Gold GOLD PRO WEEKLY, September 13 - 17, 2021

Sive Morten

Special Consultant to the FPA
Messages
15,139
Fundamentals

Gold traditionally shows weak reaction on ECB meeting, especially if central bank provides no decisive information, but some reaction has followed on PPI release and WSJ rumors that Fed intends to discuss tapering this meeting to announce it in November. Now mostly markets tend to December announcement, so rumor sounds a bit more hawkish. Finally, next week we get a lot important statistics, starting from CPI and following to Consumer sentiment and Retail Sales. Inflation data could impact on the markets, especially on interest rates.

Market overview

Gold prices inched up on Monday, hovering close to a 2-1/2-month peak after disappointing U.S. jobs data raised hopes the Federal Reserve could wait a bit longer to pare its stimulus measures. Gold is being supported by the notion that the Fed will be slower to taper than previously thought, and a weak U.S. dollar, said IG Market analyst Kyle Rodda.

Fed Chair Jerome Powell had hinted last month that strong jobs recovery was a pre-requisite for the central bank to start paring back its asset purchases.

After the data all gold could manage was a modest rally that never threatened the major resistance zone lying between $1830.00 and $1834.00, Jeffrey Halley, a senior market analyst, Asia Pacific at OANDA said in a note. The price action on Friday reinforces that gold’s upward momentum is waning,” he added.

Meanwhile, a government source said that India’s gold imports in August nearly doubled from a year earlier as weaker prices prompted jewellers to ramp up purchases for the festive season.

“Many of the fundamentals are still weighing on gold prices ... People are optimistic about the global economic outlook,” said Hareesh V, the head of commodity research at Geojit Financial Services. “Investors are likely to reduce their safe haven assets like gold and reinvest in some risky assets.”

Aiding the risk-on sentiment was Chinese trade data that showed both exports and imports grew much faster than expected in August.

Gold slipped to a two-week low on Wednesday as strength in the dollar and higher U.S. Treasury yields outweighed the boost to bullion from deepening concerns about global economic growth.

“It’s frustrating to gold market bulls that even though there’s some keener risk aversion in the marketplace this week, the gold market sold off,” said Jim Wyckoff, senior analyst at Kitco Metals.

Worries about a Delta variant-driven slowdown in economic growth have shaken equities this week, but flows into gold have been limited by firmer bond yields and a rise in the dollar that has made bullion costlier for holders of other currencies.

“Gold’s limited gains in 2021 despite low rates and high inflation prints does not bode well for its prospects and we see gold prices to average $1,750 on average in 2022 as investment flows drop further,” Société Générale said in a note.

New York Fed Bank President John Williams on Wednesday said that it may be appropriate for the Federal Reserve to start reducing the pace of its asset purchases later this year if the U.S. economy continues to improve. And, in general, several Federal Reserve policymakers on Wednesday signalled that the U.S. central bank remains on track to trim its massive asset purchases this year, despite the slowdown in jobs growth seen in August and the impact a resurgence in COVID-19 cases.

The U.S. economy “downshifted slightly” in August as the renewed surge of the coronavirus hit dining, travel and tourism, the Fed reported Wednesday.

Gold prices rose on Thursday after three straight sessions of losses as the dollar rally paused and investors’ focus turned to a European Central Bank (ECB) meeting expected to signal a tapering of its emergency economic support.

Gold received a slight fillip as the dollar index edged down while the euro eked out gains amid expectations that the ECB could reduce the pace of bond buying.

“At the moment, gold is being driven by the dollar ... but what (ECB President) Christine Lagarde announces could have a bigger influence on gold prices than the dollar today,” said Michael Hewson, chief market analyst at CMC Markets UK.

But bullion has been losing its shine as a safe haven, with risk aversion favouring the U.S. dollar of late, said Han Tan, chief market analyst at Exinity Group, adding that gold was still being driven largely by the greenback’s reaction to the U.S. Federal Reserve’s tapering outlook.

U.S. Federal Reserve bank Gov. Michelle Bowman added her voice to the growing number of policymakers who say the weak August jobs report will not throw off the central bank’s developing plan to trim its bond purchases later this year. While Chicago Fed President Charles Evans said on Thursday the U.S. economy is “not out of the woods yet,” and challenges remain, including supply chain and labour market bottlenecks.

Data showed on Thursday the number of Americans filing new claims for jobless benefits fell last week to the lowest level in nearly 18 months, offering more evidence that job growth was being hindered by labour shortages rather than cooling demand for workers.

Meanwhile, the European Central Bank will trim emergency bond purchases over the coming quarter, it said on Thursday, but was keen to stress it wasn’t about to close the money taps.

SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, said its holdings fell to 998.17 tonnes on Thursday from 998.52 tonnes on Wednesday.

Gold is rather hovering around the $1,800 mark, and many market participants are waiting on the sidelines in part due to the uncertainty surrounding the Fed’s tapering timeline, said Commerzbank analyst Daniel Briesemann. The decision of the Fed, when they begin tapering, is hanging over gold.

