Sive Morten
Special Consultant to the FPA
- Messages
- 18,681
Fundamentals
(Reuters) - Gold recovered on Friday from an early drop to five-week lows after a U.S. non-farm payrolls report for February failed to meet elevated expectations, prompting a drop in the dollar and Treasury yields.
The Labor Department data, which showed U.S. non-farm payrolls rose 235,000 last month, beat official forecasts but was not enough to satisfy those whose expectations had been boosted by a strong private payrolls number earlier in the week.
The U.S. dollar fell against a basket of currencies amid disappointment that wages were only growing gradually. The figures shored up prospects for the Federal Reserve to hike interest rates this month, however. Anticipation of a March hike has put gold on track for its biggest weekly loss in four months this week.
Spot gold was up 0.1 percent at $1,202.36 an ounce by 2:56 p.m. EST (1956 GMT), after falling to $1,194.55, its weakest since Jan. 31. U.S. gold futures for April delivery settled down 0.2 percent at $1,201.40.
"Whisper estimates for job growth were probably a bit higher after the strong ADP (private payrolls) number," Commerzbank analyst Carsten Fritsch told the Reuters Global Gold Forum. "Jobs growth was stronger than expected, but wage growth remains subdued, so the last link to higher inflation is still missing."
Gold is sensitive to rising U.S. interest rates as these increase the opportunity cost of holding non-yielding bullion, while boosting the dollar, in which it is priced. The metal remains vulnerable to signs real interest rates are increasing, analysts said.
"All eyes are now on Wednesday's rate hike and what will happen when it actually comes to fruition," said Miguel Perez-Santalla, vice president of Heraeus Metal Management in New York, adding that precious metals prices were holding ground. "Many expect this as a bullish signal but many traders are going to the sideline, preferring to be flat over the weekend."
Pointing to softening investor appetite, holdings of the world's largest gold-backed exchange-traded fund, SPDR Gold Shares , fell 2.7 tonnes on Thursday, bringing the outflow for the week so far to 6.5 tonnes.
Here is very reasonable article on gold market:
Bets on gold hold ground even as Fed rate hike looms large
by Reuters
While an imminent hike in U.S. interest rates is putting a downdraft on gold prices, bullion's allure as a safe haven is likely to limit the downside, traders and analysts say, owing to uncertainties in the United States and Europe.
Gold slumped to a 10-month low in mid-December after rates were increased for the first time in a year, but gold investors don't appear to be as jittery ahead of the next Fed meeting and a near-certain rate rise on March 14-15.
The previous slide came also as equity investors cheered the election of U.S. President Donald Trump, but gold has since recovered about 7 percent on a lack of clarity on Trump's policies and worries about upcoming elections in Europe.
"The expectations of rate hikes are already priced into gold unless the expectations grow to four hikes, which we think is unwarranted," said analyst Dominic Schnider of UBS Wealth Management in Hong Kong.
"With a more hawkish Fed, there is no incentive to chase gold. But, the disappointment potential on President Donald Trump is very high. The Congress will not give what he wants."
Higher interest rates make it less attractive to hold non-interest bearing gold, while a firmer U.S. dollar also makes gold more expensive for buyers in other currencies.
Gold has fallen about 5 percent from a three-month peak on Feb. 24 to $1,198 an ounce, but traders say the risks of a sharp technical fall have eased and expect physical demand to emerge in a band from $1,150 to $1,200 an ounce.
"From the fund management industry, some people believe in this political uncertainty trend, and they are buyers of gold," said Hans Brandt, commodity fund manager at Swisscanto Invest.
"Some believe economic growth is picking up, the dollar is getting stronger over the next 3-6 months. Those people are sellers at this level."
LONG POSITIONS RISE
Speculative long positions held by hedge funds and money managers in COMEX gold have nearly tripled this year, suggesting a fresh round of allocations into gold in 2017.
However, the 121,720 lots at Feb. 28 were still less than half of the 286,921 contracts held in July 2016, when speculative fever was at its peak as gold prices hit over 2-year highs at $1,374.91 an ounce.
This lower amassed speculator position reduces the threat of a sharp drop in prices should a flood of speculative positions be unwound, said Commerzbank analyst Carsten Fritsch.
Increasing inflation across a number of major economies will also likely dampen appetite for fixed income investments and support gold, said UBS's Schnider.
"There is interest in physical gold if prices drop below $1,200. People will definitely see value below $1,200 and that will help stabilize the market. So far, ETFs also have looked resilient," Schnider said.
