Gold GOLD PRO WEEKLY, September 20 - 24, 2021

Sive Morten

Special Consultant to the FPA
Messages
15,329
Fundamentals

It is no sense to argue that all markets right now are driven by US Dollar and gold is not an exception - has become a hostage of recent US Statistics that has triggered solid rally on USD. As we've estimated yesterday this rally should continue, which means that pressure on gold market holds. As gold has mostly the same problems as EUR - it has very weak sentiment, it is difficult to count on reversal action any time soon. EUR reverse H&S pattern has failed on Friday. Gold still keeps it valid but it is also stands at the edge...

Market overview

Week has started on a positive tone, when gold hit a one-week high on Tuesday, as the dollar retreated after a slower-than-expected rise in U.S. inflation led to uncertainty over the U.S. Federal Reserve’s timeline to taper monetary stimulus. The U.S. core Consumer Price Index edged up 0.1% in August, missing expectations of 0.3%, and weighing on the U.S. dollar. That was the smallest gain since February and followed a 0.3% rise in July.

The inflation data could reinforce the view that the Fed may go slow on unwinding economic support measures and keep interest rates low. Lower interest rates decrease the opportunity cost of holding non-yielding bullion.

“Gold is toying with $1,800/oz following the marginally weaker-than-expected U.S. inflation data,” said Suki Cooper, precious metals analyst at Standard Chartered Bank, adding “the macro backdrop remains conducive for further price gains. While a tapering announcement is unlikely until the November FOMC meeting, the September meeting will introduce the staff forecasts, or ‘dots’ for 2024. The 2024 dots could mirror 2023’s two rate hikes,” Cooper added.

“With the CPI data coming in a bit lower than expected, for some that does push a possible (taper) announcement a little bit further down the road and that should be fairly supportive for gold prices,” said ING analyst Warren Patterson.

Underlying U.S. consumer prices increased at their slowest pace in six months in August, lending credence to the Fed’s view that high levels of inflation were transitory.

The data also raised expectations that the Fed may go slow on unwinding economic support measures and keep interest rates near zero for sometime. The U.S. central bank is due to hold its two-day monetary policy meeting next week.

I see gold holding above $1,800, as critical risks relating to COVID-19 and underlying economic activity incentivise central banks to keep the taps flowing, the key short-term driver of gold prices,” said Michael Langford, director at corporate advisory AirGuide.

Gold retreated below the key $1,800 level on Wednesday, hit by a bout of technical selling after it failed to hold recent gains as investors looked past a subdued dollar and sought clarity on the U.S. Federal Reserve’s tapering strategy.

A stronger-than-expected N.Y. Fed’s manufacturing report for September earlier in the day fell “into the camp of the monetary policy hawks, which put a little pressure on gold,” said Jim Wyckoff, senior analyst at Kitco Metals. He added that improved risk sentiment was weighing on bullion.

But there weren’t any particular headlines to prompt gold’s pullback and this was rather due to its “technical inability to trade up through the 200-day moving average on Tuesday,” said David Meger, director of metals trading at High Ridge Futures. Right now, “any good news is bad news for gold,” and if more positive economic data comes out, the Fed would be more willing to begin reducing asset purchases, and gold’s likely to move sideways heading into the FOMC meeting, Meger said.

Bullion investors also largely overlooked a subdued dollar.

“However, risk to the downside for gold is also limited since the slowdown in inflation thereby reduces the pace with which tapering can be carried out,” said Saxo Bank analyst Ole Hansen.

Gold prices drifted lower on Thursday, with a firmer dollar and U.S bond yields diminishing its appeal, as investors turned their attention to next week’s U.S. Federal Reserve meeting for clues on when it will begin tapering its stimulus.

The Federal Open Market Committee is due to meet on Sept. 21-22. A growing number of policymakers have expressed their support for a reduction in the central bank’s asset purchases this year.

“There are a lot of members in the FOMC who are in favor of commencing tapering this year and therefore the outlook for gold is not positive,” said Quantitative Commodity Research analyst Peter Fertig, adding recent data showing U.S. inflation slowed last month was unlikely to postpone tapering.

Reduced central bank stimulus tends to lift bond yields, which raises the opportunity cost of holding non-interest bearing gold. It also helps boost the dollar, further weighing on bullion.

But “tapering stimulus will not be favourable for stocks and gold could be one of the beneficiaries from money exiting the stock market,” said Vincent Tie, sales manager at Singapore dealer, Silver Bullion. “With the Fed slated to begin tapering by December, we could see higher gold prices in Q4, 2021.”

Analysts at ANZ also said in a note that negative real yields and inflation expectations should support investment demand for gold despite the Fed signalling that tapering and rate hikes are around the corner.

