Sive Morten
Special Consultant to the FPA
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Fundamentals
There was only single major fundamental event on past week and we’ve discussed it as well – this is FOMC meeting statement. By Reuters news gold eased on Friday but notched its biggest weekly advance in nearly two years as fears of an imminent winding down of the U.S. Federal Reserve's monetary stimulus eased for now. Spot bullion rose 4.8 percent for the week, the biggest weekly gain since October 2011. The metal rallied after Fed Chairman Ben Bernanke on Wednesday said the U.S. central bank needed to keep a stimulative monetary policy in place given low inflation and an uncertain job market.
Analysts said, however, recent gains in U.S. equities amid some positives signs for the economy and no indications of abatement in outflows from gold-backed exchange-traded funds could pressure the metal. "The fact that the leading U.S. equity indices closed at record highs yesterday – which could prompt investors to switch once again from gold ETFs to equities – is problematic for gold," said Eugen Weinberg, head of commodity research at Commerzbank. "Any prolonged recovery of the gold price is almost inconceivable unless the ETF outflows abate," Weinberg said. Holdings of the world's largest gold-backed ETF SPDR Gold Trust posted the biggest weekly loss of 2.6 percent since the end of April.
Some support to gold could come from turmoil with credit ratings and US economy data. Investors now digested news that sovereign rating of France was downgraded by Fitch on Friday, and Italy's credit rating was cut by Standard & Poor's earlier in the week. Gold is a traditional safe haven against political and economic turmoil. Gold pared losses after government data showed that U.S. producer prices rose more than expected in June, increasing gold's inflation-hedge appeal. Also the cost of borrowing gold stayed near its highest level since January 2009, reflecting dwindling supplies from bullion banks after heavy liquidation and resilient demand for physical gold products.
Thus, currently we see some issues that can support gold price in short-term perspective. As we previously said, market is really overextended to the downside. Also gold very soon will step in seasonal bullish trend. Taking into consideration all these moments, it is very probable that some more or less large retracement up could follow, although signs of it currently are not outstanding just yet. But it is very difficult that trend will change or end drastically. Usually when market stands in such strong trend as gold does, even if significant retracement will happen, market needs time and space to snub bearish momentum. That’s why odds always stand on the side of 2-leg move. So, if even we will get deep retracement, market will try later to continue move down. So, we probably should be ready for some sort of AB-CD action on gold market in long term.
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
Well, although on two previous weeks this time frame didn’t show anything useful for us, except may be indication of significant support level, gradually situation becomes clearer, or at least something has appeared here.
Thus, on monthly chart we said, that “somewhere” around market could probably meet some support and turn to retracement. We already know that price stands at 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 previously we didn’t have the major part of puzzle - the reversal pattern. I do not know whether current one is reliable or not, but this is the only that we have, and it looks like bullish morning star. So, in short term perspective we can stick with it. Until market will not break its low the chances that upward action will continue exist. Take a look that minimum target of this pattern coincides with MPR1.
The major risk factor here is the same – previous bearish tendency of lower lows and lower highs has not been broken yet. Retracements are very small and market has doubled it only once. It will be nice if we will get higher high for our confidence as soon as possible. Also, if market will move above MPP and hold there will be good sign.
Daily
On daily time frame situation has not changed much since Friday. Trend is bullish here, but market stands at solid resistance – MPP, daily overbought, Fib K-resistance and Agreement. That’s why market was not able to pass through previous highs and odds suggest that it’s not the time to enter long right now.
From daily time frame perspective we need to get either gradual retracement down or some flat action, so that market will exit from overbought condition. Or, if we will take a look on intraday charts, may be there we can find some scalp bearish opportunity to play on possible retracement down.
4-hour
Unfortunately on intraday charts there not much useful information. On 4-hour chart market has shown AB=CD move down and re-tested previous high as we’ve suggested. But right now is very difficult to assume what will happen next. That could be as Double Top, as greater AB=CD pattern down, Butterfly “Sell” or something else. Bearish engulfing pattern that we’ve traded on Friday – has reached it’s target already, but nothing more has appeared yet. Probably, as market overbought, some downward pattern is more probable, but this is commodity market, it can stand at overbought for considerable period. Thus, we know that it is not time to enter long yet, but also we do not have clear bearish pattern a well. So, probably we have no choice but to wait a bit in the beginning of the week.
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. Fundamentally some supportive factors have appeared, and this could shift to greater retracement.
Since market is overbought at resistance on daily chart, we can’t enter long right now. Thus, probably on Monday we will wait some clear pattern on intraday charts that will give us necessary context for trading.
