Sive Morten
Special Consultant to the FPA
- Messages
- 18,668
Fundamentals
Gold was moving in the same trend as other markets did this week. It follows the same sequence of driving factors -"elections - CV19 - stimulus- vaccine performance and interest rates dynamic.". Once "US elections" topic is gradually fading (although we still think that it is too early to withdraw it totally), eyes of investors turn to pandemic situation and possible harm to economy because of vaccine timing gap. So, gold was under impact of the same factors as EUR that we've discussed yesterday.
Investors weighed the prospects of a COVID-19 vaccine against concerns over rising cases and the possibility of further economic support from the U.S. Federal
Reserve.
"There's a lack of catalyst for gold to rally ... Weighing on prices is a slight depression in inflation expectations because it's quite clear now that the U.S. fiscal stimulus will probably not be as sizeable as previously imagined," said IG Markets analyst Kyle Rodda. The emphasis is now on the Fed to support the U.S. economy through the surge in coronavirus cases, he added.
Fed chair Jerome Powell said on Tuesday there's "a long way to go" for the economy to recover and that the central bank is committed to using all its tools to support the recovery. Meanwhile, data showed U.S. retail sales rose less than expected in October. And prices were under pressure on Friday, weighed by uncertainty over more U.S. stimulus measures after Treasury Secretary Steven Mnuchin said key pandemic lending programs at the Federal Reserve would expire by the end of the year. In a letter to Fed Chair Jerome Powell, Mnuchin said the $455 billion allocated to Treasury under the CARES Act last spring, which supports Fed's lending to businesses, nonprofits and local governments, should be instead available for Congress to reallocate.
At the same time, just before that, Gold jumped as S. Mnuchin said he and White House Chief of Staff Mark Meadows would be speaking on Friday with Republican congressional leaders on negotiations with Congress on more economic support.
"Gold has clearly run out of upward momentum, with the short-term market clearly long," said Jeffrey Halley, senior market analyst at OANDA, adding, a daily close below key support around the $1,867 level could signal a deeper correction. "I expect monetary policy globally, and especially from the Fed to be ultra-easy right through 2021."
"The underlying momentum behind gold has dissipated," said independent analyst Ross Norman, adding gold was pressured by year-end profit-taking and investors liquidating long positions. But it's important to remember that the gold bull run was never predicated on COVID-19," and factors including a weak economy and the likelihood of interest rates remaining subdued for an extended period will continue to support it, Norman added.
Investors pulled $4 billion from gold, the biggest outflow ever, amid a rush for riskier assets last week, BofA said on Friday. Also, holdings in the SPDR Gold Trust exchange-traded fund have seen net outflows of about 40 tonnes so far in November.
"Positive COVID-19 vaccine developments should slow but not end the secular gold bull cycle without a hawkish pivot in U.S. monetary policy," Citi Research said in a note.
Gold will remain supported as "vaccines will take months and months to become well distributed enough to be effective and the U.S. government is going to continue to be stalemated," said Jeffrey Christian, managing partner of CPM Group.
"While the macro backdrop remains supportive, the key downside risk stems from physical demand and ETP (exchange-traded products) holdings," said Standard Chartered analyst Suki Cooper in a note. Buyers still appear to view price dips below $1,860/oz as attractive entry levels, and prices have held up well given the
size of ETP outflows."
Goldman Sachs on Wednesday maintained its ‘overweight’ recommendations for commodities in 2021, reasoning the sector was possibly the best hedge against likely inflation and poised for another bull market. The bank forecast a return of about 27% over a 12-month period on the S&P/Goldman Sachs Commodity Index (GSCI), with a 19.2% return for precious metals, 40.1% for energy, 3% for industrial metals and a negative 1% return on agriculture.
The bank maintained its 3, 6 and 12 month targets for gold and silver at $2,300 and $30 an ounce respectively, as it believes near-term inflation has further room to run, while an increase in solar installations supports silver demand.
“In metals, we have seen a sharp drop in maintenance capex and supply disruptions dragging into 2021. This suggests that, even if demand falters in coming weeks as winter exacerbates COVID, markets will likely continue to rebalance, barring an outright collapse in demand,” Goldman Sachs said in a note.
A World Health Organization (WHO) special COVID-19 envoy predicted a third wave of the pandemic in Europe in early 2021, if governments repeat what he said was a failure to do what was needed to prevent the second wave of infections.
