Gold GOLD PRO WEEKLY, January 20 - 24, 2020

Sive Morten

Special Consultant to the FPA
Messages
12,970
Fundamentals

As on the FX market, here on gold, we also have got relatively quiet week as everything was standing around US-China deal and statistics. But today I've got interesting article by Reuters, which has relation to longer-term perspective not only of gold market but on EUR/USD as well. Last year we've said that do not exclude scenario when D. Trump will turn its tariff machine against EU. Till last moment that was just a suggestion, but now situation starts to change. These potential tariffs could play key role in EUR dynamic this year...

Gold prices fell on Monday as risk-on sentiment, bolstered by the upcoming signing of a preliminary U.S.-China deal and signs of de-escalation in the Middle East,
dampened demand for safe-haven bullion.

"You remove the risk of geo-political tensions rising and you don't quite need gold to beef up your portfolio," said Bart Melek, head of commodity strategies at TD Securities.

Stock markets around the world lingered just below record levels, buoyed by the expected signing of the Phase 1 U.S.-China trade deal. The trade agreement, due to be signed at the White House on Wednesday, marks the first step towards ending an 18-month-long trade dispute between the world's two largest economies. The U.S. dollar also rose against a basket of rivals, making bullion more expensive for holders of other currencies.

Signalling a further ramp down of trade tensions, a Wall Street Journal report said on Saturday that Washington and Beijing had agreed to semi-annual talks aimed at pushing reforms and resolving disputes. Gold, considered a safe investment during political and economic turmoil, rose to a near seven-year peak of $1,610.90
last week after a U.S. drone strike killed a top Iranian commander in Baghdad and Iran launched missiles against U.S. bases in Iraq in retaliation. The rally, however, faded with a lack of further military escalation in the region. Markets will still keep an eye on tensions with Iran over the accidental shooting of a passenger plane, and the finer points of the implementation of the U.S.-China deal, analysts said.

Reflecting investor sentiment, holdings of the world's largest gold-backed exchange-traded fund, SPDR Gold Trust, fell 0.9% to 874.52 tonnes on Friday, their lowest since Sept. 16.

"Gold will remain vulnerable to spikes but could trend lower in the interim, with a break of $1,540 potentially triggering a move back towards $1,520," OANDA analyst Craig Erlam said in a note.

Still, gold edged up a bit on Wednesday, after a top U.S. official said tariffs on China would stay until a Phase 2 deal is completed, ahead of the signing of an interim trade deal between the two countries. U.S. Treasury Secretary Steven Mnuchin said on Tuesday the United States would keep in place tariffs on Chinese goods until
the completion of a Phase 2 trade deal. Mnuchin also said, the first phase of a trade agreement will be fully enforceable, including a pledge by China to refrain from manipulating its currency. China has pledged to buy almost $80 billion of additional manufactured goods from the United States over the next two years as part of a tariff war truce, according to a source, though some U.S. trade experts call it an unrealistic target.

U.S. consumer prices rose slightly in December even as households paid more for healthcare, and monthly underlying inflation slowed. The Federal Reserve Bank of New York said on Tuesday it will continue to inject liquidity into the overnight lending markets for cash until at least mid-February while slightly reducing offerings on longer term loans.

Gold slipped on Thursday as the safe-haven metal was hurt by upbeat U.S. economic data that signalled a healthy economy and as stock markets climbed on optimism over the signing of the U.S.-China Phase 1 trade deal.

“Gold is softer right now on stronger equities, and as the geopolitical front is also getting a little quiet when it comes to China and Iran issues,” said Bob Haberkorn, senior market strategist at RJO Futures.

World stocks scaled new records, while the dollar index erased earlier losses after multiple data releases painted a positive U.S. economic picture. U.S. retail sales rose for a third straight month in December and a U.S. Mid-Atlantic manufacturing activity gauge revived to its highest in eight months. U.S. holiday sales rose 4.1% in 2019 from a year earlier, as steady wage and job growth encouraged shoppers to splurge on groceries, beverages and furniture, the National Retail Federation said.

The much-awaited Phase 1 trade deal was signed by U.S. President Donald Trump and Chinese Vice Premier Liu He on Wednesday, defusing an 18-month-long row that roiled global markets. Analysts noted the deal fails to address structural economic issues, does not fully eliminate the tariffs, and sets hard-to-achieve purchase targets, leaving a number of sore spots unresolved.

“You would expect gold to trade a little bit lower after the economic data from China. (But) what is pushing gold prices higher is the sense of caution as to what to expect after the Phase 1 trade deal,” said FXTM analyst Lukman Otunuga. “I think the sense of uncertainty and caution is encouraging investors to take positions in gold.”