Physical gold holdings in exchange-traded funds have fallen since last week, partly because of a stronger dollar, but at 54.45 million ounces are still nearly 3 percent higher than at the start of February. Holdings are also roughly 6 million ounces or 13 percent above where they were in early March 2016.
Meanwhile, gold is expected to be boosted by political risks stemming from Britain's exit from the EU and upcoming contentious elections elsewhere in Europe.
"The impact of a Fed rate hike will be offset as we go into the French elections. This year, we also have German, Dutch and Italian elections and all have the possibility of surprises," INTL FCStone analyst Edward Meir said.
"We saw very good physical demand when prices came near $1,150. Especially, the German public is very keen on buying. Nobody is talking about interest rates there," said Michael Kempinski, Managing Director, Degussa Precious Metals Asia Pte. Ltd.
"People in Europe face uncertainty every day ... when prices come down, they buy more."
COT Report
Recent CFTC data shows profit taking process as rate hike perspective looms. Net speculative position dropped as well as open interest:
SPDR Fund statistics also mostly supports this retracement down. It makes it reliable and confirms our suggestion that it is the one that we've expected:
Technicals
Monthly
As gold shows no return back to 1100 lows - it keeps reversal moment of our H&S pattern pretty nice by far. We've talked a lot about large patterns and far perspectives on gold market. But as we could recognize bearish engulfing pattern here rather easy - it should take our primary attention right now. March is not closed yet here, but appearing of engulfing here will lead to appearing of large downside AB=CD pattern on daily chart with very high probability. So, this pattern could become most important for us within a month or so. While longer-term situation probably could stay the same.
We mostly have the same view on longer-term perspective as in the article above. Fundamental background for gold market right now is very blur. D. Trump victory and uncertainty around its economy policy, massive political turmoil in Europe and foreign affairs do not let us to estimate clear fundamental picture by far. Although price behavior, short-term sentiment and commodities performance mostly supports idea of bullish reversal pattern here (at least now). At the same time many world top analysts (such as Barnabas Gan) worry about more active Fed policy and think that gold could finish 2017 around 1100$. But Fed is out of our control and prediction and last week is great example of this - as chances on rate hike in March doubles.
Right now we can make just some suggestions. As we've said technically recent upward action started in Dec 2015 is first one after long term of decreasing and it should be interrupted by deep retracement sometime. Now this retracement stands in place. It is really big chance that gold stands in a stage of big trend changing from bearish into bullish. US economy shows inflation growing. As we've estimated, commodities across the board have turned to growth.
Besides, any Trump protection policy will be accompanied by big spending and expenses, this will lead to grow of inflationary expectations and could lead even to more hawkish Fed policy. Thus, we mostly gravitate to idea that gold now stands not in pause of bear trend, but on the eve of new bull trend. Also we expect big structural shifts in EU economy, diminishing Brussels governing role, taking direction on convergence with Russian economy, and through Russia economical infrastructure - with Middle East and Asia.
But our technical "deep" retracement still could be different. 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...
That's being said gold stands at the area where the bottom of right shoulder should be formed. Thus, our first step on this long-term time frame has been completed - "we suggest further drop on gold, at least to 1160-1180 area."
As we've said almost month ago - we're coming to second step how we've specified it - "watch for validity of H&S pattern." Rally that we see right now is not bad, it holds rather well, but it seems that it is still lack of confidence a bit, although COT data and SPDR fund statistics starts to support it.
Here we come to idea of another reversal pattern. If retracement will be too deep, back to 1000$, gold still will keep chances to reverse up, but by another reversal pattern - Double Bottom.
So, as you can see here we've got big journey ahead while we will estimate what we really have - either H&S or Double Bottom. It means that we should be extra careful to patterns that will be formed on daily chart. Definitely gold will have different sources of headwind, but real uncertainty mostly comes from political sphere as in US as in EU and unexpected changes in Fed policy. They are become major driving factors for gold and they overcome expected 3 rate hike by Fed in this year:
Weekly
In general gold stands well on long-term weekly chart - channel has broken up and re-tested by 1.618 AB=CD target. Then gold has turned up again, erased reversal week and B&B and re-tested 1251 lows. This action looks very well from bullish point of view. Long-term bullish crucial point is 1130 lows. Logic is simple here. From perspective of monthly H&S pattern - gold has completed all necessary targets to form right shoulder - downward AB-CD 1.618 extension has been completed and also price has reached 5/8 major Fib support. It means that if gold will drop below this level - it will mean that H&S has failed.
