Sive Morten
Special Consultant to the FPA
- Messages
- 18,664
Fundamentals
This week all financial world was waiting for the first data, first signs just to imagine what has happened with global and US economy. Although PMI data was surprisingly good, or, at least not as despair as initially suggested, employment has taken all the hit from virus spreading. Data was two times worse. Investors were so upset that after initial claims NFP has triggered no reaction at all.
Now, common view stands that unemployment could reach 20% in US in nearest few months. Scenario of fast "V" shape recovery of global economy is based on few moments and one of them is absence of epidemic relapse. Other conditions are also not simple to achieve - governments around the world put in place packages of financial support that are sufficient to keep those firms that have been told to cease production solvent, and their staff able to pay the bills. Now it seems more on paper rather than in reality. Finally, it is vital that widespread lockdowns are successful in bringing the pandemic under control within a few months. Pandemic should have to start to fade in nearest month or two. Otherwise, it brings the hazard of long-lasting healing and economy recovery that doesn't match to "V" shape.
On a background of all these thoughts investors think on a gold's role in current situation. In pure financial types of crisis gold was dropping as other assets because of zero inflation and no interest generating on the assets. But in times when financial sphere is second and health is the first, gold's role could change. Last week we already discussed this phenomenon of massive sell-off among gold retail brokers in EU, when all bullions, coins were sold out and demand has jumped tenfold. On a background of weak data that suggests slowdown of economy, gold has not dropped even on demand for USD. Finally, we see growing delivery demand on futures contracts.
It means that until risk of long-lasting pandemic holds, demand for the gold hardly drops. We suggest that demand for physical gold will rise by few reasons. More investors would like to get it in their portfolios, second - retail brokers need to restore their reserves. Finally, central banks in a period of weak global economy prefer to invest in gold rather than buying foreign currencies and bonds, especially when yields stand near zero and unprecedented money printing is launched already.
I would like to show you this chart - this is Fed balance. Compare it with the top of previous crisis. In 2008 it seemed that $500 Bln is too much. Now watch this:
The past four weeks saw the largest ever liquidity injection from the Fed as its balance sheet swelled by close to $1.5 trillion thanks to the resumption of asset purchases and additional QE operations. One potential, unintended impact from such global policy stimulus is a bifurcation between assets that can take advantage of this support and those that cannot. Such market dislocations have a tendency to become progressively more extreme, testing policymakers’ resoluteness in their ability and willingness to address them.
Now, if we track the news line of this week, we get clear signs of stable demand for the gold, whatever data was released. The same we see on the charts as well.
Gold prices inched up on Monday after an extension of restrictions in the United States exacerbated concerns about the economic toll of the coronavirus pandemic,
driving investors to safe-haven assets.
"Gold is finally starting to shake its recent mantle as a risk asset and becoming more of a haven asset again, especially with the extension of national social-distancing controls through April 30," said Tai Wong, head of base and precious metals derivatives trading at BMO. "$1,600-$1,610 is solid technical support and has held resolutely which has also helped."
U.S. stocks opened higher as President Donald Trump followed last week's massive $2.2 trillion stimulus package, the largest on record, by extending his stay-at-home guidelines. Lower interest rates and looser economic policy tend to benefit gold because they cut the opportunity cost of holding non-yielding assets. The pandemic has paralyzed economies worldwide. The coronavirus has already driven the global economy into recession and countries must respond with "very massive" spending to avoid a cascade of bankruptcies and emerging market debt defaults, the head of the International Monetary Fund said on Friday.
"The recessionary fallout of the Covid-19 outbreak on the global economy suggests investors are likely to continue to seek refuge in gold," analysts at BNP Paribas said in a note. "We expect demand for gold to remain strong, at least until such time that economic conditions stabilise and the outlook begins to improve following the raft of unprecedented stimulus measures put in place by governments and central banks alike."
The world's largest platinum producers - Anglo American Platinum, Sibanye Stillwater and Impala Platinum - have declared force majeure on contracts after a three-week national lockdown in South Africa forced operations to close.
