Gold GOLD PRO WEEKLY, July 06 - 10, 2020

Sive Morten

Special Consultant to the FPA
Messages
13,930
Fundamentals

The headlines of this week are rather poor. The only two moments stand in focus - Covid and recent US statistics. By journalists' point of view any gold appreciation stands due fears of virus relapse while pullback was due positive data. That's all. Still as we've discussed last week, beyond the virus we have other source of gold appreciation and overall background includes many other driving factors as political as economical.

Gold prices eased on Tuesday pressured by a strong U.S. dollar, but bullion was still set for its biggest quarterly gain in more than four years as a spike in coronavirus cases cast doubt on a swift global economic recovery. The bullion was on track for a third straight monthly rise and a quarterly gain of more than 12%.

"Whenever risk aversion kicks in, the dollar comes back in favour and I think that's acting as a bit of weight around the neck of gold," said OANDA analyst Craig Erlam.

The rise in coronavirus cases in the United States along with the ongoing U.S.-China conflict are "all really pointing towards safe haven gold buying," said Afshin Nabavi, senior vice president at precious metals trader MKS SA. U.S. states have reversed re-openings and closed businesses to combat a spike in cases, while infections in countries like India and Brazil continued to rise.

Escalating tensions with the U.S. and the European Union, China's parliament passed landmark national security legislation for Hong Kong on Tuesday. Casting further doubts over an economic recovery, U.S. Federal Reserve Chair Jerome Powell on Monday said the outlook for the world's biggest economy is "extraordinarily uncertain".

Gold edged lower on Thursday, easing from a near eight-year peak hit in the last session, as solid U.S. manufacturing data and promising results from a COVID-19 vaccine trial revived hopes for a quick economic recovery, denting demand for safe havens.

"A general pro-growth stance across markets is why we're seeing a little bit of pressure on gold," said Michael McCarthy, chief strategist at CMC Markets, adding that market action reflected a tussle between concerns over rising cases and hopes for a vaccine and positive U.S. data. "Any deterioration on the ground in Hong Kong could see further support for safe-haven gold," CMC's McCarthy said.

Manufacturing activity in the United States rebounded in June, hitting its highest in more than a year, while similar surveys from China, Germany and France all pointed to a recovery in factory activity. The economic readings and optimism over a potential vaccine lifted equities. However, "The bull case for gold is still intact with real
rates low and suppressed and which would be able to sustain the high price of gold," Phillip Futures said in a note.


Nonfarm payrolls rose by 4.8 million jobs in June, the Labor Department’s closely watched monthly employment data showed, the most since the government began keeping records in 1939.

“Usually the dollar should strengthen on these very strong numbers, but it hasn’t, which means people are still concerned that the economy is not out of the woods yet,” said Edward Meir, analyst at ED&F Man Capital Markets.

“You can’t judge the economy on just one data point for one day ... People think the economy is coming back and that the Fed will not have to stimulate as much,” said Michael Matousek, head trader at U.S. Global Investors.


However, the Fed’s minutes released on Wednesday pointed to the fact that it will “keep rates low until 2022, so therefore that provides still a bid for gold,” he added.
Federal Reserve policymakers are looking at reviving a Great Recession-era promise to keep interest rates low until certain conditions are met.

Gold prices were little changed on Friday as worries over an accelerating number of coronavirus cases countered a fillip to risk sentiment from positive U.S. and
Chinese economic data.

"Central bank easing policies and uncertainty surrounding the second wave (of COVID-19) are sustaining gold prices," Bank of China International analyst Xiao Fu said, adding that despite a positive U.S. jobs report, more data was needed to suggest the economy was on a strong footing. Gold will likely trade in a tight range, but remains well supported above $1,750 an ounce, Xiao Fu said.

"Geopolitical considerations are also to the fore," said Jeffrey Halley, a senior market analyst at OANDA. "With a holiday in the United States, and the weekend upon us, some haven-directed buying of gold is definitely evident." Escalating political tensions, more than 75 members of the U.S. Congress sent a letter to President Donald Trump urging him to make a formal determination on whether China's treatment of Muslim Uighurs and other groups constituted an atrocity.

