Gold GOLD PRO WEEKLY, June 28 - 02, 2021

Sive Morten

Special Consultant to the FPA
Messages
15,036
Fundamentals

So, gold market is concerned with the same thing as any other one, including Forex - what to expect from the Fed, when announcement of tapering happens and what to do during 18 months till the first interest rate change. Opinions stand different. Yesterday we've paid a lot of attention to this subject in our FX Report, and come to conclusion that in short-term perspective markets indeed could get some relief due some reasons. First is Fed inflation target is reached and this is passed driver. It stands above 2.5%, this is enough for rate change. Recent PCE number was as high as in May, showing the same inflation level, but market reaction was weak. Besides, during the summer inflation usually stagnates or slightly decreases, and with Fed comments this week - it will not disturb markets too strong. Now all eyes stand on employment as US still need 7.5 Mln jobs to return on pre-pandemic levels. Any positive surprise supports dollar. This is what we intend to watch on next week.

Market overview

In general Gold reacts very similar to the same driving factors as FX market as mostly they impact the dollar directly. Gold prices fell 6%, or $113 an ounce, last week as the U.S. Federal Reserve signaled it would soon start tapering its asset purchases and could start raising interest rates in 2023.

Bank of America Global Research said that given a more hawkish Fed, the risk of rising real rates would keep gold prices capped into the end of the year. Streible, however, predicted gold would drift above $1,800 an ounce, citing an “overbought” dollar, the Fed’s continued bond purchases and interest rates that will not rise anytime soon.

“People are using the correction to buy gold, at these price levels, there is value to hold positions in gold, especially for the long run,” said Phillip Streible, chief market strategist at Blue Line Futures in Chicago

Gold prices gained on Wednesday after U.S. Federal Reserve Chair Jerome Powell promised not to raise interest rates too quickly based only on the fear of coming inflation, although an uptick in the dollar kept prices in check. Powell on reaffirmed the U.S. central bank’s intent to encourage a “broad and inclusive” recovery of the job market. Powell's Pledge to keep interest rates near zero for some time pushed the dollar towards a one-week low.

Powell’s comments on Tuesday reaffirmed intent to encourage a “broad and inclusive” job market recovery, and not raise interest rates based only on fears of coming inflation. inflation would not be the only determinant in interest rate decisions, calming investors worried about policy tightening.

“Economic numbers are just showing a sign of recovery... can’t say they will be consistent in the coming period. That has been a support for gold,” said Ajay Kedia, director at Kedia Commodities in Mumbai.

France and Germany enjoyed booming business activity in June, according to preliminary composite Purchasing Managers’ Indexes (PMI) compiled by IHS Markit. U.S. flash PMIs are due later in the day and are expected to stay at elevated levels.

However, the gold market may stay under pressure nonetheless, after recent moves in Fed “dot plot” projections shifted focus towards the tapering timetable, Standard Chartered analysts said.

“A tapering timetable is still uncertain but is being discussed, which is a downside risk for gold prices,” they told clients.

Expectations of lower interest rates tend to support gold since that would translate into reduced opportunity cost of holding bullion, which pays no interest.

Gold tends to over-respond to a “nuanced delivery” from the Fed, independent analyst Ross Norman said. The precious metal is seeing some bargain hunting given the recent big correction, and a move above $1,800 and back towards the mid-$1,800s could draw back the institutional investors, Norman added.

David Meger, director of metals trading at High Ridge Futures, said it was not a foregone conclusion the Fed would move to raise interest rates or reduce asset purchases as quickly as last week’s meeting suggested.

“We’re clearly trading in a very accommodative environment that will underpin gold prices (and) overall it’s still too early to start making mention of reduction in asset purchases and increases in interest rates,” Meger said.

Technicals were supportive too, Quantitative Commodity Research analyst Peter Fertig said, noting gold appeared to have bottomed out from last week’s selloff.

While the gold market’s pricing for Fed hikes could prove too hawkish, the underlying inflation trends will likely remain distorted for months, inhibiting positive flows into gold for now, TD Securities analysts said in a note.

Gold prices languished on Thursday as investors tried to grasp mixed signals from U.S. Federal Reserve officials on interest rate hikes and awaited more economic data to gauge inflationary pressures.

“Now the focus is on inflation ... gold needs a clear trigger to go higher than $1,800 but I am skeptical about that,” said Jigar Trivedi, commodities analyst at Mumbai-based broker Anand Rathi Shares.

Two Fed officials said on Wednesday a period of high inflation in the United States may last longer than anticipated, with Atlanta Fed President Raphael Bostic expecting a rate hike in late 2022. A day after Fed Chairman Jerome Powell said interest rates would not be raised too quickly, two Fed officials said on Wednesday a period of high inflation may last longer than anticipated, with Atlanta Fed President Raphael Bostic expecting a rate increase in late 2022.

Gold faced technical resistance around the $1,805-$1,830 range and “that’s going to make some people a bit nervous”, StoneX analyst Rhona O’Connell said.
But longer term, negative real interest rates should support gold, O’Connell added.