Gold rose more than 1% on Wednesday as fears over a worsening coronavirus pandemic triggered a flight to safety, with expectations of further monetary easing by
central banks adding support.
"Investors may be shifting to gold for safety," said CMC Markets analyst Margaret Yang Yan, who saw the rebound spurred by President Donald Trump's remarks that the next two weeks of the pandemic could be painful for the United States. "The ramification of easing monetary policy cycle and trillion dollars of stimulus means the market will be full of liquidity and ample supply of paper money in months, quarters or years to come, and that's definitely supporting gold's rally amid very limited supply (of physical bullion)."
Limiting physical gold's supply, three of the world's largest gold refineries said they had suspended production in Switzerland for at least a week after local authorities ordered the closure of non-essential industry.
Holdings in SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, rose 0.3% to 967 tonnes on Tuesday. Holdings of the largest gold-backed exchange-traded-fund (ETF), New York's SPDR Gold Trust, rose 0.18 percent on Wednesday from Tuesday, while the largest silver-backed ETF, New York's iShares Silver Trust, rose 0.05 percent on Wednesday from Monday.
Name New Holdings Date Prev Holdings Prev Abs Change % chg YTD Abs
GOLD (OZ) (OZ) (OZ) Change (OZ)
Total 63,282,408.0 63,202,544.7 79,863.3 0.13% 5,384,072.1
The amount of gold stored in vaults in New York registered by CME Group’s Comex exchange has risen by nearly 2 million ounces, CME data showed, proving ample to settle monthly contract obligations and easing concerns of shortages that sent prices skyrocketing.
Meanwhile, most investors rolled their positions to contracts with future delivery dates, reducing the amount of gold needed for settlement. 24,489 contracts equivalent to 2.4 million ounces for April delivery have been redeemed for metal, the highest monthly total since at least 2011, CME data show. Investors typically use Comex to gain exposure to gold prices and rarely ask to take metal, which costs money to store.
For that reason, far less gold is stored in New York than trades there. If gold is needed, it can be quickly flown on passenger planes from London via Swiss refiners that melt and reshape it to meet Comex specifications. The next active monthly future on Comex is for June delivery, with 359,803 contracts active representing 36 million ounces. Its price is around $25 above London spot gold, suggesting that worries remain.
“There’s still some logistical concerns in the market about not having the right bars in the right place,” said Saxo Bank analyst Ole Hansen.
But he said the price gap would shrink as refineries reopened and the CME launched a new gold contract that can be settled using London standard 400-ounce bars as well the 100 ounce bars it currently takes.
The London Bullion Market Association, which oversees London trading, said last week it was working with refiners, shippers and banks to move metal, including by cargo and charter planes.
Gold prices edged higher on Friday after gloomy U.S. nonfarm payrolls data magnified the economic toll from the coronavirus, although a stronger dollar capped
bullion's advance.
"Gold continues to be in wait-and-see mode on how bad the global economy will get and how long will the depression-like conditions last," said Edward Moya, a senior market analyst at broker OANDA.
The U.S. economy shed 701,000 jobs in March, ending a historic 113 straight months of employment growth, as stringent measures to control the coronavirus outbreak hurt businesses and factories, confirming a recession is underway. The dollar firmed against rivals, edging towards a more than 2% weekly rise, as global recession fears intensified.
"Most traders would expect gold to be higher" after the payrolls data, Moya said. "Gold's problem is that supply tightness is easing and the dollar continues to grind higher. "Ultimately gold will shine from all the fiscal and monetary stimulus being pumped into markets globally," he added.
Swiss precious metals refinery PAMP has been given permission by local authorities to restart operations and will begin processing at less than 50% capacity, it said on
Friday.
On Thursday, gold gained more than 1% after the number of Americans filing claims for unemployment benefits last week shot to a record high as more jurisdictions enforced stay-at-home measures to curb the pandemic.
"Technically, even when everything sold off in the market, gold sold off the least. That tells you gold is strong, people want to own it. So theoretically, gold should be the leading asset for the next six to eight months," said Michael Matousek, head trader at U.S. Global Investors.
