Sive Morten
Special Consultant to the FPA
- Messages
- 18,781
Fundamentals
(Reuters) - Gold rose to its highest in nearly four weeks on Friday as political uncertainty led investors to favor bullion over assets considered riskier such as stocks.
"We have had the political noise coming from Trump and the U.S. administration and there is a certain element of uncertainty in the markets in general, which is supporting gold. Equities are also down," analyst Carsten Menke at Julius Baer in Zurich said.
Leaders of the world's rich nations face difficult talks with Donald Trump at a G7 summit in Sicily on Friday after the U.S. president lambasted NATO allies and condemned German trade policies a day earlier.
Gold is often a favored investment during times of political and financial uncertainty. Spot gold gained 1.1 percent at $1,268.69 an ounce by 2:19 p.m. EDT (1819 GMT), the highest since May 1. It was on track to close the week up around 1 percent, the third straight week higher. U.S. gold futures settled up 0.9 percent at
$1,268.10.
Many traders will be away from their desks for an extended Memorial Day holiday weekend in the United States and in Britain, with many financial markets closed on Monday, when U.S. gold futures will close early.
"We do expect a (U.S.) rate hike in June and we see the dollar strengthening again," said Menke. "On the upside, there's a lot of uncertainty, which keeps people from selling gold and maybe causing a little bit of buying."
Data on Friday showed U.S. gross domestic product grew at a 1.2 percent annual rate in the first quarter instead of the 0.7 percent pace reported last month, supporting the dollar.
"Oddly enough, the gold price is holding more ground than many traders may have expected on these positive economic releases out of the U.S.A," said Miguel Perez-Santalla, vice president of Heraeus Metal Management in New York. "Though technically, the precious metals market appears to be strong, the positive economic view is likely to prevail at some point against it."
COT Report
In recent 4 weeks chart shows classical data for retracement. As price goes down, net speculative long position has decreased, but open interest also has dropped. It means that some longs were closed, but no new shorts were opened.
Right now, as you can see, CFTC data shows bullish sentiment as new longs were opened recently - speculative position has increased again on a background of growing open interest. Last week we also talk on divergence between SPDR fund statistics and price action. While gold starts dropping, SPDR storages stands flat and shows that investors mostly hold long positions. This is very clear sign of retracement, but not a reversal on gold market.
Technicals
Monthly
So, guys, as we've talked many times already - gold way will not be streight. We still keep bullish view on gold market. Right now, we see that our two major backwind factors for gold are working. They are - D. Trump political volatility and uncertainty and - careful Fed policy that, as we suggest, will not tight economy growth by agressive rate policy in 2017. Both of them have provided support to gold, or better to say - depressed USD las week.
From technical point of view our major pattern is reverse H&S on monthly chart. 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.
Right now we have new feature here - potential bullish stop grabber. As there are fewer time till the May close as more chances that it will be formed. This pattern really will have special meaning for us, because, at least theoretically, it shoud push prices above 1380...
Weekly
Last week trend has turned bullish here as well. Price returns back to 1278 Fib resistance that already has been tested once. By recent close gold also has erased bearish grabber that has been formed 2 weeks ago and we have mentioned our concern on it.
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...
Still currently weekly chart does not show any clear patterns and breakout of major levels. Thus, it brings no new inputs by far.
Daily
Daily chart mostly shows bullish picture as well. Our last suggestion on drastic changes, when price even has not made any attempt to break 1250 lows was correct. Indeed, price has formed triangle and shows upside breakout here. At the same time gold has broken 5/8 Fib resistance @ 1264 area.
As market stands not at overbought, trend holds bullish, gold should continue upside action. Now it has reached MPP.
Here we need to keep an eye on retracement's depth. It should be small. Price should not return back in triangle consolidation. If this will happen - we should be ready for deeper downward action.
4-hour
Here guys, we have clear pattern that we've started to trade on Friday. You even can see my entry order that has been triggered. This is short-term trade and is based purely on butterfly shape.
Gold market has a habit to show deep retracements. Another habit is to re-test previously broken important levels. Trend line of broken triangle will be extremely important for daily chart. But at the same time, it coincides with Fib support and WPP. That's why our profit objective stands around it.
But this butterfly has some nuances. Take a look at acceleration candles on a way up and uncompleted 1.618 AB-CD target. When you intend to trade 1.27 extension of butterfly - you need to buy insurance till 1.618 target. Other words, your stop should be above it. This is just butterflies should be traded. That's why, those of you, who think about trading of this pattern needs to decide - wait until 1.618 target will be hit around 1273 and take position with smaller risk, or, trade 1.27 entry point, but take the risk of farer stop... This issue demands some money management, position adjustment etc.
If our suggestion will be correct and gold will show reaction on butterfly - our next step is thinking on long position , if price will drop back inside triangle of course....
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 sentiment turns bullish again. Although we have setups for scalp bearish trading on butterfly's retracement, but in general our view is bullish and as soon as gold will "work out" this butterfly, we could get nice chances to go long with farer going perspectives.
