Sive Morten
Special Consultant to the FPA
- Messages
- 18,531
Fundamentals
Recent week was relatively quiet due celebrating on Thanksgiving day in US. Only on Friday we've got some activity as different assets have dropped against the dollar, especially Crude Oil. But until Friday Gold held retracement on hold. In general overall short-term background is not bad for gold market.
“Weaker stocks tend to be supportive of the gold market, given the uncertainty that is prevailing in the market,” said Saxo Bank analyst Ole Hansen, adding that the softer dollar was also adding support.
“Some of the recovery since we tested $1,200 last week has been driven by speculation that the U.S. Federal Reserve might step back from its aggressive stance (on raising interest rates). If that signal grows stronger, we could see the dollar lose some momentum, which could be good for gold,” Hansen said.
As Reuters reports - markets expect the Fed to lift rates again in December, but concerns about a potential global slowdown raised doubts about the number of rate increases next year.
Investors are now looking ahead to the forthcoming meeting between Chinese President Xi Jinping and U.S. counterpart Donald Trump at this month’s G20 summit in Argentina. China rejected fresh U.S. accusations of perpetuating “unfair” trade practices and urged Washington on Thursday to stop making provocations, showing little sign of backing down days ahead of the G20 summit. U.S.-China trade tensions are likely to dominate the summit of the world’s 20 biggest economies next week, according to a senior European Union official who said the EU was keen to act as a bridge-builder.
“There are massive speculative net short positions that need to be covered, therefore we expect gold prices to increase further towards year-end,” said Commerzbank analyst Carsten Fritsch.
Investor interest was reflected in holdings of SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, which rose on Wednesday to their highest since the end of August at 762.92 tonnes. Indeed, here is the chart of SPDR fund reserves and it shows good dynamic. Pay attention that we see minor divergence with gold price this week. While SPDR shows new top in reserves, gold market doesn't.
“It shows a shift in the market perception that more investors regard gold as a necessary store of value,” Fritsch said, adding that the “huge stock market correction” recently caught many investors on the wrong foot and has prompted a shift back into gold.
Speaking on EU affairs, there are some moments to mention as well, that have relation to gold market. Thus, as we've mentioned in our daily videos - Britain and the EU have agreed a draft text setting out a close post-Brexit relationship, though wrangling with Spain over control of Gibraltar must still be settled before EU leaders meet on Sunday in order to rubber-stamp the pact.
This so-called agreement has too few definite points, which makes it more populist measure rather than real document that clarifies arguable Brexit moments. As longer this agreement keeps lack of clarity as more dollar supportive this situation will be. Still, for honest sake we have to say that Brexit turmoil doesn't belong to major driving factors for gold.
Also, as Reuters reports, the Bank of England would probably need to raise interest rates faster than investors expect if Britain manages a smooth exit from the EU, though Brexit’s implications for the BoE remain unclear, rate-setter Michael Saunders said.
Italy, in turn, said it would resist pressure from Brussels to revise its big-spending budget, effectively daring EU authorities to punish it with fines ahead of May’s European parliamentary elections.
Speaking on physical gold demand - in India it was robust this week as consumers stepped up purchases during the traditional wedding season after domestic rates slipped to a near six-week trough, while gains in global prices weighed on bullion’s appeal in other Asian hubs.
This week we do not have COT report, but now Gold has net short position and two weeks ago it has increased a bit. As speculators as hedgers have increased bearish-oriented positions. But reaction on this position changed already has happened, as market has dropped to 1211 lows two weeks ago.
Source: cftc.gov
Charting by Investing.com
In general overall background on gold market is moderately bullish. There are a lot concerns right now as economical as political that support gold market. And they are not short-term. Weakness of stock market, uncertainty of Fed policy are to name some that stand among the majors. It is worth to say that weakness of stock market in November and during elections in particular - quite rare thing. Traditionally stock rise in November, as markets come to the end of financial year. So, drop of stock market seems as very important thing that could provide significant support to gold.
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. Once gold has completed AB=CD upside target - we've got "222" Sell pattern, which minimal target is 3/8 retracement been done. Now market turns upside again and here we could suggest different action. Retracement down was harmonic and almost equal to BC leg. Thus, if harmony will hold further, upside leg also could be approximately the same. In this case, the target will be 1260 - the one that we've initially discussed.
