Sive Morten
Special Consultant to the FPA
- Messages
- 18,760
Fundamentals
Although on passed week there are some significant data and events were happened, I do not see any changes in overall bearish sentiment, even more – it was nurtured by this data and events. Actually in all spheres that could impact on gold we see the same picture.
Speaking about US economy we can’t just ignore most recent NFP data that shows nice 195K of new jobs, exceeding expectations of 165K. This again has stirred up the rumors about faster than expected contraction of QE program. Concerns about when the U.S. central bank could begin paring its stimulus have triggered turbulence across major asset classes worldwide. That has prompted Fed officials to back-pedal on Chairman Ben Bernanke's recent suggestion that the retreat could occur between later this year and next. Gold posted its biggest quarterly loss on record, down 23 percent for April-June and hit a near 3-year low of $1,180.71 last week, on selling exacerbated by Bernanke' comments that the economy was recovering strongly enough for the Fed to begin tapering in the next few months.
Such a retreat would support a rise in interest rates, making gold less attractive as a buy-and-hold asset.
By Reuters news – Frank McGhee, head precious metals trader at Integrated Brokerage Services in Chicago, said: "The jobs numbers we got today simply reinforce the market's forward-looking position on where gold is likely to be down the road. The market is looking 6 to 8 months out, pricing gold in a rising interest rates environment."
Rapid outflows from gold exchange-traded products (ETPs) and softer-than-expected physical demand were other reasons for the weakness in gold. Gold ETPs holdings fell by $4.1 billion in June and $28.2 billion year-to-date, according to data from BlackRock. Indian consumption of gold has fallen since the country imposed new import restrictions. Chinese buyers are sidelined, waiting for prices to fall further, or at least stabilize.
From the other side, US dollar stands now at 3-year high. Gold has also come under pressure after the European Central Bank signalled in the previous session that it could cut interest rates further, a move that will push the dollar even higher and weigh on gold.
"The euro is likely to remain week, as the ECB will remain accommodative longer than the Fed... And when combined with relatively subdued inflation expectations on both sides of the Atlantic, this is gold bearish," VTB Capital said in a note. The benchmark 10-year U.S. Treasury yield rose to its highest level since August 2011 at 2.67 percent earlier. As gold pays no interest, the rise in returns from U.S. bonds and other markets is seen as negative for the metal.
Thus, we can see as in sphere of physical demand, as in economy data the concerns about faster than expected closing of QE program and falling of gold attractiveness just exacerbated. So, fundamentally there are no changes in previous bearish look on gold. But as we’ve said in previous research too radical bearishness is also dangerous.
Monthly
July candle is rather small and just inside one for June by far. Thus, our previous analysis is still the same. June candle leads us to further confirmation of Volatility Breakout pattern here by showing even lower close than in May and April. This pattern usually provides solid reliability, since it based not on some price averaging as other indicators but on statistical measure of standard deviation, i.e. on volatility. This is in fact the core of the market’s breath and if we can call it in this way – some statistical law that could lead to significant consequences.
Now we have VOB setup here. Market never was as oversold as it stands now. Take a look at DOSC indicator again – market now stands at all time extreme point that is lower than the previous extreme value in 2008. This gives us very significant conclusion that will be hard to overvalue. Usually when market forms VOB it leads to 2-leg downward move in some shape of AB-CD, but not necessary that AB should be equal to CD. The minimum target of VOB is 0.618 extension of AB-CD, where AB – initial swing down that has given VOB. Other words – now market is forming AB move. On previous week in fundamental part above we’ve discussed possibility of appearing of BC leg, since sentiment is extremely bearish. Then some retracement up should follow and then downward continuation, i.e. extension. And major question now – is current level suitable for starting of upward bounce? Technically it is worthy of our attention and not only because this is significant Fib level. Take a look – this is also target of double harmonic swing and target of rectangle breakout. Usually price tends to pass down the distance that equals the height of broken rectangle. And yes, monthly oversold is also here. It is not necessary that bounce will start tomorrow. It could happen even not in July and after some fluctuations around 1200, but we should be careful and keep an eye on possible reversal patterns on weekly chart.