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 to its highest in nearly four weeks on Friday as political uncertainty led investors to favor bullion over assets considered riskier such as stocks.
"We have had the political noise coming from Trump and the U.S. administration and there is a certain element of uncertainty in the markets in general, which is supporting gold. Equities are also down," analyst Carsten Menke at Julius Baer in Zurich said.
Leaders of the world's rich nations face difficult talks with Donald Trump at a G7 summit in Sicily on Friday after the U.S. president lambasted NATO allies and condemned German trade policies a day earlier.
Gold is often a favored investment during times of political and financial uncertainty. Spot gold gained 1.1 percent at $1,268.69 an ounce by 2:19 p.m. EDT (1819 GMT), the highest since May 1. It was on track to close the week up around 1 percent, the third straight week higher. U.S. gold futures settled up 0.9 percent at
$1,268.10.
Many traders will be away from their desks for an extended Memorial Day holiday weekend in the United States and in Britain, with many financial markets closed on Monday, when U.S. gold futures will close early.
"We do expect a (U.S.) rate hike in June and we see the dollar strengthening again," said Menke. "On the upside, there's a lot of uncertainty, which keeps people from selling gold and maybe causing a little bit of buying."
Data on Friday showed U.S. gross domestic product grew at a 1.2 percent annual rate in the first quarter instead of the 0.7 percent pace reported last month, supporting the dollar.
"Oddly enough, the gold price is holding more ground than many traders may have expected on these positive economic releases out of the U.S.A," said Miguel Perez-Santalla, vice president of Heraeus Metal Management in New York. "Though technically, the precious metals market appears to be strong, the positive economic view is likely to prevail at some point against it."
COT Report
In recent 4 weeks chart shows classical data for retracement. As price goes down, net speculative long position has decreased, but open interest also has dropped. It means that some longs were closed, but no new shorts were opened.
Right now, as you can see, CFTC data shows bullish sentiment as new longs were opened recently - speculative position has increased again on a background of growing open interest. Last week we also talk on divergence between SPDR fund statistics and price action. While gold starts dropping, SPDR storages stands flat and shows that investors mostly hold long positions. This is very clear sign of retracement, but not a reversal on gold market.
Technicals
Monthly
So, guys, as we've talked many times already - gold way will not be streight. We still keep bullish view on gold market. Right now, we see that our two major backwind factors for gold are working. They are - D. Trump political volatility and uncertainty and - careful Fed policy that, as we suggest, will not tight economy growth by agressive rate policy in 2017. Both of them have provided support to gold, or better to say - depressed USD las week.
From technical point of view our major pattern is reverse H&S on monthly chart. 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.
Right now we have new feature here - potential bullish stop grabber. As there are fewer time till the May close as more chances that it will be formed. This pattern really will have special meaning for us, because, at least theoretically, it shoud push prices above 1380...
Weekly
Last week trend has turned bullish here as well. Price returns back to 1278 Fib resistance that already has been tested once. By recent close gold also has erased bearish grabber that has been formed 2 weeks ago and we have mentioned our concern on it.
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...
Still currently weekly chart does not show any clear patterns and breakout of major levels. Thus, it brings no new inputs by far.
Daily
Daily chart mostly shows bullish picture as well. Our last suggestion on drastic changes, when price even has not made any attempt to break 1250 lows was correct. Indeed, price has formed triangle and shows upside breakout here. At the same time gold has broken 5/8 Fib resistance @ 1264 area.
As market stands not at overbought, trend holds bullish, gold should continue upside action. Now it has reached MPP.
Here we need to keep an eye on retracement's depth. It should be small. Price should not return back in triangle consolidation. If this will happen - we should be ready for deeper downward action.
4-hour
Here guys, we have clear pattern that we've started to trade on Friday. You even can see my entry order that has been triggered. This is short-term trade and is based purely on butterfly shape.
Gold market has a habit to show deep retracements. Another habit is to re-test previously broken important levels. Trend line of broken triangle will be extremely important for daily chart. But at the same time, it coincides with Fib support and WPP. That's why our profit objective stands around it.
But this butterfly has some nuances. Take a look at acceleration candles on a way up and uncompleted 1.618 AB-CD target. When you intend to trade 1.27 extension of butterfly - you need to buy insurance till 1.618 target. Other words, your stop should be above it. This is just butterflies should be traded. That's why, those of you, who think about trading of this pattern needs to decide - wait until 1.618 target will be hit around 1273 and take position with smaller risk, or, trade 1.27 entry point, but take the risk of farer stop... This issue demands some money management, position adjustment etc.
If our suggestion will be correct and gold will show reaction on butterfly - our next step is thinking on long position , if price will drop back inside triangle of course....
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 sentiment turns bullish again. Although we have setups for scalp bearish trading on butterfly's retracement, but in general our view is bullish and as soon as gold will "work out" this butterfly, we could get nice chances to go long with farer going perspectives.
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.