Sive Morten
Special Consultant to the FPA
- Messages
- 18,727
Fundamentals
(Reuters) - Gold prices climbed to one-week highs on Friday, boosted by a weaker dollar, economic
and political uncertainty around the world, as well as the limited prospect of further interest rate rises in the United States.
The Federal Reserve should wait on any further rate increases until it is clear inflation is reliably heading to the Fed's 2 percent target, St. Louis Fed President James Bullard said on Friday, highlighting the central bank's struggle over how to weigh a recent slip in the rate of price increases.
However, Bullard does not currently vote on the Fed's policy-setting committee. Spot gold was up 0.44 percent at $1,255.7 an ounce by 2:04 p.m. EDT (1804 GMT) after earlier touching a session high at $1,258.81. U.S. gold futures rose 0.6 percent to settle at $1,256.4. Prices were on track for their first weekly
percentage gain in three weeks.
"Gold finally made an effective stand this week after a fortnight of declines and may have established a short term bottom at $1,240," said Tai Wong, director of base and precious metals trading for BMO Capital Markets in New York.
"Looking ahead, market will parse Chair (Janet) Yellen next week to see if she makes any notable changes to the Fed's stance since the June meeting."
Allegations of ties to Russia have cast a shadow over U.S. President Donald Trump's first five months in office, North Korea testing a rocket engine and Brexit negotiations are all fuelling concern about global stability.
"Political noise out of Washington regarding Trump's ties with Russia is unlikely to provide lasting support to gold while an escalation of the geopolitical tensions with North Korea is a bullish wild card," Julius Baer analysts said in a note.
The dollar fell against a basket of major currencies on Friday , on track for its biggest single-day drop in three
weeks, on persistent doubts whether the Fed would raise interest rates again this year due to softening inflation data.
Further pressuring the dollar was Markit's flash June reports on U.S. factory and services activity, which was weaker than expected, while the government said new home sales rebounded more than expected in May.
Gold is often used by investors as a hedge against political and financial uncertainty. But it doesn't earn interest, dividends or coupons and it costs money to insure and store. A rising U.S. currency makes dollar-denominated metals more expensive for holders of other currencies, which potentially could subdue demand.
The Fed's rate rise on June 14 saw investors sell gold.
Holdings of the largest gold-backed exchange-traded-fund (ETF), New York's SPDR Gold Trust , have fallen to 27.456 million ounces from 27.875 million ounces on June 13. On the technical side, the first upside barrier comes in around $1,260 near the 55-day moving average. That is followed by the 21-day moving average at around $1,264, while the 100-day moving average at $1,249 provides strong support.
COT Report
CFTC data shows typical action for retracement. As gold price starts to decrease net speculative position has dropped as well as open interest. It means that some part of long positions have been closed. Still, the change is not very large right now.
SPDR Fund data also shows that overall demand for a gold is not very sensitive to recent price fluctuations. SPDR storages mostly stands at the same level despite recent price fluctuations. It means that Investors keep longs and give more value to bullish factors rather than bearish. Overall sentiment is moderately bullish right now:
Technicals
Monthly
June month is rather volatile for gold. As we've talked many times already - gold way will not be streight. We still keep bullish view on gold market in long-term perspective. 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 June was a last time. Overall US statistics looks unstable and this provides doubts on rate hike in 2017. Probably 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.
In June market has chances to form another bullish grabber. In this case we get more signs that point on upward action, at least above 1300 area.
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. 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
So, our last suggestion was correct and reversal candle that was formed on top two weeks ago, indeed has got continuation and price action has dropped further.
At the same time, as we've said, this action indeed could be just technical and it is not neccesary that it should lead to collapse and destruction of bullish scenario. Right now we see that price has reached MPP and stopped. Although trend has turned bearish here, we do not have any signs of bullish collapse yet.
Still weekly chart brings nothing new to overall picture, as recent fluctuations were really small and mostly have impact only on daily and intraday charts.
Daily
On daily chart, guys, we do not see something really new. Only upside reaction on strong support area that we've talked about within a week. Upside bounce looks gradual and mostly suggests that this is a retracemen by far, but not a re-establishing of long-term trend.
Maximum that we could extract here guys is just B&B "Sell" Look-alike pattern. At least, I do not see something else here. Thrust down could be nice, if we do not have this spike up in the middle. As price is approaching to 1262 major Fib level - we could get deep retracement down out from it, i.e. B&B "Sell" price behavior.
Even without relation to B&B name, this retracement probably should happen, as thrust down was rather strong and bearish momentum is still here. Still, this trade mostly will be short-term and should be trated as scalp trade. Actually it has no relation to major tendencies and mostly is a technical one.
Intraday
4-hour chart mostly confirms our suggestion on higher upward retracement. Here we see that market has passed through first 1255 level and is coming to our major destination - K-support around 1261. Also this natural support/resistance area:
On hourly chart we have the same AB=CD pattern and 1260 target. So, our bearish scalp setup could be triggered even on Monday, if gold will complete AB-CD target and finalize it by butterfly "Sell" pattern. In this case minimal target will be around 1248-1250 Fib support. But also it could happen that gold will continue 4-hour AB-CD to next 1222 target. Right now, price shows rather gradual action and it could be just a retracement before downward continuation.
Conclusion:
Long-term charts barely has changed during last week. In general, retracement down could continue as current price action doesn't show any signs of thrusting action yet and mostly reminds a retracement.
On Monday we will be watching for our short-term bearish setup that is based on daily kind of B&B pattern as trade could start as soon as market will reach 1261 area.
