Gold GOLD PRO WEEKLY, June 22 - 26, 2020

Sive Morten

Special Consultant to the FPA
Messages
13,522
Fundamentals

This week was positive for the Gold. Despite that price action has not shown too significant progress, the background has changed significantly. If you would check the headlines of this week, you'll see that most of them stand in relation to "Relapse of Covid". Yesterday, in our FX research we also have touched this topic. Indeed, new splash of virus attack here and there makes overall situation fragile. Now we see that this happens not only in China but in US, Australia, Germany, India and other countries. Situation in Latin America - Brazil, Chile, Peru stands awful, showing more than 1Mln. infected.
As other things stand mostly equal, I mean existed political tensions in Middle East, US-China negotiations and some others - this creates friendly background for gold market.

New Covid story

Previously we've mentioned many times, that for "V" shape recovery of global economy the absence of of pandemic relapse is a vital moment. Meantime, we see "new stories" across the Globe.
The new outbreak in Beijing has seen an additional 158 cases, increasing the city’s total by 27% over the past week alone. This has triggered the closure of parts of Beijing, the cancellation of flights, and the suspension of schools and sporting activities. While it is true that life had been getting back to ‘normal’ in China, the country still had some of the strictest COVID-19 related measures in place, a consequence of having reinstated some restrictions in early May following fears of a second wave back then. For now, offices, government departments and factories in Beijing remain open, suggesting that China’s policymakers are keen to limit the economic impact of this latest outbreak.
But, in US there are no strict measures on a background of mass unrest. With simultaneous "easing" and opening other social objects, the number of cases starts to rise again:
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The reproduction rate of the novel coronavirus in Germany has jumped to 1.79 after a raft of localised outbreaks, the Robert Koch Institute (RKI) for public health said on Saturday, far above the level needed to contain it over the longer term. A reproduction rate, or ‘R’, of 1.79 means that 100 people who contracted the virus infect, on average, 179 other people. A rate of less than 1 is needed to gradually contain the disease.

More than 1,000 employees at German meat processing firm Toennies have tested positive for coronavirus, prompting local health authorities to order all 6,500 employees and their families to go into quarantine. The localised lockdown is a setback for Germany’s reopening strategy. Chancellor Angela Merkel had favoured maintaining lockdown discipline for longer, but eased restrictions following pressure from regional premiers.

The outbreak may force the German state of North Rhine Westphalia to impose a broader lockdown. The outbreak near Gutersloh was first reported on Wednesday, when 400 workers tested positive. By Friday, that number had doubled to 803 and it climbed further to 1,029 by Saturday.

On Thursday, China banned meat imports from the plant. As you know, in Bejing the virus was found in fish and meat that was imported from EU. As analysis of genome shows, virus is elder than those was in Bejing as it has fewer mutation cycles.

India reported a record jump in coronavirus infections on Saturday, a day after the government in the capital New Delhi ordered hospitals to cancel any leave and have workers return to duty immediately. India saw an increase of 14,516 COVID-19 cases, the health ministry said, taking the total to 395,047 with 12,948 deaths. It now has the world’s fourth highest number behind the United States, Brazil and Russia.

Economy background

Gold rose on Tuesday after the U.S. Federal Reserve widened its program of buying corporate debt to combat the financial toll of the pandemic as worries grow about
a second wave of coronavirus infections.

"The Fed pushing ahead with further stimulus measures, including these corporate bonds, indicates that this type of monetary easing is going to continue for some time," said ANZ analyst Daniel Hynes. "There are enough concerns around economic outlook to keep investor demand for gold pretty solid." Improving risk sentiment could, however, curtail additional investor appetite for gold, Hynes added.

The Fed said it will start purchasing corporate bonds on Tuesday in the secondary market, sparking a risk-on move that sent global stocks higher and weighed on the U.S. dollar. With a full U.S. economic recovery out of reach until the coronavirus pandemic is brought to heel, the Federal Reserve will use its "full range of tools" to cushion households and businesses, Powell told lawmakers.

The Bank of Japan said it expects to pump around 110 trillion yen ($1 trillion) into the economy via its market operations and lending facilities. Global cases of the novel coronavirus reached over 8 million on Monday, as infections surge in Latin America and the United States and China grapples with fresh outbreaks.

