Sive Morten
Special Consultant to the FPA
- Messages
- 18,630
Fundamentals
Yesterday guys we have big discussion on major driving factors of this week. They are political mostly and should keep their impact on markets in nearest futures. Also they drive all markets, and do not belong to some particular market.
Gold market also has not become an exception and was driven by them. Once information on some US/China progress has appeared, positive rumors on Brexit - gold starts to creep lower.
As Reuters reports - Gold fell over 1% on Friday, en route to its biggest weekly decline since March, as easing concerns about the U.S.-China trade conflict and Britain’s exit from the European Union renewed appetite for riskier assets.
It was headed for a weekly decline of about 1.4%, its biggest since the end of March.
“The U.S. and China appear to be close to reaching, at least, a partial agreement on trade and that’s lifting investors sentiment (for riskier assets). That’s a negative for safe-haven assets including gold,” Jim Wyckoff, senior analyst with Kitco Metals.
* Top U.S. and Chinese negotiators wrapped up a first day of trade talks in more than two months on Thursday as business groups expressed optimism the two sides might be able to ease a 15-month trade war and delay a U.S. tariff hike scheduled for next week.
* U.S. President Donald Trump said trade talks between U.S. and Chinese officials on Thursday went very well and the two sides had a very, very good negotiation.
* Negotiators could agree to low-level “early harvest” agreements on issues such as currencies and copyright protections, despite increased irritants between the world’s two largest economies, a U.S. Chamber of Commerce official briefed by both sides said.
A Brexit deal could be clinched by the end of October to allow the UK to leave the EU in an orderly fashion, Irish Prime Minister Leo Varadkar said after what he called a very positive meeting with Boris Johnson.
Investors expect top-level U.S.-China talks to result in a partial trade deal, which would dial down the 15-month dispute and delay a U.S. tariff hike scheduled for next week.
“There are reports that the UK and the EU may be making some progress on a Brexit that won’t be a hard Brexit and that’s lifting European spirit so all that is working against the gold market,” Wyckoff added.
Analysts said gold still looked bullish both fundamentally and technically, in the longer term.
“I don’t see a massive sell-off in gold on the back of a trade deal if there is one. It would actually be positive in (the) long term,” said Fawad Razaqzada, market analyst with Forex.com.
“If China gets a deal, Chinese demand for gold should rise as it is the largest gold consumer in the world.”
* On the data-front, U.S. consumer prices were unchanged in September and underlying inflation retreated, supporting expectations the Federal Reserve will cut interest rates in October for the third time this year amid risks to the economy from trade tensions.
* The U.S. economy will likely skirt a serious downturn despite current risks from trade and a slowing global economy, Cleveland Fed President Loretta Mester said.
* SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, said its holdings fell 0.22 percent to 921.71 tonnes on Thursday from 923.76 tonnes on Wednesday.
* HSBC Bank said it forecasts end of year gold prices for 2019 and 2020 at $1,555 per ounce and $1,605 per ounce respectively.
As we said yesterday, despite a lot of rumors, euphoria and noise on news front - they are mostly emotional and do not match to reality. Especially, it concerns Brexit. B. Johnson government decides to keep Ireland united economically and refuse this scenario of EU/GBP economy space split. It means that they have only one possible scenario - to set the border in Ireland sea. But this scenario breaks the whole GB economy space in two parts, which is unacceptable. So, Brexit dead way is too far from final solution and we do not see real reasons to be happy by far.
Besides, there is third important driving factor, that everybody has missed this week. Fed has turned from selling 50 Bln US bonds off the balance every month to buying them back in amount of 60Bln. This is 110 Bln monthly reversal. This is dovish sign and hints that rate probably will be cut in October again. Fed doesn't want to reverse totally recent hawkish rate cycle and intends to provide dovish measures not by the rate cut but using its balance sheet and just printing money. This is supportive factor for the gold.
