Sive Morten
Special Consultant to the FPA
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- 18,527
Fundamentals
A couple of weeks ago we've provided our long-term view on gold market, and mostly it stands the same. Today we're interested in NFP report impact on the market and what action we could get next week.
Before NFP report, Gold prices slumped to an over four-month low after the U.S. Federal Open Market Committee (FOMC) axed any hopes for a rate cut in the near term, subduing demand for the non-interest bearing bullion, as Reuters reports.
“A lot of people were positioned for the FOMC statement to be little bit more dovish than it actually was,” said Fawad Razaqzada, market analyst with Forex.com.
“We have seen an implied odds of a 2019 rate cut fall from 75 percent to 50 percent so people are revising their rate cut expectations as the Fed was not as dovish as people expected.”
The Federal Reserve kept the benchmark interest rate unchanged on Wednesday, in line with the market’s expectations.
However, market participants were taken by surprise when the central bank emphasised it saw no compelling reason to consider a rate cut any time soon, citing rising employment and economic growth.
On Friday, in turn, Gold was headed for its biggest daily rise in two months, clawing away from a four-month low hit in the previous session, helped by a pullback in the dollar and as some investors covered their short positions.
“We are seeing a short-covering rally after a sell-off during the week. We also saw some good physical demand at price levels below $1,270,” said David Meger, director of metals trading at High Ridge Futures.
“The dollar is weak, which is also helping gold,” he added.
Despite a strong U.S. jobs report, the dollar was down 0.3%, as traders focused on the weaker aspects in the report.
The U.S. wage gains did not accelerate as expected last month, holding at a reading that is consistent with moderate inflation.
A moderate pace of wage growth indicated that there would not be a rate hike anytime soon, in turn boosting appeal for the non-interest bearing metal, said an analyst based in New York.
Lower interest rates reduce the opportunity cost of holding the bullion.
However, two Fed officials said on Friday they were increasingly worried about weak inflation, an indication that some U.S. central bankers see a growing case for a future interest rate cut even as others push for continued patience.
Market participants were also keeping a close watch on U.S.-China trade talks, anticipating a resolution to the year long tariff war between the world’s two largest economies.
U.S. President Donald Trump said on Friday the U.S.-China trade negotiations are going pretty well.
Reflecting investor sentiment toward bullion, holdings in the world’s largest gold-backed exchange-traded fund (ETF), SPDR Gold Trust, fell about 0.2% to 745.52 tonnes on Thursday, its lowest since Oct. 12.
In general, if we take a careful look at SPDR funds holdings, we see very strong negative dynamic. While gold price barely shows 30% pullback - holdings dropped almost back to the lows of 2018, totally erasing recent rally.
This divergence tells, that something holds gold price and it could be USD weakness, as holding stand not in USD but in tonnes. Second - this divergence somehow should be resolved - either by big drop of Gold price or, upside rally and big demand for physical gold, and this should happen relatively soon. It is interesting that on red line (holdings) we have something that looks like "222" Buy pattern...
CFTC data, in turn shows light increasing of net long position, but it doesn't look as too significant. It stands for ~ 30K contracts.
Source: cftc.gov
Charting by Investing.com
Finally, Fathom consulting reports on slowdown on China economy, which shows signs of the tendency, but not occasional drawdown in statistics. It means that gold could get more support soon, but this is more perspective of longer-term period.
China’s economy resumed in March, with growth nudging down to 5.1% after several months of more stable readings. Its weakest rate since late 2016, the measure is now some way below the 6.4% official estimate of annual GDP growth, which defied market expectations of a further slowdown in the first quarter. The CMI not only points to weaker economic growth but also to changes in the composition of that growth, a consequence of China’s stop-start approach to reform. For now, it continues to suggest that China is prioritising growth over reform.
Beijing is caught between a rock and a hard place as both the old and new growth strategies are fraught with difficulties: the former is producing less bang for its buck, while the latter is associated with a painful economic adjustment.
In general, fundamental factors that we see support our long term bullish view on gold market. Now the major concern stands around daily retracement - is it done already or not. As we saw contradictive action last week, this question is still on the table. We get the answer by market's reaction on major resistance levels. Normally, if bearish trend is still valid, price should stay below major resistance.
Technical
Monthly
As gold market hit major target on weekly chart, it fluctuates inside major swings and mostly is driven by shorter-term factors. It makes minor impact on monthly picture and our long-term view. Recent fundamental and sentiment analysis shows that no big changes have happened and gold still stands positive. Despite technical retracement, we do not have reasons yet to cancel our long-term positive view on gold.
