record lows in the final months of 2018. CME managed money net long positions were at their lowest since 2006 – when data was first broken down by investor type. And net combined speculative positions, which go back further, were negative for the first time since December 2001. Historically, large net short positions have created buying opportunities for strategic investors, as such positions are prone to shortcovering, adding momentum to rallies in the gold price
Technical
Monthly
Last week market mostly has spent in tight range around major resistance. This is the reason why our long-term thoughts still stand intact.
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
Last week was inside one and makes no impact on weekly chart. Standing in tight range confirms the strength of resistance and the fact that market carries its impact.
As we've said previously 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 still has good chances to happen within 1-2 weeks
Daily
So, guys, here is what we have on daily - downside harmonic swing is completed. It is equal to the one that has happened in December. With any downside breakout - this swing will be doubled and lead price to 1260 support area. This could happen, especially if we take in consideration weekly chart and existence of strong resistance area.
At the same time, we have two grabbers here, that are still valid and pennant shape of consolidation. We've talked about it in Friday daily update. These scenarios are contradictory, that's why we have two major ways to act. First way suggests two attempts of entry - first one assumes enter on grabbers background and second around 1260 (or lower) if deeper retracement will happen. Second way, is conservative, as usual. It assumes just awaiting of deeper retracement.
Intraday
4H chart tells that upside continuation, based on grabbers, has not zero chances. Market stands in triangle and accompanied by MACD bullish divergence. Potentially we could at least upside butterfly, if even no real upside continuation will happen. As we've mentioned last week - this could be action to 1305-1310 area.
This scenario will be valid until 1276 lows remains intact. Breaking them down means downside continuation at least to 1260 area:
Dealing with the first scenario, I mean taking position inside the pennant and against 1276 lows makes us care about entry point. It should be as close to invalidation point as possible. And it seems that '222" Buy pattern could help us. This is very good setup for those who thinks about long entry inside the pennant.
Conclusion:
Long term sentiment still looks good for gold market. At the same time, while gold stands at strong weekly resistance, pause in uptrend could last a bit longer. So, next week we probably still will deal with retracement.
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.
As we've mentioned in CAD report yesterday, last week has not provided us something really new. Mostly everything was turning around the same stories - shutdown, Fed policy, China negotiations etc. Investors had a field week with these topics.
It means that nothing has changed for gold market, which is still look positive.As Reuters reports - gold edged higher on Friday and was on track for its fourth successive weekly gain, as U.S. stocks slipped and expectations rose that the U.S. Federal Reserve might halt its monetary policy tightening cycle.
“With equities down slightly heading into the weekend, there is some flight to safety in gold,” said Bob Haberkorn, senior market strategist at RJO Futures.
An index of world stock markets eased on Friday after a five-day winning streak.
“The equities are looking a little heavy up at these levels and yesterday’s speech by Fed Chairman Powell felt like Fed might adopt a dovish stance on rates moving forward, which is lending a lot of support to gold,” Haberkorn added.
Fed Chairman Jerome Powell said on Thursday the U.S. central bank could be patient on rate policy.
Data on Friday showed U.S. consumer prices fell for the first time in nine months in December, which likely supports recent remarks by several policymakers, including Powell, for caution about raising interest rates this year.
Gold tends to gain on expectations of lower interest rates, as they reduce the opportunity cost of holding non-yielding bullion.
“Recent inflation data from around the globe points to a tamer outlook on rising prices in the coming months,” Jim Wyckoff, senior analyst at Kitco Metals, wrote in a note.
“That should allow world central banks to be less hawkish on their monetary policies, which would be a bullish element for the precious metals markets.”
Gold is up about 0.3 percent for the week, mainly supported by a weaker dollar, which slipped to about three-month lows on Thursday against the backdrop of dovish views from the Fed and a de-escalation in the U.S.-China trade dispute.
U.S. officials expect China’s top trade negotiator to visit Washington this month after this week’s talks with mid-level officials in Beijing.
“The $1,300 resistance level for gold is looking very vulnerable. Risk aversion has been supportive, but as we’re seeing now, its primary driver is the dollar,” said OANDA senior market analyst Craig Erlam.
Since CFTC currently doesn't update its report due shutdown we take a look at SPDR Fund reserves. They stand mostly the same as last week.
World Gold Council released report concerning their expectations on coming 2019 year. Although we have to take in consideration some bias, as they are "Gold Council", but their point on driving factors looks reasonable. Here is some extractions from it.
"As we look ahead, we expect that the interplay between market risk and economic growth in 2019 will drive gold demand. And we explore three key trends that we expect will influence its price performance:
• financial market instability
• monetary policy and the US dollar
• structural economic reforms.
Against this backdrop, we believe that gold has an increasingly relevant role to play in investors' portfolios.