So two significant conclusions could be made here: whatever bounce market will show here – this probably will be just retracement but not a reversal – the same thought we’ve made based on fundamental picture analysis. The fact that market has passed slightly below Fib support level doesn’t mean yet that this level is broken. This is monthly chart and really big picture. We need to see stable possession below 1200 to accept this idea.
Weekly
Weekly chart also does not care any surprises. Previous week was inside one as well and market only has tried to return back to previous lows. It means that we still didn’t get here any signs of sensible retracement up. Weekly and monthly charts are rather long a big picture, so to get here something valuable we need much more time.
Thus, on monthly chart we said, that “somewhere” around market could probably meet some support and turn to retracement. But where is this support precisely? Let’s see what facts do we have right now. Bullish signs include monthly Fib support, 1.618 target of initial AB=CD on weekly chart, weekly oversold and Butterfly “Buy”, although butterfly target was exceeded to the downside. But all these signs do not resolve major task – changing the tendency here. Precisely speaking, they could break the tendency, but it has not been done yet, since market just has reached this significant level. And we’re still just preparing to see whether major tendency will change or not and will these patterns become a trigger for upward significant bounce.
The major tendency itself could be easily seen here. Take a look that market forms lower highs and lower lows. Retracements very small and market has doubled it only once. Thus, we need to see higher high to start thinking about possible upward reversal. Now, we can say only that as market has hit solid support area – it could show a bounce and the nearest target is new July MPP at 1279.
Daily
Here guys you see the finish of our B&B “Sell” trade that we’ve made during previous week. On Friday we’ve said that as market has failed to continue move higher to 50% resistance and MPP and it has no more time, since there were 3 days above 3x3 by this time, we’ve said that probably B&B should start right now and that has happened. Market has hit our target at 1210-1215 area.
Actually right now only there are two possibilities exist – either AB=CD retracement up or downward continuation. Since here we’ve got bullish stop grabber pattern, although this one stands against major trend AB=CD upward retracement seems not as impossible as it could be without it. Currently is very tricky situation on gold market and personally I feel a bit uncomfortable to trade something longer than say B&B trade on daily. The point is that we at solid support, market look really heavy and oversold and all are extremely bearish. At the same time market stands at the eve on seasonal trend changing into bullish. In such circumstances it is difficult to sell, especially when you do not have any clear patterns to do it. From the other point of view we do not have any impressive buy setups. Yes, we have bullish stop grabber and possibility for AB=CD up, but it is not solid setup. So, if you still will decide to trade something here – be careful and ready that this will be risky.
Keep an eye on stop grabbers low. If market will take it out, then there probably will not be any AB=CD. Conversely, we could start think about short entry only if market will erase stop grabber pattern. So, let’s focus on it in the beginning of the week and later we will see, what will happen.
4-hour
Here in fact you see this potential upside scenario. Take a look, how market has hit B&B target – almost tick-to-tick. One of the reasons why this upward action is possible, beyond daily stop grabber pattern is untouched MPP. Market tends to touch it within the month. Also this possible AB=CD pattern creates an Agreement with 1301 Fib resistance level that stands inside of daily K-resistance area (1290-1308). Now price stands very close to daily stop grabber’s low, thus risk on this trade will be very small.
1-hour
So, if you still would like to take long position – here is how it could be done. We have very nice looking number of Fib levels, that includes K-support area. Gold market likes to show deep retracements and previous move down was significant. Thus, market probably will reach 1217 K-support area at minimum or even 1213 level. Invalidation point for this scenario is current low at 1208. That is about scalp traders. If you trade on daily then it will be better to wait when this retracement will finish and search possibility to enter short at Agreement for example. Depending on how market will behave round 1300 area we will prepare plan a bit later with more precision.
Conclusion:
Technically and fundamentally gold market stands in long-term bearish motion, but there are more and more factors start to appear that make downward action as not as cloudless as it was recently. Also we’ve got VOB pattern that gives us forecast for long-term price behavior and promise compounded downward move in shape of some AB-CD. Now major question in big picture – is when and how BC up leg will start.
We do not know just yet – is current move up is just a minor bounce or something bigger. Until we will not get more clarification on longer time frames, let’s treat it as retracement. By now it has a possible target around 1300 area if market will show enough power to pass through WPP and give us AB=CD retracement.
On Monday our attention will be stick with daily bullish stop grabber pattern and potential retracement back inside of its body that could give us opportunity to enter long.
