Gold GOLD PRO WEEKLY, May 25 - 29, 2020

Sive Morten

Special Consultant to the FPA
Messages
13,627
Fundamentals

In our FX report yesterday we've provided extended fundamental background that is common to gold market as well. We've talked on vaccine, overall economy situation in the world and political tensions that could be supportive to gold as well. Just to not bother you with same information here, we point just few things that are important for gold market now.

If you surf the recent news headlines on gold market, you'll see that there are mostly two things - vaccine and economy recovery. Second one is difficult US-China relationships. All these topics we've covered in our FX report.

"In the midst of lesser need for safe-haven assets like gold, the fact that gold continued to slowly rise speaks volumes about its underlying strength based on the idea of liquidity injection across the board from central banks and economies," said David Meger, director of metals trading at High Ridge Futures. "On a slightly offsetting note" was the gain in equities on optimism over the reopening of economies and pent-up consumer demand, while developments surrounding Moderna Inc's vaccine tests were a "wild card" for markets, Meger added.

Massive global stimulus to limit the economic damage from the coronavirus pandemic has supported gold, considered a hedge against inflation and currency debasement. Gold also found support from minutes of the latest Federal Reserve meeting, with members acknowledging the possibility of further support measures if the economic downturn persists.

Fed Chair Jerome Powell told lawmakers on Tuesday the U.S. central bank was looking at extending access to credit facilities to additional borrowers, including states with smaller populations.

Gold gained on Friday as intensifying U.S.-China tensions compounded fears of a slow recovery in a global economy already reeling from the coronavirus pandemic.

"China's aggressive stance on Hong Kong security could exacerbate already tense relations (with the United States) and a possible confrontation between U.S. warships and Iranian freighters headed for Venezuela are key concerns heading into the long weekend, prompting investor buying," said Tai Wong, head of base and precious metals derivatives trading at BMO.

U.S.-China friction came to the fore again over the source of the coronavirus and escalated further with China's proposal to impose security laws on Hong Kong, drawing flak from Washington. The tensions compounded fears of a slower global economic recovery, pressuring equity markets but supporting the U.S. dollar, also considered a safe haven.

"Rising trade tensions in the past initially resulted in the USD benefiting primarily from safe haven flows, but escalating tensions on a global basis boosted a flight to safety in both gold and the USD," said Standard Chartered Bank analyst Suki Cooper. "The wider economic and health uncertainty are likely to keep gold prices underpinned. ... Prices are facing technical resistance around $1,765."

Heightening economic woes, Beijing dropped its annual growth target for the first time.

Hong Kong police fired tear gas and pepper spray to disperse thousands protesting on Sunday against Beijing’s plan to directly impose national security laws on the city, the biggest flare-up in the city since COVID-19 lockdowns began. Crowds thronged the bustling shopping district of Causeway Bay, where protesters chanted, “Revolution of our time. Liberate Hong Kong,” “Fight for freedom, Stand with Hong Kong,” and “Hong Kong independence, the only way out.”

The protest was the first since Beijing proposed national security laws on Thursday and pose a fresh challenge to Chinese President Xi Jinping as authorities struggle to tame public opposition to China’s tightening grip over the global financial hub. The demonstrations come amid concerns over the fate of the “one country, two systems” formula that has governed Hong Kong since the former UK colony’s return to Chinese rule in 1997. The arrangement guarantees the city broad freedoms not seen on the mainland, including a free press and independent judiciary.

Sunday’s rally was initially organised against a controversial national anthem bill, due for a second reading in the city’s lawmaking body on Wednesday. The proposed national security laws sparked calls for more people to take to the streets. The city government sought on Sunday to reassure the public and foreign investors over the tough security laws that sent a chill through financial markets and drew a swift rebuke from foreign governments, international human rights groups and some business lobbies.

Hong Kong has increasingly become a pawn in deteriorating relations between Washington and Beijing, and observers will be watching for any signs of resignation to defeat among the broader local community or indications that activists are gearing up for a fresh challenge.

Last year’s anti-government protests plunged the city into its biggest political crisis in decades, battered the economy and posed the gravest popular challenge to President Xi since he came to power in 2012.

Despite this situation, China’s top diplomat Wang Yi said on Sunday that China and the United States both stand to gain from cooperation and would lose from confrontation, adding both sides must find a way for peaceful co-existence.

For Chinese leader Xi Jinping it is a high-stakes power play. His move to impose tough national security laws on Hong Kong risks reigniting pro-democracy protests that plunged the city into chaos last year, increasing tensions in an already fraught relationship with the United States and undermining Hong Kong’s status as a global financial hub.

