Sive Morten
Special Consultant to the FPA
- Messages
- 18,679
Fundamentals
Yesterday, in our FX PRO Weekly report have covered major issues of a last week - GDP, ECB and other, which have made direct impact on the markets, and gold was not an exception. So, please read Fundamental part of that report, because there we also have mentioned some important issues as Fed anticipated rate change, tariffs effect, stock market etc. which will be important for gold as well.
Here we provide some issues that important for gold directly. In general different investors look positive on gold perspective:
“The most important reason is a little bit of a rebound in the U.S. dollar, which has a negative effect on gold,” Julius Baer analyst Carsten Menke said. “On top of that, following a strong performance we had in gold in the past few days, this may be a little bit of profit taking, although this should not be the end of the recovery in gold.”
“After reaching a three-month high yesterday, gold is taking a breath... (but) the environment remains positive for bullion, with growing investor interest for the precious metal (among those) betting on further corrections of stock markets increases,” ActivTrades chief analyst Carlo Alberto De Casa said in a note.
World stocks steadied after falling for five straight days, pressured by earnings disappointment, concerns over Italy’s budget and worries that world economic growth is losing steam.
“Gold is focusing on the risk aversion creeping into the market, especially reflected in the weakness seen in global stock markets,” said Saxo Bank analyst Ole Hansen.
“If there is a correction, then $1,210 is a good support zone; breaching this support may lead gold to fall further towards $1,195, which is less likely in the current scenario,” said Vandana Bharti, assistant vice president of commodity research at SMC Comtrade Ltd.
“Gold is pausing for a breath and is probably consolidating for the next possible move higher. Some speculative investors would be in a position to take profit,” said Mitsubishi analyst Jonathan Butler.
“It is running into some resistance around $1,240. The next significant level is the $1,250 psychological barrier,” he added.
Global stocks are on course for their worst month since the financial crisis a decade ago as investors become increasingly nervous about lofty stock prices, faster rate hikes in the United States and an ongoing Sino-U.S. trade war.
“Further equity weakness is likely to entice participants into the precious complex over the near-term,” traders at MKS PAMP said in a note. They added gold prices could also move higher if speculative investors that have in recent months ramped up bets on lower prices are forced to abandon their positions.
Another sign of rising interest in gold was higher inflows into the world’s largest gold-backed exchange-traded fund, SPDR Gold Trust. Holdings in the fund, which saw significant outflows between late April and early October, have risen to their highest since the end of August. This week fund has added 4+ tonnes.
So, we point the same factors within last 3-4 weeks, which should support gold market. Meantime, as we've mentioned in FX report yesterday, on coming week gold support could decrease. PCE inflation was below 2%, stock market rebound and US 10year yields has drop more than for 0.1%. This will lead to pause in upside action on gold with high probability and retracement that we've mentioned last week has very good chances to start.
Still, overall fundamental background is positive. Recent COT report shows net positive change in speculators' positions and big shorts were opened by hedgers. It means that big producers and consumers of gold see some signs of possible upward action on gold in long term perspective:
As a result net short position has dropped significantly, supported by rise in open interest.
Charting by Reuters.com
That's being said, fundamental picture looks positive for gold market, doesn't suggest any bearish reversal yet. It means that any downward action on coming week we treat as retracement and change to take long positions. If even market will not be able to re-establish upside rally, upside swings should be significant, just because on investors sentiment, as they will watch for the same deeps to buy into.
Technical
Monthly
Monthly picture barely has changed. On monthly chart we keep our long-term technical scenario, that could be realized. this is not single possible scenario, but currently it seems as very probable. We will keep it intact for awhile, because it illustrates our fundamental expectations on gold market. Although final downside target could be revised higher someday because as political as economical situation is not static but we keep our direction "down" by far.
Here we try to involve fundamental view in technical analysis, trying to combine patterns with real fundamental situation on gold. So, we will take broader view.
If you follow our weekly updates, you should remember our explanation and why we think that gold inability to break through 1380 resistance should be treated as bulls' defeat and gold failure. This is important in outlook of longer-term perspective.
