Gold GOLD PRO WEEKLY, April 10 - 14, 2023

Sive Morten

Special Consultant to the FPA
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Fundamentals

In recent few weeks the events stream accelerates, as in global politics as in economy, but mostly everything remains supportive for the gold market. At first glance, nothing special is going on, but below I put the chain of recent events together and you will see what a drastic, I would say epic and tectonic shifts are happening right now. Recent data that we've got this week and week before doesn't show yet big problems, but as we've said yesterday, structural crisis is spinning up, and now inflation is replacing by production slowdown. This process goes across the Globe, not only in the US. Second important moment that we've estimated - banking crisis is not over. The processes of cash redistribution out from the bank deposits in money market funds (i.e. in short term US T-Bills) should remain and this is one of the desirable results for the Fed, who would like to stimulate demand for the national debt. But this process has obvious bad consequences for the economy, reducing funding of the real sector economy and households in the way of loans:

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With the funding starving, very soon we will see jump in loan delinquencies, and first among population and zombie companies. Policymakers are likely to wait for concrete evidence of the economy contracting and slack opening in the labour market before starting to ease. Higher rates are expected to contribute to slowing economic fundamentals particularly through the credit channel. Fathom has long argued that easy monetary and fiscal policy since the Global Financial Crisis allowed low-profitability and loss-making firms (‘zombies’) to remain on life support and become more levered, without addressing their ailing business models.
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A sharp turn in the credit cycle could make the downturn deeper than expected, but the zombie-slaying that would ensue would be good for the long-term productivity of western economies. In any case, do not be surprised if rates head south sooner and probably go lower than many expect.

All these "bad things" hang upon the US economy and nobody knows how to overcome it. The one point is clear - Fed can't avoid some kind of the QE (whatever way it takes) and second - they can't cut rates right now due to the high inflation and strongly inversed yields curve. All this stuff obviously supports gold in mid term perspective.

Even two years ago loans were giving to everybody - without any collateral, and risk management. Responsibility is blunted, complacency wins, especially if it is possible to insure this case with third parties and shift the risks. Now all this is a big top, such a practice will be curtailed one way or another and the conditions will be like in a Mordor, that is, you have no collateral - get lost. If we add to this the end of the pandemic incentives, I think credit compression for corporations is inevitable even if super-QE is launched. And without it, even more so. So that's why the probability of a recession is being talked about louder and the probability is being evaluated higher and higher. Colleagues really wrote that there will be no recession because sales of new cars are growing. But it seems that this is a signal about something else entirely - they are dismantling stocks until it has become more expensive. Still, comparisons should be carried out carefully - these are times when all trends and patterns break down.

MARKET OVERVIEW

Gold edged slightly higher, hovering above $2,000 an ounce with traders assessing the Federal Reserve’s interest-rate path following weaker-than-expected economic data from the US. The US service sector expanded in March at a much slower pace than projected on considerably softer growth in new orders and business activity. Companies added fewer jobs than forecast while wage growth slowed, underscoring labor demand that’s showing some signs of cooling. The dollar and Treasuries advanced in response as recession concerns resurfaced. That weighed on bullion as it’s priced in the greenback.

Still, the precious metal remains above the key level and is eying an all-time high of $2,075.47 set in August 2020, suggesting continued demand from investors seeking safety on the back of elevated inflation, a weakening labor market, tight liquidity and brittle credit.

Initial jobless claims were higher than expected last week, underlining the headwinds the American economy is facing.

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“We have always viewed gold as a hedge in a portfolio context, and its safe-haven qualities have shined through again during the latest market turbulence,” UBS Group AG strategists, including Giovanni Staunovo, said in a note. The analysts see bullion eventually breaking its previous record to test $2,200 an ounce by early 2024.
Rebecca Patterson, former chief investment strategist at Bridgewater Associates, says says the surge in gold prices will continue due to global central bank purchases and demand from investors. "We're close to an all-time high in gold. I would expect this year It's going to hit a new all-time high," she says on "Bloomberg Surveillance." The rate cut this year is unlikely, she added.

This week swaps traders have raised their bets for rate cuts later this year on concerns a recession may be looming. That’s a boon for non-yielding gold, which typically benefits from looser monetary policy. Investors will be closely watching for more signs the Fed may be taking the heat out of the economy and putting the brakes on inflation when crucial monthly figures of CPI will be released next week.

