Sive Morten
Special Consultant to the FPA
- Messages
- 18,664
Fundamentals
The background for the gold is the same as for any other market right now. Specific features of all markets that make them different now mostly ignored and all markets are driven by common factors. These factors more or less but twist&turn around pandemic topic. Thus, gold mostly has shown the reaction on short-term positive combination of "back to life" factor and decreasing demand for safe haven assets. US dollar also was hurt by this suggestion. We've talked about these factors in details yesterday, in our FX research.
In general, gold reacts positive on long-term driving factors, such as statistics. D. Trump's words on new tariffs against China has supported precious metal as well. As we expect statistics to worsen and increasing of inflation - we do not see any reasons by far to change our long-term bullish view on gold market. In shorter-term, as markets are out from pandemic stun gradually on "back to life" news, gold could show some deeper retracement. Whatever it will be, it seems this should be good chance for long entry.
Gold bounced on Thursday, buoyed by the U.S. Federal Reserve's decision to keep interest rates near zero and hopes of fresh European Central Bank stimulus.
"The massive support we're getting from the Fed is underpinning the general trend of support for gold... Gold is going to look very attractive as it doesn't cost anything to
hold it right now," said Stephen Innes, chief market strategist at financial services firm AxiCorp. The weakness in the dollar and expectations that the European Central Bank may "also play some catch up" gave gold an extra boost, he added.
The Fed left its interest rates near zero on Wednesday and repeated a vow to use its "full range of tools" to shore up an economy hammered by the pandemic.
"Negative real interest rates, easy money supply, heightened macroeconomic risks and fading USD strength together form the benign backdrop for gold investors. We see flight to safety investments attracting fund flows in gold," ANZ analysts said in a note.
Lower interest rates reduce the opportunity cost of holding non-yielding gold, which also tends to benefit from widespread stimulus measures as it's often seen as a hedge against inflation and currency debasement. Pointing to the growing economic pain from the virus outbreak and bolstering demand for safe havens such as gold, the U.S. economy contracted in the first quarter at its sharpest pace since the Great Recession, while economists expect an even sharper contraction in the second quarter.
Gold prices gained on Friday as bleak U.S. data highlighted the economic impact of the coronavirus. Millions more Americans filed claims for unemployment benefits last week, lifting the number of applications to 30.3 million since March 21, data showed, amid a record collapse in consumer spending in March. As White House economic reopening guidance expired on Thursday after two weeks in place, half of all U.S. states forged ahead with easing restrictions on restaurants, retail and other businesses in hopes of reviving the virus-stricken commerce. U.S. state and local governments could need close to $1 trillion in aid over several years to cope with the aftermath of
the pandemic, House Speaker Nancy Pelosi said as lawmakers began plotting more relief legislation.
Gold tends to benefit from widespread stimulus measures as it is often seen as a hedge against inflation and currency debasement. The European Central Bank tweaked policy around the edges but kept the door wide open to further stimulus -- including potentially controversial purchases of junk debt -- to help an economy ravaged by the outbreak.
Prime Minister Boris Johnson said on Thursday Britain was now past the peak of its coronavirus outbreak and promised to set out a plan next week on how the country might start gradually returning to normal life.
In general, gold edged lower in holiday-thinned trade on Friday as optimism over economies easing coronavirus lockdowns prompted investors to book profits, keeping bullion on track for its worst week in more than a month.
"People are taking profits before the weekend because many countries plan to reopen their economies, which is negative for gold over the short term," said Stephen Innes, chief market strategist at financial services firm AxiCorp. "However, gold's narrative has not been changed much. We are in for a gloomy run of economic data over the next few months and the central banks will continue to ease, including the U.S. Federal Reserve, which opens up gold to go higher."
"The virus is far from over, but the wave of positive news had taken some air out of gold's wings," said Edward Moya, a senior market analyst at broker OANDA.
