Gold GOLD PRO WEEKLY, October 03 - 07, 2022

Sive Morten

Special Consultant to the FPA
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18,571
Fundamentals

There are a lot epic events happened this week and they keep coming. Gold market has no specific own news right now, it is driven by global crisis processes that we're watching right now. Yesterday we've discussed in details the Bank of England capitulation as it has had to re-start QE once again to avoid total collapse of bond markets and default of pension funds. For the gold market it is also important - not the BoE steps, but the conclusion that we've made about global USD system. US has not enough resources and is loosing ability to support it. That is what more important for the gold market. Coming on Monday urgent Fed meeting is a worrying sign as well, which adds nervousness to the markets.

It seems that system is breaking apart, and this process is accelerating. Fed has 2.2 Trln of reserves that should be enough for own markets and economy, but what to do with the rest of the world? Fed can't fix problems that stand out of its control. Financial markets show extreme drawdowns, default spreads hit new records. Demand for liquidity is reaching outstanding levels with Repo rates jump from 0 to 3%. This is huge pressure on the global banking system and most weak once could announce default very soon. Now world is watching for Credit Suisse performance in a real time:
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A tough "Liquidity Crisis" is brewing, Reverse Repo is breaking records, interest rates are rising on them, Banks are in shock because liquidity is running out due to the "Fractional System" where the rate has sharply increased from 0 to 3% and 95% of liquidity has been distributed in the form of loans. C. Suisse default spread near all time high and CEO tells that bank is coming through "critical moment" in its history.

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Bank of England is a first bell. Global financial system gradually is coming to point of no return. Major central banks have to start cutting rate, increase QE, print new trillions of $$ and save banks - otherwise the whole system will collapse. If this happens, then 2008 crisis will seem nothing compares to what is coming. This should safe banks, but it will mean the end of the US dollar, and inflation will reach a level that Zimbabwean people haven't seen even in dreams.

Dealers have almost no metals left, premiums are rising. Central banks and the elites buy everything they can for candy wrappers, COMEX warehouse is almost empty. How whales will cover their shorts, I don't understand at all. We anticipate an interesting movie with useless candy wrappers in your pocket. The reversal is close. Military escalation in Ukraine just accelerates this process.

In last 7 months G4 banks have drained $3.1 Trln of liquidity and results have come very fast. It is a big question what efforts will be needed, if even to stop this process right now.
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Markets shows dramatic performance. Stocks:
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But, as S&P performance is lagging behind the Fed rate - this process should accelerate soon.

Global bond market has lost 25% of capitalisation. It looks like the bond market bubble has burst. This week, the value of global bonds fell by another $1.2 trillion, resulting in a total loss of $12.2 trillion from ATH.
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What does all this stuff mean?



First is, financial markets have understood the weakness of Central Banks and they will put pressure on the sore spot. Idea is simple. To stop the tightening cycle, it is necessary to organize the collapse of the markets so that the world shudders.



Second - it is a complete failure of the policy of Central Banks to manage expectations, price and financial stability, which will undermine the confidence of the economy in the ability of Central Banks to implement their intentions, including to combat inflation.



Finally, the room for maneuver is reduced to a minimum and in the struggle between price and financial stability, Central Banks choose the latter. However, by choosing financial stability, they inevitably violate price stability in the existing conditions and imbalances.



Now, if Central banks stop tightening and turn to QE once again - it is not necessary to explain what happens to gold and other more or less valuable commodities.

Political risks are rising

Last time we've mentioned rising of destructive factors inside of EU. Since the texture of EU is too fragmentated, with a lot of imbalances between the core and periphery, the tensions inevitably will keep rising. Germany - Poland relationships now are coming now through difficult times. And blast of both Nord Streams pipes is a big impact on German domination role in EU. Interestingly that it has happened accurately at the eve of Norway-Poland pipe launching. Poland is preparing to replace Germany as leading country as it is more loyal to US politics in region. The power of the Germany is based on its industry and now this industry has got a deadly hit. The blast of the pipes is impact on Germany, not on Russia. I could tell you how here the blast is treated - nohow. There was no supply anyway. Prices for gas was so high that Russia has paid off the expenses on the pipe for a few times already. Besides, according to contract Germany has to pay for the gas anyway. In Russia this is more considering like political precedent of attack on social object. This is act of terrorism which is made not by some extremist organisation but by foreign government.

But even more important thing now is results of Italy elections. Ultra-right sentiment is becoming more popular across the Europe. People are tired from external government, when somebody decides for them what people should do, how to live etc. People wants to return their countries back, whats to be an owners of national wealth, currency, to make independent foreign policy and follow own national interests but not of those who sit overseas. And Italy has become the first country (after Hungary) among the majors who take a step on this way.

