Gold GOLD PRO WEEKLY, November 09 - 13, 2020

Sive Morten

Special Consultant to the FPA
Messages
14,023
Fundamentals

Yesterday in our Forex research we've taken in-depth view on current situation with elections. Everybody already are tired from this topic as there were a lot of noise in the net within recent week. Now it seems, that run is over as Biden has announced its victory. We hope that it will be possible to escape "stormy" scenario and big social unrest if D. Trump tries to contest the results in the Court. Although he already is trying to do it, lets keep fingers crossed that the US avoid the chaos - as political as social. To keep "stormy" scenario aside, now mostly is the question of control over Senate. "Red" Senate could become the headwind for strong rally that we have and reaction on Biden's Presidency could be moderate as markets mostly are priced-in his victory. Thus, on Monday, it could be some emotional splash but investors could start to think about booking results as major event is completed.

Although currently we have a lot of new factors on the table - stimulus pack, when it will be adopted, what the size of stimulus will be, how negotiations with Senate (under Republicans control) will go. Second - CV19 situation. Now this Biden's headache. Once EU will out the lockdown in early December - US is not even locked yet. It means that it could be big gap in medium-term perspective between EU and US recovery. Finally some by-questions appear around taxation, internal and external politics, etc. At first glance we have "new" questions but from gold market perspective we have the same two driving factors - stimulus value and real interest rates. Let's take a look, what could happen with new White House administration.

Just to remind you, it is positive for gold - bigger stimulus and lower real interest rates. Real rates could become lower if inflation will be greater than nominal interest rates. For the gold to feel comfortable it needs that inflation stands ahead of nominal rates. At first glance Democrats' victory should resolve both questions - more stimulus as N. Pelosi has tried to push 2.2 Trln through the Congress and stake on faster economic growth with more spending, higher budget deficit and greater inflation. But, not everything as simple as it seems. Each of these factors have its own "difficulties".

Here is few comments of experts, how they see nearest future on a background of new information:

“A Biden Presidency with divided government (REP Senate, DEM House) would very likely result in more gridlock, and a more neutral impact on markets. We could see increased spending for infrastructure and economic recovery, but limited legislation changes and limited support for tax increases.

For financial markets, though, the result is a boon. Gone will be a multi-trillion-dollar fiscal stimulus. In will come more monetary policy stimulus as the Federal Reserve takes the burden on its shoulders. Even if President Trump were to make a miraculous comeback, that status quo would be unchanged. It is, therefore, little surprise that U.S. equity markets powered higher and the U.S. dollar quickly unwound all of its gains yesterday. If you are not long equities, property, precious metals and emerging markets, you probably should be. If you are pandemically unemployed or can’t afford it, sorry, you’ll just have to wait for the revolution.”

"Assuming that things stay somewhat as they are – that Republicans will retain control of the Senate - this is best of both worlds. The market will protect its capital gains, and we are going to get a stimulus package either way. The worst possible outcome is a ‘blue sweep’ and a contested election. I think we are going to get a decent rally for the rest of the year.”


Gold prices fell on Wednesday as bets that the Democrats will be unable to take control of the U.S. Senate in the razor-edge American election dashed hopes for a larger U.S. coronavirus stimulus.

“But we’ll still get something nonetheless. And let’s not forget that the Federal Reserve is extremely accommodative. There are other routes to stimulus and not all of them are through the U.S. Congress,” Melek added.

As a result of this journey - gold rose on Friday, set to post its best week since July, as the dollar weakened and increasing chances of a Joe Biden victory in the U.S. presidential election boosted hopes for a larger coronavirus relief bill.

“A devaluation of the U.S. dollar has driven gold prices to six-week highs, also some safe-haven demand amid the uncertainty of the presidential elections and rising COVID cases,” Kitco Metals senior analyst Jim Wyckoff said. The market is factoring in a Biden victory, (which) will lead to more government stimulus programmes and that could introduce some problematic price inflation down the road and also deflate the value of (the) dollar.”

“We have a decent shot of getting to $2,000 an ounce by month-end if not earlier.”


COT Report

Uncertainty over elections results was making investors to be cautious. As on FX market as on gold we see contracting of net positions as open interest has dropped. Investors mostly have closed longs, as well as hedgers have closed positions against possible rally. But in general, net position has not changed significantly. At the same time, we do not know how sentiment will change next week, when Presidents is known already.
1604830989990.png


SPDR Fund data shows that supposedly the price should try to catch the reserves, as they are mostly stands flat and do not follow the price decrease. It means that with Biden's victory, on Monday gold market could try to catch up the reserved data and show upside continuation:
1604831134274.png

That's being said, concerning stimulus - market definitely will get it and our suggestion that opinion about "Red" Senate could become the decisive barrier for Democrats to put stimulus through is overvalued. First is, because to be stubborn is necessary before elections, while just after elections it is useless. It could be even worse as you will become the "enemy of the nation" preventing help providing to the people and keep them starving. Nobody would like to be named as "bad guy". Second, among Republicans also exist floaters, that could make the process of stimulus approving easier. Besides, Fed totally on the side of Democrats and not once talked about more stimulus as soon as possible. So long-term Powell-Trump tension now is over. Finally - everybody will look on economy condition in perspective of 1-12 months. So, I suppose that stimulus could be provided not once and maybe not twice but more. That's why amount of nearest pack is important from psychological point of view and makes short-term impact. In longer-term perspective we suggest there will be more liquidity injections. So, in perspective of 6-12 month this factors definitely stands in favor of the gold market. This is our opinion.