China boosted its gold reserves for a fifth straight month, extending efforts by the world’s central banks to boost their holdings of the precious metal. The People’s Bank of China raised its holdings by about 18 tons in March, according to data on its website on Friday. Total stockpiles now sit at about 2,068 tons, after growing by about 102 tons in the four months before March. In general, central banks have been buying gold for 11 consecutive months. In the first 2 months of this year, regulators bought 125 tons of precious metal - this is a record since 2010, that is, since the European financial crisis. In the lead, as always, China.

And in general, ETFs are increasing gold investments. Global ETFs for the first time in 10 months recorded an influx of this precious metal. It amounted to 32 tons for almost $2 billion; in March, the figure increased by 9%. Experts attribute this to the weakening dollar trend, as well as the consequences of the US banking crisis. The ETFs accumulated a total of 3.5 thousand tons of gold worth more than $200 billion.

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CRASH OF STOCK MARKET...

...could become a catalysts of active stage of the crisis and big jump in gold price. Somehow everybody forgets about big tension on the stock market right now.
AS WSJ writes, the reward for owning stocks over bonds hasn’t been this slim since before the 2008 financial crisis. The equity risk premium—the gap between the S&P 500’s earnings yield and that of 10-year Treasuries—sits around 1.59 percentage points (and already negative if we take 6-m Bills instead), a low not seen since October 2007. Meantime, we're gradually coming to new earings report period next week, involving statements of a big banks where we could see really bad surprises.

Goldman strategists say U.S. profits could fall as pandemic scales. The S&P 500 earnings per share will fall by 7% in the first quarter compared to last year, the sharpest drop since the third quarter of 2020 and the low point in the earnings cycle, strategists say. ️Deep margin shrinkage will largely outweigh modest first-quarter sales growth. Only three sectors - energy, industrial and consumer - are forecast to report improved margins. Most other industries are likely to see cuts of more than 200 basis points, they said.
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If you closely look at the major stock market driver than you will see two things. First is - Fed liquidity, that has dropped recently. Probably we should not expect too much tightening here, just because Fed has promised to provide all necessary support if it needs to.

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But second, and which is most important is - corporative buybacks. Actually markets are moving higher only by them and households. Neither foreign investors nor domestic government authorities, pension funds, commercial banks and non-financial companies buying US stocks.

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Buybacks are totally financed by new debt in a way of loans taken and bonds issued. It is great business - take the loan at 2-3%, buyback stocks, pushing them higher and get the dividend yield. Report financial earnings on your income statement. Repeat.
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But now this party seems to be over, because you can't get any more loans and debts at 3% and even 4%. Banks are loosing deposits that drift to US T-Bills market. Stock market, in turn is loosing the background and the power that pushes prices higher. The same we could say about households purchases - personal savings are almost around zero, loans become too expensive and stock market return could not cover it. The hanging Domocles' sword of "zombie" companies mentioned above push economy and stock market around. So minor trigger in a way of bad banks result could be enough to run a snowball.

Small banks, which will be falling off the vine one by one in the coming months as depositors openly move toward the larger banks and money markets, means that credit, and hence hope, for small businesses in the US will be harder to get than an honest voice in Congress.
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The recession in which we likely already find ourselves will nevertheless (and soon) become more and more undeniable, and yes dis-inflationary, within an over-all inflationary backdrop. In the near-term, moreover, such slowing growth and tightening credit will also be a tailwind for the USD. Any inflation decrease will be "transitory" (LOL). Because - Uncle Sam running twin deficits while… the US stares down the barrel of $33+T in year-end debt levels and… declining tax receipts (down 10% y/y) with… true-interest expense on outstanding US sovereign debt at 118% of tax receipts—and all within the setting of… openly tightening credit while facing…
a de-dollarizing world with less rather than more interest in American IOUs/USTs… the US will hit that fork in the road where it must print money to survive. When forced to choose between imploding credit markets or a dying currency, the central planners will sacrifice the dollar, not the market(s).