Alex Turro, senior market strategist at RJO Futures said concerns over potential rate hikes and tapering of asset purchases from the Fed were still weighing on sentiment in the gold market and should continue to do so, until the market gets more clarity on policy. Turro added that higher yields were also a headwind for bullion prices.

Gold rose on Friday and was heading for its first weekly gain in four as a preliminary deal on U.S. infrastructure spending drove a dollar retreat. Stagnant U.S. consumer spending tempered bets for early monetary policy tightening by the Federal Reserve, setting bullion on track for its first weekly gain in four.

While the weaker dollar is helping, gold is struggling to regain investor confidence after last week’s U.S. Federal Reserve meeting, Commerzbank analyst Daniel Briesemann said. A surprise hawkish tilt from the Fed had driven a sharp slide in bullion. However, the spending plan should be positive for gold, as it has to be financed to a large extent with higher debt, Briesemann added.

Progress on the plan weighed on the dollar index, making gold cheaper for those holding other currencies, ahead of U.S. producer price data that could paint a clearer picture on rising inflation.

“Gold has benefited from the lower-than-expected inflation print as concerns at the margin have eased over a sooner-than-expected timetable for tapering,” said Suki Cooper, an analyst at Standard Chartered. The $1,770 per ounce level is a support in the near term, Cooper said, with resistance at the 100-day moving average.

Data earlier showed the personal consumption expenditures (PCE) price index, the Fed’s preferred inflation measure, was below expectations in May. The data initially weighed on the dollar, but the currency has since steadied, slowing gold’s advance.

“The market is taking a more sanguine view of the inflation prospects, tempering earlier expectations that inflation was going to more quickly become problematic,” said Kitco Metals senior analyst Jim Wyckoff.

Although prices have stabilised since then, bullion is still on shaky ground given mixed signals from the Fed, analysts said.

“Importantly, from a technical perspective we have formed a bearish pattern on the gold chart that suggests maybe some downside selling pressure next week after this week’s pause,” Wyckoff said.

COT Report

Precious metal funds faced net sales worth $215 million this week. Now we see clear impact of Fed statement on market's sentiment. Mostly effect stands the same as on EUR - net long position has dropped substantially. The only difference with EUR is open interest - here it drops while on FX market it has increased. So, here is softer reaction as traders mostly have closed longs but haven't added a lot of shorts by far.

1624792307065.png


1624792355023.png

Source: cftc.gov
Charting by Investing.com


So, in general, guys it seems that short-term context stands very similar to FX market as well. Although we still could get relief within few months, in nearest perspective, especially with NFP report on horizon, most probable that we should get another swing down first. The price action of last week looks poor and doesn't correspond to idea of reversal. On EUR, by the way, we also prepare for taking short position.

Indirectly, we have bearish short-term setup on AUD, as it was reported by our forum member Netbusinessman, and there we already have bearish grabber in place that suggests some downside continuation within a week or so. Thus, as it is also supposed by respected analysts from Kitco and Standard Chartered - they suggest additional downside swing.

In longer-term perspective, 18 months lag till the first rate change, seasonal relief in inflation during summer could support gold and let it bounce higher, especially if we get some worse than expected NFP reports as well. But, this is poor relief as gold market mostly is doomed - Fed already announced the change in its policy. And by our view it means that gold stands in final stage of bullish cycle. Although we have concern on long-term Dollar Index target that has not been reached yet, while we prefer to see it been hit. May be some events will happen that let market to do this, but now it is impossible to suggest what they are.

Technicals

Monthly

Since market shows no solid pullback from the bottom - monthly chart barely impacted by last week performance. 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. Here bearish engulfing looks nice, but we also keep an eye, whether it becomes reversal month as well. There are just 3 days till June close.

gold_m_28_06_21.png


Weekly

The reason, why we expect another swing down before (maybe)situation will change is price performance last week. Mostly this is the repeating of the picture on EUR. Trend has turned bearish here, and we haven't got the grabber unfortunately. Upside action is too weak to treat it as a reversal and mostly looks like technical shy reaction on oversold and Fib support area. Even for Stretch pattern upside bounce looks too small.

As a result, it seems that upside bounce could happen but either a bit later, or due poor NFP data. Speaking only about technical side, I wouldn't consider new longs position here by far, at least until we get clear bullish signs on lower time frames
gold_w_28_06_21.png


Daily

Trend here stands bearish as well. Price has made few attempts to climb higher last week, but all of them has failed. Tight consolidation after strong collapse is more typical for bearish context. The only bullish hint that we see, it is minor one, but still - take a look that price also accurately holds intraday 5/8 support, and not dropping back to the lows or below them. Maybe it means something. But this is not important details and it doesn't help us in trading too much. In general, overall picture looks like bearish flag by far.
gold_d_28_06_21.png

