Gold GOLD PRO WEEKLY, September 06 - 10, 2021

Sive Morten

Special Consultant to the FPA
Messages
15,139
Fundamentals

So, last week is passed under the sign of NFP. The result was a bit surprising as numbers are too low to expectations and even to the average level of recent few months. And everything goes perfect for gold market. Even before payroll numbers we've shared with you our doubts on possible Fed tapering announcement in September, whatever NFP will be. Now this question is off the table at least till November-December - if next month statistics return positions that it has lost in August-September.
For the gold market recent events are absolutely perfect because this is "win-win" situation. While external risks of higher rate is eliminated now - the economy problems that could come will be supportive to the gold market. This should give market time and space to feel free and show positive dynamic.

Market overview

Gold prices were caught in a tight range on Wednesday as investors held off from making large bets as they prepared for key U.S. jobs data that could influence the Federal Reserve's stimulus tapering strategy. Last week, Fed Chair Jerome Powell acknowledged in his remarks at the Jackson Hole symposium that tapering could begin this year, but it will remain cautious in its decision to raise interest rates

"The lack of follow-through in gold (after Jackson Hole symposium) is very telling of the fact that the market recognises that the direction for policy is now starting to wind back stimulus," said DailyFX currency strategist Ilya Spivak.

Indicative of sentiment, SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, said its holdings fell 0.2% to 998.52 tonnes on Thursday, lowest level since April 2020. Precious metal funds received a net $236 million this week after facing three straight weeks of outflows.

Bullion largely tracked moves in the dollar (DXY), which retreated after the ADP National Employment Report showed U.S. private employers hired far fewer workers than expected in August, but subsequently pared some of those losses on data showing an uptick in manufacturing.

The number of Americans filing new claims for jobless benefits fell last week, while layoffs dropped to their lowest level in more than 24 years in August, suggesting the labor market was charging ahead even as new COVID-19 infections surge.

The U.S. economy created the fewest jobs in seven months in August as hiring in the leisure and hospitality sector stalled amid a resurgence in COVID-19 infections, which weighed on demand at restaurants and hotels.

But other details of the Labor Department's closely watched employment report on Friday were fairly strong, with the unemployment rate falling to a 17-month low of 5.2% and July job growth revised sharply higher. Wages increased a solid 0.6% and fewer people were experiencing long spells of unemployment.

This points to underlying strength in the economy even as growth appears to be slowing significantly in the third quarter because of the soaring infections, driven by the Delta variant of the coronavirus, and relentless shortages of raw materials, which are depressing automobile sales and restocking.

"It is important to keep the right perspective," said Brian Bethune, professor of practice at Boston College. "Given the supply chain constraints and the ongoing battle to lasso COVID-19 to the ground, the economy is performing exceptionally well."

The survey of establishments showed nonfarm payrolls increased by 235,000 jobs last month, the smallest gain since January. Data for July was revised up to show a whopping 1.053 million jobs created instead of the previously reported 943,000.

Hiring in June was also stronger than initially estimated, leaving average monthly job growth over the past three months at a strong 750,000. Employment is 5.3 million jobs below its peak in February 2020.

The number of people who were unable to work at some point over the previous four weeks or teleworked due to the COVID-19 pandemic rose in August for the first time since December, U.S. data showed on Friday, in a worrying sign for the country's jobs recovery.

The percentage of people who said they did not look for work because of COVID-19 health concerns also remained largely unchanged during a period when coronavirus cases caused by the Delta variant shot up across the United States.
1630830148451.png

Daily new COVID-19 cases have climbed to a seven-month high in the United States, with more than 160,000 infections on average reported nationwide in recent days, and several real-time data indicators have pointed to a slowdown in economic activity as cases surged.

"Ultimately, the Delta variant wave is a harsh reminder that the pandemic is still in the driver's seat, and it controls our economic future," said Daniel Zhao, a senior economist at Glassdoor.

Approximately 5.65 million people were unable to work in August or reported reduced hours due to their business either closing entirely or cutting back operations, up from roughly 5.15 million the prior month, according to the survey. The number of people who said they teleworked recently due to the pandemic also edged up, to 20.56 million from 20.27 million.

