Gold GOLD PRO WEEKLY, April 22 - 26, 2024

Sive Morten

Special Consultant to the FPA
Messages
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Fundamentals

For Gold market this week has passed under sign of Israel back strike on Iran. J. Powell's comments that all efforts to defeat inflation haven't brought desirable effect has made no big impact on gold price. And even with yields has jumped to 4.7% - gold was keep going higher. This is very good sign. At the same time we start signing more volatility and choppiness on gold market, which is an indicator of increased amount of speculators. This should not surprise us, because if you have activity and great rally - there are always a lot of speculators around. It means that price performance could become sharper and faster, swings are wider and less gradual. But, all these consequences are not vital. Today we do not have any special topic for discussion, thus just take a look on what is going on in general.

Market overview
Gold rose as demand for the haven asset grew amid fears of escalating tensions in the Middle East following Iran’s unprecedented attack on Israel over the last weekend. The latest developments in the Middle East rekindled the flight to safety, with fears over a potential retaliation by Israel likely to support gold in the near term.
The escalating tensions in the Middle East are “a reason in itself to buy gold,” said Chris Weston, head of research at Pepperstone Group Ltd. “There’s a sizable geopolitical premium being priced into moves,” he said, adding that the medium-term path will likely be higher.

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“It is increasingly clear that normal reaction functions have been abandoned with gold,” said Ole Hansen, head of commodity strategy at Saxo Bank AS. Bullion typically rises when the dollar and rates slip, and vice versa. Hansen said the current drivers behind gold’s 16% rally this year is a combination of geopolitical risks related to the Russia-Ukraine war and the Middle East; strong retail demand in China; central bank demand; rising debt-to-GDP ratios among major economies; and a potential re-acceleration in inflation outlook.

Gold has surged by almost 20% since mid-February in a rally that’s taken many investors by surprise. Swaps markets suggest that investors have lowered their expectations for the scope and pace of Federal Reserve cuts to interest rates this year. Nevertheless, the metal has gained support from other factors including robust buying by central banks and increased demand from Chinese consumers. A number of Wall Street banks have also recently lifted their price forecasts for gold, with Goldman Sachs Group Inc. on Monday raising its year-end forecast to $2,700 an ounce.
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Dominic Schnider, head of global commodities and foreign exchange at UBS Global Wealth Management, discusses the prospects for commodities including copper, gold and silver, suggests that Gold could reach $2500 level.
Covenant Capital’s Edward Lim says he’s bullish on gold and is planning to make it a permanent fixture of his portfolio following intermittent periods of trading the metal. A number of Wall Street banks have also recently lifted their price forecasts, with Goldman Sachs raising its year-end forecast to $2,700 an ounce.
“The dollar’s hegemony that has existed since WWII is coming to a test right now, and there’s no alternative besides gold,” Lim said on Bloomberg Television. Covenant Sets $2,500 Gold Target, Says $2,700 ‘Bit Rich’.

Gold is set to reach $3,000 an ounce over the next six to 18 months on increasing investor inflows amid expectations that the Federal Reserve will eventually cut interest rates, Citigroup Inc. said, adding to a roll call of Wall Street banks that have raised forecasts.
Analysts led by Aakash Doshi upgraded their estimate for average prices in 2024 to $2,350 and made a “massive 40% upward revision” in their 2025 prediction to $2,875. Trading will “regularly test and breach” $2,500 in the second half, they wrote.

According to Citigroup, gold will be driven by increased flows from managed money players, who are already showing signs of catching up with demand from physical consumers in China and central banks. The start of a Fed cutting cycle — or a potential recession scenario — into 2025 will provide further impetus for investment demand. Inflows into gold-backed exchange traded funds — largely absent in recent years — will “buffer the path to $3,000,” the analysts wrote. Citi sees increased prospects for a pullback in prices around May or June, but expects “strong buying support” at the $2,200 an ounce threshold.
Powell said Tuesday that it will likely take longer to gain confidence that price growth is heading toward the Fed’s goal, remarks that followed a string of surprisingly strong US inflation readings. The Fed chief also said it’s appropriate to give the US central bank’s restrictive policy further time to work. For gold traders, Powell’s remarks didn’t break much new ground, although his comments suggested a May rate cut is off the table and June is increasingly unlikely. Swap markets show the Fed will only begin easing in September, after indicating July a week ago. Lower rates are generally positive for gold as it pays no interest.

