Sive Morten
Special Consultant to the FPA
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- 18,644
Fundamentals
Gold market was following to the common trend this week that is based on dollar strength. As a result, it has made an impact on all markets across the board - starting with equities, FX market and right to commodities as well. In two words speaking - lack of new stimulus pack, mixed Fed comments, rising of CV19 with fear of possible second lockdown and political uncertainty rising demand of US Dollar. Despite that this new tendency doesn't hurt yet longer-term expectations, still the sell-off has significant pace, so it might happen that we're not at the bottom yet.
Gold dropping has started right from Monday, sliding to its lowest level in more than a month, as a broader market sell-off driven by uncertainty over more U.S. fiscal stimulus pressured the precious complex along with a stronger dollar.
“Gold should be trading higher on safe-haven demand but it’s kind of a repeat back like in the spring when the market sell-off comes, market participants have been selling off assets across the board,” said Bob Haberkorn, senior market strategist at RJO Futures. There’s just a lack of safe-haven buying and it’s following the sell-off in equities and dollar strength is an additional weakness.”
“The chances of Congress agreeing on any stimulus package before January is asymptotically close to zero,” said Tai Wong, head of base and precious metals derivatives trading at BMO. A move back and close above $1,900 is needed to grant a short-term reprieve but looks like we may have to test the lows of the correction, $1,863 at some stage soon.”
The U.S. Congress has for weeks remained deadlocked over the size and shape of a fifth coronavirus-response bill, on top of the approximately $3 trillion already enacted into law. Gold has been feeding off progressive rounds of more stimulus and the fact that this has stopped in the United States – at least for now – seems to have halted the gold rally in its tracks, ED&F Man Capital Markets analyst Edward Meir said in a note.
U.S. President Donald Trump’s bid to quickly fill the U.S. Supreme Court vacancy left by the death of Justice Ruth Bader Ginsburg left investors fretting over the chances of more fiscal stimulus before the election. Governments are unlikely to roll out stimulus at a similar scale seen when the coronavirus first emerged, even if cases soar as they have already used much of the ammunition, Bank of China International’s Fu said.
On the technical side, spot gold may retest support at $1,886 per ounce, a break below which could cause a fall to $1,855, said Reuters technical analyst Wang Tao.
Chicago Federal Reserve President Charles Evans said the U.S. economy risks recession, if the U.S. Congress fails to pass a fiscal package.
“Gold is currently taking its cue from the dollar ... and the dollar strength continues to weigh on gold,” said Standard Chartered analyst Suki Cooper. “We could see a retest of the lows from early August, the next technical support level thereafter is around $1,840 per ounce, however prices are closing in on oversold territory.”
On Wednesday data showed Germany’s private sector has recovered less than expected in September amid weakness in domestically driven services. German consumer morale also improved less than expected, a survey showed. An earlier report showed French business activity slowed to a four-month low in September, with services weaker than expected, as France struggled to contain a surge in new COVID-19 cases. In Britain, the economy also lost momentum, a business survey showed, as consumer-facing sectors suffered, notably from the end of a government subsidy to support restaurants.
U.S. business activity cooled in September, with gains at factories offset by a retreat at services. Investors now await weekly data, which is expected to show U.S. jobless claims fell slightly but remained elevated. Euro zone business growth ground to a halt this month as the service industry slammed into reverse, knocked by a
resurgence in COVID-19 cases prompting governments to reintroduce restrictions, a survey showed.
Adding to the uncertain outlook for gold, U.S. Federal Reserve officials reaffirmed their low interest monetary policy until the labour market recovers or inflation rises to 2%, but failed to offer a path for further stimulus.
“It seems the Fed has pretty much tied themselves into no immediate action... So, the stimulus side of this trade is looking rather bleak in the short term,” Edward Moya, a senior market analyst at OANDA, said.
