Sive Morten
Special Consultant to the FPA
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Fundamentals
In previous report we've made detailed update of ongoing processes that make major impact on gold market. Results of our analysis are not very encouraging for bulls as gold is passing through difficult times.
Last week major focus was, of course, on GDP release. First reaction was mixed. Despite very good numbers, gold has not dropped significantly. We think that this is temporal confusion. On coming week some downside action should follow.
As Reuters reports - gold inched higher on Friday as the U.S. dollar slid lower after strong U.S. economic growth data while concern remains about trade tensions between the United States and Europe.
The dollar slipped against a basket of currencies as data showing the U.S. economy rang up its strongest quarter in nearly four years failed to erase worries that trade frictions would be a drag in the second half of 2018.
“The dollar weakened and treasury yields came off,” said Walter Pehowich, executive vice president of investment services at Dillon Gage. “Dollar weakness looks like it will continue and gold will see some short-term support.”
Benchmark 10-year U.S. Treasury yields slipped from their highest level in 1-1/2 months.
In the physical markets, gold demand in India improved this week as domestic prices traded near a six-month low, while weaker rates in Singapore prompted a pick-up in demand there. Demand remained weak, however, in top consumer China as the yuan fell.
“We believe price action (in gold) is likely to be subdued in the coming weeks (as) physical demand is in the middle of a seasonally slow period, short interest in gold has risen as prices have fallen and there are 200 tonnes of loss-making ETF positions that could be liquidated,” Barclays said in a note.
Spot gold is expected to fall into a range of $1,206-$1,214 an ounce, Reuters technical analyst Wang Tao said.
“A key level of resistance will be $1,236, the double-bottom from a couple weeks ago,” Pehowich added.
This mostly agrees with our estimations that we've made in last report and in daily updates.
COT report
Recent CFTC data also brings nothing good to bulls. Net speculative position has turned short on a background of rising open interest. This is clear indicator of bearish trend, as not just long covering but just opened real short positions stands on the back.
SPDR fund restores some reserves, that amount is very small. Fund was able to add just 3-4 tonnes to 802 tonnes and last two sessions reserves dropped again back to 800 tonnes.
Thus, as fundamental background as sentiment are stand moderately bearish. And this doesn't look surprising as we've discussed some dollar supportive issues yesterday.
Technical
Monthly
Technical picture on gold market now is one among most attractive for trading as gold forms a lot of clear patterns and setups.
Slowly but stubbornly gold market moves lower and result of this move could be seen even on monthly chart. The crucial, decisive bearish moment happens not now, it has happened at the end of 2017.
Although July candle is not finished yet, but market shows downside breakout of major monthly trend line. As we've said last time - "If this line will be broken - gold could start dropping with acceleration."
Fundamental irrational behavior which we've disclosed earlier now starts to show continuation. Recall our conclusion that we've made since the beginning of the year. That was decisive moment that we've mentioned:
"most important moment for long-term gold right now is ability to move higher. 1327 level is long-term COP target of AB-CD started at 1046$, in July 2015. First it was reached in July 2017. After logical minor bounce price returns back to it. But right now it should be an action higher, to next 1450 target, which is OP of the same AB-CD.
If gold will not be able to do it - strong drop is possible, because price will fail to proceed next extension leg, showing inability and lack of strength to do it. This could break whole AB-CD construction. Besides, this standing below "B" point also keep door open for downside butterfly. As longer gold will stand under resistance as weaker it position will be."
Now take a look at price action that we have. Market has failed to break 1360 top, which means that it has failed to proceed to OP target. Which, in turn, means breaking of CD leg. This process has not finished yet, but signs that we see right now makes us worry.
Besides, we have W&R of 1360 COP top, which also has bearish sentiment.
Our hopes to get bulilsh grabber on May were vanished as price has closed below MACDP line. Trend now stands bearish here.
That's being said, on long-term chart gold looks heavy and weak and overall picture is not attractive for taking long-term bullish position. Next target here stands at 1180 of YPS1.