“They missed building up the necessary infrastructure during the summer months, after they brought the first wave under the control,” the WHO’s David Nabarro said in an interview with Swiss newspapers. Now we have the second wave. If they don’t build the necessary infrastructure, we’ll have a third wave early next year,” said Nabarro, a Briton who campaigned unsuccessfully to become the WHO director general in 2017.
Toilet paper aisles are emptying again as COVID-19 curfews and shutdowns in states from California to New York send pandemic-weary shoppers on a new scramble for essentials. Charmin maker Procter & Gamble, the No. 1 U.S. toilet paper seller, said it is running plants 24/7 to meet demand.
COT Report
Despite that Investment banks report on outflow from Precious metals - CFTC data shows neutral, or slightly bullish picture at least on this week. But for the truth sake, the report is released on Tue, so, something could change by the end of the week. Anyway, by CFTC data we have increasing of net speculative positions. Hedgers do the same - reduce possession for possible gold drop. Open interest also have increased slightly:
So, it seems that indeed - now we have rebalancing of short-term sentiment. Let's recall what bullish background is based on, at least in short-term. This is no vaccine and expectation of more economy slowdown and long-term low interest rates, expectation of more stimulus. But what we do have right now - vaccine is under way, now this is just a question of production power mostly, stimulus stands somewhere in the future with uncertainty of its amount because of Biden/Trump rival and contradictive comments from US official persons. It makes impact on short-term sentiment and overall market view coincides with our suggestion as well that gold should try to take out 1850 lows.
In a longer-term perspective situation stands better by far. This factors do not impact directly on gold price right now. In two words - as longer gap till positive vaccine performance we will get - all the better for gold. Longer gap suggests longer term for stimulus functioning, and postpone economy recovery, suggesting low interest rates stand for longer time. Once world will stay on the way CV19 defeat due vaccine massive application, it could happen not sooner than in II half of 2021, I suppose, gold finally again will depend on purely economy factors. Because investors start to watch on inflation pressure and Fed policy trying to forecast real interest rates. Inflation pressure, overall economy condition and Fed policy depends of statistics, so it should come on first stage again. Slow recovery, low inflation and low real interest rates are positive to gold, while fast run in inflation with holding nominal rates by the Fed depressed will become a headwind. At the same time, first effect hardly happens until nominal 10-year rates will be under 1.5%
In means that currently we're keep going with our trading plan and watching for strong support area where we could consider long entry as gold still keep moderately bullish medium-term perspective. Short-term negative factors that gold were hurt by, should provide us better price for the deal.
Technicals
Monthly
Trend stands bullish here. This month gold shows wider trading range but is closing again near the bottom. As we've mentioned before, we have two scenarios but of different probabilities.
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's successful contest and victory and following stimulus fizzle/reducing could trigger downside action to major support around 1685-1700$
If everything goes with central, average way -Biden finally becomes the president and provides stimulus pack in January, gold should re-establish lost positions, recover after vaccine shock, but it is difficult to count on action in a excess of previous $2K top. This scenario also suggests smaller downside retracement, that is more in a row with closer standing support levels around $1800-1835, which we consider right now
Weekly
Here trend stands opposite, its bearish. Here you could either keep pervious version of the pennant's shape, or re-shape it a bit as we did - it doesn't matter. Because all important issues have no relation to the pennant. First is that important - support Fib level and Oversold range. It forms great area at 1836 and it should be suitable for long entry. Second - bearish engulfing pattern, that theoretically should get the downside continuation. Finally, the third - 1850 lows. Despite that recent week is inside one and means mostly nothing, but lows do. Gold quite rare leaves unspoiled important tops and bottoms. It means that some spike down, W&R at least, has good chances to happen.
Daily
Trend here remains bearish. The pullback that has happened on Friday, as we discussed in video, was mostly tactical and doesn't hurt overall bearish picture here by far. Around 1800-1836 we have two different OP's, and one of them is pictured here. Oversold provides no barriers for downside action, and flag retracement is too small. These moments tell that currently we do not have any reasons to cancel short-term bearish view on Gold market, and wait better price for long entry:
Intraday
Here is important, that price stands out of the daily flag and was not able to return back inside. When the same person (S. Mnuchin) gives opposite comments in relation to Fed stimulus and Government stimulus - this makes market tune on bad wave. We hope that downside action continues:
On 1H chart our scenario with "222" Sell and Agreement around 1880 Fib level is done. We already talked about butterfly targets. Now, we also have minor AB-CD, that has approximately the same destination point.
Anyway, if you've taken the risk and sell on Friday - now, you also could think about breakeven stops. Concerning longs - we keep our previous view, it's not time yet for purchasing.
