Gold Weekly Update

Fundamentals

Previously, guys, we’ve discussed the major topic for gold market – Fed’s sentiment changing in assessment of US economy. On previous week this topic has got a continuation. Particularly speaking – we see different price action on Gold, Platinum and Palladium. Gold market, despite good  NFP numbers has not shown expected move down and actually has finished the week with nominal growth, while Platinum and mostly Palladium have shown significant growth. Palladium funds note about solid inflow and exchanges report on significant delivery increasing on this metal. Why this is happening? Despite good numbers, many experts suggest that this is not sufficient to expect closing of QE program in nearest time and probably Fed will need some more month-to-month positive job data to take some active steps with this direction. This moment reduces pressure on gold and let keep gold prices flat. At the same moment, undercover gold weakness is continuing – largest SPDR gold fund holding continue to decrease and reaches 16-month low with loosing 2 more tones on previous week. Latest COT report confirms bearish pressure growing. Thus, on surface gold can look like stable, but in reality the foundation of gold market is weak. 

At the same time, strong demand increase for Palladium is triggered by anticipation of car sell booming, since palladium and platinum actively used in Car manufacturing. Platinum and palladium are used as auto catalytic converters to clean exhaust fumes. While palladium is widely employed in gasoline engines, platinum is a more effective auto catalyst for diesel cars. Thus, holdings of greatest Palladium U.S. ETFS Physical Palladium Shares rises 20 percents. Overall palladium holdings have reached 17-month highs. We should not forget about stock rally as well. DJIA now stands at all-time highs. So appetite for risk is rising again. 

In the light of opposite price changing, on next week we should probably to take a look at precious metals spreads, particularly on Gold-Platinum and Gold-Palladium spreads.

So, gold looks heavy now, mostly due more and more signs of economy improving and reducing risk aversion. Investors now hurry to “US-growing economy” pie and try to anticipate major trends in all assets that are common to economy growth cycle stage, trying to open positions prior major rally will start. Growing demand in palladium and copper confirms turning to industrial metals with simultaneous reducing gold positions. 

Although gold can hold for some time on thoughts that Fed needs more confirmation from data on economy before real  hawkish steps – this is probably the question of time. There are just few moments that can  support gold. They are May18 debt ceiling debates and budget deficit cutting that could negatively impact and constrain growth in economy. And this really could happen – just take a look at UK. They have turned to economy but no positive effect yet. 

Now let’s take a look at particular data - first of all on CFTC report, as usual. 

It shows pure  bearish environment – increasing of open interest with simultaneous reducing of net long position by speculators. In fact net long position has reached 2007 low. As we’ve noted earlier – growing open interest with decreasing of net long position suggests that more and more short contracts were opened.

Analysis of SPDR Fund holdings with Gold price shows the same heavy picture. Although price has held at the same level during previous week, SPDR fund still lost 2 tones of yellow metal. 

Comparing Open Interest with Gold Price also looks bearish. If previously Interest increases at price growth and decreases at decline – now picture is changing or even has changed already and open interest supports sell-off by volume growth. Although open interest increases on stable prices – do not forget drop in net long position and physical holdings of ETF funds. So, picture here is bearish as well.

Market participants gradually turns from just panic sell-off to reasonable contraction of positions in gold and already starting the preparation for money flow with anticipated US economy growth. Still, currently this early economy rally euphoria has significant risks – lack of consecutive positive data, Fed indecision concerning QE program, May US debt debates and long-term budget sequestering program that could just burke an economy with ending tax benefit program. Thus in short-term perspective looks bearish, but we should be careful in assessment of long-term trend and it is too early to say that long-term Gold bull trend is over. I do not even dare to suggest what will happen if economy will get a negative impact from budget savings program and what particularly Fed will be able to say. This will be totally blur situation. While ECB notes that recession in EU economy probably will increase in nearest future and having Italy downgrading to BBB+ with negative forecast on a back – I feel some lack of confidence to state that US economy will show flawless and tremendous growth. 

Pure technically, as we’ve noted – even move to 1200-1300 will be just minor retracement to major 3/8 support level. But currently fundamentals point that in nearest future gold is bearish and probably downward move sooner or later will continue. 

Monthly

There are no much changes on monthly chart. Trend holds bearish here. March action looks not very impressive; in fact it is inside small action compares to February. Besides, on previous week price stood in a tight range as well. Thus, all that we’ve said previously – we can repeat here again. 

