Sive Morten
Special Consultant to the FPA
- Messages
- 18,763
Fundamentals
Gold rebounded to a fresh three-week high on Friday, as investor risk aversion lifted appetite for the metal, putting it on track for a second straight weekly rise. Often perceived as an insurance against economic and financial concerns, gold has risen more than 2 percent this week after weaker than еxpected U.S. payrolls data dented expectations of an imminent rise in U.S. interest rates.
Prices are likely to be bolstered in the next two weeks by nervousness over Britain's June 23 referendum on its EU membership, analysts said. "The market is no longer worried that the Fed will raise rates next week and investors are more concerned about the UK referendum, which is likely to help increase demand for gold," Danske Bank senior analyst Jens Pedersen said.
"If the Fed restrains from raising rates in June and July and doesn't give a precise guidance, then that should support gold, also because the dollar would weaken," Commerzbank analyst Daniel Briesemann said.
Gold is highly sensitive to rising interest rates, which lift the opportunity cost of holding non-yielding bullion while boosting the dollar, in which it is priced. Gold rebounded despite a stronger dollar, as global shares dropped, and 10-year yields in Germany, Japan and Britain all struck record lows.
"While we still expect the Fed to raise rates twice this year, the market is increasingly discounting this possibility," said ANZ Research in a note, adding that it expects gold to resume its bull cycle.
"The backdrop of easing monetary policies, negative bond yields, and a likely pause in U.S. dollar appreciation should also be supportive. This should negate some lackluster physical demand in Asia."
Holdings in SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, rose 0.7 percent to 887.38 tonnes on Thursday, the highest level since October 2013.
СFTC data shows significant increasing of net long positions last week, right after NFP release. Still positions have not reached previous extreme level and still have upside potential. At the same time open interest barely has changed. It means that some shorts have shifted to longs – positions have been reversed in anticipation of important events – Fed meeting and Brexit voting.
The same picture we see on some currencies. Thus, there was strong jump in bearish positions on EUR and GBP. This indicates mostly anticipation of negative results on Brexit voting. From this point of view – additional demand on gold looks logical
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 upward action is first one after long term of decreasing and it should be interrupted by deep retracement sometime. Probably it should happen but 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.
At the same time we have to acknowledge that when market stands at the eve of big events normal “technical” behavior could be broken and adjusted. Something of this kind we could see now. Anticipation of Brexit voting and rising fears on “out” result support demand on gold. As a result we could get significant jump above 1300, if results indeed will be negative, but retracement also could come after this jump, because by COT report – gold has not big potential of upside action. It means that we could get some kind of W&R of 1300 top.
Meantime currently recent action mostly looks like bullish flag pattern that suggests some upside action. Perspectives of bearish engulfing pattern now looks worse as current upside move looks too high.
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.
It has got a continuaiton last week. Now we probably couldn't talk on upside retracement any more, but on forming some new pattern. Right now we could recognize just widening triangle by far. Broadening top or bottom usually indicates growing volatility and uncertainty and very often becomes a reversal pattern. In general this agrees with events that now stand.
We do not know whether this triangle will turn to, say, diamond, or some other reversal pattern, but any of them let's market to form new top above 1300, but at the same time apearing of this pattern does not promise any significant upside continuation. This, in turn, coincides with COT numbers.
That's being said in current situation we should take conservative position, i.e. expect probably short-term upside jump above 1300 area but do not rely on long-term upside continuation.
Daily
So, last week we haven't got B&B "Sell" pattern. Although initial setup was formed we've got no reversal patterns and it has not been triggered. Now trend is bullish on daily chart and market is not at overbought.
Last week market also has broken through all major Fib resistances. Right now only one reversal pattern still could be formed here - 1.27 H&S. But even now we have signs that point on low probability that market will reverse down.
Take a look at recent upside action. It is very strong. Such sort of action is not typical for final part of bearish reversal pattern. Still price stands at MPR1 and on Monday we will watch what will happen around 1275 area.
If market break through it (and chances for that are solid), we will turn mostly to broadening top pattern and probably will have to sit on our heads until it will be completed. It is dangerous to go long right now - stop should be placed too far and perspectives of upward action still uncertain. While it is too early to go short as well, market is preparing for Brexit voting and it is not good idea to go against such action that we see here.
4-hour
Intraday charts shows just minor pattern that indicates exhausting of price. This is small wedge pattern. It can't be seen as reason for reversal and just gives a hint on possible minor intraday retracement. Most probable destination is 1248 Fib support and WPS1.
Although it reminds 3-Drive Sell pattern but we can't treat it in this manner, mostly because it doesn't keep ratios between its tops.
Anyway, intraday charts show nothing really important and all that we could do is to watch for H&S on daily first and broadening top on weekly - second.
Conclusion:
We continue to keep long-term bullish view on gold market. Coming Brexit voting significantly increases degree of nervousness and uncertainty. This also could be seen in price fluctutations that have become more noisy and volatile. Brexit results and its anticipation could skew normal market behavior. Currently we could say that nervousness could push market higher but this jump probably will be limited since CFTC data does not let market to continue bullish trend immediately and for long distance.
In short-term perspective we do not see good setups for trading on gold market. H&S pattern that is forming right now has big chances to fail and gold will turn probably to broadening weekly top pattern. Real trading setups will appear as soon as it will be completed probably...