Second - interest rates, and here situation is a bit more complicated. The major risk here we see with low inflation. CV19 already makes negative effect on consumption, spending, economy performance showing deflationary processes. And this is the big question when economy will be able to return to normal conditions. By Fed view, it could take at least 2-3 years to get 2% inflation target. Now it seems even longer as relapse of pandemic is yet to be started, or just is started. Thus, inflation within at least 1-1.5 years probably will be muted.
At the same time, liquidity support will be provided anyway and nominal interest rates could start rising. It means that real rates could gradually move out from negative territory that will be negative for the gold market. Just take a look at the chart below - last bottom was in 2012, also election year for B. Obama 2nd term. Real rates were even more negative. In September 2012 the 3rd round of QE was announced with 40Bln bonds buying per month, that at some degree acts till current moment. Here we have the risk to get the same thing. It makes us to be cautious on long-term bullish perspective of the gold market, suggesting that tactically we could get upside continuation and even new top, but hardly we're at the starting point of new long-term bullish trend and in perspective of the year gold could turn down.

That's being said, within 3-6 months overall situation stands positive for the gold, but later it is solid probability that higher nominal rates and depressed inflation will start to make negative impact on gold price as real rates start rising.




Concerning political risks - we hope that D. Trump will not succeed in contesting the results. Otherwise, the US could turn into chaos and it will be quite different perspective for the gold market. Democrats hardly accept loss peacefully, if even it will come from Supreme Court. Now this scenario is just theoretical and looks fantastic, but we should mention it anyway as it makes risk picture completed.

Technicals
Monthly


Here we keep mostly the same picture as previously. Gold keeps equal chances by far for short-term retracement and for upward continuation. Trend stands bullish here. The sequence of events that investors are watching is "elections - stimulus - CV19". Elections mostly are done, if we ignore hardly possible D. Trump rising. Next question is stimulus. Any delay, size reducing will press on the market holding it from further upward action. Providing at least some stimulus, despite how large they will be will help gold to move higher, although hardly it will set the new top.

Extreme levels - reaching of 2160 butterfly target or downside reversal and drop to 1700 area are possible with either extremely positive or negative scenarios. For example, if Biden provides more than 2.2 Trln and made it fast, we could get acceleration, while unexpected Trump rising and stimulus fizzle could trigger downside action.

Most probable scenario now is gradual upward action inside huge COP doji by far. Take a look - three recent months form "Morning star" pattern, that hints on possible large upside AB-CD shape that could be formed soon on lower time frames.

Next, later 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_09_11_20.png


Weekly

Here we have upward pennant breakout, oversold levels stands around 2023, making no barriers for the price to move higher. As trend stands bearish here, it would be correct to treat upside price action still as a retracement by far, because major 5/8 resistance still stands ahead.

gold_w_09_11_20.png


Daily

This is most important chart for us as it contains a lot of information. Trend is bullish here, but price stands at Agreement resistance and daily Overbought area, suggesting that pullback is probable. Biden's victory will be not enough for immediate upside continuation. Market was in strong tension in recent 1-2 weeks and needs some relief. Besides, take a look that gold accurately holds the harmony if you split the picture with the line through the "B" point. With retracement we could get reverse H&S pattern here. It doesn't mean that it should be as deep as 1850-1880, but even minor hint with pullback to 1920 should be enough. Also minor pullback agrees with monthly "Morning star" shape, although November is not closed yet.

Targets stand the same. Whether we will get the pullback or not - our XOP makes Agreement with major 5/8 resistance around 1990-1995 area. In a case of H&S pattern we will get larger AB=CD pattern that we've mentioned above with target around 2000-2025$ area.

The particular shape of the price depends on first Democrats steps after elections.
gold_d_09_11_20.png



Intraday

If retracement starts right on Monday - we see good support cluster around 1915-1920 area that fits well to our longer-term scenario. So we will keep an eye on this level and see what will happen around it. Theoretically, gold could open higher and hit XOP target here, in this case levels will move slightly higher as well, but the retracement idea remains intact, anyway we intend to watch for it.

gold_4h_09_11_20.png
 

Sive Morten

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

We've talked about pullback, but not of this magnitude, of course. News from Pfizer inspires investors, crushing demand for safe-haven. This also makes impact on long-term factors, such as recovery after pandemic, makes it faster and increasing value of US economy and US Dollar.

