Gold GOLD PRO WEEKLY, July 19 - 23, 2021

Sive Morten

Special Consultant to the FPA
Messages
15,061
Fundamentals

This week, despite all cataclysms, gold was able to hold positive mood and achieved higher standing targets around 1830 area. Strong CPI numbers and consumer spending were not able to stop action on the gold market. Still, although on intraday charts rally was looking good - it is just retracement in a longer-term bearish context. And some minor bearish signs that we see now might become the first bell of coming reversal.

Market overview

Gold prices have stabilised after marking their biggest monthly drop since November 2016 in June, as Powell said the Fed would not raise interest rates too quickly based only on the fear of coming inflation and would aim for a “broad and inclusive” recovery of the job market. A drop in benchmark 10-year Treasury yields last week to the lowest in nearly five months also helped gold.

Gold gained on Tuesday following data showing U.S. consumer prices rose by the most in 13 years last month, though an advancing dollar kept its gains in check. The closely-watched U.S. consumer price index (CPI) increased 0.9% last month, compared with a forecast for a 0.5% uptick by economists polled by Reuters. But analysts said the data was unlikely to trigger a swift monetary policy tightening response from the Fed, providing some support to the non-yielding metal.

U.S. consumer prices rose amid supply constraints and a continued rebound in the costs of travel-related services from pandemic-depressed levels as the economic recovery gathered momentum, raising the prospect that inflationary concerns are set to linger.

“It’s going to take a string of these hotter numbers on the inflation readings to move the needle for the Fed. One month’s reading is not going to do it,” said Jim Wyckoff, senior analyst with Kitco Metals, adding the Fed would also take employment and growth readings into account.

“With the cost of transport also rising and oil prices remaining elevated, there is a risk that inflation could remain stubbornly high for longer than the Fed envisages,” said Fawad Razaqzada, analyst with ThinkMarkets. “If the current trend for inflation continues then surely the central bank will have to react and sooner,” weighing on gold, he added.

After the data, market focus shifted to the Fed, with the central bank’s chairman set to speak before the Congress later in the day for any cues on rising price pressures and monetary support. Powell has repeatedly stated that higher inflation will be transitory, noting that he expected supply chains to normalize and adapt. Treasury Secretary Janet Yellen shares that view.

The White House expects supply chain pressures that are fuelling higher inflation to abate in the “not-too-distant future,” but cannot say exactly when, a senior official said on Tuesday.

Rising coronavirus infection rates, driven by the fast-spreading Delta variant, are forcing more countries around Europe to re-impose restrictions that could cast a pall over the region’s economic recovery prospects. Uncertainty around a potential spike in coronavirus Delta variant cases in the United States could force the Fed to remain accommodative for longer, said Phillip Streible, chief market strategist at Blue Line Futures in Chicago.

Futures on the federal funds rate raised bets on Tuesday that the Fed would tighten monetary policy between December 2022 and early in the first quarter of 2023 after stronger-than-expected U.S. inflation data. Some investors view gold as a hedge against higher inflation, but a Fed rate hike would dull bullion’s appeal as that increases the opportunity cost of holding the non-yielding metal.

“So far, the Fed has been assuming that the noticeably higher inflation rates are only transitory and that they will normalise again next year,” Commerzbank analysts said in a note. However, with each higher figure, the risk increases that inflation will remain elevated for a longer period of time.”

Gold jumped on Wednesday after U.S. Federal Reserve Chair Jerome Powell reassured investors that the central bank would continue its accommodative monetary policy despite a spike in inflation readings. Powell, in prepared remarks before a congressional hearing, said the U.S. job market “is still a ways off” from the progress the Fed wants to see before reducing its support for the economy, while current high inflation will ease in the coming months.

Data showed U.S. consumer price and producer price indexes surged last month.

“It (Powell’s comments) really cements the belief that despite this hotter inflation data, the Fed still remains on course to be fairly accommodative,” said Edward Moya, senior market analyst at OANDA.

Investors on Wednesday also cheered comments by European Central Bank (ECB) officials that the central bank would not tighten too early.

“You’re going to see more dovish signals from the ECB and the People’s Bank of China, which should provide some support to the dollar, but this is still good news for the stimulus trade and that is going to be very positive for gold,” Moya said.

