Sive Morten
Special Consultant to the FPA
- Messages
- 18,727
Fundamentals
(Reuters) Gold soared the most since the global financial crisis in 2008 on Friday, after Britons shocked markets by voting to leave the European Union, fueling market turmoil that drove investors toward safe-haven assets.
The precious metal jumped as much as 8 percent to its highest in more than two years, tracking the rally in other safe havens, such as bonds, as risky assets were dumped from stocks to sterling.
Complete results from a British referendum showed a near 52-48 percent split for the UK leaving the EU. The vote created the biggest global financial shock since the 2008 crisis, this time with interest rates around the world already at or near zero, stripping policymakers of the means to fight it.
Spot gold was up 5.1 percent at $1,319.60 an ounce by 0639 GMT, after earlier peaking at $1,358.20, the strongest since March 2014. Gold soared nearly 11 percent in September 2008.
Britain would be the first country to leave the European Union, the biggest blow to the 28-nation bloc since its foundation. Some analysts say that could tip Europe back into a recession, piling more pressure on the global economy, and burnishing the appetite for gold.
"It's certainly going to retard the kind of recovery momentum we've seen shaping up in Europe and for the UK it will probably negate a lot of the stimulus effects," said Vishnu Varathan, a senior economist at Mizuho Bank.
U.S. gold for August delivery rose 4.7 percent to $1,322.80.
Gold could build on these gains if the resulting uncertainty in Europe "leads to an environment where the Federal Reserve is not going to hike rates so dramatically and everybody throws in more liquidity," said Dominic Schnider of UBS Wealth Management in Hong Kong.
Before Friday's new high, bullion also topped $1,300 on June 16 after the Fed signaled a less aggressive monetary tightening stance. Rate hikes increase the opportunity cost of holding the non-interest yielding metal.
Gold priced in other currencies also surged. In terms of sterling and euro, gold hit the highest since April 2013. In Australian dollar terms, gold touched a record high.
Gold on the Shanghai Futures Exchange climbed to the highest since September 2013. Trading volumes soared nearly three times normal levels, said Richard Xu, fund manager at HuaAn Asset Management, China's top gold exchange-traded fund.
Brexit would "have repercussions not only on the currency markets but also on the political landscapes and that will have a lasting impact on economic growth assumptions," said Xu, adding gold could hit around $1,600.
COT Report
Here we do not have many changes since reports has been released 1 day before Brexit voting. Real changes of positions we probably will get next week.
Still, here we have interesting nuance. Although net longs still stand at all time highs - open interest has decreased. Other words speaking here we have some kind of divergence between speculative position line and open interest.
In ordinary circumstances, extreme levels of speculative positions is a sign of possible reversal - either short term or long term. That's why we still expect to see retracement down as major rush around Brexit voting will end
Technicals
Monthly
Due to last events in UK, gold has made another attempt to move higher and confirmed our expectation. Still, as we see on chart - 1285-1330 is strong resistance and gold has stuck inside of it. At the same time, gold has completed pivot target - it has touched YPR1.
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.
Assumption that we've made last time was filled acurately:
"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've got 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."
Now we still keep this thought.
Meantime currently recent action mostly looks like bullish flag pattern that suggests some upside action. On Brexit results gold has pierced it slightly but now has dropped right back inside of it's body. Currently it is too early to speak about it, but potentially it could become a "bullish trap" as false consolidation breakout and it could lead to downward action. This also was an attempt to break strong resitsance area - YPR1 + monthly K-resistance.
Market sould get some relief after Brexit will happen. We think that potential to grow is limited in short-term perspective and we assess chances on drop as greater compares to chances on further upside action in nearest 1-3 weeks, especially if we will get good NFP numbers.
It means that if you have a bullish view on market - do not take long position right now.
Weekly
Trend has turned bullish again here, but in addition to strong monthly resistance we've got weekly overbought. In fact, since monthly levels are valid on weekly chart as well, we've got weekly bearish "Stretch pattern by DiNapoli.
Widening triangle that we've recognized previosly has become even sharper. 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.
As we've acknowledged last week - we do not know whether this triangle will turn to, say, diamond, or some other reversal pattern, but any of them let 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 has happened, 1350 level has been reached, but at the same time market looks really heavy and drop almost half way back.