Gold was moving in the same trend as other markets did this week. It follows the same sequence of driving factors -"elections - CV19 - stimulus- vaccine performance and interest rates dynamic.". Once "US elections" topic is gradually fading (although we still think that it is too early to withdraw it totally), eyes of investors turn to pandemic situation and possible harm to economy because of vaccine timing gap. So, gold was under impact of the same factors as EUR that we've discussed yesterday.
Investors weighed the prospects of a COVID-19 vaccine against concerns over rising cases and the possibility of further economic support from the U.S. Federal
Reserve.
"There's a lack of catalyst for gold to rally ... Weighing on prices is a slight depression in inflation expectations because it's quite clear now that the U.S. fiscal stimulus will probably not be as sizeable as previously imagined," said IG Markets analyst Kyle Rodda. The emphasis is now on the Fed to support the U.S. economy through the surge in coronavirus cases, he added.
Fed chair Jerome Powell said on Tuesday there's "a long way to go" for the economy to recover and that the central bank is committed to using all its tools to support the recovery. Meanwhile, data showed U.S. retail sales rose less than expected in October. And prices were under pressure on Friday, weighed by uncertainty over more U.S. stimulus measures after Treasury Secretary Steven Mnuchin said key pandemic lending programs at the Federal Reserve would expire by the end of the year. In a letter to Fed Chair Jerome Powell, Mnuchin said the $455 billion allocated to Treasury under the CARES Act last spring, which supports Fed's lending to businesses, nonprofits and local governments, should be instead available for Congress to reallocate.
At the same time, just before that, Gold jumped as S. Mnuchin said he and White House Chief of Staff Mark Meadows would be speaking on Friday with Republican congressional leaders on negotiations with Congress on more economic support.
"Gold has clearly run out of upward momentum, with the short-term market clearly long," said Jeffrey Halley, senior market analyst at OANDA, adding, a daily close below key support around the $1,867 level could signal a deeper correction. "I expect monetary policy globally, and especially from the Fed to be ultra-easy right through 2021."
"The underlying momentum behind gold has dissipated," said independent analyst Ross Norman, adding gold was pressured by year-end profit-taking and investors liquidating long positions. But it's important to remember that the gold bull run was never predicated on COVID-19," and factors including a weak economy and the likelihood of interest rates remaining subdued for an extended period will continue to support it, Norman added.
Investors pulled $4 billion from gold, the biggest outflow ever, amid a rush for riskier assets last week, BofA said on Friday. Also, holdings in the SPDR Gold Trust exchange-traded fund have seen net outflows of about 40 tonnes so far in November.
"Positive COVID-19 vaccine developments should slow but not end the secular gold bull cycle without a hawkish pivot in U.S. monetary policy," Citi Research said in a note.
Gold will remain supported as "vaccines will take months and months to become well distributed enough to be effective and the U.S. government is going to continue to be stalemated," said Jeffrey Christian, managing partner of CPM Group.
"While the macro backdrop remains supportive, the key downside risk stems from physical demand and ETP (exchange-traded products) holdings," said Standard Chartered analyst Suki Cooper in a note. Buyers still appear to view price dips below $1,860/oz as attractive entry levels, and prices have held up well given the
size of ETP outflows."
Goldman Sachs on Wednesday maintained its ‘overweight’ recommendations for commodities in 2021, reasoning the sector was possibly the best hedge against likely inflation and poised for another bull market. The bank forecast a return of about 27% over a 12-month period on the S&P/Goldman Sachs Commodity Index (GSCI), with a 19.2% return for precious metals, 40.1% for energy, 3% for industrial metals and a negative 1% return on agriculture.
The bank maintained its 3, 6 and 12 month targets for gold and silver at $2,300 and $30 an ounce respectively, as it believes near-term inflation has further room to run, while an increase in solar installations supports silver demand.
“In metals, we have seen a sharp drop in maintenance capex and supply disruptions dragging into 2021. This suggests that, even if demand falters in coming weeks as winter exacerbates COVID, markets will likely continue to rebalance, barring an outright collapse in demand,” Goldman Sachs said in a note.
A World Health Organization (WHO) special COVID-19 envoy predicted a third wave of the pandemic in Europe in early 2021, if governments repeat what he said was a failure to do what was needed to prevent the second wave of infections.