“The market continues to re-evaluate its previously very optimistic stance on the status of global risks out there,” said Ben Randol, senior FX strategist at BofA Securities in New York. “The news flow has been negative on the virus and negative on growth. We’ve had some crummy data and also we’ve had the Fed speakers that have been on balance considerably less dovish than the market seemed to expect, which puts positions at risk,” Randol said.
Randol also cited comments from the Federal Reserve after Chicago Federal Reserve President Charles Evans sent investors to the safety of the dollar on Tuesday by floating the idea of rate hikes. To Randol, this suggests the Fed is reserving its right “to pre-emptively lift rates” if it sees inflation as problem.”
This Evan's statement was treated as extremely hawkish by investors and brought more confusion rather than clarity in understanding of Fed policy.
Lack of clarity in the Fed’s comments has boosted dollar demand. People were hoping the Fed would be more specific about its medium- and long-term goals last week, according to Thierry Wizman, global interest rates and currencies strategist at Macquarie Ltd in New York.
“The various Fed speeches since then have not really fixed the matter. They continue to be very ambiguous. People who have been short the dollar for the last few months are taking it as an opportunity to unwind their positions,” said Wizman.
There is the broad assumption in the financial markets that the U.S. Congress will not provide any further economic stimulus for at least the next several months, which is weighing on gold, said Jeffrey Christian, managing partner of CPM Group.
“So, the confirmation that things are getting worse economically, as you saw in the unemployment figures, has pushed gold down.”
Data showed the number of Americans filing new claims for unemployment benefits unexpectedly increased last week.
At the same time there was information on the market that Democrats in the U.S. House of Representatives are working on a $2.2 trillion coronavirus package that could be voted on next week. Also as much as $380 billion from the U.S. Congress' last big coronavirus aid package is unused and could help households and businesses if lawmakers approve, Federal Reserve Chair Jerome Powell and Treasury Secretary Steven Mnuchin said on Thursday.
“The Republicans and Democrats are on the same page about putting some stimulus but they are not being able to decide the amount and that uncertainty is pushing investors towards the dollar,” said Edward Moya, senior market analyst at OANDA in New York.
There is still "fatigue" in the market as gold has already priced in a lot of the favourable factors and there are a lot of investors already in the market, so it is unlikely that there will be many new ones, ABN Amro analyst Georgette Boele said.
"We are seeing quite a significant shift as far as risk appetite is concerned, while that typically favours gold, for the vast majority of this year that has not been the case," said OANDA analyst Craig Erlam. The risk-off move has favoured a major dollar rebound and that's been a massive drag for gold, he said, adding "I don't think its going to be much longer before we are talking about $1,800."
COT Report
This week gold shows extended deteriorating of long positions - speculators and hedgers massively have closed upward oriented positions. Open interest also has dropped significantly. This promises nothing good for gold perspective in few coming weeks.
SPDR Fund statistics shows interesting picture of divergence between price action and stored gold in fund. But this is because of weekly data. In fact, the top of reserves was achieved on Mon-Tue, 21 September and was around 1278 tonnes, while closer to the end of the week it dropped for 12 tonnes right to 1266 level that we see on the chart. Still the positive sign in this picture that after first sell-off investors were holding positions and were not hurry up to sell them. This provides some hope that current action will be short-term. Besides, autumn is historically (cyclically), bullish time for Gold market.
So, it seems that currently it would be better to focus just on short-term perspective, and do not build extended plans on the future. Besides, although sell-off looks scaring but it is probably too early to review long-term scenario on the gold market. So, what do we know right now? Based on top-analysts comments the cornerstone of current action is a lack of supportive measures. If Fed would tell something about it in statement - market probably remains flat at least, or even climb slightly higher. Anyway, the drop tells that markets are extremely sensitive to stimulus topic and major opinion is we will get nothing till the January. It means that currently market is not priced-in possible new pack that is discussing right now.
