Sive Morten
Special Consultant to the FPA
- Messages
- 18,564
Fundamentals
Last week we've made a suggestion that gold should have problems with upside continuation due negative fundamental and sentiment background. As a result all attempts to break through major resistance have failed.
Fed meeting results just has supported this direction. As we've said in our FX research yesterday - probability of Dec rate increase now stands around 80%. Statistics also looks good. It means that coming week doesn't promise anything good for gold market as well, at least based on information that we have.
As Reuters reports - Gold fell to its lowest in a month on Friday as the U.S. dollar strengthened after the Federal Reserve reaffirmed its monetary tightening stance, seen as a negative for non-yielding bullion.
The Fed held interest rates steady on Thursday but is widely expected to raise interest rates in December - which would be its fourth hike this year - as it pointed to a healthy economy marred only by a dip in the growth of business investment.
“The Fed’s announcement caused the dollar to strengthen and the outlook for higher U.S. interest rates has gold on the defense,” said Bob Haberkorn, senior market strategist at RJO Futures.
Also weighing on overall commodity market sentiment, was a decline in oil prices, with benchmark Brent crude falling to its lowest since early April.
“Gold is re-establishing its relationship with the crude oil market,” said Miguel Perez-Santalla, vice president of Heraeus Metal Management in New York.
Gold can be used as a hedge against inflation fueled by higher oil prices.
Now let's take a look at sentiment on the market. SPDR fund that has shown good jump in inventories two weeks ago has lost 2 tonnes this week. This is small outflow, but it just shows that positive dynamic and investors courage has stopped.
But CFTC data looks positive for gold. Open interest has jumped for 25K contracts. Speculators and hedgers have increased bullish positions. Although speculators just have closed shorts, hedgers have opened 15K short contracts, which indicates that in medium term perspective gold could continue upward action.
In general this is understandable. Rising interest rates cycle suggests more pressure on stock market and gold is treated as one of the assets where funds could be protected from inflation.
This information lets us keep our view on current pullback as on retracement still, despite that on Friday there was negative acceleration.
Technical
Monthly
Monthly picture barely has changed as November action stands as inside one to October candle. On monthly chart we keep our long-term technical scenario, that could be realized. this is not single possible scenario, but currently it seems as very probable. We will keep it intact for awhile, because it illustrates our fundamental expectations on gold market. Although final downside target could be revised higher someday because as political as economical situation is not static but we keep our direction "down" by far.
Here we try to involve fundamental view in technical analysis, trying to combine patterns with real fundamental situation on gold. So, we will take broader view.
If you follow our weekly updates, you should remember our explanation and why we think that gold inability to break through 1380 resistance should be treated as bulls' defeat and gold failure. This is important in outlook of longer-term perspective.
Fundamental picture suggests two major things. In shorter-term US will keep dominate role in the world, because indirectly it controls EU economy as major EU companies have significant part of their business in US, or on US territory, US dollar is still world major currency and, as we've estimated above, China starts to show signs of chilling their economy. US economy itself feels good. D. Trump by restructuring of political role of US on international arena will safe a lot of "unnecessary" spending, such different programs of opposition financing, military spending of different kind. This should improve US budget, reduce deficit, which also will work on support of US economy.
Second important issue, this long-term relations that stand for decades start changing. Both of these moments, putting together, lead us to following conclusion. Within few years, 2-3 probably gold will remain under pressure of positive interest rates cycle. While gradually, when breaking of long-term economic relations will be seen brighter and brighter and impact not only China, EU but US as well - this will be turning point for the gold, or slightly before that. Because any global crush of any kind triggers demand for gold. That is what we see from fundamentals. The same view we see among other analysis, which they backed with statistics and fundamental research. Thus, Fathom Consulting expects starting of world crisis around 2020.
It could look unbelievable, but technical picture shows approximately the same. Failure of 1380 upside breakout confirms our idea of 2-3 years of US and US Dollar domination. But at the same time gold should show preparation to reversal, and here it is. One of the scenarios that might be formed here is big 1.618 butterfly, which is bullish reversal pattern. It has 1.618 target right around gold price, which is corresponds to extraction spending approximately. So, it is long-term breakeven point.
Finally, butterfly could become large reverse H&S pattern around all time 5/8 Fib support and ~40% of this pattern could be seen on the market. What we see on the chart nicely corresponds to current fundamental background. Alternative scenarios suggest appearing of different patterns, such as "222" Buy, or 1.27 butterfly but it doesn't affect the core and reflects only a degree of global political and economical processes, whether they will be smooth or drastic.
Of course, political life is not static, and it could show fast turns. But right now, everything looks very harmonic.
Here we also have mentioned huge demand on gold from emerging countries - China, Russia and Turkey. Developed countries repatriate gold from US. It means that everybody prepares to something, which should significantly increase demand for a gold. Decisive moment here will be the breakout of YPS1 where gold stands right now. But last few weeks we see that gold, oppositely, holds well and even bounces higher, up from it.
