Sive Morten
Special Consultant to the FPA
- Messages
- 18,695
Fundamentals
Reuters reports gold fell to a three-month low on Friday and was set to post its biggest weekly drop in more than two years after U.S. data showed job growth surged in October, making it likely the Federal Reserve will hike interest rates in December.
U.S. job growth surged in October and the unemployment rate hit a 7-1/2-year low of 5.0 percent in a show of economic strength, sending the dollar <.DXY> up 1.4 percent to the highest since April.
"The powerhouse payrolls report battered gold beneath $1,100 for the first time since August," said Tai Wong, director of base and precious metals trading for BMO Capital Markets in New York.
"Gold is now down eight days in a row but will remain under pressure as the market's view of the chances of December rate hike soars."
The U.S. futures contract for December delivery settled down 1.5 percent at $1,087.70 an ounce. The contract's volume surged nearly 49,500 lots between in the half hour that followed the jobs report, the biggest 30-minute burst of volume for the most active contract in a year.
Spot gold was heading for a 4.6 percent decline for the week, the sharpest such slide since June 2013 and nearing July's 5-1/2-year low.
"With numbers like these, the Fed are almost duty bound to raise rates within this year," Mitsubishi precious metals analyst Jonathan Butler said.
"The dollar is approaching 3 month highs and U.S. treasury yields are the highest since July. Gold could retrace to the lows for the year," he added.
Fed Chair Janet Yellen said on Wednesday that a rise in rates in December was a "live possibility" if justified by upcoming economic data.
Assets in SPDR Gold Trust , the top gold-backed exchange-traded fund, tumbled to 671.77 tonnes, the lowest since mid-August. On Thursday alone, the fund saw outflows of 8.34 tonnes, the biggest daily drop since July 17.
It is obvious that CFTC data also shows reversal in sentiment. Thus, Open interest has dropped significantly, as well as speculative long positions. At the same time, guys, we can't say that short have grown too much. In fact, growth was relatively shy. Last time we've said that our ratio that shows relation between shorts and longs stands near crucial level of 80-82%. Usually when ratio reaches high numbers - retracement becomes thing of high probability. Of course recent drop does not look like retracement. But, we should be careful with our judgement on reasons of this drop. Overextended bullish sentiment also is important. Next week we have to monitor short positions. If they will start to increase, this will be confirmation of changing wind in sentiment. While if not - it could indicate that gold still has chances on upside reversal. But this will happen only on next week. Right now we have to work with bearish sentiment on gold market.
Open interest
Speculative Longs:
Speculative shorts:
Technicals
Monthly
So, Goldman expect bearish continuation on Gold market and as recent rally does not impact significantly monthly chart, we probably should not deny it totally as well. I mean, bearish scenario. Last week it has become a reality. As drop was really fast, we even have not got any hint on long entry. Right now we have to return back to medium-term bearish view.
At the same time we think that currently gold is mostly driven by geopolitics, rather than economics. This driving factor creates absolutely new scale of uncertainty and leads to very fast changes on Globe political situation. That's why we suspect that gold market hardly will fall dramatically, since we're just in the beginning of Middle East tensions. Currently we see clear signs that situation will become worse in nearest 2 months.
As we've said last week - it is difficult to make any far going conclusions yet and mostly right now started upside action looks like tactical bounce from strong support area. To get another status market should show significant upside action and form bullish reversal swing. It means that gold has to exceed 1310 area.
We still have just one long-term pattern in progress that has not achieved it’s target yet. This is VOB pattern. It suggests at least 0.618 AB-CD down. And this target is 1050$. Besides, in the same area we have 1.618 target of most recent butterfly pattern.
Also we have extended bearish dynamic pressure here. Although trend shifted bullish in 2014, but market still forms sequence of lower tops. Speaking on VOB again - it assumes reaching of minor 0.618 target and gold stands very close to it. That's why chances are really not small that we could get another drop to 1050 and Goldman could be right. And as we've said, even when rally was strong - we call to not hurry to write-off bearish strength by far.
Still, it doesn't mean that we will ignore bullish setups and just wait for chances to enter bearish trade. Absolutely not. We will just keep in mind that bearish scenario exists, but we will trade any clear and attractive setups that gold will form, despite whether it will be bullish or bearish. We do not trade on monthly chart directly and just use it for understanding overall picture.
Based on monthly chart analysis gold stands as close as never to reaching of 1050 target.