Due to the Independence Day in US we even do not have CFTC report this week. But, by taking a look at recent SPDR Fund dynamic it seems that market shows healthy gold accumulation at current moment. The fund reserve was growing even when gold was standing in consolidation. After upside breakout - reserves also have increased. Last time these levels of reserves were seen in 2013:

1593939056550.png

Source: SPDR Fund, FPA calculations

As we've said yesterday, in our FX report, inflationary expectations are rising while Central Banks will have to keep rates at zero levels. Even in UK that hurts a lot from pandemic but so long objects against negative rates, situation starts to change. Although there is no evident speech on negative rates but now they tell that everything is possible and BoE will have to use any measures that could help to economy.

Only this single factor is enough, when central banks are have to keep rates low even on a background of rising inflation is enough to support gold. The level of rates is matter as well, because the one deal when rates at some positive value and quite another situation when they are at zero. This destroys any difference between interest bearing asset and gold that generates no interest. At the same time, the difference in safety are obvious.

Finally, if we surplus here Presidency run that day by day is becoming unpredictable, overall deteriorating of political situation in US as it seems that D. Trump is loosing controls over the country, and still the same virus factor - situation becomes positive for gold market. Recent investors' behavior confirms this as nobody things to close gold positions.Thus, we also keep long-term expectation bullish.


Technicals
Monthly


July range is too small by far to make far going conclusions. The fact that market still stands around the top looks positive. As we've suggested - June almost has become bullish reversal month. Almost because it has higher lows compares to May, but it has closed above May top, so I think that we could treat it as "bullish reversal" month.

As we said last week - currently we could talk only about positive things on gold. Price starts to show bullish performance and our expectations get reward. Fundamental factors have given the 2nd breath and price returns back above the doji range. Thus, price stands confident above the top.

MACD trend here still stands bullish. Upside targets stand the same - with overbought level around 1850 and no Fib levels above, next logical destination is top of 2012 around 1800 area and then 1920 top. Technical target of broken doji's range also points on area around $1920 level.

In a case of downside retracement, the bottom of the doji is strong support area of YPP and K-area, accompanied by monthly oversold. But, I hope that it it won't run to that. More probable is reaching of some strong support areas inside the doji range. Although currently it is difficult to foresee reasons for deep drop.

gold_m_06_07_20.png


Weekly

This week we again have to pay attention to pivots, because of absence of other tools, at least here, on weekly chart. Trend stands bullish, no overbought levels. July Pivot stands at 1745 and it has not been tested yet, while MPR1 is ~1820 and agrees with daily target and monthly minor top of 2011. This week also has become a bullish grabber and it suggests that price could climb higher on coming week.

At the same time, if you plot MACD here - you'll see the hint on possible bearish divergence. But it is not completed yet and may be not appear at all. So we have to keep an eye on it as well.
gold_w_06_07_20.png


Daily

Here we still follow to butterfly pattern. Once first, 1.27 target has been hit, reaction follows, but it appears to be very small as price stands tight and above previous 1750 top. This is bullish sign. As market was in a tight range last week - pivots also stands very tight. So, this is additional tool that we could use. Price will open around Weekly pivot and breaking of WPS1 will tell that deeper retracement will follow. While breakout of WPR1 that agrees with the top suggests upside trend continuation.

Still all this stuff makes sense only for intraday performance. Bullish context stands out of any dangerous and it is big drop needed to cancel it.

gold_d_06_07_20.png


Intraday

On intraday charts market stands on the hook. No bright patterns to any direction and price could as trigger a bit deeper retracement as re-establish upward trend. Even here, on 4H chart we have two divergences at once and both in opposite directions. Our grabbers that we've recognized on Friday are still here and they become even more, but now price action has followed yet.

Around important Fib levels we have pivots as well. Thus, 1756 support coincides with WPS1 while 1737-1744 K-area that is very important for us - agrees with MPP that is also the former neckline by the way.

Thus, current situation is not for conservative traders. If you belong to this category, your choice is to wait either deeper drop to K-support area, or upside breakout, or maybe wait for clear pattern.

gold_4h_06_07_20.png


Active traders could make some trades, although they are accompanied by higher degree of risk and uncertainty. One of them have mentioned already - the grabbers. Conversely, it could be using of stop "Buy" entry order for breakout above 1780. Now I'm tending to idea of upward continuation still. Situation on daily chart looks too similar to the one that we've traded last week. Recall that there was the same tight consolidation after fast upside action with the signs of bullish dynamic pressure.

After minor 3/8 retracement market has turned to explosive upside action. Doesn't this situation reminds the one that we have now? Take a look at the picture:
gold_1h_06_07_20.png


Besides, overall context stands bullish and any bearish trade is more risky inherently. So, personally I feel not comfortable to sell right now, even with the grabbers that we have on 4H chart.