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.
Gold rebounded to a fresh three-week high on Friday, as investor risk aversion lifted appetite for the metal, putting it on track for a second straight weekly rise. Often perceived as an insurance against economic and financial concerns, gold has risen more than 2 percent this week after weaker than еxpected U.S. payrolls data dented expectations of an imminent rise in U.S. interest rates.
Prices are likely to be bolstered in the next two weeks by nervousness over Britain's June 23 referendum on its EU membership, analysts said. "The market is no longer worried that the Fed will raise rates next week and investors are more concerned about the UK referendum, which is likely to help increase demand for gold," Danske Bank senior analyst Jens Pedersen said.
"If the Fed restrains from raising rates in June and July and doesn't give a precise guidance, then that should support gold, also because the dollar would weaken," Commerzbank analyst Daniel Briesemann said.
Gold is highly sensitive to rising interest rates, which lift the opportunity cost of holding non-yielding bullion while boosting the dollar, in which it is priced. Gold rebounded despite a stronger dollar, as global shares dropped, and 10-year yields in Germany, Japan and Britain all struck record lows.
"While we still expect the Fed to raise rates twice this year, the market is increasingly discounting this possibility," said ANZ Research in a note, adding that it expects gold to resume its bull cycle.
"The backdrop of easing monetary policies, negative bond yields, and a likely pause in U.S. dollar appreciation should also be supportive. This should negate some lackluster physical demand in Asia."
Holdings in SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, rose 0.7 percent to 887.38 tonnes on Thursday, the highest level since October 2013.
СFTC data shows significant increasing of net long positions last week, right after NFP release. Still positions have not reached previous extreme level and still have upside potential. At the same time open interest barely has changed. It means that some shorts have shifted to longs – positions have been reversed in anticipation of important events – Fed meeting and Brexit voting.
The same picture we see on some currencies. Thus, there was strong jump in bearish positions on EUR and GBP. This indicates mostly anticipation of negative results on Brexit voting. From this point of view – additional demand on gold looks logical
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 upward action is first one after long term of decreasing and it should be interrupted by deep retracement sometime. Probably it should happen but 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.
At the same time we have to acknowledge that when market stands at the eve of big events normal “technical” behavior could be broken and adjusted. Something of this kind we could see now. Anticipation of Brexit voting and rising fears on “out” result support demand on gold. As a result we could get significant jump above 1300, if results indeed will be negative, but retracement also could come after this jump, because by COT report – gold has not big potential of upside action. It means that we could get some kind of W&R of 1300 top.
Meantime currently recent action mostly looks like bullish flag pattern that suggests some upside action. Perspectives of bearish engulfing pattern now looks worse as current upside move looks too high.
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.
It has got a continuaiton last week. Now we probably couldn't talk on upside retracement any more, but on forming some new pattern. Right now we could recognize just widening triangle by far. Broadening top or bottom usually indicates growing volatility and uncertainty and very often becomes a reversal pattern. In general this agrees with events that now stand.
We do not know whether this triangle will turn to, say, diamond, or some other reversal pattern, but any of them let's market to form new top above 1300, but at the same time apearing of this pattern does not promise any significant upside continuation. This, in turn, coincides with COT numbers.
That's being said in current situation we should take conservative position, i.e. expect probably short-term upside jump above 1300 area but do not rely on long-term upside continuation.
Daily
So, last week we haven't got B&B "Sell" pattern. Although initial setup was formed we've got no reversal patterns and it has not been triggered. Now trend is bullish on daily chart and market is not at overbought.
Last week market also has broken through all major Fib resistances. Right now only one reversal pattern still could be formed here - 1.27 H&S. But even now we have signs that point on low probability that market will reverse down.
Take a look at recent upside action. It is very strong. Such sort of action is not typical for final part of bearish reversal pattern. Still price stands at MPR1 and on Monday we will watch what will happen around 1275 area.
If market break through it (and chances for that are solid), we will turn mostly to broadening top pattern and probably will have to sit on our heads until it will be completed. It is dangerous to go long right now - stop should be placed too far and perspectives of upward action still uncertain. While it is too early to go short as well, market is preparing for Brexit voting and it is not good idea to go against such action that we see here.
4-hour
Intraday charts shows just minor pattern that indicates exhausting of price. This is small wedge pattern. It can't be seen as reason for reversal and just gives a hint on possible minor intraday retracement. Most probable destination is 1248 Fib support and WPS1.
Although it reminds 3-Drive Sell pattern but we can't treat it in this manner, mostly because it doesn't keep ratios between its tops.
Anyway, intraday charts show nothing really important and all that we could do is to watch for H&S on daily first and broadening top on weekly - second.
Conclusion:
We continue to keep long-term bullish view on gold market. Coming Brexit voting significantly increases degree of nervousness and uncertainty. This also could be seen in price fluctutations that have become more noisy and volatile. Brexit results and its anticipation could skew normal market behavior. Currently we could say that nervousness could push market higher but this jump probably will be limited since CFTC data does not let market to continue bullish trend immediately and for long distance.
In short-term perspective we do not see good setups for trading on gold market. H&S pattern that is forming right now has big chances to fail and gold will turn probably to broadening weekly top pattern. Real trading setups will appear as soon as it will be completed probably...
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.