"Increasing infections imply economic weakness, need for continued further economic (fiscal and monetary support), which are all supportive of gold," said National Australia Bank economist John Sharma.

Raising concerns over the pandemic, Beijing's city government raised its COVID-19 emergency response level to II from III, according to state media. There have been more than 100 new cases confirmed in recent days. Beijing cancelled scores of domestic flights on Wednesday, ramping up attempts to contain a renewed outbreak of the coronavirus. Gold shook off earlier slight declines, which were driven by the surge on Wall Street after data showed U.S. retail sales rose 17.7% last month, the biggest advance on record. Equities also found support from data showing reduced COVID-19 death rates in a trial of a generic steroid drug.

"Gold is gaining after Beijing suddenly tightened the measures, with schools shut and people advised not to leave the city unless necessary," said Alex Turro, market strategist at RJO Futures.
"Every time the (gold) price falls, it seems that investors are seeing it as a buying opportunity," ActivTrades chief analyst Carlo Alberto De Casa said in a note.
"Gold's fundamentals are strong, given the low interest-rate environment and uncertainty over the pandemic, RJO Futures' Bob Haberkorn said.


Investors also kept a close eye on escalating tensions globally, as Indian and Chinese troops clashed at their disputed border, while North Korea blew up an inter-Korean liaison office set up in a border town.

While the strength in the dollar and, initially, U.S. stock markets have weighed on gold, the fact that Fed Chair Jerome Powell does not foresee any interest rate hikes in the near future makes it "better to be a long-term investor in gold, buying the metal at every small pullback," said Michael Matousek, head trader at U.S. Global Investors.

Switzerland exported 126.6 tonnes of gold worth around $7 billion to the United States in May - the biggest monthly shipment on record - as high prices in New York continued to pull in metal, customs data showed on Thursday. Swiss shipments to China and India, usually the two largest buyers, remained near rock bottom. The coronavirus crisis has turned the global gold market on its head, with purchases of jewellery and gold bars in Asia falling sharply while investors in the West stock up on bullion as a safe asset to weather a period of turmoil. Prices on the CME Group's Comex exchange in New York have been consistently higher than prices elsewhere,
encouraging people to ship gold to the city. Switzerland, a major trading, vaulting and refining centre for precious metals, has now shipped 281 tonnes of gold to the
United States since the start of March - 15 times more than was shipped in the whole of 2019.

"There are continued upturns in COVID-19 throughout the South and Southwest of U.S. with uptick in the hospitalization rate. ... That has caused a little bit of concern of another shutdown, which is benefiting gold," said Jeffrey Sica, founder of Circle Squared Alternative Investments."No matter what the long-term consequences, like inflation, there will be continued stimulus throughout the world and that will keep gold prices supported in the long term," Sica said.

"Spot gold has yet to close above $1,750, and if and when that happens, we suspect renewed momentum and fresh buying from underinvested hedge funds will propel the price higher towards $1,800," Saxo Bank analyst Ole Hansen wrote in a note.

Meantime, situation in real economy improving. Ever since global equities and other risk assets began a remarkable rally in March, despite the COVID-19 pandemic being far from over, some commentators who see the risks skewed more to the downside have questioned the rally’s sustainability. The market’s strength can largely be traced to central bank action, such as the Fed’s rate cuts and unprecedented asset purchases. In the meantime, more fundamental, macro-driven assets notably lagged behind. The copper-to-gold price ratio is one such example. Overall upside action is shy compares to stock market rally, but upside tick shows that demand for basic metals gradually returns.

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COT Report

Despite that some traders talk on "lack of physical demand", we do not agree. Mentioned above physical gold delivery to US, SPDR fund statistics that adds 20+ tonnes this week and recent CFTC report shows growing demand for the gold. This week data shows explosive growth in open interest as investors have added big amount of new longs. Hedgers have increased shorts as well, getting insurance from price rise. As we do not see the corresponding effect on the market yet - it means that next week we could get explosive upside action:
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Source: World Gold Council

That's being said,
It seems that Gold enters in a "golden" period of prosperity. In fact all three major spheres supports gold market. In political sphere we see tensions across the Globe. In Europe it is uncertainty of Brexit progress, tensions in Middle East continues, while US stands in deep political crisis.

