Sive Morten
Special Consultant to the FPA
- Messages
- 18,676
Fundamentals
Currently gold is driven by the same factors as currency market. The reason for recent rally was a warning that Fed indeed will have to cut the rate this year, if no relief happens in US-China trade war. Besides, recent US data doesn't encourage investors. We've talked about these factors in our Weekly EUR Report as well.
Thus, Reuters reports - Gold prices held steady on Friday after rising above $1,280 in the previous session as weak U.S. data pushed the dollar off 2-year highs and reignited hopes of a rate cut by the Federal Reserve this year.
Spot gold was steady at $1,283.21 per ounce by 0653 GMT, after rising as much as 1.1% to a one-week peak of 1,287.23 in the previous session. The metal has risen 0.5% so far this week.
“Gold has found a very good support around $1,270. There was some short covering after the (weak U.S.) data that pushed prices up. However, the upside could be limited as $1,290 is acting as a strong resistance,” said Peter Fung, head of dealing at Wing Fung Precious Metals.
Underpinning gold, the dollar moved away from two-year highs after weak U.S. durable goods data and manufacturing activity data ignited worries that the trade conflict with China may hurt the world’s largest economy.
“We had durable goods number that missed expectations. Typically, gold would rally on the news like that, but right now equities are trading higher, which is pressuring gold prices,” said Bob Haberkorn, senior market strategist at RJO Futures.
Financial markets around the world rose after comments from U.S. President Donald Trump drove hopes of progress in U.S.-China trade talks.
Escalating trade tensions and weak data have fueled rate cut expectations from the U.S. Federal Reserve, analysts said. Lower interest rates tend to support gold since it reduces the opportunity cost of holding the non-yielding asset.
“The Fed is on hold and the market thinks the likely next move will be a cut deep into a long expansion,” said Tai Wong, head of base and precious metals derivatives trading at BMO.
“You would need the Fed to clearly look to cut to stir it up, and for a major rally (in gold), you’d need more quantitative easing.”
Uncertainty in the Middle East also supported the safe-haven metal. Trump said he would send about 1,500 American troops to the Mideast, mostly as a protective measure.
Sales of new U.S. single-family homes fell from near an 11-1/2-year high in April as prices rebounded and manufacturing activity hit its lowest level in almost a decade in May, suggesting a sharp slowdown in economic growth was underway.
While the expectations of a rate cut is good for gold, prices can go higher only if the metal can break above $1,290-$1,300 range with the dollar still being strong, Fung added.
Lower interest rates tend to lift gold as it reduces the opportunity cost of holding the non-yielding bullion.
Four Fed officials on Thursday conceded that aggravating U.S.-China tensions could threaten economic growth, a marked deviation from Chair Jerome Powell’s Monday comments where he said it was too early to ascertain the impact of trade on the trajectory of monetary policy.
However, gold has been under pressure of late as investors preferred the U.S. dollar amid intensifying U.S.-China trade tensions. The bullion is down nearly 5 percent since touching a 10-month peak in February at $1,346.73.
“Gold has disappointed to the upside often in the past and we would therefore like to see a string of more consistent gains before we feel comfortable signalling an all-clear on the upside,” INTL FCStone analyst Edward Meir said in a note.
Spot gold may break a resistance at $1,286 per ounce and edge up to the next resistance at $1,290, according to Reuters technical analyst Wang Tao.
It is interesting, that despite price growth - net long position has dropped on gold this week. But calculation of position stands on Wed (it reports on Friday), while rally has happened on Thursday-Friday. So, we need to see what data we will get next week. Any rally that is not supported by physical demand within 1-2 weeks is doomed. It is very short-term.
Source: CFTC.gov
Charting by Investing.com
SPDR Fund shows statistics for every day and it shows that some hint on upside reversal is done. Fund reserves shows small, but increase still. Thus, it could mean that CFTC data next week also shows some increase on net long position. Also, guys, take a look at big divergence of price and holding lows. While holdings form new bottom, price barely shows 3/8 retracement. It is a riddle still, should we treat it as precaution of collapse, or, this is bullish divergence, as definitely some factor exist that keeps prices at high level and this is not the physical demand.
