Gold GOLD PRO WEEKLY, July 12 - 16, 2021

[Sive Morten]

Fundamentals

This week gold mostly was driven by its own factors - reaction on some US statistics and Fed minutes. The major direction is not set yet and price spends time in the same 1730-1850 area that we've specified last week. We were keeping in focus 1825 resistance area that has worked well in holding any rally that have happened last week. Still, it is interesting how our larger setup works - monthly bearish engulfing pattern.

Market overview

Gold held firm below a two-week high on Monday, as concerns eased over an earlier-than-expected rate hike by the Federal Reserve after a mixed bag of U.S. jobs data, while focus shifted to minutes from the U.S. central bank’s June policy meeting.

“Last week’s payroll numbers provided a lot of mixed signals and the data wasn’t solid enough to move that Fed needle,” Stephen Innes, managing partner at SPI Asset Management, said. However, economic growth in the United States is quite strong, inflation is quite strong ... We have to be very cognizant as markets are still playing a hawkish Fed hand and this is going to limit gold topside ambitions.”

Meanwhile, a rebound in the U.S. labour market is strengthening investors’ focus on economic data and the Fed’s next move, as markets cheer further evidence of a robust economic recovery amid worries over persistent inflation.

Gold prices were up 1% on Tuesday, having risen above the key $1,800 level, once again supported by a weaker dollar

“Gold seems to be drawing strength from a weaker dollar,” said Lukman Otunuga, senior research analyst at FXTM. “While (last week’s) mixed jobs data has somewhat eased rate hike fears, these concerns may be revived by higher energy costs and economic data pointing to rising inflationary pressures,” Otunuga added.

“Unquestionably, the key driver (for gold) is the decline in U.S. Treasury yields,” independent analyst Ross Norman said. But the recovery in gold prices has been slow and somewhat lacklustre considering the 7% decline in June, when the Fed sent a hawkish signal, Norman said.

Benchmark 10-year Treasury yields hit their lowest in more than four months.

Fed officials last month felt substantial further progress on the U.S. economic recovery “was generally seen as not having yet been met,” but agreed they should be poised to act if inflation or other risks materialised, according to the minutes of the central bank’s June policy meeting.

A new rise in coronavirus infections driven by the more virulent Delta variant could cause consumers to “pull back” and slow the U.S. recovery, Atlanta Federal Reserve President Raphael Bostic said.



The European Central Bank will on Thursday announce the outcome of an 18-month strategy review, redefining its inflation target and laying down what role it plans to play in the fight against climate change.

Gold prices slipped on Thursday, weighed down by a stronger dollar after minutes from the U.S. Federal Reserve’s latest meeting highlighted inflationary pressures and confirmed that asset purchases tapering is on the cards this year.

“Following FOMC (Federal Open Market Committee) minutes, there was a modestly positive response from the dollar and a negative response from gold,” said DailyFX currency strategist Ilya Spivak. “As we get digestion over those FOMC minutes, we’re starting to get some concern that perhaps we are looking at a situation where the Fed is starting to shift its focus to fighting inflation.”

“The general view for gold is upwards ... and the one obstacle in the market that prevents gold from rising and pulls it back is the dollar. With the dollar weakening somewhat, the metal is up again,” said Commerzbank analyst Carsten Fritsch.

He said there wasn’t any “new surprise” in the minutes from the U.S. Federal Reserve’s latest monetary policy meeting, adding the drop in bond yields was price-positive for gold.

“While a pick-up of inflation should bring new buyers into the (gold) market, tighter monetary policy is set to keep the metal within recent ranges,” BofA Global Research said in a note, forecasting gold to average $1,828 this year. BofA expects platinum demand to rise, citing increased substitution from palladium and platinum’s role in the hydrogen economy. “We see further upside from here, especially when recent disruptions in the auto industry subside,” the bank added.

U.S jobless claims rose slightly last week to 373,000, above a forecast 350,000 applications in a Reuters poll.

Edward Moya, senior market analyst at OANDA, said the recent economic readings suggests substantial progress needs to be made for the Fed to raise interest rates, and that is supportive of gold.

U.S. Federal Reserve minutes from June 15-16 meeting showed “various participants” felt conditions for reducing the central bank’s asset purchases would be “met somewhat earlier than they had anticipated.”