As a result we do not see big shift in markets positions by CFTC report. Net long position even has increased slightly after solid drop two weeks ago:
Source: cftc.gov
Charting by Investing.com
That's being said - downside reaction on gold is normal and it probably was should to happen, because news headlines are not supportive to the gold. But, its core is not solid enough. That's why we mostly agree with comments above, that it is too early to make far-going conclusions and suggest that gold is not bullish any more. Retracement is normal in current situation, but I wouldn't speak on reversal yet.
Technical
Monthly
This week stands in the same trading range as previous one, thus, on monthly chart we do not have a lot of changes. Gold stands in reaction to strong resistance area and October is inside month by far. The resistance here is strong and valuable and it deserves meaningful retracement. But currently it is too few signs of real retracement. September drop was too small and mostly reminds consolidation around the level rather than retracement, and October performance just confirms this.
Price doesn't go down and stands near the target. This is not the way how usually bearish reaction develops.
We keep this area - 1530-1585 as tactical ceil by far, but, as we have additional driving factors, we should pay attention to daily and intraday performance, just to not miss the signs of upside continuation.
In general, combination of butterfly target, major 5/8 Fib resistance and monthly overbought is rather strong barrier. Something really outstanding has to happen to force gold break it without respect. At the same time, the way how this respect will start is still unclear. Gold has a lot of freedom in this subject as it could flirt with resistance some time before major reaction will start.
Weekly
The major breakthrough has not happen on weekly chart as well. To change situation, we need price close above 3x3 DMA and then appearing of second top of DRPO pattern. Despite that this week has started positive - by the end of the week gold has dropped and stays below 3x3 DMA again. So, DRPO completion is postponed again.
At the same time, gold still has not reached 1447 major Fib level. It means that DRPO "Sell" is still possible.
Situation even more tricky as now we have mixed fundamental background for this action - very weak performance of US economy and new rate cut on horizon by the end of the month. But, at the same time - announcement some shift in US/China negotiations and Brexit agreement.
That' being said, despite that smell of the retracement in the air - gold stands stubbornly too tight to the top - last week was inside one, which means that major downside action is somewhere in the future and we can't ignore possible return back to the tops.
Daily
Our reversal session has worked as it should to - Gold on Friday has dropped a bit more. At the same time, daily chart doesn't bring clear picture yet. Price action stands in tight range and choppy. From time to time we have patterns here, but they are too small and short-lived. All this stuff tells that gold mostly stands indecision.
The only thing that probably could lead us to breakout and has greater scale here is falling wedge pattern. Potentially it agrees with our suggestion of DRPO "Sell" weekly chart and upward action. The question is how long recent political factors will press on gold market.
Finally, we have valid bearish grabber pattern here. Although market moves very slow - but still it drifts to recent lows where the grabber's target stands.
That's being said, we still do not see any good setup for trading daily chart and keep our view that we need to wait a bit more.
Intraday
That's being said gold offers setups of limited potential. The only thing that we have - "222" Buy pattern on 4H chart. 1482-1484 is Agreement area and could trigger some upside action. But it is impossible to say - whether upside action will stop just at minimal target or this "222" could trigger major upward action. Here we could give only the same advise - is you still decide to trade gold, try to do it around strong support levels and with the patterns on the back. This combination provides some protection, at least, and gives chances to turn trade to breakeven.
Conclusion
This week we have interesting driving factors but a bit boring technical situation, as trading range becomes more narrow every week. As we have mixed fundamental factors - market react accordingly and can't set direction. This doesn't let us to trade on daily time frame.
On intraday charts we have setups, but they are very short-term and doesn't suite to everybody. Thus, unfortunately we have to wait a bit more.
Disclaimer
This FPA Investment Research is for information and education purposes only. Any decision to make any trade on the market has to be made solely by the reader. Information that is presented in research or its update is not an offer or call to make the trade on the financial markets and expresses just a personal opinion of the author who is might be wrong. Reader has to make decision on any trade solely and care all responsibility for results of this trade.
