Gold GOLD PRO WEEKLY, March 16 - 20, 2020

Sive Morten

Special Consultant to the FPA
Messages
13,162
Fundamentals

Yesterday we've put solid fundamental background, trying to understand political and economical processes that are hidden under virus epidemic cover. Logical conclusions lead us to disappointing outcome. We think that now we're the watchers of re-building of the whole global financial system. Our imagine is not enough to suggest what the new system will be, but common sense tells that only real assets will keep their value, which is a gold as well. As physical gold usually buying out totally by long-term contracts, price of a gold on futures markets, such as CME could be manipulated or held artificially at low levels. Now it sounds like an absurd, but in modern reality we should not surprise to anything. We just do not know exactly. But what we do know that among all real assets, gold should be number one that keeps it intrinsic value.

Gold tumbled as much as 4.5% on Friday, headed for its biggest weekly loss since 1983 as investors embarked on a selling spree to hoard cash and meet margin calls across other markets which have been battered by the impact of the coronavirus outbreak.

“While equity markets continue to be under pressure and there is a push towards liquidity across the markets, it wouldn’t be unusual for gold prices to sell off as well,” Standard Chartered Bank analyst Suki Cooper said. “In the near-term, gold could see further downside because of the need to meet margin calls across other markets and if investors are preferring to move to cash and reduce risk exposure across the board.”

A sharp rebound on Wall Street largely fizzled out following reports that U.S. President Donald Trump will declare a national emergency over the pandemic.

Bullion has lost nearly $200 an ounce since hitting more than a seven-year high of $1,702.56 per ounce on Monday.

“Gold and equities have been positively correlated over the most recent days, but today the metal couldn’t really rally when stocks backed up, which is a troubling sign and indicates that spec longs are retreating to cash, the safest haven,” said Tai Wong, head of base and precious metals derivatives trading at BMO.

Denting bullion’s safe-haven appeal, the dollar jumped 1.2%.

On the physical side, major Asian hubs saw activity dwindle due to the impact of the coronavirus outbreak, especially in the world’s biggest gold consumer, China.

Investors stormed out of bonds, equities and every other major asset class this week and piled a record $136.9 billion into cash, according to BofA’s weekly flow data, as panic about the spreading coronavirus wiped trillions of dollars off the value of global markets.

From stocks to precious metals, oil to bitcoin, positions across all these sectors were liquidated as panicky investors rushed to raise cash - seen as the safest option at a time when a global economic recession threatens and every asset class is in turmoil.

The other well-known safe-haven, gold, saw a lesser $3.1 billion of inflows.

“What initially started as a market stress episode became a genuine macro shock as the contagion of COVID-19 spread throughout world economies and was no longer contained to China,” said Jeremy Gatto, investment manager at Unigestion. “We have turned more defensive and have deleveraged the portfolio, moving increasingly towards cash. The unprecedented market dislocations have resulted in defensive assets providing less protection and liquidity to dry up, making cash appealing.”

Analysts at BofA, parsing weekly data from flow tracking specialist EPFR, reported $136.9 billion of inflows into cash - the largest ever. Investors withdrew a record $25.9 billion from bond funds in the week to Wednesday.

Refinitiv Lipper data showed a similar drawdown in stocks and bonds, confirming the preference to hold cash.



BofA dubbed the moves “Fear and loathing”, adding that the “crash reflected fears of economic recession, debt defaults, forced Wall Street liquidations and policy impotence or incompetence.”

That was a reference to authorities’ swingeing interest rate cuts and stimulus measures which have not completely soothed investors’ fears, given the jury is out on how much economic damage the virus will inflict and for how long.

The capitulation has caused more than $10 trillion in market value losses on world stocks this week alone.

The Institute of International Finance (IIF) noted a “sudden stop” in non-resident portfolio flows to emerging markets, a useful gauge of risk appetite. “Only a concerted response in terms of testing and containment will be able to mitigate the “fear factor” in markets and jump-start global demand,” IIF said.

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A significant sell-off in equities would place further pressure on gold as investors would liquidate positions to meet margin calls, ANZ analyst Daniel Hynes said. "However, the market is relatively long and there are no signs of investors getting bearish," he said.

Asia's stock markets were hammered as panic gripping world financial markets deepened and even safe-haven assets were ditched to cover losses in the wipeout. The International Monetary Fund on Thursday urged countries to work together in responding to the rapidly spreading outbreak, and called for more donations to help the poorest countries deal with the escalating pandemic.

The European Central Bank approved fresh stimulus measures to help the euro zone economy cope with the growing cost of the epidemic, but kept interest rates unchanged. U.S. House of Representatives Speaker Nancy Pelosi told reporters that lawmakers and the White House had neared agreement on a legislative response to the outbreak and said she hoped to make an announcement on Friday. The Federal Reserve moved to stem a market meltdown on Thursday with offers of $1.5 trillion in short-term loans that some analysts say could point to more aggressive action from the central bank in coming days to stimulate the economy.

CFTC Data

Despite strong sell-off this week, we do not see signs of massive position closing in gold. Net long position decreases just slightly. Currently we suggest that when investors will finish run to cash process - they will turn to gold again. Net long position could increase significantly, and previous highs will mean nothing as all cash from other markets (at least partially) will be sent into gold. As interest rates are low across the board - it is no feasible difference between gold and interest-based assets. We are not the monopoly on the truth - but it seems that gold could rise soon.

