Sive Morten
Special Consultant to the FPA
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Fundamentals
Weekly Gold Tading Report prepared by Sive Morten exclusively for ForexPeaceArmy.com
As Reuters reports Gold fell 1.8 percent on Friday, dropping below $1,200 an ounce for the first time this year, as the dollar surged after strong U.S. jobs data bolstered bets that the Federal Reserve will raise interest rates next year.
Bullion has now dropped 11 percent from its July high at $1,345, entering into a correction, defined as a 10 percent drop from its most recent high. It is also within sight to a four-year bottom at below $1,180 an ounce.
Platinum dropped 3 percent and other precious metals and commodities also tumbled as the dollar index rallied to a four-year high.
The S&P 500 equities index rose over 1 percent after the Labor Department said U.S. hiring accelerated in September and the unemployment rate fell to a six-year low, underscoring strength in the labor market.
Market watchers said that a strengthening U.S. outlook diminishes gold's safe-haven appeal in spite of uneven growth in Asia and Europe.
"We have a global economy that is not going anywhere, but we do have a strong nonfarm payrolls report, and that appears to be enough to take down gold and discourage people from holding gold," said Axel Merk, chief investment officer at Merk Funds, which manages $400 million in assets in currency mutual funds and a gold ETF.
Fed policymakers will scrutinize the jobs data as they prepare for a policy meeting Oct. 28-29, even though economists do not foresee an increase until around the middle of next year. Non interest-bearing assets such as bullion have benefited from the Fed keeping interest rates near zero since December 2008.
Open Interest:
Longs:
Shorts:
Source: CFTC, Reuters
CFTC Report shows flat data mostly, at least on speculators’ positions. Thus, Open interest is showing decreasing, while non-commercial positions mostly stands flat. Hence, positions probably were closed by commercials – hedgers. This was on 30th of September, before NFP release. So, on previous week we can’t find any shift in long-term sentiment by far.
Monthly
From long-term picture we have two major levels – 1400$ and 1180$. First one is invalidation point of our bearish grabber and market sentiment could shift bullish only in a case of upward breakout of this level. 1180$ in turn, is a target and significant low. Any action below this level could trigger more selling that could take the signs of panic and lead gold to YPS1. Shift in seasonal trend does not fascinate traders much. Physical demand stands weak, dollar strong, inflation weak and talks around rate hiking also does not add optimism to gold. Comments from physical traders on physical demand has appeared to be only comments. First, they told that demand should come below 1330, then 1300, then 1240, now speeches promise demand around 1180, let’s see, but CFTC data shows oposite information.
You probably already understand that primary question on big picture – how deep market could fall. Whether price will break 1180? Here I would like to remind pattern from which our gold analysis has started – Volatility breakout when we said that some 0.618 AB-CD down should happen. And what do we see right now... Pay attention that retracement up to 1400 was small, just 3/8 Fib level. It points on strength of the bears. Thus, following this logic – market should form 1. 618 Butterfly because it’s target coincides with AB-CD target. We will not promise reaching of 1025-1050 area definitely (although this is logical – action to YPS1) but chances that gold will break through 1180 seem significant, especially on a background of recent CFTC data.
Major factors are still valid - good economy data, that right now is confirmed by US companies earning reports, weak physical demand – all these moments prevent gold appreciation. As September bearish intentions look strong - tendency could take shape of butterfly as I’ve drawn on the chart, especially because it agrees with bearish grabber target.
It is interesting that during recent rally market was not able to re-test Yearly Pivot and later has vanished our bullish weekly grabbers. This moments make difficult to count on upward reversal. Also we suspect that we could get bearish dynamic pressure here and probably already getting it. As you can see trend has turned bullish, but gold does not show any upward action. Splash in July has faded fast. Mostly this pattern will depend on action in October. Plunge down here and taking 1240 lows confirms it. Finally, overall action since the beginning of the year mostly bearish. Take a look – in the beginning of the year market has tested YPP and failed, then continued move down. During recent attempt to move higher – has not even reached YPP again.
