Sive Morten
Special Consultant to the FPA
- Messages
- 18,644
Fundamentals
(Reuters) Gold prices steadied after falling to 9-1/2 month lows on Friday, heading for a third consecutive weekly decline as investors sold on factors including expectations of a U.S. interest rate rise. Spot gold was down 0.03 percent at $1,182.88 an ounce by 2:15 p.m. EST (1915 GMT), after tapping $1,171.21, its lowest
since Feb. 8, as funds took profits on short positions. The precious metal has fallen more than 7 percent so far in November, leaving it on track for its largest monthly fall since June 2013.
U.S. gold futures settled down 0.9 percent at $1,178.40, after dipping to their lowest since Feb. 5 at
$1,170.30.
"Investors are still retreating from gold, though prices falling below $1,200 has promoted some profit-taking," said Commerzbank analyst Eugen Weinberg. "Gold is being driven by many factors including equity
markets, currency markets and expectations of higher U.S. interest rates, which are going to be a huge burden."
Equity markets have rallied since Donald Trump won the U.S. presidential election. "The rising dollar, yields and U.S. equity prices all weighed on the appeal of the buck-denominated, non interest-bearing and perceived safe-haven precious metal," said Fawad Razaqzada, technical analyst for Forex.com. "In terms of the dollar, the slight weakness we have observed at the end of this week could very well turn out to be temporary even if a December rate rise may already be priced in."
Though the U.S. dollar fell against a basket of major currencies on Friday, it was on track to close higher for the third straight week after reaching the highest since March 2003.
Markets are now pricing in a nearly 100 percent probability that the U.S. Federal Reserve will raise rates at its December meeting, according to CME FedWatch. That would further boost the dollar, making commodities more expensive for holders of other currencies. Overall holdings of physical gold in exchange traded funds
(ETF) have fallen more than 5 percent to 54.135 million ounces since Nov. 9, the day after the election.
"A further test of the downside cannot be ruled out just yet, especially as ETF liquidations persist," UBS analysts said in a note. Traders say the U.S. monthly jobs report due on Dec. 2 will be key to market sentiment.
COT Report
Here we see massive contraction of long positions. As you can see, net position has dropped significantly, open interest has decreased as well. Position dropped 2 times, open interest almost for 250 K contracts. Still, net position is still rather high, compares to it's historical value.
Here is performance of SPDR holdings. Take a look - on first drop of gold, SPDR holdings has not changed, even grown slightly, while on current performance we see starting sell-off. Previously when this kind of divergences happened - gold has shown "failure" reversal and uptrend continues. You can see that this has happened twice in June. But right now, as SPDR holdings support downward action - this tells that this is real contraction of long positions by inverstors.
Technicals
Monthly
As COT report mostly has completed its role and predicted first drop, now we again should pay more attention to technical picture, to estimate destination point of current bearish action on long-term analysis.
Monthly picture currently supports our suggestion on deep retracement, this is just how markets work. Sooner or later but this retracement should have happened and now it stands underway.
Technically recent upward action started in Dec 2015 is first one after long term of decreasing and it should be interrupted by deep retracement sometime. Probably it should happen but this potential downward action has a great chance to become just a retracement. Overall political and financial situation in the world probably will not give a chance to relax. Thus, we have a positive long-term view on gold market.
As market slightly has moved above YPR1 and our K-resistance area, something is starting to form here, I mean pattern by which long-term global trend could change on gold. Price has formed nice bearish engulfing right around this area and now gold is following to its signal
Take a careful look at the picture - here we could recognize H&S pattern. Besides the shape itself, some features here that in general typical for H&S. For example, relation between head and shoulders - 1.618. Butterfly... very often first part of H&S takes the shape of butterfly pattern...
Finally take a look at action on downward slope and upward one of the head - last move down was slower than current move up. All these moments point on possible H&S pattern here.
Now gold stands at the area where the bottom of right shoulder should be formed. Thus, our first step on this long-term time frame has been completed - "we suggest further drop on gold, at least to 1160-1180 area."
Now we're coming to second step how we've specified it - "watch for validity of H&S pattern." Right now there is an issue exists that we do not like. This is too fast drop. Actually right shoulder is an area where bulls should gradually take control over the market and fast drop here is not a good sign. Still, our task here is relatively simple - just to watch for reversal patterns on daily that confirm bullish reversal and monthly H&S pattern. If we will not get any - then we will not go long, and it will mean that this H&S could fail. The failure of this pattern will lead price below the head, i.e. under 1000$ level.
Conversely If H&S really will work, we expect new long-term bullish trend on gold market that should lead to new highs on 2000$+ levels. It means that 1160-1200 area should be treated as strategical point for long entry.
So, you could imagine the value of bets around this pattern...
