Sive Morten
Special Consultant to the FPA
- Messages
- 18,695
Fundamentals
Reuters reports Gold fell back towards near six-year lows on Friday, staying on track for a fourth straight weekly loss, on expectations the Federal Reserve is set to raise U.S. interest rates next month for the first time in nearly a decade.
A raft of Fed officials lined up behind a December rate rise on Thursday.
Rising rates tend to weigh on gold, as they lift the opportunity cost of holding non-yielding assets while boosting the dollar. Gold has fallen more than 5 percent since the start of November, when a stronger-than-expected U.S. payrolls report fueled expectations for a near-term rate hike.
"Quite clearly, with the growing sense that there will be a December rate hike after the strong U.S. data last week, investors have been bailing out of gold," Citi analyst David Wilson said. "I suspect that is likely to continue."
Holdings of the world's largest gold-backed exchange-traded fund, SPDR Gold Shares , fell by another 1.5 tonnes on Thursday.
The platinum group metals also came under pressure from fund selling. Holdings of platinum ETFs were at a two-year low, while assets of palladium funds were at their lowest since April 2014.
"This additional near-term supply from ETFs and other liquidation took platinum to seven-year lows and undermined palladium also," HSBC said in a note.
"While we find physical demand for the PGMs from industrial sources to be broadly steady, investors are retreating and we see no early signs of further production restraint."
Platinum was at $855.50 an ounce, down 2.1 percent, having earlier slid to its lowest since December 2008 at $854.
"PGMs are suffering with palladium having an ultimate breakdown towards critical long-term support near $518," said Amaryllis Gryllaki, sales associate for TD Securities' Global Metals in New York in a note.
"During Asia time it sold off 5 percent on less than 1,000 lots."
Palladium was down 3.9 percent at $536.50 an ounce after touching a 2-1/2-month low of $530.75. Prices of the autocatalyst metal are down more than 13 percent this week, its biggest weekly decline since May 2010.
Speaking on COT data, last numbers we've got on 3rd of November. They are a bit too old for current situation. Anyway, we see drop in net long position with simultaneous growth in open interest. Also, as we've said last time % of longs stands very close to 80-82% level. This is critical and significantly increases chances of reversal or deep retracement. Fundamental reasons could be different, but technically - particularly now we see this drop on gold market.
Due to events in Paris, we can't exclude jump on gold market on Monday. It is difficult to say how long-term it will be but probably terrorist attack is just a beginning. Some geopolitics steps will follow. By looking at this situation from this point of view - rally could last for considerable period of time, may be with some pauses, but sentiment really could change...
That's why W&R on Friday could take very special meaning from technical point of view on coming week.
Technicals
Monthly
Here, guys, we will have to look at technical picture without taking in consideration terrorist attack in Paris. I'm almost sure that our analysis hardly will be useful on next week, since market definitely will give clear reaction on this event.
That's why, right now we will take a look at Friday charts, while on Tuesday will make update with Monday reaction...
So, Goldman expect bearish continuation to 1000$ area and we have to return back to medium-term bearish view as drop was really miserable within last 2 weeks.
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.
Speaking on breakeven points between bullish and bearish sentiment - market should show significant upside action and form bullish reversal swing to destroy current bearish domination. 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$. Besides, in the same area we have 1.618 target of most recent butterfly pattern.
Also we have extended bearish dynamic pressure here. Although trend shifted bullish in 2014, but market still forms sequence of lower tops. Speaking on VOB again - it assumes reaching of minor 0.618 target and gold stands very close to it. That's why chances are really not small that we could get another drop to 1050 and Goldman could be right. And as we've said, even when rally was strong - we call to not hurry to write-off bearish strength by far.
Still, it doesn't mean that we will ignore bullish setups and just wait for chances to enter bearish trade. Absolutely not. We will just keep in mind that bearish scenario exists, but we will trade any clear and attractive setups that gold will form, despite whether it will be bullish or bearish. We do not trade on monthly chart directly and just use it for understanding overall picture.
Based on monthly chart analysis gold stands as close as never to reaching of 1050 target.
By taking in consideration Paris tragedy we still have to call you - do not hurry with any position taking on Monday. Wait when first reaction will calm down...
