Sive Morten
Special Consultant to the FPA
- Messages
- 18,699
Fundamentals
(Reuters) - Gold was little changed on Friday, giving up earlier losses as U.S. equity markets and
Treasury yields turned lower, but the metal was on track for its first weekly loss of the year after traders cashed in on this week's rally to two-month highs.
Spot gold was 0.1 percent higher at $1,190.06 an ounce by 2:56 p.m. EST (1956 GMT), while U.S. gold futures for February delivery settled down 0.1 percent at $1,188.40 per ounce. The dollar was 0.2 percent up against a basket of currencies, hanging on to positive territory despite data showing U.S. economic growth slowed more than expected in the fourth quarter.
That helped to pull gold further down from Tuesday's high of $1,219.59 an ounce and set it on track to end a four-week winning streak with a 1.6 percent weekly loss. "It turned up because equities went lower," said Bob
Haberkorn, senior market strategist for RJO Futures in Chicago. "I think this could be short-lived. Next week we've got some news from the Fed coming out as well as the January job report (on Friday)."
The U.S. Federal Reserve is scheduled to release a statement on Wednesday after a two-day meeting.
"The dollar is being a big influence on gold right now, so that's what's behind the current move," ING analyst Hamza Khan said. "But overall I think the weeks of gains we've had are more indicative than this pull-back, which might just be due to people locking in some profits and waiting for the Fed meetings before they get long again."
Analysts have scaled back expectations for gold prices this year after the metal's weak fourth-quarter performance, with the prospect of further U.S. interest rate hikes from the Fed weighing on sentiment.
Gold demand in India improved this week, boosted by a fall in prices overseas, though some consumers are waiting in the hope that import duty will be cut in the government's budget next week.
"Most of Asia is already off for the holidays, which is a good time for many to short the metal," said Ronald Leung, chief dealer at Lee Cheong Gold Dealers in Hong Kong.
COT Report
CFTC data shows that bullish euphoria has some difficulties. Last 3 weeks open interest was growing, while speculative net position stands flat or even shows shy decrease. It means that traders start to open new short positions.
SPDR fund storages has dropped for another 8 - 10 tonnes and now stands around 800 tonnes level. This data mostly supports our view that upside rally is very fragile, artificial and not reliable. Currently it might be a question how deep gold market will drop after reversal, but there are no questions about upside direction, while real demand does not support recent rally.
Technicals
Monthly
Currently gold stands at very fragile basis. One step down further and fragile support will be broken while gold will drop back to 1000$ level. Gold is very specific asset, since it major driving factor for gold is fundamentals, especially inflation and interest rates, and - expectations, rumors. "Buy on rumors" proverb is particularly fair for gold market.
But here we come to most difficult moment. Mostly because fundamental background for gold market is very blur. D. Trump victory and uncertainty around its economy policy, massive political turmoil in Europe and affer foreign affairs do not let us to estimate clear fundamental picture by far.
This fundamental uncertainty and indecision also reflects on technical picture. Investors are waiting and keep prices around last major support and around invalidation point of reversal H&S pattern. Step up - and gold will re-establish upside trend, step down - H&S will fail and gold will drop to 1000$. This mostly explains, why current rally is not supported by real money flow.
As we've said technically recent upward action started in Dec 2015 is first one after long term of decreasing and it should be interrupted by deep retracement sometime. Now this retracement stands in place. It is really big chance that gold stands in a stage of big trend changing from bearish into bullish. US economy shows inflation growing. As we've estimated last week, commodities across the board have turned to growth.
Besides, any Trump protection policy will be accompanied by big spending and expenses, this will lead to grow of inflationary expectations and could lead even to more hawkish Fed policy. Thus, we mostly gravitate to idea that gold now stands not in pause of bear trend, but on the eve of new bull trend. Also we expect big structural shifts in EU economy, diminishing Brussels governing role, taking direction on convergence with Russia economy, and through Russia economical infrastructure - with Middle East and Asia.
But our technical "deep" retracement still could be different. Currently, as market stands at the edge of 1170 Fib support, we could talk on H&S pattern. Besides the shape itself, some features here that in general typical for H&S. For example, relation between head and shoulders - 1.618. Butterfly... very often first part of H&S takes the shape of butterfly pattern...
That's being said gold stands at the area where the bottom of right shoulder should be formed. Thus, our first step on this long-term time frame has been completed - "we suggest further drop on gold, at least to 1160-1180 area."
