Sive Morten
Special Consultant to the FPA
- Messages
- 18,699
Fundamentals
(Reuters) - Gold prices fell about 1 percent on Friday as the dollar strengthened while palladium leapt more than 7 percent as a surge in speculative demand forced industrial users to close out short positions, traders
said.
Palladium hit the highest level in 16 years as the short-covering rally pushed the metal through long-term chart resistance. The backwardation in the market - a formation in the forward curve in which the price of metal for future delivery is below the spot price - can suggest a near-term shortage of metal. It recently steepened, prompting a wave of buying.
That pushed prices through the 16-year declining trendline at $868 an ounce, triggering a further surge that took them to their highest since early 2001 at $914.70 an ounce. Spot palladium was at $889.50 an ounce by 3:02 p.m. EDT (1902 GMT), up 4.3 percent.
"The background for palladium is for good industrial demand and likely a significant market deficit this year, and on top of course you've got this speculative squeeze," Mitsubishi analyst Jonathan Butler said. "The backwardation has got a lot steeper in the last day. Metal for immediate delivery is very tight, and that is being
reflected in those forward rates moving into an even steeper backwardation."
Traders reported a reluctance to lend the metal, suggesting tightness in near-term supply. However, chart patterns indicate that the metal is vulnerable to a sell-off from these elevated levels, technical analysts said.
Gold fell for a third day, meanwhile, after British elections failed to deliver a clear majority for Prime Minister
Theresa May, knocking the pound sharply lower and helping lift the dollar index to its highest since late May.
Spot gold was down 0.7 percent at $1,270.17 an ounce, while U.S. gold futures for August delivery settled at
$1,271.40. Prices were down nearly 1 percent for the week, the first weekly percentage decline in five weeks.
"In my mind, two things have been buoying the gold market this year - one has been the weaker dollar and other is the need for lots of monetary accommodation in Europe and Japan in particular, especially given political risk," said Rob Haworth, senior investment strategist at U.S. Bank Wealth Management.
"That risk has eased, even with the hung parliament out of the UK election, it's not enough to derail Europe ... the underpinnings of the gold market are being whacked away and unless there is more geopolitical risk premium or global economic risk, I think it was about time for the selloff in gold."
Sterling-denominated gold rose to a near two-month high of 1,007.98 pounds an ounce as the British
currency fell as much as 2.5 percent. Along with a drop in the euro, that helped lift the dollar half a percent versus a currency basket.
Meanwhile the FTSE share index, composed largely of companies that earn foreign currencies and benefit from a weaker pound, rose 1 percent, undermining potential demand for gold as a haven from risk.
COT Report
Although now we see deeper retracement on daily gold, CFTC data clearly shows bullish sentiment. Speculative position holds bullish and keep rising 5 weeks in a row. Last week was especially strong pace of new long position opening. Open interest grows as well.
At the same time gold's speculative position is far from saturation. Thus, no barriers exist from this point of view:
Technicals
Monthly
So, guys, as we've talked many times already - gold way will not be streight. We still keep bullish view on gold market. Right now, we see that our two major backwind factors for gold are working. They are - D. Trump political volatility and uncertainty and - careful Fed policy that, as we suggest, will not tight economy growth by agressive rate policy in 2017. Both of them have provided support to gold, or better to say - depress USD consistently in 2017. As we've talked previously, we think that Fed will rise rate only twice in 2017 and last time will be in June. And recent poor NFP data is additional confirmation of this view. Fed should let US economy to get inlfationary pace first.
From technical point of view our major pattern is reverse H&S on monthly chart. Currently, as market stands at the edge of 1170 Fib support, we could talk on H&S pattern. Besides the shape itself, some features here that in general typical for H&S. For example, relation between head and shoulders - 1.618. Butterfly... very often first part of H&S takes the shape of butterfly pattern...
At this moment we do not have questions and serious doubts on perspective of H&S pattern. Market shows normal behavior for its shape. Also we have nice bullish divergence with MACD that is also typical for reversal patterns. On monthly chart we could specify two relatively close targets. First is YPR1 around 1330, next one is neckline - around 1380 area.
We will change our opinion if market will drop below 1170 area. In this case gold will meet the hazard to get butterfly pattern with 1000 and lower targets.
Our stop grabber, theoretically has completed the target as previous top was talken out. Although pirce has exceeded it just for a few cents.
Right now gold is mostly driven by external factors, mostly political. They are very volatile. And we see reflection of political issues volatility on gold prices. As a result third month in a row market is forming monthly doji. But we think that there are a lot of political issues ahead, as in EU as on Middle East. That's why we mostly suggest that politics will some kind of durable supportive factor for gold, at least in 2017. In 2018 it will probably remain, but Fed will turn to more agressive policy and this could compensate political impact.
