Gold GOLD PRO WEEKLY, October 19 - 23, 2020

Sive Morten

Special Consultant to the FPA
Messages
13,939
Fundamentals

Currently almost all markets are driven by the same factors as assets are trading in relation to US Dollar. Dollar performance, in turn directly depends on these factors - providing of the new stimulus pack and J. Biden leadership over D. Trump. Yesterday in our FX research we've made in depth analysis of both factors and what we could expect in near -term. Despite how cynic it might sound, the reasons of delay in stimulus providing are purely political. Democrats what to be "good guys" and "heroes" so strong that they are ready to delay with stimulus providing, make people suffer but to crush the Republicans. But this victory might be tricky and crush themselves, if Biden will lose the run.... Situation stands very tricky as a lot of bets are made on Biden's victory. In a case of his defeat we could be the watchers of stunning rally on US dollar...

The Trump administration called on Congress to pass a stripped-down coronavirus relief bill using leftover funds, as negotiations on a broader package ran into resistance.
"We are talking trillions (in stimulus) one day and it's billions the next day and it will (probably) be millions next. It feels like it is getting smaller coming into the election," said Phillip Streible, chief market strategist at Blue Line Futures in Chicago. The possibility of a smaller U.S. coronavirus stimulus bill is weighing on gold, he added.

"Gold will be higher if Biden wins because he will spend a lot of money," said Bob Haberkorn, senior market strategist at RJO Futures, adding any unknowns on the election night will also provide support.

“The stagnation in Washington over the next stimulus package continues to pressure assets like gold that were relying on the weakness in dollar for the next wave of support,” said David Meger, director of metals trading at High Ridge Futures. “The IMF and other agencies like the U.S Federal Reserve have also noted that recovery has taken place a little quicker than they originally anticipated, so that would lead us to believe that there could be a need of lesser stimulus worldwide.”


The IMF said forecasts for the global economy were “somewhat less dire” as wealthy countries and China rebounded more quickly than expected.

“Gold has been toyed with” during negotiations for the fiscal stimulus deal, with the latest deadlock “taking away some of the short term bullish drivers we anticipated,” said Edward Moya, a senior market analyst at OANDA. “But all that means is that we’re going to get the stimulus later, probably early next year and that will lead to higher gold prices.”

"Whenever there is a price drop, there's a section of strategic investors who think gold is still a very good hedge against global uncertainties... So they keep coming in," said Harshal Barot, a senior research consultant for South Asia at Metals Focus.

With the COVID-19 pandemic showing no signs of slowing and uncertainty over U.S fiscal stimulus, the broader $1,850-$1,940 range remains intact, he added. "The broader case for gold" is still supportive, with the global economic slowdown likely to last much longer prompting lower interest rates, said Metals Focus' Barot.


News that key COVID-19 vaccine trials were paused, along with an impasse in U.S. stimulus talks, soured appetite for riskier assets while propping up the dollar, capping gold's gains. Analysts said fading hopes for a U.S. coronavirus aid package, especially before the presidential election, after House Speaker Nancy Pelosi rejected a $1.8 trillion proposal from the White House, could also limit bullion's gains.

Trump said he would agree to go higher than the $1.8 trillion that the White House has offered in coronavirus stimulus to strike a deal. The dollar held gains against rivals, supported by U.S. Treasury Secretary Steve Mnuchin’s remarks on Wednesday that a stimulus deal would be hard to reach before the election.

Further supporting gold, U.S. weekly jobless claims unexpectedly rose last week.

“The jobless numbers showed that we’re not out of the woods yet, we still have a lot of headwinds to contend with, which points to the likelihood of more government intervention through stimulus and suppressed interest rates,” said Jeffrey Sica, president and chief investment officer of Sica Wealth Management. “Ultimately the macro factors that have driven investors to seek the yellow metal’s warm embrace will keep investment capital flowing into gold well into next year,” TD Securities analysts said in a note.

“We’re going to get a stimulus no matter who wins the elections - Democrats or Republicans ... the fact of the matter is the U.S. needs a stimulus package, although it looks doubtful that we’ll get one in any meaningful way before the elections,” Melek added. Investors also kept an eye on the U.S. presidential campaign, with polls showing Democratic candidate Joe Biden leading the race.

“The $1,900 an ounce level has been a battle ground for gold,” said Eli Tesfaye, senior market strategist at RJO Futures. The market has tried to take it below that level several times but the bears have been overcome by demand from the uncertainty in the upcoming U.S. elections, Brexit and stimulus.”

“While sentiment for gold remains strongly bullish without a strong short-term driver, we seem to be oscillating around $1,900 unable to substantially break the month-long range of $1,850-$1,950. With so much event risk on the horizon, culminating with the U.S. elections, we have likely seen the lows in gold for the next month or so,” Jeffrey Halley, senior market analyst at OANDA, said in a note. “Gold’s likely to shift into a $1,900 to $1,975 an ounce range as the elections draw near.”


