Sive Morten
Special Consultant to the FPA
- Messages
- 22,095
FUNDAMENTALS
Gold market is moving in the mainstream now, reacting on the news flow around US-Iran conflict and particularly to the status of Hormuz Strait. Mostly it relates not to the value of gold per se, but the piece of liquidity cake that could be returned back on the market. Since news in recent week were very contradictive, investors are tired from opposite opinions and market mostly remains in the range except Friday's jump. In nearest two weeks it is hardly to expect direction more or less extended action. It is more probable that the scale of activity will be smaller.
MARKET OVERVIEW
Gold jumped to the highest in almost a month after Iran declared the Strait of Hormuz “completely open” to commercial traffic. Still, Iranian state TV cited a senior military official as saying passage isn’t possible without coordination with Islamic Republic Guard Corps naval forces. US President Donald Trump, meanwhile, said an American naval blockade remains in force until a deal is reached.
Bullion has clawed back some of the war losses in recent days as ceasefire optimism grew. A liquidity squeeze during the early days of fighting prompted investors to offload gold to cover losses elsewhere in their portfolios. Going forward, things look positive for gold, according to Elias Haddad, global head of markets strategy at Brown Brothers Harriman & Co. The optimism around a broader peace deal has seen traders boost rate-cut bets, pricing in about 16 basis points of easing for the December Fed meeting, up from roughly eight at Thursday’s close. Currently, traders see a 32% chance of a U.S. interest rate cut this year. The swap market is still betting that the US Federal Reserve will hold rates steady this year, a view supported by comments from Fed Bank of St. Louis President Alberto Musalem and Fed Bank of Cleveland President Beth Hammack.
Money managers have increased their bullish gold bets to a four-week high as of April 14, while boosting their bullish silver to a 12-week high over the same period, weekly data from the Commodities Futures Trading Commission showed Friday. In a sign that buyers are coming back to the market, bullion-backed exchange-traded funds have added around 25 tons so far this month, after cutting around 94 tons in March, according to a Bloomberg tally.
New applications for U.S. unemployment benefits fell last week, suggesting labor-market conditions remain stable, though employers are cautious about hiring as the war with Iran casts a shadow over the economy. The Federal Reserve may need to wait until 2027 to cut interest rates if an extended bout of high oil prices from the Iran war delays inflation's progress towards the U.S. central bank's 2% goal, Chicago Fed President Austan Goolsbee said on Tuesday.
Gold will find support from market volatility as long as Trump is in the White House, ACG Metals Ltd. Chairman Artem Volynets told Bloomberg Television. Geopolitical events may spur central bank gold-buying as they shift away from the US dollar, he noted.
Data showed that U.S. producer prices increased less than expected in March as the cost of services was unchanged, but surging energy prices because of the war with Iran were fanning inflation pressures.
Union Bancaire Privée is buying gold again after cutting a significant position in response to an Iran war-induced slump, saying it believes the long-term outlook remains intact. UBP is looking to further rebuild its gold positions, consisting mostly of bullion-backed exchange-traded funds, after they recovered to around 6% of discretionary portfolios. Gupta said the bank still sees prices rising to $6,000 an ounce by the end of the year as structural demand — including central bank buying, concerns about fiscal deficits and geopolitical tensions, remain intact.
UBP’s view echoes a slew of investment banks that have recently affirmed bullion’s longer-term outlook despite the recent downturn. ANZ Banking Group Ltd. and Goldman Sachs Group Inc. have projected gold prices to go higher. Dip-buyers have recently stepped in to help bullion claw back some losses. Global holdings by gold-backed ETFs increased by around 20 tons in April following the biggest monthly outflows in five years in March, according to a Bloomberg tally.
UNDERCOVER
Why the market collapse was postponed. It will soon become clear how long the system can withstand a real liquidity squeeze. Many expected a large-scale crisis when the Fed began reducing its balance sheet in 2022. The logic was simple: the withdrawal of trillions of dollars should have triggered banking problems or a "black swan". But this did not happen.
️The reason is that another mechanism was operating in parallel. On the one hand, the Fed reduced assets by approximately $2.3 trillion (this is QT - liquidity withdrawal). On the other hand, about $2.5 trillion of previously "frozen" liquidity returned to the system through the reverse repo (RRP) mechanism. That is,the tightening was actually offset by an inflow of money.
