Gold GOLD PRO WEEKLY, April 29 - 03, 2024

Sive Morten

Special Consultant to the FPA

This week gold mostly reacted on easing of Middle East tensions rather that on the US statistics. Although we think that this is temporary and very soon recent GDP and PCE numbers also will make impact as on US Dollar as on Gold. Yesterday we've explained why we think these numbers are of extreme importance. In short-term this could make holding effect on gold market as US yields will continue to raise, but in longer term, real rates should start falling and overall worsening situation in the US economy which should provide bullish effect on Gold. Big the US military spending to Ukraine and Israel will keep geopolitical tensions at high degree. And as soon as we come closer to election day the measure of entropy will increase.

Market overview

On Monday bullion dropped as much as 2.8% in its biggest intraday decline since June 2022. While Israel and Iran have traded attacks, raising concerns about an all-out-war in the region, Tehran has played down the impact and significance of Israel’s recent strike, saying on Monday that Israel has received the “necessary response at this stage.” The fact that the Iran regime downplayed Israel’s response — and signaled no retaliation — has taken some risk premium out of the gold market, according to Nicholas Frappell, global head of institutional markets at ABC Refinery in Sydney. Monday’s bearish sentiment on oil also supported the idea of easing tensions in the Middle East, he added.
"Some risk of an imminent retaliation in the Middle East has been removed, which has attracted some selling activity in gold. But the question is how much scope there is to the downside," said Daniel Ghali, a commodity strategist at TD Securities.

US business activity expanded in April at the slowest pace this year on a pullback in demand that led to the first employment decline since 2020. Gold pared losses after weaker-than-expected US business activity data helped underpin the case for Federal Reserve rate cuts this year.
“There is likely to have been some tactical short-selling, given the recent surge in gold prices,” Richard Grace, a senior currency analyst and international economist at ITC Markets, said in a note.

Gold’s record-setting rally has been defying the sort of headwinds that normally would have held it back -- and this week's retreat has done little to clarify matters. China could be the answer, though, according to several prominent figures in the world bullion market. They are coming to the conclusion that the major new driving force is a legion of fleet-footed retail investors on the Shanghai Futures Exchange. In a matter of weeks, the bourse has gone from a sedate futures venue to a nexus of the global gold market.

After weeks of debate about whether a mystery buyer was stoking the rally, several prominent figures in the global gold market are coming to the conclusion that the major new driving force is a legion of fleet-footed retail investors on the Shanghai Futures Exchange.

In a matter of weeks, the SHFE has gone from a sedate futures venue to a nexus of the global gold market. While rival centers such as London and New York have also seen activity rise, the fact that SHFE volumes have spiked from a low base offers a compelling sign that a newly arrived cohort of Chinese investors has helped drive prices sharply higher.


For months, consumers and institutional investors in China have been snapping up physical bullion, while the People’s Bank of China has been on a 17-month buying spree. Those two forces, which helped buoy international prices, have now been augmented by surging speculative demand. Numbers back up the theory. Trading on the SHFE has exploded, with average daily volume almost tripling in April compared with the preceding 12 months. It peaked at about 1,200 tons on April 15, the highest since 2019, before prices started to sag this week.
“It’s another sign of emerging markets, and particularly Chinese traders, wresting price discovery away from Western markets,” said John Reade, chief market strategist at the World Gold Council. “We know from other commodity markets, that from time-to-time, Shanghai traders become the most dominant players. That’s never really been the case in gold, but I think now that this might have changed.”

It’s notable that while SHFE volumes have soared, the number of outstanding contracts has hardly moved. That indicates participants day-trading, not taking a long-term view. But not everyone thinks Chinese investors are the major driver behind gold’s ascent.
“It’s not just mom-and-pop traders and it’s not just China,” said Jeff Christian, managing director at CPM Group. “It’s really a broad-based thing. There isn’t all that much difference now in the trading behavior of large institutions compared to mom-and-pop people.”

Gold may be in favor as higher-for-longer US interest rates to tame inflation may tip the economy into recession, according to Christian.
“They’re all becoming convinced that interest rates aren’t going to fall too soon,” he said. “That could be negative for other assets more than it would be for gold.”

Samson Li, a Hong Kong-based analyst at Commodity Discovery Fund, sees a more nuanced picture. Rather than being a direct driver of prices, the frenzied demand in China has encouraged western speculators to ramp up bets on gains in New York, he said. Daniel Ghali, a senior commodity strategist at TD Securities, has also been on the hunt to identify gold’s mystery buyer, and he still thinks that the dominant force is likely to be a deep-pocketed buyer in the so-called official sector, which covers state-linked institutions such as central banks and sovereign wealth funds. But he says buying activity there has also been closely correlated with weakness in the yuan, and investors on SHFE may be acting with the same underlying motivations.
“The trading activity on the SHFE, it does point to retail speculation and that could be associated with the currency pressures,” said Ghali. “It’s not just an issue for the central banks out there – it’s an issue for everyday participants who see that their currency is depreciating and want to hedge against it.”

