Gold GOLD PRO WEEKLY, July 26 - 30, 2021

Sive Morten

Special Consultant to the FPA
Messages
15,139
Fundamentals

This week gold market mostly was under impact of US statistics, rather than ECB statement. As we've discussed through the week, overall price performance takes the different character compares to what we've suggested initially and makes possible another upward swing. Although bearish long-term context still stands on the market, reversal point is yet to be formed.

Market Overview

Gold prices climbed as concerns over the economic damage from surging Delta coronavirus cases, and a dip in U.S. Treasury yields boosted the safe-haven metal’s appeal.

“The great problem currently is the fear about the economic impact of the Delta variant of the coronavirus and after Japan took severe measures concerning the Olympic Games, markets got more and more nervous, resulting in a flight into safe havens,” said Quantitative Commodity Research analyst Peter Fertig.

A surge in coronavirus cases across the United States and other countries has sent higher-risk assets such as equities and oil tumbling. Tokyo Olympics organisers on Sunday reported the first COVID-19 cases among competitors in the athletes’ village. Gold, seen as a safe store of value, tends to benefit during times of political and financial uncertainty.

“Rapidly rising cases in Europe as well as in the United States prompted market participants to reduce risks in their portfolios,” said Julius Baer analyst Carsten Menke.

Benchmark 10-year Treasury yields touched a more than five-month low, reducing the opportunity cost of holding non-interest bearing gold. A firm U.S. dollar however challenged gold’s appeal, as the currency scaled a 3-1/2-month high, making gold more expensive for other currency holders.

Commerzbank said in a note that gold’s recent weakness would likely only be temporary and it would recover noticeably as soon as the headwind of an appreciating dollar abated.

A surge in coronavirus cases in the United States and other countries however spurred some safe-haven buying of bullion in recent sessions, with gold rebounding as much as 1.7% from Monday’s one-week trough.

“A lot of people in the gold market have taken their eyes off the ball this year, but if we get more bad news on the COVID front and equities weaken, you could get just that flight- to-safety buy in a market that can wake up pretty quick,” said Bob Haberkorn, senior market strategist at RJO Futures.

Meanwhile, data on Tuesday showed Swiss gold exports to India edged higher last month, while shipments to mainland China fell.

“Physical demand has scope to buffer the downside for gold as central banks remain net buyers and in light of pent up consumer demand as India’s stores reopen,” said Suki Cooper, analyst at Standard Chartered.

The U.S. dollar neared its year-high and bonds rallied further on Wednesday, as the rapid spread of the Delta variant displaced inflation as investors’ primary concern.
U.S. benchmark treasury yields have rebounded from an over 5-month low reached the previous session. Additionally, European stocks rose ahead of the European Central Bank meeting on Thursday that is expected to convey a dovish tone. The Delta variant have raised fears that further lockdowns and other restrictions could upend the worldwide economic recovery, pushing investors to safe bets.

However, Han Tan, market analyst at Exinity Group, said gold had been losing out to the dollar in the battle for safe haven dominance, and spot gold prices were likely to struggle to move higher past the $1,800 psychological level. As long as the greenback remains as the dominant safe haven, spot gold is expected to remain suppressed.”

Gold prices fell on Thursday, hovering near a more than one-week low, weighed down by a stronger dollar and a rebound in risk sentiment, while investors awaited the European Central Bank policy meeting later in the day.

“Gold prices are under pressure because the dollar is now hovering around highest in three months and Wall Street rebounded for the second day, meaning that traders are shrugging off virus concerns and are back to reflation trade,” said Margaret Yang, a strategist at DailyFX.

“Due to the return of the risk appetite to the market, concerns about the possible implications of the coronavirus have again abated,” Commerzbank analyst Eugen Weinberg said. “As a result, gold as a safe haven in this situation has not seen a huge demand. It’s the market confidence in the ECB and the Federal Reserve’s ability to combat any economic danger, and therefore not needing any additional safe haven in the form of gold,” Weinberg added.

“Technically nothing has changed in the last 24 hours (for gold), with the price still traded in the lateral trading range between $1,790 and $1,820,” Carlo Alberto De Casa, market analyst at Kinesis said. A clear surpass of one of these thresholds would probably indicate the new directionality for bullion.”

Risk sentiment was curbed by data showing U.S. jobless claims rose unexpectedly to two-month highs, channelling some inflows to bullion.

