Sive Morten
Special Consultant to the FPA
- Messages
- 18,676
Fundamentals
(Reuters) Gold rose 1 percent on Friday and was heading for its fifth weekly gain, supported by a weaker dollar and prospects for further monetary policy easing in the wake of Britain's vote to leave the European Union.
Safe-haven demand for the metal spurred most of the gains as investors rushed to protect themselves against the uncertainty in the lead up to Britain's shock vote to exit the European Union, dubbed 'Brexit.'
Concerns over the trajectory of global growth, dovish comments from the U.S. Federal Reserve Chair Janet Yellen and retail demand had supported gold ahead of last week's Brexit vote.
Spot gold rose to a session high of $1,341.40 an ounce, and was 1.2 percent higher at $1,337.6 by 2:23 p.m. EDT (1808 GMT). The metal gained 8.8 percent in June, its biggest monthly rise since February. U.S. gold futures for August delivery settled up 1.4 percent at $1,339. Gold's strength benefited silver, which breached the $19 an ounce level for the first time since September 2014. It rose as much as 5 percent to $19.64 and traded 4.9 percent higher at $19.61.
"The U.S. dollar, and therefore buck-denominated precious metals, will be in focus again next week as the attention turns away from Brexit slightly and more towards economic fundamentals and U.S. monetary policy," Fawad Razaqzada, market analyst for forex.com, said in a note.
The dollar fell 0.5 percent against a basket of six currencies, while European stocks recovered on signs that
central banks such as the Bank of England, the Bank of Japan and the European Central Bank will loosen monetary conditions even further.
Concerns about the global economy have made chances of a U.S. rate rise in coming months less likely, analysts say, but much will depend on U.S. economic data and markets will be watching non-farm payrolls due on July 8 in particular for clues.
A strong jobs report and favourable revisions for the June nonfarm payrolls data could give the dollar a boost and undermine gold and silver, at least temporarily, Razaqzada said. Low U.S. interest rates are positive for gold because the opportunity cost of holding it decreases and the dollar typically falls, making the metal cheaper.
Societe Generale raised its gold price forecasts on Thursday on concerns about the ongoing political, financial and economic fallout of Britain's vote last week to leave the European Union.
"Looking ahead, it seems that gold will remain one of the major beneficiaries in the current backdrop, as heightened volatility and lingering uncertainty will keep investors' risk appetite in check." the bank said.
COT Report
CFTC data shows that as open interest as net long position have reached absolute highs. Thus, recent upside action on gold looks like was due final loading of open interest by new long positions, because last week open interest still had some room to increase. Right now it has reached all time high:
As you can see from this chart - every time when speculative position has hit the top - gold showed some retracement down. This process was a bit dispersed in time, but as a rule at least 3/8 retracement happens.
That's being said, standing at extreme levels as open interest as speculative long position is moderately bearish sign, at least it puts some barriers for further growth of gold market, although it is mostly technical and doesn't change to core of upside action.
Technicals
Monthly
Due to last events in UK, gold has made another attempt to move higher and confirmed our expectation. Still, as we see on chart - 1285-1330 is strong resistance and gold has stuck inside of it. At the same time, gold has completed pivot target - it has touched YPR1. Trend is bullish here and market is not at overbought.
Current upward action is first one after long term of decreasing and it should be interrupted by deep retracement sometime. Probably it should happen but this potential downward action has a great chance to become just a retracement. Overall political and financial situation in the world probably will not give a chance to relax. Thus, we have a positive long-term view on gold market.
Meantime currently recent action mostly looks like bullish flag pattern that suggests some upside action. On Brexit results gold has pierced it slightly but now has dropped right back inside of it's body. July is inside month by far. It is difficult to miss the strength of this resistance level and it is really suitable for downward retracement. Monthly K-resistance area, accompanied by YPR1 is perfect combination for retracement starting.
Next week will be short due Independence day celebration in US and on Friday we will get June NFP data. Currently most expectations are positive on this data. And we expect that may be good NFP numbers will become a trigger for retracement start.
Market probably sould get some relief as Brexit tension eased. Because of CFTC data, strong technical resistance on monthly chart and expectation of good NFP numbers we think that potential to grow is limited in short-term perspective and we assess chances on drop as greater compares to chances on further upside action in nearest 1-3 weeks, especially if we will get good NFP numbers.
