Gold GOLD PRO WEEKLY, October 12 - 16, 2020

Sive Morten

Special Consultant to the FPA
Messages
14,038
Fundamentals

Yesterday in our FX research, we've tried to understand what factors drive the market most of all. Our analysis tells that there are two of them - discussion of stimulus pack and President's run, or better to say J. Biden leadership degree. The surfing among headlines on gold market tells mostly the same - market was driven by the same factors this week. As we come closer to election date - this process should hold for another 3-4 week probably.

"The election is 33 days away, there's so much unknown - will it be a mild case, how will he react to it? So we have flight to safety keeping gold afloat," said Bob Haberkorn, senior market strategist at RJO Futures. Traders seem cautious because they're concerned about equity markets selling off. Gold can move back up "if the U.S. congress passes a stimulus bill, that seems to be what this market is hanging on to for now," Haberkorn added.

In general, we see irrational investors' sentiment and attitude to the major drivers. As we know - no breakthrough has been achieved concerning stimulus pack this week, but just a Pelosi promising that "talks will continue" was enough to trigger rally against the dollar on Friday. This makes difficult to apply common sense for market action right now as investors are overexciting and treat neutral or negative information as positive.

"Maybe there is a little skinnier deal in the horizon that Pelosi would agree to and Republican party would agree to and I think the stimulus will be a boon for the metals," said Daniel Pavilonis, senior market strategist at RJO Futures.

"Barring a split government outcome, both administrations are likely to push through a large-scale fiscal deal in no time that would help de-bottleneck the real rate suppression, lifting precious metals in the process," TD Securities said in a note. "Considering a Blue Wave would likely result in the largest package, (Democratic candidate Joe) Biden's election odds are increasingly likely to drive gold prices in the coming month."


Meanwhile, Chicago Federal Reserve Bank President Charles Evans on Monday said he expects U.S. inflation to reach 2% by 2023 and wants to push it to 2.5% to offset years of below-target price rises.

“If inflation rises ... and the Fed does not raise rates, which it has basically said it will not, then real rates will become more negative. This is good for gold,” HSBC chief commodities analyst James Steel said in a note.

Gold was able to stay on surface even when D. Trump ask to close discussion of stimulus pack till elections. Trump’s announcement in a tweet came on the heels of U.S. Federal Reserve Chair Jerome Powell’s warning of dire economic repercussions if Congress failed to pass additional fiscal stimulus.

Powell called for Congress to act quickly and Trump effectively pulled the rug out from under that,” said Oliver Pursche, president of Bronson Meadows Capital Management in Fairfield, Connecticut. “It’s troubling, given the statements Chairman Powell made earlier today.”

In remarks delivered online to the National Association for Business Economics, Powell warned the U.S. economy could slip into a downward spiral if the coronavirus is not contained and Congress fails to deliver additional fiscal support to businesses and households.

Thus, uncertainty surrounding the U.S. presidential elections and bets that fresh stimulus would drive inflation offset downward pressure on bullion from a higher dollar and improved appetite for riskier assets.

While there is a “pretty robust increase in risk appetite,” with a higher dollar also weighing, inflation expectations are keeping gold supported, said Bart Melek, head of commodity strategies at TD Securities. “We’re not saying that there’s going to be an inflation problem right away, but the concern is that if the policies continue and are repeated post election, then we would likely see both a lower dollar and real rates that will likely move lower.”

“It’s (gold) going to move higher, it’s going to be volatile. That’s going to be true for the next month going into the election, it’s going to be true for the two months after the election,” said Jeffrey Christian, managing partner of CPM Group.


Gold climbed more than 1% on Friday as the dollar retreated to a near three-week low and increased bets for fresh U.S. stimulus pushed investors to bullion as a hedge against likely inflation.

“It seems like a lot of optimism is being built around it (U.S. stimulus)” and “that’s really at the forefront” of gold’s move, said Eli Tesfaye, senior market strategist at RJO Futures. A further drop in the dollar could add more fuel, and given the strong technical momentum, bullion could soon hit highs seen in August, Tesfaye added.