Weekly
Action on weekly chart suggests that market should reach 1025-1035 area. Yes, our beacon is 1050, but it stands on monthly chart and +/- 20$ 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.
That's being said in normal market conditions (here I again talk on Paris event) gold should continue move down, especially after such drop as we saw 2 weeks ago. Last week was minor one and absolutely does not change overall picture:
Daily
On Friday we've dedicated our daily update to W&R pattern on daily chart. Was it some prophesy of Paris tragedy - we do not know. But, we've said that it could get absolutely special meaning. W&R is a bullish pattern and usually leads at least to short-term upside bounce. Also it simplifies overall situation for us.
Thus, if market will drop below W&R lows - it will be clear signal of downward continuation and will tell us that bearish trend re-established. While upside action could give us some other patterns. For example, B&B "Sell" on daily chart, if market will reach 1115 level.
As you can see, by keeping in mind tragic event in Europe, W&R could become a triggering factor for solid upside rally. That's why, currently, we may be do not have any clear patterns that could confirm this. But existing and validity of W&R keeps this potential rally possible.
Hourly
Here picture becomes a bit blur, compares to Friday. And market probably will not keep nice harmony on Monday. But we mostly are interested in levels. If Gold will jump up and will form the head in one way or another, or even if it will form upside reversal swing - chances on getting some DiNapoli directional pattern will increase. What will happen after that - nobody knows. Mostly it will depend on market assessment of Paris event. If it will not get any far-going consequences (and I'm sure it will), then reaction will be short term and B&B could shift to bearish continuation.
While opposite scenario suggests major long-term reversal on gold market after B&B will be worked out. So, as you can see - let's focus on B&B first and then we will see what will happen
Conclusion:
Currently charts do not reflect real situation that we will meet on Monday. Somehow, guys, I'm strongly sure that this will not be "ordinary" terrorist attack in Paris. It will lead to far-going consequences, more escalation on Middle East and Globe political tensions. That's why, currently we mostly will focus on short-term setups.
Right now chances on getting daily B&B "Sell" are significant. What will happen after it - we will see...
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 back towards near six-year lows on Friday, staying on track for a fourth straight weekly loss, on expectations the Federal Reserve is set to raise U.S. interest rates next month for the first time in nearly a decade.
A raft of Fed officials lined up behind a December rate rise on Thursday.
Rising rates tend to weigh on gold, as they lift the opportunity cost of holding non-yielding assets while boosting the dollar. Gold has fallen more than 5 percent since the start of November, when a stronger-than-expected U.S. payrolls report fueled expectations for a near-term rate hike.
"Quite clearly, with the growing sense that there will be a December rate hike after the strong U.S. data last week, investors have been bailing out of gold," Citi analyst David Wilson said. "I suspect that is likely to continue."
Holdings of the world's largest gold-backed exchange-traded fund, SPDR Gold Shares , fell by another 1.5 tonnes on Thursday.
The platinum group metals also came under pressure from fund selling. Holdings of platinum ETFs were at a two-year low, while assets of palladium funds were at their lowest since April 2014.
"This additional near-term supply from ETFs and other liquidation took platinum to seven-year lows and undermined palladium also," HSBC said in a note.
"While we find physical demand for the PGMs from industrial sources to be broadly steady, investors are retreating and we see no early signs of further production restraint."
Platinum was at $855.50 an ounce, down 2.1 percent, having earlier slid to its lowest since December 2008 at $854.
"PGMs are suffering with palladium having an ultimate breakdown towards critical long-term support near $518," said Amaryllis Gryllaki, sales associate for TD Securities' Global Metals in New York in a note.
"During Asia time it sold off 5 percent on less than 1,000 lots."
Palladium was down 3.9 percent at $536.50 an ounce after touching a 2-1/2-month low of $530.75. Prices of the autocatalyst metal are down more than 13 percent this week, its biggest weekly decline since May 2010.
Speaking on COT data, last numbers we've got on 3rd of November. They are a bit too old for current situation. Anyway, we see drop in net long position with simultaneous growth in open interest. Also, as we've said last time % of longs stands very close to 80-82% level. This is critical and significantly increases chances of reversal or deep retracement. Fundamental reasons could be different, but technically - particularly now we see this drop on gold market.
