Gold Weekly May 06-10, 2013

Fundamentals

There were not much fundamental events on past week. In fact, as stocks earn more and more gain and inflation fears have stepped back for awhile, investors probably will continue to doubt gold, or at least will have shallow interest to it. 

Thus, better than expected NFP data, as we’ve suggested, showed negative impact on gold as Fed Reserve has less and less reasons to keep QE program. The metal came under pressure as the S&P 500 and Dow Industrials rallied to intraday records after data showed U.S. non-farm payrolls rose 165,000 last month and the jobless rate fell to 7.5 percent, the lowest since December 2008. In fact, if job numbers will show desirable consistency as well as domestic demand and growth – it could lead to acceleration of gold depreciation. 

Although we see a lot of signs greater liquidity inflow in world economy, such as Fed promise to continue $85B monthly bond purchases, reducing ECB rate and intention of Bank of Japan to inject about $1.4 trillion into its economy to spur growth. Still, as there is no such thing as a 

hyperinflation scenario for at least the Western countries, that's why many investors think that gold will suffer in the medium term.

Supply and demand data in general support sentiment picture. Thus, we see decreasing of open interest with anemic growth in net long position of speculators:

SPDR physical holdings continue to decrease….

While open interest is falling as price goes up – typical combination for retracement:

Monthly

By April bar close Volatility Breakout setup was vanished. Thus we’ve missed one of the bearish patterns that added a lot confidence with bearish continuation. In two recent weeks we see gradual move up on lower time frames. This makes me think that this manner of price moving is typical when market is trying to come out from oversold impact. Otherwise, price should show upward impulse action that we do not see on daily time frame. Fundamentally many investors explain this pullback by growing physical demand in Asia (India and China mostly) on bullions among population. This probably can be additional factor growth, but in long-term perspective gold is not driven by demand/supply, since they are mostly stable year to year. 

All other comments that we’ve made previously still holds. Trend is bearish here, as well as price action. Market has significant bearish impulse that probably should lead to some continuation. The nearest destination point is a harmonic swing target at major 3/8 Fib support.

Still from technical point of view it is difficult to find reasons now to take long-term bearish position, since it will constantly be under the risk of significant pullback due oversold condition

Weekly

On previous week we’ve made assumption on possible upward bounce mostly due couple of reasons.

First is combination of 1.618 extension and oversold condition. This is a kind of DiNapoli directional “Stretch” setup that is called as “Kibby trade”. General rule of trading it assumes dropping time frame to daily and wait when trend will shift bullish, then taking long position at retracement and take profit at nearest AB-CD target up.

Passed week almost adds nothing to overall picture, since price action was rather tight and this week is inside one. At the same time this could indicate indecision and turning market south as starting point of retracement that we’re waiting for.

Second I’ve drawn as Butterfly “buy”, but to be absolutely honest this is not a butterfly since second top is exceeded initial Butterfly swing. We could not treat it as butterfly, but idea is the same – market at 1.618 extension of butterfly swing. Thus, price was held by support of three different issues – oversold, AB-CD extension and retracement swing extension.

I still see no other setups or patterns here that we could trade except to stick with DiNapoli directional pattern and count on the moment that gold likes to make deep retracements up. Currently we see that market stands at K-resistance area so may be it makes sense to search for reversal patterns on lower time frames. In fact, it looks like gold has completed first stage of trading plan – has shifted lower time frame trend to bullish and, as I hope has completed initial swing up. Now it will be great if retracement down will follow. 

Daily

As you can see price action was quite anemic on previous week. In fact, market stands in the range of previous Friday, which is high wave pattern. Although trend holds bullish, overall price action indicates market contraction and indecision condition. After such kind of consolidations market usually shows fast move in one or other direction. Since we have weekly K-support area at 1502-1503 level, hardly market will pass it in a moment. In fact market just goes nowhere. NFP data was hurtful for gold appreciation, thus I can’t exclude possibility that market could follow to opposite border of consolidation first – that is WPP on coming week as well. Still here we have lack of clear pattern that could let us to understand what to expect in nearest days.

4-hour

This time frame has more information, but still it is very scanty. I still think that market could show upward splash in nearest time. It has a lot of reasons, when it could turn south – even if we will take recent NFP, but instead of it it continues to stand flat with small downward bounces. If market does not want to go down, probably it should go up. The most weigthy argument is bullish stop grabber (almost as on EUR) and small move down during NFP release. Trend is bullish here, market is not overbought on daily time frame. But most probable target is 1503-1505area – weekly K-resistance. Slightly lower WPR1 and AB-CD target stand. Still this is not the pattern yet. If upward splash will happen, we might get something. For instance – H&S...

1-hour

Here is what could happen, if 4-hour bullish stop grabber will work. We could get Butterfly “Sell” or, at least AB=CD pattern with target right at weekly K-resistance area. Conversely, if stop grabber will fail market can start move down without any definite pattern, just by breaking consolidation down. But I probably will talk about starting of downward action only, if market will pass through 1440 lows. 

Very unpredictable price action here guys. Take a look – at first glance moves down look really heavy and fast, that tells probably that bears have a control, but each fast plunge down was overcome by gradual slow upward action.

Conclusion

It is quite difficult to say something definite on gold market – just take a look at price action during previous week. But still even with the lack of patterns, there are some hidden signs of possible upward splash to 1505 area. 

If market still will erase bullish stop grabber on 4-hour chart and turn south – we need to see breaking current consolidation down first. Only in this case we can treat it as bearish pattern.

 

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