“Real interest rates are deeply negative, which shows that inflation is running hot, and there’s no chance the U.S. Federal Reserve can make real rates positive short-term, so you have people coming to the realisation that you need to own gold,” said Michael Matousek, head trader at U.S. Global Investors.

Gold also took support from a European Central Bank pledge to keep interest rates at record lows for even longer.

“Both the U.S. Fed and the ECB are pretty much in sync in delivering a lower interest rate environment for longer and that should be positive for gold over the long-term,” said Edward Moya, senior market analyst at OANDA.

The Fed’s policy meeting next week follows comments from Chair Jerome Powell which suggested that the central bank would remain accommodative despite recent spikes in inflation readings.

But “gold’s persistent weakness against real yields points to a vulnerable micro-structure and its inability to rally despite ongoing risk-off highlights that speculative flows remain particularly weak, reinforcing the potential for a deeper pullback,” TD securities wrote in a note.

Bullion is down 0.7% this week after hitting its lowest in more than a week on Thursday.

Gold has been range-bound because of the strength of the U.S. dollar but could test $1,775 an ounce with the near-term outlook still bearish, said Kunal Shah of commodities trader Nirmal Bang Commodities.

Making gold expensive for holders of other currencies, the dollar index held near a 3-1/2-month peak and was heading for a second straight weekly gain.

Market focus now turns to next week’s U.S. Federal Reserve meeting for more clues on monetary policy after the European Central Bank on Thursday pledged to keep interest rates at record lows for some time.

“This means that negative interest rates will remain a permanent feature for now ... This should increase demand for gold noticeably in the medium to longer term,” Commerzbank said in a note.

Limiting gold’s losses, yields on U.S. Treasuries eased after an auction of $16 billion in 10-year TIPS was bid at a record low.

Physical gold demand in India was lacklustre this week with buyers put off by price volatility, forcing dealers to raise discounts to their highest in nearly a month to encourage purchases. Discounts up to $6 an ounce over official domestic prices — which include a 10.75% import and 3% sales levy — were offered, compared to last week’s discount of $5.

“Lockdown restrictions have been removed but demand hasn’t recovered to normal levels,” said Mukesh Kothari, director at Mumbai gold dealer RiddiSiddhi Bullions.

“Jewellers are not buying as retail demand is weak and prices are also volatile,” said a Mumbai-based bullion dealer with a gold importing bank.

Demand in China is muted as people are hesitant to buy and are waiting for prices to come down to $1,750 levels, said Peter Fung, head of dealing at Wing Fung Precious Metals in Hong Kong.

“Investors, expecting sustained inflation in the future, are increasingly buying gold despite prices seemingly undecided if they will break above or below $1,800,” said Vincent Tie, sales manager at Singapore dealer, Silver Bullion.

“The gold market is seeking out a fresh fundamental driver and there really isn’t one,” said Jim Wyckoff, senior analyst with Kitco Metals, noting weaker real yields and a jump in COVID-19 cases were not enough to move prices higher. Technical traders are taking over because of the lack of fundamentals and gold’s near-term technical posture has turned negative, inviting some traders to short the market,” Wyckoff added.

“Gold prices have found good support from the physical market on the downside, but have struggled to gain momentum as speculative positioning remains light,” said Suki Cooper, analyst at Standard Chartered.

Global supply chains are hurt by virus spreading. Events have conspired to drive global supply chains towards breaking point, threatening the fragile flow of raw materials, parts and consumer goods, according to companies, economists and shipping specialists.

The Delta variant of the coronavirus has devastated parts of Asia and prompted many nations to cut off land access for sailors. That's left captains unable to rotate weary crews and about 100,000 seafarers stranded at sea beyond their stints in a flashback to 2020 and the height of lockdowns.

"We're no longer on the cusp of a second crew change crisis, we're in one," Guy Platten, secretary general of the International Chamber of Shipping, told Reuters. This is a perilous moment for global supply chains."

Given ships transport around 90% of the world's trade, the crew crisis is disrupting the supply of everything from oil and iron ore to food and electronics. German container line Hapag Lloyd described the situation as "extremely challenging".

"Vessel capacity is very tight, empty containers are scarce and the operational situation at certain ports and terminals is not really improving," it said. "We expect this to last probably into the fourth quarter – but it is very difficult to predict."