Yet more dismal data out of the United States underscored the deep economic impact of the virus, with 30.3 million Americans filing for unemployment benefits since March 21, amid a record collapse in consumer spending in March. Central banks and governments around the world have announced massive fiscal and monetary measures to limit economic damage caused by the virus outbreak and restrictions put in place to curtail its spread. Gold also tends to benefit from widespread stimulus measures as it's often seen as a hedge against inflation and currency debasement.
"On the technical side, gold is now trading near the key support level of $1,675 and a clear break of this would be a negative signal, with potential space for further falls to $1,630," ActivTrades chief analyst Carlo Alberto De Casa said in a note.
Relatively fresh topic is new tariffs spiral from US. Gold jumped more than 1% on Friday, shaking off initial losses, as risk sentiment soured on U.S. President Donald Trump's threat to impose new tariffs on China, but bullion was still on track for its worst week since mid-March.
"We saw some weakness in the U.S. equities markets ... It seemed Trump was hinting at a resurgence of the trade war," said Phil Streible, chief market strategist at Blue Line Futures in Chicago. "That being said, a lot of investors liquidated various asset classes that might be affected by that and went back into safety, specifically gold."
Trump said on Thursday his trade deal with China was now of secondary importance to the coronavirus pandemic and he threatened new tariffs on Beijing, as his administration crafted retaliatory measures over the outbreak.
New data shows U.S. manufacturing activity plunged to an 11-year low in April as the novel coronavirus wreaked havoc on supply chains, supporting analysts' views the economy was sinking deeper into recession.
China has headed off on Labour Day holidays but its leaders won’t be resting easy. U.S. President Donald Trump has ratcheted up anti-China rhetoric again. He is threatening trade tariffs to punish Beijing for its alleged failure to contain the coronavirus, even accusing a Chinese lab of manufacturing the pathogen.
With Chinese markets shuttered through May 5, the concerns showed up in offshore-traded yuan, which tumbled on Friday to a one-month low. Whether Trump will risk the collapse of his trade deal with China is unclear, but he will be mindful of the threat the coronavirus deathtoll and economic damage pose to his chances of re-election in November.
CFTC Data
Recent report as from COT as SPDR statistics shows that investors do not lose the interest to the gold. Despite retracement, net long position has increased due as closing of the shorts as opening of new longs by speculators. Open interest has increased as well:
Source: cftc.gov
Charting by Investing.com
SPDR fund shows also rising in reserves, despite minor price pullback:
Source: SPDR Fund, FPA
That's being said, here we could make the same conclusion as we did yesterday, on EUR analysis. For all markets we have the same driving factors, the difference between markets now takes backseat. Long term factors suggest difficult times ahead and it seems that situation could become worse, as IQ statistics includes two "normal" months - Jan and Feb before pandemic. While March results overshadows the whole IQ dynamic, turning it to negative numbers. It means that April - June will be negative in a whole and should bring a lot of negative surprises to optimistic investors who has lost link to reality.
Thus, it means that gold could take moderate retracement in a short-term perspective as investors get relief from pandemic stun. But in longer-term perspective, demand for the gold should hold. Despite how cynic it sounds, but, it seems guys, that global project "Covid-19" gradually is coming to an end across the Globe as different countries one by one is preparing to leave it. The number of countries is solid already and includes GB, Turkey, Switzerland, Belarus, Ukraine, Austria, Czech and some others. More and more countries report on reaching of "plateau" and easing "common life" restrictions, showing very similar numbers of infected per 1000 citizens on average. In many countries social tensions against "self-isolation" is risen and people start to suspect that something is wrong stands beyond this curious "pandemic". It seems that world should get well in May-June, obviously due effective restriction measures and massive struggle measures against the virus. Vaccine probably also should be ready to this moment. We are not virologists and do not definitely know what stands beyond global "Covid-19" story. Actually, it doesn't matter and is not primary subject for trading, that's why we have neutral view on this situation and avoid radical judgments and opinions on conspiracy theory. Still, global sentiment is changing and now it could be expressed in new anecdote story:
"In the morning I woke up: there is no cough, no runny nose, no temperature, nothing hurts, breathes freely. Well, I think - things went bust. Typical symptoms of asymptomatic coronavirus."