Last week, when we've talked about President's run and so on, we said that both sides of the run need to make people happy, but unfortunately they could try to dominate to complete it, rather than just to work together to get the result. It means that Republicans will try to cut any Democrat's initiatives and the latter will try to do the same unfortunately. This will make negative impact on result and unfortunately really could finish with no new stimulus until elections results. But, at the same time chances on positive end also exist. They still could provide necessary measures. And that could be significant driving factor for the gold.
Second what we have from the common opinion is the gold level - majority of analysts tell about 1850$ level and only few of them point on 1800$. It means that common opinion right now that gold stands in retracement and nobody treats this as starting of new bearish trend. In fact, as gold has closed around 1860$ - it is already on the spot. And we need to see what will happen next. I would say - no stimulus breakout and downside retracement doubles making real 1800$ area forecasts. Progress in stimulus discussion could change the situation and return prices at least back to 2000$ area. But to be honest, guys, deeper retracement looks more probable. At least technical signals point particular on this scenario.
Techincals
Monthly
In previous few weeks we were surprised a bit, why market shows no reaction on strong monthly target and resistance area. Now technical picture is becoming more correct and accurate as downside reaction finally has started. This week on monthly chart we have two important moments. But first - lets traditionally put here Stag's long-term view that we hold while market stands with it.
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$+ level. As this is really long-term picture (for years), downside action could be extended in time and developed differently, depending on fundamental background picture.
As you can see, market now stands in downside action where Stag has specified two possible levels - 1600$ or 1360$ depending on overall downside impulse strength. Theoretically, after this level market has to show final upside effort before major reversal will come. This picture doesn't have either 1850$ or even 1800$ but 1600$ level that unfortunately agrees with more extended downside action that we've mentioned above. Stag's picture mostly suggests negative scenario when no liquidity pack will be provided until final power transformation to the new/same President after elections that could happen only by the year end.
Classic analysis also doesn't totally exclude this scenario. September is close to an end and price is getting out from "high wave" monthly pattern. Usually the out direction sets future direction of the price and now it is supposedly down. Second moment - the depth. Classic approach suggests downside action equals to the width of broken range and in our cases gold should double the high wave pattern, that should lead it somewhere to 1780-1800$ area. But this is not the end yet. Take a look that we could get huge "Evening star" pattern here. And this lets us to make two conclusions. First - downside action in this case will continue. Second - it probably takes the shape of big AB-CD pattern on lower time frames. But what is more interesting, that in this case gold appears around the same 1600$ specified by the Stag.
Finally, even this action doesn't hurt long-term bullish construction as this will be just 30% retracement that is absolutely normal after COP target. Besides, market is coming out from overbought area and drop to Oversold is also not the rare thing that you could see.
Weekly
As we've said last week, in case if market will drop below the recent lows "Light" retracement scenario will be vanished and we should be prepared to more extended downside action. Thus, we're in. On the table of the next week we have 1836$ major support level to consider. Despite that longer-term picture keeps stronger and longer bearish action intact, in short-term we could get reasonable bounce out from here as price is also oversold.
Daily
Here is the plan. In fact, it is not new as we've talked about it month ago, but price was postponing to follow it. Now it is becoming a reality. So, As we've said 1836$ is on the table, and around it we have K-support actually and Agreement as OP stands 1802$. Here is also butterfly extension and daily oversold level. As OP stands under the support area - be careful and plan trades with stops below the OP, which could be reached by some spike probably through the level.
Intraday
Intraday scenario looks minor on a background of daily and weekly pictures and mostly has tactical purpose. First is, we have XOP from minor extension that stands in the same area of daily K-support. Second is, price right now stands at butterfly 1.618 extension and theoretically it suggests minor upside bounce to 1890 area. How to use it - is upon you. Those who keep longs from 1900$ area could get chances to out with minimal loss, scalp traders could consider, say DRPO "Buy" on 4H chart with 1890 target, others could add shorts around the same level - depending on what positions trader has on the hands right now.
