Sive Morten
Special Consultant to the FPA
- Messages
- 18,727
Fundamentals
(Reuters) - Gold pared gains on Friday after data showed U.S. job growth rebounded in April and stayed on track for its biggest weekly loss in six months as expectations for a U.S. interest rate hike in June grew and euro zone political risk receded.
The dollar hit its lowest level in roughly six months against the euro despite the sharp rebound in U.S. payrolls data, which did not shake investors' bullishness toward the euro ahead of the second round of France's presidential election.
Spot gold was up 0.05 percent at $1,227.89 an ounce by 2:35 p.m. EDT (1835 GMT), but set to end the week down 3.2 percent, its biggest weekly drop since November. U.S. June gold futures settled down 0.14 percent at $1,226.90.
"The U.S. employment (data) was stronger than expected," ABN Amro analyst Georgette Boele said. "This only put gold prices slightly under pressure, because the U.S. dollar didn't rally."
Gold fell to the lowest in nearly seven weeks at $1,225.20 on Thursday after the Fed played down any threats to this year's planned rate increases, supporting forecasts of another move in June. The metal is highly sensitive to rising U.S. interest rates, which increase the opportunity cost of holding non-yielding bullion while boosting the dollar, in which it is priced.
Concerns over a victory by far-right candidate Marine Le Pen in the French presidential election, which drove gold lower last month, have faded considerably. Sunday's vote is expected to elect centrist Emmanuel Macron, whom investors favour. "Following six weeks of fund buying, gold was left exposed as geo-risks faded, but the fact that ETPs have seen limited selling appetite could be an indication that this was mostly
speculative sellers reducing longs," said Saxo Bank's head of commodities research, Ole Hansen.
COT Report
CFTC data shows absolutely logical dynamic - as Gold has turned to retracement - net speculative long position has dropped a bit as well as open interest. It means that some longs were closed:
Currently we think that it is too early to talk on bearish reversal on gold market. Price action has not overcome yet any red line. Besides, recent SPDR statistics shows that recent drop was not supported by real sell-off:
That's being said, we could make conclusion of moderate bearish sentiment, but the one that typical for retracement stage on the market.
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. Right now we see that some drop has started here and trend is turning bearish, but it brings no problems yet to overall picture.
At this moment overall fundamental background looks supportive for gold market. We see few factors that could support upside action in medium-term period.
First one is Fed policy. Fed will not hurry with rate increase and will not stifle US economy by too early agressive policy. They will support inflationary growth for some time and let economy to become hot a bit. Thus, major impact of Fed policy should come in 2018. This will let gold to ride on inflation for some time in 2017.
Second - multiple elections in EU brings a lot of uncertainty and works as supportive factor for gold market. Now France is choosing the president. Then elections in Germany in 24th of September etc. We've placed some interesting moments in today's Forex Pro Weekly research and I still think that we could stand on the eve of big surprise. Yesterday in debates Le Pen said: “France will be steered by a woman, it will be me or it will be Ms Merkel.”.That was a knockdown for E. Macron. I love her... How French could not like her?
Finally, big uncerntainty of D. Trump policy as domestic as international. Geopolitical tensions also should be backwind for gold market.
These factors could support gold market in medium-term period. Technical picture and sentiment analysis right now also mostly look bullish, but not excludes risk factors totally.
Technically price behavior, short-term sentiment and commodities performance mostly supports idea of bullish reversal pattern here (at least now).
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. 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.
As you can see we have a lot of driving factors and all of them have significant value. It means that despite direction - either upside (as we think) or downside to 1100 (that is contrary opinion) - action will be very volatile.
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...
At this moment we do not have questions and serious doubts on perspective of H&S pattern. Market shows normal behavior for its shape. Also we have nice bullish divergence with MACD that is also typical for reversal patterns. On monthly chart we could specify two relatively close targets. First is YPR1 around 1330, next one is neckline - around 1380 area.