“The tapering is not yet in the cards and the Fed will continue with its bonds purchases. Therefore we are likely to see more of liquidity in the market which at the end will be helping gold prices,” Commerzbank analyst Eugen Weinberg said. “At the moment gold prices are likely to consolidate around current level. But we do expect acceleration of the price increases will happen towards the year end.

Key U.S. indicators of inflation this week showed producer prices surged in June to the largest annual gain in more than 10-1/2 years, while consumer prices rose by the most in 13 years.

“We are not saying that there is no strong momentum in the economy, but there is suddenly a question can such growth rate sustain. As long as the balance sheet remains in an expansionary mode and interest rate being so low, gold still has the potential to move towards $2,000 by the end of this year,” said Hitesh Jain, lead analyst at Mumbai-based Yes Securities.

Bob Haberkorn, senior market strategist at RJO Futures, said that gold’s move above $1,800 this week along with concerns over a sell-off in equity markets had driven some safe-haven buying of bullion.

“Globally, there are some spots that are pretty hot with that Delta variant, and China slowing down a bit has sparked concerns about global equity markets, so you’re getting some flight to safety into gold and silver.”

China’s economy grew more slowly than expected in the second quarter, while U.S. weekly jobless claims dropped to a 16-month low last week.

“We’re still seeing a lot of inflation and it does not seem to be as transitory as everyone thinks,” said Michael Matousek, head trader at U.S. Global Investors. Given the inflation and lower real interest rates, gold could attract more bids and move towards $1,900 in the coming months, Matousek added.

On the technical front, spot gold may test a resistance at $1,833 per ounce, a break above could lead to a gain at $1,853, according to Reuters technical analyst Wang Tao.

Gold prices on Friday were headed for the fourth straight weekly gain, as investors took comfort from Federal Reserve Chair Jerome Powell’s stance that the U.S. central bank would continue to support the economy and inflation will be transitory. The Federal Reserve will shutter its asset purchases programme by end-2022, according to a Reuters poll, with a few more economists now predicting a rate hike as early as next year, but they pegged new COVID-19 variants as the biggest economic risk.

“We are back again at $1,820 threshold and are seeing a lack of buying interest from ETF investors. Also, today bond yields are slightly up and dollar is rather steady,” said Commerzbank analyst Carsten Fritsch. However, the view that Fed will not react to this strong rise in inflation is keeping gold prices above $1,800, he added.

Holdings of SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, fell 0.3% to 1,034.37 tonnes on Wednesday, its lowest in nearly two months. In general, precious metal funds had $197 million worth of outflows this week.

If gold closes the week well above $1,800, it would be bullish catalyst for gold in the near-term, said Vincent Tie, sales manager at Singapore dealer, Silver Bullion.

TD Securities commodity strategist Daniel Ghali said gold’s inability to benefit substantially from weaker U.S. real yields suggested it remained vulnerable to a further pull-back.

“Although gold’s valuation is more attractive on a relative basis to U.S. Treasury inflation protected securities (TIPS), the reason gold is trading at a discount to it is because it does not have the same carry advantage.”

Ghali, however, said that improving physical bullion demand, particularly from top-consumer China, and central bank purchases could limit the precious metal’s declines.

COT Report

This week CFTC data stands quite different compares to EUR, where we see bearish sentiment. On the gold market it is opposite situation. Although it is difficult to say how stable it will be and for how long, but right now sentiment stands positive. Speculators have added net long positions and open interest has increased significantly:

1626594679117.png


As a result, net long position is rising for 2nd week:
1626594736448.png

Source: cftc.gov
Charting by Investing.com


So, from the news that we've got this week, we could make few conclusions. First is, long-term situation is not welcome to the gold. As we said yesterday, in our FX research, Inflation should rise in excess of ECB and Fed expectations. It is still a question how central banks will deal with it - either apply tougher regulatory measures to stop the inflation, or change and set higher limits. Fathom consulting suggests that latter is more probable than the former, because slightly higher inflation is more healthy for global economy that long time stands in stagnation, especially in Japan. But this is the secondary subject for us, as we still need to get there - where situation demands interest rates change.

Conclusion that we could make on shorter-term perspective is Fed hardly starts interest rates change earlier, despite any jumps in inflation. That is what we see in recent reaction by JP. It means that first rate change happens as it is planned - in January of 2023. Also, as we stand close to announcement of tapering - its starting moment also should not change - in starting of 2022. Hence, the only reaction that Fed could tune is the size of tapering. In a case of stable higher levels of CPI/PPI, PCE numbers Fed could accelerate tapering. This is the most probable response, when they close bond purchase programme earlier.