Gold market was following to the common trend this week that is based on dollar strength. As a result, it has made an impact on all markets across the board - starting with equities, FX market and right to commodities as well. In two words speaking - lack of new stimulus pack, mixed Fed comments, rising of CV19 with fear of possible second lockdown and political uncertainty rising demand of US Dollar. Despite that this new tendency doesn't hurt yet longer-term expectations, still the sell-off has significant pace, so it might happen that we're not at the bottom yet.
Gold dropping has started right from Monday, sliding to its lowest level in more than a month, as a broader market sell-off driven by uncertainty over more U.S. fiscal stimulus pressured the precious complex along with a stronger dollar.
“Gold should be trading higher on safe-haven demand but it’s kind of a repeat back like in the spring when the market sell-off comes, market participants have been selling off assets across the board,” said Bob Haberkorn, senior market strategist at RJO Futures. There’s just a lack of safe-haven buying and it’s following the sell-off in equities and dollar strength is an additional weakness.”
“The chances of Congress agreeing on any stimulus package before January is asymptotically close to zero,” said Tai Wong, head of base and precious metals derivatives trading at BMO. A move back and close above $1,900 is needed to grant a short-term reprieve but looks like we may have to test the lows of the correction, $1,863 at some stage soon.”
The U.S. Congress has for weeks remained deadlocked over the size and shape of a fifth coronavirus-response bill, on top of the approximately $3 trillion already enacted into law. Gold has been feeding off progressive rounds of more stimulus and the fact that this has stopped in the United States – at least for now – seems to have halted the gold rally in its tracks, ED&F Man Capital Markets analyst Edward Meir said in a note.
U.S. President Donald Trump’s bid to quickly fill the U.S. Supreme Court vacancy left by the death of Justice Ruth Bader Ginsburg left investors fretting over the chances of more fiscal stimulus before the election. Governments are unlikely to roll out stimulus at a similar scale seen when the coronavirus first emerged, even if cases soar as they have already used much of the ammunition, Bank of China International’s Fu said.
On the technical side, spot gold may retest support at $1,886 per ounce, a break below which could cause a fall to $1,855, said Reuters technical analyst Wang Tao.
Chicago Federal Reserve President Charles Evans said the U.S. economy risks recession, if the U.S. Congress fails to pass a fiscal package.
“Gold is currently taking its cue from the dollar ... and the dollar strength continues to weigh on gold,” said Standard Chartered analyst Suki Cooper. “We could see a retest of the lows from early August, the next technical support level thereafter is around $1,840 per ounce, however prices are closing in on oversold territory.”
On Wednesday data showed Germany’s private sector has recovered less than expected in September amid weakness in domestically driven services. German consumer morale also improved less than expected, a survey showed. An earlier report showed French business activity slowed to a four-month low in September, with services weaker than expected, as France struggled to contain a surge in new COVID-19 cases. In Britain, the economy also lost momentum, a business survey showed, as consumer-facing sectors suffered, notably from the end of a government subsidy to support restaurants.
U.S. business activity cooled in September, with gains at factories offset by a retreat at services. Investors now await weekly data, which is expected to show U.S. jobless claims fell slightly but remained elevated. Euro zone business growth ground to a halt this month as the service industry slammed into reverse, knocked by a
resurgence in COVID-19 cases prompting governments to reintroduce restrictions, a survey showed.
Adding to the uncertain outlook for gold, U.S. Federal Reserve officials reaffirmed their low interest monetary policy until the labour market recovers or inflation rises to 2%, but failed to offer a path for further stimulus.
“It seems the Fed has pretty much tied themselves into no immediate action... So, the stimulus side of this trade is looking rather bleak in the short term,” Edward Moya, a senior market analyst at OANDA, said.