Weekly
Weekly trend stands bullish. Upside action has started by DRPO "Buy" pattern after weekly oversold has been reached. Now gold has completed AB=CD upside target. As result we've got "222" Sell pattern, which minimal target is 3/8 retracement where we stand now.
Bullish setup will be valid until market holds above "C" point of our AB-CD pattern and stands above major 5/8 Fib support. Drop below 1175 will erase this setup. In this case we have to acknowledge that it was just 3/8 reaction on weekly OS, although we're still watching for 50% at least around 1260.
Overall situation let's us by far search chances to go long.
Daily
Here is our picture for next week. As we've said, if market fails to proceed higher, we should get 2-leg retracement down and this has happened. Market mostly has completed 1205 OP target. Now price stands at very strong support area - K-support and Agreement.
Putting together strong drop and strong support, most probable action - upside pullback and downside continuation after it will be done. This brings a lot of trending setups depending on your time frame. It could be long trade on intraday charts first. We intend to use level's strength to protect position with breakeven stop later.
Ultimately, we watch for 1185-1190 crucial area, which is XOP and major 5/8 Fib support. Gold has to stay above it to keep long-term bullish scenario. If market will break it, it could be 1st step on a road to weekly OP around 1113$ target:
Intraday
4H chart shows that market could slip slightly lower, to 1205 target by two reasons. First is, this is actually daily OP, that has not been hit yet totally. Second - this is 1.27 extension of butterfly "Buy" here. It means that 1205 is a level where we could try to go long, if we get bullish reversal patterns on lower time frames.
Second setup here is potential B&B "Sell", which has good chances to happen from 1218-1219 K-resistance area. This is also WPP.
On hourly and lower time frames we do not have something special. Watch for 1H bearish grabber, that could become starting point of final leg to 1205. 15-min chart shows very gradual upside action with clear signs of retracement and bearish dynamic pressure. Maybe some pattern, such as butterfly "Buy" will be formed there.
That's being said, in the beginning of the week we're watching for two possible trades - upside action from 1205 and B&B "Sell" from 1218-1219 area.
Conclusion:
Sentiment stands moderately positive for gold market and keeps on the table possible action to 1260 area later in the month. Now we mostly deal with retracement. It is still a question whether gold will proceed higher from 1205 area or another leg down to 1185 will happen. In the beginning of the week we focus on upside pullback, approximately from 1205 to 1218 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.
Last week we've made a suggestion that gold should have problems with upside continuation due negative fundamental and sentiment background. As a result all attempts to break through major resistance have failed.
Fed meeting results just has supported this direction. As we've said in our FX research yesterday - probability of Dec rate increase now stands around 80%. Statistics also looks good. It means that coming week doesn't promise anything good for gold market as well, at least based on information that we have.
As Reuters reports - Gold fell to its lowest in a month on Friday as the U.S. dollar strengthened after the Federal Reserve reaffirmed its monetary tightening stance, seen as a negative for non-yielding bullion.
The Fed held interest rates steady on Thursday but is widely expected to raise interest rates in December - which would be its fourth hike this year - as it pointed to a healthy economy marred only by a dip in the growth of business investment.
“The Fed’s announcement caused the dollar to strengthen and the outlook for higher U.S. interest rates has gold on the defense,” said Bob Haberkorn, senior market strategist at RJO Futures.
Also weighing on overall commodity market sentiment, was a decline in oil prices, with benchmark Brent crude falling to its lowest since early April.
“Gold is re-establishing its relationship with the crude oil market,” said Miguel Perez-Santalla, vice president of Heraeus Metal Management in New York.
Gold can be used as a hedge against inflation fueled by higher oil prices.
Now let's take a look at sentiment on the market. SPDR fund that has shown good jump in inventories two weeks ago has lost 2 tonnes this week. This is small outflow, but it just shows that positive dynamic and investors courage has stopped.
But CFTC data looks positive for gold. Open interest has jumped for 25K contracts. Speculators and hedgers have increased bullish positions. Although speculators just have closed shorts, hedgers have opened 15K short contracts, which indicates that in medium term perspective gold could continue upward action.
In general this is understandable. Rising interest rates cycle suggests more pressure on stock market and gold is treated as one of the assets where funds could be protected from inflation.
This information lets us keep our view on current pullback as on retracement still, despite that on Friday there was negative acceleration.
Technical
Monthly
Monthly picture barely has changed as November action stands as inside one to October candle. On monthly chart we keep our long-term technical scenario, that could be realized. this is not single possible scenario, but currently it seems as very probable. We will keep it intact for awhile, because it illustrates our fundamental expectations on gold market. Although final downside target could be revised higher someday because as political as economical situation is not static but we keep our direction "down" by far.
Here we try to involve fundamental view in technical analysis, trying to combine patterns with real fundamental situation on gold. So, we will take broader view.