Now, Fed keeps in focus employment situation use it as major argument to not accelerate policy tighting. They need to rise employment for more 7 Mln jobs in nearest 12-18 months to return it back to pre-pandemic level. This is another reason why we do not expect timing change of major Fed points - tapering start and interest rate first change. As it was said above -

As long as the balance sheet remains in an expansionary mode and interest rate being so low, gold still has the potential to move towards $2,000 by the end of this year,
I'm not sure about 1900-2000$, but indeed - everybody sees the inflation data, everybody knows that it is very strong, but interest rates stand low. Even on Powell's statement in June about tapering, when gold market collapsed - interest rates has not shown any rally. Fed keeps buying bonds from the open market, controlling rates and keeping them under pressure. This should last at least till the end of the year, although announcement of the tapering is expected in September. It means that in short-term gold downside potential could be limited and price could stay in some wide trading range. Only some extraordinary factors has to happen to make Fed reacts faster. For us it could mean some delay of active phase in the bearish scenario that we have on long term charts.

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 and the same story repeats this week.

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.

gold_m_19_07_21.png


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. As DOSC indicator hits zero level - Stretch is done.

Upside action looks weak to treat it as a reversal and mostly looks like technical shy reaction on oversold and Fib support, taking the shape of the flag consolidation. Theoretically we could recognize reverse H&S pattern, it seems that it stands in progress but it has two vital flaws. First one is too strong sell-off on the slope of the head. Second - too slow recovery when bulls should control situation. Although bottom of the right arm stands in harmony with the left one. These two moments make it tricky and not reliable for position taking.

gold_w_19_07_21.png


Daily

So, our plan for last week is completed - price hits 50% Fib level and shows healthy reaction, that strong enough to become downside reversal - we will see. As we've said here we need to recognize - whether market stands just in minor bounce or it is forming something greater. This should become evident through the week and Fed with ECB meetings should become a catalysts of the process.
gold_d_19_07_21.png


Intraday

Our strategy for coming week is relatively simple. For major reversal we need big pattern and now, based on the price action - if it ever will be formed, it will be the H&S with the neckline around 1793 lows. In this case for entry we consider 1814-1816$ level, where potentially the top of right arm should be formed. Those who have taken bearish position last week, with our minor setup on the hourly chart could keep it.

But, as 1793-1802 is rather strong K-support, it is also might be useful to the bulls as bounce could start right from there. And if gold is bullish and H&S will not be formed - this level could become the one where upward continuation starts. If even gold fails to proceed higher later - it is relatively safe to buy from it at first touch, because minor technical pullback should happen anyway.

gold_4h_19_07_21.png


Our minor H&S pattern on 1H chart is completed - as price has hit XOP target. Now, if you have the position based on it, you need to decide either to re-classify it for larger pattern or just book the result. Booking 50% and keeping the rest seems as good compromise for current situation.
gold_1h_19_07_21.png
 

Sive Morten

Special Consultant to the FPA
Messages
15,061
Greetings everybody,

So, Gold very accurately was completing our preliminary technical setups. We even got some trading scenarios last week on intraday charts. Now market stands at decisive point - either we get downside continuation to 1650 in perspective of few weeks or, recent drop will be erased.

As technical picture stands bearish and suggests downside continuation - destruction of this setup could happen only by some external impact. Obviously it could be Fed statement, that could as trigger downside action as to break it.
gold_d_20_07_21.png


Those of you who intends to take short position first is - keep an eye on 4H grabber, whether it will be formed or not. Because it has special meaning to us:
gold_4h_20_07_21.png


Market stands at potential top the right arm of H&S pattern. This is where normally downside action starts. Appearing of the grabber could add points to this scenario, as market already stands at Agreement resistance, forming "222" Sell pattern.
Although it should be enough to place stop just above the grabber's top, initially is possible to consider OP target and hide stop above it, for some case.

gold_1h_20_07_21.png


Thus, we've done everything that we could and prepared for action. But the last word belongs to Fed and here we can't do nothing but wait and see...
Long position is out of consideration right now as it has no background except gambling on the Fed statement. Technical background is bearish right now.
 

