Sive Morten
Special Consultant to the FPA
- Messages
- 18,699
Fundamentals
Last week gold market has been hit by the same issue - Friday NFP report, which was really positive. Here, in our EUR thread we already have shed some light on it and perspective of rate increase by Fed. It brings nothing good to gold in longer-term. In shorter-term, it could make very weak impact, at least if Fed will not add something new hawkish during press conference. September rate change is already priced in, because it's a long time already when probability of this event holds around 90%.
As Reuters reports, the dollar extended losses against the yen on Friday after CNBC television reported on Thursday that U.S. President Donald Trump told a Wall Street Journal columnist he might take on trade issues with Japan.
Another big worry for investors was the end of a public consultation period over trade, after which U.S. President Donald Trump could impose tariffs on an additional $200 billion of Chinese goods.
China’s commerce ministry warned that the country would retaliate against any new tariff measures.. Trump had said on Wednesday that the United States was not yet ready to come to an agreement with China.
In longer term we're mostly interested in modern financial system and its stability. Any collapse should support gold, as it was in 2008, and Fathom consulting we've mentioned in previous research, expects crisis in 2020. Unfortunately major financial events are twisting around tariffs. It is relatively clear who is master in US-EU trade relations, but what about China.
Right now it would be interesting watch how tariffs will impact on China and want consequences may rise in result. Recently Fathom has released interesting report, when they talk about China system of economy growth and comes to conclusion that it will not bring the same results as in recent ten years. Model suggests solid consumption and aggregate demand, but now picture shows that demand is slowing down:
So Fathom tells - To successfully rebalance China’s economy, aggregate demand needs to keep growing at or above its current rate. And, within that, the share of consumer spending in GDP needs to increase dramatically — implying that consumption growth has to run significantly ahead of GDP growth. The tactics currently being deployed by China’s policymakers will not lead to this outcome.
And then -
we forecast China’s economy to slow in 2019 to 5.9% and to slow sharply in 2020 to around 3.0%.
So, they mostly put this result in scenario their article, dedicated to 2020 possible crisis.
From that standpoint, US looks better by far.
COT Report
Recent CFTC data shows that gold still keeps negative speculative position, but open interest is dropping 2nd week in a row. It could mean contraction as bullish as bearish positions simultaneously. To keep difference between longs and short at the same (negative) level, but with less volume could mean that longs and shorts were proportionally closed:
That's being said, despite some negative events for gold, they didn't hurt it too much. Many of them were priced-in, and could make impact later, such as Fed Dec. meeting. So, right now we do not see the reasons yet to cancel our medium-term bullish view.
Technical
Monthly
Today guys, I will try to involve fundamental view in technical analysis, trying to combine patterns with real fundamental situation on gold market. So, we will take broader view, also because shorter-term perspectives was discussed in details already within a few years.
If you follow our weekly update, you should remember our explanation and why we think that gold inablility to break through 1380 resistance should be treated as bulls' defeate and gold failure. This is important in outlook of farer perspective.
Fundamental picture suggest 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 "unnessary" spending, such as revolutions, support of different programms 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 chaning. 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 gradullay, 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.
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 spendings 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.
Of course, political life is not static, and it could show fast turns. But right now, everything looks very harmonic.
Last week, 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.
So, that's is our long-term view.
Weekly
In shorter-term perspective we keep our initial setup intact. Despite our long term bearish trend on gold, it can't show streight 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.
Weekly time frame is the one that gives us the vision for few weeks. In a longer-term view we still have large AB=CD pattern with OP around 1113 area. Sooner or later but probably it should be reached. Just because gold has dropped easily through 1215 major support and has not stopped at 1180 YPS1 but collapsed right to 1160. So, now price action stands between COP and OP target. Usually in such placement, price gravitates to OP, because in fact, it has no strong support lower, its a free space. And the only thing that keeps gold from disaster is Oversold condition, which important for us in short-term view.
Oversold suggests upside bounce at least to 3/8 resistance area - 1238$. It looks far on weekly chart, but in reality, this is just 30% and common response to reaching of OS. Since our major direction is down - we're mostly looking for chances to go short here, and upside bounce to Fib level could give us B&B "Sell". That's particular the pattern that we will be watching for here. Currently we have shape of engulfing price action and retracement back inside its body is common practice:
Daily
On daily chart we turn back again to our day-by-day picture. Here is everything mostly the same. Despite strong NFP numbers gold has not touched MACDP line. So no grabber by far. Standing in flag consolidation continues.
Overall situation remains positive, because retracement is rather slow and gradual. There are a lot of sessions of retracement already, but market still stands above 3/8 Fib support. Now new patterns were formed here by far. It means that again we need to take a look at intraday chart:
Intraday
On intraday charts gold market was strong enough to hold NFP pressure and it was able to stay above our crucial 1190 area. Now we do not turn yet to next 1180 target, but focus on possible upside action right from current levels.
Here, market could form, say large upsde butterfly, while price stands above OP lows. If they will be broken, we will have to accept downside continuation and next target will be XOP @ 1180 Agreement area:
On hourly chart multiple our targets have been completed - OP target, large 1.618 butterfly of CD leg and smaller 1.27 butterfly inside it. As a result, we've got large "222" Buy pattern, which potentially could trigger upside continuation.
Here, for example, we could watch for minor butterfly pattern - wether it will turn to reverse H&S. If it will, then, it could become background for re-establishing of short-term bullish trend:
Conclusion
In long-term analysis we see thrilling agreement of fundamental and technical pictures, which should be interesting to watch.
It is no changes in our expectations within few weeks - we still watch for upside retracement continuation with approx. target around 1238-1250 (major weekly K-resistance area.)