Technical picture mostly suggest drop to 1180 area - lower border of this triangle. Again, here we will have to take into consideration strong resistance area, COT numbers and pattern.
Here we could say on technical picture only - it looks bearish. What really will happen - we will see on Thursday. Anyway, market will have to break out of triangle to specify further direction. Upside breakout has failed by far. And even this one event looks bearish. Finally we have some hint on bearish divergence is starting to appear..
Daily
So, both of our trades have completed. I mean major B&B "Buy" right before voting and Friday's another one, minor B&B...
Currently as market just calm down a bit after voting turmoil we do not have much to discuss on daily chart. OscP indicator shows us OB/OS level. 3/8 retracement already has done by market. Gold will open around WPP. If it will start drop further, there are 2 major levels here - 1197-1200 K-support and middle of thrusting candle and next one is WPS1 and 1260 major Fib support (again 1260). This last level is especially important, because this is also the bottom of gaint upside candle. If market will take it out - this will be bearish sign and downward acceleration could follow.
Another thing that we could say here is gold could turn for consolidation for 1-2 weeks, may be even till NFP release. This type of price action very often happens when market forms huge candles. Its range could keep price action for some time.
Right now we do not have any setup here, that we could trade within coming week. Since our 2 trades, as we've said - just have been completed. May be we will get something on intraday charts - keep looking our daily videos...
5-min
We rare take a look at 5-min chart, but today it shows overall situation better. On Friday we've traded scalp B&B "Buy" on daily chart. This pattern has started well, but has not quite reached its target which was 1338 Fib resistance while upside action has stopped at 1332.
Gold has started to form AB=CD pattern, but has stopped on 0.618 minor extension and didn't move higher.
Another attempt was even worse - you can see this rounding action down. This shows the weakness and exhausting of gold market.
Thus, it really could lead to further drop on Monday. We could get butterfly pattern that has targets right around daily K-support area around 1195. So, it confirms our expectaiton on possible downard action.
Conclusion:
We continue to keep long-term bullish view on gold market. But now chances on deep retracement are very high. It is interesting how this riddle will be resolved - overload of long positions and negative voting results.
In short-term perspective we mostly will be focused on tactical setups. Right now we expect some fluctuations inside of 1260-1300 area and first leg on Monday probably will be to 1195 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 soared the most since the global financial crisis in 2008 on Friday, after Britons shocked markets by voting to leave the European Union, fueling market turmoil that drove investors toward safe-haven assets.
The precious metal jumped as much as 8 percent to its highest in more than two years, tracking the rally in other safe havens, such as bonds, as risky assets were dumped from stocks to sterling.
Complete results from a British referendum showed a near 52-48 percent split for the UK leaving the EU. The vote created the biggest global financial shock since the 2008 crisis, this time with interest rates around the world already at or near zero, stripping policymakers of the means to fight it.
Spot gold was up 5.1 percent at $1,319.60 an ounce by 0639 GMT, after earlier peaking at $1,358.20, the strongest since March 2014. Gold soared nearly 11 percent in September 2008.
Britain would be the first country to leave the European Union, the biggest blow to the 28-nation bloc since its foundation. Some analysts say that could tip Europe back into a recession, piling more pressure on the global economy, and burnishing the appetite for gold.
"It's certainly going to retard the kind of recovery momentum we've seen shaping up in Europe and for the UK it will probably negate a lot of the stimulus effects," said Vishnu Varathan, a senior economist at Mizuho Bank.
U.S. gold for August delivery rose 4.7 percent to $1,322.80.
Gold could build on these gains if the resulting uncertainty in Europe "leads to an environment where the Federal Reserve is not going to hike rates so dramatically and everybody throws in more liquidity," said Dominic Schnider of UBS Wealth Management in Hong Kong.
Before Friday's new high, bullion also topped $1,300 on June 16 after the Fed signaled a less aggressive monetary tightening stance. Rate hikes increase the opportunity cost of holding the non-interest yielding metal.
Gold priced in other currencies also surged. In terms of sterling and euro, gold hit the highest since April 2013. In Australian dollar terms, gold touched a record high.
Gold on the Shanghai Futures Exchange climbed to the highest since September 2013. Trading volumes soared nearly three times normal levels, said Richard Xu, fund manager at HuaAn Asset Management, China's top gold exchange-traded fund.
