Sive Morten
Special Consultant to the FPA
- Messages
- 18,748
Fundamentals
(Reuters) - Gold rose on Friday and was on course for its first weekly gain in three as the U.S. Federal Reserve's cautious message on interest rates left the dollar around five-week lows, making bullion cheaper
those holding other currencies.
The Fed raised U.S. rates on Wednesday, as expected, but its earlier forecast of three rate increases this year remained unchanged, disappointing some investors who had hoped for hints of a possible fourth hike in 2017.
Spot gold was up 0.2 percent at $1,229.40 an ounce by 2:53 p.m. EDT (1853 GMT), taking this week's gain so far to 2.1 percent. Prices hovered just below the Thursday session high, when the metal reached $1,233.13, its highest since March 6. It rallied 2.3 percent on Wednesday and Thursday following
the Fed's statement.
"Everything's quieted down today. The surge we've seen in the last couple of days has been correlated with what we've seen in bonds and stocks," said Rob Haworth, senior investment strategist for U.S. Bank Wealth management in Seattle. "On the retail side, you're making enough money on stocks that you're probably not as worried about jumping back into gold."
U.S. gold futures settled up 0.3 percent at $1,230.20.
"There is momentum as people start to look again how far they can push gold higher," said Georgette Boele at ABN AMRO. The dollar had hit a ceiling and would fall further in the near term, she said.
U.S. President Donald Trump's failure so far to push through promised economic stimulus measures may have influenced the Fed, said Tom Kendall at ICBC Standard Bank. "If infrastructure spending and tax cuts are being pushed further and further out, it gives the Fed more reason to be cautious," he said. "That is a bit of a vacuum that gold can rally into."
Rate rises lead to higher bond yields, which increase the opportunity cost of holding non-yielding bullion and tend to boost the dollar, in which gold is priced.
Investors were also looking ahead to the Group of 20 (G20) finance leaders' meeting in Germany this weekend, where any attempt by the Trump administration to pursue protectionist policies could fuel demand for gold as a safe-haven.
Holdings of the world's largest gold-backed exchange-traded fund, New York-listed SPDR Gold Shares , fell 0.28 percent on Thursday, the first outflow this week.
COT Report
CFTC data shows typical changes for retracement. Gold turns down and speculative long position has contracted as well as open interest. It means that investors start to close longs. This process lasts for 3 recent weeks. At the same time it doesn't indicate new bear trend, because when trend starts - open interest should rise. Thus, CFTC data doesn't bring nothing important by far.
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. As gold stands in retracement on daily chart, swings length has decreased significantly. Thus, we mostly has no impact on monthly chart. Bearish engulfing pattern that we've discussed last week has changed it shape now and hazard of it's appearing is stepped back by far. It means that we need to wait till March close.
We mostly have the same view on longer-term perspective. 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$. Surely Fed is out of our control and prediction and last week is great example of this - as chances on rate hike in March doubles.
Still we have new input here - neutral comments on further rate hike. As Fathom consulting suggests - Fed will lead economy to become hot a bit before aggresive rate policy. This should open door for inflation growth, which is supportive factor for gold. Currently gold could stay on its own till June and this could encourage investors to be more brave in taking long positions.
Concerning farer perspective we could 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.
This is long political talk though, but shortly speaking, we see that the process of building new EU has started. First bell is Brexit. As you know all mature EU countries has started gold repatriation process that should be finished in 2020. So we should be oriented on this year as appearing of the shape of new EU. By gold repatriation process we could gudge on major idea of new EU - each country will out of external governing either Brussel or US and will make it's own policy according with their own national interests. This is how it should be in theory. How this process will develop on practice - we will see.
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
Currently weekly chart does not bring something special. Overall picture looks bullish, trend stands also bullish. Bearish engulfing pattern mostly has completed it's target and we see strong upside bounce. Despite that this drop looks solid on daily chart - here this is just minor retracement to 3/8 Fib support.
Now here we have just trend context, it's bullish. But unfortunately gold here doesn't bring any more clarity on perspective. As deep retracement is possible and it will not destroy bullish setup yet, as upward action is possible. So answer we should search on lower time frames:
Daily
On daily chart trend also has turned bullish. Although as we've suggested gold has moved slightly higher on Friday, but still, upside potential is limited right now, as gold stands at resistance - daily OB and MPP.
Here we've got another bullish sign - hidden bullish divergence. This is positive sign for possible upside continuation. Still, intially some retracement has more chances to happen...
4-hour
So, as we've estimated gold has not bad perspectives for upside continuation on coming week, but first minor retracement down probably should happen. THus, to trigger it, gold probably should form some bearish reversal pattern.
Here it seems that butterfly is very suitable for this purpose. Thus, on Monday gold could reach 1236 area and then start gradual action down. First level to watch for is 1220. This is Fib support and WPP:
Conclusion:
In long-term perspective we think that bullish factors overhelm headwind of possible rate hike by Fed. Still this probably will lead to turmoil and excessive volatility, but we hope that this will happen with upside direction. Fed probably will let economy to become hot before they will start aggressive tightening, thus right now gold has some time, when investors could take longs without any fear be trapped by unexpected rate decision.