As we've said earlier, we're watching for our so called "symmetrical" model. It could be clear symmetry in market action, and we have suggested that future action could be a reflection of previous downside action shape.Now market has moved more above the trend line, which was a crucial level for long-term technical picture.
Gold shows good performance in December- February, which could put the foundation of new long-term upside trend. We still keep our harmonic technical model on monthly chart as primary tool of analysis. Current retracement down looks strong on daily chart, but it is just 30% of major swing up which is minimal level.
Fundamental reasons for gold rising mostly relate to changing of global political and economical situation. Strong global shifts never could happen without big political events. This should provide big support to gold market. Now it is widely suggested that these processes should accelerate closer to 2020 year, or even in second half of 2019. For example, here is report by Fathom Consulting and their expectations to see world crisis around 2020.
Here is explanation of our "symmetrical" model and scenario. Recent action on gold market reminds reverse H&S shape but very choppy and extended in time. Important COP target has been hit and upside action has started. In fact we have mirror action to the right and to the left from COP point. Market forms approximately equal lows on both sides. The speed is also similar. Is it possible that reversal is forming? Why not.
The one important thing that we've got on April is testing of YPP and now it is very important how market will response. To keep upside trend valid, market has to hold above it, although it could flirt with it for some time. Now we see that on first test price holds above this level.
Among bullish signs we could mention MACD hidden divergence which suggests action above 1380 top in long-term perspective.
Weekly
Finally, minimum target of our "222" Sell pattern is completed, once price has hit major 3/8 Fib retracement level at 1275 level. Now price stands inside wide K-support area, where, as we think, downside action should finish.
The most tricky moment though, is uncompleted OP target of major AB=CD pattern, which stands around 1260 and under recent lows. If we would get OP been hit, everything would be in a good order - retracement target is hit and we have clear bullish continuation pattern right at K-support area - "222" Buy.
But with untouched OP on the back, it is too risky go long and more confirmation is needed. For example, taking out of "C" point and erasing of AB-CD pattern could be good confirmation of bullish ambitions.
Strict rules of bullish position taking here, suggest placing stop below OP, which is rather costly and not suitable to everyone.
Daily
With keeping in mind major weekly OP @ 1260, daily picture makes it clear what levels to watch for. As short-term setup stands bullish, it is obvious that our signal line is 1266 lows as all patterns are concreted with this level.
First - we have two similar lows, which formed Tweezers bottom on weekly chart and works as background for short-term bullish sentiment. Next one is two side by side bullish grabbers. Finally, if you plot MACD here, you'll see that we also have classic bullish divergence with this lows.
All this stuff stands at minor OP target which we've traded last week and minor Fib support. Thus, daily chart tells two things. 1266 is invalidation point for bullish context. If will be broken - don't be long as weekly retracement continues.
Second - this is also our signal line in a context of weekly analysis that we've discussed above.
Intraday
As short-term context is bullish, on intraday chart we discuss upside action. Besides, everything is clear if market drops below 1266 lows. So, here we can't exclude appearing of Double Bottom pattern. The butterfly that we've discussed last week has been erased, as market has formed slightly new lows, forming W&R but has not hit butterfly's extension and jumped up.
Appearing of W&R is very typical for second bottom of the pattern. Upside rally also looks good. Theoretically, target of DB pattern stands around 1308 area and MPR1. But on a way up market has to pass multiple tests. First challenge is 1288 resistance. This is potential neckline of the pattern, but also two pivots and Fib level. Second challenge is 1300 area, which is a K-resistance of major 3/8 Fib level, so market could stuck there.
A lot of resistance above suggests that it would be better to take position in advance by two reasons. First is to place tighter stop, second - to have riskless trade with b/e stop when we come to first resistance outpost.
One of these levels could be used for long entry. As market is still coming to 1288 neckline and stands in relatively free space, retracement should not be too strong. Anyway, could split your position and try to enter on both levels as 3/8 as 5/8. Scenario will be erased, if gold will drop below 1266 lows.
If everything goes with our trading plan - move stops to breakeven when market comes to 1288 area.
Conclusion
Long term background mostly stands the same and it is positive for gold market. In a shorter-term we need to investigate the scenario that market might finish downside retracement on weekly and turning back to long-term bullish trend again. Now we do not have total confidence with this. Although we have bullish setup and could trade it, 1266 is an area that is crucial for new bullish setup and gold has to hold above it to keep bullish sentiment. Otherwise we probably should get drop to our major 1255-1260 area.