As we've mentioned "irrational behavior" 2 weeks ago, when market has turned down and left untouched major 1278 level - this was a first bell of coming deep retracement. Now we see nothing criminal here, while gold stands inside of recent swing up.
Still, as we could get larger engulfing pattern on monthly chart, here we should expect deeper retracement, probably to 1175-1180 area, as we've estimated earlier:
Daily
That's being said, right now we have reasons to suggest that some larger AB-CD bearish pattern could be formed here. First pattern that could match to this idea is H&S. Say, if gold will drop to our support area - then it could start to form right shoulder. This will give us large AB-CD and deeper retracement down:
Right now this is just a suggestion, may be some other pattern will be formed... Besides, gold now stands in "free space" as K-support already has been broken while market has not reached next level and OS. So, it will not need any strong effort to reach 1175 area. Also, price stands below MPS1 and it means that current move down is not just a retracement, which increases chances that gold still will reach 1175.
Upward bounce that we see right now is mostly profit taking before weekend and preparation for Fed meeting next week. Hardly it will be extended in time.
Intraday
On 4-hour chart we're mostly interested with most recent thurst as all other targets have been hit and gold has broken all Fib supports here. This thrust could be background for DiNapoli pattern, say B&B "Sell" or DRPO "Buy" . DRPO still looks not very reasonable here, as market stands not at support and no reasons for deep retracement exists. Thus, may be we will get B&B around 1210, that is also WPP... we'll see...
On hourly chart gold still keeps nice channel:
Conclusion:
As market has completed first step of our long term analysis - dropped to 1170 area, now we're turning to second step - estimating of validity of monthly H&S pattern. Currently we still think that gold has fundamental background to start long-term bullish trend and two patterns could be formed. Either H&S or Double bottom. As Januray close and Friday action stands strong - gold keeps good chances to form H&S pattern still. At least currently we do not have any visible reasons to doubt upside action. We agree that more agressive Fed policy could stop this rally, as well as agressive D. Trump stimulus program could lead to faster inflation. These issues are beyond of forecasting. That's why we will take them in consideration if&when they will appear.
In shorter term situation unexpected Fed's frankness has pushed gold market in turmoil and rather volatile action. As a result, chances on deeper retracement have increased. Now as CFTC data, as price behavior on monthly/weekly charts suggest deeper retracement, but not breaking upside tendency yet.
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 recovered on Friday from an early drop to five-week lows after a U.S. non-farm payrolls report for February failed to meet elevated expectations, prompting a drop in the dollar and Treasury yields.
The Labor Department data, which showed U.S. non-farm payrolls rose 235,000 last month, beat official forecasts but was not enough to satisfy those whose expectations had been boosted by a strong private payrolls number earlier in the week.
The U.S. dollar fell against a basket of currencies amid disappointment that wages were only growing gradually. The figures shored up prospects for the Federal Reserve to hike interest rates this month, however. Anticipation of a March hike has put gold on track for its biggest weekly loss in four months this week.
Spot gold was up 0.1 percent at $1,202.36 an ounce by 2:56 p.m. EST (1956 GMT), after falling to $1,194.55, its weakest since Jan. 31. U.S. gold futures for April delivery settled down 0.2 percent at $1,201.40.
"Whisper estimates for job growth were probably a bit higher after the strong ADP (private payrolls) number," Commerzbank analyst Carsten Fritsch told the Reuters Global Gold Forum. "Jobs growth was stronger than expected, but wage growth remains subdued, so the last link to higher inflation is still missing."
Gold is sensitive to rising U.S. interest rates as these increase the opportunity cost of holding non-yielding bullion, while boosting the dollar, in which it is priced. The metal remains vulnerable to signs real interest rates are increasing, analysts said.
"All eyes are now on Wednesday's rate hike and what will happen when it actually comes to fruition," said Miguel Perez-Santalla, vice president of Heraeus Metal Management in New York, adding that precious metals prices were holding ground. "Many expect this as a bullish signal but many traders are going to the sideline, preferring to be flat over the weekend."
Pointing to softening investor appetite, holdings of the world's largest gold-backed exchange-traded fund, SPDR Gold Shares , fell 2.7 tonnes on Thursday, bringing the outflow for the week so far to 6.5 tonnes.
Here is very reasonable article on gold market:
Bets on gold hold ground even as Fed rate hike looms large
by Reuters
While an imminent hike in U.S. interest rates is putting a downdraft on gold prices, bullion's allure as a safe haven is likely to limit the downside, traders and analysts say, owing to uncertainties in the United States and Europe.