On Sunday, Georgia Meloni became the first female leader of Italy after her Center Right Party dominated national elections. The new leader of Italy is a conservative woman who loves God, her family, and her country. She shared her thoughts in early 2020 at an event in Rome. Here’s why the elites and globalists are freaking out about Giorgia Meloni’s victory in Italy’s elections last night, below is the transcript:

Why is the family an enemy? Why is the family so frightening? There is a single answer to all these questions. Because it defines us. Because it is our identity. Because everything that defines us is now an enemy for those who would like us to no longer have an identity and to simply be perfect consumer slaves.
And so they attack national identity, they attack religious identity, they attack gender identity, they attack family identity. I can’t define myself as: Italian, Christian, woman, mother. No. I must be citizen x, gender x, parent 1, parent 2. I must be a number. Because when I am only a number, when I no longer have an identity or roots, then I will be the perfect slave at the mercy of financial speculators. The perfect consumer…[But] we will defend it.
We will defend God, country, and family. Those things that disgust people so much. We will do it to defend our freedom. Because we will never be slaves and simple consumers at the mercy of financial speculators.
That is our mission. That is why I came here today. Chesterton wrote, more than a century ago. .. “Fires will be kindled to testify that two and two make four. Swords will be drawn to prove that leaves are green in summer.” That time has arrived. We are ready.

“Let us be clear in our mind because we did not fight against and defeat communism in order to replace it with a new international regime, but to permit independent nation states once again to defend the freedom, identity, and sovereignty of their peoples,” she said. You can watch the full video



Why this far-right (or central-right) party victory could become epic event for EU? Because they are aimed to return control over the country, they are aimed to get back its sovereignity stolen by the Brussels. You can't make own foreign policy, control financial sphere if you do not control legislative part, money issue, debt etc. Italians are tired that somebody decides for them what they should do, how to live etc. And this is not unique situation. Similar sentiment we see in Czech Republic -



And in many other EU countries. Of course, Brussels beaurocrats understand where wind blows and immediately accuse Meloni in neo-nazism, comparing she with Mussolini. We already mentioned last time that EU intends to apply punishment measures as well:

European Commission chief Ursula von der Leyen has warned Italy of consequences should it veer away from democratic principles, issuing a barely veiled threat ahead of Sunday's election that a rightist bloc led by Giorgia Meloni is expected to win.

"My approach is that whatever democratic government is willing to work with us, we're working together," von der Leyen said at Princeton University in the United States on Thursday, responding to a question on whether there were any concerns with regard to the upcoming elections in Italy. If things go in a difficult direction, I've spoken about Hungary and Poland, we have tools," she added.

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The Hungarian Prime Minister congratulated Meloni on the victory of the center-right in the parliamentary elections in Italy. Some Western publications have already expressed fears that Melani, if elected Italian prime minister, will pursue a Eurosceptic policy in the spirit of Orban.

Le Pen also congratulated the leader of the Italian right:

"The Italian people have decided to take their fate into their own hands by electing a patriotic and sovereign government. My congratulations to George Meloni and Matteo Salvini, who have won this great victory, are resisting the threats of an anti-democratic and arrogant European Union."

By the way, Le Pen could become the first far-right leader in Europe in April. It is an opinion exists, that elections results in France were falsificated.

Any crisis requires sacrifices, and the market has already chosen a target for itself – this is Italy. Ten-year state funds of the country after the elections went to 4.5% per annum. Even Spanish and Portuguese securities today yield less.

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Italy's public debt is above 150% of GDP. It has grown by 25 percentage points in ten years and is at a historical maximum, its size is 2.75 trillion euros. This is 22.5% of all European sovereign debts. Italy cannot service such a debt, and even the IMF cannot save it from bankruptcy. If the ECB tries to print so many euros and buy back all the debt on its balance sheet, inflation in Europe will soon transform from galloping into hyperinflation.

The new government of the country, which came to power under the slogan "Italy above all", is unlikely to go for a severe reduction in spending, and the transfer of control of the country on bail of creditors, which means that it will have only one way out - a return to the lira, the devaluation of the national currency.

Besides, C. Lagarde, speaking on Italy elections' results said that "ECB doesn't intend to fix political mistakes". Italian PPI hits 50%, but ECB tells that it is no necessity to activate TPI (new QE) programme for Italian bonds. So, now the Brussels machine tries to force Italians to deny their freedom with all tools that they have, using political and ECB tools. If Italy stands - it could trigger chain reaction across the EU. That's why Brussels will try to break them, first of all, aiming on social sphere, to make people regret on the choice that they have made.
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We think that the process of decomposition of EU starts already. Less and less people and countries are ready to patient outrage of Brussels. Rising instability will support gold in long term.