When the yields on short-term US government bonds exceeded the RRP rate, funds began to massively withdraw money from this instrument and shift to T-bills. At its peak, this provided the market with an inflow of liquidity of about $100–200 billion per month - essentially a hidden stimulus that supported the markets and helped to finance the budget deficit. To a large extent, it was this factor that coincided with the growth of the stock market: while money was flowing out of the RRP, the indices were hitting new highs.
️However, by 2026, this source dried up - the funds in the RRP were almost exhausted. The liquidity reserve accumulated during the pandemic was exhausted. Against this backdrop, the Fed actually stopped tightening and again began to expand its balance sheet (about $40 billion per month), although it formally avoids calling this QE. In fact, the regulator is forced to print money to replace the disappeared liquidity from the RRP.
The problem is that the new inflow is much smaller than before. Previously, the market received hundreds of billions of dollars per month, now - many times less. Therefore, instead of the expected "easing", the effect may be the opposite. ️It is now that the period begins when it will become clear how the financial system is coping without hidden liquidity injections.
The price of diamonds is deeply in the red from the lows of the last 25 years. The P/E valuations of tech stocks have dropped by almost half from their peak. Meantime, the S&P 500 index, however, hit a new all-time high recently. For the valuation to be considered adequate, the entire market would need to recover another 30-40% from its lows. A P/E of 14-15 at most would be a reasonable valuation, allowing for adequate returns on capital. Finally Almost half of American households have no retirement savings. A social explosion is inevitable sooner or later. Something needs to be done. Either create a real-life cyberpunk with everyone owning nothing and being happy, or reduce inequality. Of course, not by taking from the rich and giving to the poor.
The global consequences of 7 weeks of war in the Middle East will begin to manifest themselves next week in the second round of business activity surveys in various countries. A general deterioration in indicators is expected in Germany, France, the eurozone, and the UK, while US indicators are expected to remain virtually unchanged. In the end, the figures may indicate the onset of stagflation, writes Bloomberg.
I would like to note an important point - if inflation can still be debated, then a slide into stagnation is a predetermined event and a return to a normal state. It's worth returning to what was observed in the economy of the same USA from 2007 to 2019 in the material sector:
What has changed in the stagnation assumptions is that after COVID, the real (official) disposable incomes of the population deviated from the trajectory and began to slow down, and over the past 1.5 years, they simply stopped growing.
Official... So we can conclude that in reality, this line should be closer to horizontal, and the trend since 2020 is already a decline. So the energy shock, which will lead to an increase in inflation and a stronger decline, is already a predetermined fact. Especially given the slowdown in investments in AI and AI infrastructure, which, among other things, is already happening due to the restrictions on the construction of data centers being implemented by individual states.
Meantime, the market shaking is going as expected. It's just amazing. However, this will definitely not end and will last until May 1st, and possibly even until June 1st. Probably, Congress will not approve anything, so then it will be possible to pretend for another month that the troops are being withdrawn, but the blockade of the strait will continue. This means that there will be enough time for all the negative consequences of this blockade to unfold.
Gold has indeed fulfilled its reserve function for now. But as soon as the dollar shortage in the system ends (apparently, this happened recently) - gold purchases may continue. Of course, one could argue that in those very countries with a currency surplus, many of which, as it happens, are importers of oil, fertilizers, and everything else, the surplus will collapse and they will no longer be able to buy gold. But in other countries, which, in turn, are exporters, the surplus will become even greater.
And much greater than the drop in the former surplus countries (they'll take it from the Europeans, heh). Moreover, the current crisis has once again shown that treasuries as a reserve are convenient, but there are many risks in them. So, I'm convinced that the rise in gold will continue.
Money Metals exposed a looming scandal with Fort Knox gold. Analysts of the organization studied documents from 2011 and concluded: the bulk of the US gold reserve in Fort Knox does not meet modern standards and is therefore illiquid. Why is it illiquid?
A reputational blow during the global trend for gold accumulation. France returned 129 tons of gold from the US and earned about 13 billion euros. Germany, Saudi Arabia, and other countries are also considering returning assets. How does the US want to deal with this? Senator Mike Lee introduced a bill on the transparency of gold reserves: a full audit and re-melting of all substandard bars to the international standard. The outcome - the US gold reserve is valued at an outdated balance sheet value of $42.22 per ounce. In essence, it's a "black box". While the Treasury remains silent and a full audit is postponed, skeptics are gaining more reasons to doubt the liquidity and real state of the US "golden fortress".