World shares hit record highs after data showed China’s economy was stabilizing and the world’s second-largest economy ended 2019 on a somewhat firmer note as the trade truce revived business confidence.

“The growth prospects and inflation outlook are still fragile which supports gold prices but this is just a movement of consolidation at the moment,” said SP Angel analyst Sergey. “We saw (a) couple of central banks cutting rates yesterday,” Raevskiy said, adding that euro zone economic growth was still a big question among investors.

A Reuters poll showed that while the outlook for growth and inflation remained lukewarm in the euro zone, the chances of a recession have faded somewhat.

CFTC data

As we said above - SPDR fund shows solid drop in reserves which means that investors sell physical gold now. CFTC data shows that net position still stands near all-time highs, but has dropped a bit. The tricky moment here is ultimate high net long position on gold. By itself it works like bearish factor, because it increases chances on retracement/reversal as no more buyers stand on the other side to support upward action. Everybody who could - holds longs already. This is potential situation for weaker gold in nearest time. Overall fundamental background also supports this view in short-term:
1579428117575.png
'
Source: cftc.gov
Charting by Investing.com


Now we're coming to most interesting subject - possible events in nearest future.

Now that U.S. President Donald Trump has dealt with China on trade for now, it is probably a matter of time before his wrath falls on Europe. On Tuesday, he gets a platform to express his views, speaking at the Davos World Economic Forum.

While signing the Phase 1 deal with China, Trump already griped at having to “pay for our money” in a swipe at the euro zone’s negative borrowing costs. He also blames the “too high” dollar for the huge U.S. current account deficit. A currency war risk therefore may not be too remote, especially in an election year. And remember, the Treasury already lists Switzerland, Germany, Italy and Ireland as suspected currency “manipulators” - all have trade surpluses with the United States.

Trump will not be short of sparring opportunities at Davos - some 53 heads of state are to show up in the Alpine resort,(tmsnrt.rs/2HgY4lx) including Germany's Angela Merkel. There will be 35 finance and 30 trade ministers. And given the green focus of this year's summit, 17-year-old climate activist Greta Thunberg will attend. It is unclear if her paths will cross those of Trump who is well known for his scepticism over climate change and has advised Thunberg via Twitter to "chill, Greta, chill".

1579428270998.png



Also guys, coming week will be under sign of "Central Banks" across the Globe. While they do not have direct impact on gold market, but stock market definitely should show the reaction, depending on stimulus programmes that will be announced.

Geopolitics overshadowed monetary policy for the first time in many months in early January. But such distractions tend to be short-lived nowadays, with investors getting back to central bank-watching swiftly.

Rate-setters in many countries are about to hold their first policy meetings of 2020 - in Japan on Monday and Tuesday, Canada on Wednesday, Norway and the euro zone on Thursday. On Friday, China sets loan prime rates. In emerging markets, Indonesia and Malaysia bear watching on Wednesday - will they follow Turkey and South Africa by easing policy?

Japan, Canada, Norway and the European Central Bank (ECB) are not expected to make any changes, while it is unlikely China will act again so soon after its early-January reserve ratio cut for banks. The ECB, however, will launch its first strategy review since 2003 to rethink an inflation goal that has not been met for seven years.

Asset manager Pictet reckons at current prices, global stock markets have already priced over $2 trillion in central bank stimulus this year. But it predicts authorities will provide less than that, disappointing investors. So what policymakers say or signal at the meetings could well set the tone for equity markets, which have resumed scaling record highs.

1579428713500.png



Technical
Monthly


As price action on gold market was humble this week, it barely impacts monthly picture. Middle East political events help gold to hit extended weekly and monthly targets. Particular speaking, here, price is testing major monthly 5/8 Fib resistance level. And gold missed XOP just for 20$. It means that our next target here is still 1650.

At the same time, take a look what we have... Gold stands at major monthly resistance level, weekly Overbought, net long position is extremely high and now we have some relief in tensions on Middle East. This combination shifts advantage in favor of retracement and diminish chances on immediate upward action and challenge of our major 1650 target.

Here, on monthly chart we already see pullback out from the level. In general gold has pretty much room for pullback and keeping overall context intact. 40 - 50 $ downside action should not hurt upside scenario. As more extended downside target, if somehow it will happen - we could point YPP at 1445 area.