Reflecting investors' interest in bullion, holdings of the world's largest gold-backed exchange-traded fund, SPDR Gold Trust, rose 0.3% to 971.97 tonnes on Thursday.
And here is brief information on silver as many our forumers trade it:
Total global silver demand will weaken to 1,018 tonnes in 2020 – a three year low -- from 1,035 tonnes in 2019. But a deficit of the metal will rise to 35 tonnes from 23
tonnes as total silver supply slips below 1,000 for the first time since 2013, the report said.
"We expect prices to recover from current lows, driven by bargain hunting, before moving higher later in the year once the market hysteria calms down and safe haven demand kicks in," said head of precious metals research Cameron Alexander. He forecast prices would average $15.75/oz in 2020 -- 3% lower than last year.
CFTC Report
Here we see drop of net long position on gold for ~50K contracts. As it was explained above, some decrease has happened on panic fading and closing April delivery contracts. Table sheet shows that contraction was as by speculators as by hedgers approximately at equal ammount:
That's being said, folks, current situation doesn't let us to treat it as pure financial, as it was in the crisis of 2008. As recovery perspectives and its way is too blur, gold price motion could get not only financial but healthcare component as well. It means that we can't be sure that gold definitely will drop because of zero inflation and no interest producing. We also have different components as unprecedented money printing, hazard of long-term economy recovery and risk for growing demand for safe haven assets, when investors are interested with saving of the assets rather than level of return on them.
Technicals
Monthly
Now we have very similar picture to EUR - impressive doji pattern, but here we do not have bullish grabber. As on EUR, direction depends on breakout. Price is coiling around YPR1 but market is not on overbought. Despite that USD has shown upside action this week - gold has not dropped and even moved slightly higher. It means that demand for the gold stands and it keeps chances on upside continuation.
On a way down price has completed only nearest target - K-support and YPP around 1430-1445 area. But now it leaves it without breakout and shows healthy bounce up.
Although we tend to bullish scenario, especially on a background of fundamental events, mentioned above, formally gold keeps both scenarios valid. As we have doji - next direction depends on breakout. It's a huge size and correspondingly action after breakout also should be significant. In the situation of upward breakout, I will not surprise if we will see gold at 2K point.
Downside target mostly stands the same - YPS1 and major 5/8 Fib level around 1300 area.
Weekly
Last week we said, that despite all hype around COMEX problems, weekly chart keeps bearish context. Rally has not broken bearish trend by far and this week is just inside one, making no impact on weekly picture. Still, as price stands closely near the top, potentially it could mean preparation to bullish continuation. Next week, we will see the degree of relief of COMEX situation and how it impacts market sentiment.
Right now weekly picture doesn't let us to make definite conclusion on direction.
Daily
Here trend stands bullish and within this week market was able to play back the drop that happened in the beginning of the week. It means that overall situation is not as simple as it could seem. While price stands above 1550 lows and keeps bullish trend - we consider upside continuation and return back to 1700 top as preferable scenario. Yes, some contradiction exists with FX market as in our EUR analysis we suggests opposite action. But, to be honest - this week markets also move in opposite directions.
If, 1550 lows will be broken, we return to our idea of H&S pattern, where head has compounded shape. Daily chart provides no clear patterns, but trend only. This context is not sufficient for many of us and some "wait and see time" should spend before taking some trades here:
Intraday
This setup might be interesting to the bulls. If, still we get downside AB=CD action back to K-support, it should be relatively safe to consider long entry at strong support area. In this case we have high odds of pullback and stop moving to breakeven area.
On 1H chart it seems that upside action fizzles a bit, forming bearish MACD divergence and widening triangle. It suggests some downside action, but not necessary as deep as on 4H chart, it could be minor pullback before upside continuation. Still, if downside action starts, it should start from this area. We do not have clear bearish setup (except divergence), so it might be not suitable to everybody. But some advantage also exists - ability to place tight stop, just above the top.
Thus, it seems it is long way till monthly doji breakout, all that we could do is to focus on tactical short-term setups on intraday charts by far.