Though the Delta variant was the biggest drag, fading fiscal stimulus was probably another factor. The response rate to the survey is lower in August and the pandemic has made it harder to adjust education employment for seasonal fluctuations.

The initial August payrolls print has undershot expectations over the last several years, including in 2020. Payrolls have been subsequently revised higher in 11 of the last 12 years.

"The August payroll figures have historically been revised higher in the years since the Great Recession, sometimes significantly, and there's a good chance this effect will occur again this time," said David Berson, chief economist at Nationwide in Ohio.

Employment in the leisure and hospitality sector was unchanged after gains averaging 377,000 per month over the prior three months. Restaurants and bars payrolls fell 42,000 and hiring at hotels and motels decreased 34,600, offsetting a 36,000 gain in arts, entertainment and recreation jobs. Retailers shed 29,000 jobs. Construction lost 3,000 jobs. Government payrolls fell by 8,000 in August as state government education lost 21,000 jobs.

That, together with raw materials shortages, which are making it harder for businesses to replenish inventories, prompted economists at Goldman Sachs and JPMorgan to slash third-quarter GDP growth estimates to as low as a 3.5% annualized rate from as high as a 8.25% pace. The economy grew at a 6.6% pace in the second quarter.

The recent increase in cases stateside appears to have had this effect, with consumer confidence slumping in August and high-frequency data pointing to reduced spending on high-contact activities such as dining.
1630830385960.png


As a result of the Delta variant, there are downside risks to both demand and supply, raising the specter of slightly weaker growth but relatively firm prices — an unfortunate and unwelcome trade-off for policymakers. However, these risks are likely to prove temporary. Public health experts continue to believe that COVID-19 will eventually reach a point of endemicity, with some winter waves larger than others, but most likely to be small enough for us to cope with without significant disruption. Until that point arrives, the virus will continue to influence demand and supply, making the jobs of investors and policymakers trickier than usual.

Economists did not believe the pullback in hiring was enough for the Federal Reserve to back away from its "this year" signal for the announcement of the scaling back of its massive monthly bond buying program, given strong wage growth.

"For the Fed a taper announcement is still likely coming in either November or December," said Michael Feroli, chief U.S. economist at JPMorgan in New York.

The 0.6% jump in average hourly earnings after a 0.4% rise in July boosted annual wage growth to 4.3% in August from 4.0% in the prior month. The increase, led by lower-paying industries, is the result of worker shortages caused by the pandemic. There were a record 10.1 million job openings at the end of June.

There is cautious optimism that the labor pool will increase because of schools reopening and government-funded benefits expiring on Monday. But the Delta variant could delay the return to the labor force by some of the unemployed in the near term.

About 41,000 women, 20 years and older, dropped out the labor force. The number of number of people saying they were unable to work because of the pandemic increased 497,000 in August, the first rise since December. There was also a slight rise in the number of people working from home.

"Gold received a welcome boost from a much weaker (jobs) report," said Saxo Bank analyst Ole Hansen. "But the fact that gold has failed to break above resistance at $1,835 could indicate some skepticism about whether this means peak growth and delayed taper."

"The knee jerk reaction was positive for gold as a big miss with the headline number pretty much ruled out a September taper," said Ed Moya, senior market analyst at foreign exchange brokerage OANDA, putting it on course for a break toward $1,850.

"Market focus will shift to the September FOMC meeting next. We continue to see further upside risk for gold in light of our expectations for the USD to weaken and real yields to remain deeply negative," said Suki Cooper, precious metals analyst at Standard Chartered Bank.

Physical gold demand across top Asian hubs was largely muted this week as a rebound in domestic prices kept buyers at bay, while dealers in India pinned their hopes on an upcoming festival season to bring in more customers. There was also a supply shortage in local markets as imports were being hampered by tax-related complexities and a shutdown of international flights.

“Festival season is approaching. Jewelers could start purchases if prices remain stable for the next few days” said another Mumbai-based bullion dealer.

COT Report

According to Gold.org statistics, year-to-date data shows net outflows of 138.4 tonnes. It is interesting that European ETF mostly shows inflows while US ETFs - outflows. As US ETFs are larger - EU funds can't compensate the outflows from the US Funds.