Later in the session gold slid nearly 3% and silver lost over 5% as strong U.S. retail sales data boosted the dollar and gave ammunition to bets that the Federal Reserve may hasten its tapering.

Hammering gold’s appeal to holders of other currencies, the dollar jumped after data showed an unexpected increase in U.S. retail sales in August.

U.S. retail sales unexpectedly increased in August, rising 0.7% from the previous month despite expectations of a 0.8% fall, while business sentiment survey by the Philadelphia Fed also showed a big improvement.

“Gold has taken a pretty big hit,” with the upside in the dollar and Treasury yields and the stronger data, “you have longs running for the exit,” said Bob Haberkorn, senior market strategist at RJO Futures. Unless there is some geopolitical event or a Fed surprise, gold’s trajectory is unlikely to change going into the FOMC meeting, Haberkorn added.

The strong retail sales figures show “consumer sentiment is starting to come back, a good indicator for the Fed to bring in those expectations on the next rate hike,” said Phillip Streible, chief market strategist at Blue Line Futures in Chicago.

Unwinding of economic support measures not only dim gold’s status as a safe haven -- burnished by the pandemic -- but a subsequent hike in interest rates translates to the increased opportunity cost of holding non-yielding assets like bullion.

The dollar held near three-week highs against a basket of major currencies on Friday after a raft of strong U.S. economic data rekindled expectations for earlier policy tightening by the U.S. Federal Reserve. The figures helped to curb cautious views on the U.S. economy sparked after tame consumer inflation reading and soft job growth data published earlier this month, helping to revive expectations for early Fed tapering.

"Yesterday's data were pretty strong across the board," said Yujiro Goto, chief currency strategist at Nomura Securities. "The markets had been worried that consumption would be weak in August because of the Delta variant. But retail sales were surprisingly strong."

Economists in a Reuters poll pushed their expectations back to November for when the U.S. Federal Reserve could began tapering, as surging Delta variant cases likely derailed an economic recovery in the third quarter.

European Central Bank chief economist Philip Lane revealed in a private meeting with German economists that it expects to hit its 2% inflation goal by 2025, the Financial Times said on Thursday.

Michael Langford, director at corporate advisory AirGuide, also said “the unpublished European Central Bank inflation estimate has driven short term sentiment against gold at the prospect of rate rises potentially happening earlier than expected.”

“While support at $1,750 has so far held with some speculative short-covering lifting prices, the bounce looks anaemic and gold faces another test of $,1750 as the dollar remains firm,” said Jeffrey Halley, a senior market analyst for Asia Pacific at OANDA.

On the technical front, gold may end its bounce in a resistance zone of $1,763-$1,768 per ounce, and retest a support at $1,744, according to Reuters technical analyst Wang Tao.

“Everybody is watching the Fed like hawks. It would be very tempting after a $40 fall (to look for an entry point) despite the fact that the tapering debate is still going,” StoneX analyst Rhona O’Connell said. Investors are going to scour (Fed Chair) Jay Powell’s press conference for economic projections,” O’Connell said, adding that a really hawkish shift from the U.S. central bank would not stop the possibility of another knee-jerk downward reaction in gold even if it had been priced in already.

The market already believes the Fed will cut back on bond purchases, and that would drive (U.S. Treasury) yields higher, said Daniel Pavilonis, senior market strategist at RJO Futures. This does not bode well for gold, it’s most likely going to come back down,” Pavilonis said.

He added the dollar, rather than gold, was benefiting from safe-haven demand from developments in China surrounding property developer Evergrande. The dollar climbed to a three-week peak, making gold more expensive for other currency holders, while benchmark Treasury yields also gained.

“Gold has been a frustrating, mean-reverting product most of the time,” a NY-based trader said, adding that it was likely to be hemmed in the $1,750-80 range going into the Fed meeting.

A strong hawkish shift could prompt another knee-jerk, downward reaction in gold even if it has been priced in already, said StoneX analyst Rhona O’Connell.

Unwinding of economic support measures not only dim gold’s status as a safe haven, but any subsequent increase in interest rates would translate to the higher opportunity cost of holding non-yielding assets like bullion.

COT Report

Precious metal funds faced outflows worth $116 million after seeing inflows in the previous week, as gold prices dipped to a two-week low last week. Last week there was inflows of $217 millions, first one for very long period, but two weeks before it was the outflow again of $109 millions. These two weeks mostly weight out the inflows.
SPDR Fund data shows minor increasing of the reserves, but it looks like just some noise in downward action:

1632054221933.png

Source: SPDR Fund, FPA calculations

CFTC data shows very similar picture as on EUR - investors are barely interested in gold. Data stands for Tuesday and doesn't include recent Retail Sales shock. But even without these numbers report shows drop of open interest. While speculators show minor interest to the market and have increased long positions slightly - hedgers are closed them and in both directions. This kind of indifference of direction in position closing indirectly suggests low interest to the market. It is interesting to see how data changes next week...