At the same time, from the technical point of view, gold is not absolutely ready for upside reversal as major downside target has not been hit yet. Thus, we should be careful with recent rally, as it might be temporal reaction on recent economy data.
Technical
Monthly
As gold market hit major target on weekly chart, it fluctuates inside major swings and mostly is driven by shorter-term factors. It makes minor impact on monthly picture and our long-term view. Recent fundamental and sentiment analysis shows that no big changes have happened and gold still stands positive. Despite technical retracement, we do not have reasons yet to cancel our long-term positive view on gold. On monthly chart see price stands at Yearly Pivot which holds overall situation balanced.
As market stands in tight range 4th month in a row, the shape of price action more and more reminds bullish flag pattern, which corresponds to our long-term view. The only concern that we have is mostly technical. Upside reversal that we've got last week, looks nice, but it has happened a bit early to what we've expected. And the question is - whether we still get downside continuation a bit later to hit major target, or not.
As we've said earlier, we're watching for our so called "symmetrical" model. It could be clear symmetry in market action, and we have suggested that future action could be a reflection of previous downside action shape.
Gold has shown good performance in December - February, which could put the foundation of new long-term upside trend. We still keep our harmonic technical model on monthly chart as primary tool of analysis. Current retracement down looks strong on daily chart, but it is just 30% of major swing up which is minimal level.
Fundamental reasons for gold rising mostly relate to changing of global political and economical situation. Strong global shifts never could happen without big political events. This should provide big support to gold market. Now it is widely suggested that these processes should accelerate closer to 2020 year, or even in second half of 2019. Right now we see that it also has impact on economy.
Here is explanation of our "symmetrical" model and scenario.In two words we could describe it as "compounded reverse H&S" shape. Important COP target has been hit and upside action has started. In fact we have mirror action to the right and to the left from COP point. Market forms approximately equal lows on both sides. The speed is also similar. Is it possible that reversal is forming? Why not.
Right now price is testing of YPP and it is very important how market will response. To keep upside trend valid, market has to hold above it, although it could flirt with it for some time. We see that on first test price holds above this level.
Among bullish signs we could mention MACD hidden divergence which suggests action above 1380 top in long-term perspective.
Weekly
This chart shows the reason of our concern. Two weeks ago we were almost spot on, when we've predicted upside action on expectation of possible 3-Drive pattern. Gold has not reached precisely 1310 top, as we've suggested, but it was close to it at 1303 top.
After strong downside reversal, as we almost have got "Reversal" weekly action, market stops again and turned up keeping major OP uncompleted.
So, this is the most tricky moment here - uncompleted OP target of major AB=CD pattern, which stands around 1260 and under recent lows. If we would get OP been hit, everything would be in a good order - retracement target is hit and we have clear bullish continuation pattern right at K-support area - "222" Buy.
But with untouched OP on the back, it is too risky go long and more confirmation is needed. For example, taking out of "C" point and erasing of AB-CD pattern could be good confirmation of bullish ambitions.
Strict rules of bullish position taking here, suggest placing stop below OP, which is rather costly and not suitable to everyone.
Trying to find a solution here, we suggest that it might be two-leg upside action, and gold still could form 3-Drive pattern. This is the only compromise - how to combine possible upside action with overall bearish setup on weekly chart.
Thus suggestion sets the shape of our trading plan. As we watch now for some upside AB=CD action - we also keep an eye on what will happen around its OP (or XOP) of 1305 area. If our bearish context is still valid gold has to turn down again. Breaking all targets and upside continuation to "C" point will be clear signal that long-term upside trend continues, and retracement is over.