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.
Yesterday guys we have big discussion on major driving factors of this week. They are political mostly and should keep their impact on markets in nearest futures. Also they drive all markets, and do not belong to some particular market.
Gold market also has not become an exception and was driven by them. Once information on some US/China progress has appeared, positive rumors on Brexit - gold starts to creep lower.
As Reuters reports - Gold fell over 1% on Friday, en route to its biggest weekly decline since March, as easing concerns about the U.S.-China trade conflict and Britain’s exit from the European Union renewed appetite for riskier assets.
It was headed for a weekly decline of about 1.4%, its biggest since the end of March.
“The U.S. and China appear to be close to reaching, at least, a partial agreement on trade and that’s lifting investors sentiment (for riskier assets). That’s a negative for safe-haven assets including gold,” Jim Wyckoff, senior analyst with Kitco Metals.
* Top U.S. and Chinese negotiators wrapped up a first day of trade talks in more than two months on Thursday as business groups expressed optimism the two sides might be able to ease a 15-month trade war and delay a U.S. tariff hike scheduled for next week.
* U.S. President Donald Trump said trade talks between U.S. and Chinese officials on Thursday went very well and the two sides had a very, very good negotiation.
* Negotiators could agree to low-level “early harvest” agreements on issues such as currencies and copyright protections, despite increased irritants between the world’s two largest economies, a U.S. Chamber of Commerce official briefed by both sides said.
A Brexit deal could be clinched by the end of October to allow the UK to leave the EU in an orderly fashion, Irish Prime Minister Leo Varadkar said after what he called a very positive meeting with Boris Johnson.
Investors expect top-level U.S.-China talks to result in a partial trade deal, which would dial down the 15-month dispute and delay a U.S. tariff hike scheduled for next week.
“There are reports that the UK and the EU may be making some progress on a Brexit that won’t be a hard Brexit and that’s lifting European spirit so all that is working against the gold market,” Wyckoff added.
Analysts said gold still looked bullish both fundamentally and technically, in the longer term.
“I don’t see a massive sell-off in gold on the back of a trade deal if there is one. It would actually be positive in (the) long term,” said Fawad Razaqzada, market analyst with Forex.com.
“If China gets a deal, Chinese demand for gold should rise as it is the largest gold consumer in the world.”
* On the data-front, U.S. consumer prices were unchanged in September and underlying inflation retreated, supporting expectations the Federal Reserve will cut interest rates in October for the third time this year amid risks to the economy from trade tensions.
* The U.S. economy will likely skirt a serious downturn despite current risks from trade and a slowing global economy, Cleveland Fed President Loretta Mester said.
* SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, said its holdings fell 0.22 percent to 921.71 tonnes on Thursday from 923.76 tonnes on Wednesday.
* HSBC Bank said it forecasts end of year gold prices for 2019 and 2020 at $1,555 per ounce and $1,605 per ounce respectively.
As we said yesterday, despite a lot of rumors, euphoria and noise on news front - they are mostly emotional and do not match to reality. Especially, it concerns Brexit. B. Johnson government decides to keep Ireland united economically and refuse this scenario of EU/GBP economy space split. It means that they have only one possible scenario - to set the border in Ireland sea. But this scenario breaks the whole GB economy space in two parts, which is unacceptable. So, Brexit dead way is too far from final solution and we do not see real reasons to be happy by far.
Besides, there is third important driving factor, that everybody has missed this week. Fed has turned from selling 50 Bln US bonds off the balance every month to buying them back in amount of 60Bln. This is 110 Bln monthly reversal. This is dovish sign and hints that rate probably will be cut in October again. Fed doesn't want to reverse totally recent hawkish rate cycle and intends to provide dovish measures not by the rate cut but using its balance sheet and just printing money. This is supportive factor for the gold.