Gold traded steady Wednesday after a two-day decline as traders await key US inflation data due later this week that may shed more light on the Federal Reserve’s path for interest rates.
More selling in gold may be limited as funds known as commodity trading advisors “are unlikely to liquidate their length north of $2,200,” TD Securities commodity strategist Daniel Ghali said in a note. Meanwhile, “macro trader positioning has remained constrained by the relentless rise” in the dollar and rising US yields as markets increasingly dialed back bets on the timing and magnitude of the Fed’s pivot to easing, he said.

The odds of a reduction in US borrowing costs in June — the base-case scenario earlier in the year — have dropped sharply over the last few weeks, with the swaps market now pricing in just a 14% chance. Some traders in the rates market are now putting on wagers that the Fed won’t cut at all this year.

Gold is headed for its first weekly loss in six as investors booked profits after the metal’s months-long rally. Fresh inflation data released Friday reinforced the view that high interest rates are here to stay for now. The metal’s robust performance has been linked to central-bank buying, surging interest in some Asian markets including China, and the possibility that investors may be seeking protection against sticky inflation.
Gold is “suffering a long overdue and relatively aggressive, but healthy correction,” said Ole Hansen, head of commodity strategy at Saxo Bank AS.

The Fed’s preferred gauge of underlying inflation climbed 0.3% in March and 2.8% from a year earlier, the same as the prior month. Figures from earlier this year were also revised up slightly, government data showed Friday. The three-straight months of worrisome inflation data indicate progress toward the central bank’s 2% goal has stalled, and suggest the first interest-rate cut is getting pushed further out.
“It should be noted that traders are pricing ongoing better-than-expected data, that is why there was very limited gold reaction to the higher inflation and data today,” said Bart Melek, global head of commodity strategy at TD Securities. Once US data surprises to the downside, gold should see investor interest in the Western world — with that, along with China uptake, a move toward $2,500 or higher “would be reasonable,” he said.

Overbought gold was also witnessing a technical correction. In the long term, gold will rise further, with 2024 being an election year, persistent geopolitical conflict and increasing U.S. debt, said Jonathan Rose, Genesis Gold Group CEO.
"Central banks have a monstrous appetite for gold right now, and that is definitely not slowing down," he added.
"There are many investors who have missed out on the big rally in gold and will be looking to pick up dips like these," said Fawad Razaqzada, market analyst at City Index.

GDP&PCE meaning for Gold

Gross domestic product increased at a 1.6% annualized rate, below all economists’ forecasts, the government’s initial estimate showed. The economy’s main growth engine — personal spending — rose at a slower-than-forecast 2.5% pace. A wider trade deficit subtracted the most from growth since 2022. A closely watched measure of underlying inflation advanced at a greater-than-expected 3.7% clip, the first quarterly acceleration in a year, the Bureau of Economic Analysis report showed Thursday.

The figures represent a notable loss of momentum at the start of 2024 after the economy wrapped up a surprisingly strong year. With the inflation pickup, Federal Reserve policymakers — who were already expected to hold interest rates at a two-decade high when they meet next week — may face renewed pressure to further delay any cuts and even to consider whether borrowing costs are high enough.
“The hot inflation print is the real story in this report,” Olu Sonola, head of US economic research at Fitch Ratings, said in a note. “If growth continues to slowly decelerate, but inflation strongly takes off again in the wrong direction, the expectation of a Fed interest rate cut in 2024 is starting to look increasingly more out of reach.”

Federal government spending subtracted from GDP for the first time in two years (!!). Stripping out inventories, government spending and trade, inflation-adjusted final sales to private domestic purchasers — a key gauge of underlying demand — rose at a 3.1% rate. Residential investment jumped at a nearly 14% annual rate, the fastest since the end of 2020 and underscoring builder efforts to boost inventory.

The record price of gold signals that the current fiat money order, based on the dollar as the world's reserve currency, is coming to an end... And the end is never peaceful...Although the rise in gold prices reached a nominal maximum, in real terms gold and silver prices never surpassed the record highs of 1980. Adjusted for inflation, gold should rise to around $3,590 an ounce and silver should rise above $50 an ounce.

️Precious metals will continue to rise unless the Federal Reserve radically changes its interest rate policy to combat inflation, as former Fed Chairman Paul Volcker once did. Volcker raised interest rates to double digits, causing gold prices to fall. While Volcker could get away with such actions (because the US was still a creditor country at the time), current Chairman Jerome Powell cannot due to massive public and private debt. Double-digit interest rates would destroy the economy and plunge millions of Americans into bankruptcy.