Weekly
So on weekly chart trend stands bullish and market is not at OB/OS. Now price shows pull down from 1278 major resistance area. As you can see, this is major 5/8 Fib resistance and minor 0.618 AB-CD target which creates DiNapoli "Agreement" resistance.
Overall picture still stands bullish in larger perspective. Here we see upside breakout of downside channel and re-testing it later. As retracement already has happened, current upward action should be treated as upside extension stage...
Recent drop looks strong, but we will see what will happen on next week as France elections could bring surprise. Here, price is coming to MACDP line and we also will be watching for bullish grabber on weekly.
This time frame does not bring any trading setups by far, that's why we probably again will have to focus on daily and intraday charts. Retracement depth is our major headache right now.
Daily
Trend is bearish here. Despite NFP release Friday action was inside session and price still stands in area of daily K-support. Here we mostly suggest deeper downside action, by following reasons: breakout of MPS1, forming of bearish reversal swing on 4-hour chart, breaking through previous consolidation around 1265.
As we expect some upward reaction on K-support area, we mostly gravitate to idea of appearing big AB=CD pattern here, with possible target even around 1190 Fib support.
That's why next week we mostly will watch for this upside reaction...
Intraday
On Friday we were a bit frustrated by absence of bullish reversal patterns on intraday chart. But right now this pattern has all chances to appear and it could be DRPO "Buy". At least major part of this pattern is already in place.
Uspide bounce also should be deep, at least to 1250 K-resistance area. Usually when any market forms reversal swing, it show 2-leg AB-CD retracement. And gold market in general shows deep retracements. Thus, this is our primary object for Monday Session...
Conclusion:
Thus, although gold shows deep retracement, but we do not see any real hazard for long-term bullish trend yet. So, it is too early to panic and scream that "everything is lost". Market could form even 1190 retracement, but this will not hurt long-term bullish tendency yet.
On Monday we will watch - wether upside reaction on daily K-area will start or not. In particular we're interested in DRPO "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 pared gains on Friday after data showed U.S. job growth rebounded in April and stayed on track for its biggest weekly loss in six months as expectations for a U.S. interest rate hike in June grew and euro zone political risk receded.
The dollar hit its lowest level in roughly six months against the euro despite the sharp rebound in U.S. payrolls data, which did not shake investors' bullishness toward the euro ahead of the second round of France's presidential election.
Spot gold was up 0.05 percent at $1,227.89 an ounce by 2:35 p.m. EDT (1835 GMT), but set to end the week down 3.2 percent, its biggest weekly drop since November. U.S. June gold futures settled down 0.14 percent at $1,226.90.
"The U.S. employment (data) was stronger than expected," ABN Amro analyst Georgette Boele said. "This only put gold prices slightly under pressure, because the U.S. dollar didn't rally."
Gold fell to the lowest in nearly seven weeks at $1,225.20 on Thursday after the Fed played down any threats to this year's planned rate increases, supporting forecasts of another move in June. The metal is highly sensitive to rising U.S. interest rates, which increase the opportunity cost of holding non-yielding bullion while boosting the dollar, in which it is priced.
Concerns over a victory by far-right candidate Marine Le Pen in the French presidential election, which drove gold lower last month, have faded considerably. Sunday's vote is expected to elect centrist Emmanuel Macron, whom investors favour. "Following six weeks of fund buying, gold was left exposed as geo-risks faded, but the fact that ETPs have seen limited selling appetite could be an indication that this was mostly
speculative sellers reducing longs," said Saxo Bank's head of commodities research, Ole Hansen.
COT Report
CFTC data shows absolutely logical dynamic - as Gold has turned to retracement - net speculative long position has dropped a bit as well as open interest. It means that some longs were closed:
Currently we think that it is too early to talk on bearish reversal on gold market. Price action has not overcome yet any red line. Besides, recent SPDR statistics shows that recent drop was not supported by real sell-off:
That's being said, we could make conclusion of moderate bearish sentiment, but the one that typical for retracement stage on the market.
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. Right now we see that some drop has started here and trend is turning bearish, but it brings no problems yet to overall picture.
At this moment overall fundamental background looks supportive for gold market. We see few factors that could support upside action in medium-term period.
First one is Fed policy. Fed will not hurry with rate increase and will not stifle US economy by too early agressive policy. They will support inflationary growth for some time and let economy to become hot a bit. Thus, major impact of Fed policy should come in 2018. This will let gold to ride on inflation for some time in 2017.
Second - multiple elections in EU brings a lot of uncertainty and works as supportive factor for gold market. Now France is choosing the president. Then elections in Germany in 24th of September etc. We've placed some interesting moments in today's Forex Pro Weekly research and I still think that we could stand on the eve of big surprise. Yesterday in debates Le Pen said: “France will be steered by a woman, it will be me or it will be Ms Merkel.”.That was a knockdown for E. Macron. I love her... How French could not like her?
Finally, big uncerntainty of D. Trump policy as domestic as international. Geopolitical tensions also should be backwind for gold market.
These factors could support gold market in medium-term period. Technical picture and sentiment analysis right now also mostly look bullish, but not excludes risk factors totally.
Technically price behavior, short-term sentiment and commodities performance mostly supports idea of bullish reversal pattern here (at least now).
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. 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.
As you can see we have a lot of driving factors and all of them have significant value. It means that despite direction - either upside (as we think) or downside to 1100 (that is contrary opinion) - action will be very volatile.
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...
At this moment we do not have questions and serious doubts on perspective of H&S pattern. Market shows normal behavior for its shape. Also we have nice bullish divergence with MACD that is also typical for reversal patterns. On monthly chart we could specify two relatively close targets. First is YPR1 around 1330, next one is neckline - around 1380 area.
Weekly
So on weekly chart trend stands bullish and market is not at OB/OS. Now price shows pull down from 1278 major resistance area. As you can see, this is major 5/8 Fib resistance and minor 0.618 AB-CD target which creates DiNapoli "Agreement" resistance.
Overall picture still stands bullish in larger perspective. Here we see upside breakout of downside channel and re-testing it later. As retracement already has happened, current upward action should be treated as upside extension stage...
Recent drop looks strong, but we will see what will happen on next week as France elections could bring surprise. Here, price is coming to MACDP line and we also will be watching for bullish grabber on weekly.
This time frame does not bring any trading setups by far, that's why we probably again will have to focus on daily and intraday charts. Retracement depth is our major headache right now.
Daily
Trend is bearish here. Despite NFP release Friday action was inside session and price still stands in area of daily K-support. Here we mostly suggest deeper downside action, by following reasons: breakout of MPS1, forming of bearish reversal swing on 4-hour chart, breaking through previous consolidation around 1265.
As we expect some upward reaction on K-support area, we mostly gravitate to idea of appearing big AB=CD pattern here, with possible target even around 1190 Fib support.
That's why next week we mostly will watch for this upside reaction...
Intraday
On Friday we were a bit frustrated by absence of bullish reversal patterns on intraday chart. But right now this pattern has all chances to appear and it could be DRPO "Buy". At least major part of this pattern is already in place.
Uspide bounce also should be deep, at least to 1250 K-resistance area. Usually when any market forms reversal swing, it show 2-leg AB-CD retracement. And gold market in general shows deep retracements. Thus, this is our primary object for Monday Session...
Conclusion:
Thus, although gold shows deep retracement, but we do not see any real hazard for long-term bullish trend yet. So, it is too early to panic and scream that "everything is lost". Market could form even 1190 retracement, but this will not hurt long-term bullish tendency yet.
On Monday we will watch - wether upside reaction on daily K-area will start or not. In particular we're interested in DRPO "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.