Gold GOLD PRO WEEKLY, May 17 - 21, 2021

Sive Morten

Special Consultant to the FPA
Messages
14,702
Fundamentals

Recent NFP release was a spring of fresh air to the gold market. Investors have got an inspiration and with new enthusiasm started to push price higher. This week we've got CPI release that was the same strength but in opposite direction. Somehow, market was able to swallow it without any big problems. It seems that Fed rock hard position provides confidence, so our short-term bullish context is survived and still stands valid.

Market overview

Gold prices rose on Tuesday to hover near a three-month high reached in the previous session as the dollar traded near multi-month lows, with investors awaiting U.S. consumer price data to gauge inflation. Prices jumped more than 3% last week as the metal surpassed a key psychological level of $1,800 and after weaker-than-anticipated April jobs numbers in the United States.

“Investor interest in bullion remains high due to inflation fears and weak U.S. jobs data. Investors are now seeing gold as a hedge against inflation,” said Carlo Alberto De Casa, chief analyst ActivTrades. Even technically, gold is in a strong positive trend. A clear surpass of $1,840 could open space for further upside towards $1,870.”

Fed officials would like to see higher inflation, more wage growth and several months of strong employment gains before they consider adjusting monetary policy, Chicago Fed Bank President Charles Evans said on Monday.

“The scope for further declines (in gold prices) may be modest,” HSBC analysts said in a note, adding that a decline in yields offers gold a chance to rally.

“Bulls remain in control as long as $1,800 proves to be reliable support
... A solid weekly close above $1,840 could signal a move higher towards $1,855 and $1,870, respectively,” FXTM’s Otunuga said.

Gold fell 1% in choppy trading on Wednesday, en route to snap a five-session-long winning streak, after April’s jump in U.S. consumer prices buoyed the dollar and U.S. Treasury yields, reducing appetite for non-yielding bullion.

“People trading gold and silver are a little concerned that maybe this inflation is getting a little too quick, and the Fed did say they have tools to tamp it down. ... Traders are concerned about what those tools may be,” said Bob Haberkorn, senior market strategist at RJO Futures. For this week, you’re going to see caution in the gold and silver markets.”

"The real yields continue to rise and there is speculation in the market that there would be a surprise tightening by the Federal Reserve," said Xiao Fu, head of commodities markets strategy at Bank of China International.


Benchmark U.S. 10-year Treasury yields jumped to their highest in more than a month.

U.S. Federal Reserve Vice Chair Richard Clarida on Wednesday said it’s “not yet” time to pull back on support for the economy, though he also added the central bank would not hesitate to use tools if it sees risk of persistent upward drift in inflation expectations.

You’re still going to see the Fed remain stubbornly accommodative here, and that should provide some underlying support (to gold),” Edward Moya, senior market analyst at OANDA, said. What you’re going to see is that the market is going to slowly transition to viewing gold as an inflation hedge.”

"We're still getting on the aftershock of that consumer price index release and the expectations now from the market that the Fed will be forced to do something about inflation," IG Market analyst Kyle Rodda said. The Fed, however, has been reiterating that inflation will be so transitory that it won't have to worry about adjusting interest rates, he added.

"The Fed is probably quite focused on unemployment as a reason for keeping the narrative dovish," Nicholas Frappell, global general manager at ABC Bullion, said.
Given the Flexible Average Inflation target, there is awareness that the Fed can allow for some inflationary room," Frappell added.


The Fed pledged to leave borrowing costs unchanged until the economy reaches full employment, and inflation hits 2% and is on track to "moderately" exceed that level for some time.

"Dips in gold remain a buying opportunity," said David Meger, director of metals trading at High Ridge Futures. We're in a fundamentally strong underlying condition of going through recovery in the economy along with a very low interest rate environment that creates inflationary pressures in the market."

“Inflation is not necessarily bad for gold, however, it’s bad if the central banks start to act on it, and the market is getting a little bit jittery thinking that this could bring forward the U.S. Federal Reserve’s taper a little bit,” said Stephen Innes, managing partner at SPI Asset Management. Right now we haven’t had any inclination that the Fed is about to move anytime soon, I think gold still remains relatively supported,” Innes said, adding that strong economic data still remains a key concern.

“We’ll need some more clarity in terms of how persistent inflation is. If it turns out to be transitory, yields will remain lower,” said Harshal Barot, a senior research consultant for South Asia at Metals Focus.


Gold rose on Friday, as the dollar pulled back from one-week highs after U.S. Federal Reserve officials downplayed an imminent rise in interest rates despite a sharp rise in inflation and after data showed U.S. retail sales unexpectedly stalled in April.

“The Fed is not going to throw the economic recovery off course by raising rates,” StoneX analyst Rhona O’Connell said. “There’s too much risk involved to start either aggressive tapering or raising rates because there is not enough underlying strength in the economy. We have got global issues, and particularly with uncertainties over places like Brazil and India.”