As we've said almost month ago - we're coming to second step how we've specified it - "watch for validity of H&S pattern." Right now there is an issue exists that we do not like. They are not critical, but at the same time are not welcome for pattern. I mean too fast drop. Actually right shoulder is an area where bulls should gradually take control over the market and fast drop here is not a good sign.
Still, our task here is relatively simple - just to watch for reversal patterns on daily that confirm bullish reversal and monthly H&S pattern. If we will not get any - then we will not go long, and it will mean that this H&S could fail. The failure of this pattern will lead price below the head, i.e. under 1000$ level.
Here we come to idea of another reversal pattern. If retracement will be too deep, back to 1000$, gold still will keep chances to reverse up, but by another reversal pattern - Double Bottom.
So, as you can see here we've got big journey ahead while we will estimate what we really have - either H&S or Double Bottom. It means that we should be extra careful to patterns that will be formed on daily chart.
As gold has turned down lately - potential bullish engulfing pattern is becoming less attractive than previously. It shape becomes worse and pattern is becoming not as reliable as it could be:
Weekly
Upward action starts to drown. To be honest, guys - my thought here is coiling around idea of B&B "Sell" pattern. I suspect that we still could call this price action as B&B LAL pattern. Yes, thrust down has just 6 bars, but it is vertical and first bar is very long. That's why, overall action could be treated as Look-alike pattern. All other conditions have been met - gold has reached major 3/8 resistance within 3 sessions above 3x3 DMA. Besides, major risk with LAL pattern - is market could not turn down in time, if thrust is really weak. But here - gold already has turned down.
If we accept this view, as B&B "Sell" pattern, it brings foundation for our 1160 target, since 5/8 Fib support is target of B&S by DiNapoli frame work.
On weekly chart we could specify bullish crucial point. This is obviously 1130 lows. Logic is simple here. From perspective of H&S pattern - gold has completed all necessary targets to form right shoulder - downward AB-CD 1.618 extension has been completed and also price has reached 5/8 major Fib support. It means that if gold will drop below this level - it will mean that H&S has failed.
Daily
Next week we continue to work with downward action. It happens so that as on weekly we have look-alike pattern as on daily - we also have look-alike, but DRPO "Sell". "Look-alike" is pattern that has the same market mechanics of perfect one, but doesn't match some conditions. On weekly we have shorty thrust, on daily we do not have close below 3x3 DMA between tops of DRPO.
Anyway downward action has started and gold has reached first short-term target - 1180 Fib support. Situation stands so that we expect minor upside bounce up from this level and only after it will happen - downward continuation to major destination point, 1160 Fib level. May be action will take shape of some AB-CD.
So, in beginning of the week Mon-Tue probably we will watch for upside action, while closer to the end of the week downward action could continue. New inputs, such as ADP, NFP reports, Fed statements, could give new impulse to markets:
4-hour
So, let's take a look what action we could get on Mon-Tue. As you can see on Fri gold has reached an Agreement area - completed 1.618 AB=CD target right around Fib support. This even is accompanied by poor GDP numbers. As a result price starts upward bounce.
At the same time here we easily could recognize B&B "Sell" shape, as soon as gold will reach 1195-1197 area. So, if you're intraday trader and somehow searching chance to go short - this B&B "sell" setup could help:
Hourly
Hourly chart mostly confirms this idea. Take a look that gold forms reverse H&S pattern right at 4-hour support area. Appearing of H&S suggests AB-CD upside action, at least to 1196 area, or slightly higher, if it will be 1.618 AB-CD.
Precisely in this area we will get new WPP:
That's being said our trading plan for coming week stands as follows:
1. Minor retracement to 1185 area on Monday morning - appearing of right shoulder of hourly pattern;
2. Upside AB-CD progression, at least to WPP around 1197 area. It could finish on Tue;
3. Looking for starting of 4-hour B&B "Sell" pattern.
4. Action to 1160 during rest of the week.
That's just major steps, so do not try to follow it blindly. Each point has "if..then" scenarios that could change picture. So watch for our daily updates. For example on point "2" - market could fail to start AB-CD around 1185 and start dropping, right?
Conclusion:
As market has completed first step of our long term analysis - dropped to 1170 area, now we're turning to second step - estimating of validity of monthly H&S pattern. Currently we still think that gold has fundamental background to start long-term bullish trend and two patterns could be formed. Either H&S or Double bottom. Currently we're working with H&S. But starting moment of this bull trend is rather extended.
In shorter term perspective we continue to work with recent rally and multiple patterns that it generates.