CONCLUSION:
Since we're getting new updated information on some very factors, such as liquidity, it seems that in long-term perspective everything could go differently compares to historical parallels when gold was falling in similar situations. Just based on some data above. Which in general confirms our view the the last word in upside tendency is not said yet. At the same time, in short-term gold will remain vulnerable following the same major news stream as all other markets, reacting on any D. Trump sneeze in social media. We see as a major task now is to identify strong support area where long-term tendency could turn up again. While keep trading small trades on daily and intraday time frames.
TECHNICALS
MONTHLY
After big collapse and thanks to Friday's rally we're getting positive dynamic in April by far. Still, it has too small range to impact on overall picture. But if it will be confirmed, that gold is forming monthly triangle pattern - it might become a technical confirmation of our fundamental view:
WEEKLY
Here trend remains bearish and we continue our experiment of weekly volatility breakout. Supposedly downside action back to the lows should start from ~5K resistance area. So, on lower time frames we should be careful to potential bearish patterns. BTW appearing bearish grabbers on FX market (EUR, GBP) is also an indirect support of this idea.
DAILY
Here trend remains bullish, no patterns have been formed yet, but we see slowdown of upward action as it is coming to 5K area:
INTRADAY
So, here we've got our upside breakout although not without external help. Trend remains bullish and it seems that everything is OK. However, price is "rounding" down as gold can't proceed to upper border of the channel. With the recent news on board, bearish start of the week seems very probable. So, maybe the pattern that we're searching for, could start appearing soon. At the same time we have flat MACD with higher price lows, which also might be treated as a bullish sign.
Hence, to keep remain bullish, market has to keep this tendency as well. Our reverse H&S here is done well, but the half of the rally is already erased. Pre-market oil price looks higher, and it seems that 4800K support level will become vital again for the bulls here. Erasing of the whole rally definitely will be negative sign and could put the background for further downside action:
Gold market is moving in the mainstream now, reacting on the news flow around US-Iran conflict and particularly to the status of Hormuz Strait. Mostly it relates not to the value of gold per se, but the piece of liquidity cake that could be returned back on the market. Since news in recent week were very contradictive, investors are tired from opposite opinions and market mostly remains in the range except Friday's jump. In nearest two weeks it is hardly to expect direction more or less extended action. It is more probable that the scale of activity will be smaller.
MARKET OVERVIEW
Gold jumped to the highest in almost a month after Iran declared the Strait of Hormuz “completely open” to commercial traffic. Still, Iranian state TV cited a senior military official as saying passage isn’t possible without coordination with Islamic Republic Guard Corps naval forces. US President Donald Trump, meanwhile, said an American naval blockade remains in force until a deal is reached.
Bullion has clawed back some of the war losses in recent days as ceasefire optimism grew. A liquidity squeeze during the early days of fighting prompted investors to offload gold to cover losses elsewhere in their portfolios. Going forward, things look positive for gold, according to Elias Haddad, global head of markets strategy at Brown Brothers Harriman & Co. The optimism around a broader peace deal has seen traders boost rate-cut bets, pricing in about 16 basis points of easing for the December Fed meeting, up from roughly eight at Thursday’s close. Currently, traders see a 32% chance of a U.S. interest rate cut this year. The swap market is still betting that the US Federal Reserve will hold rates steady this year, a view supported by comments from Fed Bank of St. Louis President Alberto Musalem and Fed Bank of Cleveland President Beth Hammack.
Money managers have increased their bullish gold bets to a four-week high as of April 14, while boosting their bullish silver to a 12-week high over the same period, weekly data from the Commodities Futures Trading Commission showed Friday. In a sign that buyers are coming back to the market, bullion-backed exchange-traded funds have added around 25 tons so far this month, after cutting around 94 tons in March, according to a Bloomberg tally.
New applications for U.S. unemployment benefits fell last week, suggesting labor-market conditions remain stable, though employers are cautious about hiring as the war with Iran casts a shadow over the economy. The Federal Reserve may need to wait until 2027 to cut interest rates if an extended bout of high oil prices from the Iran war delays inflation's progress towards the U.S. central bank's 2% goal, Chicago Fed President Austan Goolsbee said on Tuesday.
