Sive Morten
Special Consultant to the FPA
- Messages
- 18,699
Fundamentals
(Reuters) Gold and silver prices rallied 2 percent to their highest since January last year on Friday as the Bank of Japan's decision the previous day to hold off expanding monetary stimulus weighed heavily on the dollar, and European and U.S. stocks fell.
The yen hit an 18-month peak versus the U.S. currency and was on course for its biggest weekly gain since the 2008 financial crisis, with poor U.S. growth and the Federal Reserve's cautious stance this week weighing on the dollar.
Spot gold was up 2 percent at $1,291.11 an ounce at 2:16 p.m. EDT (1816 GMT), having reached a 15-month high of $1,296.76. U.S. gold futures for June delivery settled up 1.9 percent at $1,290.50 an ounce.
For the week, the metal is up 4.8 percent in what is set to be its biggest weekly rise since the week ended Feb. 12.
"All the precious metals are up quite strongly on the back of weakness in the dollar, after poor GDP data in the United States and a lack of action by the Bank of Japan," Capital Economics analyst Simona Gambarini said.
"There could be a correction in the price if the dollar starts strengthening again, but we remain positive on gold."
The Fed's policy statement on Wednesday, after leaving interest rates unchanged, also supported gold. The U.S. central bank showed little sign it was in a hurry to tighten monetary policy.
Gold is sensitive to rising interest rates, which lift the opportunity cost of holding non-yielding bullion, while boosting the dollar, in which it is priced.
"We believe we are not transitioning to a risk-off world, but simply to a less risk-on one, as lower real rates should stabilize and require stronger global data to then lift interest rates and risk in tandem," said TD Securities in a note.
Silver was up 1.5 percent at $17.80 an ounce, having touched its highest since January 2015 at $17.96 and being on track to rise 15.3 percent this month, its biggest gain since August 2013 as it plays catch-up after lagging gold during its first-quarter surge.
The gold/silver ratio, which measures the number of silver ounces needed to buy an ounce of gold, fell to a six-month low on Friday of 71.8, down from 81.3 at the start of the month.
Platinum was up 2.5 percent at $1,071.49 an ounce, off an earlier 10-month high of $1,080, while palladium rose by as much as 2.3 percent to $634.96 an ounce, the highest in nearly six months.
CFTC Data no doubts shows bullish picture - net long position grows as well as open interest. Still, its value gradually approaches to extreme points. Altghouh this is not yet the all-time high, but definitely the most high level in last 5 years. This moment brings some clouds on a horizon of current gold rally. It's not a time to worry yet, probably, but we should keep an eye on net long position progress.
Technicals
Monthly
Although this was last April week, but market finally has turned to action. As market already has moved above YPP, next target based on pivot framework is YPR1 around 1315 area. Currently price is moving through 1285 Fib level that already has been tested once.
Since New Year gold stands in upside action. Reasons could be different - geopolitics, investors' assets distribution in the beginning of the year. Upside action currently has not changed situation drastically yet on but we will monitor how situation will change.
We still think that currently gold should be mostly driven by geopolitics, rather than economics. This driving factor creates absolutely new scale of uncertainty and leads to very fast changes on Globe political situation. That's why we suspect that gold market hardly will fall dramatically, since we're just in the beginning of different geopolitical tensions. Besides, financial game between Central Banks turns to hot stage and this will add more volatility.
Not just Middle East stands in our focus. We see that fumes of this conflict spread over planet. Recall Paris terrorist attack, Brussels, refugees tensions in EU, Brexit voting, a lot of contradiction inside EU as political as economical - North Stream-2, mutual sanctions, Montenegro NATO membership, right now Armenia and Azerbaijan conflict and a lot of others. China's financial sphere is isolated theme for discussion. All these stuff is happening on a background of reducing population wealth and solvency and currency wars between major economies. Recent Fed shift just proves this conclusion. So, we see that entropy is growing. Currently we could just gamble what game stands under curtain of political meetings among major leaders.
As market gradually starts to come to the same conclusion as gradually situation on gold market starts to change in positive area. International banks purchase gold in big volumes, mostly PBoC and Russian Central Bank. Besides, as now we see clear signs of currency war - gold will get support here either. Germany stands on a way of own gold repatriation from US and UK, as we've mentioned above. Soon probably will follow other countries, say, Netherlands, France and others.
At the same time gold needs to move above 1308 to break current bearish trend by forming upside reversal swing.
Currently action looks very impressive, but on long-term charts it could happen, that we will not get yet clear tendency and gold could turn to some wide range action. Because right now it is too many sources that could initiate impact on gold market. They will push market in one and other sides. Geopolitical situation in the World has reached very high degree of uncertainty and we believe that sooner rather than later it will become a dominating factor for gold market and already it's becoming.
Anyway, gold's shift from downward action to flat one, even it will be wide - already will be significant moment.
Monthly chart trend has turned bullish.