Fundamental picture suggests two major things. In shorter-term US will keep dominate role in the world, because indirectly it controls EU economy as major EU companies have significant part of their business in US, or on US territory, US dollar is still world major currency and, as we've estimated above, China starts to show signs of chilling their economy. US economy itself feels good. D. Trump by restructuring of political role of US on international arena will safe a lot of "unnecessary" spending, such different programs of opposition financing, military spending of different kind. This should improve US budget, reduce deficit, which also will work on support of US economy.
Second important issue, this long-term relations that stand for decades start changing. Both of these moments, putting together, lead us to following conclusion. Within few years, 2-3 probably gold will remain under pressure of positive interest rates cycle. While gradually, when breaking of long-term economic relations will be seen brighter and brighter and impact not only China, EU but US as well - this will be turning point for the gold, or slightly before that. Because any global crush of any kind triggers demand for gold. That is what we see from fundamentals. The same view we see among other analysis, which they backed with statistics and fundamental research. Thus, Fathom Consulting expects starting of world crisis around 2020.
It could look unbelievable, but technical picture shows approximately the same. Failure of 1380 upside breakout confirms our idea of 2-3 years of US and US Dollar domination. But at the same time gold should show preparation to reversal, and here it is. One of the scenarios that might be formed here is big 1.618 butterfly, which is bullish reversal pattern. It has 1.618 target right around gold price, which is corresponds to extraction spending approximately. So, it is long-term breakeven point.
Finally, butterfly could become large reverse H&S pattern around all time 5/8 Fib support and ~40% of this pattern could be seen on the market. What we see on the chart nicely corresponds to current fundamental background. Alternative scenarios suggest appearing of different patterns, such as "222" Buy, or 1.27 butterfly but it doesn't affect the core and reflects only a degree of global political and economical processes, whether they will be smooth or drastic.
Of course, political life is not static, and it could show fast turns. But right now, everything looks very harmonic.
Here we also have mentioned huge demand on gold from emerging countries - China, Russia and Turkey. Developed countries repatriate gold from US. It means that everybody prepares to something, which should significantly increase demand for a gold. Decisive moment here will be the breakout of YPS1 where gold stands right now. But last few weeks we see that gold, oppositely, holds well and even bounces higher, up from it.
Weekly
Not much to add on weekly chart as well. We stand in upside action 3rd consecutive week. This is precisely the action that you want to see, when DRPO "Buy" has been formed. Now market is stuck a bit around first major resistance area - 1238$. Chances of pullback on daily/intraday charts have increased.
In a broader picture, as we've mentioned earlier, DRPO itself is a long-term pullback as a reaction on oversold. Despite our long term bearish trend on gold, it can't show straight down action without any pauses. And we think that one of these stops we have right now. Although the scale of this "pause" looks impressive 50-70$ per contract bounce, on weekly chart this is just 3/8 pullback, which seems normal when market hits oversold and YPS1 areas. Thus, on weekly we still watch for our directional pattern, based on the thrust down.
The common target of DRPO is 50% of its thrust, which stands at $1260. Still, 1238 level is also important, because market now shows pause right below it. That's being said - weekly chart keeps bullish context.
Daily
So, although our Thu-Fri crazy upside trade has been completed scarcely - market has dropped precisely after target has been hit, now the retracement still should start. Friday market shows quite clear signs of it.
On daily chart it comes from three spikes around major daily K-resistance area. Here we have two major support areas. Nearest is 1223, but our major level to watch for is 1211 K-support of course. Also, as you can see this is upper border of consolidation. Gold has the habit to re-test important levels and show deep retracements. Thus, we suggest that real chance for long entry should appear somewhere around 1211$
Intraday
So, our butterfly "sell" pattern has been completed perfectly. Since we suggest reversal on intraday charts, we use ultimate target of butterfly, which is reversal pattern. This is 1.27 extension down of whole butterfly. It coincides with our first daily support level around 1221-1223 area. So, for scalp traders, if you are going to take short position here -this is first destination point:
On 1H chart we have huge bearish engulfing pattern. Thus any AB-CD upside bounce and following "222" Sell pattern should be nice chance to go short from one of the Fib levels:
Conclusion:
Light chill out of bullish sentiment and existence of strong daily resistance makes us watch for moderate retracement on daily chart. Right now we think that 1211 K-support is most probable destination area where we will start to watch for chance to go long as well.
