Gold GOLD PRO WEEKLY, June 21 - 25, 2021

Sive Morten

Special Consultant to the FPA
Messages
14,878
Fundamentals

No doubts, Fed was the hot event of this week, making stunning effect on all markets across the board. So, gold is not an exception as well. Although Fed has said nothing new and rate change in 2023 is widely anticipated, the official release makes strong impact on the sentiment. Based on the comments that we've considered recently, most investors treat this as first step of long-term rate tightening cycle. Major steps are still stand ahead but the starting point is set. According to our view tapering should be announced on September meeting and started in January of 2022. All these processes fit well to our long-term view, suggesting starting of new bearish long-term trend on gold market. In previous 2-3 weeks we already talked that COT data doesn't support upward action, showing low add-on to long position that can't be the sign of bullish trend. Surely it can't start straight forward and we will see a lot of pullbacks but gradually it should turn to direct tendency.

Market overview

Gold prices slipped over 1% on Wednesday after U.S Federal Reserve officials brought forward projections for the first post-pandemic interest rate hikes into 2023.

In its new projections, 11 out of 18 Fed officials projected at least two quarter-point interest rate increases for 2023, even as officials in their statement pledged to keep policy supportive for now to encourage an ongoing jobs recovery.

“The Fed has a gameplan that they’re going to be a removing all this accommodation and it’s just this initial knee jerk reaction (in gold)” said Edward Moya, senior market analyst at OANDA, adding that the Fed was more hawkish than markets expected and gold could fall further towards $1,830. But the Fed is not going to be leading the charge in tightening against other major central banks and it will be one of the last to tighten, allowing for dollar weakness to remain fully intact” which should support gold, Moya said.

The central bank however held its benchmark short-term interest rate near zero and said it will continue to buy $120 billion in bonds each month to fuel the economic recovery.

Gold was further bruised by a jump in the dollar and yields after the announcement. Higher yields raise the opportunity cost of holding non-yielding bullion.

Powell said Fed policy would continue to deliver “powerful” support to economy and flagged concerns over the economic recovery. He also said inflation could turn out to be higher and more persistent than expected.

Along with the Fed’s unexpected change of stance, “higher interest rates in the U.S. - while other major central banks probably are going to wait longer with changing monetary policy - has strengthened the dollar. So it’s a double whammy for gold,” Quantitative Commodity Research analyst Peter Fertig said.

For now the market trusts the judgement of the Federal Reserve on inflation being transitory and until data potentially proves them wrong, gold and also silver may face another challenging period, Ole Hansen, head of commodity strategy at Saxo Bank said in a note.

Adding to gold’s headwinds, the U.S. central bank also said it would now consider, at every subsequent policy meeting, whether to taper its asset purchases, and downgraded the risk from the coronavirus pandemic given progress in vaccinations.

Gold shed more than 2% on Thursday, precipitating a sell-off across precious metals as the dollar gained ground after the U.S. Federal Reserve struck a hawkish tone on monetary strategy.

The announcement propelled the dollar to an over two-month high, eroding bullion’s allure for those holding other currencies, and drove a jump in U.S. Treasury yields, raising the opportunity cost of holding non-yielding gold.

“The Fed’s dot plot is providing a clear change in tone, ultimately suggesting that although the Fed continues to reiterate that inflation is transitory, their formal assessment of risks to the economy is decisively more hawkish,” TD Securities commodity strategist Daniel Ghali said. Weakening physical demand and slowing speculative flows into gold, both of which began before the Fed meeting, could also help to drive a further pullback, Ghali added.

Adding to gold’s headwinds, the U.S. central bank said it would consider whether it should taper its asset purchases at every subsequent policy meeting.

Jeffrey Christian, managing partner at CPM Group, also said the scale of gold’s sell-off was accentuated by bearish technicals, and that the steeper decline in gold futures “reflects the fact that you have more trading volume and more technically oriented investors in the futures market than in spot.”

Fed officials have begun telegraphing an exit from the central bank’s extraordinarily easy monetary policy that so far is smoother and signalled to be speedier than when the reins were tightened after the last crisis.

Gold’s break below key technical prices levels were further bearish signals, analysts said.

But “in a now familiar pattern, the recent gold move has outpaced both the move in the dollar and in real rates, indicating it is due for an upward price reversal in coming weeks,” Goldman Sachs said in a note.