That’s being said, situation on the monthly chart does not suggest yet taking long-term long positions on gold. Fundamental picture is moderately bearish in long-term. Possible sanctions from EU and US could hurt their own economies as well, especially EU. Many analysts already have started to talk about it. It means that economies will start to loose upside momentum and inflation will remain anemic. In such situations investors mostly invest in interest-bear assets, such as bonds. Approximately the same comments we saw for recent 1-2 months from physical gold traders.
On monthly chart we have chain of targets. First one stands at former lows at 1180. Next one is 1125$ - butterfly 1.27 target and then ultimate combination of 1.618 target and YPS1 around 1020-1050 area. 1180 seems most probable not only because it stands closer but also because this is the target of the grabber and bearish dynamic pressure, but some patterns and details do not exclude even reaching of 1025-1050 area.
Weekly
Weekly time frame shows probably most valuable picture for us. Market is not at oversold here. On Friday, on NFP release gold has accomplished our medium-term target. Last month we’ve talked many times that with lack of real demand as it was shown by CFTC data, hardly any sizable rally could happen and even rallies that has started from some geopolitical tensions, such as Syria strikes and unrest in HK – were faded very fast. Now we see that gold has broken below 1200 and week has closed below this level right at weekly low.
At the same time “BCD” part of our AB-CD creates butterfly pattern that has passed below 1.27 level already and stands just few bucks above 1.618 extension. This extension also is WPS1 and important long-term lows.
Taking in consideration gold’s habits, we could suggest that 1180 will be reached and washed out. This will be our short-term plan.
But what will happen next? As we’ve said above – we have technical reasons suggest that in long-term perspective market could even reach 1050$ level. Hence, as soon as gold will reach 1180 – we will watch for reversal patterns. If we will get any – then market could turn to retracement and we will take close look at SPDR fund and CFTC data. Weak support of retracement will mean that we should ready for downward continuation. As we know – economical situation hardly will change till mid 2015. That’s why action below 1180 does not look impossible. Also we should not forget about “Panic” sell-off below 1200$ that was mentioned by many traders. On coming weeks we will watch over it as well.
Finally, as closer to New Year we are, as closer seasonal trend to the end. Bullish seasonal phase mostly ends on February, but active part of it fades even earlier.
Daily
On daily chart we see almost the same picture as on weekly. 1180 area will be also WPS1 and daily oversold. As market just has completed plunge down – no patterns have been formed yet here. As support zone looks really impressive – it makes sense to think about closing of shorts, at least partially and be ready to close them totally at 1175-1180 area. Reason is very simple – if market will break this level down (right now or later) – we will have enough time to take shorts again. While any retracement could be significant since market has achieved big targets. But odds stand not in favor of immediate breakout.
Talking about possible patterns – here we have the same idea by far, only DiNapoli, mostly due thrust down. Later, may be we will see something else.
1-hour
Nothing special yet on intraday charts... As we suggest possible lower action, to 1180, may be gold will show minor bounce up and form B&B “Sell” or something of this sort. Bounce could happen due daily/weekly AB=CD completion point at ~1190. Shy retracement to 1200 looks logical, but not neccesary it will happen. Anyway this has light relation to our trading plan, mostly it could interesting to scalp traders.
Conclusion:
Situation on gold market remains sophisticated. Due bearish moments, such as bullish USD sentiment, lack of physical demand, gold has re-established recently downward action. On a way down market could pass through multiple target and nearest one is 1180$. We even have setup on big picture that suggests moving to 1025-1050 area.
In short term perspective we should wait for reaching of 1180 area first. There some signs should come – whether gold will go lower or not. Our trading plan suggests closing shorts around 1180, since this target is mostly done and this area is strong support zone. Besides, after this area will be washed out – no patterns will suggest deeper action but VOB (volatility breakout). That’s why first we will have to assess chances on deeper action – whether any reversal patterns will appear or not, what will be with physical demand and economy fundamental data etc.