Gold will find support from market volatility as long as Trump is in the White House, ACG Metals Ltd. Chairman Artem Volynets told Bloomberg Television. Geopolitical events may spur central bank gold-buying as they shift away from the US dollar, he noted.
Data showed that U.S. producer prices increased less than expected in March as the cost of services was unchanged, but surging energy prices because of the war with Iran were fanning inflation pressures.
Union Bancaire Privée is buying gold again after cutting a significant position in response to an Iran war-induced slump, saying it believes the long-term outlook remains intact. UBP is looking to further rebuild its gold positions, consisting mostly of bullion-backed exchange-traded funds, after they recovered to around 6% of discretionary portfolios. Gupta said the bank still sees prices rising to $6,000 an ounce by the end of the year as structural demand — including central bank buying, concerns about fiscal deficits and geopolitical tensions, remain intact.
UBP’s view echoes a slew of investment banks that have recently affirmed bullion’s longer-term outlook despite the recent downturn. ANZ Banking Group Ltd. and Goldman Sachs Group Inc. have projected gold prices to go higher. Dip-buyers have recently stepped in to help bullion claw back some losses. Global holdings by gold-backed ETFs increased by around 20 tons in April following the biggest monthly outflows in five years in March, according to a Bloomberg tally.
UNDERCOVER
Why the market collapse was postponed. It will soon become clear how long the system can withstand a real liquidity squeeze. Many expected a large-scale crisis when the Fed began reducing its balance sheet in 2022. The logic was simple: the withdrawal of trillions of dollars should have triggered banking problems or a "black swan". But this did not happen.
️The reason is that another mechanism was operating in parallel. On the one hand, the Fed reduced assets by approximately $2.3 trillion (this is QT - liquidity withdrawal). On the other hand, about $2.5 trillion of previously "frozen" liquidity returned to the system through the reverse repo (RRP) mechanism. That is,the tightening was actually offset by an inflow of money.
When the yields on short-term US government bonds exceeded the RRP rate, funds began to massively withdraw money from this instrument and shift to T-bills. At its peak, this provided the market with an inflow of liquidity of about $100–200 billion per month - essentially a hidden stimulus that supported the markets and helped to finance the budget deficit. To a large extent, it was this factor that coincided with the growth of the stock market: while money was flowing out of the RRP, the indices were hitting new highs.
️However, by 2026, this source dried up - the funds in the RRP were almost exhausted. The liquidity reserve accumulated during the pandemic was exhausted. Against this backdrop, the Fed actually stopped tightening and again began to expand its balance sheet (about $40 billion per month), although it formally avoids calling this QE. In fact, the regulator is forced to print money to replace the disappeared liquidity from the RRP.
The problem is that the new inflow is much smaller than before. Previously, the market received hundreds of billions of dollars per month, now - many times less. Therefore, instead of the expected "easing", the effect may be the opposite. ️It is now that the period begins when it will become clear how the financial system is coping without hidden liquidity injections.
The price of diamonds is deeply in the red from the lows of the last 25 years. The P/E valuations of tech stocks have dropped by almost half from their peak. Meantime, the S&P 500 index, however, hit a new all-time high recently. For the valuation to be considered adequate, the entire market would need to recover another 30-40% from its lows. A P/E of 14-15 at most would be a reasonable valuation, allowing for adequate returns on capital. Finally Almost half of American households have no retirement savings. A social explosion is inevitable sooner or later. Something needs to be done. Either create a real-life cyberpunk with everyone owning nothing and being happy, or reduce inequality. Of course, not by taking from the rich and giving to the poor.
The global consequences of 7 weeks of war in the Middle East will begin to manifest themselves next week in the second round of business activity surveys in various countries. A general deterioration in indicators is expected in Germany, France, the eurozone, and the UK, while US indicators are expected to remain virtually unchanged. In the end, the figures may indicate the onset of stagflation, writes Bloomberg.
I would like to note an important point - if inflation can still be debated, then a slide into stagnation is a predetermined event and a return to a normal state. It's worth returning to what was observed in the economy of the same USA from 2007 to 2019 in the material sector:
- oil consumption: 20.7 million b/d in 2007 - 20.5 million b/d in 2019
- electricity: 4.16 - 4.0 trillion kW·h (even taking into account digitalization, the growth of IT services, the development of telecom)
- steel production: 98 - 88 million tons
- transport and cargo turnover - no growth
- car mileage: increased by only 7-8% over 12 years
What has changed in the stagnation assumptions is that after COVID, the real (official) disposable incomes of the population deviated from the trajectory and began to slow down, and over the past 1.5 years, they simply stopped growing.
