Gold GOLD PRO WEEKLY, March 15 - 19, 2021

Sive Morten

Special Consultant to the FPA
Messages
14,586
Fundamentals

This week market society mostly discussed oversold condition on Gold, weak J. Powell statement that was not able to provide any support to the market and high level of interest rates, trying to estimate perspective of price action in near term. Yesterday we've talked a lot about coming Fed statement and how it could impact on markets, including Gold. Obviously any interest rate holding rhetoric should support gold. To not repeat this again, here we better take a look at what traders of big companies think about current situation on gold and what they are preparing to.

The dollar climbed to a three-month peak, while the U.S. 10-year Treasury yield held near a more than one-year high, raising the opportunity cost of holding the non-interest bearing metal.

"We have an economy that is recovering and inflation is materializing; that ultimately means yields have room to move higher," said Bart Melek, head of commodity strategies at TD Securities, adding that gold could fall towards $1,660 from the fallout. Melek also noted that an unexpected jump in U.S. nonfarm payrolls and a strong stock market were more a reflection of an improving economy and less of "critically high" inflation.

U.S. Congressional approval of President Joe Biden's $1.9 trillion COVID-19 relief plan failed to keep the metal afloat. Analysts also said U.S. Federal Reserve Chair Jerome Powell's failure to address the recent surge in U.S. yields last week further pressured gold.

Though markets have not got much pushback from the Fed on yields, few doubt the Fed is not going to act eventually and with rate hikes unlikely this year, that should support gold, said Edward Moya, senior market analyst at OANDA. But in the near-term gold could trade between $1,650 and $1,700, with a move below $1,650 likely to invite some selling pressure, he added.

Reflective of sentiment, SPDR Gold Trust holdings, the world's largest gold-backed exchange-traded fund, fell to a 10-month low on Friday.

“In an environment of rising U.S. yields, growth recovery, vaccine rollouts, and investors getting more optimistic on growth prospects; demand for safe havens will struggle,” said Lachlan Shaw, National Australia Bank’s head of commodity research. Central banks will need to try and strike a balance between yields reflating in a reasonable fashion at a reasonable speed, compared to the recovery in economic activity, and so there may be tweaks along the way,” Shaw said.

Gold surged more than 2% on Tuesday on the back of a retreat in U.S. Treasury yields and a weaker dollar, staging a strong recovery from the nine-month low it hit in the previous session.

“I don’t know if this is the end to the upside trend in yields, but it’s a start. Gold and silver traders have been waiting for this and are jumping back into this market, also given how oversold and low it got,” said Bob Haberkorn, senior market strategist at RJO Futures.

Gold may extend gains in the near-term, but “fundamentally, the pendulum swings in favour of bears especially when factoring in how global sentiment is improving on vaccine rollouts and COVID-19 cases are falling globally”, said Lukman Otunuga, senior research analyst at FXTM.

The ETF flows are contributing to a greater impact on prices on the way down than on the way up. We forecast gold prices to reach $1,750/oz (in 2021), but given gold’s recent volatility, this forecast has quite low conviction,” Societe Generale said in a note.


Investors are focusing on the Federal Reserve’s two-day policy meeting next week. U.S. central bank chief Jerome Powell has said the Fed’s current easy monetary policy stance remains appropriate.

U.S. consumer prices increased solidly in February, with households paying more for gasoline, but underlying inflation remained tepid amid weak demand for services like airline travel and hotel accommodation. The House of Representatives gave final approval on Wednesday to one of the largest economic stimulus measures in
U.S. history, a sweeping $1.9 trillion COVID-19 relief bill that gives President Joe Biden his first major victory in office.

Rising Treasury yields, a dollar rebound and commodity prices at multi-year highs may be starting to feed into a tightening of global financial conditions, testing the resolve of central bankers to reverse the moves by providing additional support.

"Real rates are falling again and the lower real rates are, the better it is for gold. The second element is the strength in dollar we have seen recently has ended again and this is also helping gold," said UBS analyst Giovanni Staunovo.

The $1.9 trillion U.S. COVID-19 relief bill was finally approved on Wednesday and is expected to supercharge the economic recovery.

"At the moment it's (relief bill) helping gold due to higher inflation expectations but it could also mean that the U.S. Federal Reserve starts to change its tone a little bit," said UBS's Staunovo, adding that a less dovish Fed could see gold prices remain under pressure.

The European Central Bank signalled faster money-printing and said it would use its 1.85 trillion Pandemic Emergency Purchase Programme more generously over the coming months to stop any unwarranted rise in debt financing costs.

