Gold GOLD PRO WEEKLY, September 07 - 11, 2020

Sive Morten

Special Consultant to the FPA
Messages
14,061
Fundamentals

Market has passed through NFP release relatively smoothly, but we see that thrilling times ahead. Within few weeks we will get ECB and Fed meeting, new round of Brexit negotiations and a lot of different statistics. Yesterday we've prepared scrutiny report on current driving factors for all markets and come to conclusion that inflation gradually starts to occupy the minds of investors. As you understand gold is a cousin of inflation as they have tight relation to each other, probably tighter than FX and stock markets. Now we foresee that some changes could happen in this sphere. That's why don't be lazy and read the report. Currently Fed stands in tough situation. Statistics shows that economy is losing support as previously adopted measures exhausted. At the same time inflation expectations are rising. Fed promises to provide as many stimulus as economy will need. But at one day inflation could out of control and fast rate hike could trigger another crisis. At the same time Fed can't start rising rates right now. This situation when inflation are rising, but rates remain around zero is a shine time for gold.

In the near term, US inflation appears to have turned a corner with April, the trough in the twelve-month growth rate, now firmly behind us. Given that lower rates in the second quarter were primarily driven by falling oil prices (due to short-term excess supply), headline inflation is likely to continue to recover. Fathom Consulting questioned investors’ increasingly bearish outlook for inflation as far back as the 19 March when we argued that COVID-19 had had an impact on both the demand and supply sides of the economy and that it was far from certain that the net impact on inflation would be negative. Investors are increasingly coming round to this view with market-based measures of inflation expectations now back at pre-crisis levels.

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Globally, nobody cares about economy. Japan PM is retired, UK piking with EU on Brexit process, while Biden piking Trump in national President's run.

Britain will not blink first in Brexit trade negotiations with the European Union and is not scared of a no-deal exit at the end of the year, the country’s top Brexit negotiator warned the bloc on Sunday. We came in after a government and negotiating team that had blinked and had its bluff called at critical moments and the EU had learned not to take our word seriously,” negotiator David Frost told the Mail on Sunday.

“So a lot of what we are trying to do this year is to get them to realise that we mean what we say and they should take our position seriously,” he was quoted as saying.

Talks are due to resume in London on Tuesday but they have stalled over Britain’s insistence that it have full autonomy over state aid and its demands over fishing.

Britain says the EU is dragging its feet in talks and has failed to fully accept that it is now an independent country. At heart, Britain is pressing one of the EU’s most sensitive buttons – the fear that a post-Brexit Britain could become a much more agile, deregulated free-market competitor on its border by using selective state aid.



“We are not going to be a client state. We are not going to compromise on the fundamentals of having control over our own laws,” Frost told the Mail. “We are not going to accept level playing field provisions that lock us in to the way the EU do things.That’s what being an independent country is about, that’s what the British people voted for and that’s what will happen at the end of the year, come what may,” Frost said.

“More and more people have come to the conclusion that Brexit ideology trumps Brexit pragmatism in the UK government,” said one EU diplomat.“If the UK really wanted to jump off the Brexit cliff edge for ideological reasons, there would be no way for the EU to stop this,” the diplomat said. “If, on the other hand, the UK’s approach became more pragmatic and realistic, there would probably be a good chance to save the negotiations and agree on a deal.”


Frost said a lot of preparation had been done for a possible exit without a trade deal.

“I don’t think that we are scared of this at all,” Frost said. “If we can reach an agreement that regulates trade like Canada’s, great. If we can’t, it will be an Australian-like trading agreement and we are fully ready for that.”

Democratic presidential nominee Joe Biden accused U.S. President Donald Trump of failing to feel the economic pain caused by the coronavirus pandemic, after data on Friday showed job growth slowing and a widening racial gap in unemployment rates.

“The painful truth is, we just have a president who just doesn’t see it, he doesn’t feel it, he doesn’t understand, he just doesn’t care. He thinks if the stock market is up, then everything’s fine,” Biden said during a speech in his home base of Wilmington, Delaware.

As both campaigns kick into high gear for perhaps one of the most consequential presidential races in recent U.S. history, the Labor Department reported that nonfarm payrolls increased by 1.37 million jobs last month, fewer than in July.