After stalling talks with Democrats on a comprehensive aid package earlier this week, U.S. President Donald Trump called for a “skinny” relief bill that would include a bailout of the struggling airline sector. Additionally, a widening lead for Democratic presidential candidate Joe Biden has raised the prospect of further stimulus, adding to gold’s allure.

The dollar meanwhile slid as expectations grew for a Biden win, making gold cheaper for those holding other currencies.

“In fact, the long gold trade is likely agnostic to the election outcome,” TD Securities analysts said in a note. “Barring a split government outcome, both administrations are likely to push through a large-scale fiscal deal in no time that would help de-bottleneck the real rate suppression, lifting precious metals in the process.”

CFTC Report

Last week it was interesting observation of SPDR fund reserves and their dynamic that was contradicting to gold price action and speculators position. While gold price has dropped and speculators have closed longs - SPDR fund has shown absolutely different dynamic as its reserves have increased. And we've said that it could be the sign that there is no big money behind recent drop on gold market and it could reverse soon.

This week CFTC report shows that open interest has dropped again, but speculators slightly have increased long positions. This week SPDR reserves has dropped a bit (for ~4 tonnes) but was holding at the same level through the whole week. This situation tells that investors still hold major long positions and do not hurry up to close them. That, in turn, tells that overall sentiment still stands bullish on the market.

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That's being said guys, current situation eliminates specific factors for the particular market and all markets are driving by the same drivers. Gold price currently in short-term directly depends on J. Biden leadership gap over the D. Trump rating and discussion of stimulus pack. Both factors stand against the US Dollar strength and, hence, are supportive for the gold market. Deteriorating any of these factors will press on the gold.
Still, above we see interesting thought that gold price is "agnostic" to elections' result. Indeed, whoever will win - stimulus sooner or later but will be provided. The J. Powell call to do it as soon as possible just bring confidence with this fact. This, in turn, should mean that gold should rise more in perspective of 2-3 months.
Another interesting moment, but it relates to longer-term perspective - the comments from Chicago Federal Reserve Bank President Charles Evans that 2% inflation is expected in 2023 and no Fed action till it will reach 2.5%. Real rates indeed could turn more negative if Fed will not control the long-term yields. As we've estimated in our fundamental research couple of weeks ago - there is direct correlation between real interest rates and gold price. In general, market wants to be positive ignoring negative moments. Such environment makes difficult to use common sense. We just could hope that euphoria will last as long as possible.


Technicals
Monthly


October stands as inside month not only to September but to the August doji as well. Now it seems that short term spike of the lows was a kind of wash& rinse that has more bullish features rather than bearish, suggesting that price could fluctuate inside the range of August doji. As we've said last week, deeper retracement is not cancelled yet totally, but probably is postponed for few weeks at least. Thus, it is more probable to see flat or slowly rising October performance.

Here, on monthly chart, the area around 1700 is still interesting, but it is difficult to say when gold could reach it. Price has shown a kind of W&R of doji lows and returned back inside its range.

As on EUR, here upside thrust looks good, and potentially we could get some DiNapoli pattern. But gold doesn't show yet no single close below 3x3 DMA by far.
gold_m_12_10_20.png


Weekly

Last week we've mentioned DiNapoli bullish "Stretch" pattern here that was suggesting upward action that we've got this week. Now "Stretch" mostly is done, because DOSC has reached zero point. Still, it doesn't mean that price can't go higher, at least here we do not see any bearish signs.

gold_w_12_10_20.png


Daily

On daily chart we have couple of important moments that increase chances for further upward action of the price. First is, our reversal bar (which is BC leg) has been erased. This is rare thing, but sometimes it happens. And the fact that this has happened this time means a lot. Besides, the top of reversal bar also was strong K-resistance area on 4H chart that also has been broken.

Second - we see strong upside action on Friday, daily trend has turned bullish as well. These two moments support our view on action to 1935-1950 major resistance area. Here market also creates and Agreement as OP target of AB=CD pattern stands at 1951$.
Depending on situation progress, potentially gold could proceed to XOP and return back to 1988-2000 area.

gold_d_12_10_20.png

Intraday

Here we have few things to think about. First is, we're coming to daily resistance of 1935 level where some pullback is very probable. On 1H chart we also have the butterfly with the same 1.27 extension target. It makes difficult to step in right here and common sense suggest to wait when 1935 level will be hit then consider downside pullback to one of the Fib supports.

