Gold GOLD PRO WEEKLY, JULY 15 - 19, 2019

Sive Morten

Special Consultant to the FPA
Messages
12,629
Fundamentals

Gold market doesn't have any specific driving factors and now stands under impact of classical drivers - Fed policy and economy statistics. Political factors that strongly impacted the gold in recent past are faded a bit now. And it is become easier to make analysis on gold as it shows proper reaction on setups that we have.

In our last report we put solid fundamental background, trying to understand medium-term perspective. This week we've talked a lot about Fed policy and statistics and its impact on FX market. The same we could say about the gold. Fed decision and comments should put the foundation for some long lasting action.

This week market shows well anticipated action. Gold prices inched higher on Friday as investors shrugged off concerns that stronger-than-expected consumer inflation in the United States could influence the U.S. central bank’s decision on aggressive monetary policy easing.

“Inflation data came out a little bit hotter than expected. It seems every day that the probability of rate cut versus keeping rates unchanged is flip-flop. There are uncertainties around that,” said Phillip Streible, senior commodities strategist at RJO Futures.

“If gold closes below $1,400 level on a Friday, (it) could be a blow to the bulls. I see a resistance level of $1,441 if there is enough demand for gold.”

The core U.S. consumer price index, excluding food and energy, rose 0.3% in June, data showed on Thursday, the largest increase since January 2018.

Bullion rates were quick to slump following the data, shedding nearly 1% in the latter part of its session, with the dollar erasing some losses.

However, the stronger-than-expected reading failed to shake convictions that the Fed will start cutting interest rates at a policy meeting later this month, with money markets still indicating one rate cut at the end of July and a cumulative 64 basis points in cuts by the end of 2019.

Lower interest rates may be needed to help lift inflation and bolster the Fed’s credibility in meeting an inflation target it has consistently underrun, Chicago Federal Reserve president Charles Evans said.

Fed policymakers are scheduled to meet on July 30-31, where investors will look for further cues on monetary policy easing.

Physical gold buying stalled in top Asian hubs this week as consumers sold back bullion to cash in on a steep price rally, while a recent import duty hike further dented waning interest in an Indian market hit by a surge in local rates.

Global benchmark spot gold is on track to notch up a weekly gain and has risen about 10% this year.

Refineries have been swamped with scrap metal with more customers selling back their gold, dealers said.

“Demand is quite weak, especially with prices over $1,400 an ounce,” said Dick Poon, general manager at Heraeus Precious Metals in Hong Kong.

In top consumer China, gold was sold at a premium of $10-$13 an ounce over the benchmark this week, versus last week’s $11-$12 amid muted activity.

The premiums might still not cover transportation and other costs, Poon added.

India also saw subdued demand for gold as a surprise hike in import duty to 12.5% from 10% last week pushed up prices to a record of 35,145 rupees per 10 grams on Thursday.

“Retail buying has been weak since the start of the month. The duty hike further eroded retail purchases,” said Harshad Ajmera, the proprietor of JJ Gold House, a wholesaler in the eastern city of Kolkata.

Supplies are limited but the market is in discount due to weak demand, said a Mumbai-based dealer with a private gold importing bank.

Dealers were offering a discount of up to $20 an ounce over official domestic prices, down from $30 last week, the highest since August 2016. The domestic price includes the 12.5% import tax and a 3% sales duty.

Activity was lacklustre in Hong Kong as well, where gold was sold at anywhere from a discount of 30 cents to a $1.20 premium, compared with premiums of $0.50-$1.20 last week.

While customers are selling, there is still some interest from investors to bullion as a hedge against current geopolitical and economical uncertainties, said Joshua Rotbart, managing partner at J. Rotbart & Co in Hong Kong.

In Singapore, premiums of $0.60-$1 were charged, versus $0.40-$0.60 previously.

“When prices dipped below $1,400, we saw some clients coming in. But increasingly, more customers have been switching to (cheaper) silver,” said Brian Lan, managing director at dealer GoldSilver Central in Singapore.

The gap between gold and silver has widened almost without interruption since 2011.

Preference for silver has been prevalent in South Korea, said Samson Li, a Hong Kong-based precious metals analyst with Refinitiv GFMS, saying several Chinese investors lost money when they bet on higher silver prices and lower gold rates.

Japan saw muted activity, with bullion sold at par with the benchmark compared with $1-$1.25 discounts offered last week, a Tokyo-based trader said.