“The market continues to re-evaluate its previously very optimistic stance on the status of global risks out there,” said Ben Randol, senior FX strategist at BofA Securities in New York. “The news flow has been negative on the virus and negative on growth. We’ve had some crummy data and also we’ve had the Fed speakers that have been on balance considerably less dovish than the market seemed to expect, which puts positions at risk,” Randol said.
Randol also cited comments from the Federal Reserve after Chicago Federal Reserve President Charles Evans sent investors to the safety of the dollar on Tuesday by floating the idea of rate hikes. To Randol, this suggests the Fed is reserving its right “to pre-emptively lift rates” if it sees inflation as problem.”
This Evan's statement was treated as extremely hawkish by investors and brought more confusion rather than clarity in understanding of Fed policy.
Lack of clarity in the Fed’s comments has boosted dollar demand. People were hoping the Fed would be more specific about its medium- and long-term goals last week, according to Thierry Wizman, global interest rates and currencies strategist at Macquarie Ltd in New York.
“The various Fed speeches since then have not really fixed the matter. They continue to be very ambiguous. People who have been short the dollar for the last few months are taking it as an opportunity to unwind their positions,” said Wizman.
There is the broad assumption in the financial markets that the U.S. Congress will not provide any further economic stimulus for at least the next several months, which is weighing on gold, said Jeffrey Christian, managing partner of CPM Group.
“So, the confirmation that things are getting worse economically, as you saw in the unemployment figures, has pushed gold down.”
Data showed the number of Americans filing new claims for unemployment benefits unexpectedly increased last week.
At the same time there was information on the market that Democrats in the U.S. House of Representatives are working on a $2.2 trillion coronavirus package that could be voted on next week. Also as much as $380 billion from the U.S. Congress' last big coronavirus aid package is unused and could help households and businesses if lawmakers approve, Federal Reserve Chair Jerome Powell and Treasury Secretary Steven Mnuchin said on Thursday.
“The Republicans and Democrats are on the same page about putting some stimulus but they are not being able to decide the amount and that uncertainty is pushing investors towards the dollar,” said Edward Moya, senior market analyst at OANDA in New York.
There is still "fatigue" in the market as gold has already priced in a lot of the favourable factors and there are a lot of investors already in the market, so it is unlikely that there will be many new ones, ABN Amro analyst Georgette Boele said.
"We are seeing quite a significant shift as far as risk appetite is concerned, while that typically favours gold, for the vast majority of this year that has not been the case," said OANDA analyst Craig Erlam. The risk-off move has favoured a major dollar rebound and that's been a massive drag for gold, he said, adding "I don't think its going to be much longer before we are talking about $1,800."
COT Report
This week gold shows extended deteriorating of long positions - speculators and hedgers massively have closed upward oriented positions. Open interest also has dropped significantly. This promises nothing good for gold perspective in few coming weeks.
SPDR Fund statistics shows interesting picture of divergence between price action and stored gold in fund. But this is because of weekly data. In fact, the top of reserves was achieved on Mon-Tue, 21 September and was around 1278 tonnes, while closer to the end of the week it dropped for 12 tonnes right to 1266 level that we see on the chart. Still the positive sign in this picture that after first sell-off investors were holding positions and were not hurry up to sell them. This provides some hope that current action will be short-term. Besides, autumn is historically (cyclically), bullish time for Gold market.
So, it seems that currently it would be better to focus just on short-term perspective, and do not build extended plans on the future. Besides, although sell-off looks scaring but it is probably too early to review long-term scenario on the gold market. So, what do we know right now? Based on top-analysts comments the cornerstone of current action is a lack of supportive measures. If Fed would tell something about it in statement - market probably remains flat at least, or even climb slightly higher. Anyway, the drop tells that markets are extremely sensitive to stimulus topic and major opinion is we will get nothing till the January. It means that currently market is not priced-in possible new pack that is discussing right now.