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Holdings of major ETF's have not changed significantly on last week - Holdings of the largest gold-backed exchange-traded-fund (ETF), New York's SPDR Gold Trust, fell 0.18% on Tuesday from Monday, while the largest silver-backed ETF, New York's iShares Silver Trust, fell 0.13% during the same period.

Financial markets reel as coronavirus spreads
Financial markets have been left reeling as COVID-19 continues to spread around the world. In the US, the Federal Reserve has already responded by cutting rates sooner than many expected. There remains some debate within the economics community as to whether the shock is predominantly a shock to aggregate demand or to aggregate supply — with different policy prescriptions flowing from each interpretation. If the shock is interpreted as being purely a supply-side phenomenon, with quarantines affecting people’s ability to work, then arguably the Fed should avoid cutting rates further. If, on the other hand, fear of the disease causes a fall in confidence, an increase in precautionary saving, and a decline in consumption, then macroeconomic policy should be looser than it is now. For the moment, investors clearly believe that the Fed will cut again — at the time of writing, ten-year US government bond yields had dipped below 0.5% for the first time.
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Technicals
Monthly


Last week gold has failed to show tight standing around previous top and dropped significantly. It doesn't destroy long-term perspective and targets, but first suggests moderate pullback. Now market shows reaction on XOP and YPR1. Current monthly candle takes the shape of reversal one as it shows new top but close price stands below the lows of previous month. Market is not closed yet, situation could change, but, in general, it suggests deeper retracement.

Previously we already set the level that should become first monthly target in a case of retracement. This is K-support and YPP around 1430-1445 area.

Here, on monthly we could talk again on bullish trend continuation if price climbs above 1680 top again. But meantime we consider scenario that already stands in place - downside retracement on background of "run-to-cash" process. Since we know that this is temporal effect - this is also good for us, because we have assurance that this is just a retracement.
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Weekly

Here we also have bearish reversal action as recent sell-off has become the greatest weekly drop since 1987 and engulfs almost 2 months of previous performance. Weekly trend has turned bearish and our divergence works nice. As you can see, potentially we could get H&S pattern but it will happen a bit later. Now due outstanding collapse, gold stands at weekly oversold and K-support level. This combination creates DiNapoli bullish "Stretch" pattern. Whether to take long position or not - this is personal decision, but at least it tells that this is not good moment for taking short position and we need upside reaction on support area:

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Daily

Here is as well - the oversold condition. The drop was so strong that we haven't got even H&S pattern, as price has not stopped around neckline area. Here is we can do nothing but just keep an eye on pullback. Most probable it will be to 3/8 level - 1580$.

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Intraday

On 4H chart trend is bearish as well. It shows that around 1580 we have K-resistance level as it is accompanied to 5/8 1591 level. If you still think about long position... we need bullish reversal pattern that could confirm reaction on weekly support area. Right now we have nothing but hint on reverse H&S pattern only. It is too large for just 1580 bounce, as it suggests higher pullback to 5/8 level. But maybe something else will appear later, say, 222 "sell" pattern. Here, on intraday chart we do not have yet clear signs of upside reaction on strong support area, in addition to weekly Stretch pattern.

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Conclusion:

Currently gold stands a victim of "run-into-cash" process, which presses on its value as investors sell everything to close margins on levered positions. But this situation wouldn't last forever and should exhaust fast, which suggests gold's turning back on a way of long-term bullish trend.

Meantime, technically market starts showing response to major monthly target and suggests deeper retracement, at least to 1445 area. This makes us to keep an eye on acceptable bounce up for position taking.
 

minimax

1st Lieutenant
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1,448
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Sive Morten

Special Consultant to the FPA
Messages
13,162
Good morning,

On the gold market price has completed the first stage of our plan - dropped right to major weekly K-support area and entered daily+weekly oversold levels. Our second stage is a bounce. If would have normal market conditions - we could call for taking long position. But currently, although it is not forbidden of course, but more risky than usual. So this is up to you. Our primary setup is to wait for H&S pattern and pullback to major 3/8 Fib level. It also could be a kind of B&B "Sell" setup:
gold_d_17_03_20.png


If you still consider long entry - on 4H chart price has completed Double Bottom target and now we could watch for bullish reversal pattern. IT probably will be either Double Bottom or Butterfly "Buy". Once we will get something - it will be the chance to scalp long position as well:
gold_4h_17_03_20.png
 

Sive Morten

Special Consultant to the FPA
Messages
13,162
Greetings everybody,

So, our trading plan stands in progress. Now gold is finalizing B&B "Sell" trade that we've discussed yesterday. It doesn't match precisely to DiNapoli conditions as market has reached 3/8 Fib level prior crossing of 3x3 DMA, but this doesn't change the overall idea, as trade mostly is based on momentum:
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Currently is very thrilling moment for gold. Here we see H&S pattern is forming. At the same time, by our fundamental view, market is near the moment when cross market cash flow should be over and investors turn to gold (and other precious metals) because of zero interest rates and intrinsic value that gold has. This should happen relatively soon. H&S should help us a lot with this. Price supposedly should reach an area of 1550-1600 levels. If H&S starts to work properly, we will get another downside leg of large AB=CD pattern. This probably will happen, if global cash flows still stand underway. If, instead, gold run above 1610 level - this will be clear sign of coming upside breakout and H&S failure.

Here is our B&B "Sell" trade:
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Potentially in 1-2 sessions we should get this type of action, when B&B will be over:
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And then moment of truth that we're talking about should come.
 
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