Technicals
Monthly
Trend here stands bullish on monthly chart. Gold unfortunately was not able to show most optimistic performance and close above doji's top, showing pullback right in final days of the month. Still the was a technical reasons for that as well - strong weekly overbought condition. Despite that challenge was not successful by far, gold keeps turning near the top, that could be treated as bullish sign. It is not typical for fake upside breakout, when price usually turns down sharp.
Standing above YPR1 also tells that gold is not in retracement mode, but in longer-term trend continuation. Downside target mostly stands the same - YPS1 and major 5/8 Fib level around 1300 area. But now it is unclear what events should happen to make us consider this scenario.
Pay attention guys, that YPR1 level coincides with our major daily K-support area...
Weekly
Trend on weekly chart stands bullish as well. And recent performance gives us two important moments. First is, market shows upside action, ignoring weekly overbought level. This is definitely sign of strength and growing demand on gold. At the same time overbought, especially on weekly chart is serious holding factor that limits upside potential of the gold right now.
Last week we've discussed "Shooting star" pattern, that supposedly should become the background for moderate retracement on daily chart. Now gold shows solid upside action, but Star is not erased totally, as price still stands inside its range. These two moments tell that gold has good upside momentum and solid demand, but in short-term it could have problems with upside continuation. Price could make spikes but it will not be able to show real continuation to meaningful levels. More probable is some pullback, or at least, flat continuation around the top, until Overbought will be eliminated.
In general there is nothing to stick with. This week has become another inside range, we do not have bearish divergence among recent two tops. Previous divergence is done already. Next week OB level will be above 1700, so let's see how gold will behave.
Daily
In general we have only single question - whether moderate retracement will start or not. It could happen in two ways. Either gold starts dropping immediately, or it completes first 1770 targets. Personally, guys, I'm tending to 2nd way. Gold could start pullback many times before, while it stands at weekly OB level for the 3rd consecutive week, but somehow it has not happened. And price is forming triangle consolidation right near the top. This is bullish sign. Second - this consolidation shows features of bullish dynamic pressure. While MACD shows downside trend, price is not, forming higher lows inside the triangle. This makes me think that 1770 target still could be completed first, before moderate pullback starts.
In general we've talked about it previously and our invalidation point for this scenario is still marked by "arrow" sign in last two weeks. But the problem is gold has destroyed all good entry scenarios on intraday charts last week and not keeps valid only the butterfly on 4H chart, making bullish context a bit tricky. We've talked about it on Friday:
Intraday
Here is this setup with butterfly. Despite how tricky it is, there is no bearish setups at all by far. The only chance for short entry here is to use Stop "Sell" order around 1660-1665 area when butterfly will be erased and gold breaks its lows.
1H chart, in turn, shows what we have on a bullish side. Inside the butterfly we have huge "222" Buy pattern, based on AB=CD shape. The bad thing with it is faster CD leg. Second tricky moment is upside bounce - it is harmonic, market has not exceeded it yet. Still, recent pullback is faster than previous one, which is good.
All this stuff means that market either should go up to 1770 right from here or it will not go there at all. Thus, despite the situation is tricky and if you want to be involved - consider long entry at one of the minor Fib support levels with stops below butterfly 1660 lows. Otherwise, wait for better entry chances on daily chart either after 1770 target will be hit or if bullish scenario will fail. This is most suitable for conservative traders, as bullish setup calls for courage now
Conclusion:
We keep our long-term bullish view on gold due our suggestion that IIQ should become worse and gold should keep demand through the whole 2020 year. In shorter-term we consider moderate pullback, but it is unclear yet how it will start - either immediately or after 1770 target will be reached. Thus, in turn, makes intraday trading process difficult a bit.