This week all financial world was waiting for the first data, first signs just to imagine what has happened with global and US economy. Although PMI data was surprisingly good, or, at least not as despair as initially suggested, employment has taken all the hit from virus spreading. Data was two times worse. Investors were so upset that after initial claims NFP has triggered no reaction at all.
Now, common view stands that unemployment could reach 20% in US in nearest few months. Scenario of fast "V" shape recovery of global economy is based on few moments and one of them is absence of epidemic relapse. Other conditions are also not simple to achieve - governments around the world put in place packages of financial support that are sufficient to keep those firms that have been told to cease production solvent, and their staff able to pay the bills. Now it seems more on paper rather than in reality. Finally, it is vital that widespread lockdowns are successful in bringing the pandemic under control within a few months. Pandemic should have to start to fade in nearest month or two. Otherwise, it brings the hazard of long-lasting healing and economy recovery that doesn't match to "V" shape.
On a background of all these thoughts investors think on a gold's role in current situation. In pure financial types of crisis gold was dropping as other assets because of zero inflation and no interest generating on the assets. But in times when financial sphere is second and health is the first, gold's role could change. Last week we already discussed this phenomenon of massive sell-off among gold retail brokers in EU, when all bullions, coins were sold out and demand has jumped tenfold. On a background of weak data that suggests slowdown of economy, gold has not dropped even on demand for USD. Finally, we see growing delivery demand on futures contracts.
It means that until risk of long-lasting pandemic holds, demand for the gold hardly drops. We suggest that demand for physical gold will rise by few reasons. More investors would like to get it in their portfolios, second - retail brokers need to restore their reserves. Finally, central banks in a period of weak global economy prefer to invest in gold rather than buying foreign currencies and bonds, especially when yields stand near zero and unprecedented money printing is launched already.
I would like to show you this chart - this is Fed balance. Compare it with the top of previous crisis. In 2008 it seemed that $500 Bln is too much. Now watch this:
The past four weeks saw the largest ever liquidity injection from the Fed as its balance sheet swelled by close to $1.5 trillion thanks to the resumption of asset purchases and additional QE operations. One potential, unintended impact from such global policy stimulus is a bifurcation between assets that can take advantage of this support and those that cannot. Such market dislocations have a tendency to become progressively more extreme, testing policymakers’ resoluteness in their ability and willingness to address them.
Now, if we track the news line of this week, we get clear signs of stable demand for the gold, whatever data was released. The same we see on the charts as well.
Gold prices inched up on Monday after an extension of restrictions in the United States exacerbated concerns about the economic toll of the coronavirus pandemic,
driving investors to safe-haven assets.
"Gold is finally starting to shake its recent mantle as a risk asset and becoming more of a haven asset again, especially with the extension of national social-distancing controls through April 30," said Tai Wong, head of base and precious metals derivatives trading at BMO. "$1,600-$1,610 is solid technical support and has held resolutely which has also helped."
U.S. stocks opened higher as President Donald Trump followed last week's massive $2.2 trillion stimulus package, the largest on record, by extending his stay-at-home guidelines. Lower interest rates and looser economic policy tend to benefit gold because they cut the opportunity cost of holding non-yielding assets. The pandemic has paralyzed economies worldwide. The coronavirus has already driven the global economy into recession and countries must respond with "very massive" spending to avoid a cascade of bankruptcies and emerging market debt defaults, the head of the International Monetary Fund said on Friday.
"The recessionary fallout of the Covid-19 outbreak on the global economy suggests investors are likely to continue to seek refuge in gold," analysts at BNP Paribas said in a note. "We expect demand for gold to remain strong, at least until such time that economic conditions stabilise and the outlook begins to improve following the raft of unprecedented stimulus measures put in place by governments and central banks alike."
The world's largest platinum producers - Anglo American Platinum, Sibanye Stillwater and Impala Platinum - have declared force majeure on contracts after a three-week national lockdown in South Africa forced operations to close.