END OF PETRODOLLAR ERA

Recent week very soon will be one among most dark weeks in history of the US Dollar. Not everybody is recognized this already but later, when the dust will settle, the understanding will come. This is the question not only of US Dominance, but also Bretton Wood system survival. The recent public OPEC+ demarche has not appeared from just "nowhere". The background was growing for extended time period and started with confiscation of Russian foreign reserves and oligarchs assets. Thus, it was shown to the whole world that everybody have to "follow the rules" but you do not set these rules. Who could like this? Reach people and governments across the Globe have understand very fast. Today is Russia's turn but tomorrow it could be our turn. And this has put the process to be out of the US Dollar. All other events of multiple agreements between China, Russia, India and other countries, to use national currencies in mutual trading - it's just a consequence. But now it takes a big scale.

Currently, both OPEC+ and the whole of Asia are shifting away from the US in their coalition agreements. And the main idea: you cannot keep your reserves in a currency that you do not control, do not issue, and you have big risks in this regard. there is a very serious consolidation of the anti-Western world now. And in this context, all currency agreements without the dollar will be of great importance.

A new reality. Kennedy, the nephew of the same J.F. Kennedy, said that for the first time we lost our main ally in the Middle East - Saudi Arabia. It's something scary. And what are the prospects in the oil market now? Interestingly, they have started selling oil from strategic reserves again. Now US have to forget about filling SPR at low price. Experts predict $100 per barrel, but when the season starts, and this is the second half of summer, after the Mexican hedges. Oil prices are starting to rise there and we need to see where it all goes. Hardly it stops around a hundred dollars.

In the context of the inevitable collision of the United States with the continuation of the financial crisis. Banks will suffer, especially because short rates will be high. The market will take everything negatively. And in this paradigm, they have no other choice but to start all support programs again, because without them the market will simply collapse. There are already problems in commercial real estate market.

And everyone understands, that except the Fed, which is the hope of last resort, there will be no one in the United States to keep this system. Actually, the Fed is the system. The time of commercial banks is running out, they are not mobile. The model was brought money, placed it - it stops working in the digital world. The hostages of this system are commercial banks. And it turns out that the whole country of the USA is under attack, where commercial banks are the basis of the entire system.

It is just one step more to make crude oil trading in different currency and what's next? Just imagine, the US comes to the market but it is told to them that you have to pay in yuan, rubbles, or whatever else to buy it. They will have to sell dollars to get yuan. But they have huge negative trading balance. It means that China doesn't not need dollars because they sell to the US more goods than buying from them. US will have to hardly devalue its own currency, and its rate has to match to real trading proportions with the rest of the world. It will be poverty, collapse in domestic consumption etc. Besides, all these "unused" dollars will return back to the US. It will be worse than in Venezuela and Zimbabwe together. Now spread this perspective on all other assets and commodities, if they stop trading in US dollars. And this will happen very soon, if such a big market as crude oil will be out of US Dollar control.

Even from pragmatic point of view, The OPEC folks know that Uncle Sam’s IOU’s aren’t what they used to be. Unlike Volcker, however, Powell can’t get the 10Y UST to an 8% real (i.e., inflation-adjusted) rate. Even his so-called “hawkish” nominal rates of 5% have crushed credit markets, Treasuries and nearly everything else in its path.

And if Powell even dreamed of pushing rates to 15% ala Volcker to seduce OPEC, he would literally murder the entire US economy with a double-digit rate hike against a $31T public debt pile. In short, there is simply no way to compare Volcker’s options in the 70’s to Powell’s debt reality in 2023. This means the Fed can’t do what will be needed this time around to prevent OPEC from looking outside the USD or UST and hence inside the gold markets as a primary asset to settle its energy transactions. The days of the mighty petrodollar, are slowly but steadily coming to end.

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Boiled down to simple math, if the 2020’s rhyme with the 1970’s, which is clearly plausible, and gold becomes a primary (or even secondary) settlement asset in the energy market, this factor alone would place gold near $9000 an ounce by 2027 or 2028. Again, something to think about, no? In the interim, I’d hate to be in Powell’s shoes. We’ll have to see if he’ll try to save the petrodollar by destroying the US economy or, who knows, even something worse… Perhaps his neocon neighbors in DC will distract us with more war games? We can only wait and see as the US runs out of good options and is left with only the bad (and desperate) ones.

Even relatively modest results on the scale of world trade on de-dollarization can stop the inflow of capital (which is already happening). Reserves in dollars will not decrease much, but will cease to be replenished significantly. And this is the fuel for the capital markets - the very new money that the Big whales use eventually to close their positions on.

