Sive Morten
Special Consultant to the FPA
- Messages
- 18,760
Fundamentals
(Reuters) - Gold prices rose to a six-week high on Friday after weaker than expected U.S. inflation dampened expectations that the U.S. Federal Reserve will aggressively raise interest rates and North Korea fired a
ballistic missile, triggering safe-haven buying.
Data on U.S. second quarter gross domestic product (GDP) and labor costs also pushed the dollar lower, making bullion cheaper for holders of other currencies.
"It showed a big fall in annual inflation rates across the board ... so there is no urgency for the Fed to raise interest rates," said Commerzbank analyst Carsten Fritsch.
Gold is sensitive to rising rates because they push up bond yields, making non-yielding gold less attractive, and tend to boost the dollar. Spot gold was up 0.8 percent at $1,268.84 an ounce by 1:50 p.m. EDT (1750 GMT), after touching $1,270.38, the highest since June 14. It was on track to rise for a third week in a row.
U.S. gold futures for August delivery settled up 0.7 percent at $1,268.40.
North Korea fired a missile on Friday in an unusual late-night test launch, and details announced by Japanese
officials and media suggested it could be an intercontinental ballistic missile (ICBM).
"There has to be at least a modest factor here that risk is rising in North Korea. We're not off to the races, we're not above $1,300 yet, but certainly there is room for speculators to increase their position," said Rob Haworth, senior investment strategist at U.S. Bank Wealth Management.
"It doesn't hurt that you've got a weak U.S. dollar, and real rates have fallen off a little bit. Interest rates are
under pressure, inflation's in question."
The U.S. dollar index fell on a combination of underwhelming U.S. economic data and political uncertainty,
while global stock markets were also weak.
Julius Baer analyst Carsten Menke said the rally was fragile because it has been accompanied by physical market selling and he expected prices to fall to $1,200 an ounce.
Globally, the market had a surplus of 138 tonnes in the first half of 2017 as demand from physically-backed exchange traded funds tumbled, GFMS analysts at Thomson Reuters said this week.
COT Report
While gold was moving down, CFTC data shows normal bearish background - net long position has decreased, while open interest has grown, as new shorts were opened. As bounce has started we see weak data that mostly points on closing of some short position. Indeed, as net long position has increased last week - open interest still drops. It means that traders just have closed some shorts. Previously we already have mentioned some suspicions on recent rally - it has no support from real gold purchases. This also was metion in today's Reuters comments and this is what we see in CFTC data and SPDR fund statistics.
July shows another trend shifting - gold changes trend 3rd time in a row. In fact price flirts around MACD line with no action in any direction. It could indicate some kind of indecision on gold market, as gold has wide dispersion of driving factors. Now we see some information vacuum in geopolitical sphere that was major bullish driving factor during previous 1-2 months. Major headwind factor of Fed's hawkish policy also becomes weaker as Fed steps back on a way of rate hike cycle.
But we see that this is temporal. Geopolitics will come on first stage soon, as Syria war comes to an end and now the destiny solution of whole Middle East and North Africa is coming. US sanctions, although are not signed by Trump yet, mostly stand against EU economy rather than Russia. Germany will take elections in September - so very soon, closer to an end of summer gold driving factors will get strength.
Technical
Monthly
Right now market still keeps double-sided setup as bullish as bearish patterns are not destroyed yet by price action. Crucial level for them is 1122 area. As we have discussed recently, upside scenario could lead market to 1330 YPR1 first and back to 1380 second, while bearish scenario you see on the chart...
As we talk about changes in sentiment last two weeks, let's take a look at alternative scenario on gold market, compares to what we've discussed previously. Scenario that we will talk about has not been formed yet and it has some degree of uncertainty as major levels that are crucial for this scenario, have not been broken yet.
In fact, our previous scenario on possible reverse H&S pattern is still valid. The breakeven point between these scenarios stands around 1120 lows. If Price will drop below it - gold siginficantly will increase chances on downside continuation.