As now we have clear signs that system is collapsing faster than it was suggested, bad surprises are coming from where they were not expected, gold reversal might stand closer and downside reactions on bearish driving factors could become weaker. In long-term we still suggest that gold stands in perfect accumulation area for investing, preferably in a way of coins and bullions.
 
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Technicals
Monthly

This week we have minimal changes on technical side, guys, because gold mostly was standing in tight range. On monthly chart price feels absolutely comfortable around 1600-1650 support area, showing good resistance to external negative factors.

Based on our fundamental view, gold has more chances to stay around 1600 rather than keep going to next strong support area of 1400-1420, but it would be naive to promise something now.

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Weekly

Here is market mostly following to common pullback tendency that stands across the board - DXY, EUR etc. Technically, lows has been set @ 1620 right at monthly oversold level. Weekly chart brings no clarity on the depth of the pullback by far. Since 1595 OP target has not been touched, it is possible some spikes around the lows, for example on coming Fed meeting background:

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Daily

Well, actually we've got what we have expected, price still stands close to an area that we've specified as interesting for short entry. Indeed, it is good combination of K-area and overbought level. The only uncertainty now comes from Fed meeting...
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Intraday

Here is difficult to say something definite, because market is undecided by itself. For short entry it would be better to get OP completion and some bearish pattern on top. That's why either we have to wait when this happens or to hide stop above OP and daily resistance anyway. Long position looks even less interesting because market is near daily overbought.
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Thus, technical picture now lets us to consider only short position. But with the Fed on horizon, conservative approach will be do nothing because of risk. If you still decide to Sell - stop has to be placed above daily resistance and overbought area of 1690.
 
Greetings everybody,

So, Gold shows better performance than many other markets on current pullback. We hope that it might be the starting of recognition of real risks among investors, but not sure yet with this. Fed could give some relief for November elections time, to make stock market rising a bit. This is more probable for now.

Anyway, gold is coming to the next resistance around 1734-1760. Our initial suggestion that pullback could happen out from the K-area has been erased by the price action. At the same time, chances on breakout of 1734 area are low, because of daily overbought:
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Downside reaction could start even slightly earlier, as market also is coming to 1H XOP:
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So, if you want jus to buy and not be busy with scalp short trading - just do nothing and wait for the pullback. For those who would like to trade it short here, we have to wait for minor bearish pattern. Because of strong upside action existence of resistance area and Overbought are not enough for now.
 
Morning guys,

As I've said today in EUR update - we've got liquidity on the market artificially. My big suspicion - its Fed, calming down markets, forming positive sentiment before US elections. So, rally could last 3-4 weeks before next collapse. Even intraday swings are similar on gold and EUR, almost repeat each other...

On daily chart market hits 1734 resistance area and is overextended. "V" shape reversal makes me think that we could treat it as big bullish engulfing pattern. Thus, if we get the pullback, it is possible to consider long entry here:
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Market has completed intraday XOP (as EUR by the way), and if we get the pullback, say, to K-support area, it might be interesting for long entry:
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Scalp traders maybe could find something else, like DRPO "Sell" on 1H chart etc.
 
Greeting everybody,

Today, guys we could bring just brief update, as nothing serious has happened. Market is consolidating right under daily resistance of 1734$ level and overbought. Actually, this combination is DiNapoli bearish "Stretch" pattern, suggesting the pullback, that we're waiting for. Anyway - we do not have any choice, as it is not good idea to buy right at resistance area:
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Additionally to technical reasons, 4H chart shows that harmonically, gold could show minor pullback. Take a look at the retracement to the left:
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Besides, we're coming to NFP, some short-term profit taking might happen by the traders who now keep long position. So, it seems that we just wait for our 1685 K-area that we've mentioned yesterday. Hopefully we get it, maybe tomorrow, if NFP data will be not bad.
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Greetings everybody,

So, now the one thing is becoming obvious on the gold market - we do not see any downside AB-CD retracement, and gold performance is different to EUR and GBP. While currencies have completed AB-CD and formed setups for long entry, that we've discussed - gold stands flat, in tight consolidation right under resistance. This is the bullish sign, suggesting that gold is preparing to challenge it immediately. Now price is not at overbought any more and gold easily could move higher until 1745 area.
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Here you can see clear pennant shape, which is bullish:
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Of course NFP is the major driver today, but by pure technical picture it seems that gold is preparing to challenge the resistance immediately. Thus, if you would like to buy gold - now it is good point for entry, as price is around lower border of the pennant. Most probable shape that market could take here is butterfly with 1747 target. So, you could stick with it, including stop placement right under its lows, which provides very small risk.
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