Michael Langford, director at corporate advisory AirGuide said there was a greater upside in other assets like copper and small-cap equities than in gold in the short term.

Gold fell more than 1% on Friday after a rebound in U.S. Treasury yields and the dollar index sent the metal back towards 9-month lows hit earlier in the week, dimming optimism the U.S. stimulus bill would send prices up.

"A reversal in both the dollar and U.S. yields has taken the shine off gold notwithstanding the agreement on the stimulus bill, and even expectations of further fiscal stimulus as well. Those things haven't really assisted gold," said Ross Norman, an independent analyst.

"The implementation of Biden's pandemic relief bills is stoking fears of a massive supply of bonds hitting the market, as well as rising inflation," ANZ analysts said in a note. The continued rollout of vaccines is also supporting the labour market, thus diminishing support for safe-haven assets."

“There’s a little bit of risk off sentiment and I suspect the psychological level of $1,700 where people weren’t really prepared to go under generated a bit of a rebound in the gold market.”

“With physical demand providing something of a floor, we doubt that the gold price will fall below $1,600 per ounce this year,” Capital Economics analysts said in a note. Given our forecast for industrial metals prices to fall later this year, we wouldn’t be surprised if the price of silver fell relative to the price of gold.”


COT Report

Recent data shows that despite minor splashes of positivity through this week, overall data shows bearish picture. Net long position as dropped significantly on a background of rising open interest. It means that sentiment stands bearish on the market:
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Also statistics shows massive flows out of precious metals ETFs. Among commodity funds, precious metal funds saw net sales of $1.74 billion, the fifth consecutive weekly outflow, signalling investors are looking past safer assets such as gold and willing to take higher risks.

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So, a lot of bets on the table right now, guys. Situation is definitely not friendly to gold as signs of global economy rebound becoming evident across the board. Gold market shows no reaction on 1.9 Trln Biden's pack, meaning that investors are mostly fear of inflationary impact rather than exciting on supportive effect. Finally COT and ETF data just confirms change in sentiment. This explains why common opinion right now suggest that gold could show the bounce due oversold and support area, but its potential is limited, and, as suggested, stands around 1700$ area. In longer-term perspective investors' opinion gravitates to bearish scenario, which, mostly agrees with our position.

Thus, a lot of things now depend on coming Fed meeting and whether J. Powell will mention somehow rising interest rates. Any signal from the Fed, even verbal concern means a lot to the market and could support gold in short-term. Ignoring this subject and repeating the same mantras on "low inflation and slow economy recovery" puts the end of rebound.

Technicals

Monthly

Long term trend stands bearish on gold - MACD is down, price is below YPP and downside action shows acceleration on CD leg. Still, as price shows the first touch of strong support area - we're in bounce environment. Technical factors suggest retracement - not only on gold but on interest rates as well. It could mean that something could follow from Fed on Wednesday. So, gold should keep ability of propriate reaction on meaningful technical conditions, such as strong K-areas on long-term charts.

Almost in the same area, around 1655$ we have an OP target of monthly AB-CD pattern that has not been hit yet. This is the reason why we do not exclude chance that gold could drop to the new lows before major upside reaction starts. But anyway this price behavior has to be reflected on lower time frames in a way of some pattern.
gold_m_15_03_21.png


Weekly

We have not many things to discuss on weekly chart by far. Recent pullback is not enough to give us even engulfing pattern. MACD stands bearish, but price stands at oversold here. In fact, we could say that we have weekly DiNapoli "Stretch" pattern, mostly the same kind as on EUR.

If you trade on weekly chart, you have to take care on OP target and place stop order below it. Because reaching of OP doesn't mean the breakout of K-area and failure of the retracement scenario. Very often with major OP's just below the K-areas market could form short-term spike to hit it, for example, on Fed volatility. And every time when we see this, we have to take it in consideration.

gold_w_15_03_21.png


Daily

Nearest more or less strong resistance is 1752 area - Fib level accompanied by overbought area. But this week gold was not able to reach it. At the same time, below the market we have multiple uncompleted target. Most important are weekly OP around 1648 and, take a look - initial XOP around 1670$ that also has not been reached. 1.618 butterfly extension stands as well.

For long-term traders who have stop orders below weekly OP is possible to use scale-in, buying on deeps. For short-term traders it would be better to wait for clear reversal pattern before pulling the trigger.

gold_d_15_03_21.png


Intraday

For the short-term we would consider two scenarios. On Friday we've talked about 1700 support level and it might be the one where gold could try to continue upward action. This has happened indeed. So, if you've bought there - now it is possible to move stops to breakeven. For others this is a bit tricky moment, because upside action already has started and OP again stands around 1755 resistance area, that provides almost 1:1 risk/reward ratio, which is not super attractive.