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.
Weekly Gold Tading Report prepared by Sive Morten exclusively for ForexPeaceArmy.com
As Reuters reports Gold fell 1.8 percent on Friday, dropping below $1,200 an ounce for the first time this year, as the dollar surged after strong U.S. jobs data bolstered bets that the Federal Reserve will raise interest rates next year.
Bullion has now dropped 11 percent from its July high at $1,345, entering into a correction, defined as a 10 percent drop from its most recent high. It is also within sight to a four-year bottom at below $1,180 an ounce.
Platinum dropped 3 percent and other precious metals and commodities also tumbled as the dollar index rallied to a four-year high.
The S&P 500 equities index rose over 1 percent after the Labor Department said U.S. hiring accelerated in September and the unemployment rate fell to a six-year low, underscoring strength in the labor market.
Market watchers said that a strengthening U.S. outlook diminishes gold's safe-haven appeal in spite of uneven growth in Asia and Europe.
"We have a global economy that is not going anywhere, but we do have a strong nonfarm payrolls report, and that appears to be enough to take down gold and discourage people from holding gold," said Axel Merk, chief investment officer at Merk Funds, which manages $400 million in assets in currency mutual funds and a gold ETF.
Fed policymakers will scrutinize the jobs data as they prepare for a policy meeting Oct. 28-29, even though economists do not foresee an increase until around the middle of next year. Non interest-bearing assets such as bullion have benefited from the Fed keeping interest rates near zero since December 2008.
Open Interest:
CFTC Report shows flat data mostly, at least on speculators’ positions. Thus, Open interest is showing decreasing, while non-commercial positions mostly stands flat. Hence, positions probably were closed by commercials – hedgers. This was on 30th of September, before NFP release. So, on previous week we can’t find any shift in long-term sentiment by far.
Monthly
From long-term picture we have two major levels – 1400$ and 1180$. First one is invalidation point of our bearish grabber and market sentiment could shift bullish only in a case of upward breakout of this level. 1180$ in turn, is a target and significant low. Any action below this level could trigger more selling that could take the signs of panic and lead gold to YPS1. Shift in seasonal trend does not fascinate traders much. Physical demand stands weak, dollar strong, inflation weak and talks around rate hiking also does not add optimism to gold. Comments from physical traders on physical demand has appeared to be only comments. First, they told that demand should come below 1330, then 1300, then 1240, now speeches promise demand around 1180, let’s see, but CFTC data shows oposite information.
You probably already understand that primary question on big picture – how deep market could fall. Whether price will break 1180? Here I would like to remind pattern from which our gold analysis has started – Volatility breakout when we said that some 0.618 AB-CD down should happen. And what do we see right now... Pay attention that retracement up to 1400 was small, just 3/8 Fib level. It points on strength of the bears. Thus, following this logic – market should form 1. 618 Butterfly because it’s target coincides with AB-CD target. We will not promise reaching of 1025-1050 area definitely (although this is logical – action to YPS1) but chances that gold will break through 1180 seem significant, especially on a background of recent CFTC data.
Major factors are still valid - good economy data, that right now is confirmed by US companies earning reports, weak physical demand – all these moments prevent gold appreciation. As September bearish intentions look strong - tendency could take shape of butterfly as I’ve drawn on the chart, especially because it agrees with bearish grabber target.
It is interesting that during recent rally market was not able to re-test Yearly Pivot and later has vanished our bullish weekly grabbers. This moments make difficult to count on upward reversal. Also we suspect that we could get bearish dynamic pressure here and probably already getting it. As you can see trend has turned bullish, but gold does not show any upward action. Splash in July has faded fast. Mostly this pattern will depend on action in October. Plunge down here and taking 1240 lows confirms it. Finally, overall action since the beginning of the year mostly bearish. Take a look – in the beginning of the year market has tested YPP and failed, then continued move down. During recent attempt to move higher – has not even reached YPP again.