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.
There was only single major fundamental event on past week and we’ve discussed it as well – this is FOMC meeting statement. By Reuters news gold eased on Friday but notched its biggest weekly advance in nearly two years as fears of an imminent winding down of the U.S. Federal Reserve's monetary stimulus eased for now. Spot bullion rose 4.8 percent for the week, the biggest weekly gain since October 2011. The metal rallied after Fed Chairman Ben Bernanke on Wednesday said the U.S. central bank needed to keep a stimulative monetary policy in place given low inflation and an uncertain job market.
Analysts said, however, recent gains in U.S. equities amid some positives signs for the economy and no indications of abatement in outflows from gold-backed exchange-traded funds could pressure the metal. "The fact that the leading U.S. equity indices closed at record highs yesterday – which could prompt investors to switch once again from gold ETFs to equities – is problematic for gold," said Eugen Weinberg, head of commodity research at Commerzbank. "Any prolonged recovery of the gold price is almost inconceivable unless the ETF outflows abate," Weinberg said. Holdings of the world's largest gold-backed ETF SPDR Gold Trust posted the biggest weekly loss of 2.6 percent since the end of April.
Some support to gold could come from turmoil with credit ratings and US economy data. Investors now digested news that sovereign rating of France was downgraded by Fitch on Friday, and Italy's credit rating was cut by Standard & Poor's earlier in the week. Gold is a traditional safe haven against political and economic turmoil. Gold pared losses after government data showed that U.S. producer prices rose more than expected in June, increasing gold's inflation-hedge appeal. Also the cost of borrowing gold stayed near its highest level since January 2009, reflecting dwindling supplies from bullion banks after heavy liquidation and resilient demand for physical gold products.
Thus, currently we see some issues that can support gold price in short-term perspective. As we previously said, market is really overextended to the downside. Also gold very soon will step in seasonal bullish trend. Taking into consideration all these moments, it is very probable that some more or less large retracement up could follow, although signs of it currently are not outstanding just yet. But it is very difficult that trend will change or end drastically. Usually when market stands in such strong trend as gold does, even if significant retracement will happen, market needs time and space to snub bearish momentum. That’s why odds always stand on the side of 2-leg move. So, if even we will get deep retracement, market will try later to continue move down. So, we probably should be ready for some sort of AB-CD action on gold market in long term.
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
Well, although on two previous weeks this time frame didn’t show anything useful for us, except may be indication of significant support level, gradually situation becomes clearer, or at least something has appeared here.
Thus, on monthly chart we said, that “somewhere” around market could probably meet some support and turn to retracement. We already know that price stands at 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 previously we didn’t have the major part of puzzle - the reversal pattern. I do not know whether current one is reliable or not, but this is the only that we have, and it looks like bullish morning star. So, in short term perspective we can stick with it. Until market will not break its low the chances that upward action will continue exist. Take a look that minimum target of this pattern coincides with MPR1.
The major risk factor here is the same – previous bearish tendency of lower lows and lower highs has not been broken yet. Retracements are very small and market has doubled it only once. It will be nice if we will get higher high for our confidence as soon as possible. Also, if market will move above MPP and hold there will be good sign.
Daily
On daily time frame situation has not changed much since Friday. Trend is bullish here, but market stands at solid resistance – MPP, daily overbought, Fib K-resistance and Agreement. That’s why market was not able to pass through previous highs and odds suggest that it’s not the time to enter long right now.
From daily time frame perspective we need to get either gradual retracement down or some flat action, so that market will exit from overbought condition. Or, if we will take a look on intraday charts, may be there we can find some scalp bearish opportunity to play on possible retracement down.
4-hour
Unfortunately on intraday charts there not much useful information. On 4-hour chart market has shown AB=CD move down and re-tested previous high as we’ve suggested. But right now is very difficult to assume what will happen next. That could be as Double Top, as greater AB=CD pattern down, Butterfly “Sell” or something else. Bearish engulfing pattern that we’ve traded on Friday – has reached it’s target already, but nothing more has appeared yet. Probably, as market overbought, some downward pattern is more probable, but this is commodity market, it can stand at overbought for considerable period. Thus, we know that it is not time to enter long yet, but also we do not have clear bearish pattern a well. So, probably we have no choice but to wait a bit in the beginning of the week.
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. Fundamentally some supportive factors have appeared, and this could shift to greater retracement.
Since market is overbought at resistance on daily chart, we can’t enter long right now. Thus, probably on Monday we will wait some clear pattern on intraday charts that will give us necessary context for trading.
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.