The Reserve Bank of India continued its gold purchases in March, according to a post on X from Krishan Gopaul, investment research analyst at the World Gold Council. Year-to-date purchases of nearly 19 tonnes now exceed its 2023 net purchases of 16 tonnes, he added. China and India have typically vied over the title of world’s biggest buyer. But that shifted last year as Chinese consumption of jewelry, bars and coins swelled to record levels. China’s gold jewelry demand rose 10% while India’s fell 6%. Chinese bar and coin investments, meanwhile, surged 28%.

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And there’s still room for demand to grow, said Philip Klapwijk, managing director of Hong Kong-based consultant Precious Metals Insights Ltd. Amid limited investment options in China, the protracted crisis in its property sector, volatile stock markets and a weakening yuan are all driving money to assets that are perceived to be safer.
“The weight of money available under these circumstances for an asset like gold - and actually for new buyers to come in - is pretty considerable,” he said. “There isn’t much alternative in China. With exchange controls and capital controls, you can’t just look at other markets to put your money into.”

Although China mines more gold than any other country, it still needs to import a lot and the quantities are getting larger. In the last two years, overseas purchases totaled over 2,800 tons — more than all of the metal that backs exchange-traded funds around the world, or about a third of the stockpiles held by the US Federal Reserve.
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The People’s Bank of China has been on a buying spree for 17 straight months, its longest-ever run of purchases, as it looks to diversify its reserves away from the dollar and hedge against currency depreciation. It’s indicative of gold’s allure that Chinese demand remains so buoyant, despite record prices and a weaker yuan that robs buyers of purchasing power. As a major importer, gold buyers in China often have to pay a premium over international prices. That jumped to $89 an ounce at the start of the month. The average over the past year is $35 versus a historical average of just $7.
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That suggests the rally is sustainable and gold buyers everywhere should be comforted by China’s booming demand, said Nikos Kavalis, managing director at consultancy Metals Focus Ltd.
Money has flowed into gold ETFs in mainland China during almost every month since June, according to Bloomberg Intelligence. That compares with chunky outflows in gold funds in the rest of the world. Chinese demand could continue to rise as investors look to diversify their holdings with commodities, BI analyst Rebecca Sin said in a note.
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"Geopolitical uncertainty continues to support gold and if there is any escalation in the situation, then prices could move towards the $2,500 range," said Phillip Streible, chief market strategist at Blue Line Futures in Chicago. "Gold prices will only come lower if central banks stop buying or if investors go back to a risk-on phase," he said.

Deutsche Bank raised its gold price forecast to an average of $2,400 an ounce for the fourth quarter of 2024 and to $2,600 for fourth quarter of 2025, citing a durable impact from recent investment inflow. Its strategist Michael Hsueh sees tension in the South China Sea as a potential flashpoint that could garner greater attention for gold.
"When there are geopolitical tensions, the natural response is for investors to flee to gold, which is happening now. If the conflict further escalates, prices could go north of $2,500-$2,600, and if there is a ceasefire, then they could fall to $2,200," said Everett Millman, chief market analyst with Gainesville Coins. "Central bank purchases are also placing a floor beneath the prices," he added.

Gold prices rose on Friday and logged a fifth consecutive weekly rise, as fears of further tit-for-tat retaliation between Iran and Israel triggered safe-haven demand.
"The escalation and de-escalation situation in the Middle East has taken hold of the markets. If the situation does de-escalate, then gold will pull back or consolidate as safe-haven buying dries up," said David Meger, director of metals trading at High Ridge Futures. "However, longer term, higher uptrend in gold will continue as the Federal Reserve might not be cutting rates as soon as the market expects."

SILVER IN FOCUS

As it usually happens on stock market, when blue chips rally is slowing, traders start looking for other undervalued shares - silver is becoming interesting as it is lagging behind gold market. After a strong start to the year, silver should remain supported by record industrial usage and a supply deficit, according to the Silver Institute.

Industrial consumption hit an all-time high in 2023 and is expected to expand another 9% this year, driven by green-related applications such as solar panels, the institute said in its World Silver Survey report on Wednesday. That will help the metal record a fourth straight annual supply shortage.