Gold edged higher in choppy trade on Friday and was set for a third straight weekly gain as concerns over the fast-spreading Delta variant of COVID-19 and a drop in U.S. Treasury yields lifted the safe-haven metal’s allure. Lower bond yields and concern over the COVID-19 Delta variant’s potential impact on global growth are helping gold, said Stephen Innes, managing partner at SPI Asset Management.

“However, the dollar is holding up to a large degree and I think that in itself is limiting gold’s move,” he added.

Benchmark U.S. 10-year Treasury yields languished near a more than four-month low while the U.S. dollar rose 0.1% towards a three-month high hit in the previous session. Sentiment in wider equity markets remained fragile as the Delta variant threatened global economic recovery, sending Asian shares to a two-month low.

“The key psychological $1,800/ounce level is acting as a barrier for gold. Once it sustains above that for some time, we could see some fresh technical buying,” said Harshal Barot, a senior research consultant for South Asia at Metals Focus.

Physical gold demand in India and other major hubs weakened this week as consumers were put off by a rise in the yellow metal's price, while premiums for bullion also retreated. Gold futures in India were trading around 47,800 rupees per 10 grams on Friday, having risen to an over three-week high of 48,290 rupees in the previous day.

"Demand was improving after the government eased lockdown restrictions, but the sudden price jump is again weighing on sentiments,” said Ashok Jain, proprietor of Mumbai-based gold wholesaler Chenaji Narsinghji.

Dealers were charging a premium of up to $1.5 an ounce this week over official domestic prices — inclusive of the 10.75% import and 3% sales levies, down from last week's premium of $3. Jewellers are making inquiries and buying small quantities but still their purchases are far lower than normal, said a Mumbai-based bullion dealer with a gold-importing bank.

In top consumer China, premiums were at about $1 an ounce over the global benchmark spot prices compared with last week's $3-$4 premium.

Demand was also soured after the Postal Savings Bank of China announced the suspension of new openings for accounts to trade the spot precious metals market, said Bernard Sin, regional director at Greater China at MKS.

"I expect more Chinese banks to completely halt precious metals trading based on restrictions imposed by the government," Sin said.

"Gold prices came up a little, so we've actually in fact seen more selling ... We've seen a lot more retail client coming through to sell and probably they were all waiting on the sidelines for it go above $1,800," said Brian Lan, managing director at dealer GoldSilver Central.

“We do continue to have issues with the Delta variant. That may very well slow economic progress, not only in the United States, but of course around the world,” said Bart Melek, head of commodity strategies at TD Securities. As investors get convinced that the U.S Federal Reserve indeed is targeting full employment and that it’s not particularly worried about inflation moving above targets for a period, we could see gold’s move over $1,850 by year-end.”

Meanwhile, a British regulator said banks clearing gold trades in top hub London could apply for an exemption from tighter capital rules due in January, removing what some said was a threat to the functioning of the market.

The upcoming rules, known as the net stable funding ratio (NSFR), are part of Basel III regulations designed to make banks more stable and prevent a repeat of the financial crisis of 2008-09. The rules treat physically traded gold like any other commodity, requiring banks to hold more cash to match their gold exposure as a buffer against adverse price moves.

The London Bullion Market Association (LBMA), an industry body, has lobbied against them, saying they are unnecessary and could force some banks – including clearing banks - to stop trading.

Following a consultation, the Bank of England's Prudential Regulatory Authority (PRA) said on Friday it had "decided to amend its approach to precious metal holdings related to deposit-taking and clearing activities."

It said it had introduced an "interdependent precious metals permission" which would reduce the size of the required capital buffer. "This is one of the key points that what we've been asking for all these years," said Sakhila Mirza, the LBMA's chief counsel. "Clearing will be exempt."

The PRA said it would not classify gold as a high-quality liquid asset, which would have freed other trades such as precious metals loans and leases from the high capital requirement. The LBMA says gold is liquid enough not to need an additional liquidity buffer for clearing and settlement and short-term transactions.

JPMorgan and HSBC declined to comment. ICBC Standard did not immediately respond late on Friday.

A spokesperson for UBS said: "UBS welcomes the PRA's decision, which supports stability in bullion cleaning and avoids disruption to the London market."