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.
Although on passed week there are some significant data and events were happened, I do not see any changes in overall bearish sentiment, even more – it was nurtured by this data and events. Actually in all spheres that could impact on gold we see the same picture.
Speaking about US economy we can’t just ignore most recent NFP data that shows nice 195K of new jobs, exceeding expectations of 165K. This again has stirred up the rumors about faster than expected contraction of QE program. Concerns about when the U.S. central bank could begin paring its stimulus have triggered turbulence across major asset classes worldwide. That has prompted Fed officials to back-pedal on Chairman Ben Bernanke's recent suggestion that the retreat could occur between later this year and next. Gold posted its biggest quarterly loss on record, down 23 percent for April-June and hit a near 3-year low of $1,180.71 last week, on selling exacerbated by Bernanke' comments that the economy was recovering strongly enough for the Fed to begin tapering in the next few months.
Such a retreat would support a rise in interest rates, making gold less attractive as a buy-and-hold asset.
By Reuters news – Frank McGhee, head precious metals trader at Integrated Brokerage Services in Chicago, said: "The jobs numbers we got today simply reinforce the market's forward-looking position on where gold is likely to be down the road. The market is looking 6 to 8 months out, pricing gold in a rising interest rates environment."
Rapid outflows from gold exchange-traded products (ETPs) and softer-than-expected physical demand were other reasons for the weakness in gold. Gold ETPs holdings fell by $4.1 billion in June and $28.2 billion year-to-date, according to data from BlackRock. Indian consumption of gold has fallen since the country imposed new import restrictions. Chinese buyers are sidelined, waiting for prices to fall further, or at least stabilize.
From the other side, US dollar stands now at 3-year high. Gold has also come under pressure after the European Central Bank signalled in the previous session that it could cut interest rates further, a move that will push the dollar even higher and weigh on gold.
"The euro is likely to remain week, as the ECB will remain accommodative longer than the Fed... And when combined with relatively subdued inflation expectations on both sides of the Atlantic, this is gold bearish," VTB Capital said in a note. The benchmark 10-year U.S. Treasury yield rose to its highest level since August 2011 at 2.67 percent earlier. As gold pays no interest, the rise in returns from U.S. bonds and other markets is seen as negative for the metal.
Thus, we can see as in sphere of physical demand, as in economy data the concerns about faster than expected closing of QE program and falling of gold attractiveness just exacerbated. So, fundamentally there are no changes in previous bearish look on gold. But as we’ve said in previous research too radical bearishness is also dangerous.
Monthly
July candle is rather small and just inside one for June by far. Thus, our previous analysis is still the same. June candle leads us to further confirmation of Volatility Breakout pattern here by showing even lower close than in May and April. This pattern usually provides solid reliability, since it based not on some price averaging as other indicators but on statistical measure of standard deviation, i.e. on volatility. This is in fact the core of the market’s breath and if we can call it in this way – some statistical law that could lead to significant consequences.
Now we have VOB setup here. Market never was as oversold as it stands now. Take a look at DOSC indicator again – market now stands at all time extreme point that is lower than the previous extreme value in 2008. This gives us very significant conclusion that will be hard to overvalue. Usually when market forms VOB it leads to 2-leg downward move in some shape of AB-CD, but not necessary that AB should be equal to CD. The minimum target of VOB is 0.618 extension of AB-CD, where AB – initial swing down that has given VOB. Other words – now market is forming AB move. On previous week in fundamental part above we’ve discussed possibility of appearing of BC leg, since sentiment is extremely bearish. Then some retracement up should follow and then downward continuation, i.e. extension. And major question now – is current level suitable for starting of upward bounce? Technically it is worthy of our attention and not only because this is significant Fib level. Take a look – this is also target of double harmonic swing and target of rectangle breakout. Usually price tends to pass down the distance that equals the height of broken rectangle. And yes, monthly oversold is also here. It is not necessary that bounce will start tomorrow. It could happen even not in July and after some fluctuations around 1200, but we should be careful and keep an eye on possible reversal patterns on weekly chart.
So two significant conclusions could be made here: whatever bounce market will show here – this probably will be just retracement but not a reversal – the same thought we’ve made based on fundamental picture analysis. The fact that market has passed slightly below Fib support level doesn’t mean yet that this level is broken. This is monthly chart and really big picture. We need to see stable possession below 1200 to accept this idea.