If you follow our weekly updates, you should remember our explanation and why we think that gold inability to break through 1380 resistance should be treated as bulls' defeat and gold failure. This is important in outlook of longer-term perspective.
Fundamental picture suggests two major things. In shorter-term US will keep dominate role in the world, because indirectly it controls EU economy as major EU companies have significant part of their business in US, or on US territory, US dollar is still world major currency and, as we've estimated above, China starts to show signs of chilling their economy. US economy itself feels good. D. Trump by restructuring of political role of US on international arena will safe a lot of "unnecessary" spending, such different programs of opposition financing, military spending of different kind. This should improve US budget, reduce deficit, which also will work on support of US economy.
Second important issue, this long-term relations that stand for decades start changing. Both of these moments, putting together, lead us to following conclusion. Within few years, 2-3 probably gold will remain under pressure of positive interest rates cycle. While gradually, when breaking of long-term economic relations will be seen brighter and brighter and impact not only China, EU but US as well - this will be turning point for the gold, or slightly before that. Because any global crush of any kind triggers demand for gold. That is what we see from fundamentals. The same view we see among other analysis, which they backed with statistics and fundamental research. Thus, Fathom Consulting expects starting of world crisis around 2020.
It could look unbelievable, but technical picture shows approximately the same. Failure of 1380 upside breakout confirms our idea of 2-3 years of US and US Dollar domination. But at the same time gold should show preparation to reversal, and here it is. One of the scenarios that might be formed here is big 1.618 butterfly, which is bullish reversal pattern. It has 1.618 target right around gold price, which is corresponds to extraction spending approximately. So, it is long-term breakeven point.
Finally, butterfly could become large reverse H&S pattern around all time 5/8 Fib support and ~40% of this pattern could be seen on the market. What we see on the chart nicely corresponds to current fundamental background. Alternative scenarios suggest appearing of different patterns, such as "222" Buy, or 1.27 butterfly but it doesn't affect the core and reflects only a degree of global political and economical processes, whether they will be smooth or drastic.
Of course, political life is not static, and it could show fast turns. But right now, everything looks very harmonic.
Here we also have mentioned huge demand on gold from emerging countries - China, Russia and Turkey. Developed countries repatriate gold from US. It means that everybody prepares to something, which should significantly increase demand for a gold. Decisive moment here will be the breakout of YPS1 where gold stands right now. But last few weeks we see that gold, oppositely, holds well and even bounces higher, up from it.
Weekly
Weekly trend stands bullish. Upside action has started by DRPO "Buy" pattern after weekly oversold has been reached. Now gold has completed AB=CD upside target. As result we've got "222" Sell pattern, which minimal target is 3/8 retracement where we stand now.
Bullish setup will be valid until market holds above "C" point of our AB-CD pattern and stands above major 5/8 Fib support. Drop below 1175 will erase this setup. In this case we have to acknowledge that it was just 3/8 reaction on weekly OS, although we're still watching for 50% at least around 1260.
Overall situation let's us by far search chances to go long.
Daily
Here is our picture for next week. As we've said, if market fails to proceed higher, we should get 2-leg retracement down and this has happened. Market mostly has completed 1205 OP target. Now price stands at very strong support area - K-support and Agreement.
Putting together strong drop and strong support, most probable action - upside pullback and downside continuation after it will be done. This brings a lot of trending setups depending on your time frame. It could be long trade on intraday charts first. We intend to use level's strength to protect position with breakeven stop later.
Ultimately, we watch for 1185-1190 crucial area, which is XOP and major 5/8 Fib support. Gold has to stay above it to keep long-term bullish scenario. If market will break it, it could be 1st step on a road to weekly OP around 1113$ target:
Intraday
4H chart shows that market could slip slightly lower, to 1205 target by two reasons. First is, this is actually daily OP, that has not been hit yet totally. Second - this is 1.27 extension of butterfly "Buy" here. It means that 1205 is a level where we could try to go long, if we get bullish reversal patterns on lower time frames.
Second setup here is potential B&B "Sell", which has good chances to happen from 1218-1219 K-resistance area. This is also WPP.
On hourly and lower time frames we do not have something special. Watch for 1H bearish grabber, that could become starting point of final leg to 1205. 15-min chart shows very gradual upside action with clear signs of retracement and bearish dynamic pressure. Maybe some pattern, such as butterfly "Buy" will be formed there.
That's being said, in the beginning of the week we're watching for two possible trades - upside action from 1205 and B&B "Sell" from 1218-1219 area.
Conclusion:
Sentiment stands moderately positive for gold market and keeps on the table possible action to 1260 area later in the month. Now we mostly deal with retracement. It is still a question whether gold will proceed higher from 1205 area or another leg down to 1185 will happen. In the beginning of the week we focus on upside pullback, approximately from 1205 to 1218 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.