Forex GOLD PRO WEEKLY, November 02 - 06, 2020

Sive Morten

Special Consultant to the FPA
Messages
14,023
Fundamentals

All markets set aside its own demand/supply driving factors and keep an eye on elections and capital flow that stands around it. Gold is not an exception. In the beginning of the week precious metal was hurt by massive outflow and run into safety as investors were buying US Dollars and US Bonds. Despite that in Thu-Fri of this week situation drastically has changed - it doesn't help to the gold as it remains under pressure. Below we take a look at major driving factors of the gold that we've estimated in previous months and will try to answer on the question - "What to expect in nearest month?"

President's run

Whether we want it or not, but President's run stands on top and news #1 right now. In fact, investors worry not on result, although it is important as well, but mostly on events that stand around the result. Thus, big concern stands around mail voting as it could be the reason for delays and frauds - some cases already were noted.

The high number of early voters, about 65% of the total turnout in 2016, reflects intense interest in the contest, with three days of campaigning left. Concerns about exposure to the coronavirus at busy Election Day voting places on Tuesday have also pushed up the numbers of people voting by mail or at early in-person polling sites.

Trump has repeatedly claimed without evidence that mail-in ballots are susceptible to fraud and has more recently argued that only the results available on election night should count. In a flurry of legal motions, his campaign has sought to restrict absentee balloting. Officials in several states, including Pennsylvania and Wisconsin, say it could take several days to count all of the mail ballots, possibly leading to days of uncertainty if the outcome hinges on those states.

Speaking on intermediate results, they are also mixed. Our big suspicions stand around polls that could, as we think, incorrectly show the current Biden/Trump balance. Opinion polls show Trump trailing former Vice President Biden nationally, but with a closer contest in the most competitive states that will decide the election. Voters say the coronavirus is their top concern.

A federal judge in Texas has scheduled an emergency hearing for Monday on whether Houston officials unlawfully allowed drive-through voting and should toss more than 100,000 votes in Democratic-leaning Harris County.

Trump held four rallies on Saturday in the battleground state of Pennsylvania, where the campaigns are seeking to win over undecided voters in areas like the suburbs of Philadelphia and the “Rust Belt” west of the state.

“If we win Pennsylvania, it’s over,” Trump told a large rally in Reading before moving to another big gathering in Butler.

In Iowa, a new poll published on Saturday shows Trump has taken over the lead there just days before the election. A Des Moines Register/Mediacom Iowa poll shows Trump now leads Biden by seven percentage points, 48 percent to 41 percent. The results, based on a poll of 814 Iowa voters, suggests Biden has lost support among independent voters in the Midwestern state.

So, this is the risk that markets are watching most of all - delay, frauds, possible social unrest and involving of Supreme Court in investigation and estimation of elections' results. Yesterday we've taken in-depth look at this subject. Any of these factors will make investors sit on the cash longer, that could postpone any positive activity on gold market. But this is only the half of the problems.

Stimulus pack

Second is stimulus. They are postponed at least till January. Gold fell as much as 2% and silver nearly 6% on Wednesday as investors flocked to the dollar in the absence of signs of any imminent U.S. fiscal stimulus measures to ease the economic blow from the COVID-19 pandemic.

“The metals were so dependent on more stimulus at this point and the bear camp is fully in control right here,” said Bob Haberkorn, senior market strategist at RJO Futures. “Overall, the gold market is lower on a strengthening dollar due to the lack of stimulus measures and risk-off mentality heading into this election.”

Analysts said that although precious metals prices had dipped, the move was not yet being precipitated by a rush to cover losses elsewhere and meet margin calls, as happened in March.

U.S. President Donald Trump said on Tuesday that an economic relief deal would likely come after the Nov. 3 election. He also questioned the integrity of the U.S. Presidential election, saying it would be “inappropriate” to take extra time to count the millions of ballots cast by mail.

U.S. Senate Majority Leader Mitch McConnell on Friday said that any new coronavirus aid package should be considered in early 2021, possibly closing the door to such legislation shortly following the Nov. 3 elections.

In an interview with conservative radio host Hugh Hewitt, McConnell said, “I think that will be something we’ll need to do right at the beginning of the year, targeted particularly at small businesses that are struggling and hospitals that are now dealing with a second wave of the coronavirus.”

House of Representatives Speaker Nancy Pelosi, who has been negotiating a coronavirus-relief package with Treasury Secretary Steven Mnuchin, said during an interview with MSNBC: “Certainly we’ll have something at the start of the new presidency, but we don’t want to wait that long because people have needs.”