Intraday

Here bulls still have some minor hope with the grabber that we've discussed on Friday. But anyway it has only tactical meaning. Even if pattern will be completed, it will be action to 1800 area only. Thus, here we could use only the same tactic as on EUR in general - either wait for some upward action and grabber completion, perfectly if it will be around 1820 K-area, or split position in two parts and take the first one inside the triangle with stops above the K-area. Since we have similar setups on EUR and AUD, that mostly are bearish, it makes sense to expect something similar on gold market. Especially because that all setups are driven by dollar strength.

gold_4h_28_06_21.png
 

Sive Morten

Special Consultant to the FPA
Messages
15,036
Greetings everybody,

Here is absolutely the same story as on EUR. On daily chart we're also watching for grabber but here MACDP line stands farer than on EUR, and not the fact that we will get it. Anyway, this is not crucial moment as overall situation is moving according to our expectations:
gold_d_29_06_21.png


On 4H chart bearish dynamic pressure turns to active stage as price action is rounding down:
gold_4h_29_06_21.png


On 1H chart the only pattern that we have is 3-Drive with potential reversal point around 1750. Despite extended 3-Drive, the pattern is still valid, despite we have supportive fundamental background here as well.

Market is trying to break narrow consolidation, so if you follow our entry tactic, you should get 40-50% of your short position and now it is possible to move stops to breakeven.

In general situation stands unclear as we do not have other patterns except potential 3-Drive and no patterns on bullish side.

That's why we have no new tactics for position taking except those that we've discussed in previous video and weekly report.

Potentially we consider 1750 target in near term, put drop might be deeper on a background of positive NFP data.

gold_1h_29_06_21.png
 

Sive Morten

Special Consultant to the FPA
Messages
15,036
Greetings everybody,

So preliminary swing down that we've expected to 1.1750 is done, but this is just preparation to NFP numbers. In case of more or less positive data we should get another drop, somewhere to 1700 area. Here, on daily chart price action stands bearish as market is not trying to return back in flag consolidation. It breaks it down and stands below it.
gold_d_30_06_21.png


On 4H chart price action takes the shape of a butterfly. Maybe gold hits 1.618 target as well, as it stands just 10$ lower:
gold_4h_30_06_21.png


While on 1H chart price has completed 3-Drive target. At the same time reaction stands anemic, although theoretical target suggests action above 1800$. Probably this could happen only if NFP will be worse than expected. I would say below 400K, as this is "red line" for Fed trend of employment recovery. We've talked about this in weekly report.

Here I show you minor "222" Sell, that might be useful to those of you, who would like to go short but missed the chance to sell in consolidation in the beginning of the week.
Those of you who keep shorts - manage your stops at least to breakeven.

Finally, if you would like to bet on bad NFP and buy gold - you could consider 4H butterfly and try to buy. But better to to this as closer to NFP release as possible, because market could flirt around 1740-1750 in next two sessions.
gold_1h_30_06_21.png
 

Sive Morten

Special Consultant to the FPA
Messages
15,036
Good morning everybody,

Today gold provides very interesting setup. First is, grabber on daily chart still could be formed. As we suggest that good NFP now has more chances to happen, grabber could have special meaning to us, despite that price is returning back inside the flag pattern, forming bearish trap:
gold_d_01_07_21.png


On 4H chart market is trying to bounce up from butterfly target. Here it could turn to H&S pattern, if NFP numbers will be poor. In this case market could reach first the neckline around 1796 K-area and then proceed to 1820$.
In fact, reaching of the first area is a target of our 3-Drive pattern on 1H chart.
gold_4h_01_07_21.png


On 1H chart our "222" Sell is formed and makes Agreement resistance at 5/8 Fib level. It should trigger at least 3/8 retracement. So, if you would like to sell - you could try to use this "222" pattern and keep an eye on grabber . Once market drops a bit - move stops to breakeven.

For bulls, if you believe bad NFP report happens, you could consider 1760-1770 area for entry, to minimize the risk. This is right arm of potential H&S pattern on 4H chart.
gold_1h_01_07_21.png
 

Sive Morten

Special Consultant to the FPA
Messages
15,036
Greetings everybody,

Unfortunately guys, we haven't got bearish grabber on daily chart this time. IT would be nice to get it, but... anyway, it is not as vital right now.
gold_d_02_07_21.png


Since downside action is rather strong on daily chart and ADP report was around 700K, it is reasonable to suggest good NFP numbers as well. So, if you have taken short position either in consolidation or yesterday around XOP - it makes sense to keep them with breakeven or tight stop order.
gold_1h_02_07_21.png


Speaking about bullish performance that we hypothetically discussed on 4H chart - now we suggest that it would be better to not hurry up with it. Here we do not see yet pattern in place, upward action has no signs of thrust, which means that we could get as H&S, as another 3-Drive with 1740 target. From this standpoint - we should get better entry chances, if of course, bullish scenario will not be eliminated totally. Recall that we have untouched long term target around 1650 as well...
And potentially bearish background and good ADP numbers, lack of bullish context, it is too early to step in on a long side by our view:
gold_4h_02_07_21.png
 
Top