In shorter-term perspective this leads to appearing of some bullish signs on daily chart that we will check out on coming week.
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 rose on Friday and was on course for its first weekly gain in three as the U.S. Federal Reserve's cautious message on interest rates left the dollar around five-week lows, making bullion cheaper
those holding other currencies.
The Fed raised U.S. rates on Wednesday, as expected, but its earlier forecast of three rate increases this year remained unchanged, disappointing some investors who had hoped for hints of a possible fourth hike in 2017.
Spot gold was up 0.2 percent at $1,229.40 an ounce by 2:53 p.m. EDT (1853 GMT), taking this week's gain so far to 2.1 percent. Prices hovered just below the Thursday session high, when the metal reached $1,233.13, its highest since March 6. It rallied 2.3 percent on Wednesday and Thursday following
the Fed's statement.
"Everything's quieted down today. The surge we've seen in the last couple of days has been correlated with what we've seen in bonds and stocks," said Rob Haworth, senior investment strategist for U.S. Bank Wealth management in Seattle. "On the retail side, you're making enough money on stocks that you're probably not as worried about jumping back into gold."
U.S. gold futures settled up 0.3 percent at $1,230.20.
"There is momentum as people start to look again how far they can push gold higher," said Georgette Boele at ABN AMRO. The dollar had hit a ceiling and would fall further in the near term, she said.
U.S. President Donald Trump's failure so far to push through promised economic stimulus measures may have influenced the Fed, said Tom Kendall at ICBC Standard Bank. "If infrastructure spending and tax cuts are being pushed further and further out, it gives the Fed more reason to be cautious," he said. "That is a bit of a vacuum that gold can rally into."
Rate rises lead to higher bond yields, which increase the opportunity cost of holding non-yielding bullion and tend to boost the dollar, in which gold is priced.
Investors were also looking ahead to the Group of 20 (G20) finance leaders' meeting in Germany this weekend, where any attempt by the Trump administration to pursue protectionist policies could fuel demand for gold as a safe-haven.
Holdings of the world's largest gold-backed exchange-traded fund, New York-listed SPDR Gold Shares , fell 0.28 percent on Thursday, the first outflow this week.
COT Report
CFTC data shows typical changes for retracement. Gold turns down and speculative long position has contracted as well as open interest. It means that investors start to close longs. This process lasts for 3 recent weeks. At the same time it doesn't indicate new bear trend, because when trend starts - open interest should rise. Thus, CFTC data doesn't bring nothing important by far.
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. As gold stands in retracement on daily chart, swings length has decreased significantly. Thus, we mostly has no impact on monthly chart. Bearish engulfing pattern that we've discussed last week has changed it shape now and hazard of it's appearing is stepped back by far. It means that we need to wait till March close.
We mostly have the same view on longer-term perspective. 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$. Surely Fed is out of our control and prediction and last week is great example of this - as chances on rate hike in March doubles.
Still we have new input here - neutral comments on further rate hike. As Fathom consulting suggests - Fed will lead economy to become hot a bit before aggresive rate policy. This should open door for inflation growth, which is supportive factor for gold. Currently gold could stay on its own till June and this could encourage investors to be more brave in taking long positions.
Concerning farer perspective we could 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.
This is long political talk though, but shortly speaking, we see that the process of building new EU has started. First bell is Brexit. As you know all mature EU countries has started gold repatriation process that should be finished in 2020. So we should be oriented on this year as appearing of the shape of new EU. By gold repatriation process we could gudge on major idea of new EU - each country will out of external governing either Brussel or US and will make it's own policy according with their own national interests. This is how it should be in theory. How this process will develop on practice - we will see.
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
Currently weekly chart does not bring something special. Overall picture looks bullish, trend stands also bullish. Bearish engulfing pattern mostly has completed it's target and we see strong upside bounce. Despite that this drop looks solid on daily chart - here this is just minor retracement to 3/8 Fib support.
Now here we have just trend context, it's bullish. But unfortunately gold here doesn't bring any more clarity on perspective. As deep retracement is possible and it will not destroy bullish setup yet, as upward action is possible. So answer we should search on lower time frames:
Daily
On daily chart trend also has turned bullish. Although as we've suggested gold has moved slightly higher on Friday, but still, upside potential is limited right now, as gold stands at resistance - daily OB and MPP.
Here we've got another bullish sign - hidden bullish divergence. This is positive sign for possible upside continuation. Still, intially some retracement has more chances to happen...
4-hour
So, as we've estimated gold has not bad perspectives for upside continuation on coming week, but first minor retracement down probably should happen. THus, to trigger it, gold probably should form some bearish reversal pattern.
Here it seems that butterfly is very suitable for this purpose. Thus, on Monday gold could reach 1236 area and then start gradual action down. First level to watch for is 1220. This is Fib support and WPP:
Conclusion:
In long-term perspective we think that bullish factors overhelm headwind of possible rate hike by Fed. Still this probably will lead to turmoil and excessive volatility, but we hope that this will happen with upside direction. Fed probably will let economy to become hot before they will start aggressive tightening, thus right now gold has some time, when investors could take longs without any fear be trapped by unexpected rate decision.
In shorter-term perspective this leads to appearing of some bullish signs on daily chart that we will check out on coming week.
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.