Recently Egypt’s President Abdel Fattah al-Sisi on Saturday said his country has a legitimate right to intervene in neighbouring Libya and ordered his army to be ready to carry out any mission outside the country, if necessary. While China lost at least 40 soldiers in a clash with India at their disputed border this week, a federal government minister has said, as the nuclear-armed countries remained locked in confrontation on the frontline on Sunday. That is an addition to other tensions that already stand in Middle East, Hong Kong, US and Europe. Maybe they are just bright headlines and no serious consequences will be, but headlines keep nervousness on the markets.

In US D. Trump is rapidly losing control over situation. A close adviser to former U.S. Vice President Joe Biden has begun forming a team to oversee the transition if the Democratic presidential candidate wins November’s election and unseats President Donald Trump, according to a statement on Saturday. Currently D. Trump is accused in all sins - anemic measures against pandemic, unrest across the country, weak international position and policy, worsen of US/China relations, explosive deteriorating of financial power by drastic contraction of savings and rising of national debt. This has led to fast rating drop and now Biden stands 14 points ahead.
As we come closer to November this confrontation will become unprecedented as too many things stand on the table.

Second driving factor is pandemic. Just situation has become better - now the relapse stand on horizon. With coming Covid pills and vaccine, world is trying to escape it, but we see how negatively news of Covid relapse impact the markets. It probably lasts till the final moment of vaccine approvement and massive vaccination or, when more or less suitable pill will be invented. Now any news on new cases, even if they show minor amount of infected, makes negative impact on the markets.

Finally, huge money printing, as all central banks together already have printed 15% of global GDP, it seems more to come. BoE, Fed, ECB, BoJ - all of them talk on additional measures to support economies. In a case of relapse, despite what degree it has, they easily could print another 10% of global economy value. We already see hidden inflation process in equities, but sooner or later inflation finds its way into commodities, then companies' expenses and then to the retail prices. It could take shape of either price growth or goods deficit. With interest rates extremely low for a long time ahead - gold has all chances to start shining as we should get real inflation with zero interest rates. You can't imagine better conditions for gold market.



Technicals
Monthly


Well, in general we talk about bullish signs on the market within recent two weeks. But only now price starts to show bullish performance and our expectations get reward. Only last week, when price has dropped below the top again it was seemed that this is the end, and gold is ready for deeper retracement. But fundamental factors have given the 2nd breath and price returns back above the doji range.

MACD trend here still stands bullish. Upside targets stand the same - with overbought level around 1800 and no Fib levels above next logical destination is top of 2012 around 1800 area and then 1920 top, which in general agrees with Goldman's targets and Saxo Bank expectations, mentioned above.

In a case of downside retracement, the bottom of the doji is strong support area of YPP and K-area, accompanied by monthly oversold. But, I hope that it it won't run to that. More probable is reaching of some strong support areas inside the doji range. Although currently it is difficult to foresee reasons for deep drop.

Market can't stay in "Indecision" condition too long. It critically needs upside continuation to bring bullish momentum as more traders will step in as soon as price will break 1750 resistance area. And current background is friendly for this challenge. As we see first signs of this, let's hope that it continues on coming week as well.

gold_m_22_06_20.png


Weekly

The background of recent upside action on gold market is more valuable that now price reflects. This week, as you can see, stands inside one. Formally, trend is bearish here, but price accurately keeps pivots, staying outside of the range of big sell-off in Feb, coiling around its top and doesn't drop below MPS1. This is potentially bullish sign as Pivot support usually holds retracement on long-term bull trend.
As major bounce from the bottom has happened, next week we will keep an eye on rally above the top. Gold now has no barriers to do this as no strong Fib level or overbought stand above.

gold_w_22_06_20.png


Daily

On daily chart trend stands bullish, and with bullish grabber on board, it seems that upward action has more chances to happen rather than not. Still, gold has to make last step to break 1745 area. Potentially, supported by a lot of stop orders triggering, gold could jump to 1790 area and form butterfly "Sell" pattern.
Drop below 1700 area significantly decrease chances on upside continuation. But is it possible right now?
gold_d_22_06_20.png


