Sunday, August 3, 2014

GOLD PRO Weekly August 04-08, 2014


Fundamentals
As Reuters reports, Gold rose nearly 1 percent on Friday, snapping a four-day losing streak, as disappointing U.S. non-farm payrolls data dampened talk of an early interest rate rise by the Federal Reserve and increased bullion's appeal as a hedge. The yellow metal, however, posted a 1 percent drop for the week, for a third consecutive loss. On Thursday, gold prices slid to a six-week low on reports showing strong U.S. economic growth and wage increase.
Bullion gained after data showed U.S. job growth slowed in July and the unemployment rate unexpectedly rose, pointing to slack in the labor market that could give the Fed room to keep interest rates low for a while.
The Labor Department said non-farm payrolls increased 209,000 last month, below economists' expectation of a 233,000 job gain. Unemployment rate also rose to 6.2 percent from 6.1 percent as more people entered the labor market.
"People were looking for a big payrolls figure and they didn't get one, so gold gained," said Matthew Turner, metals analyst at Macquarie. Analysts said that gold's gains were capped when the metal failed to breach strong technical  resistance near its 100-day  moving average at $1,298.
Demand for physical gold in Asia failed to pick up in a robust way despite the price drop on Thursday, a dealer in Hong Kong said. Metals consultancy GFMS, a division of Thomson Reuters, warned on Thursday that buying in the main physical gold markets of China and India may not be strong enough to provide a floor for prices this year. Meanwhile, sales of American Eagle gold coins by the U.S. Mint dropped about 40 percent in July from a year earlier.

CFTC data shows solid drop in Open Interest. This indicates massive closing of positions in gold market. As Net position has not changed significantly, this is probably could mean that investors just exit out from a gold and close as longs as shorts.
Monthly
Market has moved lower on previous week, despite on Friday’s attempt to return right back up. Despite solid upward action our bearish grabber is still valid and price should pass solid distance to change situation drastically. Situation could change only if market will move above 1400 area.
In general, all that we’ve said yesterday in EUR research has a relation to gold as well, since this is also dollar-related asset. Althgough investors have not got hawkish hints from Fed and recent NFP data was slightly lower than analysts poll, major factors are still valid - good economy data, that right now is confirmed by US companies earning reports, week physical demand – all these moments prevent gold appreciation. The only factor that could support gold somehow is gepolitical tensions. Previously we have turmoil in Iraq and Ukraine, now Israel and Palestine added.
Grabber pattern is important, but June, and especially July has blocked gradual downward action and white candles break the bearish harmony of recent action. Next upside important level is 1360 – Yearly pivot point. If market will move above it – this could be an indication that gold will continue move higher and this really could become a breaking moment on gold market. Otherwise, grabber will be valid and potentially could lead price back at least to 1180 lows again.
That’s being said, situation on the monthly chart does not suggest yet taking long-term positions on gold, since everything could change on coming week. Still, fundamental picture is moderately bearish in long-term. Possible sanctions from EU and US could hurt their own economies (especially EU). Many analysts already have started to talk about it. It means that economies will start to loose upside pace and inflation will remain anemic. In such situations investors mostly invest in interest-bear assets, such as bonds. Inflation also will be depressed and this is negative sign for gold. 

Weekly
Coming week probably will pass under the sign of bullish weekly grabber that we’ve got on previous tough week. In fact, this pattern could become a clue to medium term perspective of the market. Currently we can point different factors as supportive for upward action as opposite, such as weak demand, but pattern is a pattern. It should either work or fail and until situation with this pattern will not be resolved – we can’t take short position. We would better call for tactical long position and trying to use this grabber. Why this pattern is so important?
As we’ve said previously - in nearest couple of weeks the major question will be whether gold will hold above 1335 or not. And now we stand at hot point. Usually reaching of minor target does not suggest deep retracement. If market is really bearish it should continue move down soon and 1335 level – 5/8 Fib resistance will become the last edge. Retracement above 5/8 level will be too deep for minor bounce after reaching just minor AB=CD target. Spot traders tell that as soon as market reaches this area – buying volume starts to decline significantly and this is also confirmed by recent CFTC data. Although on previous week market has shown not bad bounce down, but it still stands relatively close to 1335-1340 area and everything still could change. Thus, appearing of grabber could significantly impact on situation.
If grabber will work and market will hold above 1335 area, gold could form butterfly “Sell” pattern.

Daily
Here, guys we will not take a look at big swings and large scales, but focus on weekly grabber. It has appeared right at 5/8 Fib support and accompanied by bullish engulfing pattern. Market has not tested yet any monthly pivot levels. If grabber will work, market should take out 1347 top.
Still risks also exist here. The major one is AB=CD down. Despite the fact that CD leg is much flatter, market has not reached as initial AB=CD target as most recent AB=CD. This is warning fact for grabber setup.
4-hour
This chart does not add much to overall picture, but still, here we can see falling wedge pattern accompanied by MACD divergence, that potentially could become bullish in medium-term perspective. Also we have solid 1310 natural area of support/resistance. As we can see, previously market was not able to return back above 1310. So, if it will happen after breakout of the wedge, this could become significant bullish moment.

1-hour
So, taking into consideration risks, that we’ve mentioned above, if you will decide to trade grabber – it is better to take position as close to invalidation point of the grabber as possible. 5/8 Fib support at 1286 may become one of suitable levels to do this. In this case risk still will be not very small, but acceptable ~ 6$ per contract.
Conclusion:
Situation on gold market remains sophisticated. Despite some obviously  bearish moments, such as  bullish USD sentiment, lack of physical demand, gold does not show real downward acceleration and we could see that gold troubles downward action. Definitely that there are some reasons for that and they probably are not limited by just geopolitical tensions.

Samer Al Reifae
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