Short-term traders could use intraday bearish setups for short-term downside trades.
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, in our FX PRO Weekly report have covered major issues of a last week - GDP, ECB and other, which have made direct impact on the markets, and gold was not an exception. So, please read Fundamental part of that report, because there we also have mentioned some important issues as Fed anticipated rate change, tariffs effect, stock market etc. which will be important for gold as well.
Here we provide some issues that important for gold directly. In general different investors look positive on gold perspective:
“The most important reason is a little bit of a rebound in the U.S. dollar, which has a negative effect on gold,” Julius Baer analyst Carsten Menke said. “On top of that, following a strong performance we had in gold in the past few days, this may be a little bit of profit taking, although this should not be the end of the recovery in gold.”
“After reaching a three-month high yesterday, gold is taking a breath... (but) the environment remains positive for bullion, with growing investor interest for the precious metal (among those) betting on further corrections of stock markets increases,” ActivTrades chief analyst Carlo Alberto De Casa said in a note.
World stocks steadied after falling for five straight days, pressured by earnings disappointment, concerns over Italy’s budget and worries that world economic growth is losing steam.
“Gold is focusing on the risk aversion creeping into the market, especially reflected in the weakness seen in global stock markets,” said Saxo Bank analyst Ole Hansen.
“If there is a correction, then $1,210 is a good support zone; breaching this support may lead gold to fall further towards $1,195, which is less likely in the current scenario,” said Vandana Bharti, assistant vice president of commodity research at SMC Comtrade Ltd.
“Gold is pausing for a breath and is probably consolidating for the next possible move higher. Some speculative investors would be in a position to take profit,” said Mitsubishi analyst Jonathan Butler.
“It is running into some resistance around $1,240. The next significant level is the $1,250 psychological barrier,” he added.
Global stocks are on course for their worst month since the financial crisis a decade ago as investors become increasingly nervous about lofty stock prices, faster rate hikes in the United States and an ongoing Sino-U.S. trade war.
“Further equity weakness is likely to entice participants into the precious complex over the near-term,” traders at MKS PAMP said in a note. They added gold prices could also move higher if speculative investors that have in recent months ramped up bets on lower prices are forced to abandon their positions.
Another sign of rising interest in gold was higher inflows into the world’s largest gold-backed exchange-traded fund, SPDR Gold Trust. Holdings in the fund, which saw significant outflows between late April and early October, have risen to their highest since the end of August. This week fund has added 4+ tonnes.
So, we point the same factors within last 3-4 weeks, which should support gold market. Meantime, as we've mentioned in FX report yesterday, on coming week gold support could decrease. PCE inflation was below 2%, stock market rebound and US 10year yields has drop more than for 0.1%. This will lead to pause in upside action on gold with high probability and retracement that we've mentioned last week has very good chances to start.
Still, overall fundamental background is positive. Recent COT report shows net positive change in speculators' positions and big shorts were opened by hedgers. It means that big producers and consumers of gold see some signs of possible upward action on gold in long term perspective:
As a result net short position has dropped significantly, supported by rise in open interest.
Charting by Reuters.com
That's being said, fundamental picture looks positive for gold market, doesn't suggest any bearish reversal yet. It means that any downward action on coming week we treat as retracement and change to take long positions. If even market will not be able to re-establish upside rally, upside swings should be significant, just because on investors sentiment, as they will watch for the same deeps to buy into.
Technical
Monthly
Monthly picture barely has changed. On monthly chart we keep our long-term technical scenario, that could be realized. this is not single possible scenario, but currently it seems as very probable. We will keep it intact for awhile, because it illustrates our fundamental expectations on gold market. Although final downside target could be revised higher someday because as political as economical situation is not static but we keep our direction "down" by far.
Here we try to involve fundamental view in technical analysis, trying to combine patterns with real fundamental situation on gold. So, we will take broader view.
If you follow our weekly updates, you should remember our explanation and why we think that gold inability to break through 1380 resistance should be treated as bulls' defeat and gold failure. This is important in outlook of longer-term perspective.