Fed Governor Christopher Waller on Thursday said the Fed would not move to raise rates until inflation is above target for a long time, or excessively high. Meanwhile, Richmond Fed President Thomas Barkin also downplayed the likelihood of a long-term jump in inflation.

If the Fed sticks to its guns and the initial Fed comments following publication of the data suggest that is exactly what it intends to do, gold prices are likely to be pushed up again, Commerzbank analysts wrote in a note.

Dollar and real yields “need to remain supportive for gold to rise in the near term,” said Suki Cooper, an analyst at Standard Chartered. Barring short-term corrections, a dovish Fed and rising inflation expectations are likely to keep gold price risk skewed to the upside over the course of the year. Disappointing (retail sales) data also opened the gate for gold prices to challenge the next hurdle around $1,850/oz,” Cooper added.

The yield on benchmark 10-year U.S. Treasury notes fell, bolstering the appeal of non-yielding gold. The dollar index shed 0.4%, making bullion cheaper for those holding other currencies.

COT Report

As we've said last week, the CFTC data doesn't include NFP effect that we will see only next week. And now, in current week data we see what has happened. Open gold position has got solid push and becomes thicker for 65K+ contracts. This is very significant inflow. Net long speculative position has increased for ~ 27K contracts because of double effect of adding longs and closing shorts:
1621164397379.png


Hedgers are more careful and add some positions for the hedge against the drop. All in all, position has increased:

1621164512764.png


So, market stands very sensitive to new releases and soon forget numbers that have made strong effect. At the same time, indeed, the single release doesn't mean the trend yet and next data might be different. Besides, later released Retail sales data mitigates effect of CPI and everybody makes the parallel with NFP data that together overcome CPI effect.
Fed also plays not the last role in current market sentiment. As they keep rock hard dovish position, letting inflation rise higher, this brings more confidence to the market and supports gold in near term, because of combination of low rates, held by the Fed in foreseeable future and rising inflation. Based on the comments, it seems that gold was able to keep positive sentiment in short-term and we still could stay turned on upward continuation.

Technicals

Monthly

So, gold keep showing confidence and creeping higher, out of YPP. Still trend is still bearish here and we have to treat current action only as a pullback in bear trend.

Recent rally has made a lot of noise locally, but higher time frames stand the same by far. Market shows nice performance in April and May, finally breaking above YPP.

Currently price is coiling around most popular $1850 target. Moving above YPP brings more confidence that gold could proceed higher in short-term, but we should not fall in euphoria, because currently upward action is just a retracement from downside swing. As it was mentioned above, in a case of 1850$ breakout next target supposedly should be around 1925$ area.

gold_m_17_05_21.png


Weekly

By looking at weekly chart, indeed - next target stands around 1922-1925$ area it is formed by next major 5/8 Fib resistance level and overbought level. Before upward continuation we still expect some reaction on K-area. It is not started yet just because of existence near standing XOP target on daily chart. So it could start once the XOP will be hit, supposedly on coming week. Hopefully it could provide good chances for taking the long position, as sentiment remains bullish by far.

gold_w_17_05_21.png


Daily

Here you could see the daily XOP target, mentioned above. It creates an Agreement resistance with K-area and should lead to pullback by probability view. Besides, overall sentiment is positive but not very strong.

If you remember we have two stage trading plan. On a 1st stage we're aimed on XOP target, while the 2nd one suggests downside reaction when XOP will be completed. By market mechanics here we should not get any new deep retracements, because it has happened already and appearing of another one will be irrational. It means that in the beginning of the week, while gold is focused on 1854 target - price has to stay inside the most recent upward swing. This is the major condition that has to be held by the market to remain bullish.
gold_d_17_05_21.png


Intraday

On 4H chart we do not have any specific patterns by far, so I give you the tree of important support levels that might be useful on coming week, once pullback out of XOP starts:
gold_4h_17_05_21.png


Our major chart for Monday action is 1H. As we've said above - gold could show the pullback but it has to be small. Here we suggest that price should not drop below 1825 area by few reasons. First is - downside OP is completed last week, actually we've traded it. Second - our downside AB-CD pattern has been erased as gold has formed upside reversal swing, so we can't consider another swing to XOP any more. It means that deep drop below 1825 should not happen.

Besides, market stands right now in 1825-1845 trading range. That's why we consider pullback only to 1835 or 1830 K-area supports. If we do not get direct upside action, right to 1855 XOP, we could get reverse H&S pattern here, right at top, which could be nice trading setup with good potential. The entry point supposedly should be around 1825-1830 range, where right arm's low stand.

