Gold GOLD PRO WEEKLY, July 05 - 09, 2021

Sive Morten

Special Consultant to the FPA
Messages
15,036
Fundamentals

Gold market, mostly as any other else, was waiting for NFP data as it could provide direction for short-term action. It is pretty much time till Fed rate change and many traders and analysts suggest that markets could show relatively independent action in this time period. Although NFP numbers mostly were dollar supportive, higher unemployment rate and lower hourly earnings makes pressure a bit lower and gives perfect balance as for the US Dollar in long-term as for rivals, including Gold. Particular this "small miss" in report explains upward action that has started on Friday.

Market overview

Gold drifted sideways on Monday as investors were caught between fears of a spike in the highly transmissible Delta strain of the coronavirus and expectations of an early interest rate hike by the U.S. Federal Reserve.

There are growing concerns about the spread of the Delta variant of the coronavirus, which is bringing back a slight bid into the gold market from a safe-haven perspective, said David Meger, director of metals trading at High Ridge Futures. “Although, no rallies continue to follow through because of the recent set of rhetoric in regards to the potential for reducing asset purchases (by the U.S. Fed).”

Gold suffered its biggest intraday drop in five months after the Fed signalled earlier than expected policy tightening on June 16.

“That takes some of the wind out of the sails of the gold market, and the reason why we saw gold fall below $1,800 level recently was based on that,” Meger added. “In this context, gold is not completely out of the woods just yet, with another leg lower toward the $1,730 per ounce region opening the door to another round of CTA (Commodity Trading Advisor) selling.”

“Market participants are reluctant to build new positions due to gold’s repeated failure to break above the psychologically important $1,800 level, upcoming labour market data and inflation,” Commerzbank analyst Carsten Fritsch said. He said the dollar was still pretty strong and hampering gold.

Meanwhile, Federal Reserve Bank of Richmond President Thomas Barkin said, the Fed had made “substantial further progress” towards its inflation goal in order to begin tapering asset purchases. As hawkish Fed officials have re-affirmed they are going to raise rates in 2023 as well as start tapering bond purchases - “these are all things gold investors hate,” said Phillip Streible, chief market strategist at Blue Line Futures in Chicago.

U.S. private payrolls increased more than expected in June as companies rushed to boost production and services amid a rapidly reopening economy.

Federal Reserve Bank of Dallas President Robert Kaplan said Wednesday he would like the Fed to start reducing its support for the economy before the end of the year, in part to make an abrupt policy tightening less likely later on. Gold still remains highly sensitive to comments from U.S. Federal Reserve officials and inflation expectations.

“Considering the Fed’s recent hawkish tilt, it is difficult to make a strong bullish case for gold,” said Han Tan, chief market analyst at Exinity Group. Growing signs that point to a sooner-than-expected U.S. interest rate hike, and the preceding tapering, should heap more downward pressure and bring spot gold closer to April’s $1,730 support region, Tan added.

China’s net gold imports via Hong Kong more than halved in May from the previous month, when they touched the highest level in nearly three years, as demand for the precious metal faltered amid fresh coronavirus-led restrictions. Net imports stood at 21.78 tonnes in May compared with 52.82 tonnes in April, Hong Kong Census and Statistics Department data showed on Monday. Total gold imports via Hong Kong fell to 26.684 tonnes from 55.699 tonnes, the data showed.

In May last year, gold imports fell below exports for a second straight month. China's net gold imports via Hong Kong slump in May

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Guangzhou, one of the top consumer of gold in the country, is on lockdown due to an increase in COVID-19 cases, affecting gold importation, said Bernard Sin, regional director for Greater China at MKS. An outbreak of a highly-infectious coronavirus strain since late May has prompted the authorities in the industrial hub to impose lockdowns in certain neighborhoods, while shutting down entertainment venues and markets.

Demand also fell from banks after the country’s banking regulator, the China Banking and Insurance Regulatory Commission, asked lenders to stop selling investment products linked to commodities futures to retail buyers, Sin added. Prices of physical gold in the top consumer flipped into a premium recently, mostly on retreating global benchmark spot prices.

Bullion prices are down about 8% for the month, weighed down by the Fed’s sudden hawkish shift. But they are up 3% for the quarter. Michael Matousek, head trader at U.S. Global Investors, attributed gold’s slight uptick to some bargain buying in an “oversold” market with prices having retreated as much as 8.6% from the highs hit in early June.

Equity markets remain strong as the economy recovers, and “that’s something which potentially will be a drag on gold”, as it is considered as safe haven asset, UBS analyst Giovanni Staunovo said, adding, bullion could drop towards $1,600 by the end of the year.

“While outperformance is likely, we see limited prospect of a rising silver price in a falling gold market,” Morgan Stanley said in a note, adding, it was holding its forecast for silver at a flat $25 to mid-year 2022.