Bullish setup will be valid until market holds above "C" point of our AB-CD pattern and stands above major 5/8 Fib support. But also we have to keep in mind that this action is just a retracement of larger scale bearish trend. In fact, we have long term OP target around 1113 and it is still valid.
Daily
The way, how market has turned up from 1195 area makes us think that this is not retracement of downside leg, but it could be next upside leg of our major tendency. Indeed, 1195 was daily oversold and strong support area, market was in strong downside action, passed through OP without any respect but XOP (not shown) has not been hit yet. If market would be bearish one - minor bounce would follow and downside action continues. But here we have different action, stronger upside reaction.
As a result recent 1195 lows now is invalidation point of daily bullish setup. Market has to continue this upside tendency to keep it valid. Breaking of the channel and 1195 lows down will be bad sign for this scenario. Next upside target is XOP at 1267$ which is very close to weekly harmonic target.
Intraday
Although with some delay, but retracement that we were waiting for has started. Last week we've mentioned that preliminary conditions are ready for pullback. Indeed, market has hit resistance Agreement and formed bearish grabbers on top. Next target on 4H chart is XOP at 1240. Our next week task - keep an eye on retracement and watch for chance to go long:
Here is the scenario that we will keep an eye on in the beginning of the week. Here we could recognize the shape of H&S pattern. Previously we've talked briefly about it.
There are two important points here. First one is "op" target of "222" Sell pattern. It is crucial for scalp traders who intends to go short. Upside breakout and action back to 1230 could mean that no retracement will happen and market proceed higher.
If downside action will start - we should keep an eye on AB=CD target, 1216 Agreement and K-support area. This is most probable area where upside action could be re-established. As usual - we do not want to see collapse down, just gradual action as it stands right now.
Conclusion:
Sentiment stands moderately positive for gold market as there are a lot of different factors that support gold demand. This keeps on the table action to 1260 area.
This week we will keep an eye on possible upside reversal, supposedly from 1216 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.
Recent week was relatively quiet due celebrating on Thanksgiving day in US. Only on Friday we've got some activity as different assets have dropped against the dollar, especially Crude Oil. But until Friday Gold held retracement on hold. In general overall short-term background is not bad for gold market.
“Weaker stocks tend to be supportive of the gold market, given the uncertainty that is prevailing in the market,” said Saxo Bank analyst Ole Hansen, adding that the softer dollar was also adding support.
“Some of the recovery since we tested $1,200 last week has been driven by speculation that the U.S. Federal Reserve might step back from its aggressive stance (on raising interest rates). If that signal grows stronger, we could see the dollar lose some momentum, which could be good for gold,” Hansen said.
As Reuters reports - markets expect the Fed to lift rates again in December, but concerns about a potential global slowdown raised doubts about the number of rate increases next year.
Investors are now looking ahead to the forthcoming meeting between Chinese President Xi Jinping and U.S. counterpart Donald Trump at this month’s G20 summit in Argentina. China rejected fresh U.S. accusations of perpetuating “unfair” trade practices and urged Washington on Thursday to stop making provocations, showing little sign of backing down days ahead of the G20 summit. U.S.-China trade tensions are likely to dominate the summit of the world’s 20 biggest economies next week, according to a senior European Union official who said the EU was keen to act as a bridge-builder.
“There are massive speculative net short positions that need to be covered, therefore we expect gold prices to increase further towards year-end,” said Commerzbank analyst Carsten Fritsch.
Investor interest was reflected in holdings of SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, which rose on Wednesday to their highest since the end of August at 762.92 tonnes. Indeed, here is the chart of SPDR fund reserves and it shows good dynamic. Pay attention that we see minor divergence with gold price this week. While SPDR shows new top in reserves, gold market doesn't.
“It shows a shift in the market perception that more investors regard gold as a necessary store of value,” Fritsch said, adding that the “huge stock market correction” recently caught many investors on the wrong foot and has prompted a shift back into gold.