As a result we do not see big shift in markets positions by CFTC report. Net long position even has increased slightly after solid drop two weeks ago:
Source: cftc.gov
Charting by Investing.com
That's being said - downside reaction on gold is normal and it probably was should to happen, because news headlines are not supportive to the gold. But, its core is not solid enough. That's why we mostly agree with comments above, that it is too early to make far-going conclusions and suggest that gold is not bullish any more. Retracement is normal in current situation, but I wouldn't speak on reversal yet.
Technical
Monthly
This week stands in the same trading range as previous one, thus, on monthly chart we do not have a lot of changes. Gold stands in reaction to strong resistance area and October is inside month by far. The resistance here is strong and valuable and it deserves meaningful retracement. But currently it is too few signs of real retracement. September drop was too small and mostly reminds consolidation around the level rather than retracement, and October performance just confirms this.
Price doesn't go down and stands near the target. This is not the way how usually bearish reaction develops.
We keep this area - 1530-1585 as tactical ceil by far, but, as we have additional driving factors, we should pay attention to daily and intraday performance, just to not miss the signs of upside continuation.
In general, combination of butterfly target, major 5/8 Fib resistance and monthly overbought is rather strong barrier. Something really outstanding has to happen to force gold break it without respect. At the same time, the way how this respect will start is still unclear. Gold has a lot of freedom in this subject as it could flirt with resistance some time before major reaction will start.
Weekly
The major breakthrough has not happen on weekly chart as well. To change situation, we need price close above 3x3 DMA and then appearing of second top of DRPO pattern. Despite that this week has started positive - by the end of the week gold has dropped and stays below 3x3 DMA again. So, DRPO completion is postponed again.
At the same time, gold still has not reached 1447 major Fib level. It means that DRPO "Sell" is still possible.
Situation even more tricky as now we have mixed fundamental background for this action - very weak performance of US economy and new rate cut on horizon by the end of the month. But, at the same time - announcement some shift in US/China negotiations and Brexit agreement.
That' being said, despite that smell of the retracement in the air - gold stands stubbornly too tight to the top - last week was inside one, which means that major downside action is somewhere in the future and we can't ignore possible return back to the tops.
Daily
Our reversal session has worked as it should to - Gold on Friday has dropped a bit more. At the same time, daily chart doesn't bring clear picture yet. Price action stands in tight range and choppy. From time to time we have patterns here, but they are too small and short-lived. All this stuff tells that gold mostly stands indecision.
The only thing that probably could lead us to breakout and has greater scale here is falling wedge pattern. Potentially it agrees with our suggestion of DRPO "Sell" weekly chart and upward action. The question is how long recent political factors will press on gold market.
Finally, we have valid bearish grabber pattern here. Although market moves very slow - but still it drifts to recent lows where the grabber's target stands.
That's being said, we still do not see any good setup for trading daily chart and keep our view that we need to wait a bit more.
Intraday
That's being said gold offers setups of limited potential. The only thing that we have - "222" Buy pattern on 4H chart. 1482-1484 is Agreement area and could trigger some upside action. But it is impossible to say - whether upside action will stop just at minimal target or this "222" could trigger major upward action. Here we could give only the same advise - is you still decide to trade gold, try to do it around strong support levels and with the patterns on the back. This combination provides some protection, at least, and gives chances to turn trade to breakeven.
Conclusion
This week we have interesting driving factors but a bit boring technical situation, as trading range becomes more narrow every week. As we have mixed fundamental factors - market react accordingly and can't set direction. This doesn't let us to trade on daily time frame.
On intraday charts we have setups, but they are very short-term and doesn't suite to everybody. Thus, unfortunately we have to wait a bit more.
Disclaimer
This FPA Investment Research is for information and education purposes only. Any decision to make any trade on the market has to be made solely by the reader. Information that is presented in research or its update is not an offer or call to make the trade on the financial markets and expresses just a personal opinion of the author who is might be wrong. Reader has to make decision on any trade solely and care all responsibility for results of this trade.
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.