Gold slumped to a 10-month low in mid-December after rates were increased for the first time in a year, but gold investors don't appear to be as jittery ahead of the next Fed meeting and a near-certain rate rise on March 14-15.
The previous slide came also as equity investors cheered the election of U.S. President Donald Trump, but gold has since recovered about 7 percent on a lack of clarity on Trump's policies and worries about upcoming elections in Europe.
"The expectations of rate hikes are already priced into gold unless the expectations grow to four hikes, which we think is unwarranted," said analyst Dominic Schnider of UBS Wealth Management in Hong Kong.
"With a more hawkish Fed, there is no incentive to chase gold. But, the disappointment potential on President Donald Trump is very high. The Congress will not give what he wants."
Higher interest rates make it less attractive to hold non-interest bearing gold, while a firmer U.S. dollar also makes gold more expensive for buyers in other currencies.
Gold has fallen about 5 percent from a three-month peak on Feb. 24 to $1,198 an ounce, but traders say the risks of a sharp technical fall have eased and expect physical demand to emerge in a band from $1,150 to $1,200 an ounce.
"From the fund management industry, some people believe in this political uncertainty trend, and they are buyers of gold," said Hans Brandt, commodity fund manager at Swisscanto Invest.
"Some believe economic growth is picking up, the dollar is getting stronger over the next 3-6 months. Those people are sellers at this level."
LONG POSITIONS RISE
Speculative long positions held by hedge funds and money managers in COMEX gold have nearly tripled this year, suggesting a fresh round of allocations into gold in 2017.
However, the 121,720 lots at Feb. 28 were still less than half of the 286,921 contracts held in July 2016, when speculative fever was at its peak as gold prices hit over 2-year highs at $1,374.91 an ounce.
This lower amassed speculator position reduces the threat of a sharp drop in prices should a flood of speculative positions be unwound, said Commerzbank analyst Carsten Fritsch.
Increasing inflation across a number of major economies will also likely dampen appetite for fixed income investments and support gold, said UBS's Schnider.
"There is interest in physical gold if prices drop below $1,200. People will definitely see value below $1,200 and that will help stabilize the market. So far, ETFs also have looked resilient," Schnider said.
Physical gold holdings in exchange-traded funds have fallen since last week, partly because of a stronger dollar, but at 54.45 million ounces are still nearly 3 percent higher than at the start of February. Holdings are also roughly 6 million ounces or 13 percent above where they were in early March 2016.
Meanwhile, gold is expected to be boosted by political risks stemming from Britain's exit from the EU and upcoming contentious elections elsewhere in Europe.
"The impact of a Fed rate hike will be offset as we go into the French elections. This year, we also have German, Dutch and Italian elections and all have the possibility of surprises," INTL FCStone analyst Edward Meir said.
"We saw very good physical demand when prices came near $1,150. Especially, the German public is very keen on buying. Nobody is talking about interest rates there," said Michael Kempinski, Managing Director, Degussa Precious Metals Asia Pte. Ltd.
"People in Europe face uncertainty every day ... when prices come down, they buy more."
COT Report
Recent CFTC data shows profit taking process as rate hike perspective looms. Net speculative position dropped as well as open interest:
SPDR Fund statistics also mostly supports this retracement down. It makes it reliable and confirms our suggestion that it is the one that we've expected:
Technicals
Monthly
As gold shows no return back to 1100 lows - it keeps reversal moment of our H&S pattern pretty nice by far. We've talked a lot about large patterns and far perspectives on gold market. But as we could recognize bearish engulfing pattern here rather easy - it should take our primary attention right now. March is not closed yet here, but appearing of engulfing here will lead to appearing of large downside AB=CD pattern on daily chart with very high probability. So, this pattern could become most important for us within a month or so. While longer-term situation probably could stay the same.
We mostly have the same view on longer-term perspective as in the article above. Fundamental background for gold market right now is very blur. D. Trump victory and uncertainty around its economy policy, massive political turmoil in Europe and foreign affairs do not let us to estimate clear fundamental picture by far. Although price behavior, short-term sentiment and commodities performance mostly supports idea of bullish reversal pattern here (at least now). At the same time many world top analysts (such as Barnabas Gan) worry about more active Fed policy and think that gold could finish 2017 around 1100$. But Fed is out of our control and prediction and last week is great example of this - as chances on rate hike in March doubles.