Speaking on EU affairs, there are some moments to mention as well, that have relation to gold market. Thus, as we've mentioned in our daily videos - Britain and the EU have agreed a draft text setting out a close post-Brexit relationship, though wrangling with Spain over control of Gibraltar must still be settled before EU leaders meet on Sunday in order to rubber-stamp the pact.
This so-called agreement has too few definite points, which makes it more populist measure rather than real document that clarifies arguable Brexit moments. As longer this agreement keeps lack of clarity as more dollar supportive this situation will be. Still, for honest sake we have to say that Brexit turmoil doesn't belong to major driving factors for gold.
Also, as Reuters reports, the Bank of England would probably need to raise interest rates faster than investors expect if Britain manages a smooth exit from the EU, though Brexit’s implications for the BoE remain unclear, rate-setter Michael Saunders said.
Italy, in turn, said it would resist pressure from Brussels to revise its big-spending budget, effectively daring EU authorities to punish it with fines ahead of May’s European parliamentary elections.
Speaking on physical gold demand - in India it was robust this week as consumers stepped up purchases during the traditional wedding season after domestic rates slipped to a near six-week trough, while gains in global prices weighed on bullion’s appeal in other Asian hubs.
This week we do not have COT report, but now Gold has net short position and two weeks ago it has increased a bit. As speculators as hedgers have increased bearish-oriented positions. But reaction on this position changed already has happened, as market has dropped to 1211 lows two weeks ago.
Source: cftc.gov
Charting by Investing.com
In general overall background on gold market is moderately bullish. There are a lot concerns right now as economical as political that support gold market. And they are not short-term. Weakness of stock market, uncertainty of Fed policy are to name some that stand among the majors. It is worth to say that weakness of stock market in November and during elections in particular - quite rare thing. Traditionally stock rise in November, as markets come to the end of financial year. So, drop of stock market seems as very important thing that could provide significant support to gold.
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. Once gold has completed AB=CD upside target - we've got "222" Sell pattern, which minimal target is 3/8 retracement been done. Now market turns upside again and here we could suggest different action. Retracement down was harmonic and almost equal to BC leg. Thus, if harmony will hold further, upside leg also could be approximately the same. In this case, the target will be 1260 - the one that we've initially discussed.
Bullish setup will be valid until market holds above "C" point of our AB-CD pattern and stands above major 5/8 Fib support. But also we have to keep in mind that this action is just a retracement of larger scale bearish trend. In fact, we have long term OP target around 1113 and it is still valid.
Daily
The way, how market has turned up from 1195 area makes us think that this is not retracement of downside leg, but it could be next upside leg of our major tendency. Indeed, 1195 was daily oversold and strong support area, market was in strong downside action, passed through OP without any respect but XOP (not shown) has not been hit yet. If market would be bearish one - minor bounce would follow and downside action continues. But here we have different action, stronger upside reaction.
As a result recent 1195 lows now is invalidation point of daily bullish setup. Market has to continue this upside tendency to keep it valid. Breaking of the channel and 1195 lows down will be bad sign for this scenario. Next upside target is XOP at 1267$ which is very close to weekly harmonic target.
Intraday
Although with some delay, but retracement that we were waiting for has started. Last week we've mentioned that preliminary conditions are ready for pullback. Indeed, market has hit resistance Agreement and formed bearish grabbers on top. Next target on 4H chart is XOP at 1240. Our next week task - keep an eye on retracement and watch for chance to go long:
Here is the scenario that we will keep an eye on in the beginning of the week. Here we could recognize the shape of H&S pattern. Previously we've talked briefly about it.
There are two important points here. First one is "op" target of "222" Sell pattern. It is crucial for scalp traders who intends to go short. Upside breakout and action back to 1230 could mean that no retracement will happen and market proceed higher.
If downside action will start - we should keep an eye on AB=CD target, 1216 Agreement and K-support area. This is most probable area where upside action could be re-established. As usual - we do not want to see collapse down, just gradual action as it stands right now.
Conclusion:
Sentiment stands moderately positive for gold market as there are a lot of different factors that support gold demand. This keeps on the table action to 1260 area.
This week we will keep an eye on possible upside reversal, supposedly from 1216 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.