Gold GOLD PRO WEEKLY, June 03 - 07, 2019

Sive Morten

Special Consultant to the FPA
Messages
12,638
Fundamentals

So, this is just one major event was standing in focus this week - D. Trump tariffs across the Globe, which hurts Mexico this time and expected impact on US economy and Fed policy. These two factors push gold to the sky.

In general, action stands in a row with our long-term expectations. Just to remind in two word - world stands in big political and economical shift. When such events happen - world can't avoid big turmoils and this is very good background for the gold market.

At the same time, as we can't predict political events, external driving factors skew the picture that we get from the charts, changing the order of price action.

As Reuters reports this week, gold prices rose on Friday to remain on track for their first monthly gain since January, with expectations of cuts in U.S. interest rates boosted by inflation data for the first quarter.

Markets were also keeping a close eye on international trade tensions, with U.S. President Donald Trump’s shock move to slap tariffs on Mexico risking tipping the United States, and maybe the whole world, into recession.

U.S. inflation was much weaker than initially thought in the first quarter amid a sharp slowdown in domestic demand, which could cast doubts on the Federal Reserve’s view that the benign price pressures were largely because of temporary factors.

“People are doing fear trade now and running towards gold,” said Michael Matousek, head trader at U.S. Global Investors. He noted investors were unsure of what Trump planned to do.

“That tells you need to have higher allocation to gold in your portfolios.”


Mexico’s president on Friday urged Trump to back down from threats to impose tariffs on its exports to the United States, in a dispute over migration that could create a major economic shock for Mexico.

Wall Street’s main equity indexes fell sharply, hit by fears that Trump’s threat could prove the trigger that pushes the world’s largest economy into recession.

U.S. carmakers and manufacturers were among the worst hit, having built vehicles in Mexico for years, taking advantage of its cheap labour, trade deals and proximity to the United States.

“The dollar index is still in the 98-area, which is normally a headwind for gold but because of the extreme stock tumbling, it seems to be ignoring the normal headwind,” said George Gero, managing director at RBC Wealth Management.

“Gold is probably going to stay in this $1,300 area as long as the selloff (in equities) continues.”


Meanwhile, expectations of a cut in interest rates by the U.S. Federal Reserve increased after recent weak economic readings from the U.S. added to concerns raised by the prolonged U.S.-China trade dispute.

Lower interest rates would support gold because they reduce the opportunity cost of holding non-yielding bullion.

Also adding to economic woes, China’s factory activity shrank more than expected in May, an official survey showed on Friday, heaping pressure on Beijing to roll out more stimulus to support an economy hit by a bruising trade war with the United States.

Next week there are a lot of events, guys, on the table. RahmanSL puts great list of coming political events, but also do not forget on statistics, NFP on Friday as well.

CFTC data shows stable condition, as gold net position stands long but doesn't show big changes. It is interesting to see it next week. As data prepares on Wednesdays, this week it doesn't include results of rally, while next week it will.
upload_2019-6-2_14-29-10.png

Source: cftc.gov
Charting by Investing.com


As US-Sino tariffs piking stands as a core of gold rally, we would like to share Fathom Consulting view on possible perspective of this turmoil. As we talked earlier, and still support this view - tariffs is a robbing tool in the hands of the US. Only US could get meaningful earnings from using it, but not other countries. It comes due dominant role of US Dollar in global trade. Everything that any country needs - it could buy only for USD (majorly). Thus, whatever sanctions and tariffs will be initiated against the US by China or any other country - it barely lead to serious consequences. Slowdown of economy - yes, but not fatal hit. In result, US gets what it want and twist the arms to anybody who will try to object. That's why we think that despite possible impact on US economy - US will win any tariff's war due domination of US dollar. We talked about it in detail last time. The Political reputation also stands on table, as US can't push the back pedal and play everything back - they will lose public face.

Here is what Fathom tells:
While the trade spat will have costs for both economies, the Chinese economy appears to be more vulnerable to a downturn from such a development. As the chart below indicates, China exports to the US account for almost 4% of its GDP, while US exports to China account for around 1% of US GDP. We had previously likened the trade negotiations to a high-stakes game of chicken, which we expected the US to win. However, thus far, China has shown little sign of backing down and a resolution to the dispute now appears some way off.