In Germany, road transportation of goods has slowed significantly. In the week of July 11, as the disaster unfolded, the volume of late shipments rose by 15% from the week before, according to data from supply-chain tracking platform FourKites. Nick Klein, VP for sales and marketing in the Midwest with Taiwan freight and logistics company OEC Group, said companies were scrambling to free goods stacked up in Asia and in U.S. ports due to a confluence of crises.

"It's not going to clear up until March," Klein said.

Automakers, for example, are again being forced to stop production because of disruptions caused by COVID-19 outbreaks. Toyota Motor Corp said this week it had to halt operations at plants in Thailand and Japan because they couldn't get parts. Stellantis temporarily suspended production at a factory in the U.K. because a large number of workers had to isolate to halt the spread of the virus.

The industry has already been hit hard by a global shortage of semiconductors this year, mainly from Asian suppliers. Earlier this year, the auto industry consensus was that the chip supply crunch would ease in the second half of 2021 - but now some senior executives say it will continue into 2022.

Buckling supply chains are hitting the United States and China, the world's economic motors that together account for more 40% of global economic output. This could lead to a slowdown in the global economy, along with rising prices for all manner of goods and raw materials.

U.S. data out Friday dovetailed with a growing view that growth will slow in the last half of the year after a booming second quarter fueled by early success in vaccination efforts.

"Short-term capacity issues remain a concern, constraining output in many manufacturing and service sector companies while simultaneously pushing prices higher as demand exceeds supply," said Chris Williamson, chief business economist at IHS Markit.

The firm's "flash" reading of U.S. activity slid to a four-month low this month as businesses battle shortages of raw materials and labor, which are fanning inflation.
It's an unwelcome conundrum for the U.S. Federal Reserve, which meets next week just six weeks after dropping its reference to the coronavirus as a weight on the economy. The Delta variant, already forcing other central banks to consider retooling their policies, is fanning a new rise in U.S. cases, and inflation is running well above expectations.

Ports across the globe are suffering the kinds of logjams not seen in decades, according to industry players.

The China Port and Harbour Association said on Wednesday that freight capacity continued to be tight.


"Southeast Asia, India and other regions' manufacturing industry are impacted by a rebound of the epidemic, prompting some orders to flow to China," it added.

Union Pacific, one of two major railroad operators that carry freight from U.S. West Coast ports inland, imposed a seven-day suspension of cargo shipments last weekend, including consumer goods, to a Chicago hub where trucks pick up the goods. The effort, which aims to ease "significant congestion" in Chicago, will put pressure on ports in Los Angeles, Long Beach, Oakland and Tacoma, specialists said.

A cyber attack hit South African container ports in Cape Town and Durban this week, adding further disruptions at the terminals.

If all that were not enough, in Britain the official health app has told hundreds of thousands of workers to isolate following contact with someone with COVID-19 - leading to supermarkets warning of a short supply and some petrol stations closing. Richard Walker, managing director of supermarket group Iceland Foods, turned to Twitter to urge people not to panic buy.

England is pressing ahead with easing most remaining COVID-19 restrictions today, despite a sharp rise in new cases (see blue line in chart). The decision comes as the link between new cases and COVID-related hospital admissions and deaths (orange line in chart) seems to have been broken, given that a large share of the England’s adult population has been fully vaccinated. On the whole, this should be good news for the UK economy, in particular sectors such as hospitality and events. However, while many restrictions are being lifted, it is believed that more than 500,000 people in the UK have been told to self-isolate; not everybody is able to work from home, meaning that many businesses are facing staff shortages, which could lead to supply bottlenecks. This, coupled with strong demand, is likely to add to inflationary pressures, at least in the short run.

ONS survey data suggest that, by the end of June, around 90% of the UK population had antibodies to COVID-19, thanks largely to a successful vaccination programme, but also in part to natural infection. The impact that this has had on morbidity and mortality is striking. With the highly transmissible Delta variant dominant, the UK is currently recording close to 40,000 infections a day, not far from the peak of around 60,000 seen at the turn of the year. Nevertheless, the case fatality ratio looks to have fallen by more than 90%, from around 2.5% to 0.2%. The very similar situation stands in Israel - another highly vaccinated country.
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COT Report

Recent data shows barely bullish dynamic as net long position has increased slightly but open interest has dropped slightly.

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Meantime Holdings in New York’s SPDR Gold Trust, the largest gold-backed exchange-traded fund (ETF), were at their lowest in more than two months on Thursday. Dynamic of fund's reserves looks heavy, compares to price swings and shows that investors are not hurry to buy gold under pressure of coming change in Fed policy that is widely anticipated already.