As you can see upside action has started right after Volatility breakout target (that has taken the shape of butterfly "Buy") has been completed. Gold has exceeded Yearly Pivot and this tells on existing bullish trend on monthly chart. As gold is not at overbought here - next logical destination is 1314 area of Yearly PR1.
In general, guys, coming area of 1315-1330 will become a real test of bullish strength. Monthly overbought, YPR1 and Fib level... hardly market will pass it easily and without solid reactions. May we will even get here extended H&S reversal pattern...
Weekly
Right now on weekly chart we see action that we've expected to get based on inconsistency that we saw on daily chart we H&S pattern. On Friday market has shown upside breakout of pennant pattern. Looks like our assessement was correct and pennant indeed was pattern of energy building for breakout.
On a way up gold has broken not just pennant, but also MPR1 and 1285 Fib level. Retracement after OB level has been hit was mild and market has not reached even minor 3/8 Fib support. This also indirect sign of bullish power.
As we can see gold is not at OB any more here and has pretty much room that allows it to reach 1315-1330 destination point.
Daily
As we've said almost always, if market forming H&S has moved above right shoulder - it should move above the head. This has happened again. Nice bullish breakout has happened.
Currently we see temporal stop on a way up, since gold has reached OB level on daily chart. Taking in consideration the pace of upward action and how fast it is approaching to 1.27 butterfly extension, we could suggest further upward continuation to 1.618 after some minor retracement.
Besides, 1.618 target agrees with our 1330 target level on monthly chart.
4-hour
This time frame gives us more than just one setup. As you can see current stop on a way up is temporal indeed, since price has not reached 1.618 AB-CD target as well as any other important targets. This is just 1.618 extension of minor retracement down.
This leads us to some thoughts. First is, as market still stands on extension leg retracement should not be too deep. There are just 2 levels that suitable for this purpose. Nearest one @ 1274 and K-support area around 1260-1263. First level is also acompanied with WPP.
Second - we have excellent thrust up that could be a foundation for DiNapoli directional pattern. And B&B "Buy" here looks more suitable, because, as we've said, this is not a moment for reversal, but for retracement, just to abandone OB condition on daily chart. Hence, if we will get B&B - we will use it for long entry. In current situation B&B has a lot of chances to become not just minor pattern but starting point for upward continuation to 1330 area.
Conclusion:
We think that fundamentally gold stands somewhere near bottom and situation is starting to change. But this bottom could be "extended" in time. Long term view has not been impacted by recent price action, since gold mostly is coiling in tight range.
In short-term perspective we expect upside continuation to 1315-1330 area within some weeks. In the beginning of next week we will watch for minor retracement down and possible B&B "Buy" pattern on 4-hour chart.
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 and silver prices rallied 2 percent to their highest since January last year on Friday as the Bank of Japan's decision the previous day to hold off expanding monetary stimulus weighed heavily on the dollar, and European and U.S. stocks fell.
The yen hit an 18-month peak versus the U.S. currency and was on course for its biggest weekly gain since the 2008 financial crisis, with poor U.S. growth and the Federal Reserve's cautious stance this week weighing on the dollar.
Spot gold was up 2 percent at $1,291.11 an ounce at 2:16 p.m. EDT (1816 GMT), having reached a 15-month high of $1,296.76. U.S. gold futures for June delivery settled up 1.9 percent at $1,290.50 an ounce.
For the week, the metal is up 4.8 percent in what is set to be its biggest weekly rise since the week ended Feb. 12.
"All the precious metals are up quite strongly on the back of weakness in the dollar, after poor GDP data in the United States and a lack of action by the Bank of Japan," Capital Economics analyst Simona Gambarini said.
"There could be a correction in the price if the dollar starts strengthening again, but we remain positive on gold."
The Fed's policy statement on Wednesday, after leaving interest rates unchanged, also supported gold. The U.S. central bank showed little sign it was in a hurry to tighten monetary policy.
Gold is sensitive to rising interest rates, which lift the opportunity cost of holding non-yielding bullion, while boosting the dollar, in which it is priced.
"We believe we are not transitioning to a risk-off world, but simply to a less risk-on one, as lower real rates should stabilize and require stronger global data to then lift interest rates and risk in tandem," said TD Securities in a note.
Silver was up 1.5 percent at $17.80 an ounce, having touched its highest since January 2015 at $17.96 and being on track to rise 15.3 percent this month, its biggest gain since August 2013 as it plays catch-up after lagging gold during its first-quarter surge.
The gold/silver ratio, which measures the number of silver ounces needed to buy an ounce of gold, fell to a six-month low on Friday of 71.8, down from 81.3 at the start of the month.
Platinum was up 2.5 percent at $1,071.49 an ounce, off an earlier 10-month high of $1,080, while palladium rose by as much as 2.3 percent to $634.96 an ounce, the highest in nearly six months.
CFTC Data no doubts shows bullish picture - net long position grows as well as open interest. Still, its value gradually approaches to extreme points. Altghouh this is not yet the all-time high, but definitely the most high level in last 5 years. This moment brings some clouds on a horizon of current gold rally. It's not a time to worry yet, probably, but we should keep an eye on net long position progress.