That’s being said, situation on the monthly chart does not suggest yet taking long-term long positions on gold. Fundamental picture is moderately bearish in long-term. Possible sanctions from EU and US could hurt their own economies as well, especially EU. Many analysts already have started to talk about it. It means that economies will start to loose upside momentum and inflation will remain anemic. In such situations investors mostly invest in interest-bear assets, such as bonds. Approximately the same comments we saw for recent 1-2 months from physical gold traders.
On monthly chart we have chain of targets. First one stands at former lows at 1180. Next one is 1125$ - butterfly 1.27 target and then ultimate combination of 1.618 target and YPS1 around 1020-1050 area. 1180 seems most probable not only because it stands closer but also because this is the target of the grabber and bearish dynamic pressure, but some patterns and details do not exclude even reaching of 1025-1050 area.
Weekly
Weekly time frame shows probably most valuable picture for us. Market is not at oversold here. On Friday, on NFP release gold has accomplished our medium-term target. Last month we’ve talked many times that with lack of real demand as it was shown by CFTC data, hardly any sizable rally could happen and even rallies that has started from some geopolitical tensions, such as Syria strikes and unrest in HK – were faded very fast. Now we see that gold has broken below 1200 and week has closed below this level right at weekly low.
At the same time “BCD” part of our AB-CD creates butterfly pattern that has passed below 1.27 level already and stands just few bucks above 1.618 extension. This extension also is WPS1 and important long-term lows.
Taking in consideration gold’s habits, we could suggest that 1180 will be reached and washed out. This will be our short-term plan.
But what will happen next? As we’ve said above – we have technical reasons suggest that in long-term perspective market could even reach 1050$ level. Hence, as soon as gold will reach 1180 – we will watch for reversal patterns. If we will get any – then market could turn to retracement and we will take close look at SPDR fund and CFTC data. Weak support of retracement will mean that we should ready for downward continuation. As we know – economical situation hardly will change till mid 2015. That’s why action below 1180 does not look impossible. Also we should not forget about “Panic” sell-off below 1200$ that was mentioned by many traders. On coming weeks we will watch over it as well.
Finally, as closer to New Year we are, as closer seasonal trend to the end. Bullish seasonal phase mostly ends on February, but active part of it fades even earlier.
Daily
On daily chart we see almost the same picture as on weekly. 1180 area will be also WPS1 and daily oversold. As market just has completed plunge down – no patterns have been formed yet here. As support zone looks really impressive – it makes sense to think about closing of shorts, at least partially and be ready to close them totally at 1175-1180 area. Reason is very simple – if market will break this level down (right now or later) – we will have enough time to take shorts again. While any retracement could be significant since market has achieved big targets. But odds stand not in favor of immediate breakout.
Talking about possible patterns – here we have the same idea by far, only DiNapoli, mostly due thrust down. Later, may be we will see something else.
1-hour
Nothing special yet on intraday charts... As we suggest possible lower action, to 1180, may be gold will show minor bounce up and form B&B “Sell” or something of this sort. Bounce could happen due daily/weekly AB=CD completion point at ~1190. Shy retracement to 1200 looks logical, but not neccesary it will happen. Anyway this has light relation to our trading plan, mostly it could interesting to scalp traders.
Conclusion:
Situation on gold market remains sophisticated. Due bearish moments, such as bullish USD sentiment, lack of physical demand, gold has re-established recently downward action. On a way down market could pass through multiple target and nearest one is 1180$. We even have setup on big picture that suggests moving to 1025-1050 area.
In short term perspective we should wait for reaching of 1180 area first. There some signs should come – whether gold will go lower or not. Our trading plan suggests closing shorts around 1180, since this target is mostly done and this area is strong support zone. Besides, after this area will be washed out – no patterns will suggest deeper action but VOB (volatility breakout). That’s why first we will have to assess chances on deeper action – whether any reversal patterns will appear or not, what will be with physical demand and economy fundamental data etc.
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.