Brexit would "have repercussions not only on the currency markets but also on the political landscapes and that will have a lasting impact on economic growth assumptions," said Xu, adding gold could hit around $1,600.
COT Report
Here we do not have many changes since reports has been released 1 day before Brexit voting. Real changes of positions we probably will get next week.
Still, here we have interesting nuance. Although net longs still stand at all time highs - open interest has decreased. Other words speaking here we have some kind of divergence between speculative position line and open interest.
In ordinary circumstances, extreme levels of speculative positions is a sign of possible reversal - either short term or long term. That's why we still expect to see retracement down as major rush around Brexit voting will end
Technicals
Monthly
Due to last events in UK, gold has made another attempt to move higher and confirmed our expectation. Still, as we see on chart - 1285-1330 is strong resistance and gold has stuck inside of it. At the same time, gold has completed pivot target - it has touched YPR1.
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.
Assumption that we've made last time was filled acurately:
"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've got 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."
Now we still keep this thought.
Meantime currently recent action mostly looks like bullish flag pattern that suggests some upside action. On Brexit results gold has pierced it slightly but now has dropped right back inside of it's body. Currently it is too early to speak about it, but potentially it could become a "bullish trap" as false consolidation breakout and it could lead to downward action. This also was an attempt to break strong resitsance area - YPR1 + monthly K-resistance.
Market sould get some relief after Brexit will happen. We think that potential to grow is limited in short-term perspective and we assess chances on drop as greater compares to chances on further upside action in nearest 1-3 weeks, especially if we will get good NFP numbers.
It means that if you have a bullish view on market - do not take long position right now.
Weekly
Trend has turned bullish again here, but in addition to strong monthly resistance we've got weekly overbought. In fact, since monthly levels are valid on weekly chart as well, we've got weekly bearish "Stretch pattern by DiNapoli.
Widening triangle that we've recognized previosly has become even sharper. 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.
As we've acknowledged last week - we do not know whether this triangle will turn to, say, diamond, or some other reversal pattern, but any of them let 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 has happened, 1350 level has been reached, but at the same time market looks really heavy and drop almost half way back.
Technical picture mostly suggest drop to 1180 area - lower border of this triangle. Again, here we will have to take into consideration strong resistance area, COT numbers and pattern.
Here we could say on technical picture only - it looks bearish. What really will happen - we will see on Thursday. Anyway, market will have to break out of triangle to specify further direction. Upside breakout has failed by far. And even this one event looks bearish. Finally we have some hint on bearish divergence is starting to appear..
Daily
So, both of our trades have completed. I mean major B&B "Buy" right before voting and Friday's another one, minor B&B...
Currently as market just calm down a bit after voting turmoil we do not have much to discuss on daily chart. OscP indicator shows us OB/OS level. 3/8 retracement already has done by market. Gold will open around WPP. If it will start drop further, there are 2 major levels here - 1197-1200 K-support and middle of thrusting candle and next one is WPS1 and 1260 major Fib support (again 1260). This last level is especially important, because this is also the bottom of gaint upside candle. If market will take it out - this will be bearish sign and downward acceleration could follow.
Another thing that we could say here is gold could turn for consolidation for 1-2 weeks, may be even till NFP release. This type of price action very often happens when market forms huge candles. Its range could keep price action for some time.
Right now we do not have any setup here, that we could trade within coming week. Since our 2 trades, as we've said - just have been completed. May be we will get something on intraday charts - keep looking our daily videos...
5-min
We rare take a look at 5-min chart, but today it shows overall situation better. On Friday we've traded scalp B&B "Buy" on daily chart. This pattern has started well, but has not quite reached its target which was 1338 Fib resistance while upside action has stopped at 1332.
Gold has started to form AB=CD pattern, but has stopped on 0.618 minor extension and didn't move higher.
Another attempt was even worse - you can see this rounding action down. This shows the weakness and exhausting of gold market.
Thus, it really could lead to further drop on Monday. We could get butterfly pattern that has targets right around daily K-support area around 1195. So, it confirms our expectaiton on possible downard action.
Conclusion:
We continue to keep long-term bullish view on gold market. But now chances on deep retracement are very high. It is interesting how this riddle will be resolved - overload of long positions and negative voting results.
In short-term perspective we mostly will be focused on tactical setups. Right now we expect some fluctuations inside of 1260-1300 area and first leg on Monday probably will be to 1195 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.