Gold rose more than 1% on Wednesday as fears over a worsening coronavirus pandemic triggered a flight to safety, with expectations of further monetary easing by
central banks adding support.
"Investors may be shifting to gold for safety," said CMC Markets analyst Margaret Yang Yan, who saw the rebound spurred by President Donald Trump's remarks that the next two weeks of the pandemic could be painful for the United States. "The ramification of easing monetary policy cycle and trillion dollars of stimulus means the market will be full of liquidity and ample supply of paper money in months, quarters or years to come, and that's definitely supporting gold's rally amid very limited supply (of physical bullion)."
Limiting physical gold's supply, three of the world's largest gold refineries said they had suspended production in Switzerland for at least a week after local authorities ordered the closure of non-essential industry.
Holdings in SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, rose 0.3% to 967 tonnes on Tuesday. Holdings of the largest gold-backed exchange-traded-fund (ETF), New York's SPDR Gold Trust, rose 0.18 percent on Wednesday from Tuesday, while the largest silver-backed ETF, New York's iShares Silver Trust, rose 0.05 percent on Wednesday from Monday.
Name New Holdings Date Prev Holdings Prev Abs Change % chg YTD Abs
GOLD (OZ) (OZ) (OZ) Change (OZ)
Total 63,282,408.0 63,202,544.7 79,863.3 0.13% 5,384,072.1
The amount of gold stored in vaults in New York registered by CME Group’s Comex exchange has risen by nearly 2 million ounces, CME data showed, proving ample to settle monthly contract obligations and easing concerns of shortages that sent prices skyrocketing.
Meanwhile, most investors rolled their positions to contracts with future delivery dates, reducing the amount of gold needed for settlement. 24,489 contracts equivalent to 2.4 million ounces for April delivery have been redeemed for metal, the highest monthly total since at least 2011, CME data show. Investors typically use Comex to gain exposure to gold prices and rarely ask to take metal, which costs money to store.
For that reason, far less gold is stored in New York than trades there. If gold is needed, it can be quickly flown on passenger planes from London via Swiss refiners that melt and reshape it to meet Comex specifications. The next active monthly future on Comex is for June delivery, with 359,803 contracts active representing 36 million ounces. Its price is around $25 above London spot gold, suggesting that worries remain.
“There’s still some logistical concerns in the market about not having the right bars in the right place,” said Saxo Bank analyst Ole Hansen.
But he said the price gap would shrink as refineries reopened and the CME launched a new gold contract that can be settled using London standard 400-ounce bars as well the 100 ounce bars it currently takes.
The London Bullion Market Association, which oversees London trading, said last week it was working with refiners, shippers and banks to move metal, including by cargo and charter planes.
Gold prices edged higher on Friday after gloomy U.S. nonfarm payrolls data magnified the economic toll from the coronavirus, although a stronger dollar capped
bullion's advance.
"Gold continues to be in wait-and-see mode on how bad the global economy will get and how long will the depression-like conditions last," said Edward Moya, a senior market analyst at broker OANDA.
The U.S. economy shed 701,000 jobs in March, ending a historic 113 straight months of employment growth, as stringent measures to control the coronavirus outbreak hurt businesses and factories, confirming a recession is underway. The dollar firmed against rivals, edging towards a more than 2% weekly rise, as global recession fears intensified.
"Most traders would expect gold to be higher" after the payrolls data, Moya said. "Gold's problem is that supply tightness is easing and the dollar continues to grind higher. "Ultimately gold will shine from all the fiscal and monetary stimulus being pumped into markets globally," he added.
Swiss precious metals refinery PAMP has been given permission by local authorities to restart operations and will begin processing at less than 50% capacity, it said on
Friday.
On Thursday, gold gained more than 1% after the number of Americans filing claims for unemployment benefits last week shot to a record high as more jurisdictions enforced stay-at-home measures to curb the pandemic.
"Technically, even when everything sold off in the market, gold sold off the least. That tells you gold is strong, people want to own it. So theoretically, gold should be the leading asset for the next six to eight months," said Michael Matousek, head trader at U.S. Global Investors.