Daily
On daily and intraday charts we're focused on upside AB-CD pattern. That the setup that we could consider and accept while keeping valid longer term bearish setup with 3-Drive pattern. We do not take in consideration XOP target as it stands at 1328 area and destroy weekly AB-CD pattern. Thus, our signal point is 1306 area, right around MPR1. If gold breaks it up, chances on final completion as weekly AB-CD as 3-Drive will become phantom.
Conversely, any early downside reversal, inside AB leg supports downside scenario.
Intraday
On 4H chart we see that it is strong resistance cluster stands, starting from 1292 COP target and lasting till K-resistance and daily OP @ 1306. This is good news for us, because it could either confirm or deny market strength. Upside breakout of such strong level should become important sign of market's strength and we get more confidence with bullish upside continuation.
Conversely, if market stuck somewhere inside AB swing, either at COP target or K-resistance area - gold keeps chances as on downside butterfly, that we've mentioned earlier, as completion of 3-Drive pattern.
Still, as market shows solid upside momentum and forms bullish flag consolidation, some upside continuation should happen:
On 1H chart, we've got AB-CD retracement and "222" Buy pattern that we've discussed on Friday. Although we suggest upside continuation right from "C" point, but also add alternative scenario when greater AB-CD retracement will happen (dot lines).
On a way up we have sequence of targets. It is interesting that COP here coincides with daily pattern at 1292. This is our first stop. Next target is 1298 OP. It creates an Agreement with K-resistance area. Also I add "faded" OP here at 1296, as it is better level for profit taking on scalp long position.
Despite our brave suggestion on upside scenario and fascinating targets above - we should be ready for downside reversal at any point, even at Monday's open (or Tuesday, due the Holiday in US). In this case we automatically return to our 3-Drive pattern and 1255 target.
Conclusion
Long term background mostly stands the same and it is positive for gold market. In a shorter-term we wonder whether gold hit 1255 target sometime, or upside reversal has happened already. Our signal level is 1306. Any early downside reversal also tells that upside action was temporal emotional reaction on statistics and recent events.
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.
Currently gold is driven by the same factors as currency market. The reason for recent rally was a warning that Fed indeed will have to cut the rate this year, if no relief happens in US-China trade war. Besides, recent US data doesn't encourage investors. We've talked about these factors in our Weekly EUR Report as well.
Thus, Reuters reports - Gold prices held steady on Friday after rising above $1,280 in the previous session as weak U.S. data pushed the dollar off 2-year highs and reignited hopes of a rate cut by the Federal Reserve this year.
Spot gold was steady at $1,283.21 per ounce by 0653 GMT, after rising as much as 1.1% to a one-week peak of 1,287.23 in the previous session. The metal has risen 0.5% so far this week.
“Gold has found a very good support around $1,270. There was some short covering after the (weak U.S.) data that pushed prices up. However, the upside could be limited as $1,290 is acting as a strong resistance,” said Peter Fung, head of dealing at Wing Fung Precious Metals.
Underpinning gold, the dollar moved away from two-year highs after weak U.S. durable goods data and manufacturing activity data ignited worries that the trade conflict with China may hurt the world’s largest economy.
“We had durable goods number that missed expectations. Typically, gold would rally on the news like that, but right now equities are trading higher, which is pressuring gold prices,” said Bob Haberkorn, senior market strategist at RJO Futures.
Financial markets around the world rose after comments from U.S. President Donald Trump drove hopes of progress in U.S.-China trade talks.
Escalating trade tensions and weak data have fueled rate cut expectations from the U.S. Federal Reserve, analysts said. Lower interest rates tend to support gold since it reduces the opportunity cost of holding the non-yielding asset.
“The Fed is on hold and the market thinks the likely next move will be a cut deep into a long expansion,” said Tai Wong, head of base and precious metals derivatives trading at BMO.
“You would need the Fed to clearly look to cut to stir it up, and for a major rally (in gold), you’d need more quantitative easing.”