Weekly
Last week action brings some bearish tone to short-term perspective. It doesn't change overall bullish concept by far, but, as a rule, this kind of action becomes reason for deeper retracement.
Although trend is bullish here, but take a look - price has reversed after Fib level already has been broken. Normally, bullish market just continues upward aciton. Now real barriers were ahead. Yes we have MPR1, but usually it stops retracement action, but not bullish continuation.
Action itself is a wash&rinse of previous top. It seems that stops were grabbed and market just dropped back. Candle takes the shape of reversal session, with only difference that it closed below open price of previous week but not low price.
That's being said by this action gold mostly shows reaction on driving factors' vacuum. As UK elections, Comey speech were worked out - nothing left that could push gold higher and price just behaves correspondingly.
During next week some downward could continue, but right now it is still a retracement, but not bearish reversal
Daily
Daily trend has turned bearish and price has reached our level, that we've discussed during last week. This is 3/8 Fib support around 1264. Actually this is K-support, since we have another 5/8 level here on 4-hour chart, but this is not the point.
The point is recent action is just a first leg, completion of bearish weekly chandle and it probably should have some extension. It means that we have solid chances on continuation and next logical destination will be 1245-1250 daily K-support area around MPP and accompanied by daily oversold.
Also it needs to say here - action that we see is hardly could be treated as B&B "Buy" pattern. I mean last upward action and current retracement down. May be it will work as B&B, but thrust looks not reliable as it has deep retracement in the middle.
Intraday
Intraday charts also confirm that it is probably too early to talk on upside reversal and continuation. On 4-hour chart we see 1265 level that I've mentioned above. So, market stands at strong support and may be we could get minor upside bounce in the beginning of the week - for example to WPP...
But it seems that this will be just a retracement as downward action should continue. Here we also see that our daily 1250 area will include WPS1 and trendline of our former pennant pattern, that has been broken last week:
Hourly chart also shows no hints on reversal. Gold shows fast bearish accelerations and minor upside harmonic retracements. Something should appear here, to help us estimate final downside target. Some kind of large AB=CD, or extended bullish reversal pattern around strong support.
This makes us think that hardly anything of this kind will happen until 1250 area:
Conclusion:
Long-term charts barely has changed during last week. But action probably will be bearish on coming week with destination point around 1250 area, as gold has formed moderately bearish setup, suggesting deeper retracement on daily chart.
On Monday minor retracement is possible, before gold will continue action down, probably just to test WPP.
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 fell about 1 percent on Friday as the dollar strengthened while palladium leapt more than 7 percent as a surge in speculative demand forced industrial users to close out short positions, traders
said.
Palladium hit the highest level in 16 years as the short-covering rally pushed the metal through long-term chart resistance. The backwardation in the market - a formation in the forward curve in which the price of metal for future delivery is below the spot price - can suggest a near-term shortage of metal. It recently steepened, prompting a wave of buying.
That pushed prices through the 16-year declining trendline at $868 an ounce, triggering a further surge that took them to their highest since early 2001 at $914.70 an ounce. Spot palladium was at $889.50 an ounce by 3:02 p.m. EDT (1902 GMT), up 4.3 percent.
"The background for palladium is for good industrial demand and likely a significant market deficit this year, and on top of course you've got this speculative squeeze," Mitsubishi analyst Jonathan Butler said. "The backwardation has got a lot steeper in the last day. Metal for immediate delivery is very tight, and that is being
reflected in those forward rates moving into an even steeper backwardation."
Traders reported a reluctance to lend the metal, suggesting tightness in near-term supply. However, chart patterns indicate that the metal is vulnerable to a sell-off from these elevated levels, technical analysts said.
Gold fell for a third day, meanwhile, after British elections failed to deliver a clear majority for Prime Minister
Theresa May, knocking the pound sharply lower and helping lift the dollar index to its highest since late May.
Spot gold was down 0.7 percent at $1,270.17 an ounce, while U.S. gold futures for August delivery settled at
$1,271.40. Prices were down nearly 1 percent for the week, the first weekly percentage decline in five weeks.
"In my mind, two things have been buoying the gold market this year - one has been the weaker dollar and other is the need for lots of monetary accommodation in Europe and Japan in particular, especially given political risk," said Rob Haworth, senior investment strategist at U.S. Bank Wealth Management.
"That risk has eased, even with the hung parliament out of the UK election, it's not enough to derail Europe ... the underpinnings of the gold market are being whacked away and unless there is more geopolitical risk premium or global economic risk, I think it was about time for the selloff in gold."
Sterling-denominated gold rose to a near two-month high of 1,007.98 pounds an ounce as the British
currency fell as much as 2.5 percent. Along with a drop in the euro, that helped lift the dollar half a percent versus a currency basket.