Intraday

Well, chances on downside reversal now are small, as we have solid fundamental background. But, as we've said on Friday, some risks exist and we have to keep an eye on current 1740-1745 area to avoid downside reversal. Take a look that market stands at neckline of 4H reversed H&S pattern. Hardly something wrong will happen, but still... take a look that market finally has hit our XOP target. And theoretically it is possible downside reversal, if daily H&S pattern starts to work. If you carefully take a look at daily chart, you'll see that the left arm also consists of two tops, the same as here. Thus, any return back to 1700-1715 area will be bad sign for the bulls. We need to get straight upside breakout. Nearest target based on H&S here is 1780 area:

gold_4h_22_06_20.png
 

Sive Morten

Special Consultant to the FPA
Messages
13,522
Greetings everybody,

So, finally we've got what we were waiting for few weeks - jump up has happened. But major breakout still stands ahead. Chances are better that it will happen rather than not because price is not at overbought and there are no significant resistance stands above. Now it seems that market is building an energy preparing for breakout:
gold_d_23_06_20.png


Last week we already said that we've done all necessary preparations and now just could watch for result. As we already have risk free positions our task here is proper managing of the stops. Here we have good price action. Despite that gold has not reached yet H&S AB-CD target around 1777 and stopped at minor target of the butterfly pattern - this is temporal pause. Take a look that price stubbornly stands above the neckline. This is good sign. Today we should keep an eye on a grabber that could be formed within few hours and further upside continuation. Drop back below the neckline should be treated as bad sign of this trade:
gold_4h_23_06_20.png


On 1H chart price is forming the pennant shape that is potentially continuation pattern. Once price will keep going higher - move stops below the pennant and watch the movie of top breakout. Depending on stops amount above it - price easily could reach 1800 area. At least our 1775 - 1780 target should be hit
gold_1h_23_06_20.png
 

Sive Morten

Special Consultant to the FPA
Messages
13,522
Greetings everybody,

Today we do not need to make any drastic decisions, everything goes very good. Market gradually is coming to our target area of 1777-1790. So, it is time to think on booking profit (at least partially) and tight stops. Those who would like to go short - wait at least when butterfly will be completed. But in general, it is risky idea. Currently it is much safer just buying deeps as overall context stands bullish.
gold_d_24_06_20.png


Second target we have on 4H chart - this is H&S destination in a way of AB-CD pattern and its OP at 1778:
gold_4h_24_06_20.png


As we do not have any strong barriers ahead, gold probably gradually should reach both of them, but then some minor reaction, say, re-testing of broken 1750 top could happen. Thus, it makes sense to move stops somewhere below our yesterday's pennant pattern and think about partial profit taking...
 

Sive Morten

Special Consultant to the FPA
Messages
13,522
Greetings everybody,

Today guys, I think that we could take a look at GBP instead of Gold, because on Gold market situation stands the same and we discussed everything yesterday. On GBP, in turn, price stands at very important level. The bad thing that we've got is bearish reversal candle on daily chart. Price now stands at the K-support and this level is ultimate border to keep bullish context. We can't accept its breakout and not harm the bullish scenario.
Reversal candle suggests that price at least could challenge this level again or even break it:
gbp_d_25_06_20.png


On 4H chart indeed, GBP on upside action has stuck in K-resistance and now is turning down out from it.
gbp_4h_25_06_20.png


But right now it stands at last support area that resolves everything. Breaking down it and we're going to new lows and challenge daily K-area. Turning up - and we going higher and keep valid current daily trading setup. Now market stands at Agreement support and formed DRPO "Buy" LAL pattern (as thrust still not perfect). IT makes relatively safe to buy as some pullback should happen and let us move stops to breakeven. And then we will see what will happen.
gbp_1h_25_06_20.png
 

Sive Morten

Special Consultant to the FPA
Messages
13,522
Greetings everybody,

Despite Gold has hit our first target - 1778, we do not see signs yet that market is turning down. Here, on daily price is coiling around the top, forming puny pennant pattern and this type of action always points on possible upward continuation. Thus, we still keep valid our next 1790 target of the butterfly pattern and think that now is not time yet for taking any short positions:
gold_d_26_06_20.png


On 4H chart suggested retracement out from OP target has happened, but it is very small. In fact, price stands at nearest support area, while in general it is acceptable retracement back to neckline and K-support area. Here we definitely could say that until market stands above 1755 support, it keeps chances on further upside action:
gold_4h_26_06_20.png


On 1H chart we see that 1755 is K-area as well and we have hidden bullish divergence with MACD, pointing on bullish dynamic pressure here. Thus, it seems that upward journey is not over yet.
gold_1h_26_06_20.png
 
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