Weekly
Trend is bullish on weekly chart. As gold has hit overbought - we've got DiNapoli bearish "Stretch" pattern, although it is still a big question how it will finish.
Although gold market shows upside breakout of widening triangle pattern - results of this action are mixed by far. Yes, the boarder has been broken but market still stands inside of the range of long candle. That's why this breakout has secondary role, because direction will be determined by breakout of this long candle anyway.
Thus, not much we could say from weekly chart. It seems that market is preparing for something but what it will be - its difficult to suggest right now. Also, although overall picture looks positive and bullish, somehow I do not want to take long position here, except scalp trades on intraday charts.
There are multiple patterns could be formed here. Say, widening triangle could shift to H&S, or even diamond... I have some feeling, sense, that something is wrong here with this upside action. But unfortunately this expectation has not materialized yet in some clear setup or pattern. Let's see what will happen by the end of the week.
Right now may be it makes sense to trade inside long-ranged candle some scalp setups where profit could be taken fast.
Daily
This time frame also shows no patterns by far and mostly we could use it to estimate donwside support levels. First level stands around WPS1 and 1317 Fib level, second one is K-support and MPS around 1295-1300.
Currently the major question is how to treat current upside action during last week. It could be upside continuation, attempt to move higher. But, we can't exclude chance that this is just upside retracement after drop from 1360 top, expecially by taking in consideration all facts that we've discussed above:
Intraday
Intraday charts shows that this idea might be correct. Thus, on 4-hour chart gold has formed butterfly "sell" pattern right near 5/8 Fib resistance level:
while on 30-min chart we have 3-Drive "Sell" as finalizing pattern of butterfly motion with engulfing pattern on top:
Yes, gold very cunning market, everything could change, but currently it seems that our analysis stands very close to check point. Background has been formed for possible retracement start.
Conclusion:
We continue to keep long-term bullish view on gold market. But now chances on deep retracement are very high due combination of as sentiment as technical moments.
In short-term perspective market has formed neccesary setup for possible downward action. Now it is a question how significant it will be. Very probable that major action will start on NFP release. Thus, currenlty it would be better to stay aside from any long positions. Shorts could be taken but only on short-term setup, as butterfly on 4-hour chart.
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 rose 1 percent on Friday and was heading for its fifth weekly gain, supported by a weaker dollar and prospects for further monetary policy easing in the wake of Britain's vote to leave the European Union.
Safe-haven demand for the metal spurred most of the gains as investors rushed to protect themselves against the uncertainty in the lead up to Britain's shock vote to exit the European Union, dubbed 'Brexit.'
Concerns over the trajectory of global growth, dovish comments from the U.S. Federal Reserve Chair Janet Yellen and retail demand had supported gold ahead of last week's Brexit vote.
Spot gold rose to a session high of $1,341.40 an ounce, and was 1.2 percent higher at $1,337.6 by 2:23 p.m. EDT (1808 GMT). The metal gained 8.8 percent in June, its biggest monthly rise since February. U.S. gold futures for August delivery settled up 1.4 percent at $1,339. Gold's strength benefited silver, which breached the $19 an ounce level for the first time since September 2014. It rose as much as 5 percent to $19.64 and traded 4.9 percent higher at $19.61.
"The U.S. dollar, and therefore buck-denominated precious metals, will be in focus again next week as the attention turns away from Brexit slightly and more towards economic fundamentals and U.S. monetary policy," Fawad Razaqzada, market analyst for forex.com, said in a note.
The dollar fell 0.5 percent against a basket of six currencies, while European stocks recovered on signs that
central banks such as the Bank of England, the Bank of Japan and the European Central Bank will loosen monetary conditions even further.
Concerns about the global economy have made chances of a U.S. rate rise in coming months less likely, analysts say, but much will depend on U.S. economic data and markets will be watching non-farm payrolls due on July 8 in particular for clues.
A strong jobs report and favourable revisions for the June nonfarm payrolls data could give the dollar a boost and undermine gold and silver, at least temporarily, Razaqzada said. Low U.S. interest rates are positive for gold because the opportunity cost of holding it decreases and the dollar typically falls, making the metal cheaper.
Societe Generale raised its gold price forecasts on Thursday on concerns about the ongoing political, financial and economic fallout of Britain's vote last week to leave the European Union.