Second, with the targets below, it might be opposite pattern as well, such as butterfly. Whatever pattern will be formed, we should get longer lasting response on monthly K-support, more clarity and better entry conditions than now. Scalp traders could keep an eye on "C" point lows as well. In a case of downside breakout gold could proceed lower and butterfly gets more chances to be formed.

gold_4h_15_03_21.png
 

Sive Morten

Special Consultant to the FPA
Messages
14,586
Greetings everybody,

Gold keeps open both directions as well as EUR by far. This is normal when we're going to Fed statement. Current upward action we can't call as triumph marche as it look too choppy and slow. Another risk source is interest rates. On 10-year yield market is forming 3-Drive "sell" pattern, suggesting spike up:
DBMpZynY


It means that if even we get opposite action - gold could dive back to 1650 as well. In such circumstance we could combine Stop "buy" order and our patience to wait this dive to happen.

On 4H chart we've discussed two patterns - upside AB-CD and downside butterfly. AB-CD is not important anymore, because in a case of upward action - it should be much greater than just OP. But the problem is - from where it starts?

This is the reason, why we could use Stop "Buy" order around or slightly above OP and at the same time watch for "final dive" on gold. If no dive happens - we get our entry by Stop order. If it happens - we try to buy around 1650$ major targets and cancel the Stop order. Logic is simple. Tomorrow morning we could get some additional technical details, but for now, this is the plan that we consider.

gold_4h_16_03_21.png
 

Sive Morten

Special Consultant to the FPA
Messages
14,586
Greetings everybody,

Well, it is almost nothing new to show you on the chart, as price action freezes. Still, overall balance stands not in favor of the bulls and few issues keep us aside from taking long position on Gold market. First is - untouched targets that we already have mentioned previously. They stand around 1650-1670 area.
Second - the same situation on interest rates. Technical picture suggests some spike at least, to 1.66-1.68% area to trigger 3-Drive "Sell" pattern - in a case if everything turns positive to gold.

On BTC we have bullish grabber as well, by the way.

On 4H chart butterfly pattern has been cancelled due minor W&R yesterday. But, as market shows very flat action and stands in the middle of CD leg - it makes not attractive to buy gold:

gold_4h_17_03_21.png


On 1H we also have this minor W&R:
gold_1h_17_03_21.png


Taking its all together, we suggest it makes sense to wait for statement. Technical issues suggest that chances to get better entry point are relatively high. For short entry - we need to hear Powell speech, be sure that he ignores rising interest rates issue and watch for spike to 1752 and OP completion. In this case it might work...
 

Sive Morten

Special Consultant to the FPA
Messages
14,586
Greetings everybody,

Fed has provided just temporal relief, saying that they keep an eye on interest rates tendency but they intend to do nothing with this. In fact their reaction was the same as 2 weeks ago - let it grow...

It means that any upside action on gold market is doubtful and recent upward action is just a pullback in downside tendency. With bearish issues that we've mentioned yesterday - we do not consider taking long position on gold market.

gold_d_18_03_21.png


Even more - we have some background for bearish position to consider. Interest rates rally today again. On 4H chart gold almost completes AB-CD shape and hits 1952 Agreement resistance area:
gold_4h_18_03_21.png


Price makes an attempt to break down 1935 area. In a case of trendline support breakout and forming reversal swing down - chances on downside continuation increase and we could consider short position.

gold_1h_18_03_21.png
 

Sive Morten

Special Consultant to the FPA
Messages
14,586
Greetings everybody,

So, it seems that markets disappoint with recent Fed statement as effect has exhausted very fast. Gold has completed both bearish conditions that we've mentioned yesterday - forming reversal swing and breaking of upside channel on 1H chart. Now it returns, but it happens in a shape of AB-CD retracement that gives "222" Sell pattern:
gold_1h_19_03_21.png


Still as we have untouched OP target, for more confidence there are few options exist - use stop order above OP or 1.27 extension of possible butterfly, based on "222' Sell (if it shifts into butterfly later). Second - wait for bearish grabber that might be formed within few hours here, on 4H chart. Finally, most conservative way - wait for OP completion. If even you do not want to sell gold, it is not good moment by far for long entry as well, while bearish context stands valid here.
gold_4h_19_03_21.png
 
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