️As a result they will have to close using local households' money, who for the most part are heavily indebted and whose losses immediately respond with an increase in delays and defaults. ️In general, a zero-sum game for the bank: the investment bank has earned, but at the same time, classical banking has lost. The system needs new money all the time to look decent and attractive. And even a small stop in the inflow of capital can easily bring about a reverse process. Here comes the nerves and loud headlines in the media. It is not the dollar as such that is collapsing, but the world financial pyramid based on it is staggering.

SOME POLITICAL ISSUES
Now, as we've promised above - I put here major events of few recent months together. Read them one by one and you will see how drastically overall global background has changed and is changing now:

  • Commercial banks cut lending by $105 billion in the two weeks ended March 29, a record since 1973. In percentage terms, total loans fell by 0.86%, the highest since December 2009. The decline of more than $45 billion over the past week was mainly due to reduced lending from regional banks;
  • The pullback in total lending in the second half of March was significant and included fewer real estate, commercial and industrial loans. Recall that the tightening of lending standards for the real economy began even BEFORE the bank collapse;
  • The outflow of deposits continued last week (10th week of decline): regional banks lost $275 billion;
  • The equity risk premium — the gap between the S&P 500 yield and the 10-year Treasury yield — is about 1.59 percentage points. Stocks haven't looked this unattractive since October 2007.";
  • Somehow Xi came to the Kremlin to hands' shake;
  • The deputy director of US arms manufacturer Raytheon Technologies was killed in a private jet crash. Increasing number of 'weird' train derailments, factory explosions, chemical spills and pollution incidents in the US;
  • Leakage of secret Pentagon documents on Ukraine and the Middle East. Regime change is being prepared in Pakistan. Hersh releases another high-profile article about American sabotage at Nord Stream;
  • Saudi Arabia openly dispatches the United States (again), begins to be friends with Iran, invites the Russian Navy to drink tea and invests serious money in the oil and gas sector of China. OPEC+ strikes back;
  • The war in Yemen is winding down, Israel is suppressed by Hezbollah and Hamas, new Su-35s have been sent to Iran. Syria is once again welcomed as part of the Arab states. Erdogan is furious after the US ambassador's meeting with opposition leaders in Turkey;
  • Russia is successfully conducting a number of strategic combat operations. Belarus receives tactical nuclear weapons;
  • The signing of trade agreements on de-dollarization is on track, as is the formation of new financial centers;
  • China has begun a three-day military exercise near Taiwan, during which its armed forces practice an operation to encircle the island.
  • Massive protests in France, Macron struggles to maintain control. The first serious strikes took place in Germany. The UK is sinking deeper into a cost-of-living crisis
  • D. Trump arrest precedent, which opens the Pandora's box letting domestic political elite to probe each other that was tacitly avoided previously. This shows the US elite in bad light for the global society and reduce desire to deal with in the future. Things are really bad if they have started to arrest each other.

All these moments we've covered either in our reports or in Telegram. But when you put all together - you could see what a drastic changes we really have. Thus it is simply an inevitable process of further Gold growth. Yes, technically there's a cup and a handle and all those things that traders love. But fundamentally: there is no other asset in the world where there is no systemic state risk.

This is the only asset where this risk doesn't not present. Yes, there is a risk associated with storage, with movement. Yes, it could be confiscated by force, but things have to go too bad to makes this happen. In this case any assets hardly will matter something. It's a metal, it's a natural component. And there is no systemic political risk, which is important in our time.

And in this perspective, it is important to understand where to keep savings, reserves, if we move away from the dollar. Here again, only gold remains. This is a close instrument to the foreign exchange market, even in terms of liquidity. Gold reached its maximum this week. We haven't broken through yet, but probably we will.

And it is difficult to say where it will stop. $2800 is the general consensus for now. But the matter will not stop there, because we have not yet entered the wake of the crisis. That's when there will be a peak, there will be unbridled growth. And first the banking crisis, then the currency crisis, distrust of the reserves as such. Revision of the concepts of what reserves are. Silver and platinum can also become reserves. Gold will grow strongly, silver may even outperform.
 