Speaking on other issues - senior British minister Michael Gove said the chance of striking a post-Brexit trade deal with the European Union had fallen because the bloc had not been willing to intensify talks or produce detailed legal texts.

Asked by Sky News if EU negotiator Michel Barnier should come to London this week, Gove said the “ball was in his court. He said both sides needed to compromise to reach a deal, but “the EU side is not doing so at the moment”.

Prime Minister Boris Johnson said on Friday that Britain should get ready for a deal with the European Union similar to the one Australia has, “based on simple principles of global free trade.”

A so-called “Australia deal” means that the United Kingdom would trade on World Trade Organization terms: as a country without an EU trade agreement, like Australia, tariffs would be imposed under WTO rules, likely causing significant price rises.

More than 70 British business groups representing over 7 million workers have made a last-ditch attempt to persuade politicians to get back on the dialogue table next week to strike a deal with the European Union, the Financial Times newspaper reported on Sunday. “With compromise and tenacity, a deal can be done. Businesses call on leaders on both sides to find a route through”, the newspaper quoted the groups as saying in a statement.

CFTC Data

Recent COT report shows mixed result. Open interest has dropped significantly and traders have opened a lot of new short positions, that not quite correspond to idea that "long-term traders are ready to step in once gold is coming to 1850$". Hedgers have closed approx. 20K contracts in both directions, while more was closed against gold' rally.

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Thus, CFTC data doesn't bring the positivity into gold potential performance. At the same time, SPDR fund statistics shows different performance and funds' reserves keep growing, while retracement on gold continues. Sooner or later but data should converge to each other.
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Speaking on the same driving factors as we did yesterday, concerning stimulus, President's run, end of financial year - gold could show slightly different performance. As we've estimated the reasons of stimulus pack delay are purely political. And while Biden takes the lead - no deal will be achieved. The disclosure could come when election results will be announced. And this could be the tragedy for Democrats again. They rely too much on Polls results, that might be wrong. If Biden will start to lose advantage - the more probable stimulus compromise will become. The problem is there is too few time till the deadline. So, hardly this factor supports gold in October. Besides, as we've said, we do not exclude D. Trump victory and this stun will push gold to 1600 area that our technical picture shows.

What other factors we have? Elections uncertainty, probable light lockdown due CV19 and the end of financial year. Gold could get support from these factors, but as history shows, investors prefer to sit in safe haven cash through November-December period and start to form new portfolios in January. Besides, the new President announcement could delay because of voting by mail and come out accurately to Thanksgiving period. Till this moment speculators will shake the boat by publishing new polls and preliminary results every day. 10% gap is too much and most probable it will decrease. This supports US Dollar and will press on other assets. This makes difficult to count on real rally on gold. Although long-term view indeed still stands positive.



Technicals
Monthly


October stands as inside month not only to September but to the August doji as well. Long term MACD trend here stands bullish. Price now re-tests former top of "B" point, holding above it. 1650 looks perfect for long-term bullish position as besides the Fib level it is accompanied by monthly oversold level and this is also weekly K-support. But since this is monthly chart, the drop of this kind can't happen without supportive fundamental factors. One of them, for example, D. Trump victory. No other factors right now are strong enough to push gold to this level.

gold_m_19_10_20.png


Weekly

MACD trend stands bearish. In general market stands in pennant (or triangle) consolidation. While price remains inside, hardly we will get interesting trading setup and our scenarios will be limited by short-term targets. At the same time, downside breakout hardly possible from technical point of view as weekly oversold stands near the Fib level. In fact, this was the reason, why we've got the bounce.

So, weekly chart doesn't give us something for direct trading, but, still, it shows that once price comes to 1830 area, it could be good chances to consider short-term bullish setups on lower time frames.

gold_w_19_10_20.png


Daily

Here trend is still bullish by far, but recent three sessions stand in the shadow of strong sell-off, that has happened on Tuesday. In fact this bearish pattern stands in the center of daily picture. Despite that bullish scenario with AB=CD pattern has not destroyed totally, and theoretical chances still exist, but, as we've said in daily updates, context has become much weaker. The price action on Friday, when gold has turned down again tells that market could follow with new direction of bearish pattern and erase AB=CD formation. Besides, fundamental background promises nothing new, or bullish on coming week. The factors that we have now do not suggest gold's rally...
gold_d_19_10_20.png


Intraday

Here we do not have something interesting and ready for immediate trading. Early reversal inside the channel makes us still watch for price return to 1880 support. As we stand in a big weekly triangle, downside breakout of 1880 should lead us back to triangle support around 1840 area. Currently gold shows no bullish setup. Despite that we have the bullish divergence here, and formally it is still valid, situation stands so that the proper way to deal with it - act only around strong support or resistance areas, such as 1840 or 1940. Any position that could be taken inside the triangle without good background provides too much risk.

gold_4h_19_10_20.png
 

Sive Morten

Special Consultant to the FPA
Messages
13,939
Greetings everybody,

So, Gold market was not as impressed by new Pelosi statement as Forex market did and upside action was muted and played back by the end of the session. Still, the driver stands the same - Pelosi said that if agreement on stimulus will be achieved at all before elections - it has to be achieved on Tuesday, i.e today... And this is actually all that we need to know right now. Whatever technical picture we have - anyway everything will depend on stimulus decision.