COT Report

Now we need regularly control the sentiment as price action doesn't totally reflect the real situation. Just two weeks ago we were concern on why price shows great performance but SPDR fund reserves doesn't grow, that was looking suspicious, showing that investors do not invest in gold and price jump mostly the result of speculative games.
This week again, we see rise of net long position on the gold market:

Source: cftc.gov
Charting by Investing.com

At the same time, SPDR reserves chart shows no sentiment rising. Price has dropped back to match SPDR level and last week both data shows decreasing:

Source: SPDR Fund, FPA calculations

CFTC report still confirms this week positive shift in sentiment. Net long position has increased on a background of rising open interest, which is a positive sign for coming week:

Last week we've set two levels for gold market from multiple comments of analysts of big banks. All of them speak approximately about the same - 1730$ and 1850$. Today we see this level again the comments above. Currently, despite nice performance in recent 2-3 weeks, investors are careful with their assessment of gold market perspectives. Many of them point of retracement type of action, that we are mostly agree with.

It is no need to repeat again our long term view here - we treat current upward action as swan song and prepare for bearish market on gold that should start in nearest year. While in shorter-term it seems that on coming week we have to play the same game - "guess reversal point". Currently we watch for the same 1825 area, as downside continuation with the strong monthly pattern should start sooner rather than later.

At the same time, as we've said in our EUR report - we have to be careful with any decision making, because seasonal relief in major statistics in summer support gold and it could climb higher, say, to the same 1850 area before situation changes. That's why, every time when market stands at the point of potential reversal we have to tempt it for reliability, but not follow it blindly, just because this is preset level.

Technicals
Monthly

On monthly chart we have the same story by far. 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.

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. Take a look how YPP holds upward action last week, when market was not able to return right back above it.

Classical price shape suggests minor pullback to 3/8-1/2 of engulfing range and then downside extension to next major target. As we were following this trading plan last week - so let's stay on it further.

Weekly

Here price keeps upside reaction on support level. Trend stands bearish but, as we've mentioned earlier we've got direction pattern that overrules trend - bullish DiNapoli "Stretch" as a combination of Oversold and Fib support level. Upside action looks weak to treat it as a reversal and mostly looks like technical shy reaction on oversold and Fib support. Because of Stretch "counter trend" character, it usually leads to wobbling and slow pullbacks, which is totally agrees with major scenario mentioned above. Take a look that DOSC indicators comes to zero level that completes Stretch validity, and this probably should happen on coming week.

Daily

Last week 1820$ level has worked fine, holding all bullish efforts to push price higher. Still, although multiple bearish setups were formed around - no one leads to real reversal, was triggering just tactical pullbacks.

Price right now still stands below 1814 Fib resistance area, but on coming week it becomes weaker because overbought level moves higher to next 50% resistance level of 1833$.

Also guys, as you know we do not use MA's in our analysis and its combinations such "gold cross" and "deadly cross" etc. But, for the gold market these MA's look epic, as many analysts of big banks talk about them. This week we have unique situation when 50 MA and 200MA stands very close to each other and agrees with Overbought level around major 1833$ 50% resistance. That's why on coming week our "Rock hard" resistance move higher, and it would be just perfect if we get entry chance around it.

Nevertheless we do not intend to ignore any setups that might be formed around 1820-1825$ area as well, because it still looks suitable for reversal as well. But, as usual we need patterns to step it.

Intraday

Intraday charts show that maybe we do not need 1830-1835$ area. At least, on 4H chart we've got grabber on Friday, trend stands bearish with rising divergence and price inside of rectangle consolidation under major K-resistance area. In general, we already said that grabbers in last trading hours are tricky, but if this one survives on Monday, it might become important, especially in combination with pattern that we have on 1H chart:

Gold market is fan of "222" pattern, we've seen three within 5 days. Whether this one, the third leads to reversal - we do not know, but with the grabber on 4H chart, if it remains valid on Monday, it could become nice setup to consider short entry, especially because of tight stop placement just above OP top. Alternatively, in a case of upward continuation we keep looking at 1822 XOP target and next to 1830-1835$ area. First downside target probably will be 1790 K-support level.

