Sive Morten
Special Consultant to the FPA
- Messages
- 18,706
Fundamentals
(Reuters) Gold surged more than 2percent and was on track for its biggest one-day jump in seven
weeks on Friday after U.S. payrolls data fell well short of forecasts, boosting expectations that the Federal Reserve will stand pat on interest rates. The U.S. economy created the fewest jobs in more than five
years in May, a Labor Department report showed.
That could make it difficult for the Fed to raise interest rates further. The data sparked a rebound in gold, which had slid to a 3-1/2 month low of $1,199.60 on Monday on growing expectations for a hike.
"The climate for gold to go higher ... was certainly set because this pretty sharp drop in bond yields, along with the pull-back in the U.S. dollar and declining equities created a good combination for the gold market to go higher," said James Steel, chief metals analyst for HSBC Securities in New York.
U.S. and European shares, the dollar, oil and bond yields dived after the U.S. job data. "The sharp drop in non-farm payrolls is negative for the dollar and positive for gold," ABN Amro analyst Georgette Boele
said. "Expectations for a rate hike soon have clearly diminished ... Precious metals prices will fly higher."
Gold was on track to rise 2.3 percent this week, following four straight weeks lower after comments from senior U.S. central bank officials, including Fed Chair Janet Yellen, boosted expectations of an imminent rate rise.
Gold is highly sensitive to U.S. rate expectations, as rising rates lift the opportunity cost of holding non-yielding bullion, while boosting the dollar, in which it is priced. Gold demand in Asia, home to the world's biggest consumers of physical gold, was muted this week as a slight increase in India and Japan was offset by reductions in other trading centers as buyers awaited further price declines.
CFTC data shows an action that we've expected - net long position has dropped with open interest. This happens due closing of long positions. Still, overall position is rather significant and decreasing should continue. It's difficult to say right now how this process will go on a background recent poor NFP data, but when market will chill out a bit, it could turn south again. Mostly it will depend on Fed comments next week.
Another shock could happen if Fed still will rise rate despite bad NFP data. That will be double bearish impact.
Technicals
Monthly
So, guys, gold has taken a pause in upward action around 1300 area. We've warned about it 3 weeks ago when we've got specific numbers from CFTC. Based on situation in sentiment and existence of strong resistance area makes problems for gold on a way up.
Current uward action is first one after long term of decreasing and it should be interrupted by deep retracement sometime. Probably it will happen very soon and may be already is happening. Still this potential downward action has a great chance to become just a retracement. Overall political and financial situation in the world probably will not give a chance to relax. Thus, we have a positive long-term view on gold market.
On monthly chart we will get nice bearish engulfing pattern. Usually it leads to comounded retracement down, equals to the length of the bars. Thus, following this logic we could see gold @ 1130-1150 area very soon. But after that it could become a right shoulder of pattern that could be formed here.
Recent upside bounce on Friday, due bad NFP numbers brings nothing important yet to monthly chart and looks just minor retracement back inside enguling body - typical action for any market after engulifng pattern been formed.
Situation on monthly chart stands relatively simple - we could speak on upward trend continuation only if price will take recent top and engulfing pattern will fail.
Weekly
Trend has turned bearish on weekly time frame. Now market is neither OB nor OS. Although we've expected upside bounce out from 1205 level, even to 1245 area, since this is weekly support and Oversold, but we haven't suggested such strong rally, supported NFP numbers.
Currently picture looks a bit uncertain. We do not have any assitance from trend and OB/OS indicators. We do not have any clear patterns. Here we could suggest only one thing - probably we will get upside continuation to MPR1 @ 1279 area. First - because previous top was around it and this will give us H&S shape. Second - because price has moved above MPP and next destination by pivot framework is MPR1.
Widening triangle or say, diamond pattern, suggests even more extreme action - new top should be formed before reversal.
So as you can see we have a lot of different patterns potentially and we can't exclude none of them by far.
But as trend stands bearish, right now we will treat this action as a retracement and work with Fib resistance levels if price will move higher
Daily
As market has started upside action here, trend has turned bullish. While we still see some more upside potential here, it is still could be interrupted by minor retracement. And reason for that could become B&B "Sell" pattern.
Although this pattern will be a bit extreme journey, since we have big jump against it, but still this is B&B "Sell". You will have to decide by yourself whether to trade it or not. But we talk about it, since it could trigger minor bounce down.
As you can see we have 9 bars of bearish thrust, close above 3x3 DMA and price almost has reached 5/8 Fib resistance level around 1250. On Monday gold probably will reach it. If we will get any bearish reversal patterns on hourly chart, say, DRPO, or any other - this could become a signal of starting retracement down.
Its target will stand at 5/8 Fib support of whole Friday rally.
Thus, we do not see anything else right now on daily chart - either B&B "Sell" or, just waiting for the end of this upside action.
Hourly
So here we also do not have much. Upside action was so fast that any Fib extentions here are useless. We could apply only extensions of previous downsiwng. First one already has been hit, second stands at 1255 - precisely around daily Fib resistance where we will be watching for B&B "Sell" pattern.
If market will move slightly higher, then we should get 2 major support areas. First one will be around WPP and K-support ~1230. Second - approx. 1220 is 5/8 Fib support and target of potential B&B pattern.
Conclusion:
Friday's rally has limited impact on monthly chart yet and overall long-term picture still stands bearish.
In short-term perspective it's few that we could do. Recent rally has overruled all patterns that were forming previously and all that we could do by far is to watch for DiNapoli daily pattern. Thus, we will focus on some short-term tactical setups until market will calm down a bit.