Technicals
Monthly

No doubts Gold has bullish context, this is obvious. At the same time, we should be careful around 2050-2075$ area, as a lot of trick games could happen around due to overbought level and YPR1. Also it might be some wash& rinse action of the previous top and other stuff of this kind. So, if you intend to trade gold bullish this week - we ready to out around all time high. Market anyway can't move significantly above it because of OB, if, of course, nothing outstanding will happen.
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Weekly

The same situation is here, on weekly. Market was able to complete only minimal COP target of a new, larger AB-CD pattern, after completion of smaller XOP last week. And, once again - due to Overbought level. We have OP around 2145$ here, but hardly we get immediate upside continuation, as gold needs some time to abandon Overbought level:
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Daily

Daily trend remains bullish. FX Choice chart shows that we have the grabber but COMEX futures do not confirm that, so we can't take it in consideration. 1945$ level seems to be a floor on coming week, but most probably that our attention will be mostly on intraday charts:
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Intraday

On 4H chart market accurately reacts on 1.27 butterfly extension that lets us to consider the next one as well - 1.618 around 2056$. It perfectly agrees with the daily one:
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While on 1H chart we should watch for support areas, where gold could potentially turn up again. Friday's data was not too supportive for the US Dollar, so, downside reaction on gold market hardly will be strong on Monday.

Recently market accurately has completed OP target. So, an area between XOP and K-area, i.e. 1988-1998 seems potentially interesting, and where upside turn could happen.

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I think will be interesting.. I am calling for correction for 2 weeks..
I set price alarms for €$, XAU & XAG.. will not tell them, you´ll think I am crazy..
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Greetings everybody,

So, not many things to comment. We probably need only 1H chart right now. As we've planned in weekly report - to watch XOP completion and 1995 area for potential long entry. So, this setup has been accurately executed:

Gold 1H Chart

If you have missed entry around XOP, here is another chances coming - possible reverse H&S. So, minor pullback might be used for this as well.

If everything goes well, our next target, as we've said is around 2056$ - butterflies 1.618 extension as on 4H as on daily charts.

Gold 4H chart
 
Greetings everybody,

Today, guys we have two important releases - CPI and Fed minutes. Minutes hardly will bring any surprises, but concerning CPI - be careful. Few days ago consensus was on drop in numbers to the lowest level this year. But yesterday JPM has come on stage and said that they expect 0.5% jump, which makes market nervous. So, it is a bit tricky situation around CPI. Be careful.

On daily chart we do not see something really new. Our next upside target is 2056, if gold could stay with short-term bullish context (otherwise we could get deeper AB-CD retracement, although bullish context on higher time frames remains):
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On 4H chart the vital point now is "A". Additionally to previous butterfly pattern with the same 2056 target, we could get another, minor one here.
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On 1H chart our H&S pattern has completed accurately and now we've got the "222" Sell, as a by-product of its completion. Minimum target is 2005 support area, but, from potential butterfly point of view - 1996 level looks even more harmonic. But, say, you could split position to not miss the entry.
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Hopefully, CPI will not crash the plan ;) Let's see.
 
Greetings everybody,

Gold mostly shows the same performance as EUR and has the same source of power - recent Fed minutes where word "recession" has sounded for the first time. For us nothing has changed significantly - we're still focused on 2055 upside target on daily chart. Signs of bullish dynamic pressure here are evident now:
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On 4h chart, despite what extension we use - they point on the same area around 2055:
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If you have missed both entries - with H&S and yesterday on 2005 pullback, now you could only wait for minor pullback to 2020, for example to consider position taking. Hardly we get any meaningful pullback until gold hits major 2055 level. On 1H chart we have also few minor targets, such as XOP of our H&S pattern around 2037$ but I think that daily one is more important.

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Greetings everybody,

So, yesterday gold has reached 2048$ area, and in general our daily journey is coming to an end with 2055$ target. Of course, global political, economical factors could intrude and change everything. But for now, based on technical background - weekly OB is around 2066$, monthly OB is around 2060$, we should wait for moderate pullback. Based on butterfly pattern, it should be at least to 1955$ area. Besides, here are some bearish signs start appearing - grabber, divergence etc...
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The most important data today is US banks earnings report, it could bring volatility and gold could try to spike up right to the daily target if statement will be poor. Based purely on technical factors - market shows downside reaction on resistance and butterfly target. From this point of view upward continuation is more probable on next week. Besides, traders could start profit booking before weekend.
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On 1H chart market has completed AB-CD pattern as well. If pullback starts - 2020-2025$ area seems interesting as potential destination point:
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That's being said - we do not consider new longs on daily/weekly time frame for now. If no impact from banking statement happens today - we could consider intraday last one position on next week. Supposedly from 2020 area with the same 2055 destination point.
 
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