Technicals
Monthly
Although this was last April week, but market finally has turned to action. As market already has moved above YPP, next target based on pivot framework is YPR1 around 1315 area. Currently price is moving through 1285 Fib level that already has been tested once.
Since New Year gold stands in upside action. Reasons could be different - geopolitics, investors' assets distribution in the beginning of the year. Upside action currently has not changed situation drastically yet on but we will monitor how situation will change.
We still think that currently gold should be mostly driven by geopolitics, rather than economics. This driving factor creates absolutely new scale of uncertainty and leads to very fast changes on Globe political situation. That's why we suspect that gold market hardly will fall dramatically, since we're just in the beginning of different geopolitical tensions. Besides, financial game between Central Banks turns to hot stage and this will add more volatility.
Not just Middle East stands in our focus. We see that fumes of this conflict spread over planet. Recall Paris terrorist attack, Brussels, refugees tensions in EU, Brexit voting, a lot of contradiction inside EU as political as economical - North Stream-2, mutual sanctions, Montenegro NATO membership, right now Armenia and Azerbaijan conflict and a lot of others. China's financial sphere is isolated theme for discussion. All these stuff is happening on a background of reducing population wealth and solvency and currency wars between major economies. Recent Fed shift just proves this conclusion. So, we see that entropy is growing. Currently we could just gamble what game stands under curtain of political meetings among major leaders.
As market gradually starts to come to the same conclusion as gradually situation on gold market starts to change in positive area. International banks purchase gold in big volumes, mostly PBoC and Russian Central Bank. Besides, as now we see clear signs of currency war - gold will get support here either. Germany stands on a way of own gold repatriation from US and UK, as we've mentioned above. Soon probably will follow other countries, say, Netherlands, France and others.
At the same time gold needs to move above 1308 to break current bearish trend by forming upside reversal swing.
Currently action looks very impressive, but on long-term charts it could happen, that we will not get yet clear tendency and gold could turn to some wide range action. Because right now it is too many sources that could initiate impact on gold market. They will push market in one and other sides. Geopolitical situation in the World has reached very high degree of uncertainty and we believe that sooner rather than later it will become a dominating factor for gold market and already it's becoming.
Anyway, gold's shift from downward action to flat one, even it will be wide - already will be significant moment.
Monthly chart trend has turned bullish.
As you can see upside action has started right after Volatility breakout target (that has taken the shape of butterfly "Buy") has been completed. Gold has exceeded Yearly Pivot and this tells on existing bullish trend on monthly chart. As gold is not at overbought here - next logical destination is 1314 area of Yearly PR1.
In general, guys, coming area of 1315-1330 will become a real test of bullish strength. Monthly overbought, YPR1 and Fib level... hardly market will pass it easily and without solid reactions. May we will even get here extended H&S reversal pattern...
Weekly
Right now on weekly chart we see action that we've expected to get based on inconsistency that we saw on daily chart we H&S pattern. On Friday market has shown upside breakout of pennant pattern. Looks like our assessement was correct and pennant indeed was pattern of energy building for breakout.
On a way up gold has broken not just pennant, but also MPR1 and 1285 Fib level. Retracement after OB level has been hit was mild and market has not reached even minor 3/8 Fib support. This also indirect sign of bullish power.
As we can see gold is not at OB any more here and has pretty much room that allows it to reach 1315-1330 destination point.
Daily
As we've said almost always, if market forming H&S has moved above right shoulder - it should move above the head. This has happened again. Nice bullish breakout has happened.
Currently we see temporal stop on a way up, since gold has reached OB level on daily chart. Taking in consideration the pace of upward action and how fast it is approaching to 1.27 butterfly extension, we could suggest further upward continuation to 1.618 after some minor retracement.
Besides, 1.618 target agrees with our 1330 target level on monthly chart.
4-hour
This time frame gives us more than just one setup. As you can see current stop on a way up is temporal indeed, since price has not reached 1.618 AB-CD target as well as any other important targets. This is just 1.618 extension of minor retracement down.
This leads us to some thoughts. First is, as market still stands on extension leg retracement should not be too deep. There are just 2 levels that suitable for this purpose. Nearest one @ 1274 and K-support area around 1260-1263. First level is also acompanied with WPP.
Second - we have excellent thrust up that could be a foundation for DiNapoli directional pattern. And B&B "Buy" here looks more suitable, because, as we've said, this is not a moment for reversal, but for retracement, just to abandone OB condition on daily chart. Hence, if we will get B&B - we will use it for long entry. In current situation B&B has a lot of chances to become not just minor pattern but starting point for upward continuation to 1330 area.
Conclusion:
We think that fundamentally gold stands somewhere near bottom and situation is starting to change. But this bottom could be "extended" in time. Long term view has not been impacted by recent price action, since gold mostly is coiling in tight range.
In short-term perspective we expect upside continuation to 1315-1330 area within some weeks. In the beginning of next week we will watch for minor retracement down and possible B&B "Buy" pattern on 4-hour chart.
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.