Gold GOLD PRO WEEKLY, June 29 - 03, 2020

Sive Morten

Special Consultant to the FPA
Messages
13,522
Fundamentals

This week all headlines around gold market relate to new Covid cases, at least on Reuters news resource. It has become major driving factor, ignoring statistics release and other important events. As we've said yesterday, in our FX research, this week was disturbing for financial markets. Beyond Covid spreading, rising political tensions make negative impact on the markets as well. Still, what is bad for one market could be good for another one. And this is particular case of gold. Gold is feeding with "bad news".
Last week we've said that gold shows strong fundamental background that is not realized yet in price action. And it seems this process gradually is started. All things that we said yesterday about FX market and EUR are correct for Gold market as well, especially pandemic and political nervous situation. In medium-term perspective we expect that this should support gold.

Gold prices hit its highest level since October 2012 on Wednesday, as demand was boosted by worries over a jump in coronavirus infections and hopes of more stimulus
measures to combat the economic blow. For a second consecutive week, Texas, Arizona and Nevada set records in their coronavirus outbreaks, and 10 other U.S.
states from Florida to California were grappling with a surge in infections. Coronavirus cases in the U.S. surged 25% in the week ended June 21 compared from the week before, according to a Reuters analysis.

The European Union is prepared to bar U.S. travellers because of the surge of cases in the country, putting it in the same category as Brazil and Russia, the New York Times reported on Tuesday.

U.S. Treasury Secretary Steven Mnuchin on Tuesday said the next stimulus bill will be focused on getting people back to work quickly and that he would consider a further delay of the tax filing deadline. Gold tends to benefit from widespread stimulus measures from central banks because it is widely viewed as a hedge against inflation and currency debasement.

"Investors are getting nervous due to the current rise in coronavirus cases and quitting their positions in riskier assets like stocks, while parking their investments in gold and bonds," said Bob Haberkorn, senior market strategist at RJO Futures.

Wall Street's major indexes dropped and benchmark 10-year yield slipped to its lowest since early June as the United States set a new record for a one-day increase in coronavirus cases.

"We might see gold breaking the $1,800 level ... fundamentals for gold are quite strong with rising coronavirus cases, no vaccines yet and stimulus from major central banks globally leading to concerns of inflation," said Edward Moya, senior market analyst at broker OANDA.

Easy monetary policies and a string of stimulus measures by major central banks to stem the virus impact have sparked concerns of inflation, driving bullion prices about 16.5% higher this year.

"Gold is finding tailwind from concerns about a second wave of infections as some U.S. states see the number of new cases soar," Commerzbank analysts said in a note. "The expansion of central bank liquidity and public debt resulting from this continues to argue for robust demand for gold as a safe haven and store of value," they added.

"If central banks continue to print money with quantitative easing and easing monetary policy, gold can continue to rally," ActivTrades chief analyst Carlo Alberto De Casa said. Technically, gold is in a consolidation phase and could see further rallies if investors become more risk averse, he added.


Reflecting positive sentiment, holdings of the SPDR Gold Trust exchange-traded fund held near a more than seven-year peak.

Here, guys, I wouldn't repeat the same analysis that we've prepared yesterday and, for the truth sake - it is not needed to talk a lot, as everything is clear for anybody who uses just common sense.

COT Report

Indeed, Gold shows outstanding performance and price doesn't reflect yet the whole power of ongoing processes. Take a look at recent changes in Gold position. Open interest has reached 1Mln. contracts, just within a single week it jumps for another 94K contracts. Speculators add 35K contracts long, while Hedgers add 51K shorts trying to get insurance against potential gold rally.

1593331389344.png


As a result, net speculative long position has jumped this week for 50K contracts net and keeping significant room to grow more:
1593331547088.png

Source: cftc.gov
Charting by Investing.com


Thus, with such background I will not be surprised if see skyrocket rally on gold within 1-2 weeks. Speaking in general, keeping healthcare and politics aside as everybody understands that these factors support gold, fiscal global situation is supportive as well. As I said above, currently it is difficult to find a factor that could hurt gold appreciation. Keeping all factors equal, just zero interest rates alone supports gold despite any possible rallies on stocks and other assets. Because zero rates negate major difference between interest-bearing assets and gold, not hurting safety feature of gold. This factor alone is enough to exclude any serious collapse on Gold market.