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 was little changed on Friday, giving up earlier losses as U.S. equity markets and
Treasury yields turned lower, but the metal was on track for its first weekly loss of the year after traders cashed in on this week's rally to two-month highs.
Spot gold was 0.1 percent higher at $1,190.06 an ounce by 2:56 p.m. EST (1956 GMT), while U.S. gold futures for February delivery settled down 0.1 percent at $1,188.40 per ounce. The dollar was 0.2 percent up against a basket of currencies, hanging on to positive territory despite data showing U.S. economic growth slowed more than expected in the fourth quarter.
That helped to pull gold further down from Tuesday's high of $1,219.59 an ounce and set it on track to end a four-week winning streak with a 1.6 percent weekly loss. "It turned up because equities went lower," said Bob
Haberkorn, senior market strategist for RJO Futures in Chicago. "I think this could be short-lived. Next week we've got some news from the Fed coming out as well as the January job report (on Friday)."
The U.S. Federal Reserve is scheduled to release a statement on Wednesday after a two-day meeting.
"The dollar is being a big influence on gold right now, so that's what's behind the current move," ING analyst Hamza Khan said. "But overall I think the weeks of gains we've had are more indicative than this pull-back, which might just be due to people locking in some profits and waiting for the Fed meetings before they get long again."
Analysts have scaled back expectations for gold prices this year after the metal's weak fourth-quarter performance, with the prospect of further U.S. interest rate hikes from the Fed weighing on sentiment.
Gold demand in India improved this week, boosted by a fall in prices overseas, though some consumers are waiting in the hope that import duty will be cut in the government's budget next week.
"Most of Asia is already off for the holidays, which is a good time for many to short the metal," said Ronald Leung, chief dealer at Lee Cheong Gold Dealers in Hong Kong.
COT Report
CFTC data shows that bullish euphoria has some difficulties. Last 3 weeks open interest was growing, while speculative net position stands flat or even shows shy decrease. It means that traders start to open new short positions.
SPDR fund storages has dropped for another 8 - 10 tonnes and now stands around 800 tonnes level. This data mostly supports our view that upside rally is very fragile, artificial and not reliable. Currently it might be a question how deep gold market will drop after reversal, but there are no questions about upside direction, while real demand does not support recent rally.
Technicals
Monthly
Currently gold stands at very fragile basis. One step down further and fragile support will be broken while gold will drop back to 1000$ level. Gold is very specific asset, since it major driving factor for gold is fundamentals, especially inflation and interest rates, and - expectations, rumors. "Buy on rumors" proverb is particularly fair for gold market.
But here we come to most difficult moment. Mostly because fundamental background for gold market is very blur. D. Trump victory and uncertainty around its economy policy, massive political turmoil in Europe and affer foreign affairs do not let us to estimate clear fundamental picture by far.
This fundamental uncertainty and indecision also reflects on technical picture. Investors are waiting and keep prices around last major support and around invalidation point of reversal H&S pattern. Step up - and gold will re-establish upside trend, step down - H&S will fail and gold will drop to 1000$. This mostly explains, why current rally is not supported by real money flow.
As we've said technically recent upward action started in Dec 2015 is first one after long term of decreasing and it should be interrupted by deep retracement sometime. Now this retracement stands in place. It is really big chance that gold stands in a stage of big trend changing from bearish into bullish. US economy shows inflation growing. As we've estimated last week, commodities across the board have turned to growth.
Besides, any Trump protection policy will be accompanied by big spending and expenses, this will lead to grow of inflationary expectations and could lead even to more hawkish Fed policy. Thus, we mostly gravitate to idea that gold now stands not in pause of bear trend, but on the eve of new bull trend. Also we expect big structural shifts in EU economy, diminishing Brussels governing role, taking direction on convergence with Russia economy, and through Russia economical infrastructure - with Middle East and Asia.
But our technical "deep" retracement still could be different. Currently, as market stands at the edge of 1170 Fib support, we could talk on H&S pattern. Besides the shape itself, some features here that in general typical for H&S. For example, relation between head and shoulders - 1.618. Butterfly... very often first part of H&S takes the shape of butterfly pattern...
That's being said gold stands at the area where the bottom of right shoulder should be formed. Thus, our first step on this long-term time frame has been completed - "we suggest further drop on gold, at least to 1160-1180 area."
As we've said almost month ago - we're coming to second step how we've specified it - "watch for validity of H&S pattern." Right now there is an issue exists that we do not like. They are not critical, but at the same time are not welcome for pattern. I mean too fast drop. Actually right shoulder is an area where bulls should gradually take control over the market and fast drop here is not a good sign.