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.
A couple of weeks ago we've provided our long-term view on gold market, and mostly it stands the same. Today we're interested in NFP report impact on the market and what action we could get next week.
Before NFP report, Gold prices slumped to an over four-month low after the U.S. Federal Open Market Committee (FOMC) axed any hopes for a rate cut in the near term, subduing demand for the non-interest bearing bullion, as Reuters reports.
“A lot of people were positioned for the FOMC statement to be little bit more dovish than it actually was,” said Fawad Razaqzada, market analyst with Forex.com.
“We have seen an implied odds of a 2019 rate cut fall from 75 percent to 50 percent so people are revising their rate cut expectations as the Fed was not as dovish as people expected.”
The Federal Reserve kept the benchmark interest rate unchanged on Wednesday, in line with the market’s expectations.
However, market participants were taken by surprise when the central bank emphasised it saw no compelling reason to consider a rate cut any time soon, citing rising employment and economic growth.
On Friday, in turn, Gold was headed for its biggest daily rise in two months, clawing away from a four-month low hit in the previous session, helped by a pullback in the dollar and as some investors covered their short positions.
“We are seeing a short-covering rally after a sell-off during the week. We also saw some good physical demand at price levels below $1,270,” said David Meger, director of metals trading at High Ridge Futures.
“The dollar is weak, which is also helping gold,” he added.
Despite a strong U.S. jobs report, the dollar was down 0.3%, as traders focused on the weaker aspects in the report.
The U.S. wage gains did not accelerate as expected last month, holding at a reading that is consistent with moderate inflation.
A moderate pace of wage growth indicated that there would not be a rate hike anytime soon, in turn boosting appeal for the non-interest bearing metal, said an analyst based in New York.
Lower interest rates reduce the opportunity cost of holding the bullion.
However, two Fed officials said on Friday they were increasingly worried about weak inflation, an indication that some U.S. central bankers see a growing case for a future interest rate cut even as others push for continued patience.
Market participants were also keeping a close watch on U.S.-China trade talks, anticipating a resolution to the year long tariff war between the world’s two largest economies.
U.S. President Donald Trump said on Friday the U.S.-China trade negotiations are going pretty well.
Reflecting investor sentiment toward bullion, holdings in the world’s largest gold-backed exchange-traded fund (ETF), SPDR Gold Trust, fell about 0.2% to 745.52 tonnes on Thursday, its lowest since Oct. 12.
In general, if we take a careful look at SPDR funds holdings, we see very strong negative dynamic. While gold price barely shows 30% pullback - holdings dropped almost back to the lows of 2018, totally erasing recent rally.
This divergence tells, that something holds gold price and it could be USD weakness, as holding stand not in USD but in tonnes. Second - this divergence somehow should be resolved - either by big drop of Gold price or, upside rally and big demand for physical gold, and this should happen relatively soon. It is interesting that on red line (holdings) we have something that looks like "222" Buy pattern...
CFTC data, in turn shows light increasing of net long position, but it doesn't look as too significant. It stands for ~ 30K contracts.
Source: cftc.gov
Charting by Investing.com
Finally, Fathom consulting reports on slowdown on China economy, which shows signs of the tendency, but not occasional drawdown in statistics. It means that gold could get more support soon, but this is more perspective of longer-term period.
China’s economy resumed in March, with growth nudging down to 5.1% after several months of more stable readings. Its weakest rate since late 2016, the measure is now some way below the 6.4% official estimate of annual GDP growth, which defied market expectations of a further slowdown in the first quarter. The CMI not only points to weaker economic growth but also to changes in the composition of that growth, a consequence of China’s stop-start approach to reform. For now, it continues to suggest that China is prioritising growth over reform.
Beijing is caught between a rock and a hard place as both the old and new growth strategies are fraught with difficulties: the former is producing less bang for its buck, while the latter is associated with a painful economic adjustment.
In general, fundamental factors that we see support our long term bullish view on gold market. Now the major concern stands around daily retracement - is it done already or not. As we saw contradictive action last week, this question is still on the table. We get the answer by market's reaction on major resistance levels. Normally, if bearish trend is still valid, price should stay below major resistance.
Technical
Monthly
As gold market hit major target on weekly chart, it fluctuates inside major swings and mostly is driven by shorter-term factors. It makes minor impact on monthly picture and our long-term view. Recent fundamental and sentiment analysis shows that no big changes have happened and gold still stands positive. Despite technical retracement, we do not have reasons yet to cancel our long-term positive view on gold.