Reflecting investors' interest in bullion, holdings of the world's largest gold-backed exchange-traded fund, SPDR Gold Trust, rose 0.3% to 971.97 tonnes on Thursday.
And here is brief information on silver as many our forumers trade it:
Total global silver demand will weaken to 1,018 tonnes in 2020 – a three year low -- from 1,035 tonnes in 2019. But a deficit of the metal will rise to 35 tonnes from 23
tonnes as total silver supply slips below 1,000 for the first time since 2013, the report said.
"We expect prices to recover from current lows, driven by bargain hunting, before moving higher later in the year once the market hysteria calms down and safe haven demand kicks in," said head of precious metals research Cameron Alexander. He forecast prices would average $15.75/oz in 2020 -- 3% lower than last year.
CFTC Report
Here we see drop of net long position on gold for ~50K contracts. As it was explained above, some decrease has happened on panic fading and closing April delivery contracts. Table sheet shows that contraction was as by speculators as by hedgers approximately at equal ammount:
That's being said, folks, current situation doesn't let us to treat it as pure financial, as it was in the crisis of 2008. As recovery perspectives and its way is too blur, gold price motion could get not only financial but healthcare component as well. It means that we can't be sure that gold definitely will drop because of zero inflation and no interest producing. We also have different components as unprecedented money printing, hazard of long-term economy recovery and risk for growing demand for safe haven assets, when investors are interested with saving of the assets rather than level of return on them.
Technicals
Monthly
Now we have very similar picture to EUR - impressive doji pattern, but here we do not have bullish grabber. As on EUR, direction depends on breakout. Price is coiling around YPR1 but market is not on overbought. Despite that USD has shown upside action this week - gold has not dropped and even moved slightly higher. It means that demand for the gold stands and it keeps chances on upside continuation.
On a way down price has completed only nearest target - K-support and YPP around 1430-1445 area. But now it leaves it without breakout and shows healthy bounce up.
Although we tend to bullish scenario, especially on a background of fundamental events, mentioned above, formally gold keeps both scenarios valid. As we have doji - next direction depends on breakout. It's a huge size and correspondingly action after breakout also should be significant. In the situation of upward breakout, I will not surprise if we will see gold at 2K point.
Downside target mostly stands the same - YPS1 and major 5/8 Fib level around 1300 area.
Weekly
Last week we said, that despite all hype around COMEX problems, weekly chart keeps bearish context. Rally has not broken bearish trend by far and this week is just inside one, making no impact on weekly picture. Still, as price stands closely near the top, potentially it could mean preparation to bullish continuation. Next week, we will see the degree of relief of COMEX situation and how it impacts market sentiment.
Right now weekly picture doesn't let us to make definite conclusion on direction.
Daily
Here trend stands bullish and within this week market was able to play back the drop that happened in the beginning of the week. It means that overall situation is not as simple as it could seem. While price stands above 1550 lows and keeps bullish trend - we consider upside continuation and return back to 1700 top as preferable scenario. Yes, some contradiction exists with FX market as in our EUR analysis we suggests opposite action. But, to be honest - this week markets also move in opposite directions.
If, 1550 lows will be broken, we return to our idea of H&S pattern, where head has compounded shape. Daily chart provides no clear patterns, but trend only. This context is not sufficient for many of us and some "wait and see time" should spend before taking some trades here:
Intraday
This setup might be interesting to the bulls. If, still we get downside AB=CD action back to K-support, it should be relatively safe to consider long entry at strong support area. In this case we have high odds of pullback and stop moving to breakeven area.
On 1H chart it seems that upside action fizzles a bit, forming bearish MACD divergence and widening triangle. It suggests some downside action, but not necessary as deep as on 4H chart, it could be minor pullback before upside continuation. Still, if downside action starts, it should start from this area. We do not have clear bearish setup (except divergence), so it might be not suitable to everybody. But some advantage also exists - ability to place tight stop, just above the top.
Thus, it seems it is long way till monthly doji breakout, all that we could do is to focus on tactical short-term setups on intraday charts by far.