The background for the gold is the same as for any other market right now. Specific features of all markets that make them different now mostly ignored and all markets are driven by common factors. These factors more or less but twist&turn around pandemic topic. Thus, gold mostly has shown the reaction on short-term positive combination of "back to life" factor and decreasing demand for safe haven assets. US dollar also was hurt by this suggestion. We've talked about these factors in details yesterday, in our FX research.
In general, gold reacts positive on long-term driving factors, such as statistics. D. Trump's words on new tariffs against China has supported precious metal as well. As we expect statistics to worsen and increasing of inflation - we do not see any reasons by far to change our long-term bullish view on gold market. In shorter-term, as markets are out from pandemic stun gradually on "back to life" news, gold could show some deeper retracement. Whatever it will be, it seems this should be good chance for long entry.
Gold bounced on Thursday, buoyed by the U.S. Federal Reserve's decision to keep interest rates near zero and hopes of fresh European Central Bank stimulus.
"The massive support we're getting from the Fed is underpinning the general trend of support for gold... Gold is going to look very attractive as it doesn't cost anything to
hold it right now," said Stephen Innes, chief market strategist at financial services firm AxiCorp. The weakness in the dollar and expectations that the European Central Bank may "also play some catch up" gave gold an extra boost, he added.
The Fed left its interest rates near zero on Wednesday and repeated a vow to use its "full range of tools" to shore up an economy hammered by the pandemic.
"Negative real interest rates, easy money supply, heightened macroeconomic risks and fading USD strength together form the benign backdrop for gold investors. We see flight to safety investments attracting fund flows in gold," ANZ analysts said in a note.
Lower interest rates reduce the opportunity cost of holding non-yielding gold, which also tends to benefit from widespread stimulus measures as it's often seen as a hedge against inflation and currency debasement. Pointing to the growing economic pain from the virus outbreak and bolstering demand for safe havens such as gold, the U.S. economy contracted in the first quarter at its sharpest pace since the Great Recession, while economists expect an even sharper contraction in the second quarter.
Gold prices gained on Friday as bleak U.S. data highlighted the economic impact of the coronavirus. Millions more Americans filed claims for unemployment benefits last week, lifting the number of applications to 30.3 million since March 21, data showed, amid a record collapse in consumer spending in March. As White House economic reopening guidance expired on Thursday after two weeks in place, half of all U.S. states forged ahead with easing restrictions on restaurants, retail and other businesses in hopes of reviving the virus-stricken commerce. U.S. state and local governments could need close to $1 trillion in aid over several years to cope with the aftermath of
the pandemic, House Speaker Nancy Pelosi said as lawmakers began plotting more relief legislation.
Gold tends to benefit from widespread stimulus measures as it is often seen as a hedge against inflation and currency debasement. The European Central Bank tweaked policy around the edges but kept the door wide open to further stimulus -- including potentially controversial purchases of junk debt -- to help an economy ravaged by the outbreak.
Prime Minister Boris Johnson said on Thursday Britain was now past the peak of its coronavirus outbreak and promised to set out a plan next week on how the country might start gradually returning to normal life.
In general, gold edged lower in holiday-thinned trade on Friday as optimism over economies easing coronavirus lockdowns prompted investors to book profits, keeping bullion on track for its worst week in more than a month.
"People are taking profits before the weekend because many countries plan to reopen their economies, which is negative for gold over the short term," said Stephen Innes, chief market strategist at financial services firm AxiCorp. "However, gold's narrative has not been changed much. We are in for a gloomy run of economic data over the next few months and the central banks will continue to ease, including the U.S. Federal Reserve, which opens up gold to go higher."
"The virus is far from over, but the wave of positive news had taken some air out of gold's wings," said Edward Moya, a senior market analyst at broker OANDA.