CFTC Data shows that investors keep bullish sentiment as net long position stands high despite minor decrease this week. SPDR data shows that assets hit 800 tonnes level, haven't seen since the Feb 2019. This week fund added 4 tonnes, while market mostly stands in the range.
upload_2019-7-14_14-27-23.png
Source: cftc.gov
Charting by Investing.com

As Gold market keeps the same sentiment, it provides us chance to proceed with our tactic setup and makes possible to complete it, since price accurately reacts on technical factors now.

Technical
Monthly


July stands as inside month by far with small retracement. Gold stands above broken YPR1, which is bullish sign.

Market has broken through multiple important levels. They are major 3/8 Fib resistance, which also is a neckline of our extended H&S pattern and price exceeded YPR1. Once price turns in area above Pivot Resistance 1 it stops to be retracement and becomes new trend. As price stands above broken area with no return below it we should treat it as bullish sign.

Still our major OP target has not been hit yet and this moment stands in our focus right now.

Fundamental reasons for gold rising mostly relate to changing of global political and economical situation. Strong global shifts never could happen without big political events. This should provide big support to gold market. Now it is widely suggested that these processes should accelerate closer to 2020 year, or even in second half of 2019. Right now we see that it also has impact on economy.
gold_m_15_07_19.png

Weekly

On weekly chart we have the same patterns but of a smaller scale. Weekly OP target coincides with the monthly one. Last two weeks gold was not able to move higher due strong overbought. Spending time in flat action decreases the overbought pressure. Although it is not totally eliminated, but now price stands right at OB level, but not above it. This could let market gradually proceed higher as investors (despite our view) hew to the Fed and wait for rate cut.

Our strategy suggests reaching of the target first around 1450 area and then starting of major retracement. It should be rather significant and should provide us good entry point for taking long-term bullish position on gold market. Weekly K-area around 1330 looks like an area where setup for position taking could be formed.

This week we could say that market keeps bullish sentiment as despite strong overbought and reaching of 1.27 butterfly target price doesn't show any meaningful pullback, but coiling under the level, forming inside week. This action mostly reminds some energy building process before breakout.

gold_w_15_07_19.png

Daily

As we've said in our Friday report, JPowell comments support gold market and make butterfly stand valid as no new lows were formed. On daily chart market stands neither Obought nor Osold and Obought level stands near primary target of 1454. So, from this point gold has no barriers to reach it.

It seems that here we have a kind of bullish dynamic pressure, as trend stands bearish while price action is not. Until market stands above 1379 lows butterfly pattern is valid and we try to catch right moment for long entry here.
gold_d_15_07_19.png

Intraday

In general, triangle consolidation is a positive sign for upside continuation. But, at the same time, it makes difficult to catch correct moment for entry. In fact, here we watch for two possible scenarios. First one is early upside reversal, which clearly shows coming upside breakout. This is classical triangle analysis. Second one, if we have no early reversal, is downside action right to triangle's body.

On Friday we agree to keep an eye on some specified levels on hourly chart, where, potentially market could down again. The breakout of these levels, in turn, will be signal of upside continuation.

On 4H chart we've got bearish grabber. Thus, may be no early upside reversal will happen.
gold_4h_15_07_19.png

Although our major entry point already stands in the passed as it was on NFP release date and now shows not bad results, but here we try to find another one as not everybody was able to jump in on NFP. On 1H chart we keep an eye on upside retracement. The first level, that we've specified on Friday is reached. This is Agreement around 1417 area. Next level that market could hit and keep chances on downside action is 1421 - XOP "222" Sell pattern. But, action above 1421 can't be treated as retracement and points rather on upside continuation.
Thus, for long entry it is possible to use an 1422-1426 area, where price action should be not very fast, but at the same time with clear upside direction. Taking the short position now stands beyond of our trading plan. But, obviously, you should keep an eye on this "222" pattern. Downside potential is small but risks are high.
gold_1h_15_07_19.png

Conclusion

No doubts, gold keeps positive mood, shows great upside impulse and fundamental background for continuation. Our major target of 1450 should be reached sooner rather than later - probably before end of July. Major retracement starts only after target will be hit.


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.
 