The Federal Open Market Committee is scheduled to next meet on September 21-22.

Gold continued to see range-bound trade and since the metal is “primarily looked at in terms of the dollar... it’s the Fed which has the big impact on the gold price,” said UBS analyst Giovanni Staunovo.

As a result, gold edged lower on Friday amid uncertainty over the U.S. Federal Reserve’s tapering timeline that kept most investors on the sidelines, with gains in the dollar this week putting bullion on course to mark its first weekly decline in five.

Bart Melek, head of commodity strategies at TD Securities, said a bounce in U.S. yields were preventing speculative funds from convincingly moving into gold. The benchmark U.S. 10-year Treasury yield rose after economic data indicated high inflation could persist for some time. The elevated U.S. producer price index data could on margin drive people to believe that the Fed could show slightly less accommodation down the road with tapering,” Melek added.

COT Report

CFTC numbers shows the same effect as on EUR and it can't please us by far. As we mentioned few times already the major problem for the gold that can't let us to rely on recent rally and makes us to look at it with suspicious is lack of inflows. Investors stay cold to gold and do not invest with it. Recent data shows drop of net long position - some new shorts are opened, longs are closed and total open interest has dropped. Take a look that hedgers were closing both positions, although longs were closed just nominally. Anyway - the problem remains here and sentiment doesn't look inspiring rising doubts on ability of the gold to move higher.

1631438742185.png


Besides, SPDR Fund tendency is not broken yet also - funds are keep going lower. Not as fast as before but still it goes down.
1631438953174.png

So, returning back to discussion that we've started last week - this time we've got information that partially disclose investors' view on gold market. As on EUR as on Gold - investors show little interest to these markets. Despite to all factors in recent weeks that have made dollar weaker and chances on Fed tapering smaller - investors stand aside. Particular speaking, recent NFP report, it was weak, except wages, and even poor numbers are not able to provide stimulus and become a driving factor that could push prices higher.
It makes me think that investors now ignore details and watch on the gold market in perspective of coming changes in Fed policy, don't pay too much attention to the terms when this could happen and how. Rising stock market, its dividend yield of 3-5% on average and potentially hawkish changes in Fed policy make investors to stay aside from any active gold investments. And the comments that we've quoted above just confirm this position. Another indirect confirmation of this theory is Société Générale forecast of 1750$ average gold level in 2022. All these moments together make difficult to count on serious upward trend right now and tell that we could try to ride on recent rally but not too far as it could be over at any moment. We have to treat it as temporal situation and retracement. At the same time it is not necessary that we should get the miserable plunge. Most probable that gold sets some wide range, but we should not count on any meaningful upward continuation. Based on what we see in comments - 1830-1850$ is most probable upside target.
Another question stands around reverse H&S pattern that we wait on daily chart. Its theoretical target stands around 1900$, but with current sentiment it is unclear how it could get there. So chances on failure of the pattern also look solid.

Technicals

Monthly

Take a look that market again shows problems with breaking through YPP. It stands there third month in a row. 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. This week we have no changes - positive sentiment holds market on a surface but lack of fuel doesn't let it to move higher. Maybe coming statistics will move situation from dead point.

gold_m_13_09_21.png


Weekly

Weekly time frame shows our major patterns and scenarios that we suppose here. Trend is bullish now and this time we've got bullish grabber here. This is the weaker one as it is formed in opposite direction and price stands near the lows, which makes it sensible to any downside action. But sometimes weaker grabbers work as well. Anyway, whether it works or not makes minor impact on the context. If it works - we should get action somewhere to 1850$ where the upper triangle border stands. Sharp reversal around the border could make supposed butterfly to look more realistic. In a case of failure we anyway will be watching how daily H&S goes.

gold_w_13_09_21.png


Daily

We have sufficient reaction to COP Agreement level, but high PPI numbers haven't let market to recover and make it stand in a tight range. With having nothing really positive for gold market and coming more statistics next week - now it is difficult to count on sharp upside reversal. From technical point of view - it is more probable that price tries to hold pattern's harmony and to form reverse H&S pattern. It makes us think that another drop to next support area is very probable:

gold_d_13_09_21.png


Intraday

Interest rates have increased on Friday. And together with PPI it makes gold to stuck in flag consolidation, which is potentially bearish. Yes, we have the divergence, but, to be honest - this is the only bullish sign that we have here. As it has no sufficient background, hardly it could make gold turn up alone. With the performance that we see inside the flag - we could get another swing down. Maybe it is too early to talk about 1742 support, but drop inside 1762-1777 K-area seems possible:

gold_4h_13_09_21.png


Another reason that makes to have short-term bearish view is 1H chart. The H&S pattern is started well, but was not able to complete the major target and failed. It means that price should drop below the head:
gold_1h_13_09_21.png


So, it seems that among the bullish patterns we have just two - weekly grabber and 4H divergence. First one is a weaker type and could be just a result of week close when price appears at MACDP line but not reflect the real market sentiment. To be honest guys, based on intraday performance, I'm tending to this conclusion.
Anyway currently long entry looks not attractive by two reasons. First is - overall performance, second - major support is very close, and it would be better to focus on daily H&S pattern. Existence of support levels cluster makes risky any short position right now. So, by our opinion the better approach now is to wait when market hits 1760-1765 area - supposed bottom of the right arm and see what will happen there.
 