Monthly chart tells that now it is not the moment yet for taking investing long position on gold market.

gold_m_20_01_20.png


Weekly

Last week mostly was inside one to huge doji that was formed on a background of Middle East political escalation. From technical point of view - gold price will follow to direction of doji breakout side as its borders play key role in this subject. The only moment that we have to mention here is failed attempt of downside breakout this week. It means that gold could spend more time in doji range and even show some upside action as it is not at overbought anymore - market easily could reach 1570 level.

Still, overall combination of existing driving factors suggest some advantage on bearish side as gold has no strong driving factors to start new rally above 1600 highs.

So here is the same conclusion. Despite some upside action that could happen on daily/intraday charts, here we do not want to take long-term bullish position now and will be watching for better entry levels. Any daily bullish setup will have just tactical, short-term purpose.

gold_w_20_01_20.png


Daily

Well, picture on daily chart stands the same and we've talked a lot about it through the week. While market keeps recent lows - it also keeps chances on upside reaction due existed of strong bullish momentum. In fact, this is the same B&B setup but with softer conditions, not as strict as by DiNapoli. Currently the only problem that we do not have any hint on upside thrust. Action is too heavy and choppy, which is more typical for retracement. Still, on 4H chart we have the pattern to consider.

gold_d_20_01_20.png


Intraday

It seems that in the beginning of the week advantage stands in favor of downside action. Here is the pattern that we could consider and use as an indicator of possible upside scenario. The only pattern that we could suggest here and that could have at least some relation to upside reversal is potential reverse H&S pattern with deep shoulders' placement. Hence, any weakness or breaking of this pattern means just one thing - gold will go down. Once market keeps this scenario - it also will keep chances on upside action and reaching of predefined target - 1582 5/8 Fib resistance level.
gold_4h_20_01_20.png


Hourly chart shows another few moments that point on possible downside action. Upside XOP is completed, so gold stands at 1564 Agreement resistance area. 1.27 extension up is also completed. Finally, we have bearish MACD divergence here as well. Maybe forming of right shoulder will start.

gold_1h_20_01_20.png


Conclusion:

Within few weeks gold should feel some relief that could lead to deeper retracement as fundamental background mostly supports this scenario. In shorter-term view, we have just one potential bullish setup and will keep an eye how it will turn. Breaking of this setup we treat as clear sign of stronger downside action on gold market.
 

Sive Morten

Special Consultant to the FPA
Messages
12,970
Greetings everybody,

So, while we are correct in general, we have missed a bit with details, and particular with short-term price action on 1H chart. As we've said in our weekly report, we do not expect immediate long-term trend continuation due weak fundamental background, but this is not the problem for short-term upside action inside the big weekly doji, as we've suggested. Thus, on daily chart we still keep moving with our upside momentum trade and expect reaching of 1582 target:
gold_d_21_01_20.png


Here is actually the pattern that we're follow. Price is coming to first OP target. As gold has not formed any clear bullish patterns and just was moving higher and higher - we were not at time with position taking. Still, it is not too late to take part in upside action here. Since gold probably should show retracement once OP will be reached - it could be used for position taking and following to XOP target:
gold_4h_21_01_20.png


Here K-support area looks attractive. Now it stands at 1555, but once OP will be reached, it probably will drift a bit higher, somewhere to 1558. Downside 2-leg AB-CD retracement looks more probable, as we will be at OP target, than just single leg pullback... The one thing that we do not want to see is collapse. In this case no longs, of course.
gold_1h_21_01_20.png


For the bears we do not see any good background by far. Let's wait, when 1582 target will be met.
 

Suphi

Private
Messages
10
Hi sir Sive Morten, I want to ask please, for a beginner learning Di Napoli level trading how many instruments should I track? because I observed that tracking numerous instruments is very difficult as I see you only track 3 instruments.
 

Sive Morten

Special Consultant to the FPA
Messages
12,970
Hi sir Sive Morten, I want to ask please, for a beginner learning Di Napoli level trading how many instruments should I track? because I observed that tracking numerous instruments is very difficult as I see you only track 3 instruments.
Hi mate,
Actually there are two approaches exist to this subject. You could focus either on patterns or at trading instruments. For example, Roger (he often posts trade setups here also by DiNapoli method) - watches for specific patterns, say B&B's across the board. He looks for best B&B setups but doesn't care about currency pair. You could do the same - watch for B&B's DRPO's, grabbers or, say, Stretch patterns across the board.
Also you could watch butterflies, "222"'s, H&S and other classical or harmonic patterns.

