Sunday, November 10, 2013

Gold Weekly Nov 11-15, 2013

Fundamentals
On gold market we see dramatic action now. As Reuters reports gold dropped 1.7 percent on Friday, notching its biggest one-day fall in more than a month, as surprisingly strong U.S. jobs data raised the prospect that the Federal Reserve may soon decide to temper its bond-buying stimulus. A flurry of sell orders in heavy volume sent U.S. gold futures over $10 lower just minutes after the October nonfarm payrolls data, setting a weaker tone for the rest of the day. A similar move in gold futures was also seen after Thursday's strong GDP report – take a look at the chart:
U.S. job growth unexpectedly accelerated in October, with employers adding 204,000 jobs, while 60,000 more jobs were created in September and August than previously reported, the Labor Department said. "Those payroll numbers made the folks who buy gold nervous as they did not go in the direction they wanted to see, suggesting that tapering could be back on the table," said Axel Merk, chief investment officer at California-based Merk Funds, which have $450 million assets under management. Gold has lost about a fifth of its value this year due to fears the Fed would begin cutting back its $85 billion monthly bond purchases. The metal's inflation -hedge appeal has been burnished by the bond purchases and low interest rates. "At the moment, the market is looking at underlying growth and can see how the U.S. is accelerating and that very simply leads to tapering one way or another, which is obviously not bullish for gold," BofA Merrill Lynch analyst Michael Widmer said.
The metal had managed a rebound in recent weeks after a prolonged budget battle in Washington in October led investors to believe the Fed may not start withdrawing support for the economy and possibly push the tapering into next year. However, after Friday's strong jobs report, some economists said it would be unwise to rule out chances the Fed could curtail its bond-buying as soon as its next meeting in December.
CFTC data shows significant increase of short positions. Although gold still stands as net long, but there was a solid contraction of it. Another moment that we see here is that this contraction of net long position is not supported by open interest. It is difficult to expect this moment. If we would see growing open interest previously and its contraction now – that easily could be explained. But, as you can see open interest stands flat and shows no reaction on whether increasing or decreasing net position.
Monthly
Whether we will get upward retracement and possible BC leg of larger AB=CD down move or not – that was our question for previous months. Chances on this event are melting. While october has shifted to doji right in the end of the month, November is started to show its face and moving down. Currently this action does not look like possible upward reversal and starting point of notable retracement up. Fundamental situation and CFTC data also stand not in favor of possible appreciation. Seasonal trend is still bullish, but it is not always lead to growth. Sometimes, it could just hold depreciation and now we see something of this kind, since market stands in some range since August.
Our previous analysis (recall volatility breakout - VOB) suggests upward retracement. As market has significantly hit oversold we’ve suggested that retracement up should be solid, may be not right to overbought, but still significant. Take a look at previous bounces out from oversold – everytime retracement was significant. Thus, we’ve made an assumption of possible deeper upward retracement that could take a shape of AB=CD, and invalidation for this setup is previous lows around 1170s. If market will pass through it, then, obviously we will not see any AB=CD up.
Now market is approaching to previous lows and probably will take a second challenge of major 1283 Fib support. Once it has been tested already. The second test will clarify situation on monthly chart, probably. If price will hold around 1200, it could turn to weekly Double Bottom and our upward reaction on strong oversold and VOB could start. But if price will break through it – then we will continue move down, since market is not at oversold now and has a lot of free space till 1130.
That’s being said, current situation on monthly chart looks mostly as indecision, although theoretical chances for upward continuation still exist. At the same time growing concern of investors about QE tapering and CFTC data in long term perspective could change picture on monthly chart. 

Weekly
On previous week we’ve discussed the reasons why we think that situation here looks bearish. First is, take a look – market has shown reversal without any technical reasons, price is not at resistance or overbought. When price stands in upward AB=CD it should not show reversals prior hitting at least minor 0.618 target. But here we see solid downward move right after appearing of potential “C” point of AB=CD pattern. Second – action has taken a shape of bearish engulfing and price has moved below MPP. Based on this chart, possible point of return to bullish sentiment and trend is breakout through 1380 top. Until that will happen, engulfing pattern will hold and situation will remain bearish in short-term. Also, keep in mind guys, that current action easily could shift to Butterfly “buy” as we’ve suggested previously. If this will happen market will be under way to 1115 and 1025 areas.
Appearing on engulfing pattern probably will return market to second test of 1250-1275 support area. It includes 5/8 Fib support and MPS1. Despite on strong action in recent month, CFTC data suggests that all this action happened and is happening without new opening position, since open interest stands the same. This puts us to conclusion that may be market still indecision, despite solid action that we see. It means that big market participants make money on some tactical trading, but major game will start after breakout in any direction and one of the key levels here is 1170 lows.
In short-term perspective we have enough room till 1250 and probably will search possibility for short entry.

Daily
Trend is bearish here, market is not at oversold. On Friday market has hit 5/8 Fib support and minor 0.618 AB-CD target. Previous action down is solid and if it will continue, next target will be 1240 that will lead to taking out previous 1254 lows. Still as market stands at support we could get a bounce up and try to use for short entry. Also, take a look – on the way down price will meet significant area – crossing of WPS1 and major trend line around 1270. Passing through it is 50% success to 1240.

4-hour
As market has hit just minor AB-CD target on daily time frame, retracement should not be too deep probably. It seems that K-resistance 1308-1311 and higher stand WPR1 is nice area for possible re-establishing downward action. Also prior this level we have combination of WPP and Fib resistance around 1300.
Conclusion
Overall long-term picture gradually is shifting to bearish around the gold market. Currently major investors stands indecision or do not take active part on gold market and do not hurry to increase positions, as it follows from CFTC data. This situation probably will hold until market is flirting inside wide triangle that we once discussed on daily chart. But as soon as price will break through it (and this could happen on next week already), this probably could involve more traders and lead to inflow of new money.
In short-term period market looks bearish and we will try to use possible rally up for short entry.
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