The winner of the Nov. 3 elections -- President Donald Trump or former Vice President Joe Biden -- will be sworn in as the next president on Jan. 20.

CV-19


Situation with virus remains tough as we see cases exacerbated across the Globe. Today we do not stop on this subject closely, you could find the last update in our EUR report mentioned above. We would say that with relapse on horizon it could hold economy recovery and press on inflation that negatively impact on real rates dynamic. And, as you know - our second major factor is real rates level. It should continue dropping to support gold market. But this is possible only if inflation rises faster than nominal rates. With Fed QE programme, nominal rates could be held by continues bonds buying, but with second wave of pandemic rising of inflation looks doubtful. Hence, hardly we will see very strong rally on gold, at least in relation to interest rates.

Prime Minister Boris Johnson ordered England back into a national lockdown after the United Kingdom passed the milestone of one million COVID-19 cases and a second wave of infections threatened to overwhelm the health service. The United Kingdom, which has the biggest official death toll in Europe from COVID-19, is grappling with more than 20,000 new coronavirus cases a day and scientists have warned the “worst case” scenario of 80,000 dead could be exceeded.

Johnson, at a hastily convened news conference in Downing Street after news of a lockdown leaked to local media, said that the one-month lockdown across England would kick in after midnight on Thursday morning and last until Dec. 2. In some of the most onerous restrictions in Britain’s peacetime history, people will only be allowed to leave home for specific reasons such as education, work, exercise, shopping for essentials and medicines or caring for the vulnerable.

“We must act now,” Johnson said, flanked by his chief medical officer, Chris Whitty, and his chief scientific adviser, Patrick Vallance. “Unless we act, we could see deaths in this country running at several thousand a day.”

The measures bring England into alignment with France and Germany by imposing nationwide restrictions almost as severe as the ones that drove the global economy this year into its deepest recession in generations. The new lockdown will heap more pressure on finance minister Rishi Sunak and the Bank of England to increase their already huge support for the UK economy, the world’s sixth-biggest. The economy slumped a record 20% in the spring.

Take a look - here we have 10-year nominal bonds and weekly chart of real yields. Both have turned north again making pressure on the gold because inflation is stumble. Stimulus could provide short-term push but this will not resolve the problem totally:
1604229091517.png



On Friday gold has shown moderate bounce as dollar demand rush is faded a bit.

"Gold rebounded as the dollar partially reversed its surprising two-day rally," said Tai Wong, head of base and precious metals derivatives trading at BMO.
"Investors are finding the bottom of the recent range a good level at which to add to gold holdings ahead of the hotly contested election next week, which seems likely to return a one-party government that means much bigger and faster stimulus."

"Overall bullish sentiment remains strong and deep, with a view that more stimulus will be coming and that it is really only a matter of time," said Tai Wong, head of base and precious metals derivatives trading at BMO. As a result we continue to see demand for gold on dips."


"There's a lot of structural pieces in place for gold to continue to rise after the election, regardless of the outcome," said Kevin Rich, Global Gold Market Advisor for The Perth Mint. "Based on the amount of fiscal stimulus that is gone in from here in the United States and globally ... (and) the enormous amount of government debt taken on ... that's going to put a lot of currencies under pressure, including the U.S. dollar.

“The downturn we are seeing in gold prices is because there is a short-term concern about timing of the stimulus getting approved,” said Jeffrey Sica, founder of Circle Squared Alternative Investments, adding “a strengthening U.S. dollar is impacting gold.” “Gold is now at levels where people could accumulate considering the chaos around the election, concerns about economic recovery and the coronavirus situation. The trend for gold is still bullish,” Sica said.

"Gold's break below $1,885 could trigger additional long liquidation and send the market further (down). With gold investors not banking on pre-election stimulus - and it may even get delayed if the U.S. elections results are contested - EURUSD levels might be a crucial bellwether for gold," said Stephen Innes, chief global market strategist at Axi, in a note.


COT Report

CFTC data this week shows nothing interesting. Although net position doesn't change and still stands around the same ~ 250K contracts, its structure has changed significantly. As a result of massive sell-off, open interest has dropped for record ~50K contracts. Besides, position closing was taken not only by speculators but hedgers as well:

1604231525791.png


At the first glance it could mean that hedgers just run into cash and bonds as any other investors. At the same time, it also could mean that they do not expect solid action in no direction on gold. Otherwise, as they are hedgers, they should hold either long or short positions intact.