Trump and his fellow Republicans highlighted the fall in the unemployment rate in August to 8.4% as a sign that the economy is improving after the shock from coronavirus lockdowns that have devastated small businesses from restaurants to gyms and hair salons.

Yet the president still looks set to head into the election with the economy crippled and serious questions hanging over his handling of the pandemic, which has killed more than 186,000 people in the United States.

Biden, who held a seven-percentage-point lead over Trump nationally in the Reuters/Ipsos poll this week, called on the president to bring congressional leaders together to restart stalled negotiations for another coronavirus economic relief package.

“Bottom line: Mr. President, do your job. Get off your golf course and out of your sand bunker. Call your leaders together and sit in the Oval Office. Make a deal,” the Democrat said.

For most voters, the economy remains a major issue. U.S. employment remains 11.5 million below its pre-pandemic level, and the jobless rate is 4.9 percentage points higher than it was in February. Trump touted last month’s falling unemployment rate as a sign of recovery.

Biden stressed the unevenness of the recovery, particularly for people of color, and noted that lower-paid employees in workplaces like factories and stores are also at greater risk of contracting COVID-19.

“Those at the top are seeing things go up and those in the middle and below are seeing things go down and get worse,” he said.

Democrats have launched mail voting project that keeps door open for manipulations of different kinds. President Donald Trump has urged residents in the critical political battleground of North Carolina to try to vote twice in the Nov. 3 election, once by mail and once in person, igniting a furor for appearing to urge a potential act of voter fraud.

“Let them send it in and let them go vote,” Trump said in an interview on Wednesday with WECT-TV in Wilmington, North Carolina. “And if the system is as good as they say it is, then obviously they won’t be able to vote” in person.

Trump has repeatedly asserted, without evidence, that mail-in voting - expanded by some states because of the coronavirus pandemic - would increase fraud and disrupt the November election, although experts say voter fraud of any kind is extremely rare in the United States.

At a rally on Thursday night, Trump repeated his call for voters to go the polls even if they have mailed in their ballot, and he suggested Democrats would try to steal the election by manipulating the mail-in vote.

All this stuff has direct relation to gold price action. No agreement between UK and EU could significantly decrease the speed of recovery of national economies, or ultimately put them in new spiral of crisis, if reality will show that business historical relation is tighter than it was seemed. The same is in US. In worst scenario US and it is really could become the reality, because both sides in a case of defeat will accuse the opponent in fraud. This could put US in political chaos and civil unrest. As definitely somebody should win as definitely this turmoil will come and the question is just in what degree this will happen. Overall population sentiment is very suitable for this scenario as many people angry, loosing income, stand without job. Unrest already is reality in many states, but they have local character by far.

It means that currently we mostly see temporal silence before the storm and no doubts that long-term bullish driving factors for gold are still working. The Fed position on a background of political processes is particularly important, what they're gonna do. Hopefully, we will get some hints on Sep 15-16.

ECB should step-in earlier. On Tuesday, the new round of EU/UK talks and then ECB meeting and here’s plenty for the ECB to chew over on Thursday. The euro hit $1.20 for the first time since 2018 - not a big deal if that reflects optimism about the future, something that may be reinforced when EU finance ministers meet in coming days to discuss implementing their 750 bln euro recovery fund.

But on a trade-weighted basis, the euro is near six-year highs, weighing on prices. Inflation turned negative in August for the first time since 2016 - a red flag for an ECB charged with keeping it near 2%.

Aggressive stimulus due to the COVID-19 shock buys time and no major action is expected. Yet the deflation alarm and a firm euro suggest it won’t be long before the ECB acts again. Markets will looking for clues on just when that might be.


Speaking about this week, guys, gold was driven by statistics through the week, although fluctuations were not very strong, as you could see.

“The manufacturing number (on Tuesday) came out much better than expected and that’s what caused gold to pare back its gains, and (also) gave little strength to the dollar,” Bob Haberkorn, senior market strategist at RJO Futures said. (The better data) doesn’t necessarily change the picture for the U.S. Federal Reserve. The trend (in gold) is still higher,” Haberkorn, however added.