Weekly
Weekly chart also does not care any surprises. Previous week was inside one as well and market only has tried to return back to previous lows. It means that we still didn’t get here any signs of sensible retracement up. Weekly and monthly charts are rather long a big picture, so to get here something valuable we need much more time.
Thus, on monthly chart we said, that “somewhere” around market could probably meet some support and turn to retracement. But where is this support precisely? Let’s see what facts do we have right now. Bullish signs include monthly Fib support, 1.618 target of initial AB=CD on weekly chart, weekly oversold and Butterfly “Buy”, although butterfly target was exceeded to the downside. But all these signs do not resolve major task – changing the tendency here. Precisely speaking, they could break the tendency, but it has not been done yet, since market just has reached this significant level. And we’re still just preparing to see whether major tendency will change or not and will these patterns become a trigger for upward significant bounce.
The major tendency itself could be easily seen here. Take a look that market forms lower highs and lower lows. Retracements very small and market has doubled it only once. Thus, we need to see higher high to start thinking about possible upward reversal. Now, we can say only that as market has hit solid support area – it could show a bounce and the nearest target is new July MPP at 1279.
Daily
Here guys you see the finish of our B&B “Sell” trade that we’ve made during previous week. On Friday we’ve said that as market has failed to continue move higher to 50% resistance and MPP and it has no more time, since there were 3 days above 3x3 by this time, we’ve said that probably B&B should start right now and that has happened. Market has hit our target at 1210-1215 area.
Actually right now only there are two possibilities exist – either AB=CD retracement up or downward continuation. Since here we’ve got bullish stop grabber pattern, although this one stands against major trend AB=CD upward retracement seems not as impossible as it could be without it. Currently is very tricky situation on gold market and personally I feel a bit uncomfortable to trade something longer than say B&B trade on daily. The point is that we at solid support, market look really heavy and oversold and all are extremely bearish. At the same time market stands at the eve on seasonal trend changing into bullish. In such circumstances it is difficult to sell, especially when you do not have any clear patterns to do it. From the other point of view we do not have any impressive buy setups. Yes, we have bullish stop grabber and possibility for AB=CD up, but it is not solid setup. So, if you still will decide to trade something here – be careful and ready that this will be risky.
Keep an eye on stop grabbers low. If market will take it out, then there probably will not be any AB=CD. Conversely, we could start think about short entry only if market will erase stop grabber pattern. So, let’s focus on it in the beginning of the week and later we will see, what will happen.
4-hour
Here in fact you see this potential upside scenario. Take a look, how market has hit B&B target – almost tick-to-tick. One of the reasons why this upward action is possible, beyond daily stop grabber pattern is untouched MPP. Market tends to touch it within the month. Also this possible AB=CD pattern creates an Agreement with 1301 Fib resistance level that stands inside of daily K-resistance area (1290-1308). Now price stands very close to daily stop grabber’s low, thus risk on this trade will be very small.
1-hour
So, if you still would like to take long position – here is how it could be done. We have very nice looking number of Fib levels, that includes K-support area. Gold market likes to show deep retracements and previous move down was significant. Thus, market probably will reach 1217 K-support area at minimum or even 1213 level. Invalidation point for this scenario is current low at 1208. That is about scalp traders. If you trade on daily then it will be better to wait when this retracement will finish and search possibility to enter short at Agreement for example. Depending on how market will behave round 1300 area we will prepare plan a bit later with more precision.
Conclusion:
Technically and fundamentally gold market stands in long-term bearish motion, but there are more and more factors start to appear that make downward action as not as cloudless as it was recently. Also we’ve got VOB pattern that gives us forecast for long-term price behavior and promise compounded downward move in shape of some AB-CD. Now major question in big picture – is when and how BC up leg will start.
We do not know just yet – is current move up is just a minor bounce or something bigger. Until we will not get more clarification on longer time frames, let’s treat it as retracement. By now it has a possible target around 1300 area if market will show enough power to pass through WPP and give us AB=CD retracement.
On Monday our attention will be stick with daily bullish stop grabber pattern and potential retracement back inside of its body that could give us opportunity to enter long.
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.
