Sive Morten
Special Consultant to the FPA
- Messages
- 18,771
Fundamentals
(Reuters) - Gold rose on Friday and was set to end the week little changed as the sudden sacking of the head of the FBI in the United States stoked investor concerns and boosted demand for bullion, and the U.S. dollar and Treasury yields fell.
Spot gold was up 0.3 percent at $1,228.01 an ounce by 2:52 p.m. EDT (1852 GMT), hovering around the 100-day moving average. Gold rose 0.5 percent in the previous session, its biggest one-day gain in a month.
U.S. gold futures settled up 0.3 percent at $1,227.70.
"You continue to see the political uncertainty continue to support gold," said ETF Securities analyst Martin Arnold, citing the dismissal of the Federal Bureau of Investigation's (FBI) James Comey and the upcoming British election as sources of uncertainty. U.S President Donald Trump on Thursday ran into resistance
for calling ousted Federal Bureau of Investigation chief Comey a "showboat". The attack was swiftly rebuffed by top U.S. senators and acting FBI Director Andrew McCabe, who pledged that an investigation into possible Trump campaign ties to Russia would proceed.
But capping gains in gold are expectations that the U.S. Federal Reserve will increase interest rates in June.
Gold is highly sensitive to rising rates, which lift the opportunity cost of holding non-yielding assets such as bullion, while boosting the dollar, in which it is priced. Traders are expecting a 100 percent probability of an
interest rate increase in June, CME Group's FedWatch showed. "After the recent drop, we perceive gold as looking technically stretched, negative momentum indicators are beginning to fade and a June Fed rate hike seems largely expected," said Giovanni Staunovo, analyst for UBS Chief Investment Office.
World stock markets paused near record highs after underwhelming U.S. retail sales data and worries over China's banking system spurred investors to lock in recent profits and pushed U.S. Treasury yields and the dollar lower.
"Gold has found technical support from a rising trend line," said Fawad Razaqzada, technical analyst for Forex.com. "But with the long-term bearish trend line still in place and the metal recently moving back below the technically important 50- and 200-day moving averages, the path of least resistance remains to the downside despite the bounce."
COT Report
Currently CFTC data shows classical retracement picture. Speculative net-long position is decreasing, while open interest decreasing as well. So, it means that traders have closed longs partially. At the same time, they do not hurry to go short. Thus, based on sentiment analysis, we could make a conclusion on retracement but not on bearish reversal by far:
SPDR fund data mostly support this idea. Take a look that while gold has dropped significantly, we do not see massive sell-off in largest gold fund. Long-term investors hold their positions. Yes, we see 7 tonnes outflow within a month, but this is not fast drop:
US Gold shares has shown reaction on gold drop, but it was moderate. Some shares even shows positive dynamic, such as Kinross Gold (KGC), Agnico Eagle Mines (AEM). This makes us think that it is a bit early to talk on bearish reversal.
Technicals
Monthly
As gold shows no return back to 1100 lows yet - 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. Recent statistics on Retail Sales and CPI just confirms our suggestion. Data often releases mixed.
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. In June France will take Parlament elections. This also will be a tough game.
Finally, big uncerntainty of D. Trump policy as domestic as international. Geopolitical tensions also should be backwind for gold market. 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.
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.
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. But usually trend shifting moments are rather painful for any market and bring high volatility when upside and downside swings change each other and rather deep.
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.
We will change our opinion if market will drop below 1170 area. In this case gold will meet the hazard to get butterfly pattern with 1000 and lower targets:
Today, guys we also show you something new... It seems that we still have to accept possible deeper action on gold market. If you will take a look at GOLD/EUR chart, you'll see that we've got bearish grabber here. Overall picture is a bit contradictive. Yes, we've got the grabber but we have uncompleted AB=CD and potential butterfly that could let complete it. Grabber will cancel the butterfly, if it will reach its target... Anyway we will continue to keep an eye on this picture, since it could provide us important sign in the future. USD gold market doesn't show such bright patterns as EUR gold.
Weekly
So on weekly chart we do not have significant changes since last week. In fact, recent week has rather tight range. Trend has turned bearish here, as on monthly chart. 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...
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. Until 1170 lows overall setup will be the same.
Daily
Here price finally re-test our 1230 area that we've discussed last week. Action up was very slow. Right now, guys, we also do not have very big choice. Actually I see only one potential pattern here and it is based on recent thurst down. Yes, this could be some DiNapoli pattern.
To get B&B "Sell" price somehow should reach 1245 resistance within 2 sessions but currently we do not know driving factors that could push gold so high and so fast.
DRPO "Buy" pattern is not limited by time to be formed. So, it has more chances to appear. Although fundamental background is arguable for DRPO, but at the same time we see a bit smooth reaction in COT report on gold price drop.
Anyway, we do not have anything else, thus - will keep an eye on possible directional patterns here.
4-hour
Here we do not see anything special right now. Trend is bullish here and next target stands around 1235 area. This will be Agreement resistance and it is very close to WPR1. So, if DRPO is forming right now - price could turn down out from there.
Next resistance stands around 1245-1250 K-level.
That's being said, on coming week price could continue lazy fluctuation in the same range. On Monday 1235 level will be in focus.
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. Besides, investors shows weak reaction on gold drop and mostly keep long positions in gold.
Short-term gold action is rather choppy and slow. On Monday we expect it should reach 1235 area. In general next week we will monitor whether any DiNapoli directional patterns will appear on daily gold or not.