Conclusion.
That's being said, now we do not have any doubts with long-term bullish context of Gold market. All our talks about deeper retracement mostly have relation to intraday tactic market performance and have no impact on major tendency.
 

Sive Morten

Special Consultant to the FPA
Messages
13,930
Greetings everybody,

As EUR as Gold has shown upward jump but it was not too strong and price again stops around previous tops. On daily chart we again has not got any grabber. Now situation stands so that gold has to prove its bullish ambitions and has to hold at current levels to keep bullish scenario valid:
gold_d_07_07_20.png


Still we see some strange signs in current price action. Usually, when price already has started upward extension it never stops below previous top, trying to challenge and break them. But this time we have different case. Our 4H divergence still stands here and this make me think that we could get different pattern - 3-Drive "sell" that could start from 1800 area:
gold_4h_07_07_20.png


But first market has to get there. To keep this scenario valid price has to hold above 1775 K-support. Otherwise, deeper retracement could start. Thus, if you watch for long entry here - you could consider this level as well.
gold_1h_07_07_20.png
 

Sive Morten

Special Consultant to the FPA
Messages
13,930
Greetings everybody,

So, Gold is done precisely what we've expected. On daily, finally, we've got the bullish grabber, although I would prefer to get it earlier than now :)

And today we have to discuss some nuances around our 3-Drive "Sell" pattern. In two words - it could either fail or show weaker than expected reaction. So do not hurry to go short based on it:
gold_d_08_07_20.png


Yes, we have more extended targets at 1823 - daily butterfly and here, reverse H&S XOP to name some, but major reason of our suggestion is acceleration. Take a look that market increases speed right to 3rd drive's top. This is negative sign for bearish reversal pattern which is 3-Drive "Sell". And it makes us think that gold could proceed right to 1823 either immediately or after minor retracement, but not below the lows between 2nd and 3rd drive as it should be buy perfect shape of the pattern.
gold_4h_08_07_20.png


Besides, on 1H chart gold has completed perfectly bullish conditions - price was able to hold above pre-specified K-support area and rally has started right from there.
gold_1h_08_07_20.png


This situation means two things. If you keep longs - tight stops, book some profit, but do not close position totally as it could climb higher.

Second - if you want to Sell based on 3-Drive - do it only if we will get clear bearish reversal pattern on 1H or lower time frames. Do not do it right from 1800 area blindly just because this is 3rd Drive top.
 

Sive Morten

Special Consultant to the FPA
Messages
13,930
Greetings guys,

Here we do not a lot of adjustments as everything goes according to our plan. As gold is coming to 1823 target it is a time to think about profit booking. It depends on your time frame. On daily you could grab the whole, or at least 60% and tight the stop to intraday support area for the rest. Pullback could be significant, at least 30% of the butterfly value and price could re-test broken 1750 top. For weekly/monthly traders, you could keep some part because within 1-2 months gold could try to challenge all time $1912 top. For short-term traders it makes sense to close position totally:
gold_d_09_07_20.png


Additionally to daily butterfly, we have 4H H&S XOP target that stands precisely at the same 1823 level.3-Drive indeed has failed, as we've suggested yesterday:
gold_4h_09_07_20.png


It seems that upside action could be finalized by small 1H butterfly pattern. Its lows is good point for stop tighten. Scalp traders with bearish view could consider daily+1H butterflies for scalp short trade. But you have to avoid any acceleration. If it happens - don't be short. Only gradual completion of 1823 targets is acceptable.
gold_1h_09_07_20.png
 

Sive Morten

Special Consultant to the FPA
Messages
13,930
Greetings guys,

Today is just minor update to the gold market. On daily chart is nothing new - we still wait for 1823 butterfly target. On 4H chart it coincides with our XOP and MPR1:
gold_4h_09_07_20.png


Today's update mostly relates to 1H chart. Yesterday we've suggested that it might be small upside butterfly that could finalize the upside action. But price shape has changed a bit and gold has dropped slightly deeper. Now it stands at support, that is suitable for trailing stop. Gold has to turn up and complete the 1823 target, otherwise if it ignores it somehow, it breaks this K-area. That, in turn, means that this trade is over. I mean our long-term upside run that lasts few weeks already:
gold_1h_09_07_20.png
 
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