We expect:
• increased market uncertainty and the expansion of protectionist economic policies will make gold
increasingly attractive as a hedge;
• while gold may face headwinds from higher interest rates and US dollar strength, these effects are expected to be limited as the Fed has signalled a more neutral stance;
• structural economic reforms in key markets will continue to support demand for gold in jewellery, technology and as means of savings.
We believe that in 2019 global investors will continue to favour gold as an effective diversifier and hedge against systemic risk. And we see higher levels of risk and uncertainty on multiple global metrics:
• expensive valuations and higher market volatility
• political and economic instability in Europe
• potential higher inflation from protectionist policies
• increased likelihood of a global recession.
Despite the recent market correction, many stock valuations remain elevated, especially in the US, after
almost a decade of almost uninterrupted price appreciation. Yet bond yields remain stubbornly low.
European growth has recovered from the aftermath of the sovereign debt crisis it has failed to reach
the level of the US economy, making it more vulnerable to shocks – and explaining why Europeans have been adding gold to their portfolios steadily since early 2016.
More and more governments around the world seem to be embracing protectionist policies as a counter
movement after decades of globalization. And while many of these policies can have a temporary positive effect, there are longer term consequences that investors will likely grapple with in the coming years; for example, higher inflation.
Combined, these trends have increased the risk of recession. For example, in the US there are a few signs that investors are becoming wary. A good percentage of the growth seen in 2018 was a byproduct of tax cuts. But similar measures may be more difficult to enact with a split congress. There has also been a deterioration of credit markets with spreads widening by more than 70bps (+50%) since the January 2018 lows, while credit conditions for consumers are tightening.
And here is the conclusion that they make:
Gold’s performance in the near term is heavily influenced by perceptions of risk, the direction of the dollar, and the impact of structural economic reforms. As it stands, we believe that these factors likely will continue to make gold attractive. In the longer term, gold will be supported by the development of the middle class in emerging markets, its role as an asset of last resort, and the ever-expanding use of gold in technological applications. In addition, central banks continue to buy gold to diversify their foreign reserves and counterbalance fiat currency risk, particularly as emerging market central banks tend to have high allocations of US treasuries. Central bank demand for gold in 2018 alone was the highest since 2015, as a wider set of countries added gold to their foreign reserves for diversification and safety. More generally, there are four attributes that make gold a valuable strategic asset by providing investors with:
• a source of return
• low correlation to major asset classes in both expansionary and recessionary periods
• a mainstream asset that is as liquid as other financial securities
• a history of improved portfolio risk-adjusted returns.
Although this is not new for us, as we mention this every time in our weekly reports -
gold speculative positioning in futures markets remains low by historical standards after hitting record lows in the final months of 2018. CME managed money net long positions were at their lowest since 2006 – when data was first broken down by investor type. And net combined speculative positions, which go back further, were negative for the first time since December 2001. Historically, large net short positions have created buying opportunities for strategic investors, as such positions are prone to shortcovering, adding momentum to rallies in the gold price
Technical
Monthly
Last week market mostly has spent in tight range around major resistance. This is the reason why our long-term thoughts still stand intact.
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
Last week was inside one and makes no impact on weekly chart. Standing in tight range confirms the strength of resistance and the fact that market carries its impact.
As we've said previously 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 still has good chances to happen within 1-2 weeks
Daily
So, guys, here is what we have on daily - downside harmonic swing is completed. It is equal to the one that has happened in December. With any downside breakout - this swing will be doubled and lead price to 1260 support area. This could happen, especially if we take in consideration weekly chart and existence of strong resistance area.
At the same time, we have two grabbers here, that are still valid and pennant shape of consolidation. We've talked about it in Friday daily update. These scenarios are contradictory, that's why we have two major ways to act. First way suggests two attempts of entry - first one assumes enter on grabbers background and second around 1260 (or lower) if deeper retracement will happen. Second way, is conservative, as usual. It assumes just awaiting of deeper retracement.
Intraday
4H chart tells that upside continuation, based on grabbers, has not zero chances. Market stands in triangle and accompanied by MACD bullish divergence. Potentially we could at least upside butterfly, if even no real upside continuation will happen. As we've mentioned last week - this could be action to 1305-1310 area.
This scenario will be valid until 1276 lows remains intact. Breaking them down means downside continuation at least to 1260 area:
Dealing with the first scenario, I mean taking position inside the pennant and against 1276 lows makes us care about entry point. It should be as close to invalidation point as possible. And it seems that '222" Buy pattern could help us. This is very good setup for those who thinks about long entry inside the pennant.
Conclusion:
Long term sentiment still looks good for gold market. At the same time, while gold stands at strong weekly resistance, pause in uptrend could last a bit longer. So, next week we probably still will deal with retracement.
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.