Due to events in Paris, we can't exclude jump on gold market on Monday. It is difficult to say how long-term it will be but probably terrorist attack is just a beginning. Some geopolitics steps will follow. By looking at this situation from this point of view - rally could last for considerable period of time, may be with some pauses, but sentiment really could change...
That's why W&R on Friday could take very special meaning from technical point of view on coming week.
Technicals
Monthly
Here, guys, we will have to look at technical picture without taking in consideration terrorist attack in Paris. I'm almost sure that our analysis hardly will be useful on next week, since market definitely will give clear reaction on this event.
That's why, right now we will take a look at Friday charts, while on Tuesday will make update with Monday reaction...
So, Goldman expect bearish continuation to 1000$ area and we have to return back to medium-term bearish view as drop was really miserable within last 2 weeks.
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.
Speaking on breakeven points between bullish and bearish sentiment - market should show significant upside action and form bullish reversal swing to destroy current bearish domination. 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$. Besides, in the same area we have 1.618 target of most recent butterfly pattern.
Also we have extended bearish dynamic pressure here. Although trend shifted bullish in 2014, but market still forms sequence of lower tops. Speaking on VOB again - it assumes reaching of minor 0.618 target and gold stands very close to it. That's why chances are really not small that we could get another drop to 1050 and Goldman could be right. And as we've said, even when rally was strong - we call to not hurry to write-off bearish strength by far.
Still, it doesn't mean that we will ignore bullish setups and just wait for chances to enter bearish trade. Absolutely not. We will just keep in mind that bearish scenario exists, but we will trade any clear and attractive setups that gold will form, despite whether it will be bullish or bearish. We do not trade on monthly chart directly and just use it for understanding overall picture.
Based on monthly chart analysis gold stands as close as never to reaching of 1050 target.
By taking in consideration Paris tragedy we still have to call you - do not hurry with any position taking on Monday. Wait when first reaction will calm down...
Weekly
Action on weekly chart suggests that market should reach 1025-1035 area. Yes, our beacon is 1050, but it stands on monthly chart and +/- 20$ 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.
That's being said in normal market conditions (here I again talk on Paris event) gold should continue move down, especially after such drop as we saw 2 weeks ago. Last week was minor one and absolutely does not change overall picture:
Daily
On Friday we've dedicated our daily update to W&R pattern on daily chart. Was it some prophesy of Paris tragedy - we do not know. But, we've said that it could get absolutely special meaning. W&R is a bullish pattern and usually leads at least to short-term upside bounce. Also it simplifies overall situation for us.
Thus, if market will drop below W&R lows - it will be clear signal of downward continuation and will tell us that bearish trend re-established. While upside action could give us some other patterns. For example, B&B "Sell" on daily chart, if market will reach 1115 level.
As you can see, by keeping in mind tragic event in Europe, W&R could become a triggering factor for solid upside rally. That's why, currently, we may be do not have any clear patterns that could confirm this. But existing and validity of W&R keeps this potential rally possible.
Hourly
Here picture becomes a bit blur, compares to Friday. And market probably will not keep nice harmony on Monday. But we mostly are interested in levels. If Gold will jump up and will form the head in one way or another, or even if it will form upside reversal swing - chances on getting some DiNapoli directional pattern will increase. What will happen after that - nobody knows. Mostly it will depend on market assessment of Paris event. If it will not get any far-going consequences (and I'm sure it will), then reaction will be short term and B&B could shift to bearish continuation.
While opposite scenario suggests major long-term reversal on gold market after B&B will be worked out. So, as you can see - let's focus on B&B first and then we will see what will happen
Conclusion:
Currently charts do not reflect real situation that we will meet on Monday. Somehow, guys, I'm strongly sure that this will not be "ordinary" terrorist attack in Paris. It will lead to far-going consequences, more escalation on Middle East and Globe political tensions. That's why, currently we mostly will focus on short-term setups.
Right now chances on getting daily B&B "Sell" are significant. What will happen after it - we will see...
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.