In general, technical picture doesn't contradict by far to possible upside continuation to 1950 area. AB-CD pattern is valid and daily trend stands bullish:
gold_d_20_10_20.png


If you're ready to take part in this journey, with "running for stimulus" game - you could consider the butterfly and the same 1880 support area. In case of success butterfly will push price right to 1950 major target. Invalidation point is butterfly lows and the same support.

Bears currently has now evident background and should either wait for clarity (if stimulus soap opera comes in dead way again) or, maybe consider sell stop orders below 1880, in case of breakout. Everything now stands blur and tricky. And both trades are tricky. Bullish scenario seems slightly better because of technical picture and corresponding situation on EUR and GBP.
gold_4h_20_10_20.png
 

Sive Morten

Special Consultant to the FPA
Messages
13,939
Greetings everybody,

So, gold is trying to follow the common tendency, although overall pace stands slower compares to the EUR, for example. Anyway, bullish scenario still holds. On daily chart erasing of bearish pattern should be important moment. We know that this pattern was formed by the Pelosi speech and now she cancels what she said before. It means that pattern has lost the filling and price has chances to erase it. At the same time, area above 1935 is just continuing resistance, as there we have multiple Fib levels, and OP target around 1947. It means that gold will be extremely difficult to pass through it.

gold_d_21_10_20.png


As we've said yesterday - if you do not have pshychological discomfort and ready to trade in environment of external factors domination, you could consider long entry as technical picture stands bullish. Yesterday market has started upward action, here we again plot our 3-Drive "sell" pattern. Thus, you could move stops to breakeven now. As you can see 1935 is K-resistance and market is coming to it:
gold_4h_21_10_20.png


Also we have minor AB-CD target around 1930... Just keep an eye what will happen. I would prefer to see upside breakout and acceleration out of the 1H flag consolidation. This brings some confidence that gold could proceed to 1945 target:
gold_1h_21_10_20.png


For the bears we do not see good background yet. New long entry also seems difficult as market is coming to resistance and pullback brings risk to newly taking positions. Better to wait and see what pullback will be out from 1930-1935 area, if you haven't taken the position yesterday
 

Sive Morten

Special Consultant to the FPA
Messages
13,939
Greetings everybody,

Gold can't yet erase daily bearish pattern as erasing stands in direct relation to stimulus pack agreement. Still, upward action stands and gold keeps moderately bullish context. On daily chart we have nothing new by far, price has reached 1935 level, first border of wide K-area:
gold_d_22_10_20.png


On 4H chart we see the pullback and below you'll see the reason. Here is another thing important - take a look that market is forming two side-by side grabbers and re-tests broken trend line. This is potential situation for long entry for those, who has missed our initial entry. Others, who still hold positions - could move stops right under the grabbers.
If everything goes well - next step is action to 1947 OP target and completion of 3-Drive pattern.
gold_4h_22_10_20.png


Here you could see the reason for this pullback. Recall that yesterday we've mentioned this AB=CD target inside the channel and once it has been hit - gold has shown the retracement. Now, if you would like to step in, you're interested only with most recent small upside swing of the grabbers. Here you could drop the time frame even more and consider some levels for entry. Invalidation point of this setup is the bottom of the grabbers - they have to hold to keep scenario valid.
gold_1h_22_10_20.png
 

Sive Morten

Special Consultant to the FPA
Messages
13,939
Greetings everybody,

On gold market situation looks worse compares to EUR and GBP. Sell-off here was stronger and I'm not sure that it is acceptable for bullish scenario. In fact, daily context still exists here, on daily chart as MACD trend stands bullish and AB-CD pattern is still valid. Theoretical chances to reach 1945-1950 area exist, especially on a background of some breaking news. But pure technical picture looks weak. We've got another bearish pattern around 1935 resistance level:
gold_d_23_10_20.png


On 4H chart price has erased our grabber and now in fact, we stand in the same situation as on Monday. No clear bullish patterns, downside action just has happened. But price is above crucial 1880 level. We re-shape the butterfly, although target remains the same.

gold_4h_23_10_20.png


On 1H chart price stands at Agreement support after completion of downside OP
gold_1h_23_10_20.png


So, what conclusion we could make. First is pure technical situation stands not in favor of long entry - too strong drop yesterday, no patterns. On the other side after previous sell- offs market has reversed up right in the same conditions with no patterns and after strong drop. So, theoretically it could repeat. Second - headlines, breaking news and other stuff of this kind. They could support upward action.

So, this is difficult choice. Personally today I have no intention to buy gold. But attempt to go long will not be the mistake as we saw two times this week, how gold turns positive in similar situation and daily context stands bullish by far. So, think, decide...
 
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