Now market comes closer to MACDP line, so it would be perfect if gold will reach our predefined level and simultaneously form bullish monthly grabber... Let's watch for it...
Weekly
As gold has reached pre-defined support on weekly chart, and H&S pattern here has completed its mission, we will take a look at weekly chart from different angle today. Since our task right now is to estimate validity of monthly H&S pattern, this picture could help us to specify important moments in this task:
As this rally has started gold has broken up long-term downward channel. This was a sign of changing trend on gold. Right now market returns back to re-test it from opposite side. In general, this is very typical action for gold market. Gold has some habits, such as deep retracements, early reversal traps and others. And one of them is re-testing important levels.
So, around 1170 area we have not just broken channel border, but also major 5/8 Fib level and weekly oversold. Border itself stands slightly lower, around 1150$. Here we should understand two things. First - the strength of this support is sufficient to hold real bullish market and to stop downward retracement. Second - price drop right back into channel will be bearish sign, and this could give us early alarm, even prior monthly H&S will fail.
That's being said, right now on gold we will not just watch for bullish reversal patterns on daily but also keep an eye on 1150-1170 area and control, whether gold will hold above it or not.
Daily
Currently we can't make any detailed analysis on daily chart, since dropping just has stopped, and it's too few time has passed since then. Thus no patterns have been formed yet here. Daily picture also shows that AB-CD pattern has reached 1.27 extension that creates an Agreement with major Fib support level.
First bulk of patterns that we will be watching for are based on thrust. And they will be DiNapoli directionals. Appearing of DRPO "Buy" looks more reasonable in current situation. These patterns are faster, while more extended patterns as butterflies, H&S etc need more time to be formed:
Hourly
On hourly chart all these stuff could start from small H&S pattern. As you can see gold keeps well upside harmonic retracements, and here it already has completed it. Thus, if somehow it will run higher, this could become a sign that some pattern is forming. Neckline of this H&S coincides with WPP.
At the same time, guys, don't be decieved by time scale. Hourly is too small to test monthly patterns. It could bring just first signs, but they should lead to appearing of patterns on daily chart... That's being said, major time frame is daily, there we should get something that either will confirm monthly H&S reliability or bring early signs of its failure.
Conclusion:
As market has completed first step of our long term analysis - dropped to 1170 area, now we're turning to second step - estimating of validity of monthly H&S pattern.
Our task on short term charts are relatively simple - watch for patterns that either will confirm monthly H&S pattern or refute it.
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) Gold prices steadied after falling to 9-1/2 month lows on Friday, heading for a third consecutive weekly decline as investors sold on factors including expectations of a U.S. interest rate rise. Spot gold was down 0.03 percent at $1,182.88 an ounce by 2:15 p.m. EST (1915 GMT), after tapping $1,171.21, its lowest
since Feb. 8, as funds took profits on short positions. The precious metal has fallen more than 7 percent so far in November, leaving it on track for its largest monthly fall since June 2013.
U.S. gold futures settled down 0.9 percent at $1,178.40, after dipping to their lowest since Feb. 5 at
$1,170.30.
"Investors are still retreating from gold, though prices falling below $1,200 has promoted some profit-taking," said Commerzbank analyst Eugen Weinberg. "Gold is being driven by many factors including equity
markets, currency markets and expectations of higher U.S. interest rates, which are going to be a huge burden."
Equity markets have rallied since Donald Trump won the U.S. presidential election. "The rising dollar, yields and U.S. equity prices all weighed on the appeal of the buck-denominated, non interest-bearing and perceived safe-haven precious metal," said Fawad Razaqzada, technical analyst for Forex.com. "In terms of the dollar, the slight weakness we have observed at the end of this week could very well turn out to be temporary even if a December rate rise may already be priced in."
Though the U.S. dollar fell against a basket of major currencies on Friday, it was on track to close higher for the third straight week after reaching the highest since March 2003.
Markets are now pricing in a nearly 100 percent probability that the U.S. Federal Reserve will raise rates at its December meeting, according to CME FedWatch. That would further boost the dollar, making commodities more expensive for holders of other currencies. Overall holdings of physical gold in exchange traded funds
(ETF) have fallen more than 5 percent to 54.135 million ounces since Nov. 9, the day after the election.
"A further test of the downside cannot be ruled out just yet, especially as ETF liquidations persist," UBS analysts said in a note. Traders say the U.S. monthly jobs report due on Dec. 2 will be key to market sentiment.
COT Report
Here we see massive contraction of long positions. As you can see, net position has dropped significantly, open interest has decreased as well. Position dropped 2 times, open interest almost for 250 K contracts. Still, net position is still rather high, compares to it's historical value.