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 surged more than 2percent and was on track for its biggest one-day jump in seven
weeks on Friday after U.S. payrolls data fell well short of forecasts, boosting expectations that the Federal Reserve will stand pat on interest rates. The U.S. economy created the fewest jobs in more than five
years in May, a Labor Department report showed.
That could make it difficult for the Fed to raise interest rates further. The data sparked a rebound in gold, which had slid to a 3-1/2 month low of $1,199.60 on Monday on growing expectations for a hike.
"The climate for gold to go higher ... was certainly set because this pretty sharp drop in bond yields, along with the pull-back in the U.S. dollar and declining equities created a good combination for the gold market to go higher," said James Steel, chief metals analyst for HSBC Securities in New York.
U.S. and European shares, the dollar, oil and bond yields dived after the U.S. job data. "The sharp drop in non-farm payrolls is negative for the dollar and positive for gold," ABN Amro analyst Georgette Boele
said. "Expectations for a rate hike soon have clearly diminished ... Precious metals prices will fly higher."
Gold was on track to rise 2.3 percent this week, following four straight weeks lower after comments from senior U.S. central bank officials, including Fed Chair Janet Yellen, boosted expectations of an imminent rate rise.
Gold is highly sensitive to U.S. rate expectations, as rising rates lift the opportunity cost of holding non-yielding bullion, while boosting the dollar, in which it is priced. Gold demand in Asia, home to the world's biggest consumers of physical gold, was muted this week as a slight increase in India and Japan was offset by reductions in other trading centers as buyers awaited further price declines.
CFTC data shows an action that we've expected - net long position has dropped with open interest. This happens due closing of long positions. Still, overall position is rather significant and decreasing should continue. It's difficult to say right now how this process will go on a background recent poor NFP data, but when market will chill out a bit, it could turn south again. Mostly it will depend on Fed comments next week.
Another shock could happen if Fed still will rise rate despite bad NFP data. That will be double bearish impact.
Technicals
Monthly
So, guys, gold has taken a pause in upward action around 1300 area. We've warned about it 3 weeks ago when we've got specific numbers from CFTC. Based on situation in sentiment and existence of strong resistance area makes problems for gold on a way up.
Current uward action is first one after long term of decreasing and it should be interrupted by deep retracement sometime. Probably it will happen very soon and may be already is happening. Still this potential downward action has a great chance to become just a retracement. Overall political and financial situation in the world probably will not give a chance to relax. Thus, we have a positive long-term view on gold market.
On monthly chart we will get nice bearish engulfing pattern. Usually it leads to comounded retracement down, equals to the length of the bars. Thus, following this logic we could see gold @ 1130-1150 area very soon. But after that it could become a right shoulder of pattern that could be formed here.
Recent upside bounce on Friday, due bad NFP numbers brings nothing important yet to monthly chart and looks just minor retracement back inside enguling body - typical action for any market after engulifng pattern been formed.
Situation on monthly chart stands relatively simple - we could speak on upward trend continuation only if price will take recent top and engulfing pattern will fail.
Weekly
Trend has turned bearish on weekly time frame. Now market is neither OB nor OS. Although we've expected upside bounce out from 1205 level, even to 1245 area, since this is weekly support and Oversold, but we haven't suggested such strong rally, supported NFP numbers.
Currently picture looks a bit uncertain. We do not have any assitance from trend and OB/OS indicators. We do not have any clear patterns. Here we could suggest only one thing - probably we will get upside continuation to MPR1 @ 1279 area. First - because previous top was around it and this will give us H&S shape. Second - because price has moved above MPP and next destination by pivot framework is MPR1.
Widening triangle or say, diamond pattern, suggests even more extreme action - new top should be formed before reversal.
So as you can see we have a lot of different patterns potentially and we can't exclude none of them by far.
But as trend stands bearish, right now we will treat this action as a retracement and work with Fib resistance levels if price will move higher
Daily
As market has started upside action here, trend has turned bullish. While we still see some more upside potential here, it is still could be interrupted by minor retracement. And reason for that could become B&B "Sell" pattern.
Although this pattern will be a bit extreme journey, since we have big jump against it, but still this is B&B "Sell". You will have to decide by yourself whether to trade it or not. But we talk about it, since it could trigger minor bounce down.
As you can see we have 9 bars of bearish thrust, close above 3x3 DMA and price almost has reached 5/8 Fib resistance level around 1250. On Monday gold probably will reach it. If we will get any bearish reversal patterns on hourly chart, say, DRPO, or any other - this could become a signal of starting retracement down.
Its target will stand at 5/8 Fib support of whole Friday rally.
Thus, we do not see anything else right now on daily chart - either B&B "Sell" or, just waiting for the end of this upside action.
Hourly
So here we also do not have much. Upside action was so fast that any Fib extentions here are useless. We could apply only extensions of previous downsiwng. First one already has been hit, second stands at 1255 - precisely around daily Fib resistance where we will be watching for B&B "Sell" pattern.
If market will move slightly higher, then we should get 2 major support areas. First one will be around WPP and K-support ~1230. Second - approx. 1220 is 5/8 Fib support and target of potential B&B pattern.
Conclusion:
Friday's rally has limited impact on monthly chart yet and overall long-term picture still stands bearish.
In short-term perspective it's few that we could do. Recent rally has overruled all patterns that were forming previously and all that we could do by far is to watch for DiNapoli daily pattern. Thus, we will focus on some short-term tactical setups until market will calm down a bit.
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.