With the 10% tariff now increased to 25% on US$ 200 billion worth of goods, China’s economy is likely to feel the pain in the coming months.

For gold it is positive sentiment background, no doubts. As China tariffs stand underway, Mexico ones were announced and on the table, and EU, needless to suppress, yet to be launched - this keeps the same driving factors valid for the considerable time. We mean market expectations of Fed rate cut and negative impact on stock market and economy statistics, drop of US interest rates etc. All these factors support demand for the gold.

Technical
Monthly


Technically, gold also shows good performance, keeping our long term view valid. Our fundamental and sentiment analysis shows that no big changes have happened and gold still stands positive. Despite technical retracement, we do not have reasons yet to cancel our long-term positive view on gold. On monthly chart see price stands at Yearly Pivot which holds overall situation balanced.

As market stands in tight range 4th month in a row, the shape of price action more and more reminds bullish flag pattern, which corresponds to our long-term view. Now gold starts strong action and comes to grips with upside breakout.

The only concern that we have is mostly technical. Upside reversal that we've got last week, looks nice, but it has happened a bit early to what we've expected. And the question is - whether we still get downside continuation a bit later to hit major target, or not. Right now it is difficult to imagine that this will happen, but gold stands at our predefined 1306 resistance and price action on next week should become a decisive one.

As we've said earlier, we're watching for our so called "symmetrical" model. It could be clear symmetry in market action, and we have suggested that future action could be a reflection of previous downside action shape.

Gold has shown good performance in December - February, which could put the foundation of new long-term upside trend. We still keep our harmonic technical model on monthly chart as primary tool of analysis. Current retracement down looks strong on daily chart, but it is just 30% of major swing up which is minimal level.

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.

Here is explanation of our "symmetrical" model and scenario.In two words we could describe it as "compounded reverse H&S" shape. Important COP target has been hit and upside action has started. In fact we have mirror action to the right and to the left from COP point. Market forms approximately equal lows on both sides. The speed is also similar. Is it possible that reversal is forming? Why not.

Among bullish signs we could mention MACD hidden divergence which suggests action above 1380 top in long-term perspective.

Thus, overall situation on monthly chart shows bullish sentiment.
gold_m_03_06_19.png


Weekly

Last time we've explained in details, why we have concern here and come to the only solution -

"Trying to find a solution here, we suggest that it might be two-leg upside action, and gold still could form 3-Drive pattern. This is the only compromise - how to combine possible upside action with overall bearish setup on weekly chart."

Thus red AB-CD upside action is done as gold hits predefined 1306 target. Despite that suggestion was correct our mood is mixed as it was real challenge to catch it. Anyway, now market stands at decision point - upside breakout, action to 1322 area of "C" point means that now downside continuation will be and we should start to think about challenge of 1350 top. Downside reversal with acceleration confirms validity of our 3-Drive pattern.

Definitely that advantage on bullish side, because as fundamentally as technically gold looks strong. One single candle right to 1306 level suggests further continuation due very strong momentum.

For the truth sake, technical factors now takes backseat. As last week it was difficult to imagine the gold rally, due weak performance as this week it is difficult to imagine sharp downside reversal, but D. Trump words get water from a flint...
gold_w_03_06_19.png


Daily

Here is our tricky pattern, "222" Sell. Obviously, in current circumstance we can't talk on major reversal, but only on retracement. We have technical background for it - daily Overbought, AB=CD target and MPR1. But this setup is for scalp traders only, on intraday charts. Daily context is bullish and here we mostly should wait for meaningful retracement to consider long entry.

XOP target stands above the "C" point of our initial downside AB-CD pattern. It means that if gold still continue to climb higher - it will erase AB-CD pattern and all uncompleted targets that right now act as disturbing factor for us.

But, hardly this will happen this week as market already stands at overbought. Also we have 1316 major Fib resistance.

By pivot point framework - breaking above MPR1 means that major upside trend continues. PR1 usually holds retracements, but major trend continuation breaks them.

gold_d_03_06_19.png


Intraday

Here is not much to comment. Upside action is unstoppable, it is no reversal patterns have been formed yet, our XOP has been hit as well.