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 climbed to one-week highs on Friday, boosted by a weaker dollar, economic
and political uncertainty around the world, as well as the limited prospect of further interest rate rises in the United States.
The Federal Reserve should wait on any further rate increases until it is clear inflation is reliably heading to the Fed's 2 percent target, St. Louis Fed President James Bullard said on Friday, highlighting the central bank's struggle over how to weigh a recent slip in the rate of price increases.
However, Bullard does not currently vote on the Fed's policy-setting committee. Spot gold was up 0.44 percent at $1,255.7 an ounce by 2:04 p.m. EDT (1804 GMT) after earlier touching a session high at $1,258.81. U.S. gold futures rose 0.6 percent to settle at $1,256.4. Prices were on track for their first weekly
percentage gain in three weeks.
"Gold finally made an effective stand this week after a fortnight of declines and may have established a short term bottom at $1,240," said Tai Wong, director of base and precious metals trading for BMO Capital Markets in New York.
"Looking ahead, market will parse Chair (Janet) Yellen next week to see if she makes any notable changes to the Fed's stance since the June meeting."
Allegations of ties to Russia have cast a shadow over U.S. President Donald Trump's first five months in office, North Korea testing a rocket engine and Brexit negotiations are all fuelling concern about global stability.
"Political noise out of Washington regarding Trump's ties with Russia is unlikely to provide lasting support to gold while an escalation of the geopolitical tensions with North Korea is a bullish wild card," Julius Baer analysts said in a note.
The dollar fell against a basket of major currencies on Friday , on track for its biggest single-day drop in three
weeks, on persistent doubts whether the Fed would raise interest rates again this year due to softening inflation data.
Further pressuring the dollar was Markit's flash June reports on U.S. factory and services activity, which was weaker than expected, while the government said new home sales rebounded more than expected in May.
Gold is often used by investors as a hedge against political and financial uncertainty. But it doesn't earn interest, dividends or coupons and it costs money to insure and store. A rising U.S. currency makes dollar-denominated metals more expensive for holders of other currencies, which potentially could subdue demand.
The Fed's rate rise on June 14 saw investors sell gold.
Holdings of the largest gold-backed exchange-traded-fund (ETF), New York's SPDR Gold Trust , have fallen to 27.456 million ounces from 27.875 million ounces on June 13. On the technical side, the first upside barrier comes in around $1,260 near the 55-day moving average. That is followed by the 21-day moving average at around $1,264, while the 100-day moving average at $1,249 provides strong support.
COT Report
CFTC data shows typical action for retracement. As gold price starts to decrease net speculative position has dropped as well as open interest. It means that some part of long positions have been closed. Still, the change is not very large right now.
SPDR Fund data also shows that overall demand for a gold is not very sensitive to recent price fluctuations. SPDR storages mostly stands at the same level despite recent price fluctuations. It means that Investors keep longs and give more value to bullish factors rather than bearish. Overall sentiment is moderately bullish right now:
Technicals
Monthly
June month is rather volatile for gold. As we've talked many times already - gold way will not be streight. We still keep bullish view on gold market in long-term perspective. 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 June was a last time. Overall US statistics looks unstable and this provides doubts on rate hike in 2017. Probably 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.
In June market has chances to form another bullish grabber. In this case we get more signs that point on upward action, at least above 1300 area.
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. 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
So, our last suggestion was correct and reversal candle that was formed on top two weeks ago, indeed has got continuation and price action has dropped further.
At the same time, as we've said, this action indeed could be just technical and it is not neccesary that it should lead to collapse and destruction of bullish scenario. Right now we see that price has reached MPP and stopped. Although trend has turned bearish here, we do not have any signs of bullish collapse yet.
Still weekly chart brings nothing new to overall picture, as recent fluctuations were really small and mostly have impact only on daily and intraday charts.
Daily
On daily chart, guys, we do not see something really new. Only upside reaction on strong support area that we've talked about within a week. Upside bounce looks gradual and mostly suggests that this is a retracemen by far, but not a re-establishing of long-term trend.
Maximum that we could extract here guys is just B&B "Sell" Look-alike pattern. At least, I do not see something else here. Thrust down could be nice, if we do not have this spike up in the middle. As price is approaching to 1262 major Fib level - we could get deep retracement down out from it, i.e. B&B "Sell" price behavior.
Even without relation to B&B name, this retracement probably should happen, as thrust down was rather strong and bearish momentum is still here. Still, this trade mostly will be short-term and should be trated as scalp trade. Actually it has no relation to major tendencies and mostly is a technical one.
Intraday
4-hour chart mostly confirms our suggestion on higher upward retracement. Here we see that market has passed through first 1255 level and is coming to our major destination - K-support around 1261. Also this natural support/resistance area:
On hourly chart we have the same AB=CD pattern and 1260 target. So, our bearish scalp setup could be triggered even on Monday, if gold will complete AB-CD target and finalize it by butterfly "Sell" pattern. In this case minimal target will be around 1248-1250 Fib support. But also it could happen that gold will continue 4-hour AB-CD to next 1222 target. Right now, price shows rather gradual action and it could be just a retracement before downward continuation.
Conclusion:
Long-term charts barely has changed during last week. In general, retracement down could continue as current price action doesn't show any signs of thrusting action yet and mostly reminds a retracement.
On Monday we will be watching for our short-term bearish setup that is based on daily kind of B&B pattern as trade could start as soon as market will reach 1261 area.
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.