Uncertainty in the Middle East also supported the safe-haven metal. Trump said he would send about 1,500 American troops to the Mideast, mostly as a protective measure.
Sales of new U.S. single-family homes fell from near an 11-1/2-year high in April as prices rebounded and manufacturing activity hit its lowest level in almost a decade in May, suggesting a sharp slowdown in economic growth was underway.
While the expectations of a rate cut is good for gold, prices can go higher only if the metal can break above $1,290-$1,300 range with the dollar still being strong, Fung added.
Lower interest rates tend to lift gold as it reduces the opportunity cost of holding the non-yielding bullion.
Four Fed officials on Thursday conceded that aggravating U.S.-China tensions could threaten economic growth, a marked deviation from Chair Jerome Powell’s Monday comments where he said it was too early to ascertain the impact of trade on the trajectory of monetary policy.
However, gold has been under pressure of late as investors preferred the U.S. dollar amid intensifying U.S.-China trade tensions. The bullion is down nearly 5 percent since touching a 10-month peak in February at $1,346.73.
“Gold has disappointed to the upside often in the past and we would therefore like to see a string of more consistent gains before we feel comfortable signalling an all-clear on the upside,” INTL FCStone analyst Edward Meir said in a note.
Spot gold may break a resistance at $1,286 per ounce and edge up to the next resistance at $1,290, according to Reuters technical analyst Wang Tao.
It is interesting, that despite price growth - net long position has dropped on gold this week. But calculation of position stands on Wed (it reports on Friday), while rally has happened on Thursday-Friday. So, we need to see what data we will get next week. Any rally that is not supported by physical demand within 1-2 weeks is doomed. It is very short-term.
Source: CFTC.gov
Charting by Investing.com
SPDR Fund shows statistics for every day and it shows that some hint on upside reversal is done. Fund reserves shows small, but increase still. Thus, it could mean that CFTC data next week also shows some increase on net long position. Also, guys, take a look at big divergence of price and holding lows. While holdings form new bottom, price barely shows 3/8 retracement. It is a riddle still, should we treat it as precaution of collapse, or, this is bullish divergence, as definitely some factor exist that keeps prices at high level and this is not the physical demand.
At the same time, from the technical point of view, gold is not absolutely ready for upside reversal as major downside target has not been hit yet. Thus, we should be careful with recent rally, as it might be temporal reaction on recent economy data.
Technical
Monthly
As gold market hit major target on weekly chart, it fluctuates inside major swings and mostly is driven by shorter-term factors. It makes minor impact on monthly picture and our long-term view. Recent fundamental and sentiment analysis shows that no big changes have happened and gold still stands positive. Despite technical retracement, we do not have reasons yet to cancel our long-term positive view on gold. On monthly chart see price stands at Yearly Pivot which holds overall situation balanced.
As market stands in tight range 4th month in a row, the shape of price action more and more reminds bullish flag pattern, which corresponds to our long-term view. The only concern that we have is mostly technical. Upside reversal that we've got last week, looks nice, but it has happened a bit early to what we've expected. And the question is - whether we still get downside continuation a bit later to hit major target, or not.
As we've said earlier, we're watching for our so called "symmetrical" model. It could be clear symmetry in market action, and we have suggested that future action could be a reflection of previous downside action shape.
Gold has shown good performance in December - February, which could put the foundation of new long-term upside trend. We still keep our harmonic technical model on monthly chart as primary tool of analysis. Current retracement down looks strong on daily chart, but it is just 30% of major swing up which is minimal level.
Fundamental reasons for gold rising mostly relate to changing of global political and economical situation. Strong global shifts never could happen without big political events. This should provide big support to gold market. Now it is widely suggested that these processes should accelerate closer to 2020 year, or even in second half of 2019. Right now we see that it also has impact on economy.