Previous action and February month showed solid bearish power. As we see in previous month – gold rather significant penetrated oversold line and definitely it can do this again. Previous two touches of oversold market has pierced it for 50-70$ per contract. As we’ve said on previous week, it is difficult to predict – will market try to reach 1535 support and Yearly pivot support 1 by some spike or not, but what we can say – it hardly will pass this level at oversold. Also take a look that all price action holds almost for 2 year in a range of black candle of September 2011. It’s high and low levels now become extremely important, because it could be really significant move after breakout of the low. Harmonic swings also point on 1530 area. So, next target here is 1530, while we still should keep in mind really big picture and possible retracement even to 1200+ area. 

Weekly

Trend is bearish on weekly chart. Market still stands at monthly oversold, 0.88 support and 1.618 weekly AB-CD target – rather strong support area. Previous week was rather small and in fact is almost an inside week. Market has not quite accomplished harmonic swing up and as we’ve said in daily updates, usually you count on a bit greater retracement up, if market at solid weekly support and monthly oversold. Probably market will still able to show it and here exceptional value stands with current low. Until it holds – deeper upward retracement is possible. If market will take it (I do not mean W&R) – then probably we will have to forget about retracement up. 

By the way - take a note that MPS1 stands in agreement with yearly Pivot support 1 around 1530 area.

Daily

Here we definitely could say only one thing – further price action will probably develop in the direction of range’s breakout. Although initially we’ve thought that may NFP release will trigger the breakout – this has not happened. Now we have rather complex situation. From one point of view – market has shifted trend to bullish but stuck in tight range and price action does not confirm trend direction. This is a bearish moment. From the other point of view – on Friday market has shown failure breakout of the range down. In most cases this leads to breakout in opposite direction or, at minimum price should reach opposite border of consolidation. 

Taking in consideration the gold’s property to grab stops everywhere when it just can do it – it will be not typical if price will left current low behind and will not clear it from stops that now stand slightly below it. In such circumstances may be using stop entry orders will be safer than limit orders. Because if market will take the Friday’s low then probably it will continue move to next low as well, while upward breakout could mean that Double bottom pattern is in progress. 

On any other market I would feel calm and could easily trade this double bottom, since market already has touched 1.618 target on weekly and there is no reason to move lower again before retracement, but here I do not have this confidence. 

4-hour

Since market has stand tight on previous week – current consolidation almost coincides with range that marked by WPS1 and WPR1. This will give us solid assistance. If market will move out any of them – that could be a signal of breakout and further development with this direction. The major moment here is to not get just a wash and rinse of current borders. We need to see real breakout. Don’t pay much attention to trend here. All bullish stop grabbers have failed and market has formed new one – bearish, but this is not as important now as direction of breakout of this consolidation. 

1-hour

It could turn that hourly chart contains major moment for overall next week. Take a look at NFP release price has done nothing except hitting 1.618 target of AB-CD pattern. Price held slightly above it for a long time – almost whole week, but right at NFP – it was W&R and hitting of 1.618 target. In general this is short-term bullish sign. If market will still show upward breakout, then we can count on move to 1610 at minimum. If upward breakout of consolidation will be real then move to 1610 will let us to place stop at breakeven and protect position, if even market then will turn down again. Recall – one of the our scenarios here is butterfly “Buy” and it is still possible, as well as Double top. Major moment stands in relation whether market will take out previous highs around 1620. If it will just accomplished upward breakout of current rectangle and then will turn down – then butterfly will take the lead, while move above 1620 – is a solid challenge on possible Double bottom and greater retracement up. But this will be second step. First is – trying to understand and take a position on current consolidation breakout. And, as we’ve said, possible stop entry orders will become not bad idea here.

Conclusion

Fundamental picture has not changed much, sentiment on gold market is moderately  bearish and downward move should continue in long-term perspective, although it probably will be a bit slower.

Still, technically market is oversold on monthly chart and has reach significant weekly target that’s why we still expect some deeper upward bounce on daily time frame . This possibility will be valid until current daily low holds.

How retracement will happen now depends on possible breakout of small  consolidation , but it could take the shape either Double bottom or Butterfly pattern. Since it will be risky to catch position when after breakout, especially if market will turn to Butterfly and show upward move just to 1610, then think about using of stop entry orders or some other tools to protect your position and take only reasonable risk. 

 

YOU SHOULD NOT TAKE ANY MATERIAL posted on this BLOG AS RECOMMENDATIONS 
TO BUY OR SELL GOLD OR ANY OTHER INVESTMENT VEHICLE LISTED. 

 Do your own due diligence. 

No one knows tomorrow's price or circumstance. 
 I intend to portray my thoughts and ideas on the subject which may s be used as a tool for the reader. 
I do not accept responsibility for being incorrect in my speculations on market trend. 

 King Regards