SPDR Fund statistics also shows that investors sold some amount of physical gold, but it looks not as strong as price gold has changed. Actually, no new lo has been set by SPDR Fund reserves.
1604232286976.png


So, what we have in a dry residual. It is clear that sooner or later but stimulus will be provided and maybe not only by the Fed, but BoE and ECB as well. From that standpoint the pullback on the gold is temporal. But stimulus back although will be bright, but limited effect. It supports gold in short-term. Second factor is a bit more difficult to forecast - real interest rates. Rising probability of pandemic relapse could become a headwind for the gold in long-term, because new lockdowns will slowdown major economies, making inflationary expectations lower, at least statistical inflation. Conversely, new stimulus packs increase nominal interest rates, if Fed will not control the long-term bond purchases and will not hold rates flat. Potentially, this situation could lead to real rates grow that is negative for the gold market.

Finally, in short term, crucial moment for the gold is smooth elections. Gold benefits from silent, clear, no-frauds, in-time election results announcement. This makes investors out of safe haven assets faster and getting stimulus pack earlier. Conversely - delay in elections result or its contesting, frauds, social unrest etc. will delay gold reversal as investors longer will sit on the cash and bonds. This is the first factor for the gold that set the time when it could turn up again.

Next, in short-term, we expect gold reversal up due ending of elections turmoil and expectations of the stimulus. As we've mentioned previously Biden's victory could push price to 2K level again. Overall reaction on elections results and stimulus expectations supposedly take no more than 2 months. In the longer-term, the future is not as clear as we see solid risks of global economy slowdown, exhausting of effect of stimulus and rising of a real rates. All these factors do not support gold rising. It means that in perspective of 3-6 months, after initial spike, gold turn south, showing deeper retracement, until 2nd wave will exhaust, or could turn to wide consolidation where price will repeat fluctuations of real interest rates.



Technicals
Monthly


Unfortunately, strong relation with fundamental factors, makes technical analysis not as effective as usual. But anyway we take a look at the charts. As we've mentioned last week, on monthly chart we have uncompleted butterfly target around 2160$ level. This has happened because of Overbought and COP target. Now, we suggests that first stage, mentioned above, i.e. reaction on elections and stimulus could push gold higher and complete this objective point.

Next stage is not definite yet, but if everything will go according to our scenario and real yields start to grow - Gold could show the pullback. CV19 is the next what all markets will be busy with.
gold_m_02_11_20.png


Weekly

Starting of the upward action depends, in turn, on the clarity of elections results and no contesting that could delay upside reversal. But anyway, now we need to consider how we could step in on a long side of the market. Market was able to stay inside the triangle on weekly chart, which is a positive moment. Theoretically gold could drop more if, as we've said, elections results will be "problematic", but anyway, technically, it should not drop too far below 1836 level because of Fib support and weekly oversold level. With the positive scenario, gold could start rising right from current levels.

gold_w_02_11_20.png


Daily

In general, trading elections results is not suitable for everybody, because this is not quite speculative game. In most cases (me too), when investors take positions based on long-term fundamental events with long-term perspective, they often take it without any leverage and without stop orders. And here we have the deal with same situation. So, it doesn't fit to everybody.

My personal opinion that we will see the problems with elections results as we saw on 1st Trump's victory. It makes me keep intact the suggestion of another leg down on the gold market and consider 1805-1825 area as most probable where reversal could happen. Technically, fast drop, absence of support and oversold make it highly possible.

Still, as overall situation stands tricky, we need to keep nose to the wind and control appearing of bullish reversal patterns on intraday charts as they could indicate earlier reversal:
gold_d_02_11_20.png


Intraday


For example, it might be Double Bottom that we've discussed on Friday, as XOP's stand around this level:
gold_4h_02_11_20.png


Or, take a look - reverse H&S pattern on 1H chart right here, as market shows upside bounce and formed reversal swing up. It means that first level to watch is 1870, where right arm bottom could appear. If not and H&S fails - 1850 of Double Bottom. Finally, if DB also fails to form - our major 1805-1835 daily area.
gold_1h_02_11_20.png
 

Sive Morten

Special Consultant to the FPA
Messages
14,023
Greetings everybody,

So, as you remember in our weekly report we agreed to follow three levels for long entry. First one is 1870 and it is worked out already, second - 1850 lows and the last one is 1800-1825 support. On 1H chart, H&S pattern has worked well. Personally I was not able to take the position here, because it has happened in the night. But if you was able to buy - now you could move stops to breakeven or book the result.
gold_1h_03_11_20.png

Currently guys, we could share just personal opinions, as nobody could predict the results. Besides, this week we have Fed and BoE meetings, NFP report. Somehow I have strong feeling that D. Trump will get the 2nd term. I do not know why, to be honest. He adds 3-4% in two days, now it is 52/44 and more stands ahead. So, I suspect that we should get still better levels to enter.