Weekly
Action on weekly chart suggests that market should reach 1025-1035 area. Yes, our beacon is 1050, but it stands on monthly chart and +/- 20$ is normal for monthly levels. Besides, if gold will trigger stops below 1050 - this will add fuel to bearish fire and market could drop another 20$ just by momentum.
Here we see that gold stands below MPS1 and this indicates bear trend. Since drop was really significant - we do not take into consideration minor AB-CD extension of "222" Sell pattern but will be watching AB=CD target directly. Besides, market is not at oversold by far, but already has broken all major Fib levels.
If you will take a look carefully at this chart - you will recognize 2 butterflies to the left from "222" pattern. Both of them have 1.618 extensions around our AB=CD. That's why most probable destination is not 1050$ but slightly lower - 1025-1035$.
Don't pay attention to grabber that was formed last week (yes, this big nasty black candle is bullish grabber). Having such drop makes it almost useless, at least on weekly chart. To make it work - something really big and unexpected should happen either on market or in geopolitics.
Daily
Here guys, we could appeal to reaching of minor 0.618 AB-CD target right at daily overbought, but bearish impulse is too strong. It means that if even some retracement will happen - hardly it will be significant. We probably will not see any more or less meaningful relief until market will not meet important target, for example 1.0 AB=CD @ 1037.
I am even not sure that possible retracement will reach 1122 Fib resistance, although thrust down, as you can see looks perfect for DiNapoli directional patterns.
Still never say "never". Gold is approaching to solid 1080 support cluster, may be we will get B&B...
Intraday
Intraday charts mostly useless by far. Market not just shows any signs of upside retracement, but even shows acceleration to the downside. All that we could do by far is just keep watching...
Conclusion:
Our former conclusion on keeping of long-term bearish patterns was correct - they are still valid and they are powerful enough to push gold lower at least for another 100$. They area VOB (Volatility breakout) and bearish dynamic pressure.
At the same time It is also not the reason to stay hardly on opinion that everything lost and gold will start another super bearish series. This drop coincides with extreme numbers of sentiment ratio and currently we do not see significant increase in short positions. Also geopolitical tensions are growing. This makes us be cautious on any overestimating of bearish power and treat it by far just as motion to next, but relatively close targets.
In short-term perspective we probably will try to catch chance for short entry with target around 1025-1035 area.
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 reports gold fell to a three-month low on Friday and was set to post its biggest weekly drop in more than two years after U.S. data showed job growth surged in October, making it likely the Federal Reserve will hike interest rates in December.
U.S. job growth surged in October and the unemployment rate hit a 7-1/2-year low of 5.0 percent in a show of economic strength, sending the dollar <.DXY> up 1.4 percent to the highest since April.
"The powerhouse payrolls report battered gold beneath $1,100 for the first time since August," said Tai Wong, director of base and precious metals trading for BMO Capital Markets in New York.
"Gold is now down eight days in a row but will remain under pressure as the market's view of the chances of December rate hike soars."
The U.S. futures contract for December delivery settled down 1.5 percent at $1,087.70 an ounce. The contract's volume surged nearly 49,500 lots between in the half hour that followed the jobs report, the biggest 30-minute burst of volume for the most active contract in a year.
Spot gold was heading for a 4.6 percent decline for the week, the sharpest such slide since June 2013 and nearing July's 5-1/2-year low.
"With numbers like these, the Fed are almost duty bound to raise rates within this year," Mitsubishi precious metals analyst Jonathan Butler said.
"The dollar is approaching 3 month highs and U.S. treasury yields are the highest since July. Gold could retrace to the lows for the year," he added.
Fed Chair Janet Yellen said on Wednesday that a rise in rates in December was a "live possibility" if justified by upcoming economic data.
Assets in SPDR Gold Trust , the top gold-backed exchange-traded fund, tumbled to 671.77 tonnes, the lowest since mid-August. On Thursday alone, the fund saw outflows of 8.34 tonnes, the biggest daily drop since July 17.
It is obvious that CFTC data also shows reversal in sentiment. Thus, Open interest has dropped significantly, as well as speculative long positions. At the same time, guys, we can't say that short have grown too much. In fact, growth was relatively shy. Last time we've said that our ratio that shows relation between shorts and longs stands near crucial level of 80-82%. Usually when ratio reaches high numbers - retracement becomes thing of high probability. Of course recent drop does not look like retracement. But, we should be careful with our judgement on reasons of this drop. Overextended bullish sentiment also is important. Next week we have to monitor short positions. If they will start to increase, this will be confirmation of changing wind in sentiment. While if not - it could indicate that gold still has chances on upside reversal. But this will happen only on next week. Right now we have to work with bearish sentiment on gold market.