1632054737266.png


In general among comments on recent data and expected Fed response, I like this comment, that accurately reflects our view as well:

“It is hard to be enthusiastic to begin reducing purchases if the pace of (job) gains has slowed a lot,” said William English, a Yale School of Management professor and former Fed official who helped shape the bond-buying program initiated by the central bank in response to the 2007-2009 financial crisis and recession. They will want more data,” English said. “And if it is disappointing, they conceivably end up waiting ... It is a tricky statement. They want to open the door but not commit. That is the mission.”

Although this opinion mostly is positive to the gold market ,while it suggests the postponing of Fed aggressive steps, hardly it helps to the gold. In fact, gold shows the same frustrating reaction on seeming positive data. Thus, poor NFP, following August Fed statement, weaker CPI, downgrading of US economy forecasts, including inflation and other stuff was not able to help much to the gold. It hasn't changed the sentiment and was not able to support more or less stable upside performance. It means that investors mostly ignore details and treat situation in general - Fed policy change is coming and situation in economy becomes better and better, rising demand for the risky assets and make gold less attractive for investments, as it can't compete with assets that generate interest return. As you will see below, technical picture also doesn't suggest sharp upside reversal now. And it is impossible with the fundamental background that we have. With all these moments on the table - we see gold not attractive for investing now.

Technicals

Monthly

Despite recent drop, the monthly picture has not changed significantly by far. We have some bearish moments here that suggest deeper action, but, in general, market stands in very small pullback from ATH comparing to the scale of the rally. Market again shows problems with breaking through YPP. We have three equal tops month by month around YPP. It means that somewhere around 1835-1836 big selling orders hold gold from further upward action.
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. In the light of recent events, it seems in foreseeable perspectives gold has only phantom chances on upward action.

gold_m_20_09_21.png


Weekly

Weekly time frame shows our major patterns and scenarios that we suppose here. Trend has turned bearish and gold very accurately follows to scenario that we've suggested a month ago. Here we have two important details. First is - gold inability t reach the upper border of triangle and early turn down. Since the drop is strong, we could say that this is real early reversal and hardly gold returns back to hit the triangle line. Second - it follows accurately to the butterfly shape. With bullish grabber on weekly Dollar Index - gold remains under pressure, which suggests possible deeper action.

gold_w_20_09_21.png


Daily

Daily trend turns bearish as well. And theoretically gold completes the shape of H&S pattern that we would like to get. But should we go long with it? I'm afraid but the answer probably is "No". The reasons are the same - too strong sell-off for bullish pattern. This is big step in favor of H&S failure. Market is trying to hold at vital area - above major 5/8 Fib support and keep harmony with the left shoulder, but it seems that downside breakout is a question of time, as price is not at oversold.

Also I add 200 MA here as traders were talking about it above...

So, conclusion on daily chart is simple. No longs by far. Clear confirmation of downside breakout is move through $1740 level
gold_d_20_09_21.png


Intraday

Here market has completed both aims that we've discussed on Friday - OP is hit and minor 3/8 pullback is done. Intraday picture also stands in favor of downside continuation as we see acceleration of CD leg. It means that chances to get drop to XOP are rather significant. The tricky moment is XOP stands under vital 5/8 support area and if gold hits XOP, it might be "no return" point for the market:

gold_4h_20_09_21.png


On 1H chart it was nice B&B "Sell" BTW... Market could keep going down immediately, but if we get lucky we could keep an eye on potential "222" Sell pattern here. And, in general - as market stands at the bottom of right arm, keep an eyes on any bullish pattern as well if it will be formed here.

gold_1h_20_09_21.png
 

Sive Morten

Special Consultant to the FPA
Messages
15,329
Greetings everybody,

So, gold shows a bit better resistance to external negative compares to FX and stock market. Partially because Evergrande scandal supports demand for save haven assets. Although, as we've said in weekly report, chances on downside continuation stand high, gold somehow still holds above crucial support area and keeps theoretical chances on pullback, as our H&S shape is not broken yet. Besides, US interest rates performance also stands week, providing support to the gold.
gold_d_21_09_21.png


Still, bullish background is weak and actually stands at the edge. On 4H chart AB-CD pattern shows CD leg acceleration which is potentially bearish and increases chances of reaching XOP:
gold_4h_21_09_21.png


While on 1H chart market is coiling around support but can't form any clear bullish patterns or signs of rebound. It means that it is possible to consider long entry for tactical bounce to 1780 resistance area, but understand that risk is high and downside drop could follow at any moment.