The United States has already warned of a tough response. Investors will look there, and to the situation on the ground for cues. As for markets, Hong Kong's property index posted its worst drop in 11.5 years on Friday. European luxury shares and banks such as HSBC also took a hammering on Friday, meaning ripples could spread.

CFTC Data

COT Report shows no big changes in the value of gold speculative position but shows big change in its structure. First - take a look at the table. Open interest has increased for 73K contracts that is very large amount for just single week. We see huge add-on to non-commercial (i.e. speculative) long position. Hedgers (i.e. commercials) have added as to the longs as to the shorts, but shorts have increased larger, that also suggests bullish view on the market:
1590310918202.png


But, on the chart you do not see these changes as net position has not changed too much:

1590310793729.png

source: cftc.gov
Charting by Investing.com


SPDR fund also shows stable dynamic as storage of physical gold rises following to the price:
1590311011410.png

Source: SPDR Fund, FPA calculations

Indeed, guys, what we have in a dry residual... Vaccine has only 5% probability to be approved within nearest 12 months. It means that at least the whole year or even longer here and there but some consequences of pandemic stay. And, it is needed to say, just to complete this topic - pandemic turns to Latin America and Africa countries where situation stands in the beginning. As a lot of migration comes from South Africa, Latin America in developed countries, it is unclear how EU and US intends to open borders and start flights again. This situation support gold in long-term perspective as global economy recovery could slow down or even fizzle, turning to "L" shape of recovery. Now already talks stand about possible relapse of Covid in autumn.

Second - huge liquidity flow accompanied with zero or near zero interest rates. This makes no difference between financial assets and gold in terms of return, but makes big difference in terms of safety and inflation protection.

Finally, political turmoil. US returns to the policy of pressure on China using any reason - Hong Kong independence, Covid spreading, imposing of trade tariffs, sanctions against companies etc. It seems that US has big plans in this direction and will try to squeeze as much as possible.

Taking all these stuff together, gold stands in a good position. Maybe we will not get outstanding rally, because the same factors support dollar, but gradual upside action should hold within a year or two.


Technicals
Monthly


May candle here is not large but price stubbornly stands above High wave's top. This is bullish signs. It means that buyers do not let gold to pullback out from the top. That's indirectly proved by changes from COT report that we've mentioned above.

Trend here still stands bullish. Monthly overbought level stands at 1800. With no Fib levels above - gold could try to re-test tops of 2012 around 1800 area. At least here, on monthly chart price has no barriers to do this.

Standing above YPR1 also tells that gold is not in retracement mode, but in longer-term trend continuation. Downside target mostly stands the same - YPS1 and major 5/8 Fib level around 1300 area. But now it is unclear what events should happen to make us consider this scenario.

Thus, despite that gold has no clear direction patterns here, on monthly chart - overall context remains bullish.

gold_m_25_05_20.png


Weekly

Here is the same story as on monthly chart - no clear patterns that indirectly price points on bullish sentiment. MACD trend on weekly chart stands bullish as well. And recent performance gives us two important moments. First is, market shows upside action, ignoring weekly overbought level. This is definitely sign of strength and growing demand on gold. This was very comfortable situation to start reversal, but this has not happened. Currently OB level moves higher, to 1805 level, and price mostly has completed our 1770 target. And here is again - no big drop, at least by far.

All these moments tell that gold shows the sign of bullish sentiment, despite that we have no clear bullish patterns.
gold_w_25_05_20.png


Daily

It was very small trading range on Friday. Unfortunately, gold was not able to form bullish grabber. It could make our task easier. Anyway, it is not reasons yet to talk on reversal. Retracement stands too small, price stands above broken triangle and keeps chances on some upside action. It means that daily traders, who have closed longs already should do nothing as major retracement still stands ahead. For the bears it is also too early to take positions here, on daily. We need more bearish signs - at least downside breakout of triangle's border and more directional action down on intraday charts. Now we do not have anything, so be patient and just wait.

gold_d_25_05_20.png


Intraday

As trading range of previous week was relatively narrow we again turn to our setup here. Upside bounce indeed has happened, out from OP target and K-support area. At the same time on Friday we've got two bearish grabbers that suggest pullback, at least below the recent low as it is marked on the chart.

Thus, as we've said on Friday, on pullback it is possible to take long position against 1715 lows while they hold
gold_4h_25_05_20.png


In fact, price stands in wedge - narrowing consolidation and it can't narrowing forever. Soon price has to break out and increase the scale of price action. On 1H chart we should wait for AB-CD downside retracement, somewhere to 1725 area. It also could give us "222" Buy and makes relative safe the chance to buy against the lows. At least risk will be just around 7-9$ per contract. Then gold has to drop the wedge. Wedge itself is falling, so it is bullish, but anyway further direction will depend on breakout.
gold_1h_25_05_20.png


Conclusion:

Long-term driving factors mostly supportive to the gold. They do not promise explosive rally but suggests that demand for gold should hold at good level within a year or two.