Here is performance of SPDR holdings. Take a look - on first drop of gold, SPDR holdings has not changed, even grown slightly, while on current performance we see starting sell-off. Previously when this kind of divergences happened - gold has shown "failure" reversal and uptrend continues. You can see that this has happened twice in June. But right now, as SPDR holdings support downward action - this tells that this is real contraction of long positions by inverstors.
Technicals
Monthly
As COT report mostly has completed its role and predicted first drop, now we again should pay more attention to technical picture, to estimate destination point of current bearish action on long-term analysis.
Monthly picture currently supports our suggestion on deep retracement, this is just how markets work. Sooner or later but this retracement should have happened and now it stands underway.
Technically recent upward action started in Dec 2015 is first one after long term of decreasing and it should be interrupted by deep retracement sometime. Probably it should happen but this potential downward action has a great chance to become just a retracement. Overall political and financial situation in the world probably will not give a chance to relax. Thus, we have a positive long-term view on gold market.
As market slightly has moved above YPR1 and our K-resistance area, something is starting to form here, I mean pattern by which long-term global trend could change on gold. Price has formed nice bearish engulfing right around this area and now gold is following to its signal
Take a careful look at the picture - here we could recognize H&S pattern. Besides the shape itself, some features here that in general typical for H&S. For example, relation between head and shoulders - 1.618. Butterfly... very often first part of H&S takes the shape of butterfly pattern...
Finally take a look at action on downward slope and upward one of the head - last move down was slower than current move up. All these moments point on possible H&S pattern here.
Now gold stands at the area where the bottom of right shoulder should be formed. Thus, our first step on this long-term time frame has been completed - "we suggest further drop on gold, at least to 1160-1180 area."
Now we're coming to second step how we've specified it - "watch for validity of H&S pattern." Right now there is an issue exists that we do not like. This is too fast drop. Actually right shoulder is an area where bulls should gradually take control over the market and fast drop here is not a good sign. Still, our task here is relatively simple - just to watch for reversal patterns on daily that confirm bullish reversal and monthly H&S pattern. If we will not get any - then we will not go long, and it will mean that this H&S could fail. The failure of this pattern will lead price below the head, i.e. under 1000$ level.
Conversely If H&S really will work, we expect new long-term bullish trend on gold market that should lead to new highs on 2000$+ levels. It means that 1160-1200 area should be treated as strategical point for long entry.
So, you could imagine the value of bets around this pattern...
Now market comes closer to MACDP line, so it would be perfect if gold will reach our predefined level and simultaneously form bullish monthly grabber... Let's watch for it...
Weekly
As gold has reached pre-defined support on weekly chart, and H&S pattern here has completed its mission, we will take a look at weekly chart from different angle today. Since our task right now is to estimate validity of monthly H&S pattern, this picture could help us to specify important moments in this task:
As this rally has started gold has broken up long-term downward channel. This was a sign of changing trend on gold. Right now market returns back to re-test it from opposite side. In general, this is very typical action for gold market. Gold has some habits, such as deep retracements, early reversal traps and others. And one of them is re-testing important levels.
So, around 1170 area we have not just broken channel border, but also major 5/8 Fib level and weekly oversold. Border itself stands slightly lower, around 1150$. Here we should understand two things. First - the strength of this support is sufficient to hold real bullish market and to stop downward retracement. Second - price drop right back into channel will be bearish sign, and this could give us early alarm, even prior monthly H&S will fail.
That's being said, right now on gold we will not just watch for bullish reversal patterns on daily but also keep an eye on 1150-1170 area and control, whether gold will hold above it or not.
Daily
Currently we can't make any detailed analysis on daily chart, since dropping just has stopped, and it's too few time has passed since then. Thus no patterns have been formed yet here. Daily picture also shows that AB-CD pattern has reached 1.27 extension that creates an Agreement with major Fib support level.
First bulk of patterns that we will be watching for are based on thrust. And they will be DiNapoli directionals. Appearing of DRPO "Buy" looks more reasonable in current situation. These patterns are faster, while more extended patterns as butterflies, H&S etc need more time to be formed:
Hourly
On hourly chart all these stuff could start from small H&S pattern. As you can see gold keeps well upside harmonic retracements, and here it already has completed it. Thus, if somehow it will run higher, this could become a sign that some pattern is forming. Neckline of this H&S coincides with WPP.
At the same time, guys, don't be decieved by time scale. Hourly is too small to test monthly patterns. It could bring just first signs, but they should lead to appearing of patterns on daily chart... That's being said, major time frame is daily, there we should get something that either will confirm monthly H&S reliability or bring early signs of its failure.
Conclusion:
As market has completed first step of our long term analysis - dropped to 1170 area, now we're turning to second step - estimating of validity of monthly H&S pattern.
Our task on short term charts are relatively simple - watch for patterns that either will confirm monthly H&S pattern or refute it.
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.