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Thus, the net long position is growing nominally, but this growth is not supported by the volume as open interest is vulnerable.
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Yesterday we talked on some moments of inflationary pressure in US in particular and in global economy in general and we come to conclusion that our long-term view is not needed to be changed by far. Inflation should accelerate, but it should care the positive moments to global economy as well and Central Banks could start living with higher level of inflation and set higher signal levels to start changing the policy. In fact, in 80-90's there were higher levels and even jumps to 2-digit numbers and nobody makes the tragedy because of that. At the same time it is big time gap should be between the moment when Central Banks make the first step on policy change till the moment when they will decide to accept higher inflation targets. This time gap should pass under the sign of strong US dollar and bearish trend on gold market.

In short-term perspective, gold market has chance to keep upward performance due some reasons mentioned above. First is, interest rates in general stands low and real interest rates are negative, providing no competitive advantage to care bonds or gold. Fed balance is still growing despite talking on its contraction and statistics could deteriorate in nearest few months due floods and breaking some supply chains. Finally, existed stimulus packs provides lasting support to gold market. We do not expect explosive growth because a lot of fears and limitations already exist on the market as well. But some choppy upside creeping action is possible. It is expected to be not very stable and fragile, risking to break at any moment. But, still some background exists for it.



Technicals
Monthly

Obviously market has no fundamental driver that could help it to break through 1800 area. Month almost is over but the trading range is very small and price can't go back above YPP. As we've said - 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. In fact, 50% level has been reached, but lower time frames action keeps door open for some upward continuation.
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Weekly

Here price keeps upside reaction on support level. Trend stands bearish by far. 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.

By taking a look at larger scale, market could forming the big triangle pattern as well. With the upper border of the pattern around 1865-1870 market has the room to climb more, but breakout in any direction has to have fundamental driver and it is unclear for upward breakout scenario by far.

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Daily

On Friday we've met with some tricky moments here. In fact, market has formed bullish grabber and was forming bullish pattern on intraday chart, but at the same time has not completed major downside target. It brings two negative moments - chance to miss the entry and/or risk to get drop to major target. Besides, we've said that it is not necessary that grabber should be just the single one. And indeed - we've got another one here, which is C point as well.

As we've said above, the shape of downside price action, makes us think that another swing up should happen before reversal, and, hypothetically, it might be to OP target around 1872$ that doesn't break the weekly triangle. In fact it stands right at the upper border. But, based on the strength of action, it is more likely to see just COP @ 1840$ as it stands between two major levels and completes grabbers. Besides, OP now is above daily Overbought area and not as interesting right now. We keep OP in mind but hardly we need it on coming week.

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Intraday

Here is the concern that we have, as OP is not reached yet and this is the reason why we've called on Friday to place initial stops below 1780$. Now we could say that definitely buyers step - in around 1785 as any attempt to go lower were bought out. As a result we've got two grabbers here as well. This performance confirms our suggestion that gold could show another upward swing. By DiNapoli we have "Oops" direction pattern, when strong support area stands right under neckline of H&S pattern.

It seems that our levels are chosen correct and we could keep the same tactic - scenario of long entry somewhere in the range of daily/4H grabbers, with initial stops below 1780 still valid and could be considered here.
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On 1H chart price is very choppy. The H&S pattern that was seeming to be formed on Friday has been erased and now we definitely see the widening consolidation is forming. Usually direction agrees with the way of breakout. Since we have multiple grabbers - upward breakout seems preferable direction now. Thus, if we would get, say "222" Buy pattern - it might be the one that could be used for entry. Also we have MACD bullish divergence here. But again - stops have to be considered below 1780 initially, as OP @1782 still could be reached, despite that here we could get this pattern.

For bearish setup we have to break down below 1780 support and erasing of all bullish patterns here.

gold_1h_26_07_21.png
 

Sive Morten

Special Consultant to the FPA
Messages
15,139
Good morning,

Things are getting complicated, guys. Although grabbers were formed, but market can't follow them. Any attempt to go higher sells down. In the base case - this is just because of OP @ 1785, but in the worse case - market could start with major downside extension of monthly engulfing pattern.

Currently it is still unclear, as daily grabbers are valid. Besides a lot of things depend on Fed. It means that we do not have a lot of options here - either to wait, as usual, or take a position whatever direction you want, if you would like to take part in Fed mess.