Gold should remain supported in this environment of firming inflation expectations and a lower U.S. dollar, said Daniel Ghali, commodity strategist at TD Securities.

The dollar index bounced off two-year lows after U.S. data showed manufacturing activity accelerated to a near two-year high in August. A stronger greenback makes gold expensive for holders of other currencies. The firm manufacturing activity also boosted investor appetite for riskier assets, limiting inflows into safe-haven bullion.
However, expectations that U.S. interest rates would stay low for longer under the new monetary policy approach from the Fed put a floor under bullion prices.

Fed Governor Lael Brainard on Tuesday said the U.S. central bank would need to roll out more stimulus to fulfil its new promise of stronger job growth and higher inflation.

“With the central bank still cautious about the U.S. economic outlook, the Fed will most likely keep rates near zero for a long time,” Avtar Sandu, a senior commodities manager at Phillip Futures, said in a note.

New orders for U.S.-made goods increased more than expected in July, while Tuesday’s U.S. manufacturing data showed activity accelerated to a near two-year high in August, increasing optimism about a steady recovery.

U.S. private payrolls, on the other hand, increased less than expected in August, pointing to a slowing labor market recovery.

“As far as the economy is concerned, you are going to get this small bounces in economic data but you are not going to get any significant change in the economy what so ever, not for a long time,” said Phillip Streible, chief market strategist at Blue Line Futures in Chicago.

Gold should remain supported as buyers tend to step in on big dips on continued concerns of the pandemic and lower interest rate environment, George Gero, managing director at RBC Wealth Management, said in a note.

A drop in U.S. jobless claims reported Thursday and positive manufacturing data reported earlier in the week are taking some shine off gold, said David Meger, director of metals trading at High Ridge Futures.U.S. weekly jobless claims fell below 1 million last week for the second time since the pandemic started, but did not signal a strong recovery in the labor market because the drop largely reflected a changed in the methodology used to address seasonal fluctuations in data.

The fundamentals (still) look pretty strong for bullion with the virus threats still there, ultra-low interest environment and room for more stimulus to boost the economy,” Edward Moya, senior market analyst at broker OANDA, said.

Data showed nonfarm payrolls increased by 1.371 million jobs in August. The unemployment rate fell to 8.4% from 10.2% in July.

"However, this data does not change the U.S. Federal Reserve's stand on more stimulus to be pumped into the economy and its take on tolerating a higher inflation rate, keeping gold supported in the long run," said Michael Matousek, head trader at U.S. Global Investors.

"This restive $1,900-$2,000 range should resolve ultimately higher especially with the Fed now officially elevating employment over inflation in the medium term. The practically permanent highly accommodative policy and intense election uncertainty will severely limit the attractiveness of USD," BMO's Wong said.


COT Report

This week we see that net long position has increased slightly and indeed - speculators have added 10+K new long to their positions. At the same time, open interest has dropped dramatically due hedgers activity - they just have closed a lot of positions in both directions. It could mean that big players do not expect significant action on the gold in nearest couple of weeks - until Fed meeting probably. As a result - we do have increase in net long position, but it is not reliable to make far going conclusions as it comes on huge drop of open interest:
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Source: cftc.gov
Charting by Investing.com


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SPDR fund shows some stagnation in storage as well, once market has turned to "expectation" mode. Still, picture here looks relatively bullish, as despite solid drop in price - investors do not sell off bullion positions and keep them flat mostly.
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That's being said guys, we intend to make long-term bet on political turmoil, economy weakness in major developed countries - US, EU and UK and rising inflationary expectations. By our view this is explosive mix for gold market that should push price higher sooner rather than later. Consequently, our task is to buy deeps around support areas on daily chart, accumulating long position. The culmination of this process should happen in the of Nov-Dec, when time will be critical as for Brexit negotiations as US President's run and its consequences, that are promised to be unpredictable.


Technical
Monthly


We've dedicated a lot of time to consider long-term view, involving Stag's view and his Elliot Waves analysis that suggests new top on Gold but at the same time suggesting fade out of long-term upside action as Gold might be in 5th upside wave that has limited upside potential. In general everything stands the same as market turns to contracting type of action, showing no progress yet after reaching of monthly COP target.