Anyway, we intend to follow our trading plan. If you have missed the entry around 1870, all that we could do is to wait for another level. Next one in our list is 1850 lows, in case if we will get Double Bottom pattern. There we also have two XOP targets:
gold_4h_03_11_20.png


At the same time - keep an eye on daily chart, and appearing of bearish grabber there. It could be decisive pattern for our plan. Our "best" level to buy stands around 1800-1825, because of its strength.
gold_d_03_11_20.png
 

Sive Morten

Special Consultant to the FPA
Messages
14,023
Greetings everybody,

As you understand, technical picture currently is not as important as everybody wait for results. Situation changes fast, and recent rally almost totally erased. This is the reason why we said in weekly report that only gradual position taking with low leverage and for medium term is relatively safe. While it is big challenge to take the spot on trade with near standing stop right now.

The major thing is situation goes on worse scenario. As we've suggested in the same report, gap is minimal, polls were wrong again and both sides accuses each other in votes stealing, frauds and claims in Supreme Court. If this stuff will become a reality - social unrest comes as well...

This leads to reversal on financial markets. On daily chart we unfortunately haven't got the bearish grabber and daily picture brings nothing new:
gold_d_04_11_20.png


The new important level now is 1880 lows of recent sell- off. Downside breakout suggests action to 1850 first:
gold_4h_04_11_20.png


And importance of this level is based on potential reverse H&S pattern. Thus, right arm's failure suggests drop below the head. Upside reversal around 1880, could become a sign of upward action and maybe some inside information on Biden's victory appears. Now everything is about information... Our plan is the same - in perspective of 1-2 months upside action should happen, although temporary. Somebody definitely becomes the President, and definitely will provide some stimulus. Thus, within 1-2 weeks upward action should happen. Thus, if you could take position with low or no leverage and far standing stops, you could follow the trading plan that we've discussed in weekly report.
gold_1h_04_11_20.png
 

Sive Morten

Special Consultant to the FPA
Messages
14,023
Greetings everybody,

Markets currently start to carefully price-in Biden's victory, but we think that it is too optimistic and worse events still stand ahead. The fact that it is no clear winner in 5-6 states tells that we will see frauds, claims, probes, unrest and other attributes of democratic elections.

Anyway, on gold we've got the bullish grabber that "promises" return price back to 1935-1950 resistance. In general we keep our major trading plan of "three levels" - 1880/1850/1825 for gradual long entry. As gold stands above 1880 well, long position could be hold with breakeven stops.
gold_d_05_11_20.png


On 4H chart, we have two opposite grabber in turn. We are not fans of short entry right now. But these patterns just show how bullish context fragile is. Overall upside action is choppy with small overlapping candles and spikes.
gold_4h_05_11_20.png


If still, our H&S pattern will work - price could reach the same resistance and complete AB-CD target:
gold_1h_05_11_20.png


That's being said - no new longs right now, only 1880 positions could be held with b/e stops. For long entry we consider now 1850 and lower levels. Speaking about short positions, we think that it would be better to not take them by far. But we can't forbid you, right? ;) If you still want to sell - market stands at vital point and should not move above "B" leading H&S to failure. Best moment for position taking is right now, as it provides minimal potential loss.
 

Sive Morten

Special Consultant to the FPA
Messages
14,023
Greetings everybody,

Our grabber has worked perfect. Now market strongly prices-in Biden's victory. As we said few times in our weekly report - in this case we expect upside continuation and reaching 2K+ area on the gold market. Currently price stands at 1950 resistance - OP target is hit and price at Agreement 1950 resistance. Technically, some minor pullback could happen but on any breaking news gold could continue upward action - either on official statement of Biden's victory, or NFP data, for example.

Next target stands precisely around 2K area with XOP target and 1988 Fib resistance. But today this level is above daily overbought:
gold_d_06_11_20.png


On 4H chart we have another minor XOP that mostly stands in the same area as daily one:
gold_4h_06_11_20.png


Hourly chart shows that if pullback will happen - most probable destination is 1925-1929 K-support area:
gold_1h_06_11_20.png


Despite that everything looks good, political risks are still stand around elections. Somehow, US interest yields stand under pressure and do not grow, although they should to. It means that maybe D. Trump has not said the last word yet...
 
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