Weekly
Last week was inside one and barely impacts on technical picture. Our major context here is strong weekly Agreement support. This is a combination of AB-CD target and major 5/8 Fib support. Common sense and normal price behavior suggests at least minor response to support. On weekly chart this could be 1250-1270 retracement.
Second issue is a thrust down from 1365 top. Theoretically it is suitable for DiNapoli directional pattern either DRPO or B&B "Sell". B&B could be formed if market will reach 1270 major 3/8 K-resistance of the thrust.
Right now we're watching for clear pattern that will start upside reversal on daily. The fact that gold has dropped below MPS1 suggests that downside trend will continue.
Daily
Major patterns here we've already discussed on Friday. They are bearish grabber and reversal session - mostly the same as on EUR. Both patterns suggest bearish action on coming week and significantly increase odds of W&R of previous lows.
Besides, overall price action mostly stands flat without any signs of upside thrusting action, which is necessary sign of started upside action. It means that another dive could happen before real upside retracement will start.
Finally, market keeps harmonic swing very accurately and it already has been completed recently.
Intraday
Analysis above leads us to conclusion that most probable pattern that we should keep an eye on is butterfly 'Buy" with 1205 destination point. Appearing of bullish engulfing recently suggests minor upside retracement before action to 1205 will start:
On 1H chart market indeed has shown upside bounce from our 1220 level and completion of XOP target. Bounce up lets move stops to breakeven for those who have taken long position due our Friday's video, or even take profit partially.
4H engulfing pattern takes the shape of reverse H&S pattern - the same as on EUR. Thus, here we suggest mostly the same pattern for watching and taking short positions - "222" Sell", or H&S failure, if gold will not be able to start upside action at all.
Conclusion
If no geopolitical surprises or natural disaster will happen - gold will remain under pressure in foreseeable future. Currently is very difficult to see some fundamental factor that could support gold.
Still, in short-term gold could get a technical relief as it has hit major weekly support area.
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.
In previous report we've made detailed update of ongoing processes that make major impact on gold market. Results of our analysis are not very encouraging for bulls as gold is passing through difficult times.
Last week major focus was, of course, on GDP release. First reaction was mixed. Despite very good numbers, gold has not dropped significantly. We think that this is temporal confusion. On coming week some downside action should follow.
As Reuters reports - gold inched higher on Friday as the U.S. dollar slid lower after strong U.S. economic growth data while concern remains about trade tensions between the United States and Europe.
The dollar slipped against a basket of currencies as data showing the U.S. economy rang up its strongest quarter in nearly four years failed to erase worries that trade frictions would be a drag in the second half of 2018.
“The dollar weakened and treasury yields came off,” said Walter Pehowich, executive vice president of investment services at Dillon Gage. “Dollar weakness looks like it will continue and gold will see some short-term support.”
Benchmark 10-year U.S. Treasury yields slipped from their highest level in 1-1/2 months.
In the physical markets, gold demand in India improved this week as domestic prices traded near a six-month low, while weaker rates in Singapore prompted a pick-up in demand there. Demand remained weak, however, in top consumer China as the yuan fell.
“We believe price action (in gold) is likely to be subdued in the coming weeks (as) physical demand is in the middle of a seasonally slow period, short interest in gold has risen as prices have fallen and there are 200 tonnes of loss-making ETF positions that could be liquidated,” Barclays said in a note.
Spot gold is expected to fall into a range of $1,206-$1,214 an ounce, Reuters technical analyst Wang Tao said.
“A key level of resistance will be $1,236, the double-bottom from a couple weeks ago,” Pehowich added.
This mostly agrees with our estimations that we've made in last report and in daily updates.
COT report
Recent CFTC data also brings nothing good to bulls. Net speculative position has turned short on a background of rising open interest. This is clear indicator of bearish trend, as not just long covering but just opened real short positions stands on the back.