Right now we can make just some suggestions. As we've said technically recent upward action started in Dec 2015 is first one after long term of decreasing and it should be interrupted by deep retracement sometime. Now this retracement stands in place. It is really big chance that gold stands in a stage of big trend changing from bearish into bullish. US economy shows inflation growing. As we've estimated, commodities across the board have turned to growth.
Besides, any Trump protection policy will be accompanied by big spending and expenses, this will lead to grow of inflationary expectations and could lead even to more hawkish Fed policy. Thus, we mostly gravitate to idea that gold now stands not in pause of bear trend, but on the eve of new bull trend. Also we expect big structural shifts in EU economy, diminishing Brussels governing role, taking direction on convergence with Russian economy, and through Russia economical infrastructure - with Middle East and Asia.
But our technical "deep" retracement still could be different. 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...
That's being said gold stands at the area where the bottom of right shoulder should be formed. Thus, our first step on this long-term time frame has been completed - "we suggest further drop on gold, at least to 1160-1180 area."
As we've said almost month ago - we're coming to second step how we've specified it - "watch for validity of H&S pattern." Rally that we see right now is not bad, it holds rather well, but it seems that it is still lack of confidence a bit, although COT data and SPDR fund statistics starts to support it.
Here we come to idea of another reversal pattern. If retracement will be too deep, back to 1000$, gold still will keep chances to reverse up, but by another reversal pattern - Double Bottom.
So, as you can see here we've got big journey ahead while we will estimate what we really have - either H&S or Double Bottom. It means that we should be extra careful to patterns that will be formed on daily chart. Definitely gold will have different sources of headwind, but real uncertainty mostly comes from political sphere as in US as in EU and unexpected changes in Fed policy. They are become major driving factors for gold and they overcome expected 3 rate hike by Fed in this year:
Weekly
In general gold stands well on long-term weekly chart - channel has broken up and re-tested by 1.618 AB=CD target. Then gold has turned up again, erased reversal week and B&B and re-tested 1251 lows. This action looks very well from bullish point of view. Long-term bullish crucial point is 1130 lows. Logic is simple here. From perspective of monthly H&S pattern - gold has completed all necessary targets to form right shoulder - downward AB-CD 1.618 extension has been completed and also price has reached 5/8 major Fib support. It means that if gold will drop below this level - it will mean that H&S has failed.
As we've mentioned "irrational behavior" 2 weeks ago, when market has turned down and left untouched major 1278 level - this was a first bell of coming deep retracement. Now we see nothing criminal here, while gold stands inside of recent swing up.
Still, as we could get larger engulfing pattern on monthly chart, here we should expect deeper retracement, probably to 1175-1180 area, as we've estimated earlier:
Daily
That's being said, right now we have reasons to suggest that some larger AB-CD bearish pattern could be formed here. First pattern that could match to this idea is H&S. Say, if gold will drop to our support area - then it could start to form right shoulder. This will give us large AB-CD and deeper retracement down:
Right now this is just a suggestion, may be some other pattern will be formed... Besides, gold now stands in "free space" as K-support already has been broken while market has not reached next level and OS. So, it will not need any strong effort to reach 1175 area. Also, price stands below MPS1 and it means that current move down is not just a retracement, which increases chances that gold still will reach 1175.
Upward bounce that we see right now is mostly profit taking before weekend and preparation for Fed meeting next week. Hardly it will be extended in time.
Intraday
On 4-hour chart we're mostly interested with most recent thurst as all other targets have been hit and gold has broken all Fib supports here. This thrust could be background for DiNapoli pattern, say B&B "Sell" or DRPO "Buy" . DRPO still looks not very reasonable here, as market stands not at support and no reasons for deep retracement exists. Thus, may be we will get B&B around 1210, that is also WPP... we'll see...
On hourly chart gold still keeps nice channel:
Conclusion:
As market has completed first step of our long term analysis - dropped to 1170 area, now we're turning to second step - estimating of validity of monthly H&S pattern. Currently we still think that gold has fundamental background to start long-term bullish trend and two patterns could be formed. Either H&S or Double bottom. As Januray close and Friday action stands strong - gold keeps good chances to form H&S pattern still. At least currently we do not have any visible reasons to doubt upside action. We agree that more agressive Fed policy could stop this rally, as well as agressive D. Trump stimulus program could lead to faster inflation. These issues are beyond of forecasting. That's why we will take them in consideration if&when they will appear.
In shorter term situation unexpected Fed's frankness has pushed gold market in turmoil and rather volatile action. As a result, chances on deeper retracement have increased. Now as CFTC data, as price behavior on monthly/weekly charts suggest deeper retracement, but not breaking upside tendency yet.
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.
