Sive Morten
Special Consultant to the FPA
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- 18,644
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.
As a result, net speculative long position has jumped this week for 50K contracts net and keeping significant room to grow more:
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.
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.
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.
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.
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.
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.
As a result, net speculative long position has jumped this week for 50K contracts net and keeping significant room to grow more:
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.
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.
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.
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.
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.