As we've said earlier, we're watching for our so called "symmetrical" model. It could be clear symmetry in market action, and we have suggested that future action could be a reflection of previous downside action shape.Now market has moved more above the trend line, which was a crucial level for long-term technical picture.
Gold shows good performance in December- February, which could put the foundation of new long-term upside trend. We still keep our harmonic technical model on monthly chart as primary tool of analysis. Current retracement down looks strong on daily chart, but it is just 30% of major swing up which is minimal level.
Fundamental reasons for gold rising mostly relate to changing of global political and economical situation. Strong global shifts never could happen without big political events. This should provide big support to gold market. Now it is widely suggested that these processes should accelerate closer to 2020 year, or even in second half of 2019. For example, here is report by Fathom Consulting and their expectations to see world crisis around 2020.
Here is explanation of our "symmetrical" model and scenario. Recent action on gold market reminds reverse H&S shape but very choppy and extended in time. Important COP target has been hit and upside action has started. In fact we have mirror action to the right and to the left from COP point. Market forms approximately equal lows on both sides. The speed is also similar. Is it possible that reversal is forming? Why not.
The one important thing that we've got on April is testing of YPP and now it is very important how market will response. To keep upside trend valid, market has to hold above it, although it could flirt with it for some time. Now we see that on first test price holds above this level.
Among bullish signs we could mention MACD hidden divergence which suggests action above 1380 top in long-term perspective.
Weekly
Finally, minimum target of our "222" Sell pattern is completed, once price has hit major 3/8 Fib retracement level at 1275 level. Now price stands inside wide K-support area, where, as we think, downside action should finish.
The most tricky moment though, is uncompleted OP target of major AB=CD pattern, which stands around 1260 and under recent lows. If we would get OP been hit, everything would be in a good order - retracement target is hit and we have clear bullish continuation pattern right at K-support area - "222" Buy.
But with untouched OP on the back, it is too risky go long and more confirmation is needed. For example, taking out of "C" point and erasing of AB-CD pattern could be good confirmation of bullish ambitions.
Strict rules of bullish position taking here, suggest placing stop below OP, which is rather costly and not suitable to everyone.
Daily
With keeping in mind major weekly OP @ 1260, daily picture makes it clear what levels to watch for. As short-term setup stands bullish, it is obvious that our signal line is 1266 lows as all patterns are concreted with this level.
First - we have two similar lows, which formed Tweezers bottom on weekly chart and works as background for short-term bullish sentiment. Next one is two side by side bullish grabbers. Finally, if you plot MACD here, you'll see that we also have classic bullish divergence with this lows.
All this stuff stands at minor OP target which we've traded last week and minor Fib support. Thus, daily chart tells two things. 1266 is invalidation point for bullish context. If will be broken - don't be long as weekly retracement continues.
Second - this is also our signal line in a context of weekly analysis that we've discussed above.
Intraday
As short-term context is bullish, on intraday chart we discuss upside action. Besides, everything is clear if market drops below 1266 lows. So, here we can't exclude appearing of Double Bottom pattern. The butterfly that we've discussed last week has been erased, as market has formed slightly new lows, forming W&R but has not hit butterfly's extension and jumped up.
Appearing of W&R is very typical for second bottom of the pattern. Upside rally also looks good. Theoretically, target of DB pattern stands around 1308 area and MPR1. But on a way up market has to pass multiple tests. First challenge is 1288 resistance. This is potential neckline of the pattern, but also two pivots and Fib level. Second challenge is 1300 area, which is a K-resistance of major 3/8 Fib level, so market could stuck there.
A lot of resistance above suggests that it would be better to take position in advance by two reasons. First is to place tighter stop, second - to have riskless trade with b/e stop when we come to first resistance outpost.
One of these levels could be used for long entry. As market is still coming to 1288 neckline and stands in relatively free space, retracement should not be too strong. Anyway, could split your position and try to enter on both levels as 3/8 as 5/8. Scenario will be erased, if gold will drop below 1266 lows.
If everything goes with our trading plan - move stops to breakeven when market comes to 1288 area.
Conclusion
Long term background mostly stands the same and it is positive for gold market. In a shorter-term we need to investigate the scenario that market might finish downside retracement on weekly and turning back to long-term bullish trend again. Now we do not have total confidence with this. Although we have bullish setup and could trade it, 1266 is an area that is crucial for new bullish setup and gold has to hold above it to keep bullish sentiment. Otherwise we probably should get drop to our major 1255-1260 area.
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.