Last week, when we've talked about President's run and so on, we said that both sides of the run need to make people happy, but unfortunately they could try to dominate to complete it, rather than just to work together to get the result. It means that Republicans will try to cut any Democrat's initiatives and the latter will try to do the same unfortunately. This will make negative impact on result and unfortunately really could finish with no new stimulus until elections results. But, at the same time chances on positive end also exist. They still could provide necessary measures. And that could be significant driving factor for the gold.
Second what we have from the common opinion is the gold level - majority of analysts tell about 1850$ level and only few of them point on 1800$. It means that common opinion right now that gold stands in retracement and nobody treats this as starting of new bearish trend. In fact, as gold has closed around 1860$ - it is already on the spot. And we need to see what will happen next. I would say - no stimulus breakout and downside retracement doubles making real 1800$ area forecasts. Progress in stimulus discussion could change the situation and return prices at least back to 2000$ area. But to be honest, guys, deeper retracement looks more probable. At least technical signals point particular on this scenario.
Techincals
Monthly
In previous few weeks we were surprised a bit, why market shows no reaction on strong monthly target and resistance area. Now technical picture is becoming more correct and accurate as downside reaction finally has started. This week on monthly chart we have two important moments. But first - lets traditionally put here Stag's long-term view that we hold while market stands with it.
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$+ level. As this is really long-term picture (for years), downside action could be extended in time and developed differently, depending on fundamental background picture.
As you can see, market now stands in downside action where Stag has specified two possible levels - 1600$ or 1360$ depending on overall downside impulse strength. Theoretically, after this level market has to show final upside effort before major reversal will come. This picture doesn't have either 1850$ or even 1800$ but 1600$ level that unfortunately agrees with more extended downside action that we've mentioned above. Stag's picture mostly suggests negative scenario when no liquidity pack will be provided until final power transformation to the new/same President after elections that could happen only by the year end.
Classic analysis also doesn't totally exclude this scenario. September is close to an end and price is getting out from "high wave" monthly pattern. Usually the out direction sets future direction of the price and now it is supposedly down. Second moment - the depth. Classic approach suggests downside action equals to the width of broken range and in our cases gold should double the high wave pattern, that should lead it somewhere to 1780-1800$ area. But this is not the end yet. Take a look that we could get huge "Evening star" pattern here. And this lets us to make two conclusions. First - downside action in this case will continue. Second - it probably takes the shape of big AB-CD pattern on lower time frames. But what is more interesting, that in this case gold appears around the same 1600$ specified by the Stag.
Finally, even this action doesn't hurt long-term bullish construction as this will be just 30% retracement that is absolutely normal after COP target. Besides, market is coming out from overbought area and drop to Oversold is also not the rare thing that you could see.
Weekly
As we've said last week, in case if market will drop below the recent lows "Light" retracement scenario will be vanished and we should be prepared to more extended downside action. Thus, we're in. On the table of the next week we have 1836$ major support level to consider. Despite that longer-term picture keeps stronger and longer bearish action intact, in short-term we could get reasonable bounce out from here as price is also oversold.
Daily
Here is the plan. In fact, it is not new as we've talked about it month ago, but price was postponing to follow it. Now it is becoming a reality. So, As we've said 1836$ is on the table, and around it we have K-support actually and Agreement as OP stands 1802$. Here is also butterfly extension and daily oversold level. As OP stands under the support area - be careful and plan trades with stops below the OP, which could be reached by some spike probably through the level.
Intraday
Intraday scenario looks minor on a background of daily and weekly pictures and mostly has tactical purpose. First is, we have XOP from minor extension that stands in the same area of daily K-support. Second is, price right now stands at butterfly 1.618 extension and theoretically it suggests minor upside bounce to 1890 area. How to use it - is upon you. Those who keep longs from 1900$ area could get chances to out with minimal loss, scalp traders could consider, say DRPO "Buy" on 4H chart with 1890 target, others could add shorts around the same level - depending on what positions trader has on the hands right now.