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.
Last week gold market has been hit by the same issue - Friday NFP report, which was really positive. Here, in our EUR thread we already have shed some light on it and perspective of rate increase by Fed. It brings nothing good to gold in longer-term. In shorter-term, it could make very weak impact, at least if Fed will not add something new hawkish during press conference. September rate change is already priced in, because it's a long time already when probability of this event holds around 90%.
As Reuters reports, the dollar extended losses against the yen on Friday after CNBC television reported on Thursday that U.S. President Donald Trump told a Wall Street Journal columnist he might take on trade issues with Japan.
Another big worry for investors was the end of a public consultation period over trade, after which U.S. President Donald Trump could impose tariffs on an additional $200 billion of Chinese goods.
China’s commerce ministry warned that the country would retaliate against any new tariff measures.. Trump had said on Wednesday that the United States was not yet ready to come to an agreement with China.
In longer term we're mostly interested in modern financial system and its stability. Any collapse should support gold, as it was in 2008, and Fathom consulting we've mentioned in previous research, expects crisis in 2020. Unfortunately major financial events are twisting around tariffs. It is relatively clear who is master in US-EU trade relations, but what about China.
Right now it would be interesting watch how tariffs will impact on China and want consequences may rise in result. Recently Fathom has released interesting report, when they talk about China system of economy growth and comes to conclusion that it will not bring the same results as in recent ten years. Model suggests solid consumption and aggregate demand, but now picture shows that demand is slowing down:
So Fathom tells - To successfully rebalance China’s economy, aggregate demand needs to keep growing at or above its current rate. And, within that, the share of consumer spending in GDP needs to increase dramatically — implying that consumption growth has to run significantly ahead of GDP growth. The tactics currently being deployed by China’s policymakers will not lead to this outcome.
And then -
we forecast China’s economy to slow in 2019 to 5.9% and to slow sharply in 2020 to around 3.0%.
So, they mostly put this result in scenario their article, dedicated to 2020 possible crisis.
From that standpoint, US looks better by far.
COT Report
Recent CFTC data shows that gold still keeps negative speculative position, but open interest is dropping 2nd week in a row. It could mean contraction as bullish as bearish positions simultaneously. To keep difference between longs and short at the same (negative) level, but with less volume could mean that longs and shorts were proportionally closed:
That's being said, despite some negative events for gold, they didn't hurt it too much. Many of them were priced-in, and could make impact later, such as Fed Dec. meeting. So, right now we do not see the reasons yet to cancel our medium-term bullish view.
Technical
Monthly
Today guys, I will try to involve fundamental view in technical analysis, trying to combine patterns with real fundamental situation on gold market. So, we will take broader view, also because shorter-term perspectives was discussed in details already within a few years.
If you follow our weekly update, you should remember our explanation and why we think that gold inablility to break through 1380 resistance should be treated as bulls' defeate and gold failure. This is important in outlook of farer perspective.
Fundamental picture suggest 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 "unnessary" spending, such as revolutions, support of different programms 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 chaning. 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 gradullay, 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.
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 spendings 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.
Of course, political life is not static, and it could show fast turns. But right now, everything looks very harmonic.
Last week, 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.
So, that's is our long-term view.
Weekly
In shorter-term perspective we keep our initial setup intact. Despite our long term bearish trend on gold, it can't show streight 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.
Weekly time frame is the one that gives us the vision for few weeks. In a longer-term view we still have large AB=CD pattern with OP around 1113 area. Sooner or later but probably it should be reached. Just because gold has dropped easily through 1215 major support and has not stopped at 1180 YPS1 but collapsed right to 1160. So, now price action stands between COP and OP target. Usually in such placement, price gravitates to OP, because in fact, it has no strong support lower, its a free space. And the only thing that keeps gold from disaster is Oversold condition, which important for us in short-term view.
Oversold suggests upside bounce at least to 3/8 resistance area - 1238$. It looks far on weekly chart, but in reality, this is just 30% and common response to reaching of OS. Since our major direction is down - we're mostly looking for chances to go short here, and upside bounce to Fib level could give us B&B "Sell". That's particular the pattern that we will be watching for here. Currently we have shape of engulfing price action and retracement back inside its body is common practice:
Daily
On daily chart we turn back again to our day-by-day picture. Here is everything mostly the same. Despite strong NFP numbers gold has not touched MACDP line. So no grabber by far. Standing in flag consolidation continues.
Overall situation remains positive, because retracement is rather slow and gradual. There are a lot of sessions of retracement already, but market still stands above 3/8 Fib support. Now new patterns were formed here by far. It means that again we need to take a look at intraday chart:
Intraday
On intraday charts gold market was strong enough to hold NFP pressure and it was able to stay above our crucial 1190 area. Now we do not turn yet to next 1180 target, but focus on possible upside action right from current levels.
Here, market could form, say large upsde butterfly, while price stands above OP lows. If they will be broken, we will have to accept downside continuation and next target will be XOP @ 1180 Agreement area:
On hourly chart multiple our targets have been completed - OP target, large 1.618 butterfly of CD leg and smaller 1.27 butterfly inside it. As a result, we've got large "222" Buy pattern, which potentially could trigger upside continuation.
Here, for example, we could watch for minor butterfly pattern - wether it will turn to reverse H&S. If it will, then, it could become background for re-establishing of short-term bullish trend:
Conclusion
In long-term analysis we see thrilling agreement of fundamental and technical pictures, which should be interesting to watch.
It is no changes in our expectations within few weeks - we still watch for upside retracement continuation with approx. target around 1238-1250 (major weekly K-resistance area.)
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.
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