Sive Morten

Special Consultant to the FPA
Messages
12,629
Greetings everybody,

On Gold market we're interested in intraday charts, as on daily we do not have a lot of issues - market is forming inside sessions. The only conclusion that we could make is preparation to expansion as trading range becomes tighter.
gold_d_16_07_19.png

Most interesting moment stands on 1H chart. Recall that the major object of our discussion is upside bounce inside 4H triangle. This is either early upside reversal and coming breakout or just retracement before downside continuation. Recent action suggests that this is more reversal rather than retracement. Take a look, as soon as our '222" Sell pattern has been formed, market shows just minor downside action and turns to sideways action, which reminds triangle consolidation. This way of action doesn't correspond to idea of downside continuation and mostly stands in favor of upside breakout:
gold_1h_16_07_19.png

Correspondingly, on 4H chart we could get this butterfly and now classify upside turn in triangle as early reversal with understandable consequences.
gold_4h_16_07_19.png
 

Sive Morten

Special Consultant to the FPA
Messages
12,629
Greetings everybody,

On Gold market we need to make minor adjustment. Although we keep our focus on 1450 target but market has not confirmed yesterday our suggestion on early 4H triangle breakout. Once we've said that it might be preparation to upside action - gold market has dropped lower and erased 1H triangle.

Now, On 1H chart we do not have any bullish signs by far and should follow classic approach to triangles - wait when price completes OP and reach its bottom at 1393. We also could back to discussion of long entry, if somehow, price jumps above "C" point here and comes in our 1422-1426 predefined "breakout" area.
gold_1h_17_07_19.png

Meantime we adjust the shape of butterfly on 4H chart as well, according to idea of further action in side the triangle:
gold_4h_17_07_19.png
 

Sive Morten

Special Consultant to the FPA
Messages
12,629
Greetings everybody,

So, as on FX market, here, on gold, statistics provides support - US yields dropped, IMF said that dollar overvalued for 6-12%, US real estate market showed poor numbers. As a result, we're correct on our major direction but tactically price action differs on intraday charts.

On 4H chart early upside breakout still has happened. Gold with fundamental factors support turns up, and moves out of triangle.
gold_4h_18_07_19.png

Now we need to keep an eye on 1411 area as signal line. Gold keeps bullish sentiment while it stands above it. We could accept some fluctuations around triangle trendline and two Fib levels - 1418 and 1411 K-support area. Downside breakout means fake triangle breakout and will look bearish.
gold_1h_18_07_19.png

Consequently, bulls could try to go long with stops below K-area - either at first 1418 level or wait for AB-CD retracement and appearing of "222" Buy - choose what you like more.
Bears need to wait for downside breakout of 1411 area. Currently it is a bit risky to go short as no bearish background exists.
 

Sive Morten

Special Consultant to the FPA
Messages
12,629
Greetings everybody,

Despite strong rally yesterday - it is nothing to do on gold today. Market has completed our major 1450 target. This is unique target as it involves monthly, daily and intraday extensions, which are different but all targets stand at the same 1450 area. Despite that rally has been triggered externally -

The greenback fell broadly on Thursday after Williams’ remarks bolstered bets that the Fed would cut interest rates by 50 basis points, rather than 25 basis points.

Williams said when rates and inflation are low, policymakers cannot afford to keep their “powder dry” and wait for potential economic problems to materialise.

That is especially true with neutral rates that would neither restrict nor accelerate the U.S. economy “around half a percent,” he said. When adjusted for inflation, the neutral rate is near the Fed’s current policy rate, which is in a range of 2.25-2.50%.

Financial markets quickly reacted, with money market futures pricing in almost a 70% chance of a 50 basis point cut at its policy meeting on July 30-31 at one point.


But, anyway, it has been completed. Now we need to wait for market reaction which has to happen in one or another manner. As target touches monthly chart as well, some extended pattern could be formed, say, H&S.
That's why we do not see big necessity to hurry and jump in on bearish side right now. Target is long term and market could fluctuate and breath around. We need to sit on the hands and watch - what reaction will follow, what patterns will be formed.
gold_d_19_07_19.png

For example on 4H chart our butterfly and XOP target were perfectly completed. But, upside acceleration was strong and we do not exclude chances on 1.618 butterfly extension around 1470 area. 20$ is not big fluctuation for monthly target. Our major thought here is to wait for clear bearish signs and patterns before taking the position. Long-term targets doesn't need any rush.
gold_4h_19_07_19.png

And here is our yesterday setup on 1H chart which is done perfect:
gold_1h_19_07_19.png
 
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