In shorter-term, trading range stands too narrow and we expect increasing of volatility and trading range, that suggests breakout in near term. Technical picture tells that upside breakout is more probable.
 

Sive Morten

Special Consultant to the FPA
Messages
13,627
Greetings everybody,

On Gold market we do not have big changes by far and it seems that we have to wait a bit more. Now market stands under impact of short-term positive factors and this makes difficult immediate upside continuation. Another sad moment is that we do not have strong directional patterns around. As a result we have nothing to do on daily chart by far, despite positive background and should wait for clarity of either deeper retracement or preparation to upside breakout. Trading range is very narrow in recent few weeks and something should happen, probably:
gold_d_26_05_20.png


On 4H chart market stands mostly indecision, forming triangle pattern right upon K-support area. Triangle keeps door open for both directions, although for the truth sake it is formed after downside action, so, it might be bearish.
gold_4h_26_05_20.png


On 1H chart our entry point is reached and market moves out from it, formed the grabber, but now it is stuck around K-resistance area. We should move stops to breakeven. So as you can see - nothing really thrilling, no strong patterns. So, if you do not like this routine, just stay aside and wait for really good setup. Hopefully we will get something this week. If you would like to trade - catch small patterns on hourly chart in the same manner as we do, like small grabber on this chart below...
Downside breakout of our 1720 support area increases chances on downside continuation, as butterfly "Buy" could be formed here...
gold_1h_26_05_20.png
 

Sive Morten

Special Consultant to the FPA
Messages
13,627
Greetings everybody,

So, yesterday market was choppy showing no valuable trading setups and we've found nothing interesting. Now it seems that something starts to form and daily traders finally could get reasons to step in. Market now is a victim of short-term euphoria of coming vaccine and restrictions' relief, although neither first nor second are real. We've talked about it in fundamental research.

Anyway, this could support deeper retracement and short-term bulls inspiration could give us chance to get long-term position on gold at good price. Now gold is testing the trend line and previous top at 1703 that is also has special meaning. Drop below it makes possible appearing of H&S pattern and action to 1645 K-support area:
gold_d_27_05_20.png


Our triangle on 4H chart indeed has been broken down. Now price has butterfly Buy right at support level, so upside reaction is possible. But for us is more important XOP target. Take a look - it creates Agreement support with major daily 3/8 1687 Fib level. If you consider gold buying - pay attention to this level, as some upside reaction out from it probably will happen.
gold_4h_27_05_20.png
 

Sive Morten

Special Consultant to the FPA
Messages
13,627
Greetings everybody,

As EUR has got the reasons to go up as gold. HK tensions keep gold in a positive mood. Still, on daily chart price action is slow and quiet and we have no choice but mostly to deal with intraday short-term setups. Yesterday we're not occasionally said about 1687 level - gold shows upside action right from here.
gold_d_28_05_20.png


So, currently we do not talk on major upside continuation and mostly watch for tactical targets. On 1H chart if you have taken long position - move stops below "C" point. Here we have AB-CD with OP around 1727 and XOP around 1740. I"m not sure about XOP, but OP should be reached. Thus, think about closing of at least 50-70% around OP.

For the bears - you could consider "222" Sell" pattern once OP will be hit. Initial stop has to be above 1741 XOP level. If gold goes down and drop below K-area - move stops right above OP top, wherever it will be formed.
This is all that we have right now, only short-term tactical setups, guys.
gold_1h_28_05_20.png
 

Sive Morten

Special Consultant to the FPA
Messages
13,627
Good morning,

Both of our scenarios have been completed - as OP reaching as reaction on "222" Sell pattern. On daily chart only one thing that could be important soon - it seems that more extended bullish dynamic pressure is growing. While MACD trend is bearish - market keep forming higher lows. Thus, within 1-2 weeks we could get the new high if price doesn't drop within 1-3 sessions.
gold_d_29_05_20.png


First, let's take a look at 1H chart. After OP and "222' Sell market shows upside bounce again but it looks heavy and too slow to suggest that this is starting point of action to XOP, besides we have two bearish grabbers that suggest downside move:
gold_1h_29_05_20.png


This, in turn could mean that we could get butterfly pattern on 4H chart and final completion of XOP target. At least currently it is difficult to consider taking of long position on the market. Once again - as yesterday as today setups are so-so, very short-term and have fragile background.
gold_4h_29_05_20.png
 
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