SPDR fund restores some reserves, that amount is very small. Fund was able to add just 3-4 tonnes to 802 tonnes and last two sessions reserves dropped again back to 800 tonnes.
Thus, as fundamental background as sentiment are stand moderately bearish. And this doesn't look surprising as we've discussed some dollar supportive issues yesterday.
Technical
Monthly
Technical picture on gold market now is one among most attractive for trading as gold forms a lot of clear patterns and setups.
Slowly but stubbornly gold market moves lower and result of this move could be seen even on monthly chart. The crucial, decisive bearish moment happens not now, it has happened at the end of 2017.
Although July candle is not finished yet, but market shows downside breakout of major monthly trend line. As we've said last time - "If this line will be broken - gold could start dropping with acceleration."
Fundamental irrational behavior which we've disclosed earlier now starts to show continuation. Recall our conclusion that we've made since the beginning of the year. That was decisive moment that we've mentioned:
"most important moment for long-term gold right now is ability to move higher. 1327 level is long-term COP target of AB-CD started at 1046$, in July 2015. First it was reached in July 2017. After logical minor bounce price returns back to it. But right now it should be an action higher, to next 1450 target, which is OP of the same AB-CD.
If gold will not be able to do it - strong drop is possible, because price will fail to proceed next extension leg, showing inability and lack of strength to do it. This could break whole AB-CD construction. Besides, this standing below "B" point also keep door open for downside butterfly. As longer gold will stand under resistance as weaker it position will be."
Now take a look at price action that we have. Market has failed to break 1360 top, which means that it has failed to proceed to OP target. Which, in turn, means breaking of CD leg. This process has not finished yet, but signs that we see right now makes us worry.
Besides, we have W&R of 1360 COP top, which also has bearish sentiment.
Our hopes to get bulilsh grabber on May were vanished as price has closed below MACDP line. Trend now stands bearish here.
That's being said, on long-term chart gold looks heavy and weak and overall picture is not attractive for taking long-term bullish position. Next target here stands at 1180 of YPS1.
Weekly
Last week was inside one and barely impacts on technical picture. Our major context here is strong weekly Agreement support. This is a combination of AB-CD target and major 5/8 Fib support. Common sense and normal price behavior suggests at least minor response to support. On weekly chart this could be 1250-1270 retracement.
Second issue is a thrust down from 1365 top. Theoretically it is suitable for DiNapoli directional pattern either DRPO or B&B "Sell". B&B could be formed if market will reach 1270 major 3/8 K-resistance of the thrust.
Right now we're watching for clear pattern that will start upside reversal on daily. The fact that gold has dropped below MPS1 suggests that downside trend will continue.
Daily
Major patterns here we've already discussed on Friday. They are bearish grabber and reversal session - mostly the same as on EUR. Both patterns suggest bearish action on coming week and significantly increase odds of W&R of previous lows.
Besides, overall price action mostly stands flat without any signs of upside thrusting action, which is necessary sign of started upside action. It means that another dive could happen before real upside retracement will start.
Finally, market keeps harmonic swing very accurately and it already has been completed recently.
Intraday
Analysis above leads us to conclusion that most probable pattern that we should keep an eye on is butterfly 'Buy" with 1205 destination point. Appearing of bullish engulfing recently suggests minor upside retracement before action to 1205 will start:
On 1H chart market indeed has shown upside bounce from our 1220 level and completion of XOP target. Bounce up lets move stops to breakeven for those who have taken long position due our Friday's video, or even take profit partially.
4H engulfing pattern takes the shape of reverse H&S pattern - the same as on EUR. Thus, here we suggest mostly the same pattern for watching and taking short positions - "222" Sell", or H&S failure, if gold will not be able to start upside action at all.
Conclusion
If no geopolitical surprises or natural disaster will happen - gold will remain under pressure in foreseeable future. Currently is very difficult to see some fundamental factor that could support gold.
Still, in short-term gold could get a technical relief as it has hit major weekly support area.
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.