"Looking ahead, it seems that gold will remain one of the major beneficiaries in the current backdrop, as heightened volatility and lingering uncertainty will keep investors' risk appetite in check." the bank said.
COT Report
CFTC data shows that as open interest as net long position have reached absolute highs. Thus, recent upside action on gold looks like was due final loading of open interest by new long positions, because last week open interest still had some room to increase. Right now it has reached all time high:
As you can see from this chart - every time when speculative position has hit the top - gold showed some retracement down. This process was a bit dispersed in time, but as a rule at least 3/8 retracement happens.
That's being said, standing at extreme levels as open interest as speculative long position is moderately bearish sign, at least it puts some barriers for further growth of gold market, although it is mostly technical and doesn't change to core of upside action.
Technicals
Monthly
Due to last events in UK, gold has made another attempt to move higher and confirmed our expectation. Still, as we see on chart - 1285-1330 is strong resistance and gold has stuck inside of it. At the same time, gold has completed pivot target - it has touched YPR1. Trend is bullish here and market is not at overbought.
Current upward action is first one after long term of decreasing and it should be interrupted by deep retracement sometime. Probably it should happen but this potential downward action has a great chance to become just a retracement. Overall political and financial situation in the world probably will not give a chance to relax. Thus, we have a positive long-term view on gold market.
Meantime currently recent action mostly looks like bullish flag pattern that suggests some upside action. On Brexit results gold has pierced it slightly but now has dropped right back inside of it's body. July is inside month by far. It is difficult to miss the strength of this resistance level and it is really suitable for downward retracement. Monthly K-resistance area, accompanied by YPR1 is perfect combination for retracement starting.
Next week will be short due Independence day celebration in US and on Friday we will get June NFP data. Currently most expectations are positive on this data. And we expect that may be good NFP numbers will become a trigger for retracement start.
Market probably sould get some relief as Brexit tension eased. Because of CFTC data, strong technical resistance on monthly chart and expectation of good NFP numbers we think that potential to grow is limited in short-term perspective and we assess chances on drop as greater compares to chances on further upside action in nearest 1-3 weeks, especially if we will get good NFP numbers.
Weekly
Trend is bullish on weekly chart. As gold has hit overbought - we've got DiNapoli bearish "Stretch" pattern, although it is still a big question how it will finish.
Although gold market shows upside breakout of widening triangle pattern - results of this action are mixed by far. Yes, the boarder has been broken but market still stands inside of the range of long candle. That's why this breakout has secondary role, because direction will be determined by breakout of this long candle anyway.
Thus, not much we could say from weekly chart. It seems that market is preparing for something but what it will be - its difficult to suggest right now. Also, although overall picture looks positive and bullish, somehow I do not want to take long position here, except scalp trades on intraday charts.
There are multiple patterns could be formed here. Say, widening triangle could shift to H&S, or even diamond... I have some feeling, sense, that something is wrong here with this upside action. But unfortunately this expectation has not materialized yet in some clear setup or pattern. Let's see what will happen by the end of the week.
Right now may be it makes sense to trade inside long-ranged candle some scalp setups where profit could be taken fast.
Daily
This time frame also shows no patterns by far and mostly we could use it to estimate donwside support levels. First level stands around WPS1 and 1317 Fib level, second one is K-support and MPS around 1295-1300.
Currently the major question is how to treat current upside action during last week. It could be upside continuation, attempt to move higher. But, we can't exclude chance that this is just upside retracement after drop from 1360 top, expecially by taking in consideration all facts that we've discussed above:
Intraday
Intraday charts shows that this idea might be correct. Thus, on 4-hour chart gold has formed butterfly "sell" pattern right near 5/8 Fib resistance level:
while on 30-min chart we have 3-Drive "Sell" as finalizing pattern of butterfly motion with engulfing pattern on top:
Yes, gold very cunning market, everything could change, but currently it seems that our analysis stands very close to check point. Background has been formed for possible retracement start.
Conclusion:
We continue to keep long-term bullish view on gold market. But now chances on deep retracement are very high due combination of as sentiment as technical moments.
In short-term perspective market has formed neccesary setup for possible downward action. Now it is a question how significant it will be. Very probable that major action will start on NFP release. Thus, currenlty it would be better to stay aside from any long positions. Shorts could be taken but only on short-term setup, as butterfly on 4-hour chart.
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.