1630832407385.png


This week again - SPDR fund reports outflows and our concern remains that with more or less positive background for the market - investors are running out of the gold ETFs. Reuters reports that this week funds show just $235 Mln. inflows, while outflows were standing for the previous few months and only in August funds have lost ~ $1.4 Bln, as we've said in last report.
1630832909871.png

COMEX data also shows solid drop in open interest. Yes, at first glance net long position has increased for ~ 10K contracts, but it seems that "spreading positions" were unlocked and distributed among long and shorts. Hedgers on a both sides were closing positions. As a result net outflow shows around 18.5K contracts.



1630832944860.png

Source: cftc.gov

As you can see - net long position is rising for the third consecutive week, but open interest is dropping. Current rally is fragile and not reliable from the sentiment analysis point of view:

1630833315672.png

Source: cftc.gov, charting by Investing.com

Thus, situation on the gold market generates more questions rather then answers by far. Indeed, we can't call for better overall background - tapering postpones, inflation is ceiling, economy growth is revised down and real interest rate stands negative. Concern around Delta variant remains to be high. With the government stimulus in place - it should be more or less cloudless future for the market at least within 6 months. But, somehow investors are not hurry up to invest in gold. Sooner or later but we should get the answer and find the reasons of this contradiction. Right now we see only two possible reasons. First is inflation - recent NFP data shows that it keeps growing as hourly earnings have increased again. Next week PPI data should bring more data for analysis.
Second possible reason - market society treats current relief as short term and it makes no sense to re-shape assets allocation when it is September already and just two months stand till the end of financial year. Or investors are waiting for September meeting to be absolutely sure about Fed policy.
Still, as we do not know it definitely - it would be better to not follow the brave relations but focus on near standing targets of 1835 and 1850$. If situation starts to change on the gold market - price should reach this levels.

Technicals

Monthly

September is started on a positive wave but price mostly remains in the August trading range by far. As we've mentioned before - in a very long term view, current picture doesn't look bearish. Yes, on a first glance we have bearish context with downside MACD trend and price tendency. But take a look at bit wider. Gold shows very small, 3/8 retracement, and not from 1100 lows but from one of the secondary reaction points. It stubbornly stands in tight range within a year. Second - price stands above Yearly Pivot and has not even dropped to YPS1. Finally, the price shape reminds flag consolidation, which is potentially bullish, at least theoretically. The targets that we have here are not too far - 1650 and 1540, but even these targets gold has not reached yet.

In a shorter-term everything is based on August huge trading range. We could say that downside trend continues only when price drops below 1650 area. Upward major breakout happens if price moves above 1925 top.

Direction mostly depends on investors' money. If gold attracts inflows, it could break the situation and keep going higher. Otherwise, retracement to 1540$ is just a question of time.

gold_m_06_09_21.png


Weekly

Trend has turned bullish and thankfully we've got no bearish grabber. But the major test still stands ahead as price is coming to triangle resistance and important 1850$ level. Sharp reversal around the border could make supposed butterfly to look more realistic. Especially after reaching of targets around 1825-1830 area on daily and intraday charts. Don't forget that we have 3-Drive on 4H chart and it is still unclear whether it works or not.

gold_w_06_09_21.png


Daily

On a daily chart - take a look, major COP target has been hit as well. It creates Agreement resistance with major 5/8 Fib level. Such combination mostly stands in favor of pullback. Besides, interest rates on Friday has jumped for 3%+ showing reaction on rising wage inflation. This creates relatively bearish short-term background. At least I wouldn't hurry up with long entry on the gold market.

gold_d_06_09_21.png


Intraday

As gold enthusiasm looks not too strong and short-term background is bearish, it makes sense to consider the same pattern as on EUR/USD - reverse H&S on daily/4H time frame. Here you can see the position of 1.618 3-Drive "Sell" pattern in larger picture. Don't forget that on 1H chart we have the butterfly that finalizes upward action and targets that we had.
In general upward action looks relatively slow which is good for pullback anticipation. Yes we see some acceleration on Friday but it was not unstoppable. Besides, we have strong Agreement area on daily chart that should overrule the upward pace here.
gold_4h_06_09_21.png


Thus, for long entry we think it is no need for rush and better levels could be achieved this week. For short entry it is possible to use just 3-Drive or butterfly patterns with stops above 1840$ area. But It would be better to wait for minor reversal patterns on 1H chart and below, right on top as well. Just to be more confident and maybe get better and closer area for stop placement.
 