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 rose on Friday and was set to end the week little changed as the sudden sacking of the head of the FBI in the United States stoked investor concerns and boosted demand for bullion, and the U.S. dollar and Treasury yields fell.
Spot gold was up 0.3 percent at $1,228.01 an ounce by 2:52 p.m. EDT (1852 GMT), hovering around the 100-day moving average. Gold rose 0.5 percent in the previous session, its biggest one-day gain in a month.
U.S. gold futures settled up 0.3 percent at $1,227.70.
"You continue to see the political uncertainty continue to support gold," said ETF Securities analyst Martin Arnold, citing the dismissal of the Federal Bureau of Investigation's (FBI) James Comey and the upcoming British election as sources of uncertainty. U.S President Donald Trump on Thursday ran into resistance
for calling ousted Federal Bureau of Investigation chief Comey a "showboat". The attack was swiftly rebuffed by top U.S. senators and acting FBI Director Andrew McCabe, who pledged that an investigation into possible Trump campaign ties to Russia would proceed.
But capping gains in gold are expectations that the U.S. Federal Reserve will increase interest rates in June.
Gold is highly sensitive to rising rates, which lift the opportunity cost of holding non-yielding assets such as bullion, while boosting the dollar, in which it is priced. Traders are expecting a 100 percent probability of an
interest rate increase in June, CME Group's FedWatch showed. "After the recent drop, we perceive gold as looking technically stretched, negative momentum indicators are beginning to fade and a June Fed rate hike seems largely expected," said Giovanni Staunovo, analyst for UBS Chief Investment Office.
World stock markets paused near record highs after underwhelming U.S. retail sales data and worries over China's banking system spurred investors to lock in recent profits and pushed U.S. Treasury yields and the dollar lower.
"Gold has found technical support from a rising trend line," said Fawad Razaqzada, technical analyst for Forex.com. "But with the long-term bearish trend line still in place and the metal recently moving back below the technically important 50- and 200-day moving averages, the path of least resistance remains to the downside despite the bounce."
COT Report
Currently CFTC data shows classical retracement picture. Speculative net-long position is decreasing, while open interest decreasing as well. So, it means that traders have closed longs partially. At the same time, they do not hurry to go short. Thus, based on sentiment analysis, we could make a conclusion on retracement but not on bearish reversal by far:
SPDR fund data mostly support this idea. Take a look that while gold has dropped significantly, we do not see massive sell-off in largest gold fund. Long-term investors hold their positions. Yes, we see 7 tonnes outflow within a month, but this is not fast drop:
US Gold shares has shown reaction on gold drop, but it was moderate. Some shares even shows positive dynamic, such as Kinross Gold (KGC), Agnico Eagle Mines (AEM). This makes us think that it is a bit early to talk on bearish reversal.
Technicals
Monthly
As gold shows no return back to 1100 lows yet - 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. Recent statistics on Retail Sales and CPI just confirms our suggestion. Data often releases mixed.
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. In June France will take Parlament elections. This also will be a tough game.
Finally, big uncerntainty of D. Trump policy as domestic as international. Geopolitical tensions also should be backwind for gold market. 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.
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.
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. But usually trend shifting moments are rather painful for any market and bring high volatility when upside and downside swings change each other and rather deep.
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.
We will change our opinion if market will drop below 1170 area. In this case gold will meet the hazard to get butterfly pattern with 1000 and lower targets:
Today, guys we also show you something new... It seems that we still have to accept possible deeper action on gold market. If you will take a look at GOLD/EUR chart, you'll see that we've got bearish grabber here. Overall picture is a bit contradictive. Yes, we've got the grabber but we have uncompleted AB=CD and potential butterfly that could let complete it. Grabber will cancel the butterfly, if it will reach its target... Anyway we will continue to keep an eye on this picture, since it could provide us important sign in the future. USD gold market doesn't show such bright patterns as EUR gold.
Weekly
So on weekly chart we do not have significant changes since last week. In fact, recent week has rather tight range. Trend has turned bearish here, as on monthly chart. 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...
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. Until 1170 lows overall setup will be the same.
Daily
Here price finally re-test our 1230 area that we've discussed last week. Action up was very slow. Right now, guys, we also do not have very big choice. Actually I see only one potential pattern here and it is based on recent thurst down. Yes, this could be some DiNapoli pattern.
To get B&B "Sell" price somehow should reach 1245 resistance within 2 sessions but currently we do not know driving factors that could push gold so high and so fast.
DRPO "Buy" pattern is not limited by time to be formed. So, it has more chances to appear. Although fundamental background is arguable for DRPO, but at the same time we see a bit smooth reaction in COT report on gold price drop.
Anyway, we do not have anything else, thus - will keep an eye on possible directional patterns here.
4-hour
Here we do not see anything special right now. Trend is bullish here and next target stands around 1235 area. This will be Agreement resistance and it is very close to WPR1. So, if DRPO is forming right now - price could turn down out from there.
Next resistance stands around 1245-1250 K-level.
That's being said, on coming week price could continue lazy fluctuation in the same range. On Monday 1235 level will be in focus.
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. Besides, investors shows weak reaction on gold drop and mostly keep long positions in gold.
Short-term gold action is rather choppy and slow. On Monday we expect it should reach 1235 area. In general next week we will monitor whether any DiNapoli directional patterns will appear on daily gold or not.
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.