Silver, known as the devil’s metal because of its often wild swings, is trading near a three-year high as it tracks a rally in gold that has partly been fueled by demand for a haven amid geopolitical tensions.
Silver prices will be underpinned by the persistent deficit, said Philip Newman, managing director at consultancy Metals Focus, which was commissioned to produce the report.Silver has rallied 20% already this year to trade at about $28.55 an ounce in London. Prices could hit $30 in the near term, Newman said in an interview.
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"The silver shortage narrative is gaining attention, with demand consistently outpacing new supply. This imbalance could lead to a significant price adjustment in the future," said Alexander Zumpfe, a precious metals trader at Heraeus Metals. "Long-term trends in the silver market remain bullish, and while short-term price movements can be volatile and influenced by futures trading."
Here are some key figures from the report:
  • Silver industrial demand is expected to reach 711 million ounces this year, with usage in solar panels climbing 20% to 232 million ounces.
  • Jewelry purchases are seen rising 4%, while bar and coin demand will drop 13%.
  • Total silver supply will ease slightly, leading to a deficit of 215 million ounces, the second-highest on record.

TACTICAL GOLD DRIVERS

Concern about the rapidly rising U.S. government debt is partly behind recent surges in gold prices and bitcoin, even as the Treasury market so far remains relatively sanguine about the country's fiscal path, market observers say. The U.S. budget deficit widened to $1.7 trillion in fiscal year 2023 and is on track to reach $2.6 trillion by 2034, according to the Congressional Budget Office.

U.S. government debt held by the public, meanwhile, is on pace to reach a record 106% of gross domestic product (GDP) in 2028, up from 97% in fiscal year 2023. It has soared to $27 trillion from $17 trillion in early 2020 and $5 trillion in 2007. he unchecked growth of U.S. government debt is gaining more attention as interest rate payments also take a larger bite of the government's budget - in some months exceeding spending on national defense. This worsening trajectory has boosted demand for bitcoin and gold, which are often used as a hedge against inflation and the depreciating purchasing power of the U.S. currency.
“Concerns about the U.S. debt cycle, devaluation of money - and fiat money in particular - does drive the story and the narrative,” said Brad Bechtel, global head of FX at Jefferies. That “at the margin pushes investors to allocate more towards something like (bitcoin) than they otherwise would,” and for gold “it’s even bigger there,” Bechtel said. “Concerns about debasing of fiat money is generally one of the drivers of the gold bugs.
“There’s interest in both gold and bitcoin because of that, because inflation’s been unsteady in the last couple of years,” said Lawrence H. White, professor of economics at George Mason University. More concerning is that the rising debt and deficit “is in peace time with an economy that’s running at full employment… that’s normally when you should be running surpluses and we’re not even close,” White said. “So, in the next recession we’re going to have an even bigger jump up in debt.”
The rapidly worsening U.S. fiscal situation remains a key driver for some investors.Michael Hartnett, investment strategist at Bank of America, said in a recent report that recent highs in gold and tech stocks are indicating that the “parlous state of US govt finances" will inevitably lead to policies including yield curve control “to prevent (a) debt crisis.” In yield curve control a central bank buys bonds in order to maintain a target interest rate, which can reduce government borrowing costs.

At the same time, it is interesting that US Treasury reports on raising of foreign holding of the US debt, while we see record sell-off by Hedge funds. Among buyers there are no more "foreign investors" such as China, Arab countries as they were previously, but only puppet Japan and EU countries (mostly Belgium). UK has no more free cash to buy the US debt. Obviously, with all respect to Japan and EU - this burden is too heavy to carry it in long term.
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So far, however, several Treasury market indicators show that bonds are not pricing in a worsening fiscal outlook, said Nicholas Colas, co-founder of DataTrek Research.
These include 10-year Treasury yields trading well below those on three-month notes. Real 10-year yields, which “reflect all risks other than future inflation,” are also around the same level as from 2003–2007, when the debt to GDP ratio was half of what it is now.

US Treasuries yields are rising rapidly. Visually, it is clear that the United States has stopped managing its debt, and the situation is out of control. While the financial world behaves like nothing terrible is happening. However, the cost of servicing government debt has doubled since 2020 – to $1 trillion in 2023. BofA forecasts that servicing US debt this year will cost $1.6 trillion if the Fed doesn't cut rates. Interest will become the most expensive budget item, doubling the Pentagon budget.

The problem has no simple solutions: it is impossible to devalue the US dollar, its exchange rate will fall with the rates of other currencies (yen, euro, yuan); default on US Treasuries will lead to financial, and then political and military disasters. Therefore, the only way is prolonged dollar inflation, which will eat up the American debt, and with it capital, savings and income, equalizing the rights and opportunities of the hegemon with those of Argentina. However, the robbery of a country very rich in resources (Russia, China, Iran) will push the problem back for a couple of decades. But this seems hardly possible now.