Now there are a lot of talks about inflation. Any many experts appeal to forward interest rates, US bonds rates, different indicators of CPI/PPI etc. telling that they are flat and even decrease. And it justify the opinion that we do not have inflation and it is expected to be low. I would say that we already have inflation, massive consumption, rally on stock market is just confirm this. Inflation now stands in hidden mode. But within a year or two it finds the way into retail prices or could become evident in different shape, say, significant drop of people revenues and savings, lack of goods or in common shape of prices rising. Because you can't print 15% of Global GDP and keep inflation low.

Currently US interest rates are bad indicator of inflation, just because Fed buys bonds. As it grants stable demand for them - interest rates can't grow too far. Besides, big mass of US Dollars should be stored somewhere, in some assets. Stock market is too small for that, derivative market is too risky, thus, bond market is most suitable place. Business cycle starts from rising of commodity prices and they are major indicator of inflation. Gold starts to show that inflation is already here.

When inflation hits some particular country - process are going faster and you could get massive currency devaluation within few months or even weeks. In global scale this process lasts longer due significant differences among countries and their financial conditions and system. US Dollar takes about 70% of global reserves but 30% are different currencies and they could make this process longer. Despite that printing 1/6 of Global economy promises nothing good to common people because always they carry all pity burden of any economical turmoil.


Technicals
Monthly


Currently we could talk only about positive things on gold. Price starts to show bullish performance and our expectations get reward. Fundamental factors have given the 2nd breath and price returns back above the doji range. Thus, price stands confident above the top. As we have just two days till the month's end - it might be bullish reversal candle that could get significant consequences for the market.

MACD trend here still stands bullish. Upside targets stand the same - with overbought level around 1850 and no Fib levels above, next logical destination is top of 2012 around 1800 area and then 1920 top. Technical target of broken doji's range also points on area around $1920 level.

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.

As we said previously - 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. Now we see that this process stands underway.

gold_d_29_06_20.png


Weekly

Trend on week chart has turned bullish this week, market is not at overbought. Here we see great example of pivot working. Take a look, that first gold has dropped but retracement was held by Monthly Pivot Support 1, telling that this is just a retracement within existed upside tendency. Then, price jumped up and hit MPR1 where it stands right now. Breaking of this level tells that upside tendency is continue.

gold_w_29_06_20.png


Daily

This chart you see very often in our videos, so it is not needed to talk a lot, just what has changed since Friday. Trend is bullish here, market is not at overbought. And, take a look, on Friday we've got bullish reversal session. It gives confidence that our 2nd target should be hit soon. Thus, it seems that daily butterfly should be completed next week.
gold_d_29_06_20.png


Intraday

Currently we do not need deep standing Fib levels as major retracement already is done, it totally matches to bullish context and our scenario as neckline of our reverse H&S pattern stands intact. Although we're watching just 1790 target on daily now, we should not forget that H&S also has XOP around $1824. And it agrees with 1.618 target of daily butterfly as well. Thus, if bullish pressure appears to be stronger and price just fly through 1.27 butterfly target - $1824 is most probable next destination.
Up from the neckline price forms strong reaction in a way of bullish engulfing and reversal candle.
gold_4h_29_06_20.png


Here, on 1H chart for position taking we're interested only with most recent swing up. Most probable that retracement will be small, just to 1762 level. Invalidation point for this setup stands right under 1747 lows.
gold_1h_29_06_20.png
 

Sive Morten

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

Here is just minor update to our trading plan. On daily chart everything stands the same - 1790 is first target. If, by some reason, it will be overrun, next 1.618 stands at 1823. Overall context on daily chart stands bullish with reversal session aboard:
gold_d_30_06_20.png