“They missed building up the necessary infrastructure during the summer months, after they brought the first wave under the control,” the WHO’s David Nabarro said in an interview with Swiss newspapers. Now we have the second wave. If they don’t build the necessary infrastructure, we’ll have a third wave early next year,” said Nabarro, a Briton who campaigned unsuccessfully to become the WHO director general in 2017.
Toilet paper aisles are emptying again as COVID-19 curfews and shutdowns in states from California to New York send pandemic-weary shoppers on a new scramble for essentials. Charmin maker Procter & Gamble, the No. 1 U.S. toilet paper seller, said it is running plants 24/7 to meet demand.
COT Report
Despite that Investment banks report on outflow from Precious metals - CFTC data shows neutral, or slightly bullish picture at least on this week. But for the truth sake, the report is released on Tue, so, something could change by the end of the week. Anyway, by CFTC data we have increasing of net speculative positions. Hedgers do the same - reduce possession for possible gold drop. Open interest also have increased slightly:
So, it seems that indeed - now we have rebalancing of short-term sentiment. Let's recall what bullish background is based on, at least in short-term. This is no vaccine and expectation of more economy slowdown and long-term low interest rates, expectation of more stimulus. But what we do have right now - vaccine is under way, now this is just a question of production power mostly, stimulus stands somewhere in the future with uncertainty of its amount because of Biden/Trump rival and contradictive comments from US official persons. It makes impact on short-term sentiment and overall market view coincides with our suggestion as well that gold should try to take out 1850 lows.
In a longer-term perspective situation stands better by far. This factors do not impact directly on gold price right now. In two words - as longer gap till positive vaccine performance we will get - all the better for gold. Longer gap suggests longer term for stimulus functioning, and postpone economy recovery, suggesting low interest rates stand for longer time. Once world will stay on the way CV19 defeat due vaccine massive application, it could happen not sooner than in II half of 2021, I suppose, gold finally again will depend on purely economy factors. Because investors start to watch on inflation pressure and Fed policy trying to forecast real interest rates. Inflation pressure, overall economy condition and Fed policy depends of statistics, so it should come on first stage again. Slow recovery, low inflation and low real interest rates are positive to gold, while fast run in inflation with holding nominal rates by the Fed depressed will become a headwind. At the same time, first effect hardly happens until nominal 10-year rates will be under 1.5%
In means that currently we're keep going with our trading plan and watching for strong support area where we could consider long entry as gold still keep moderately bullish medium-term perspective. Short-term negative factors that gold were hurt by, should provide us better price for the deal.
Technicals
Monthly
Trend stands bullish here. This month gold shows wider trading range but is closing again near the bottom. As we've mentioned before, we have two scenarios but of different probabilities.
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's successful contest and victory and following stimulus fizzle/reducing could trigger downside action to major support around 1685-1700$
If everything goes with central, average way -Biden finally becomes the president and provides stimulus pack in January, gold should re-establish lost positions, recover after vaccine shock, but it is difficult to count on action in a excess of previous $2K top. This scenario also suggests smaller downside retracement, that is more in a row with closer standing support levels around $1800-1835, which we consider right now
Weekly
Here trend stands opposite, its bearish. Here you could either keep pervious version of the pennant's shape, or re-shape it a bit as we did - it doesn't matter. Because all important issues have no relation to the pennant. First is that important - support Fib level and Oversold range. It forms great area at 1836 and it should be suitable for long entry. Second - bearish engulfing pattern, that theoretically should get the downside continuation. Finally, the third - 1850 lows. Despite that recent week is inside one and means mostly nothing, but lows do. Gold quite rare leaves unspoiled important tops and bottoms. It means that some spike down, W&R at least, has good chances to happen.
Daily
Trend here remains bearish. The pullback that has happened on Friday, as we discussed in video, was mostly tactical and doesn't hurt overall bearish picture here by far. Around 1800-1836 we have two different OP's, and one of them is pictured here. Oversold provides no barriers for downside action, and flag retracement is too small. These moments tell that currently we do not have any reasons to cancel short-term bearish view on Gold market, and wait better price for long entry:
Intraday
Here is important, that price stands out of the daily flag and was not able to return back inside. When the same person (S. Mnuchin) gives opposite comments in relation to Fed stimulus and Government stimulus - this makes market tune on bad wave. We hope that downside action continues:
On 1H chart our scenario with "222" Sell and Agreement around 1880 Fib level is done. We already talked about butterfly targets. Now, we also have minor AB-CD, that has approximately the same destination point.
Anyway, if you've taken the risk and sell on Friday - now, you also could think about breakeven stops. Concerning longs - we keep our previous view, it's not time yet for purchasing.