Second, for scalp traders - recent upside action is a good thrust and we could consider for short-term DiNapoli patterns, such as B&B or DRPO. These two things we will monitoring in the beginning of the week.
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Sive Morten

Special Consultant to the FPA
Messages
14,038
Greetings everybody,

Gold brings no surprises so far, accurately following to our trading plan. On daily chart picture mostly the same and we expect reaching of 1950 target, hopefully by the end of the week:
gold_d_13_10_20.png


On 1H chart market has formed DRPO "Sell" and now stands in downside retracement. Taking in consideration minor acceleration, we suggest that it is possible to see 1900-1905 support area and XOP target around it. This is the level where makes sense to consider long entry, just avoid nasty collapses...
gold_1h_13_10_20.png
 

Sive Morten

Special Consultant to the FPA
Messages
14,038
Greetings everybody,

So everything was good until Pelosi comes and said that they rejected 1.8 Trln pack agreement. The drama stands so that the same Pelosi just on Friday has promised to continue negotiations which has pushed markets higher...

As a result, daily bullish context was significantly hurt. It is not canceled yet totally, as price stands above "C" point of our AB-CD pattern and overall trend stands bullish by far. But we've got bearish pattern - it calls as "three inside down", but in general it is similar to Evening star pattern. In current circumstances, technical picture stands not in favor of upside continuation.

gold_d_14_10_20.png


Still, as market stands very sensitive to any talking on stimulus and Biden's leadership - at any moment could come somebody and promise again something. Only this thing keeps some positive odds in bullish context. For instance, if somehow this will happen - market could form 3-Drive "Sell" and complete our AB-CD pattern around 1950 level:
gold_4h_14_10_20.png


On 1H chart market stands at the last bullish outpost. Deep XOP retracement is done, last 5/8 Fib level is reached. If Gold still has some bullish power - it should try to climb higher - slowly but stubbornly. Breaking of this 1880 support tells that upside retracement is over and new downside swing is starting. Taking of long position in this situation has only one pleasant moment - in a case of a loss it will be small.
gold_1h_14_10_20.png
 

Sive Morten

Special Consultant to the FPA
Messages
14,038
Good morning,

So, gold as other market has tried to climb higher yesterday and pullback really was nice (those who sold around 1908 (including me) with former plan was able to out even with some profit), but still it is not sufficient to prove us in upward reversal. Bullish context still exist, but it is weak and was seriously hurt by recent sell-off.
Pattern that we have here and that we've discussed yesterday absolutely doesn't inspire to go long right now. We need more bullish signs. Say, on daily, it would be nice to get bullish grabber at least:
gold_d_15_10_20.png


On 4H chart we're mostly watching for 1880 support area. Pullback was nice indeed, but now we already have the bearish grabber and within few hours could get another one. Both suggest drop below recent lows, which makes butterfly possible. Thus, for example, if we would get this butterfly at Fib support and daily bullish grabber - that will be at least something that let us to consider long position.
gold_4h_15_10_20.png
 

Sive Morten

Special Consultant to the FPA
Messages
14,038
Greetings everybody,

Gold stands at the edge of bullish context, but we see some indirect bullish signs that still make possible upside action. On daily chart is nothing new, market shows slow upside action inside the body of bearish pattern:
gold_d_16_10_20.png


But, on 4H chart, reaction on Biden's probe was very limited and significantly smaller compares to FX market, few bearish grabbers have been erased by price action and now we the last one, on the top of butterfly. It probably will be erased as well. Finally, take a look we have bullish MACD divergence. If somehow gold will turn up again - our target is the same 1950 where 3-Drive "Sell" pattern could be completed. Conversely, breakout of 1880 level turns overall context bearish.
gold_4h_16_10_20.png


So, upside context has large potential, but it is weak and chances to get loss are significant. You need to decide, whether to take part in this trade or not. Bears in turn have no setup at all by far.
 
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