Fundamental picture suggests two major things. In shorter-term US will keep dominate role in the world, because indirectly it controls EU economy as major EU companies have significant part of their business in US, or on US territory, US dollar is still world major currency and, as we've estimated above, China starts to show signs of chilling their economy. US economy itself feels good. D. Trump by restructuring of political role of US on international arena will safe a lot of "unnecessary" spending, such different programs of opposition financing, military spending of different kind. This should improve US budget, reduce deficit, which also will work on support of US economy.
Second important issue, this long-term relations that stand for decades start changing. Both of these moments, putting together, lead us to following conclusion. Within few years, 2-3 probably gold will remain under pressure of positive interest rates cycle. While gradually, when breaking of long-term economic relations will be seen brighter and brighter and impact not only China, EU but US as well - this will be turning point for the gold, or slightly before that. Because any global crush of any kind triggers demand for gold. That is what we see from fundamentals. The same view we see among other analysis, which they backed with statistics and fundamental research. Thus, Fathom Consulting expects starting of world crisis around 2020.
It could look unbelievable, but technical picture shows approximately the same. Failure of 1380 upside breakout confirms our idea of 2-3 years of US and US Dollar domination. But at the same time gold should show preparation to reversal, and here it is. One of the scenarios that might be formed here is big 1.618 butterfly, which is bullish reversal pattern. It has 1.618 target right around gold price, which is corresponds to extraction spending approximately. So, it is long-term breakeven point.
Finally, butterfly could become large reverse H&S pattern around all time 5/8 Fib support and ~40% of this pattern could be seen on the market. What we see on the chart nicely corresponds to current fundamental background. Alternative scenarios suggest appearing of different patterns, such as "222" Buy, or 1.27 butterfly but it doesn't affect the core and reflects only a degree of global political and economical processes, whether they will be smooth or drastic.
Of course, political life is not static, and it could show fast turns. But right now, everything looks very harmonic.
Here we also have mentioned huge demand on gold from emerging countries - China, Russia and Turkey. Developed countries repatriate gold from US. It means that everybody prepares to something, which should significantly increase demand for a gold. Decisive moment here will be the breakout of YPS1 where gold stands right now. But last few weeks we see that gold, oppositely, holds well and even bounces higher, up from it.
Weekly
Not much to add on weekly chart as well. We stand in upside action 3rd consecutive week. This is precisely the action that you want to see, when DRPO "Buy" has been formed. Now market is stuck a bit around first major resistance area - 1238$. Chances of pullback on daily/intraday charts have increased.
In a broader picture, as we've mentioned earlier, DRPO itself is a long-term pullback as a reaction on oversold. Despite our long term bearish trend on gold, it can't show straight down action without any pauses. And we think that one of these stops we have right now. Although the scale of this "pause" looks impressive 50-70$ per contract bounce, on weekly chart this is just 3/8 pullback, which seems normal when market hits oversold and YPS1 areas. Thus, on weekly we still watch for our directional pattern, based on the thrust down.
The common target of DRPO is 50% of its thrust, which stands at $1260. Still, 1238 level is also important, because market now shows pause right below it. That's being said - weekly chart keeps bullish context.
Daily
So, although our Thu-Fri crazy upside trade has been completed scarcely - market has dropped precisely after target has been hit, now the retracement still should start. Friday market shows quite clear signs of it.
On daily chart it comes from three spikes around major daily K-resistance area. Here we have two major support areas. Nearest is 1223, but our major level to watch for is 1211 K-support of course. Also, as you can see this is upper border of consolidation. Gold has the habit to re-test important levels and show deep retracements. Thus, we suggest that real chance for long entry should appear somewhere around 1211$
Intraday
So, our butterfly "sell" pattern has been completed perfectly. Since we suggest reversal on intraday charts, we use ultimate target of butterfly, which is reversal pattern. This is 1.27 extension down of whole butterfly. It coincides with our first daily support level around 1221-1223 area. So, for scalp traders, if you are going to take short position here -this is first destination point:
On 1H chart we have huge bearish engulfing pattern. Thus any AB-CD upside bounce and following "222" Sell pattern should be nice chance to go short from one of the Fib levels:
Conclusion:
Light chill out of bullish sentiment and existence of strong daily resistance makes us watch for moderate retracement on daily chart. Right now we think that 1211 K-support is most probable destination area where we will start to watch for chance to go long as well.
Short-term traders could use intraday bearish setups for short-term downside trades.
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.