Yet more dismal data out of the United States underscored the deep economic impact of the virus, with 30.3 million Americans filing for unemployment benefits since March 21, amid a record collapse in consumer spending in March. Central banks and governments around the world have announced massive fiscal and monetary measures to limit economic damage caused by the virus outbreak and restrictions put in place to curtail its spread. Gold also tends to benefit from widespread stimulus measures as it's often seen as a hedge against inflation and currency debasement.
"On the technical side, gold is now trading near the key support level of $1,675 and a clear break of this would be a negative signal, with potential space for further falls to $1,630," ActivTrades chief analyst Carlo Alberto De Casa said in a note.
Relatively fresh topic is new tariffs spiral from US. Gold jumped more than 1% on Friday, shaking off initial losses, as risk sentiment soured on U.S. President Donald Trump's threat to impose new tariffs on China, but bullion was still on track for its worst week since mid-March.
"We saw some weakness in the U.S. equities markets ... It seemed Trump was hinting at a resurgence of the trade war," said Phil Streible, chief market strategist at Blue Line Futures in Chicago. "That being said, a lot of investors liquidated various asset classes that might be affected by that and went back into safety, specifically gold."
Trump said on Thursday his trade deal with China was now of secondary importance to the coronavirus pandemic and he threatened new tariffs on Beijing, as his administration crafted retaliatory measures over the outbreak.
New data shows U.S. manufacturing activity plunged to an 11-year low in April as the novel coronavirus wreaked havoc on supply chains, supporting analysts' views the economy was sinking deeper into recession.
China has headed off on Labour Day holidays but its leaders won’t be resting easy. U.S. President Donald Trump has ratcheted up anti-China rhetoric again. He is threatening trade tariffs to punish Beijing for its alleged failure to contain the coronavirus, even accusing a Chinese lab of manufacturing the pathogen.
With Chinese markets shuttered through May 5, the concerns showed up in offshore-traded yuan, which tumbled on Friday to a one-month low. Whether Trump will risk the collapse of his trade deal with China is unclear, but he will be mindful of the threat the coronavirus deathtoll and economic damage pose to his chances of re-election in November.
CFTC Data
Recent report as from COT as SPDR statistics shows that investors do not lose the interest to the gold. Despite retracement, net long position has increased due as closing of the shorts as opening of new longs by speculators. Open interest has increased as well:
Source: cftc.gov
Charting by Investing.com
SPDR fund shows also rising in reserves, despite minor price pullback:
Source: SPDR Fund, FPA
That's being said, here we could make the same conclusion as we did yesterday, on EUR analysis. For all markets we have the same driving factors, the difference between markets now takes backseat. Long term factors suggest difficult times ahead and it seems that situation could become worse, as IQ statistics includes two "normal" months - Jan and Feb before pandemic. While March results overshadows the whole IQ dynamic, turning it to negative numbers. It means that April - June will be negative in a whole and should bring a lot of negative surprises to optimistic investors who has lost link to reality.
Thus, it means that gold could take moderate retracement in a short-term perspective as investors get relief from pandemic stun. But in longer-term perspective, demand for the gold should hold. Despite how cynic it sounds, but, it seems guys, that global project "Covid-19" gradually is coming to an end across the Globe as different countries one by one is preparing to leave it. The number of countries is solid already and includes GB, Turkey, Switzerland, Belarus, Ukraine, Austria, Czech and some others. More and more countries report on reaching of "plateau" and easing "common life" restrictions, showing very similar numbers of infected per 1000 citizens on average. In many countries social tensions against "self-isolation" is risen and people start to suspect that something is wrong stands beyond this curious "pandemic". It seems that world should get well in May-June, obviously due effective restriction measures and massive struggle measures against the virus. Vaccine probably also should be ready to this moment. We are not virologists and do not definitely know what stands beyond global "Covid-19" story. Actually, it doesn't matter and is not primary subject for trading, that's why we have neutral view on this situation and avoid radical judgments and opinions on conspiracy theory. Still, global sentiment is changing and now it could be expressed in new anecdote story:
"In the morning I woke up: there is no cough, no runny nose, no temperature, nothing hurts, breathes freely. Well, I think - things went bust. Typical symptoms of asymptomatic coronavirus."