Inflation undermines confidence in the dollar as an instrument of trade, savings and investment - something on which its hegemony rests. The Fed does not have a plan on how to slow down inflation without breaking the global financial system into small pieces due to the fall in the value of US Treasuries. And this is financial zugzwang.

Along with construction and transport, fast food is a kind of basket of goods and services (groceries, wages, utilities, rent, delivery), and therefore reflects trends well. Try to find deflation there, for example, the threat of which was discussed a lot six months ago.
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The sanctions on Russian non-ferrous metals, just introduced by England and the USA, will definitely not reduce inflation, but rather accelerate it. And the growth of oil by 22% from local lows also seems to hint that the “beard of expectations” this time will bristle straight upward. According to the chart below, it will be about 10-12% by January 2025, and according to BigMac McDuck, another 20-25 percent at least.

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Strategical Issues

Finally, let's just briefly mention recent House decision to expropriate Russian assets and force to TikTok to sell business in China under the hazard of blocking. It reality this decision is much deeper than it seems. First is, the confiscation of Russian assets makes no big fiscal sense, because the US has only $5Bln which is like the pie for the elephant. Foreign investors already are not buying the US debt. With this decision the US has buried principles of "inviolability of private property" which is suicide for global reserve currency. As principle of fair competition, trying to steal Chinese company.

Although Russia has ~ 20 times more the US assets on its territory, we're interested in a bit different thing. What particular reason has forced to unite Republicans with democrats and approve this initiative? Under what reason two domestic political rivals start acting together? We suggest that the only one explanation could be. it means that really big problems stand inside, the question of survival on the table, that exclude any future strategical planning and cooperation. Apparently, there is no hope of getting out of the tangle of problems, so you need to take everything you can get your hands on.

We consider this precedent as a gift for gold market. Now US Dollar instead starts getting some toxic features - doesn't guaranty safety and inviolability, doesn't guarantee inflation protection, becoming the political tool and weapon for resolving US problems. Hardly this collection of features will be attractive in long term among investors. Dollar mass start returning back in the US as soon as major owners of global commodity reserves stop using it for pricing. And effect of dollar weakness accumulation will be long-term and spin up in time.

Thus, we do not see any signs that our long-term bullish strategy is coming to an end. We even see more long term supportive factors for further gold appreciation. Yes, for day by day trading gold is becoming more volatile and difficult, as sharp swings are becoming stronger and less predictable due speculative multiplication. But for investing and wealth preservation we see no flaws in gold by far.
 
Technicals
Monthly

Here April looks nice. Despite pullback from the top, the thrust is very strong, so no reasons to deny 2567$ XOP target. Market has stopped a bit because of obvious overextension - here it is also stands at overbought, like on the weekly chart as well.

Although i short-term perspectives we could see some pullbacks, wobbling action and sideways performance to mitigate overbought, this will be temporal effect, with later upside continuation.
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Weekly

Here we do not see any clear patterns just yet. Market stands at overbought which definitely mess it attempts to go higher. Still, recent week has become inside one, making no impact on overall picture. Upside action is potentially interesting because of thrust, it might be the background for DiNapoli patterns. Weekly chart has its own XOP around 2516$ which is very close to monthly one:
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Daily

Formally, daily trend has turned bearish, but we still have the bullish grabber and price action starts getting clear signs of bullish dynamic pressure. At the same time here we have to recall another important long-term target. This is 1.618 extension of "BC" leg on monthly chart @ 2456. And in fact, it could the technical reason why market stops here.

Still our trading plan remains the same by far - watching for re-testing of the top due to the grabber pattern:
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Intraday

On 4H chart our strategy works by far. We've got the grabber on Friday morning and then another one, by session close. Market has not re-tested the trend line and MACD divergence still stands in place, so bullish context seems valid.
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On 1H gold jumps well from our 2380$ level and now is flirting with MACD, so we could get another grabber next week. Let's see how it will go. Obviously in current situation we do not consider any short positions by far
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Greetings everybody,

Once geopolitical pressure has calmed down - technical factors immediately manifest themselves by long term standing overbought. Recent drop was rather fast, but absolutely reasonable. Unfortunately we haven't got the completion of our grabber as it has been erased, although has made few attempts to go higher and reach the target.