In particular, Stag's view suggests temporal pullback to 1400-1600$ levels (depending on strength of downside thrust) and then upside action to new top around 2700$+ level. As this is really long-term picture (for years), downside action could be extended in time and developed differently, depending on fundamental background picture.

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Our monthly chart is just a small part of Stag's one and indicates AB-CD pattern started in 90's. COP is hit at monthly Overbought area and now we're waiting for reaction that already stands in progress. Here we do not have any signs that long term tendency is over already. It is interesting but OP target stands around the same 2600-2700$ area. Meantime, as sentiment gradually chills out, as it suggested by recent COT report, we keep an eye on whether deeper retracement happens here. This week price stands in the shadow of August range and makes no impact on monthly chart by far.

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Weekly

On weekly chart market also is Overbought. Recent week brings no clarity on further direction as it has become inside one. No patterns have been formed yet as well, despite that thrust in general is suitable for DiNapoli patterns. On weekly chart we also have the tricky moment due existence of untouched butterfly target around 2160$. In general combination of monthly and weekly overbought on a background of decreasing pressure of major driving factors suggest deeper retracement.
Still, as we've seen above, in CFTC report - no significant upward action is expected now. Thus, it means that more probable that we will get continuation to 2 160 area later, once short-term retracement will be over.

Here market can't drop significantly lower due weekly oversold level. As price comes close to MACDP line - next week we will keep an eye on potential bullish grabber. Other things stand the same - if further drop will happen, we consider strong support levels to buy from.
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Daily

Price action was slow at the end of the week, NFP has not made any significant impact and gold still stands at support area that we've discussed already. As a result, daily picture barely has changed since last week. Existed bearish grabber is still valid and suggests drop below 1900 area. Some stops of short-term traders could be triggered there. And if gold accelerates lower - it makes 1835-1850 area very good for long position taking. As you can see, here we have K-area, butterfly, AB-CD targets and oversold level. It would be perfect, but gold still need to get there...
At current moment, we do not have any new setups on both sides and need to wait a bit. If you have short position based on the grabber - you could keep it, just do not forget to manage the stops
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Intraday

Here market has problems with driving factor. Minor grabber that has been formed on Friday is done already, completing just minimum target. Downside breakouts goes heavy as price can't proceed lower. If we will see sharp reversal on 1H chart and upside acceleration - it could mean changing of short-term sentiment and triangle could be broken up. Be aware of this, keep an eye on intraday price action. Although chances of this scenario doesn't look dominate, but the fact that price stuck around lower border and can't get through the triangle support is bullish. The reason for this is the same 5/8 Fib support around 1921 that now is enforced with COP target, making Agreement support area:
gold_4h_07_09_20.png


On 1H chart take a look - only minimum target of 3-Drive barely has been reached on Friday. Despite this, market is forming flag consolidation. Usually, downside breakout of such flags looks strong and fast. But, as we have divergence as well, it could happen to the upside. To keep bearish setup intact, it is preferable if price stands under K-resistance area of 1950, forming minor upside AB=CD pattern. For bearish market it is enough to react on COP target. Stronger upside action could change short-term context. It seems that there are a lot of people that would like to buy, and that's why retracement goes so difficult.
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Thus, long-term context shows no doubts and soon we expect appearing of new driving factors that should push gold higher. By our view, this should happen closer to the end of the year, somewhere in November-December. In shorter term, we would be grateful for any deeper drop, preferably to strong K-areas. If this will not happen, let's keep watching on weekly bullish grabber. This could become the one that we could based the trading plan. Now on daily/intraday charts no good setups have been formed yet.
 