Technically, with current drop and even drop to our 1.1730 monthly support is nothing wrong as it would be normal reaction on monthly COP that we've discussed. To return back the bullish context market has to climb back above "B" top:
gold_d_10_11_20.png


In current circumstance it is difficult to plan new buying of the gold. Downside impulse is strong and it has to exhaust, before long positions will become safe again. Current upside action will be faded by momentum leading to some downside continuation. And now the major question whether it becomes leg to new lows or just retracement. Here we could consider few levels, where potentially downside action could start again. First is 1900 Fib level and former trend line, second is 5/8 resistance and COP Agreement with new daily AB-CD pattern. It stands around 1920. Upside action stands gradual, suggesting retracement nature.
gold_4h_10_11_20.png


Thus, we suggest no longs by far. Watch for these two levels for short entry and patterns that could be formed around it.
 

Vader

Recruit
Messages
4
Hi Sive,
first of all thank you for your daily effort in market analysis. I am watching them for years and by far they are the best that I can find on the web. They helped me a lot in trading.
I have one question. Looking at gold futures I can see that Dec volume and open interest is enormous (compering to the other months). My first impression is that should be bullish for gold, but I am no expert at all for that market. The end of December is not far away and I will be grateful if you can make comment on that huge volume.
1605001357654.png

Thank you and best regards,
Srdja (Vader)
 

Sive Morten

Special Consultant to the FPA
Messages
14,023
My first impression is that should be bullish for gold, but I am no expert at all for that market. The end of December is not far away and I will be grateful if you can make comment on that huge volume.
Hi Srdja, well only obvious thoughts are coming to my mind - either it has relation to options execution at the end of the year, or people make protection before long holidays, although it could be done in Feb contract as well.. Because Gold usual months are Feb - May - Jul - Nov. Compares to other quarter cycle of other futures, which is Mar-Jun-Sep - Dec.
From that standpoint it is a bit uncommon to see big volume in Dec contracts, which is "secondary". Interesting... maybe later we see the answer on this riddle. But know I could suggest only options market as the reason for that. Or, maybe, due lower liquidity spread was too big and arbitrage traders have stepped in...
 

Sive Morten

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

Gold is turned to tactical action near the bottom. As we've said, to re-establish bullish context market has to erase recent plunge and move above "B" point. Although theoretically it is possible, but suggestion of downside continuation now looks more realistic. Thus, it seems that next destination should stands somewhere below current levels. As daily Oversold stands relatively close - it seems that should recall our 1800-1825 support and OP target. But first, price should finish upside pullback:
gold_d_11_11_20.png


As on 4H chart we have reversal bar and maybe we also will get grabber - it seems before deeper upward action we could get price a bit lower:
gold_4h_11_11_20.png


Approximately, we could get something like this:
gold_1h_11_11_20.png


It means that first level to consider, where theoretically price could turn down again stands around 1895-1900 level
 

Sive Morten

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

Market keeps our trading plan valid by far and today we also take a look at alternative scenario. In general, on daily chart, as we've said yesterday - it makes sense to consider forgotten support area and OP target. They create nice support area of 1805-1835, accompanied by daily Oversold. Thus, if you plan to buy gold - this is an area to watch for:
gold_d_12_11_20.png



On 4H chart the first part of trading plan is done - we've got as grabber as downside continuation. Now, the second question is what continuation we will get:
gold_1h_12_11_20.png



Potentially we consider either upward AB-CD to 1895-1900 resistance area, getting "222" Sell and chance to go short. Alternatively, if price fails to move higher the shape could turn to butterfly that has the same extensions as our daily support area. If you intend to go short - keep an eye either on upside AB=CD or breaking below "C". It tells that gold is moving higher and preparing to challenge the lows.
gold_4h_12_11_20.png
 

Sive Morten

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

So it was relatively quiet week - even single setup was enough. On daily is nothing to adjust - we're watching for the same major support area around 1825 and consider it as attractive for long entry. So, if you would like to buy gold, it would be better to wait when this area will be reached:

gold_d_13_11_20.png


On 4 H chart we're still watching for 2nd part of our scenario - upward retracement. Now the only question is whether market hits 1900 resistance and complete upside AB-CD pattern, or turn down right now:
gold_4h_13_11_20.png


In 1st case we get "222" Sell around 1900 Agreement resistance, while in the 2nd - downside butterfly that should push price right to 1825 area. Bearish position stands out of our interest right now, but if you consider short entry - initial stop better to place above 1900, because now it is unclear what pattern finally will be formed. Otherwise, you take the risk of to be washed out while downside context remains valid.
gold_1h_13_11_20.png
 
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