Official... So we can conclude that in reality, this line should be closer to horizontal, and the trend since 2020 is already a decline. So the energy shock, which will lead to an increase in inflation and a stronger decline, is already a predetermined fact. Especially given the slowdown in investments in AI and AI infrastructure, which, among other things, is already happening due to the restrictions on the construction of data centers being implemented by individual states.
Meantime, the market shaking is going as expected. It's just amazing. However, this will definitely not end and will last until May 1st, and possibly even until June 1st. Probably, Congress will not approve anything, so then it will be possible to pretend for another month that the troops are being withdrawn, but the blockade of the strait will continue. This means that there will be enough time for all the negative consequences of this blockade to unfold.
Gold has indeed fulfilled its reserve function for now. But as soon as the dollar shortage in the system ends (apparently, this happened recently) - gold purchases may continue. Of course, one could argue that in those very countries with a currency surplus, many of which, as it happens, are importers of oil, fertilizers, and everything else, the surplus will collapse and they will no longer be able to buy gold. But in other countries, which, in turn, are exporters, the surplus will become even greater.
And much greater than the drop in the former surplus countries (they'll take it from the Europeans, heh). Moreover, the current crisis has once again shown that treasuries as a reserve are convenient, but there are many risks in them. So, I'm convinced that the rise in gold will continue.
Money Metals exposed a looming scandal with Fort Knox gold. Analysts of the organization studied documents from 2011 and concluded: the bulk of the US gold reserve in Fort Knox does not meet modern standards and is therefore illiquid. Why is it illiquid?
- Only 17% of the bars have a purity of 995+ (the minimum standard for global markets)
- 64% of the bars have a purity of 899 to 901
- The average purity of the entire reserve is 916.7 (91.67% pure gold)
A reputational blow during the global trend for gold accumulation. France returned 129 tons of gold from the US and earned about 13 billion euros. Germany, Saudi Arabia, and other countries are also considering returning assets. How does the US want to deal with this? Senator Mike Lee introduced a bill on the transparency of gold reserves: a full audit and re-melting of all substandard bars to the international standard. The outcome - the US gold reserve is valued at an outdated balance sheet value of $42.22 per ounce. In essence, it's a "black box". While the Treasury remains silent and a full audit is postponed, skeptics are gaining more reasons to doubt the liquidity and real state of the US "golden fortress".
CONCLUSION:
Since we're getting new updated information on some very factors, such as liquidity, it seems that in long-term perspective everything could go differently compares to historical parallels when gold was falling in similar situations. Just based on some data above. Which in general confirms our view the the last word in upside tendency is not said yet. At the same time, in short-term gold will remain vulnerable following the same major news stream as all other markets, reacting on any D. Trump sneeze in social media. We see as a major task now is to identify strong support area where long-term tendency could turn up again. While keep trading small trades on daily and intraday time frames.
TECHNICALS
MONTHLY
After big collapse and thanks to Friday's rally we're getting positive dynamic in April by far. Still, it has too small range to impact on overall picture. But if it will be confirmed, that gold is forming monthly triangle pattern - it might become a technical confirmation of our fundamental view:
WEEKLY
Here trend remains bearish and we continue our experiment of weekly volatility breakout. Supposedly downside action back to the lows should start from ~5K resistance area. So, on lower time frames we should be careful to potential bearish patterns. BTW appearing bearish grabbers on FX market (EUR, GBP) is also an indirect support of this idea.
DAILY
Here trend remains bullish, no patterns have been formed yet, but we see slowdown of upward action as it is coming to 5K area:
INTRADAY
So, here we've got our upside breakout although not without external help. Trend remains bullish and it seems that everything is OK. However, price is "rounding" down as gold can't proceed to upper border of the channel. With the recent news on board, bearish start of the week seems very probable. So, maybe the pattern that we're searching for, could start appearing soon. At the same time we have flat MACD with higher price lows, which also might be treated as a bullish sign.
Hence, to keep remain bullish, market has to keep this tendency as well. Our reverse H&S here is done well, but the half of the rally is already erased. Pre-market oil price looks higher, and it seems that 4800K support level will become vital again for the bulls here. Erasing of the whole rally definitely will be negative sign and could put the background for further downside action:
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