Sive Morten

Special Consultant to the FPA
Messages
14,061
Greetings everybody,

Gold looks still heavy on daily/intraday charts and currently we do not see good chances to take the trade. On daily price stands in the range of Friday's puny doji, telling about indecision.
gold_d_08_09_20.png


While on intraday charts price shows too weak reaction to call it as bullish market. We know that on Friday gold has reached COP and Agreement area, forming 3-Drive buy on 1H chart, but this was not enough to reverse up that is not typical for bullish market. It means that gold is not bullish and potentially could drop more, as we talked about it in daily report. On 4H chart we see light signs of bearish dynamic pressure as well.
gold_4h_08_09_20.png


Thus, on 1H chart keep an eye on important resistance levels. First one is 1950 next is 1963 Agreement area. Bears could consider short entry from these levels with immediate stops moving to b/e as soon as market shows first downside reaction on these levels. Bulls have to wait either drop to 1800 area (according to our daily plan), or breakout above 1963 back in the range of former H&S pattern. This will be the sign that market comes to new top. Of course whatever direction you trade - avoid thrusting action against you and do not take position in this case:
gold_1h_08_09_20.png
 

Sive Morten

Special Consultant to the FPA
Messages
14,061
Greetings everybody,

As we've said yesterday, nothing really interesting was standing on the market. Today - on daily chart everything is the same, as market stands flat and waits for some driving factor. While on intraday charts situation is slightly better. At least we have short-term setup...
gold_d_08_09_20.png


On 4H chart market has dropped slightly as we've suggested, but this drop was very short-term and takes the features of W&R of COP target lows. As stops are cleared out, gold could show minor upside continuation. Yesterday's Brexit round provides technical demand for gold and it seems that we could get AB=CD shape, at least. AB leg is already in place, now it is time to consider scalp long trade here:
gold_4h_08_09_20.png


On 1H chart we could get H&S pattern and "222" Buy as a right arm of it. It seems that 1920 looks good to consider buying opportunity there. Potential target is 1952 - OP, but we also have 1945 K-resistance on a way up. Thus, if you intend to take part in this mess - better to focus on K-area as the target, or at least close there 70% of your position. Because this is potential situation for DiNApoli "Oops" pattern, when strong resistance stands right after confirmation of H&S pattern, and ahead of its target. So keep in mind this detail if you will trade it... Invalidation point, as usual right under the head.
gold_1h_08_09_20.png
 

Sive Morten

Special Consultant to the FPA
Messages
14,061
Greetings guys,

So, yesterday's short-term setup is mostly done, but unfortunately it doesn't provide any clarity on daily chart, as market mostly stands in the same area and we need stronger action in any direction to get evidence on what we should to do. Let's hope that either ECB today or Fed next week will help us with this. For instance, on daily chart today we could keep an eye on whether another grabber will be formed or not. Also, do not forget that first grabber is valid as well. This holds us from treating overall situation as purely bullish here and we still keep some concern that gold could drop more with current retracement.
gold_d_10_09_20.png


On 1H chart our setup accurately is done. Now the only decision you could make - whether to keep long position a bit more or not. In fact, overall thrust is not bad and chances that price could proceed to OP and even XOP are above zero. The only source of risk is ECB - it could turn drastically the shape of the market.

For others, who doesn't have any position now - we do not see good setups for entry. For long entry it is wrong place, as price stands at K-resistance. For short entry - it is wrong time, as by selling gold, you will go against short-term upside momentum. Besides, we do not have any bearish patterns in place.
gold_1h_10_09_20.png
 

Sive Morten

Special Consultant to the FPA
Messages
14,061
Greetings folks,

ECB effect was temporal and gold has played back fast the effect of it. As a result - we've got the second grabber on daily chart that we've talked about. Although grabbers do not trigger fast action, they still hold us from any bullish trades. And we need to wait when they will be played out in one or other direction. Thus, for long entry we still watch for either drop to 1800 or jump above 2000 and erasing of all bearish patterns. Because while they are in place they keep odds for downside action. Besides, market currently doesn't have any good bullish signals as well.
gold_d_11_09_20.png

That's why currently we could focus only on short-term setups, based on grabbers. On 1H chart price now stands at support area and we count on minor upside pullback that should make entry process even better. Avoid only fast action up. It seems that 1950-1952 should be good area to consider scalp short trade against the grabber's top:
gold_1h_11_09_20.png


Supposedly pullback could be triggered by 3-Drive Buy pattern on 30-min chart, that has approximately the same potential target. But, in general it doesn't matter how pullback will start, as anyway we intend to watch for the same levels...
gold_30m_11_09_20.png
 
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