Open interest
Speculative Longs:
Speculative shorts:
Technicals
Monthly
So, Goldman expect bearish continuation on Gold market and as recent rally does not impact significantly monthly chart, we probably should not deny it totally as well. I mean, bearish scenario. Last week it has become a reality. As drop was really fast, we even have not got any hint on long entry. Right now we have to return back to medium-term bearish view.
At the same time we think that currently gold is mostly driven by geopolitics, rather than economics. This driving factor creates absolutely new scale of uncertainty and leads to very fast changes on Globe political situation. That's why we suspect that gold market hardly will fall dramatically, since we're just in the beginning of Middle East tensions. Currently we see clear signs that situation will become worse in nearest 2 months.
As we've said last week - it is difficult to make any far going conclusions yet and mostly right now started upside action looks like tactical bounce from strong support area. To get another status market should show significant upside action and form bullish reversal swing. It means that gold has to exceed 1310 area.
We still have just one long-term pattern in progress that has not achieved it’s target yet. This is VOB pattern. It suggests at least 0.618 AB-CD down. And this target is 1050$. Besides, in the same area we have 1.618 target of most recent butterfly pattern.
Also we have extended bearish dynamic pressure here. Although trend shifted bullish in 2014, but market still forms sequence of lower tops. Speaking on VOB again - it assumes reaching of minor 0.618 target and gold stands very close to it. That's why chances are really not small that we could get another drop to 1050 and Goldman could be right. And as we've said, even when rally was strong - we call to not hurry to write-off bearish strength by far.
Still, it doesn't mean that we will ignore bullish setups and just wait for chances to enter bearish trade. Absolutely not. We will just keep in mind that bearish scenario exists, but we will trade any clear and attractive setups that gold will form, despite whether it will be bullish or bearish. We do not trade on monthly chart directly and just use it for understanding overall picture.
Based on monthly chart analysis gold stands as close as never to reaching of 1050 target.
Weekly
Action on weekly chart suggests that market should reach 1025-1035 area. Yes, our beacon is 1050, but it stands on monthly chart and +/- 20$ is normal for monthly levels. Besides, if gold will trigger stops below 1050 - this will add fuel to bearish fire and market could drop another 20$ just by momentum.
Here we see that gold stands below MPS1 and this indicates bear trend. Since drop was really significant - we do not take into consideration minor AB-CD extension of "222" Sell pattern but will be watching AB=CD target directly. Besides, market is not at oversold by far, but already has broken all major Fib levels.
If you will take a look carefully at this chart - you will recognize 2 butterflies to the left from "222" pattern. Both of them have 1.618 extensions around our AB=CD. That's why most probable destination is not 1050$ but slightly lower - 1025-1035$.
Don't pay attention to grabber that was formed last week (yes, this big nasty black candle is bullish grabber). Having such drop makes it almost useless, at least on weekly chart. To make it work - something really big and unexpected should happen either on market or in geopolitics.
Daily
Here guys, we could appeal to reaching of minor 0.618 AB-CD target right at daily overbought, but bearish impulse is too strong. It means that if even some retracement will happen - hardly it will be significant. We probably will not see any more or less meaningful relief until market will not meet important target, for example 1.0 AB=CD @ 1037.
I am even not sure that possible retracement will reach 1122 Fib resistance, although thrust down, as you can see looks perfect for DiNapoli directional patterns.
Still never say "never". Gold is approaching to solid 1080 support cluster, may be we will get B&B...
Intraday
Intraday charts mostly useless by far. Market not just shows any signs of upside retracement, but even shows acceleration to the downside. All that we could do by far is just keep watching...
Conclusion:
Our former conclusion on keeping of long-term bearish patterns was correct - they are still valid and they are powerful enough to push gold lower at least for another 100$. They area VOB (Volatility breakout) and bearish dynamic pressure.
At the same time It is also not the reason to stay hardly on opinion that everything lost and gold will start another super bearish series. This drop coincides with extreme numbers of sentiment ratio and currently we do not see significant increase in short positions. Also geopolitical tensions are growing. This makes us be cautious on any overestimating of bearish power and treat it by far just as motion to next, but relatively close targets.
In short-term perspective we probably will try to catch chance for short entry with target around 1025-1035 area.
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.