Right now trend has turned bearish again on monthly chart. Bullish grabber, that has been formed two months ago was completed. But it has reached just minimal target that has become W&R on weekly and daily charts. Other words speaking we see gold inability to support upside trend.
From Pivot point analysis, gold also shows a bit irrational behavior. Once YPP was broken up - gold was not able to reach YPR1 and suddenly has turned down.
It means that we could get either big Butterfly "Buy" pattern with potential target around 950$ or, at least "222" Buy around 1040 area on monthly chart . Until price stands above 1122 lows - there will be some uncertainty around them as gold also could form opposite pattern, we will take a look at it below. But breaking of 1122 will erase any questions...
Weekly
As monthly chart mostly shows inside candles for 2-3 recent months - this action doesn't touch important levels on weekly chart as well, since price mostly goes nowhere on long-term charts.
Last week gold has shown upside action. The range of the week is not too wide, but it shows tail close. Still, it is difficult to make a decision based just on single new candle as it barely impacts on overall picture. Besides, we should keep in mind the weakness in sentiment that CFTC data shows.
In general weekly chart shows alternative scenario that stands in relation to the same 1122 lows. While market stands above this level - big butterfly "Sell" is possible, at least theoretically.
Despite overall bullish action last week - bearish tendency of lower highs and lower lows has not been broken yet. And it means that recent upside action is just a retracement by far and downward action has chances on continuations. Still, it is a bit early to talk whether price will break 1122 or not. Trend is bearish on weekly chart as well.
As we've talked previously, weekly chart shows see some not quite bullish signs. First is, irrational downside reversal in area where were no barriers for upside continuation. Gold has turned down from 1295 area when it has broken all major resistance levels. Second - take a look at large AB-CD pattern. Gold was not able to reach even minor 0.618 extension around 1330 area and dropped. These moments point on weakness on the market.
Thus, gold pretty much space till 1122 while butterfly setup will be valid. If, finally 1122 area will be broken - this butterfly will be erased, and bearish setup that we've talked about on monthly chart could turn to active phase.
Also we should be extra careful with any long positions. As we do not see real purchases of gold - rally could finish unexpectedly by miserable plunge. We saw it previously few times...
Daily
Gold market shows nothing special on daily chart. Just few moments that we could talk about. Trend stands bullish, price is not at overbought.
On a way up gold has broken all Fib levels - last one was 1261 and it has been broken as well on Friday. There are only two short-term resistances stands above - MPR1 at 1280 and previous top around 1300 area.
As we do not have any specific patterns, the only potential that I see here is DiNapoli DRPO or B&B may be, based on thrust up that we have here.
Finally, here we could recognize some shape of compound H&S pattern, where we have double head. According to simmetry of this pattern - 1275 will be major level to watch for, as harmonic swings of "left shoulder" point on it.
Unfortunately, this is all that we have on daily chart by far.
4-hour
Here price stands in upside channel. It means that any bearish pattern probably should start from it's breakout. Daily resistance around 1278 area is also accompanied by MPR1 on coming week. The only pattern that we could recognize here is potential 3-Drive "Sell" inside the channel. That's why before taking any shorts it is needed either to get completed 3-Drive, because we could place tight reasonable stop
or - wait for bearish reversal swing and donwside breakout of the channel. Until this will happen - it is very difficult to get reasons for taking any bearish position.
Conclusion
Long term charts keep valid two opposite scenarios with thrilling scale. The separate line between them is 1122 area.
In short-term perspective, gold stands in wide consolidation and is forming a kind of widening triangle or compound H&S pattern - actually it doesn't matter how we call it. What is really matter that hardly we will get clarity about direction within 1-2 weeks.
All that we could do right now on gold market is to watch for short-term intraday patterns, that could appear around major support/resistance levels. Next one stands in 1277-1279 area. As we said rally looks suspicious - although it looks strong but has no support by SPDR stats and CFTC data... But anyway, any short position should be supported by either clear bearish pattern or breaking of bullish tendency, i.e. channel should be broken down...