Still, our task here is relatively simple - just to watch for reversal patterns on daily that confirm bullish reversal and monthly H&S pattern. If we will not get any - then we will not go long, and it will mean that this H&S could fail. The failure of this pattern will lead price below the head, i.e. under 1000$ level.
Here we come to idea of another reversal pattern. If retracement will be too deep, back to 1000$, gold still will keep chances to reverse up, but by another reversal pattern - Double Bottom.
So, as you can see here we've got big journey ahead while we will estimate what we really have - either H&S or Double Bottom. It means that we should be extra careful to patterns that will be formed on daily chart.
As gold has turned down lately - potential bullish engulfing pattern is becoming less attractive than previously. It shape becomes worse and pattern is becoming not as reliable as it could be:
Weekly
Upward action starts to drown. To be honest, guys - my thought here is coiling around idea of B&B "Sell" pattern. I suspect that we still could call this price action as B&B LAL pattern. Yes, thrust down has just 6 bars, but it is vertical and first bar is very long. That's why, overall action could be treated as Look-alike pattern. All other conditions have been met - gold has reached major 3/8 resistance within 3 sessions above 3x3 DMA. Besides, major risk with LAL pattern - is market could not turn down in time, if thrust is really weak. But here - gold already has turned down.
If we accept this view, as B&B "Sell" pattern, it brings foundation for our 1160 target, since 5/8 Fib support is target of B&S by DiNapoli frame work.
On weekly chart we could specify bullish crucial point. This is obviously 1130 lows. Logic is simple here. From perspective of H&S pattern - gold has completed all necessary targets to form right shoulder - downward AB-CD 1.618 extension has been completed and also price has reached 5/8 major Fib support. It means that if gold will drop below this level - it will mean that H&S has failed.
Daily
Next week we continue to work with downward action. It happens so that as on weekly we have look-alike pattern as on daily - we also have look-alike, but DRPO "Sell". "Look-alike" is pattern that has the same market mechanics of perfect one, but doesn't match some conditions. On weekly we have shorty thrust, on daily we do not have close below 3x3 DMA between tops of DRPO.
Anyway downward action has started and gold has reached first short-term target - 1180 Fib support. Situation stands so that we expect minor upside bounce up from this level and only after it will happen - downward continuation to major destination point, 1160 Fib level. May be action will take shape of some AB-CD.
So, in beginning of the week Mon-Tue probably we will watch for upside action, while closer to the end of the week downward action could continue. New inputs, such as ADP, NFP reports, Fed statements, could give new impulse to markets:
4-hour
So, let's take a look what action we could get on Mon-Tue. As you can see on Fri gold has reached an Agreement area - completed 1.618 AB=CD target right around Fib support. This even is accompanied by poor GDP numbers. As a result price starts upward bounce.
At the same time here we easily could recognize B&B "Sell" shape, as soon as gold will reach 1195-1197 area. So, if you're intraday trader and somehow searching chance to go short - this B&B "sell" setup could help:
Hourly
Hourly chart mostly confirms this idea. Take a look that gold forms reverse H&S pattern right at 4-hour support area. Appearing of H&S suggests AB-CD upside action, at least to 1196 area, or slightly higher, if it will be 1.618 AB-CD.
Precisely in this area we will get new WPP:
That's being said our trading plan for coming week stands as follows:
1. Minor retracement to 1185 area on Monday morning - appearing of right shoulder of hourly pattern;
2. Upside AB-CD progression, at least to WPP around 1197 area. It could finish on Tue;
3. Looking for starting of 4-hour B&B "Sell" pattern.
4. Action to 1160 during rest of the week.
That's just major steps, so do not try to follow it blindly. Each point has "if..then" scenarios that could change picture. So watch for our daily updates. For example on point "2" - market could fail to start AB-CD around 1185 and start dropping, right?
Conclusion:
As market has completed first step of our long term analysis - dropped to 1170 area, now we're turning to second step - estimating of validity of monthly H&S pattern. Currently we still think that gold has fundamental background to start long-term bullish trend and two patterns could be formed. Either H&S or Double bottom. Currently we're working with H&S. But starting moment of this bull trend is rather extended.
In shorter term perspective we continue to work with recent rally and multiple patterns that it generates.
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.
Right now market stands at the point where it should become clear - whether gold will continue action to 1160 level or not. From market mechanics point of view if gold market is really bearish, it should turn down from current level. If this will not happen, it means that gold is not quite bearish in short-term perspective. 