ED&F Man Capital Markets analyst Edward Meir also said gold’s recent selloff was “somewhat overdone.”

“Despite the current high-growth, inflationary environment, the proposed Fed rate hikes are not expected to set in for at least another 18 months. So after a little bit more weakness here, gold will regroup and push higher,” Meir said.

Gold struggled for traction in choppy trading on Friday en route to its worst week in over a year as the dollar extended its rally on the back of the U.S. Federal Reserve’s hawkish outlook.

Bullion was further hurt by St. Louis Fed President James Bullard’s statement that inflation was stronger than anticipated and faster tightening of monetary policy was a “natural” response to it.

“Markets are fearful of further Fed jawboning,” said David Meger, director of metals trading at High Ridge Futures. It remains to be seen “how much Fed talk we’re going to get on potentially reducing asset purchases and raising interest rates at some point down the road, if these forecasts ring true,” Meger added.

The dollar index was headed for its best week in nearly nine months, denting gold’s allure for other currency holders.

There may be more near-term selling pressure in gold but at some point bargain hunters could step in, sensing a buying opportunity given that rising inflation has been historically “bullish” for precious metals, said Kitco Metals senior analyst Jim Wyckoff.

Commerzbank also kept its $2,000 an ounce year-end forecast unchanged.

COT Report


This week report stands in a row with previous one, showing fragile sentiment. Numbers do not include yet Fed reaction, but nevertheless, it shows rising of short positions and decreasing of open interest. Changes are not significant, but with the other report, it just shows how tricky upward trend was:

1624183889794.png



Thus, the foundation for long-term bearish market is set. I do not see any necessity to repeat our view once again here, why we think that gold stands at the edge of trend shift and in a last stage of bullish tendency. I would just tell that everything happening stands in a row with our long-term view. In fact, it doesn't matter, whether Fed tells about tightening this month or they will tell next month - this has to happen sooner rather than later. Most important that this moment has come. Despite how long time Fed repeats mantras on "transitory inflation", statistics is a stubborn thing and it is painful to kick against the pricks.
In shorter-term, I tend to agree with Goldman Sachs and other analysts who suggests that market is overreacted a bit. Indeed, we see bomb effect, although everybody were telling about this in recent month or so. Besides, Fed said actually nothing really new. The same story on Forex market, where Goldman Sachs and Societe Generale also suggest that dollar should return back to bearish trend, once dust calms down a bit. Psychologically it is difficult to start buying gold again at long-term charts, where we have bearish trend, but it is possible on lower time frames, if we set near standing targets.

Technicals

Monthly

As we said here, it would be better to treat upward action as retracement, because overall context and MACD direction stands bearish. Appearing huge bearish engulfing pattern that also has bearish reversal candle is a strong reason to not buy gold for long-term perspective. Downside momentum is strong and suggests downside continuation. Maybe Commerzbank 2000$ target stands intact, but it seems that gold needs time to absorb bearish pressure.

Drop below YPP of 1807 also brings nothing positive. Downside reversal has happened right from the major 5/8 Fib resistance area. As monthly gold stands not at oversold Potential downside target is K-area of 1685 and 1655 OP.

gold_m_21_06_21.png


Weekly

Next we should get clarity on whether gold starts the pullback or not, as background stands positive. Take a look that price hits 5/8 support and weekly oversold area, which brings bullish "Stretch" pattern. Besides, MACD trend is still bullish and theoretically we could get the grabber by the end of the week. Combination of all these factors could create acceptable context for moderate retracement.

Besides, last week we've mentioned possible H&S pattern :
As on EUR currency here we could see the shape of possible reverse H&S pattern , that should lead market first to 1950-1960$ neckline area and then back to 2075$ top. But this is still the hypothesis that yet to be checked. At least 1780-1800 area of potential right arm will become important point for decision making. Now it is the question of reaction to 1922$ resistance area, how deep it will be.