Sive Morten

Special Consultant to the FPA
Messages
15,061
Greetings everybody,

So, Gold has dropped but reversal process was not as smooth as it could be, although this scenario also was on the table.

On daily chart market still stands near resistance, testing 200MA for the 2nd time. Trend stands bullish by far. Overall situation is a bit tricky as gold keeps chances for both directions and nothing is decided yet:
gold_d_21_07_21.png


At first glance, recent dive looks inspiring for downside continuation, but we've got the bullish grabber and market was not able to form the new lows. This combination lets price to form upside butterfly and complete major OP target.
At the same time, we could easily imagine downside butterfly here as well, if price remains below recent 1825 top. It means that the cornerstone now is 1825 area... and vital area for any bearish setup:
gold_4h_21_07_21.png


Another reason why we consider 1825 is because it is a right arm of H&S pattern. Pattern itself is not complete yet as well, as price is not at the neckline, but any action above 1825 means that H&S fails. Yesterday gold indeed has completed OP before the drop - this is the reason why we suggested to place initial s/l above it.
Thus, for any bearish position stop has to be above 1825$. Long entry seems a bit early as 1825 is still valid. But, if you're ready to take more risk and anticipate breakout, it is possible to consider long entry with initial stops below 4H K-area of 1790. For existed short positions it would be better to move stops to b/e at least.

gold_1h_21_07_21.png
 

Sive Morten

Special Consultant to the FPA
Messages
15,061
Morning everybody,

It is responsible moment today as many people shorts here and we have to decide what to do with them. Although our H&S works nice but now I'm tending to idea that it hits minimum target and not become a starting point for collapse. Here is why.

On daily chart price is coming to MACDP line and we should aware of bullish grabbers here. Overall downside action stands slow that also doesn't suggest downside continuation and looks more like retracement before upward continuation. So, grabber is the first thing that we should keep an eye on here.

gold_d_22_07_21.png


Next is 4H chart... Bullish grabber has been erased recently. Here I would consider just downside AB=CD target as completion of our H&S pattern around 1785-1788 area. It's completion first is erase upside butterfly, second - current upside AB-CD and makes us to turn to AB-CD of a larger scale. It's appearing forms "222" Buy here.
gold_4h_22_07_21.png


Now is the question what to do with our short position. By simple logic, bearish market has to go down when it stands near OP and COP is passed already. Hence the normal scenario you could see on the chart. It would be just perfect, if we get downside butterfly that completes AB-CD target as well. We even could use it to reverse positions later, we'll see.
It means that we could tight stops to butterfly top, besides, here we also have the bearish grabber. If market indeed is bearish it should hold these patterns and keep going to OP. Any opposite action means that bearish context will be broken. Hopefully trade will be over tod-tom.
gold_1h_22_07_21.png
 

Sive Morten

Special Consultant to the FPA
Messages
15,061
Greetings everybody,

So, we're moving step by step with our Gold market setup. On daily chart we've got the bullish grabber right at nearest 3/8 Fib support. Grabber suggests return back to previous top at least, i.e. 1835. Here everything looks nice but on intraday charts we have few nuances:
gold_d_23_07_21.png


The major problem for setup clarity is H&S target. Despite price has dropped a bit more recently but it has not completed it. On 4H chart we see that price has not broken the neckline and jumped out of it because K-support area . This reminds DiNapoli "Oops" directional pattern. And it makes decision making more complicated.
Ultimately, if we get AB=CD pattern, market could climb to 1875, but I would consider COP target of this pattern - it is enough to complete daily grabber as well.
gold_4h_23_07_21.png


So, the problem is gold has not completed downside AB-CD around 1.1785. Grabber and butterfly that we've mentioned recently have triggered minor downside action, just to 1.27 butterfly extension, but then price turns up.
Now we see bullish divergence and forming of reverse H&S pattern, based on daily grabber. This combination provides a lot of options.
First is about bearish positions - personally I was stopped out on a backway above yesterday butterfly and no I do not consider any new short positions by far.

Concerning long entry - most conservative way is to wait for completion of 1785 OP target. Chances now looks not too high, but gold has a feature to surprise. Second way is to rely on the grabber and minor H&S pattern placing stops just under its lows. Finally, the third is take position but with the initial stop below 1780$ - for the case if OP still will be hit. We have the grabber on daily but it doesn't mean that we can't get another one...
gold_1h_23_07_21.png
 
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