Thus, we could try to use the thrust - any DiNapoli directional patterns are subject for trading, B&B's, DRPO "Sell", DRPO Failure etc. Once retracement will be done - as usual, we watch for "222" patterns etc. Now we could approximately tell that retracement should stuck somewhere in 1287-1295 area, as solid support cluster stands there.
gold_4h_03_06_19.png


Conclusion

No doubts, gold keeps positive mood, shows great upside impulse and fundamental background for continuation. But, this is also the weakness, as political factors are easy to come but also easy to go. And this is the major risk. Current rally has no persistence, compares to action, driving by stable gradually increasing demand. It could turn 180 degrees in a blink of an eye once D. Trump says opposite things.
This fact makes gold trading extremely difficult now.


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
12,638
Greetings everybody,

Situation on gold market changes rapidly. In fact, price has broken through our bearish invalidation point and erases downside scenario. It means that retracement is over and we stand with continuation of major trend.

Now we have to turn to more extended targets on daily chart, although they are not a perspective of this week.
Next important target is 1330, which is COP of major upside AB-CD pattern.

Upward action is just has started, so do not be upset if you've missed this rally. There are a lot of chances will be ahead.
gold_d_04_06_19.png


As you can see, on daily chart market stands deep in overbought area, which means that chances on pullback are significant and this is definitely not the moment for taking any long position by far.

On 4H chart gold also comes to major XOP. Once it will be hit we put an eye on thrust - it is perfect, and it is potential source of DiNapoli patterns, B&B or DRPO, which is more probable. First target of retracement is 1308-1310 area, I suppose. We do not intend to trade gold short. We have bullish context, so any retracement is the chance to take long position at good place.
gold_4h_04_06_19.png


Still, on 1H chart, using the same thrust - we could get DRPO "Sell" as soon as XOP will be hit. So, it is not absolutely forbidden to trade it short on intraday chart, if you have the confidence, of course:
gold_1h_04_06_19.png


That's being said - no longs by far, we wait for pullback and bullish patterns, such as "222' Buy, for example.
Scalp traders could consider DRPO "Sell".
 

Sive Morten

Special Consultant to the FPA
Messages
12,638
Greetings everybody,

Yesterday market has shown shy reaction on overbought level, but for have to say that XOP on 4H chart has not been totally hit yet. Now, few minutes ago, gold has shown upside action that finally hits XOP target.

The tricky moment on gold stands with target estimation. If we wouldn't get any retracement today-tomorrow, it will be hard to foresee where it could happen next time. Because we do not have any logical objective points, extensions and Fib levels - all of them have been broken. Next target is COP at 1380. The only resistance that we have in an area of 1330-1380 is overbought. If market shows now reaction today and continue creep higher - then it could take the shape of "Creeping with overbought" type of action. When market hits OB, next day shows minor retracement and then moves higher, hit OB again etc. This action lasts till important target of resistance level.
gold_d_05_06_19.png


On 4H chart we have no DiNapoli patterns (only 1st close below 3x3 is done), now, as you can see XOP is hit:
gold_4h_05_06_19.png


If retracement is still on the table - market should start to form some bearish pattern - H&S, for example, as XOP action takes the shape of butterfly "Sell":
gold_1h_05_06_19.png


Thus, today we're watching for reaction. If nothing will follow - we adjust our trading plan to "Creeping with OB" type of price action.
 

Sive Morten

Special Consultant to the FPA
Messages
12,638
Greeting everybody,

Gold stands a bit overextended to the upside. Yesterday we see deep pullback out from the top and now again, price is forming inside session. Thus, gold indeed needs some relief to leave overbought area. Other things stands the same on daily chart:
gold_d_06_06_19.png


On 4H chart we have approximately the same setup as on EUR today. Here we have big eventing star pattern, which suggests downside AB-CD action. Usually target equals to the length of the pattern itself. Now BC leg is forming:
gold_4h_06_06_19.png


It takes shape of '222" Sell pattern. As soon as it will be completed, CD leg should start. Pattern has target around 1320 area right now. Invalidation point is above "A". Thus, this is mostly tactic short-term setup, as we do not have any more extended patterns. Tomorrow NFP release, thus, may be we will get something:
gold_1h_06_06_19.png
 

RahmanSL

Major
Messages
2,526
Sive thanks for your valuable insights into Gold.