Gold gained on Thursday as rising concerns over the spread of the Delta variant of the coronavirus shored up interest in the safe haven asset.

“Gold is drawing support from the risk-off sentiment as concerns mount over the rapid spread of the Covid-19 Delta variant,” senior analyst at FXTM Lukman Otunga said.

Rising cases of the Delta variant have prompted France to delay the easing of restrictions in the Landes region, while infections have also surged in Asia. If the rise of the variant forces authorities to introduce new lockdowns, especially in Europe and the United States, then we may be looking at the risk-averse safe haven trade offering support to gold, said Ricardo Evangelista, a senior analyst at ActivTrades.

Gold posted its biggest monthly loss since November 2016 on Wednesday as a surprise hawkish shift by the Fed made non-yielding metal less attractive. Precious metal funds also had outflows for a second consecutive week, with gold prices dipping to a 2-1/2 month low this week.

The Democratic-controlled U.S. House of Representatives approved a $715 billion surface transportation and water infrastructure bill in what Democrats see as an early step toward sweeping infrastructure legislation that Congress hopes to complete in September.

Gold rose on Friday, climbing further from a two-month trough hit earlier in the week, as the dollar weakened and investors weighed prospects for U.S. Federal Reserve tightening after a strong U.S. jobs report that nevertheless showed a slight uptick in the unemployment rate. Data showed U.S. non-farm payrolls increased by a bigger-than-expected 850,000 in June, although the unemployment rate rose to 5.9% from 5.8% in the previous month.

U.S. Fed officials have suggested recently that the central bank should begin to taper its asset purchases this year.

However, Phillip Streible, chief market strategist at Blue Line Futures in Chicago, said the data was unlikely to trigger a rush from the Fed to ease stimulus or begin interest rate hikes. He added that gold had also found some support as many analysts had expected a bigger upside surprise to the data.

Benchmark U.S. Treasury yields and the dollar fell after the report, buoying gold as lower yields reduce its opportunity cost.

These concerns, and lower vaccination rates in some parts of the United States, could convince some investors the Fed will be cautious about hiking interest rates, supporting gold in the longer-term, said Bart Melek, head of commodity strategies at TD Securities.

But in the near-term, “gold is facing technical resistance at around $1,790 and will likely tread water until we see some weaker-than-expected economy data.”

COT Report

Most interesting thing in current report are not the numbers and not the net position change but the open interest. Although this report doesn't include NFP release day, but, in general, investors' attitude to the gold market now is evident. Take a look that despite adding new as longs as short positions - market has lost 26K contracts in value. Open interest has dropped significantly. It means that whatever direction sets - investors do not consider gold as serious object for investing in in nearest time. Gradually interest to this market is fading, which consistent with our long term view:

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Here we also have to recall SPDR chart. Recall, when upward bounce starts we said that SPDR reserves doesn't support this action, that is not typical. They were standing flat. It means that investors were not buying gold, despite price appreciation and we haven't seen real growth in open interest as well. Take a look - after some time it has led to collapse of the gold price.
1625390565574.png

Now we have the same story. Reserves do not change, no real demand for the gold right now. It means that despite gold could climb slightly higher within week or two - another swing down has great chances to happen.

In general, if we take a look at the comments above - all traders point two levels: 1800 and 1730. The former as nearest short-term resistance and the latter - the target, if the former will not be broken up. UBS additionally talks about 1600 by the end of the year, setting bearish long-term context, which is mostly the same as ours.

Due to some moments, such as vacation time, lack of important data, relative clarity on Fed plans etc., narrows the range of possible outcomes and makes it difficult to expect something extraordinary. That's why on coming week, we think the reason to focus only on nearest upside targets around 1825$ and 1730$, if, by some reason market still turns down.

Technicals

Monthly

June price action leaves small room to bullish outlook. Trend is bearish, huge engulfing pattern lets market to show minor inside retracement, but inevitably suggests drop to 1650$ at least. And I would say, it doesn't exclude reaching of YPS1 around 1540$ as well. Thus, maybe UBS is not as incorrect.

Appearing huge bearish engulfing pattern is a strong reason to not buy gold for long-term perspective. And we already see that investors don't.

Drop below YPP of 1807 also brings nothing positive. Downside reversal has happened right from the major 5/8 Fib resistance area. As monthly gold stands not at oversold Potential downside target is K-area of 1685 and 1655 OP.

Classical price shape suggests minor pullback to 3/8-1/2 of engulfing range and then downside extension to next major target. So let's stay on this trading plan by far.
gold_m_05_07_21.png


Weekly

Trend has turned bearish here, and we haven't got the grabber unfortunately. Upside action is too weak to treat it as a reversal and mostly looks like technical shy reaction on oversold and Fib support area. Here we have DiNapoli bullish "Stretch" pattern that we've mentioned before - combination of Fib support and oversold area. Because of its "counter trend" character, Stretch usually leads to wobbling and slow pullbacks, which is totally agrees with major scenario mentioned above:
gold_w_05_07_21.png


Daily

Last week we mostly have discussed patterns that could trigger upward bounce. The first one is mostly has hit the target - this is our long lasting 3-Drive "Buy" on 4H chart. Initially it was difficult to suggest, but somehow, based on weaker NFP data, it was able to reach theoretical target.