As usual, you could choose how to enter - wait for 1825-1830 or apply the scale-in as around 1835 as around 1830. Be aware of black nasty candle, straight drop down, as on CPI report. Don't be long if we will get it. We need gradual pullback here.
gold_1h_17_05_21.png
 

Sive Morten

Special Consultant to the FPA
Messages
14,702
Greetings everybody,

Gold has shown a bit stronger action that we thought and jumped directly to 1875 OP target, that I would like to mention earlier. OP stands in agreement with 1886 Fib level and near 1888 Overbought. It means that on daily chart we have nothing to do, as currently is not good place for long entry.

Initially we thought that stronger downside pullback should come from daily 1855 XOP, but now it seems that it could happen from 1875 area. If it will be harmonic, then price could re-test 1815-1820 area. But, as no reaction has started yet, it is difficult to foresee what the shape it will take.
gold_d_18_05_21.png


While we're waiting for reaction on daily, we could consider bullish trades of the shorter term and on the lower time frames. Recent upward action is a good thrust, so we could keep an eye on possible B&B "Buy" trade here. Thus, if price drops to 1850$ and re-test strong broken area - it is potentially good level for scalp long trade.
gold_4h_18_05_21.png


Concerning bearish positions... If you're aimed on relatively deep retracement, then it would be better to wait for clear bearish reversal patterns on intraday charts and hide initial stop above 1888$ so it will not be touched occasionally. For the scalp intraday trading it also makes sense to get some patterns first. Here is, some minor H&S is forming, that could become a starting point of downside action. Or, you could wait for more extended pattern... In general it is not forbidden to sell right now, level is good for this purpose. But, as upside momentum stands strong - it is necessary to get clear bearish pattern first. Finally, it would be better to set near standing targets and do not marry any positions. 1850 seems most reasonable right now.
gold_1h_18_05_21.png
 

Sive Morten

Special Consultant to the FPA
Messages
14,702
Greetings everybody,

Today we need just add some new details to our recent analysis. On daily chart situation stands the same and market is coiling around OP that finally has been reached. As we've said, some downside response on target should happen. And yesterday we've said that bulls should take no new positions by far, as price is around OP Agreement and overbought. It would be better to wait for pullback.
Second - bears could think about short-term positions but based on some intraday patterns, and with stops above 1886 Fib level.
gold_d_19_05_21.png



As we have nice thrust on 4H chart we said it might be the background for DiNapoli directional pattern. Take a look, indeed, today DRPO "Sell" has been confirmed. It means that price could drop back to 1840-1850$ area at least:
gold_4h_19_05_21.png
 

Sive Morten

Special Consultant to the FPA
Messages
14,702
Greetings everybody,

So, gold is coiling around our Agreement resistance. As we've warned recently, it might be some volatility around the level because of FOMC minutes release and it was. As a result we've got the high wave doji pattern on daily chart. The pattern is not directional one and mostly indicates indecision. But, next market action follows in the direction of doji range breakout. That's why this pattern is important.
gold_d_20_05_21.png


On 4H chart we have nominal bearish grabber on white big candle, market is forming widening triangle and here are multiple other patterns might formed - diamond, butterflies, tirangles etc. currently it is difficult to say what it will be finally.
So, for daily traders setup remains the same - sit on the hands and do nothing.
gold_4h_20_05_21.png


For those who consider intraday bearish trades - it would be better to keep stops above "A" point by far, despite that we've got "222" Sell around 5/8 Fib level and it might be bearish triangle. The range of high wave is solid and fluctuations could be wide. Once market will start dropping to OP and below "B" lows - it is possible to move stops to breakeven.
gold_1h_20_05_21.png
 

Sive Morten

Special Consultant to the FPA
Messages
14,702
Greetings everybody,

On daily chart we do not have any big chances as market still stands inside the range of HW pattern. Odds suggest that some at least minor pullback should happen here, just because gold stands at Agreement resistance, which is relatively strong level. That's why, for daily traders we have nothing new - it would be better to wait for clarity and maybe pullback before consider taking the new long position:
gold_d_21_05_21.png


Meantime, we have tricky situation on intraday charts. At the first glance, bearish context is obvious and market is ready to drop, but we treat this situation a bit different. First is, we do not like the sideways action after the upward spike. Usually, this is not the way how markets turn down. It looks more like consolidation under important top rather than reversal. Hence, it has bullish feature rather than bearish.

Besides, by DiNapoli terms - we have bearish MACD trend, but market is forming higher lows. It might be bullish dynamic pressure:
gold_4h_21_05_21.png


And on 1H chart price is forming triangle consolidation right under the top. It always means preparation for breakout:
gold_1h_21_05_21.png


Finally, on interest rates we have downside AB-CD that already has erased previous rally and rate could drop back to 1.6% area which might be supportive for the gold at least to make it some spike and W&R.

G6zxspCQ


Maybe situation will change later. But right now it makes sense to wait and do not take short position.
 
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