Oil prices CL.1, -3.87% are hovering around bear-market levels amid concerns over slowing global growth and the potential for tariffs to sap energy demand.
Gold GC.1, +0.41% meanwhile, has been heading in the other direction. Some of the same factors keeping pressure on oil have led gold to a five-session winning streak that’s propped up prices to levels not seen in more than a year.
Only three other times in history did precious metals surged while oil plunged and all of them happened during severe bear markets and recessions.
Gold-to-oil ratio surging, copper prices getting annihilated, corporate spreads widening, and credit markets screaming recession ahead. The Fed’s utterly dovish comments just add to this list.

Intensifying battle between the U.S. and China over tariffs, along with forecasts for weaker global economic growth and lower corporate profits, have encouraged investors to look for havens such as gold over the past several sessions. China’s central bank Governor praised the nation’s ability to cope up with the US-led trade protectionism ignoring short-term draw on the economy.
White House talks to avoid Mexican tariffs failed while the US President Donald Trump kept tweeting in favor of the Fed’s rate cut while highlighting strong position compared to Mexico in terms of trade.
 

Sive Morten

Special Consultant to the FPA
Messages
12,638
Sive thanks for your valuable insights into Gold.

Oil prices CL.1, -3.87% are hovering around bear-market levels amid concerns over slowing global growth and the potential for tariffs to sap energy demand.
Gold GC.1, +0.41% meanwhile, has been heading in the other direction. Some of the same factors keeping pressure on oil have led gold to a five-session winning streak that’s propped up prices to levels not seen in more than a year.
Only three other times in history did precious metals surged while oil plunged and all of them happened during severe bear markets and recessions.
Gold-to-oil ratio surging, copper prices getting annihilated, corporate spreads widening, and credit markets screaming recession ahead. The Fed’s utterly dovish comments just add to this list.

Intensifying battle between the U.S. and China over tariffs, along with forecasts for weaker global economic growth and lower corporate profits, have encouraged investors to look for havens such as gold over the past several sessions. China’s central bank Governor praised the nation’s ability to cope up with the US-led trade protectionism ignoring short-term draw on the economy.
White House talks to avoid Mexican tariffs failed while the US President Donald Trump kept tweeting in favor of the Fed’s rate cut while highlighting strong position compared to Mexico in terms of trade.
Yes, Rahman, that's it. I also keep an eye on all this stuff, and in general we were expecting process of this kind when we said that have long-term bullish view on gold. Of course, it was not possible to predict what particular events will happen. With the end of US domination era and big burden of government debt - they have outstanding needs in resources. Now they try to use the rest of power to rob everybody, where they still could control situation. These are the countries that have most tight relation to US in different spheres - EU, China , UAE S. Arabia and some others...

Now you mention all major factors. The one thing to add - Central Banks demand for gold hits all time records, especially Russia, Turkey and some others. And another thing - but we already talked about it in reseach - Basel III. Gold becomes money, and stops to be a commodity, not by physical quality of course, but on world banking relation to it. Its value now 100% in banking capital. It was 50%. So the part that was belonging to US dollar and other paper money now shoud diminish.

My suggestion - new financial era is coming. World is preparing to the end of dollar domination.
 
Last edited:

Sive Morten

Special Consultant to the FPA
Messages
12,638
Greetings everybody,

Gold market shows weak response on resistance and we suggest that we're turning to "Creeping with overbought" kind of action. In two words - this is when price hits overbought, shows minor intraday retracment early in next session but hits overbought again by the close and so on, until it hits one of the major targets.

On daily our target is 1380.
gold_d_07_06_19.png


The way how market response to huge bearish evening star pattern makes us think on upside breakout today. Daily chart shows that overbought stands around 1345 area - this is potentially the level that gold could reach. As price starts to form pennant instead of AB-CD retracement down just confirms our suggestion on upside action:
gold_4h_07_06_19.png


Finally, we have bullish signs on hourly chart as well - very weak reaction on "222" Sell, only minor target has been hit. And hidden bullish divergence.
gold_1h_07_06_19.png


Our suggestion - no shorts. Long position could be taken inside the pennant, but NFP... it could bring fakeouts. Thus, it is better to decrease position volume and place farer stop.
 
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