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.
(Reuters) - Gold prices rose to a six-week high on Friday after weaker than expected U.S. inflation dampened expectations that the U.S. Federal Reserve will aggressively raise interest rates and North Korea fired a
ballistic missile, triggering safe-haven buying.
Data on U.S. second quarter gross domestic product (GDP) and labor costs also pushed the dollar lower, making bullion cheaper for holders of other currencies.
"It showed a big fall in annual inflation rates across the board ... so there is no urgency for the Fed to raise interest rates," said Commerzbank analyst Carsten Fritsch.
Gold is sensitive to rising rates because they push up bond yields, making non-yielding gold less attractive, and tend to boost the dollar. Spot gold was up 0.8 percent at $1,268.84 an ounce by 1:50 p.m. EDT (1750 GMT), after touching $1,270.38, the highest since June 14. It was on track to rise for a third week in a row.
U.S. gold futures for August delivery settled up 0.7 percent at $1,268.40.
North Korea fired a missile on Friday in an unusual late-night test launch, and details announced by Japanese
officials and media suggested it could be an intercontinental ballistic missile (ICBM).
"There has to be at least a modest factor here that risk is rising in North Korea. We're not off to the races, we're not above $1,300 yet, but certainly there is room for speculators to increase their position," said Rob Haworth, senior investment strategist at U.S. Bank Wealth Management.
"It doesn't hurt that you've got a weak U.S. dollar, and real rates have fallen off a little bit. Interest rates are
under pressure, inflation's in question."
The U.S. dollar index fell on a combination of underwhelming U.S. economic data and political uncertainty,
while global stock markets were also weak.
Julius Baer analyst Carsten Menke said the rally was fragile because it has been accompanied by physical market selling and he expected prices to fall to $1,200 an ounce.
Globally, the market had a surplus of 138 tonnes in the first half of 2017 as demand from physically-backed exchange traded funds tumbled, GFMS analysts at Thomson Reuters said this week.
COT Report
While gold was moving down, CFTC data shows normal bearish background - net long position has decreased, while open interest has grown, as new shorts were opened. As bounce has started we see weak data that mostly points on closing of some short position. Indeed, as net long position has increased last week - open interest still drops. It means that traders just have closed some shorts. Previously we already have mentioned some suspicions on recent rally - it has no support from real gold purchases. This also was metion in today's Reuters comments and this is what we see in CFTC data and SPDR fund statistics.
July shows another trend shifting - gold changes trend 3rd time in a row. In fact price flirts around MACD line with no action in any direction. It could indicate some kind of indecision on gold market, as gold has wide dispersion of driving factors. Now we see some information vacuum in geopolitical sphere that was major bullish driving factor during previous 1-2 months. Major headwind factor of Fed's hawkish policy also becomes weaker as Fed steps back on a way of rate hike cycle.
But we see that this is temporal. Geopolitics will come on first stage soon, as Syria war comes to an end and now the destiny solution of whole Middle East and North Africa is coming. US sanctions, although are not signed by Trump yet, mostly stand against EU economy rather than Russia. Germany will take elections in September - so very soon, closer to an end of summer gold driving factors will get strength.
Technical
Monthly
Right now market still keeps double-sided setup as bullish as bearish patterns are not destroyed yet by price action. Crucial level for them is 1122 area. As we have discussed recently, upside scenario could lead market to 1330 YPR1 first and back to 1380 second, while bearish scenario you see on the chart...
As we talk about changes in sentiment last two weeks, let's take a look at alternative scenario on gold market, compares to what we've discussed previously. Scenario that we will talk about has not been formed yet and it has some degree of uncertainty as major levels that are crucial for this scenario, have not been broken yet.
In fact, our previous scenario on possible reverse H&S pattern is still valid. The breakeven point between these scenarios stands around 1120 lows. If Price will drop below it - gold siginficantly will increase chances on downside continuation.