Although price has dropped a bit earlier than 1950$ level, the shape of the pattern could be seen. Collapse with the right arm is not optimistic sign for bullish pattern, but we will see what will happen, as support around 1770$ area should be strong enough to hold market at least on first touch.

gold_w_21_06_21.png


Daily

It means that here, on daily, we're not watching for bearish positions right now, but mostly keep an eye on reversal signs and bullish patterns around 1770$ support area. Obviously gold is oversold here as well. Currently we do not see something special, but could take in consideration the thrust. IT has just 6 bars, but, as they are rather strong, supposedly this thrust is suitable for DiNapoli patterns, such as B&B and DRPO. For our task appearing of DRPO looks better.

gold_d_21_06_21.png


Intraday

On 4H chart we do not see yet anything special, just Fib level that we could use next week:
gold_4h_21_06_21.png


While on 1H chart, supposedly we could keep an eye on the pattern, let's say it might be H&S, or 3-Drive "Buy" patterns. Now it is 1.27 extension formed here. For H&S most probable is 1.618 one, while for 3-Drive is minor pullback from 1.27 and then to the 3rd drive bottom also around 1.618. MACD gives some hint on possible divergence as well. Thus, let's take a look what will happen here with the close eye on weekly chart and the grabber by the end of the week as well:
gold_1h_21_06_21.png
 

RahmanSL

Major
Messages
2,845
Thank you Sive....I am keeping an eye on Gold and intend to go long upon any signs of major infection with the Gulf variant virus strains in the USA & Europe. Onset of the summer months will show which probably way commodities like gold & WTI will be heading towards the fall.

All the best & stay safe.
 

Sive Morten

Special Consultant to the FPA
Messages
14,878
Greetings everybody,

As we've said - for major setup we're watching for the end of the week, as on weekly chart we have bullish Stretch pattern and potential grabber that yet to be formed:
gold_w_22_06_21.png


On daily and intraday chart we try to understand what patterns could trigger upward bounce. As on EUR today we have relatively clear picture - here, gold, it stands not as clear. In fact we have nothing on daily chart by far, while on intraday charts upward action stands too heavy and slow, suggesting, that it might be not the end yet and another dive could happen.
This makes us to consider 3-Drive pattern, as chances for H&S has dropped significantly:
gold_1h_22_06_21.png


On 4H chart resistance levels are the same:
gold_4h_22_06_21.png
 

Sive Morten

Special Consultant to the FPA
Messages
14,878
Greetings everybody,

So, while other dollar rivals shows good performance across the board - EUR and cryptos, gold action looks heavy, which makes me keep on the table scenario with another downside swing to 1750.

While EUR already hits some upside targets - gold on daily chart still stands in the range of Friday:
gold_d_23_06_21.png


This consolidation makes me think about possible bearish dynamic pressure on 4H chart, as trend here stands strongly bullish, while price action is not:
gold_4h_23_06_21.png


Overall performance on 1H chart looks heavy and lazy and I can't make my tongue to call it "reversal". Thus, it seems it still makes sense to watch for 1750 action in a shape of butterfly that becomes the part of our 3-Drive pattern. Personally I have no desire to buy gold right now
gold_1h_23_06_21.png
 

Sive Morten

Special Consultant to the FPA
Messages
14,878
Greetings everybody,

So, today we do not have a lot of things to update. Gold shows weakest performance among dollar rivals as it is stuck in the Friday's range:
gold_d_24_06_21.png


On intraday charts we do not have context to go long. As we've said yesterday - on 4H chart signs of bearish dynamic pressure present. The only thing that maybe makes sense to watch is potential bullish grabber here. That at least might be something to use:

gold_4h_24_06_21.png


While on the 1H chart price looks too weak. This sideways action mostly stands in favor of bears. Although price has formed a kind of AB-CD action recently, it doesn't break the top. That's why we could re-shape our butterfly pattern a bit, while the target mostly stands the same - 3rd Drive bottom around 1750:

gold_1h_24_06_21.png


Thus, these moments make me stay aside for awhile and not to buy gold right now.
 

Sive Morten

Special Consultant to the FPA
Messages
14,878
Welcome everybody,

So, it is a bit boring action, right? Just few minor details to discuss here. First is, finally we've got something - the bullish grabber on 4H chart that we've discussed recently. Now, those of you who was watching for long entry have some context to work with:
gold_4h_25_06_21.png


On 1H chart, theoretical chances of our 3-Drive "Buy" still exist. But, as 2nd drive stands very extended - this is not typical for this pattern and mostly stands in favor of its weakness. That's why here I also show the alternative scenario of upside butterfly, as we've got the grabber. Besides, something similar we expect on EUR as well:
gold_1h_25_06_21.png


That's being said, with the grabber on board, I would stay aside from bearish position for a while. Long position could be considered, as grabber and butterfly have the same invalidation point - just below recent lows.
But, honestly speaking guys, overall situation looks not very attractive for trading at all.
 
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