Sive Morten

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

Gold looks absolutely anemic now showing no changes to previous week performance. If on EUR something is started and we at least could consider long entry on intraday charts, have some patterns already - nothing of this sort on Gold by far.

Overall performance doesn't inspire to go long with all the things that we've discussed in weekend. Besides, now we have bullish grabber on daily 10-year interest rates chart before CPI report which makes me stay aside and wait for setting of H&S right arm on daily gold:
1631604932711.png


Intraday performance also looks not attractive. Price is still coiling inside the flag, moving closer to its lower border. Despite that we've got the grabber, price action looks week.
gold_4h_14_09_21.png


On 1H chart we see no single sign that could tell us that this is early stage of upside reversal. Yes, on poor CPI sudden upward action could happen, but technically it is not prepared. Besides, after better PPI and hourly earnings, we have good chances on higher CPI as well...

So, maybe we could get some fast patterns inside the flag for scalp trading, but overall performance makes me sit on the hands....
gold_1h_14_09_21.png
 

Sive Morten

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

So, gold shows more pleasant response to CPI, at least among bullish traders. While on the EUR recent rally mostly is erased already - gold has formed bullish reversal session. Although for daily/weekly time frame, I'm still not ready to go long and would like to get more harmony with reverse H&S pattern, suggesting deeper action to 1760, but we short-term intraday purposes we easily could use recent rally as it provides good short-term momentum and it is good chances that market could move higher in 1810-1830 range.

If we get lucky and Consumer sentiment + Retail Sales will be weak as well - gold could try to reach 1850$ area:
gold_d_15_09_21.png


On 4H chart we have few bullish moments. First is - gold finally completed 3-Drive targets. Second - we have fake flag breakout with W&R action around the lows. And, finally, existent divergence now takes a special meaning in the light of recent performance:
gold_4h_15_09_21.png


It means that on 1H chart we could consider possible AB-CD upside pattern, and watch for Fib supports of 1797 and/or 1791 for long entry. Stops as usual - below the lows of reversal bar...
gold_1h_15_09_21.png
 

Sive Morten

Special Consultant to the FPA
Messages
15,139
Hi question would CAD CPI have any effect on gold?
Hardly, I suppose. Gold mostly is traded in relation to USD, so the choice is between Gold and USD-nominated assets. Hence - US rates have a dominant role here and I'm dare to suggest that reaction on CAD CPI will be minimal or no at all...
 

Sive Morten

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

Although our view tells that as EUR as Gold are weak right now and it seems that downside action is not over yet - it doesn't contradict to intraday bullish action in a way of AB-CD pattern that might happen, especially if we get weaker Retail Sales data today.

This short-term setup is totally based on reversal session on daily chart, as we've said yesterday. And now you could see that the first stage is done - market has shown downside retracement yesterday:
gold_d_16_09_21.png


On 4H chart - we have nothing new to comment, market still stands inside the flag consolidation. Now new patterns are formed here:
gold_4h_16_09_21.png


On 1H chart market completes downside XOP that makes Agreement with 5/8 Fib support level and gold starts to bounce up from it. In fact, this is vital area for setup. Because, if gold indeed is bullish now - Agreement support has enough power to hold it and become a background for upside continuation. Downside breakout means the failure of conception "reversal session" this time and suggests downside continuation, according to our longer term view.
gold_1h_16_09_21.png


In fact, market stands at a kind of "culmination point" that doesn't guarantee the success but it provides best risk/reward ratio and smallest risk. So, if you intend to go long here and do not worry for statistics release - you could consider this setup.
 

Sive Morten

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

After strong Retail Sales report, it seems that everything looks perfect - we've got daily H&S pattern that now looks harmonic. But it is not as simple. In fact, we have the same concern as on EUR - recent sell-off is too strong for bullish reversal pattern, and chances that it could fail are significant:
gold_d_17_09_21.png


On the gold market sell-off looks even stronger than on EUR. We have clear AB=CD pattern and market drops directly to OP making Agreement support at 1742. But such an acceleration suggests action to XOP later, after technical response to support will be over. This, in turn, tells that chances on failure of daily pattern are not low, actually.
gold_4h_17_09_21.png


Thus, on 1H chart we could get market respect of support area with bounce as far as to 1780, but it is not enough for long entry right now. And, as on EUR - we have to get some clear, extended bullish reversal pattern around 1740, confirming bullish ambitions. Otherwise it would be better to not consider long entry right now:
gold_1h_17_09_21.png
 
Top