Here is explanation of our "symmetrical" model and scenario.In two words we could describe it as "compounded reverse H&S" shape. Important COP target has been hit and upside action has started. In fact we have mirror action to the right and to the left from COP point. Market forms approximately equal lows on both sides. The speed is also similar. Is it possible that reversal is forming? Why not.
Right now price is testing of YPP and it is very important how market will response. To keep upside trend valid, market has to hold above it, although it could flirt with it for some time. We see that on first test price holds above this level.
Among bullish signs we could mention MACD hidden divergence which suggests action above 1380 top in long-term perspective.
Weekly
This chart shows the reason of our concern. Two weeks ago we were almost spot on, when we've predicted upside action on expectation of possible 3-Drive pattern. Gold has not reached precisely 1310 top, as we've suggested, but it was close to it at 1303 top.
After strong downside reversal, as we almost have got "Reversal" weekly action, market stops again and turned up keeping major OP uncompleted.
So, this is the most tricky moment here - uncompleted OP target of major AB=CD pattern, which stands around 1260 and under recent lows. If we would get OP been hit, everything would be in a good order - retracement target is hit and we have clear bullish continuation pattern right at K-support area - "222" Buy.
But with untouched OP on the back, it is too risky go long and more confirmation is needed. For example, taking out of "C" point and erasing of AB-CD pattern could be good confirmation of bullish ambitions.
Strict rules of bullish position taking here, suggest placing stop below OP, which is rather costly and not suitable to everyone.
Trying to find a solution here, we suggest that it might be two-leg upside action, and gold still could form 3-Drive pattern. This is the only compromise - how to combine possible upside action with overall bearish setup on weekly chart.
Thus suggestion sets the shape of our trading plan. As we watch now for some upside AB=CD action - we also keep an eye on what will happen around its OP (or XOP) of 1305 area. If our bearish context is still valid gold has to turn down again. Breaking all targets and upside continuation to "C" point will be clear signal that long-term upside trend continues, and retracement is over.
Daily
On daily and intraday charts we're focused on upside AB-CD pattern. That the setup that we could consider and accept while keeping valid longer term bearish setup with 3-Drive pattern. We do not take in consideration XOP target as it stands at 1328 area and destroy weekly AB-CD pattern. Thus, our signal point is 1306 area, right around MPR1. If gold breaks it up, chances on final completion as weekly AB-CD as 3-Drive will become phantom.
Conversely, any early downside reversal, inside AB leg supports downside scenario.
Intraday
On 4H chart we see that it is strong resistance cluster stands, starting from 1292 COP target and lasting till K-resistance and daily OP @ 1306. This is good news for us, because it could either confirm or deny market strength. Upside breakout of such strong level should become important sign of market's strength and we get more confidence with bullish upside continuation.
Conversely, if market stuck somewhere inside AB swing, either at COP target or K-resistance area - gold keeps chances as on downside butterfly, that we've mentioned earlier, as completion of 3-Drive pattern.
Still, as market shows solid upside momentum and forms bullish flag consolidation, some upside continuation should happen:
On 1H chart, we've got AB-CD retracement and "222" Buy pattern that we've discussed on Friday. Although we suggest upside continuation right from "C" point, but also add alternative scenario when greater AB-CD retracement will happen (dot lines).
On a way up we have sequence of targets. It is interesting that COP here coincides with daily pattern at 1292. This is our first stop. Next target is 1298 OP. It creates an Agreement with K-resistance area. Also I add "faded" OP here at 1296, as it is better level for profit taking on scalp long position.
Despite our brave suggestion on upside scenario and fascinating targets above - we should be ready for downside reversal at any point, even at Monday's open (or Tuesday, due the Holiday in US). In this case we automatically return to our 3-Drive pattern and 1255 target.
Conclusion
Long term background mostly stands the same and it is positive for gold market. In a shorter-term we wonder whether gold hit 1255 target sometime, or upside reversal has happened already. Our signal level is 1306. Any early downside reversal also tells that upside action was temporal emotional reaction on statistics and recent events.
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.