Right now trend has turned bearish again on monthly chart. Bullish grabber, that has been formed two months ago was completed. But it has reached just minimal target that has become W&R on weekly and daily charts. Other words speaking we see gold inability to support upside trend.
From Pivot point analysis, gold also shows a bit irrational behavior. Once YPP was broken up - gold was not able to reach YPR1 and suddenly has turned down.
It means that we could get either big Butterfly "Buy" pattern with potential target around 950$ or, at least "222" Buy around 1040 area on monthly chart . Until price stands above 1122 lows - there will be some uncertainty around them as gold also could form opposite pattern, we will take a look at it below. But breaking of 1122 will erase any questions...
Weekly
As monthly chart mostly shows inside candles for 2-3 recent months - this action doesn't touch important levels on weekly chart as well, since price mostly goes nowhere on long-term charts.
Last week gold has shown upside action. The range of the week is not too wide, but it shows tail close. Still, it is difficult to make a decision based just on single new candle as it barely impacts on overall picture. Besides, we should keep in mind the weakness in sentiment that CFTC data shows.
In general weekly chart shows alternative scenario that stands in relation to the same 1122 lows. While market stands above this level - big butterfly "Sell" is possible, at least theoretically.
Despite overall bullish action last week - bearish tendency of lower highs and lower lows has not been broken yet. And it means that recent upside action is just a retracement by far and downward action has chances on continuations. Still, it is a bit early to talk whether price will break 1122 or not. Trend is bearish on weekly chart as well.
As we've talked previously, weekly chart shows see some not quite bullish signs. First is, irrational downside reversal in area where were no barriers for upside continuation. Gold has turned down from 1295 area when it has broken all major resistance levels. Second - take a look at large AB-CD pattern. Gold was not able to reach even minor 0.618 extension around 1330 area and dropped. These moments point on weakness on the market.
Thus, gold pretty much space till 1122 while butterfly setup will be valid. If, finally 1122 area will be broken - this butterfly will be erased, and bearish setup that we've talked about on monthly chart could turn to active phase.
Also we should be extra careful with any long positions. As we do not see real purchases of gold - rally could finish unexpectedly by miserable plunge. We saw it previously few times...
Daily
Gold market shows nothing special on daily chart. Just few moments that we could talk about. Trend stands bullish, price is not at overbought.
On a way up gold has broken all Fib levels - last one was 1261 and it has been broken as well on Friday. There are only two short-term resistances stands above - MPR1 at 1280 and previous top around 1300 area.
As we do not have any specific patterns, the only potential that I see here is DiNapoli DRPO or B&B may be, based on thrust up that we have here.
Finally, here we could recognize some shape of compound H&S pattern, where we have double head. According to simmetry of this pattern - 1275 will be major level to watch for, as harmonic swings of "left shoulder" point on it.
Unfortunately, this is all that we have on daily chart by far.
4-hour
Here price stands in upside channel. It means that any bearish pattern probably should start from it's breakout. Daily resistance around 1278 area is also accompanied by MPR1 on coming week. The only pattern that we could recognize here is potential 3-Drive "Sell" inside the channel. That's why before taking any shorts it is needed either to get completed 3-Drive, because we could place tight reasonable stop
or - wait for bearish reversal swing and donwside breakout of the channel. Until this will happen - it is very difficult to get reasons for taking any bearish position.
Conclusion
Long term charts keep valid two opposite scenarios with thrilling scale. The separate line between them is 1122 area.
In short-term perspective, gold stands in wide consolidation and is forming a kind of widening triangle or compound H&S pattern - actually it doesn't matter how we call it. What is really matter that hardly we will get clarity about direction within 1-2 weeks.
All that we could do right now on gold market is to watch for short-term intraday patterns, that could appear around major support/resistance levels. Next one stands in 1277-1279 area. As we said rally looks suspicious - although it looks strong but has no support by SPDR stats and CFTC data... But anyway, any short position should be supported by either clear bearish pattern or breaking of bullish tendency, i.e. channel should be broken down...
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.
