Sive Morten
Special Consultant to the FPA
- Messages
- 18,624
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 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.
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.
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.
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.
ED&F Man Capital Markets analyst Edward Meir also said gold’s recent selloff was “somewhat overdone.”
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.
The dollar index was headed for its best week in nearly nine months, denting gold’s allure for other currency holders.
Commerzbank also kept its $2,000 an ounce year-end forecast unchanged.
COT Report
This week report stands in a row with previous one, showing fragile sentiment. Numbers do not include yet Fed reaction, but nevertheless, it shows rising of short positions and decreasing of open interest. Changes are not significant, but with the other report, it just shows how tricky upward trend was:
Thus, the foundation for long-term bearish market is set. I do not see any necessity to repeat our view once again here, why we think that gold stands at the edge of trend shift and in a last stage of bullish tendency. I would just tell that everything happening stands in a row with our long-term view. In fact, it doesn't matter, whether Fed tells about tightening this month or they will tell next month - this has to happen sooner rather than later. Most important that this moment has come. Despite how long time Fed repeats mantras on "transitory inflation", statistics is a stubborn thing and it is painful to kick against the pricks.
In shorter-term, I tend to agree with Goldman Sachs and other analysts who suggests that market is overreacted a bit. Indeed, we see bomb effect, although everybody were telling about this in recent month or so. Besides, Fed said actually nothing really new. The same story on Forex market, where Goldman Sachs and Societe Generale also suggest that dollar should return back to bearish trend, once dust calms down a bit. Psychologically it is difficult to start buying gold again at long-term charts, where we have bearish trend, but it is possible on lower time frames, if we set near standing targets.
Technicals
Monthly
As we said here, it would be better to treat upward action as retracement, because overall context and MACD direction stands bearish. Appearing huge bearish engulfing pattern that also has bearish reversal candle is a strong reason to not buy gold for long-term perspective. Downside momentum is strong and suggests downside continuation. Maybe Commerzbank 2000$ 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.
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 :
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.
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.
Intraday
On 4H chart we do not see yet anything special, just Fib level that we could use next week:
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:
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 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.
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.
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.
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.
ED&F Man Capital Markets analyst Edward Meir also said gold’s recent selloff was “somewhat overdone.”
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.
The dollar index was headed for its best week in nearly nine months, denting gold’s allure for other currency holders.
Commerzbank also kept its $2,000 an ounce year-end forecast unchanged.
COT Report
This week report stands in a row with previous one, showing fragile sentiment. Numbers do not include yet Fed reaction, but nevertheless, it shows rising of short positions and decreasing of open interest. Changes are not significant, but with the other report, it just shows how tricky upward trend was:
Thus, the foundation for long-term bearish market is set. I do not see any necessity to repeat our view once again here, why we think that gold stands at the edge of trend shift and in a last stage of bullish tendency. I would just tell that everything happening stands in a row with our long-term view. In fact, it doesn't matter, whether Fed tells about tightening this month or they will tell next month - this has to happen sooner rather than later. Most important that this moment has come. Despite how long time Fed repeats mantras on "transitory inflation", statistics is a stubborn thing and it is painful to kick against the pricks.
In shorter-term, I tend to agree with Goldman Sachs and other analysts who suggests that market is overreacted a bit. Indeed, we see bomb effect, although everybody were telling about this in recent month or so. Besides, Fed said actually nothing really new. The same story on Forex market, where Goldman Sachs and Societe Generale also suggest that dollar should return back to bearish trend, once dust calms down a bit. Psychologically it is difficult to start buying gold again at long-term charts, where we have bearish trend, but it is possible on lower time frames, if we set near standing targets.
Technicals
Monthly
As we said here, it would be better to treat upward action as retracement, because overall context and MACD direction stands bearish. Appearing huge bearish engulfing pattern that also has bearish reversal candle is a strong reason to not buy gold for long-term perspective. Downside momentum is strong and suggests downside continuation. Maybe Commerzbank 2000$ 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.
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 :
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.
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.
Intraday
On 4H chart we do not see yet anything special, just Fib level that we could use next week:
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:
