Sive Morten
Special Consultant to the FPA
- Messages
- 18,699
Fundamentals
(Reuters) Gold jumped 1 percent on Friday after U.S. non-farm payrolls data for April came in weaker than expected, boosting expectations the Federal Reserve will delay further interest rate increases.
Bullion prices pared gains later in the session as the U.S. dollar turned higher against a basket of major currencies and New York Fed President William Dudley told the New York Times that two rate hikes in 2016 remain a "reasonable expectation."
The Labor Department report showed the U.S. economy added 160,000 jobs in April, the fewest in seven months, and Americans dropped out of the labor force in droves, signs of weakness that cast doubts on whether the Fed will lift rates before the end of the year.
Spot gold hit a high of $1,295.70 an ounce after the data and was up 0.8 percent at $1,287.51 an ounce at 2:48 p.m. EDT (1848 GMT). It was on track to close the week down 0.5 percent in sharp contrast to last week's biggest increase since early February.
U.S. gold futures for June delivery settled up 1.7 percent at $1,294 an ounce.
Spot prices are up 21 percent this year on expectations the Fed will delay further rate hikes. Gold is highly sensitive to rising rates, which lift the opportunity cost of holding non-yielding bullion.
"The report won't satisfy the Fed's criteria for hiking rates in June and is another disappointment for markets," said Royce Mendes, director and senior economist at CIBC Capital Markets in Toronto, in a note.
"With consumption expected to rebound in the second quarter, the Fed should be in a position to raise rates again in September."
U.S. short-term interest rate futures contracts rose after the payrolls data, suggesting traders see a better chance the Fed will wait longer to act.
"Anybody who was thinking there was going to be a June rate hike is probably going to be disappointed," Citi analyst David Wilson said.
Stock markets worldwide dipped after the data, which added to economic growth concerns, and short-dated Treasury yields sank.
Investor sentiment toward gold showed signs of optimism. Assets of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, rose to the highest in over two years on Thursday at 829.44 tonnes.
CFTC shows a bit scaring picture - huge jump in speculative net-long positions. It has happened probably not just due opening new longs, but covering of shorts as well. Thus, net-long position stands at absolute high. Open interest has tiny upside potential. This is very dengerous combination. When speculative positions hit absolute level it means that everybody already has opened long positions. But to keep market growing, it needs more and more purchasing from somebody. As nobody already on other side, who could buy more - market shows reversal or retracement. Initially we thought that CFTC numbers will reach extreme levels at 1330 area of gold market, but this has happened earlier and now it is very difficult to suggest what upside potential market has. Mostly it is based on existed shorts and how much of them will be closed in nearest time...
Technicals
Monthly
On last April week 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...Especially taking in consideration - really tight situation with CFTC data. Of course, we can't foresee outstanding events, say, how gold will react on Brexit voting. It definitely may be gold will overcome former limits of speculative positions. But we can't rely on exceptions. We have to build our analysis on high probabilities. And it tells that currently is not the time to take long-term bullish positions.
Weekly
Right now on weekly chart we see action that we've expected to get based on inconsistency that we saw on daily chart with H&S pattern. Last week 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 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. If we do not have CFTC in mind - I would say that gold should reach 1330 next resistance area. Upside aciton stands almost vertical and i'ts very fast. As MPP has been tested last week - gold could move to MPR1 that also coincides with major resistance area on monthly chart. NFP data was mostly supportive for further gold upside action.
Still as we're coming closer to major resistance - monthly/weekly charts can't give us a lot of information. Now we probably should closely watch for daily and intraday charts and be very sensitive to any reversal pattern that will be formed there.
Daily
This picture is a bit tricky. Trend is bullish here, market is not at overbought, but reaction on NFP was mixed. Yes, market has bounced up from 1260 area, but was not able to show real upside continuation.
Usually, when market finished retracement after 1.27 butterfly target - it continues action to next one. While here we see a bit different story. Hourly wages in NFP data was better than expected, which indicates inflation growing. That's why, despite low numbers of NFP itself - reaction was not absolutely bullish on data release.
Thus, we have two moments. First is - fast upside breakout to 1304 area and completion of first butterfly extension. It means action to 1.618 target should happen sooner or later.
Second - combination of lazy reaction on NFP data, daily Overbought, and untouched MPP makes us think that we probably will get AB-CD retracement down to the same 1255-1260 area. And may be after that gold will turn to 1330 area.
This will not harm overall bullish setup on daily chart.
4-hour
Here guys, we could take closer look on action that we will watch for on next week. Here I've drawn two major scenarios. First one, as we've said, could be downward AB=CD. In this case, as you can see, nothing crucial will happen - market just finally will touch MPP and 1260 area and then could turn up again.
Second possible scenario, if we will get just minor move down, say to WPS1. In this case gold could form minor butterfly that has approximately the same target as larger one on daily chart.
But, here, I explain why I better rely on first way. Mostly by 2 reasons. They are untouched MPP. The point is gold stands just few bucks above it. Gravitation is significant and currently is very suitable price action for testing it. Again, existing of untouched MPP puts under question reliabily of butterfly.
...and second - on current retracement down market has not quite reached major 3/8 support of whole daily butterfly swing. It means that current reaction on 1.27 completion point is not quite sufficient. That's why, guys, in current circumstances I would better to wait for deeper retracement down to 1260. Besides, area around 1260 is more attractive and more reliable if you want to take long position.
Any longs that you intend to open should be closed fast and not kept for weeks. Reasons we explain above - CFTC data is great but fregile right now, gold market stands on a edge of big retracement in nearest future. Now is a major question not whether it will happen but when it will happen - after 1330 will be reached or even before that...
Conclusion:
We think that fundamentally gold stands somewhere near bottom and situation is starting to change. But this bottom could be "extended" in time. Thus right now we call to not take long-term bullish positions since CFTC data and technical picture tell that gold stands at the edge of solid retracement.
In short-term perspective scalp long positions could be taken. Currently we mostly expect final part of AB-CD retracement on 4-hour chart and following upside reversal.We're not sure that market sentiment will allow gold to complete our 1330 target, but we hope that potential for short-covering will help it to do this.
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 jumped 1 percent on Friday after U.S. non-farm payrolls data for April came in weaker than expected, boosting expectations the Federal Reserve will delay further interest rate increases.
Bullion prices pared gains later in the session as the U.S. dollar turned higher against a basket of major currencies and New York Fed President William Dudley told the New York Times that two rate hikes in 2016 remain a "reasonable expectation."
The Labor Department report showed the U.S. economy added 160,000 jobs in April, the fewest in seven months, and Americans dropped out of the labor force in droves, signs of weakness that cast doubts on whether the Fed will lift rates before the end of the year.
Spot gold hit a high of $1,295.70 an ounce after the data and was up 0.8 percent at $1,287.51 an ounce at 2:48 p.m. EDT (1848 GMT). It was on track to close the week down 0.5 percent in sharp contrast to last week's biggest increase since early February.
U.S. gold futures for June delivery settled up 1.7 percent at $1,294 an ounce.
Spot prices are up 21 percent this year on expectations the Fed will delay further rate hikes. Gold is highly sensitive to rising rates, which lift the opportunity cost of holding non-yielding bullion.
"The report won't satisfy the Fed's criteria for hiking rates in June and is another disappointment for markets," said Royce Mendes, director and senior economist at CIBC Capital Markets in Toronto, in a note.
"With consumption expected to rebound in the second quarter, the Fed should be in a position to raise rates again in September."
U.S. short-term interest rate futures contracts rose after the payrolls data, suggesting traders see a better chance the Fed will wait longer to act.
"Anybody who was thinking there was going to be a June rate hike is probably going to be disappointed," Citi analyst David Wilson said.
Stock markets worldwide dipped after the data, which added to economic growth concerns, and short-dated Treasury yields sank.
Investor sentiment toward gold showed signs of optimism. Assets of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, rose to the highest in over two years on Thursday at 829.44 tonnes.
CFTC shows a bit scaring picture - huge jump in speculative net-long positions. It has happened probably not just due opening new longs, but covering of shorts as well. Thus, net-long position stands at absolute high. Open interest has tiny upside potential. This is very dengerous combination. When speculative positions hit absolute level it means that everybody already has opened long positions. But to keep market growing, it needs more and more purchasing from somebody. As nobody already on other side, who could buy more - market shows reversal or retracement. Initially we thought that CFTC numbers will reach extreme levels at 1330 area of gold market, but this has happened earlier and now it is very difficult to suggest what upside potential market has. Mostly it is based on existed shorts and how much of them will be closed in nearest time...
Technicals
Monthly
On last April week 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...Especially taking in consideration - really tight situation with CFTC data. Of course, we can't foresee outstanding events, say, how gold will react on Brexit voting. It definitely may be gold will overcome former limits of speculative positions. But we can't rely on exceptions. We have to build our analysis on high probabilities. And it tells that currently is not the time to take long-term bullish positions.
Weekly
Right now on weekly chart we see action that we've expected to get based on inconsistency that we saw on daily chart with H&S pattern. Last week 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 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. If we do not have CFTC in mind - I would say that gold should reach 1330 next resistance area. Upside aciton stands almost vertical and i'ts very fast. As MPP has been tested last week - gold could move to MPR1 that also coincides with major resistance area on monthly chart. NFP data was mostly supportive for further gold upside action.
Still as we're coming closer to major resistance - monthly/weekly charts can't give us a lot of information. Now we probably should closely watch for daily and intraday charts and be very sensitive to any reversal pattern that will be formed there.
Daily
This picture is a bit tricky. Trend is bullish here, market is not at overbought, but reaction on NFP was mixed. Yes, market has bounced up from 1260 area, but was not able to show real upside continuation.
Usually, when market finished retracement after 1.27 butterfly target - it continues action to next one. While here we see a bit different story. Hourly wages in NFP data was better than expected, which indicates inflation growing. That's why, despite low numbers of NFP itself - reaction was not absolutely bullish on data release.
Thus, we have two moments. First is - fast upside breakout to 1304 area and completion of first butterfly extension. It means action to 1.618 target should happen sooner or later.
Second - combination of lazy reaction on NFP data, daily Overbought, and untouched MPP makes us think that we probably will get AB-CD retracement down to the same 1255-1260 area. And may be after that gold will turn to 1330 area.
This will not harm overall bullish setup on daily chart.
4-hour
Here guys, we could take closer look on action that we will watch for on next week. Here I've drawn two major scenarios. First one, as we've said, could be downward AB=CD. In this case, as you can see, nothing crucial will happen - market just finally will touch MPP and 1260 area and then could turn up again.
Second possible scenario, if we will get just minor move down, say to WPS1. In this case gold could form minor butterfly that has approximately the same target as larger one on daily chart.
But, here, I explain why I better rely on first way. Mostly by 2 reasons. They are untouched MPP. The point is gold stands just few bucks above it. Gravitation is significant and currently is very suitable price action for testing it. Again, existing of untouched MPP puts under question reliabily of butterfly.
...and second - on current retracement down market has not quite reached major 3/8 support of whole daily butterfly swing. It means that current reaction on 1.27 completion point is not quite sufficient. That's why, guys, in current circumstances I would better to wait for deeper retracement down to 1260. Besides, area around 1260 is more attractive and more reliable if you want to take long position.
Any longs that you intend to open should be closed fast and not kept for weeks. Reasons we explain above - CFTC data is great but fregile right now, gold market stands on a edge of big retracement in nearest future. Now is a major question not whether it will happen but when it will happen - after 1330 will be reached or even before that...
Conclusion:
We think that fundamentally gold stands somewhere near bottom and situation is starting to change. But this bottom could be "extended" in time. Thus right now we call to not take long-term bullish positions since CFTC data and technical picture tell that gold stands at the edge of solid retracement.
In short-term perspective scalp long positions could be taken. Currently we mostly expect final part of AB-CD retracement on 4-hour chart and following upside reversal.We're not sure that market sentiment will allow gold to complete our 1330 target, but we hope that potential for short-covering will help it to do this.
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.