For the short entry we also could consider the same 1780-1782 area, if we get, say "222" Sell pattern later.
gold_1h_21_09_21.png


Thus, in two words speaking - we suggest that maybe it makes sense to wait for a bit more clarity, whatever side it will be.
 

Sive Morten

Special Consultant to the FPA
Messages
15,329
Greetings everybody,

So, on the gold market we have very similar setup to the EUR. Obviously it mostly depends on Fed statement, but if you believe that Fed announces tapering today - you could try to use current bearish setup on intraday chart for short entry. Conversely, those who have bullish view could use daily H&S pattern, but as we've said previously - it has some weakness as sell-off on 2nd part of the pattern looks too strong for potentially bullish pattern.

gold_d_22_09_21.png


On 4H chart our AB-CD is still valid and price now stands at major resistance area that should clarify next step. If gold can't break it - downside action and failure of the daily pattern has big chances to happen.

Conversely, in a case of upward breakout daily H&S pattern could start to work, but, to be honest it is unclear what Fed has to say to trigger this action:
gold_4h_22_09_21.png


Thus, setup that we've have discussed yesterday is ready, but it is only for those who expects tapering announcement or at least some new hawkish comments from the Fed. It should be enough to place stops above previous top for this scenario.
gold_1h_22_09_21.png
 

Sive Morten

Special Consultant to the FPA
Messages
15,329
Good morning,

So, recent Fed statement was a bit more hawkish than it was suggested, and we see it by reaction, especially on FX market. Gold, despite all negative moments that stand around it was able to stay above major support area of 1740, keeping chances on upside rebound. But, the major question is - whether it is a moment for long entry already? We think it is not yet.

Despite all flaws that we've mentioned around reverse H&S pattern that makes us to have doubts on successful performance of this pattern, we also have intraday performance today that is also bearish. It means to justify long entry we need clear bullish reversal pattern. The most probable one is a butterfly "Buy" - the same as it was on the left arm's bottom. Once we get it - it should be safer to take the long position here:
gold_d_23_09_21.png


On 4H chart market keeps accurately bearish way of action. Price was not able to break K-resistance area, CD leg has definite acceleration, suggesting downside continuation to XOP. But, if XOP will be finalized by butterfly pattern - this could give us reasons to consider long entry later, maybe next week:
gold_4h_23_09_21.png


Meantime our "222" Sell setup works nice and if you jumped-in yesterday, you could move stops to b/e now. In general, if you intend to go short - just keep an eye on recent top at 1790. This is invalidation point of current setup. Thus, you could consider short entry until price stands below it. Only upward breakout destroys short-term bearish context here.
gold_1h_23_09_21.png
 

Sive Morten

Special Consultant to the FPA
Messages
15,329
Greetings everybody,

So our short position is done well on a background of some relief around Evergrande that decreased demand for USD and safe heaven assets, as gold. Now market stands in response to 1742 major support area.
On daily chart we have some concern around reverse H&S pattern. Although it stands in place but it has some tricky moments and yesterday we've decided that we need some more bullish context to take position with it. The butterfly that we've discussed yesterday doesn't fit any more as market sets the new lows. Thus, we need to watch for something different:
gold_d_24_09_21.png


In fact the major riddle right now is to understand what current upward action is. Overall background tells that gold has no serious reasons for reversal by far. So, here we could watch for few moments. On 4H chart market stands on a way to XOP, at least by AB-CD logic, and we should not get any big retracement as one is just has happened after OP. It means that gold has to stuck inside current downside swing to keep short-term bearish context valid. Second moment here - MACD. Price is coming higher, so we need to keep an eye on possible bearish grabber here:
gold_4h_24_09_21.png


On 1H chart, the next bullish reversal pattern that we could suggest, instead of butterfly is Double Bottom. Yesterday market has formed a kind of W&R of 1st bottom that is very typical for the pattern. Still, to form it price has to break all Fib levels which contradicts to 4H picture as we said above. It means that we use this contradiction to get the answer. If no grabber will be formed on 4H chart and price breaks all Fib levels on a way up - market is preparing for stronger upward action and maybe DB indeed will be formed.
Otherwise - short-term setup and 4H AB-CD is valid and we're going to XOP...
gold_1h_24_09_21.png


Currently we just have finished with short position, but it is not time yet for new entry. Long position we agreed to take once we get bullish pattern in place but we do not have it yet.
 
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