Second approach - watch for particular instrument. Personally, I watch for EUR, GBP, Gold and stock Index, sometimes crude oil. I choose this ones, because I relatively better understand their fundamental background - what's going with economy, major driving factors etc. Asia Pacific currencies have different drivers, besides (as I trade futures mostly) they have worse liquidity.

These approaches are not mutually excluding, you could combine them. Second approach, I suppose is more suitable for investing, and keeping long-term positions.
 

Suphi

Private
Messages
10
Hi mate,
Actually there are two approaches exist to this subject. You could focus either on patterns or at trading instruments. For example, Roger (he often posts trade setups here also by DiNapoli method) - watches for specific patterns, say B&B's across the board. He looks for best B&B setups but doesn't care about currency pair. You could do the same - watch for B&B's DRPO's, grabbers or, say, Stretch patterns across the board.
Also you could watch butterflies, "222"'s, H&S and other classical or harmonic patterns.

Second approach - watch for particular instrument. Personally, I watch for EUR, GBP, Gold and stock Index, sometimes crude oil. I choose this ones, because I relatively better understand their fundamental background - what's going with economy, major driving factors etc. Asia Pacific currencies have different drivers, besides (as I trade futures mostly) they have worse liquidity.

These approaches are not mutually excluding, you could combine them. Second approach, I suppose is more suitable for investing, and keeping long-term positions.
Thank you sir.
 

Sive Morten

Special Consultant to the FPA
Messages
12,970
Greetings everybody,

Gold market has shown a bit tricky action yesterday - it is ignored our OP target on 1H chart and dropped fast to 5/8 Fib support area. As a result, our 4H AB-CD pattern has been erased, and recent OP is not valid any more. At the same time, it doesn't mean that market has lost all chances to reach 1582 target.
In general, on daily chart, while major lows holds - gold keeps bullish scenario, although it is extremely difficult make forecasts on intraday action as market motion is not direct action - it is too choppy.
gold_d_22_01_20.png


On 4H chart - "C" point of AB-CD pattern has been erased and now price re-tests former trend line. In general it is nothing curious with this deep retracement, because, take a look - gold has formed upside reversal swing here and 5/8 pullback is absolutely natural in current circumstances.
gold_4h_22_01_20.png


It means that here we have only one bullish pattern, that could keep an eye on. This is a kind of H&S and now gold is forming the right arm. It means that price has to hold somewhere around 1540-1545 area to keep chances on upside continuation. Also it would be better to wait for clear bullish patterns on right arm - either butterfly, or, maybe "222" Buy. Overall shape is clear but it is difficult to estimate precise moment for entry by far...
gold_1h_22_01_20.png
 

knight270

Private
Messages
20
Hi mate,
Actually there are two approaches exist to this subject. You could focus either on patterns or at trading instruments. For example, Roger (he often posts trade setups here also by DiNapoli method) - watches for specific patterns, say B&B's across the board. He looks for best B&B setups but doesn't care about currency pair. You could do the same - watch for B&B's DRPO's, grabbers or, say, Stretch patterns across the board.
Also you could watch butterflies, "222"'s, H&S and other classical or harmonic patterns.

Second approach - watch for particular instrument. Personally, I watch for EUR, GBP, Gold and stock Index, sometimes crude oil. I choose this ones, because I relatively better understand their fundamental background - what's going with economy, major driving factors etc. Asia Pacific currencies have different drivers, besides (as I trade futures mostly) they have worse liquidity.

These approaches are not mutually excluding, you could combine them. Second approach, I suppose is more suitable for investing, and keeping long-term positions.
Great Sive! Thanks for this response, really need to hear this from my mentor. I think I will combine the two as a trading system going forward. Pick currency pairs I understood their fundamentals, for my short, medium and long term positions, while I can just scan across board for short term set ups to trade on other pairs. Gracias
 

Sive Morten

Special Consultant to the FPA
Messages
12,970
Greetings everybody,

Well, yesterday situation on gold market was blur and we've decided to wait a bit more. Today it is not much better, but still, we've got two side by side bearish grabbers on 4H chart, which warn us to stay aside from any long position by far and suggest downside continuation:
gold_4h_23_01_20.png


On 1H chart we have "222" Sell". Grabbers suggest drop below recent lows, which could give us downside AB=CD pattern with OP at ~1540 area. It corresponds to the left side lows. Thus, here we could get wide and flat "222' Buy which could be the part of larger H&S pattern. This is at least something... Let's try to focus on this scenario and see what will happen, because it is really the challenge to make any forecasts on gold market motion in current conditions, when market itself stands indecision.
gold_1h_23_01_20.png
 
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