Technicals
Monthly
Trend here stands bullish on monthly chart. Gold unfortunately was not able to show most optimistic performance and close above doji's top, showing pullback right in final days of the month. Still the was a technical reasons for that as well - strong weekly overbought condition. Despite that challenge was not successful by far, gold keeps turning near the top, that could be treated as bullish sign. It is not typical for fake upside breakout, when price usually turns down sharp.
Standing above YPR1 also tells that gold is not in retracement mode, but in longer-term trend continuation. Downside target mostly stands the same - YPS1 and major 5/8 Fib level around 1300 area. But now it is unclear what events should happen to make us consider this scenario.
Pay attention guys, that YPR1 level coincides with our major daily K-support area...
Weekly
Trend on weekly chart stands bullish as well. And recent performance gives us two important moments. First is, market shows upside action, ignoring weekly overbought level. This is definitely sign of strength and growing demand on gold. At the same time overbought, especially on weekly chart is serious holding factor that limits upside potential of the gold right now.
Last week we've discussed "Shooting star" pattern, that supposedly should become the background for moderate retracement on daily chart. Now gold shows solid upside action, but Star is not erased totally, as price still stands inside its range. These two moments tell that gold has good upside momentum and solid demand, but in short-term it could have problems with upside continuation. Price could make spikes but it will not be able to show real continuation to meaningful levels. More probable is some pullback, or at least, flat continuation around the top, until Overbought will be eliminated.
In general there is nothing to stick with. This week has become another inside range, we do not have bearish divergence among recent two tops. Previous divergence is done already. Next week OB level will be above 1700, so let's see how gold will behave.
Daily
In general we have only single question - whether moderate retracement will start or not. It could happen in two ways. Either gold starts dropping immediately, or it completes first 1770 targets. Personally, guys, I'm tending to 2nd way. Gold could start pullback many times before, while it stands at weekly OB level for the 3rd consecutive week, but somehow it has not happened. And price is forming triangle consolidation right near the top. This is bullish sign. Second - this consolidation shows features of bullish dynamic pressure. While MACD shows downside trend, price is not, forming higher lows inside the triangle. This makes me think that 1770 target still could be completed first, before moderate pullback starts.
In general we've talked about it previously and our invalidation point for this scenario is still marked by "arrow" sign in last two weeks. But the problem is gold has destroyed all good entry scenarios on intraday charts last week and not keeps valid only the butterfly on 4H chart, making bullish context a bit tricky. We've talked about it on Friday:
Intraday
Here is this setup with butterfly. Despite how tricky it is, there is no bearish setups at all by far. The only chance for short entry here is to use Stop "Sell" order around 1660-1665 area when butterfly will be erased and gold breaks its lows.
1H chart, in turn, shows what we have on a bullish side. Inside the butterfly we have huge "222" Buy pattern, based on AB=CD shape. The bad thing with it is faster CD leg. Second tricky moment is upside bounce - it is harmonic, market has not exceeded it yet. Still, recent pullback is faster than previous one, which is good.
All this stuff means that market either should go up to 1770 right from here or it will not go there at all. Thus, despite the situation is tricky and if you want to be involved - consider long entry at one of the minor Fib support levels with stops below butterfly 1660 lows. Otherwise, wait for better entry chances on daily chart either after 1770 target will be hit or if bullish scenario will fail. This is most suitable for conservative traders, as bullish setup calls for courage now
Conclusion:
We keep our long-term bullish view on gold due our suggestion that IIQ should become worse and gold should keep demand through the whole 2020 year. In shorter-term we consider moderate pullback, but it is unclear yet how it will start - either immediately or after 1770 target will be reached. Thus, in turn, makes intraday trading process difficult a bit.