Sive Morten

Special Consultant to the FPA
Messages
15,139
Greetings everybody,

Monday's performance was not too strong and we expect more extended reaction as gold hits daily Agreement resistance. Although this is just COP target, but with some intraday bearish patterns in place - we would like to get more extended downside reaction.

It would be absolutely perfect if we get reverse H&S pattern, as we've said. The same pattern we're watching on EUR. Currently it is difficult to say definitely what could provide support to USD, most probable it could be Fed meeting but maybe something else could appear on horizon. Anyway - as downside reaction is just started, it makes sense to wait for deeper support areas.
gold_d_07_09_21.png


On 4H chart we have 3-Drive "Sell" in place that finalized action to daily COP. At least theoretically its target stands at the bottom between 2nd and 3rd drives - which perfectly fits to idea of daily H&S...
gold_4h_07_09_21.png


For the scalp short entry we already talked about 1H butterfly and the same 3-Drive above. If you've entered - now it is possible to move stops to breakeven. CD leg shows acceleration, which means that XOP at 1808 should be reached today. Besides, 10year yields are also slowly climbing...
gold_1h_07_09_21.png
 

Sive Morten

Special Consultant to the FPA
Messages
15,139
Greetings everybody,

So, our pullback is becoming more visible. On daily chart we still watch for 1775-1780 area where potential H&S pattern could start:
gold_d_08_09_21.png


On 4H chart everything stands well. As downside action is accelerated, now we have more confidence to expect reaching of 3-Drive "Sell" target. At least, currently it makes sense to wait for it.
gold_4h_08_09_21.png



1H XOP target has been reached and even exceeded, that's why here we need to use another tool for target estimation. Since we do not have any other AB-CD's, we use butterfly ultimate targets that are based on its XA swing. Now market hits the first one 1.27, while next one stands around 1780 and agrees with 4H support area.
Some minor setups here could be formed as well. Currently it seems that DRPO "Buy" might be formed and gold could pullback slightly to 1805-1807 area, that, in turn, could become "222" Sell starting point for downside continuation. These setups are very short-term and tactical, have no importance for our major scenario. So if you find it interesting - it is possible to try it:

gold_1h_08_09_21.png
 

Sive Morten

Special Consultant to the FPA
Messages
15,139
Greetings everybody,

Shortly speaking right now the patience is our friend. Recent sell-off was relatively fast, and price doesn't show fast rebound, which means that it could continue. Anyway, we need to get reverse H&S pattern here, and for the purity of the shape we need slightly lower price level:
gold_d_09_09_21.png


On 4H chart 3-Drive target de-facto is completed, but still we need to get new lows before considering the long position here. Odds suggest that it is safer to watch for signals around K-support area as it better match to the H&S pattern on daily and its harmony:
gold_4h_09_09_21.png


On 1H chart we see nothing definite yet, market could form the wedge pattern bit overall picture looks blur a bit. It seems that we should wait the ECB at least and see what will happen:

gold_1h_09_09_21.png


That's being said - overall situation calls to be patient a bit more and wait for response around 1765-1775 area.
 

Sive Morten

Special Consultant to the FPA
Messages
15,139
Good morning,

So, ECB is made bare impact on the markets, including gold and mostly makes no changes to daily picture. So, I prefer to get a bit deeper retracement to get pure shape of reverse H&S pattern, if would consider long entry here:
gold_d_10_09_21.png


Meantime, on intraday charts price shape is better than, say, on EUR. On 4H chart upward bounce continues, but now it is unclear still, whether this is just bounce and later we get 2nd leg down in a shape of AB=CD or, this is reversal. Divergence that we have here stands in favor of reversal. Still - be aware of PPI release later in the session that could change everything. So, currently if you have longs - just protect them, because now price action still looks like the flag pattern:
gold_4h_10_09_21.png


On 1H chart we have clear reverse H&S pattern that has two major targets. First one is 1806 that is most probable destination point while next one is XOP at 1815$ and it already depends on PPI statistics, I suppose. Because 1806 is rather solid resistance area and market needs some more reasons to break it.

gold_1h_10_09_21.png


That's being said - protect longs that you have and be careful around PPI release.
 
Top