Meanwhile the FTSE share index, composed largely of companies that earn foreign currencies and benefit from a weaker pound, rose 1 percent, undermining potential demand for gold as a haven from risk.
COT Report
Although now we see deeper retracement on daily gold, CFTC data clearly shows bullish sentiment. Speculative position holds bullish and keep rising 5 weeks in a row. Last week was especially strong pace of new long position opening. Open interest grows as well.
At the same time gold's speculative position is far from saturation. Thus, no barriers exist from this point of view:
Technicals
Monthly
So, guys, as we've talked many times already - gold way will not be streight. We still keep bullish view on gold market. Right now, we see that our two major backwind factors for gold are working. They are - D. Trump political volatility and uncertainty and - careful Fed policy that, as we suggest, will not tight economy growth by agressive rate policy in 2017. Both of them have provided support to gold, or better to say - depress USD consistently in 2017. As we've talked previously, we think that Fed will rise rate only twice in 2017 and last time will be in June. And recent poor NFP data is additional confirmation of this view. Fed should let US economy to get inlfationary pace first.
From technical point of view our major pattern is reverse H&S on monthly chart. Currently, as market stands at the edge of 1170 Fib support, we could talk on H&S pattern. Besides the shape itself, some features here that in general typical for H&S. For example, relation between head and shoulders - 1.618. Butterfly... very often first part of H&S takes the shape of butterfly pattern...
At this moment we do not have questions and serious doubts on perspective of H&S pattern. Market shows normal behavior for its shape. Also we have nice bullish divergence with MACD that is also typical for reversal patterns. On monthly chart we could specify two relatively close targets. First is YPR1 around 1330, next one is neckline - around 1380 area.
We will change our opinion if market will drop below 1170 area. In this case gold will meet the hazard to get butterfly pattern with 1000 and lower targets.
Our stop grabber, theoretically has completed the target as previous top was talken out. Although pirce has exceeded it just for a few cents.
Right now gold is mostly driven by external factors, mostly political. They are very volatile. And we see reflection of political issues volatility on gold prices. As a result third month in a row market is forming monthly doji. But we think that there are a lot of political issues ahead, as in EU as on Middle East. That's why we mostly suggest that politics will some kind of durable supportive factor for gold, at least in 2017. In 2018 it will probably remain, but Fed will turn to more agressive policy and this could compensate political impact.
Weekly
Last week action brings some bearish tone to short-term perspective. It doesn't change overall bullish concept by far, but, as a rule, this kind of action becomes reason for deeper retracement.
Although trend is bullish here, but take a look - price has reversed after Fib level already has been broken. Normally, bullish market just continues upward aciton. Now real barriers were ahead. Yes we have MPR1, but usually it stops retracement action, but not bullish continuation.
Action itself is a wash&rinse of previous top. It seems that stops were grabbed and market just dropped back. Candle takes the shape of reversal session, with only difference that it closed below open price of previous week but not low price.
That's being said by this action gold mostly shows reaction on driving factors' vacuum. As UK elections, Comey speech were worked out - nothing left that could push gold higher and price just behaves correspondingly.
During next week some downward could continue, but right now it is still a retracement, but not bearish reversal
Daily
Daily trend has turned bearish and price has reached our level, that we've discussed during last week. This is 3/8 Fib support around 1264. Actually this is K-support, since we have another 5/8 level here on 4-hour chart, but this is not the point.
The point is recent action is just a first leg, completion of bearish weekly chandle and it probably should have some extension. It means that we have solid chances on continuation and next logical destination will be 1245-1250 daily K-support area around MPP and accompanied by daily oversold.
Also it needs to say here - action that we see is hardly could be treated as B&B "Buy" pattern. I mean last upward action and current retracement down. May be it will work as B&B, but thrust looks not reliable as it has deep retracement in the middle.
Intraday
Intraday charts also confirm that it is probably too early to talk on upside reversal and continuation. On 4-hour chart we see 1265 level that I've mentioned above. So, market stands at strong support and may be we could get minor upside bounce in the beginning of the week - for example to WPP...
But it seems that this will be just a retracement as downward action should continue. Here we also see that our daily 1250 area will include WPS1 and trendline of our former pennant pattern, that has been broken last week:
Hourly chart also shows no hints on reversal. Gold shows fast bearish accelerations and minor upside harmonic retracements. Something should appear here, to help us estimate final downside target. Some kind of large AB=CD, or extended bullish reversal pattern around strong support.
This makes us think that hardly anything of this kind will happen until 1250 area:
Conclusion:
Long-term charts barely has changed during last week. But action probably will be bearish on coming week with destination point around 1250 area, as gold has formed moderately bearish setup, suggesting deeper retracement on daily chart.
On Monday minor retracement is possible, before gold will continue action down, probably just to test WPP.
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.