 

[Sive Morten]

Morning everybody,

So, as we've agreed in weekly report - we're watching for two levels 1820-1822 and 1835 for market response. Because gold could start dropping from any of them. 1835 now is a cluster of key indicators for gold market - 200MA, 50MA and daily overbought area, including 50% Fib level:

Recent performance was mostly bullish, suggesting that gold has good chances to complete 1820-1822 targets at least, and maybe even proceed to 1835$. In general - tight consolidation near resistance tells that market doesn't want to go down. Recently we've got fake consolidation breakout and forming of engulfing pattern with reversal bar inside. So the grabber here is completed now.

1H performance has happened as we've suggested based on "222" Sell pattern. Drop has stopped right at 1790 K-support area. Now we do not consider any short positions as chances to reach XOP @ 1822 looks solid. As a possible price shapes here - we could get reverse H&S or simple AB-CD in a case of minor retracement back to the low border of the channel.
For short entry we first need to see response on 1820-1822 resistance area and whether any patterns will be formed there.

 

[Sive Morten]

Good morning,

Gold barely was impacted by CPI report, compares to EUR, where bullish context was totally crushed. But on gold market daily chart has not changed. So, we're following to our trading plan and watch for 1820-1825 target area today:

On 4H chart in result of CPI report few grabbers have been formed that provides more confidence that gold should proceed higher. Fake flag breakout recently tells that market even could go higher and challenge opposite border of the pattern. This leads us to daily 1830-1835$ resistance:

On 1H chart patterns that we've discussed have been formed, but we see it only in hindsight. In real-time moment it was difficult to recognize it as CPI dive was very fast and short-term. But here you could recognize as butterfly as reverse H&S, although they are not as evident as usual.

Anyway, whatever patterns we choose - mostly they have the same targets of 1820-1825$. Thus, if you have no positions - it is possible to go long but find the entry moment with reward/risk ratio >1. We could keep existed longs and no shorts by far. Concerning short positions - we need to see how market response to 1820-1825 area. Sideways consolidation and no pullback will be the bullish sign, while sharp reversal, appearing of large H&S pattern - bearish.

 

[Sive Morten]

Greetings everybody,

Sorry for delay in text update... So, gold mostly has completed targets that we've specified and shows performance that we've discussed - price could climb slightly higher and try to reach 1835 resistance area, that we see right now. Since we stand in larger scale bearish context - now we need to watch for market's response, whether any bearish signals appear around:

On 4H chart, price is breaking flag consolidation, moving above our K-area (not shown here). Now we could use bigger scale extensions and take in consideration AB=CD OP target that perfectly agrees with major 5/8 Fib level of 1852:

But, before turning to 1852 - let's see for response to 1835$. The point is we have butterfly that discussed yesterday and it completes 1.618 extension target. Now, if sharp reversal start forming here - it might be the starting point of downside extension with longer-term bearish context, and potentially, price could form, say, H&S pattern that I plot here. So it is big temptation to sell right at the top of the butterfly, with the stop slightly above it, that provides minimal risk and best potential reward. More conservative approach is to wait for H&S still, or some other bearish reversal pattern.

But this is only the half of the story. Alternatively, if price breaks it up - it means no reversal is coming yet and we should be focused on 1852 area, mentioned above.

 

[JOELIBOK]

Great analysis! Succinctly expressed! Thanks Sir Sive.

 

[Sive Morten]

Greetings everybody,

So this week it is more pleasure to deal with Gold rather than FX. Gold accurately follows the patterns and levels that we've specified, showing good technical response. Thus, on daily market hits the resistance cluster that we've specified and is showing some response but still we have uncertainty what the response it will be - minor one, or preparation to downside continuation with big picture:

On 4H chart we have some bearish signs as well. First is MACD divergence and price inability to proceed higher, turning down back in consolidation from COP level:

On 1H chart everything stands with our scenario - gold starts to show some reaction on butterfly pattern. And this is the chance to sell for those, who do not want to wait until big pattern will be formed. Although this trade has big advantage - it lets to place very tight stop, just above recent top, it also cares the risk that gold shows minor reaction on butterfly and keep going higher.
Here, we could see only some signs of H&S pattern, that theoretically should let price to drop at least to 1815 area to complete 3/8 Butterfly retracement and H&S target.

Thus, overall situation stands the same - either selling now with some uncertainty or waiting when big pattern will be formed. That's the decision that you should make.
Speaking on long positions - I wouldn't consider them by far, at least until minor pullback will be finished.