To calculate potential upside target, where we could consider short entry - let's take a look at three moments. First is fib levels. As we've said, usually this is 3/8-1/2 pullback, that gives us 1813-1825$ target area. Second is, flag pattern. Since we've got "bearish trap" - fake downside breakout, it means that flag has to be broken to the upside and market should pass the distance, at least equals to the flag height. Finally - daily overbought area that limits upward pullback on coming week. All three issues point on 1825-1830$ area as most probable destination of retracment:
gold_d_05_07_21.png


Intraday

The detailed shape of price action is ready and we already talked about it on Friday. But on Friday it was mostly hypothetical, now it has more foundation. Indeed, if we get H&S pattern, its AB-CD target agrees with our 1813-1820$ range, makes it perfect to consider short entry. Thus, let's keep this scenario as the central one and make adjustments when needed.

Hopefully, we will not need to change it drastically and no surprising events prevent it.
gold_4h_05_07_21.png
 

Sive Morten

Special Consultant to the FPA
Messages
15,036
Greetings everybody,

Market shows nice upward action and according to our trading plan, we're watching for 1820-1825 area as potential level where downside action could start again, as overall setup stands bearish:
gold_d_06_07_21.png


On 4H chart gold shows acceleration and instead of H&S pattern we're getting direct upward breakout. That's why, as the target we use butterfly ultimate extensions. Now target stands around 1822 that agrees with K-resistance here:

gold_4h_06_07_21.png


On 1H chart we also have XOP target approximately in the same area:
gold_1h_06_07_21.png


Thus, today we're watching for 1820-1825$ and see what will happen around it.
 

Sive Morten

Special Consultant to the FPA
Messages
15,036
Morning everybody,

So, gold is briefly touched the predefined level that we've set for short entry consideration. This is our 1820-1825. But we have few moments that might become vital for entry process:
gold_d_07_07_21.png


First is, on 4H chart market shows reaction on our K-resistance area, forming B&B "Buy" (that mostly is completed already). Here we see the level for stop placement. It has to be above 1825 area - K-resistance, daily OB and 1.618 butterfly target.
gold_4h_07_07_21.png


It could happen that gold already is forming reversal. It has the feature to start reversal by "222" patterns, not forming something big, like H&S. And now, market around 1806 has completed "222" Sell. At the same time, we have untouched XOP at the same 1820 area and can't ignore it. Besides, bearish context will be valid if gold hits XOP.
gold_1h_07_07_21.png


That's why, here we have few options. First is do nothing and wait for XOP, then make decision on short entry. Second is some compromise - take a part of position around 1806 but with the stops above XOP.
Choose what better fits to you. Also - be aware of Fed minutes release today.
 

Sive Morten

Special Consultant to the FPA
Messages
15,036
Greetings everybody,

So, on daily chart market is still coiling around our 1820-1825 area, which is potentially suitable for downside reversal. But, as we've discussed recently, there are few nuances concerning price shape of the reversal:
gold_d_08_07_21.png


On 4H chart market is forming triangle consolidation, which makes possible reaching of 1820-1822 target that we've specified recently. So, those of you who've decided to do nothing yesterday, now have more chances to step in around 1820 area:
gold_4h_08_07_21.png


On 1H chart market has shown healthy drop from predefined 1807 Agreement resistance, turning trade to risk free. But now market shows nice return and it seems that indeed here we could get minor upside butterfly and completion of 1822 target. At least it makes sense to not hurry up with new bearish position and take a look what will happen:
gold_1h_08_07_21.png
 

Sive Morten

Special Consultant to the FPA
Messages
15,036
Greetings everybody,

It seems that 1820-1825 confirms its strength, holding price around it for 3-4 sessions. Depending on price action in nearest days we should get the answer on whether gold starts downside action right from here.

In general, if price drops back inside the flag, breaking 1.1780 support area - it should open road to 1.1750 lows first:
gold_d_09_07_21.png


On 4H chart we have 2nd failed challenge of this area, when price has formed the grabber and bearish divergence. Still, gold stands inside the flag and chances on another 1820-1825 challenge exists.
gold_4h_09_07_21.png


Overall scenario stands the same here - any upward action in a way of AB-CD and appearing of "222" Sell, or direct action right to XOP should provide new chances for short entry. While drop out of the flag could mean that we're going lower.
But - be aware of strong 1.1780 support area before weekend. If market stuck there today, move stops to breakeven as Monday' open could give the pullback.
gold_1h_09_07_21.png
 
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