On 4H chart the same story - good reaction on support and neckline area. Next target here is H&S XOP at the same 1823:
gold_4h_30_06_20.png


Now we're mostly interested in 1H chart. In weekend we said to buy at nearest support area and warned that retracement might be very small. Gold now confirms this as price barely has tested 3/8 Fib support, forming pennant consolidation and clear signs of bullish dynamic pressure. If we get lucky, maybe grabbers trigger minor downside pullback, but I wouldn't count on it too much. Thus, the better approach is to consider long entry inside the pennant range:
gold_1h_30_06_20.png
 

Sive Morten

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

This is sweet work for trader - manage stops on profitable position, right... So, on daily Gold hits our second 1790 target. Potentially we have another one, around 1823, but right now we do not know with certainty whether it will go there or not. Because action here is gradual, trading range day by day is small, so no significant impulse exists. It means that if even price will go there later, first it could show reaction on 1.27 butterfly target.
gold_d_01_07_20.png


On 4H chart our ultimate H&S target agrees with daily butterfly one at 1823. Theoretically as price moves above OP, it stands in new extension level and should continue action further. Somehow I feel that this will happen, but let's base our feeling on clear technical tools.
gold_4h_01_07_20.png


Yesterday our plan has worked perfect as rally starts once minor retracement was done. Potentially we could get H&S here and we have to keep an eye how price will react on 1773 support area. Our invalidation point for current context is 1764 lows. In two words - standing above 1773 keeps scenario with 1823 target, while drop below them open road for deeper downside retracement and appearing H&S pattern here.
gold_1h_01_07_20.png


Thus, you task - decide how to manage position. If you keep it stops definitely should be under 1764 lows, but you could book either whole profit or some part of it. In first case you could try re-enter around 1773 K-area but you miss it if price turns up earlier. In second case - you're free from retracement depth suggestion but you risk with 2nd part of your profit...
 

Sive Morten

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

Thus, retracement that we've discussed is started, but now our major task is to recognize where it will be over. Take a look that on daily chart price still keeps chances on immediate upside continuation - it stands above previous top and MACDP line comes close, which means that we could get the grabber. So, this is the pattern that we have to monitor here:
gold_d_02_07_20.png


On 4H chart, reversal was fast, we've got divergence. This tells that deeper retracement is also possible:
gold_4h_02_07_20.png


Thus, for me it seems that this scenario is suitable for current situation. On 1H chart we could trade "222" Sell pattern right from 1777 Agreement. This level at the same time tells us what will follow next. If Gold, after minor pullback (that we have to use to move stops to b/e) still will break it and follow up - that will be clear sign that we go to next 1823 target. If instead, market gets downside acceleration with "222" Sell pattern - it means that we go to 1750. If you do not like to trade gold short - just watch for 1777 resistance and how price responds on it:
gold_1h_02_07_20.png
 

Sive Morten

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

let's keep up our experiment with Gold market. So, on daily we haven't got bullish grabber although price was close to it. Overall price action is bullish as price stands above the top and today again we keep an eye on the grabber appearance.
gold_d_03_07_20.png


On 4H chart in addition to divergence and sharp sell-off today we get multiple minor grabbers, but they could get major consequences as they suggest drop below recent lows. In fact, this means that H&S probably will be formed.
gold_4h_03_07_20.png


Yesterday price action was a bit different compares to our suggestion, "222" Sell has not been formed, but anyway - market right now at the 5/8 Fib resistance and we return to our rhetoric question - whether immediate upside combination will happen or not. Upside breakout increases chances for it, even despite daily grabber, while failure of upside continuation, as we've said, suggests appearing of H&S pattern, or, at least drop back to 1750 lows. It means that this is "crucial" area for bears and the point where you could take the trade with minimal risk, although it doesn't guarantee the success...
gold_1h_03_07_20.png


Others, who doesn't want to experiment should just wait. Grabber on daily, upside breakout here, or H&S pattern - something, but that brings more clarity.
 
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