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For long position the major condition is the stop - it has to be below 1780 area, because bullish market has to stay above it. We have clear AB-CD action and 1782 Agreement support level. This is enough to hold any pullback. Downside breakout tells that this is not a pullback...
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At the same time, for short entry area stands the same but stop should be above the top of widening consolidation that we have. Now it is not necessary to place stop above the shoulder. Don't take position too close to 1785 OP target. It should be some room to move stops to breakeven. Pay attention to interesting symmetry on 1H chart.
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As market shows no evidence - both positions have chance to succeed by far as they depend on Fed. If you like to skate on thin ice and rattle nerves - these setups are for you... Others - just wait.
 

Sive Morten

Special Consultant to the FPA
Messages
15,139
Morning guys,

So, just few minor things to discuss before the Fed... As we've mentioned already, gold keeps contradictive situation as doors are open for both direction. On daily chart we have big sell-off (of monthly bearish engulfing pattern), that potentially should trigger extended continuation, but at the same time we have bullish grabbers that are still valid and market doesn't hurry up to go down by far. It means that another swing up still could happen. At least, existence of the grabbers makes uncomfortable to go short right now

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On 4H chart overall situation also looks not quite bearish. H&S pattern that we've discussed - can't get started downside action and reach at least 1785 OP target. Every deep is buying out here:
gold_4h_28_07_21.png


As a result, better solution is to wait and see what will happen. But, active traders who are ready to accept risk of uncertainty and Fed meeting could consider position taking. Thus, bulls could take position inside of consolidation with stops below the lows (i.e. grabbers invalidation point), while bears as well - could use patterns for short entry with stops above the top of consolidation. For example, today market provides chances bears to step in, forming nice "222" Sell inside the diamond shape:
gold_1h_28_07_21.png
 

Sive Morten

Special Consultant to the FPA
Messages
15,139
Greetings everybody,

So, despite that Fed statement gives no new information - this is also the result, as it lets market to move higher, because they have more time with low US interest rates. Currently we suppose to focus on near standing target - 1840 that is COP and daily OB area. Grabbers are valid, so, market has good chances to reach it:
gold_d_29_07_21.png


On 4H chart upward action shows good pace and here we have closer stand XOP at 1827. If you've taken position yesterday - all you need to do is just manage your stop orders. But those who have decided to follow conservative tactics and not take part in Fed meeting, now should keep an eye on possible deep to buy. And this deep could start forming once XOP will be reached:
gold_4h_29_07_21.png


On 1H chart both setups have worked - as "222" Sell in the morning as upward reversal later, grabbers' lows were not broken. Supposedly there are two patterns might be formed that become a background for upward continuation. First is - a kind of reverse H&S pattern if deep retracement happens after XOP target will be reached. Alternatively, it might be extended butterfly "Buy". Whatever pattern will be formed - retracement is a potential chance to consider long entry for those who stand aside right now.
gold_1h_29_07_21.png


Still, guys, despite recent performance, it probably will be short-term. Expectations of tapering announcement will start pressing soon on the markets' sentiment. So, big bearish setup on gold market is still valid.
 

Sive Morten

Special Consultant to the FPA
Messages
15,139
Greetings everybody,

So, Fed give markets time to fun in low interest rates environment, which helps all USD rivals to show upward performance, and gold not an exception.

On daily chart is difficult to find reasons that could prevent market to hit 1840 target and complete bullish grabbers that were formed here. Hopefully this happens today. But, still, if you have long positions - think about protection if you intend to keep them through weekend.
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On 4H chart price hits our predefined XOP and even is showing some reaction on it. Taking in consideration the pace on daily chart, lack of resistance and overbought area - reaction on XOP might be very small, and price with high degree of certainty could keep going to COP @1840.

Still, if some reaction starts - as we've said, we keep an eye on either reverse H&S, or butterfly pattern. It is still theoretically possible as market has not taken out the top by far:
gold_4h_30_07_21.png


So, theoretical chances exist, but why I suppose that upward continuation is more probable - is reaction on XOP. Here we do not see any reversal action. Its slow, flat and reminds pennant consolidation. This is not the beginning of strong downside reaction. Thrust looks great, but we do not have either DRPO or even B&B pattern here.
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Thus, for long entry we need healthy pullback, that has more chances to happen from 1840 IMO. No reasons to sell either. Major intrigue of next week, guys, stands around relation of current action to bearish setup on monthly chart.
 
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