It was hard week for gold market. A lot of unwelcome moments have appeared almost simultaneously and this has led market to solid plunge down. As Reuters said gold rebounded on Friday on late bargain hunting, but poor technical momentum, easing tensions with Syria and expectations that the U.S. Federal Reserve will unwind its monetary stimulus led to the metal's largest weekly loss since late June. After falling as much as 1 percent to hit a five-week low earlier Friday, bullion ended up 0.3 percent on buying related to pre-weekend book squaring late in the session, traders said. Most important reasons for this drop were Syria, future FOMC meeting and risks of QE contraction and US data.
In late August, gold surged to a three-month high above $1,430 on concerns Western powers led by the United States would launch military strikes on Syria. Since then, the metal's price has lost almost 8 percent. On Friday, Russia and the United States agreed to a new push to negotiate an end to Syria's civil war as they discussed a plan to destroy President Bashar al-Assad's chemical weapons in order to avert U.S. air strikes. As tensions with Syria cool down, the risk premium that had quickly pushed the gold market sharply higher is now being taken off very quickly," said Sean McGillivray, head of asset allocation at Great Pacific Wealth Management. On Thursday, gold fell 3.5 percent after a sudden price tumble in the futures market shattered investor confidence. The metal also broke below its 100- and 50-day moving averages in the previous session. So, guys as Reuters confirms this rumor, thus, may be this is really true, as we’ve discussed it on forum.
For the second consecutive day, choppy trading in precious metals came as outside markets including U.S. equities and the U.S. currency barely responded to economic indicators.
U.S. data showed consumer confidence ebbed early this month and retail sales advanced just slightly in August, the latest indications of a lack of momentum in the economy. Another report on Friday showed an energy-led rise in wholesale prices last month but subdued inflation pressure. Now traders turn their attention to the Federal Open Market Committee which is expected to release a policy statement at the end of its two-day meeting next Wednesday. Consensus is building among analysts that the FOMC could announce a plan to begin slashing its $85 billion monthly bond purchase program.
CFTC data shows the same picture as on previous week – flat open interest and growing net long speculative position. On “reasonable” market it could mean that downward retracement is possible. But now, with Syria turmoil, it could mean that market just waits something.
Sometimes it also happens in the points of trend changing. As previous swing up was just initial move up (reversal swing) after long-term bearish action, some solid retracement down is possible on gold. SPDR Fund data also does not shed more light on the picture since it again has shown 2 tonnes contraction.
CFTC data shows decreasing of Open Interest at decreasing of net long speculative position. It means that in general this drop on previous week has taken place at less volume and was not supported by market. But, at the same time, Open Interest shows flat action within previous 3-4 weeks, so, actually here we can’t speak about some notable change.
Thus, combination of different factors has shown solid negative impact on gold, but most interesting stands ahead - particularly speaking, FOMC 18th September speech and situation on Syria. It is still too far from final solution. So anything could change really fast.
Even from technical point of view – we’ve talked that there should be deep retracement down. Although we prefer gradual and reasonable action of investors but not panic, but still, speaking from position support levels, even this plunge is not a death sentence, since price still holds in area of reasonable retracement.
Monthly
September black candle is not a tragedy and even looks absolutely reasonable. Take a look, we have almost a year of consequtive drop – month by month. Previous 2 candles were the first ones up. Bearish momentum is not disappear it still on the market and presses on it, does not let market freely change sentiment. Thus, such sort of “returns” should not surprise us. All other analysis here is still the same. Current move down probably should become a part of compounded retracement up, until market will not take current lows. Only in this case we could say that bearish trend has continued.
We keep in mind Volatility breakout pattern and know that there will be 3-leg downward action. This means that current bounce will be just retracement probably. Second, currently we know that market at support – Fib support, target of rectangle breakout, completion of double harmonic swing down and monthly deep oversold. Unfortunately monthly chart does not give us much assistance in short-term trading. One bullish pattern that probably could be seen here is bullish DiNapoli “Stretch” pattern, since market stands at deep oversold right at Fib support. Target of this pattern is a middle between Oscillator Predictor Bands – right around 1550$ area. That is also the lower border of long-term consolidation after historical peak. S&P analyst specifies approximately the same target. This area agrees with “Stretch” pattern as well.
Weekly
On previous week we’ve said that market stands indecision with these two doji that have been formed recently. That has led to drop. But, guys, do you see any terrible and drastical here? Market shows move down, but stands somewhere between 38,2-50% support area and MPS1. Is there something freak with it? Hardly, at least not yet, probably. Take a look, even on previous week we’ve talked about possible deep retracement:
“The backside of all this stuff is possible deep retracement. This happens quite often when initial reverse swing is done, since downward momentum is still strong and it just does not let market freely continue move up. CFTC data also points on this probability. As situation around Syria shows some relief, at least until 9th of September, gold also will loose some support that previously was granted by geopolitical turmoil. All together these factors could lead to retracement down. We know that gold market likes 5/8 retracement and that really could be so.”
So, we do not even have passed through major 5/8 support area to call an alarm. Trend is bullish, and what is interesting – it will remain bullish even if market will reach 1276 Fib support level.
Speaking about most unwelcome bullish scenario, if market will take out current lows around 1170 that probably will destroy bullish context and let us talk about re-establishing of long-term bear trend.
Daily
Well in such kind of situations, despite how bullish you could be and despite the strength of support level – we just can’t take long position… until will not see patterns or something that could confirm possible retracement.
Here we see all signs of weakness and most valuable among them is passing through K-support without any respect. Also price slightly has passed through 1.618 extension target. Market directly has reached 50% level. That’s the first reason why it’s just dangerous to take long position blindly here, only based on the fact market has fell “too much”.
Second reason is a range of black nasty candle. It’s really solid and as a rule such candles never end suddenly they need some time to fade out momentum. And this “some time” could take a shape of some pattern on lower time frame. Of cause some of you, probably could point on hammer that was formed on Friday and it looks attractive since allows place tight stop, but I’m not very fascinating with it, mostly due the moments that we’ve just discussed. Market has passed through K-support area, what hammer we could rely on?
That’s being said, unfortunately daily chart cares nothing interesting for trading by far. I can’t exclude that market will proceed even lower to 5/8 support as we’ve discussed above, in weekly analysis.
4-hour
Here action is not very informative as well. No patterns, except may be small bullish engulfing right at bottom, but this could be just end-of-the-week position closing. If market will start some bounce up and if you’re bearish, there are 2 major levels to watch for K-area around 1355-1360 and combination of WPR1 and Fib level around 1380-1384.
If you’re bullish, then probably it will be better to wait some more valuable setups then hammer on daily chart and some suspicious bullish engulfing here.
Conclusion
Currently market is a bit boring, not by the action but by our possible participation. Although plunge was strong, currently we have no clues how will be better to step in, will it be any retracement, if it will be how deep it will be. All that we can do now is just estimate levels to watch for, since they are probable retracement target.
Nearest events, as FOMC meeting could drastically impact on situation here, because CFTC report shows that although price moving, it has no support from trading volumes and in general market still indecision. Still here is a solid probability that market will reached 1276 Fib level.
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TO BUY OR SELL GOLD OR ANY OTHER INVESTMENT VEHICLE LISTED.
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I do not accept responsibility for being incorrect in my speculations on market trend.
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