But this drop also is suggested by our long-term trading plan, that we've discussed in recent few weeks in weekly report. The point is Gold has perfect thrusts on weekly, daily and now on intraday chart as well. And all of them are perfect for DInapoli directional pattern.

Probably it is too early to speak about weekly one. I'm looking at 2250 K-support area now, suggesting that weekly B&B could start from there. But - daily B&B is a different thing and the background mostly is ready. We at oversold and Fib support level:
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The only thing that we need to get is clear bullish reversal intraday pattern, to let us to step in.

Meantime, on 4H/1H chart we also have great downside thrust that is also very good as for DRPO as for B&B "Sell". Although it is the opposite pattern and it may sounding a bit curious, but in reality there is no contradiction here. Intraday B&B "Sell" just will become a part of bigger daily B&B "Buy". Also I wouldn't forget about DRPO "Buy" that could be formed here as well.
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By the way, if we will not get some classical reversal pattern, DRPO "Buy" might become the one that we're watching for, to take position with daily B&B "Buy" trade.
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Anyway, situation is very interesting and we have enough patterns for 1-2 weeks of trading. Let's see.
 
Greetings everybody,

Sive, one specific question..
Unfortunately, I had a pending order in buying gold around 2319, which worked at the night. In this case trading on the daily chart. I understand my mistake perfectly well, but it is what it is. It was without stop. What advice can you give in this particular situation? It is clear that it is possible to fix the current loss, but I really would not like to do this. By itself, the deposit allows for a more drawdown, but already at 2250 it goes beyond the limits of 15-25% acceptable to me.
 
Greetings everybody,

So, upside action is started, but the major challenge still stands ahead as price shape is taking tricky turn. On daily chart we see no problems by far, and all that we will discuss below mostly relates to intraday performance.
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First is, on 4H chart we were waiting for B&B "Sell". But now it seems that gold is on the way to form here DRPO "Buy instead. It means absolutely different shape of price, that could re-test recent lows. So, B&B on daily chart also will start differently and we get not direct upside action but re-testing of the lows first. It means that if you've bought yesterday - think about breakeven stop:
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1H chart shows why we have DRPO on 4H but not the B&B. Because price has not reached 3/8 Fib level and this is primary condition for potential DRPO. Now is the second moment - coming GDP and PCE numbers. We could get different scale of downside action depending on numbers. If data will be strong enough, we could get downside butterfly here as a shape of DRPO "Buy". Moderate numbers could trigger smaller downside action:
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That's being said, if you bought already - move stops to breakeven. If you are not - wait a bit, as price shape suggests better entry levels could be provided. Let's see.
 
Greetings everybody,

So, gold is showing wobbling choppy action on intraday charts that very difficult to use or interprete to make definite trading steps. At the same time - it has no effect on our major daily pattern, which is bullish B&B "Buy". Thus, we have the direction still...
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As we've warned - upside action will not be the easy way, especially because of coming data release. 4H picture shows that we haven't got DRPO "Buy", but it was B&B "Sell" look alike instead. By two reasons. First is - here, on 4H chart market has not formed any propriate 2nd bottom.
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While on 1H chart it is clearly seen that gold hits 3/8 resistance level which is not allowed with DRPO pattern. Finally, this B&B "Sell" LAL has been done already as price hits 5/8 support. All has happened as we've explained...
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Sideways action here is not an indicator of some pressure, but mostly indecision and expectation of GDP/PCE. What would be right to do here? First is - DRPO "Buy" on 1H chart is still valid, despite sideways action, because 5/8 support is not broken. Second - we have valid B&B "Buy" on daily chart right?

So, if you do not want to trade data release directly, I wouldn't consider any shorts here. If you already have long position - you could keep it, just think about stop order, maybe move it to breakeven...

IF you just want to take long position - I prefer to wait for data release. Chances are not bad that data will be strong, so gold could show downside tactical reaction here which might be another chance to buy. This is our 2cents on situation, hopefully it will be handy.
 
Greetings everybody,

So, everything looks just great, not many things to comment. On daily chart we see that our B&B "Buy" is in progress. Recent GDP report is like a balsam to Gold market, suggesting that the US economy enters in stagflation. This is worst scenario among all possible ones:
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B&B target stands at 5/8 resistance of the whole downside action, which is ~2377.
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Upside XOP stands precisely in the same area:
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Probably we get some reaction on OP target as well. So, let's see what PCE numbers will be. Don't forget to manage stops to breakeven at least.
 
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