In fact, recent sharp slowdown of the US economy with rapid raising of budget deficit shows low efficiency of spending stimulus. Economy conditions demand rate cut. At the same time, inflation remains too high and will increase more, based on recent tendencies with commodities and fuel, not speaking about US budget spending. This makes really terrible situation and headache for the Fed and US Treasury. $250 Bln of taxes that have been recieved recently will smooth situation a bit, providing funds to keep interest rates stable but this is temporal relief and funds will exhaust in 1-2 months. At best case, the Fed could last situation without collapse until elections. But this is not for sure. Cutting rate will be the best scenario for gold but if the Fed will stay on hold, the problems in economy will keep raising. Holes will start to appearing here and there. And at the end they will have to switch on the printer. This anyway will lead to inflation but on a longer term perspective.

Other issues that seem important

The upward trend in inflation, which we noted many times, has finally formed. And this means that it is absolutely impossible to reduce the discount rate. Even taking into account the political objectives. Larry Summers was right that the official authorities would begin to show this growth. There may be several reasons for this phenomenon. It is possible that the increase in inflation turned out to be so strong that officials had to reluctantly admit it. Changing the methodology is difficult and takes a long time, so you can't go anywhere.

However, there is another option that some statisticians have realized that since the crisis cannot be avoided anyway, Summers' strategy "I have warned you" is more promising, so he could appear among experts on the right side. However, here we enter the political field. The inflation situation has become critical. its official scale (about 3.5%) is the main indicator of the change in the discount rate. And given the significant downturn in the industry, the rate needs to be urgently reduced. Well, it's useful for the elections, the mood of consumers is improving.

But rising inflation requires raising the rate. And, accordingly, any discussions on this topic acquire a political character. Plus, the revelations of Summers, which cast doubt on official data. And not only Summers is blowing this tune, there are especially many complaints about labor statistics, we also wrote about this. As a result, all political groups (power groups) in the United States are beginning to use the economic situation to their advantage. And in such situations, any meaningful work of economic experts ends. If we add to this that official experts are well aware of the degree of distortion of real data (although they may not know what indicators are in reality), then the situation becomes quite gloomy.

In particular, within the framework of such a picture, one does not want to invest in long-term industrial projects at all. And, as a result, it is completely unclear how to ensure production in those industries (defense industry, microelectronics) in which it is absolutely necessary. Well, entrepreneurs and citizens find themselves in an extremely difficult situation when it is absolutely impossible to make informed decisions.

All these stuff we should put on reality. By looking at this picture we could say that we're not at the end of the hawkish cycle, but in the beginning. Everytime, when credit spreads fall to minimum - the upside rate cycle starts, which, in turn triggers the tension in economy, defaults raising and following policy easing. Now creadit spreads stand at minimum levels:

Very soon we will witness something previously unprecedented: the financially divided world will begin to carry out polar monetary policy. The USA and Europe will raise the rate, China and India will lower it. Inflation will rise everywhere. Tensions between the US and China now becoming obvious for everyone. And recent J Yellen and A. Blinken visit once again confirms this. China is accumulating commodities with raising pace. There are many reasons might be, but anyway, if we even exclude real war, the economical impact from the US sanctions and gradual segregation of the whole economy space demands sufficient resources and protection. This is what China doing right now. Recent expropriation of Russian foreign reserves doesn't provide any relief either.

Now we have three major sources of gold demand:

1. Official demand from the Central Bank and individuals
Moreover, the motivation of buyers is different - private investors do not see alternatives, especially in China, where the stock markets and real estate have been trampled into the mud, and money cannot be taken abroad so easily. Central banks, in turn, are diversifying reserves - the notorious de-dollarization (albeit slow and creeping) + a good nest egg for a rainy day (to support the currency or exchange bullion for food and AI chips). The main demand, naturally, is in Asia. Bloomberg, for example, is horrified - Chinese imports of investment gold over 2 years suddenly exceeded 2,800 tons, which is already more than the reserves of all Western metal ETFs.

2. The paper gold market cannot withstand real physical demand, so at the beginning of 2024 speculators actually capitulated. Here geopolitics adds fuel to the fire - escalation in the Middle East, trade wars, etc.

3. Unofficial purchases of gold by central banks are growing, despite previous records. According to GWC, quarterly volumes of gray supplies are already significantly higher than public purchases. There is a wonderful theory that 80% of all undisclosed purchases come from the PBoC:

As a result, we have a change in market narratives:

– In 2022-2023, the relationship between real interest rates (the Federal Reserve rate minus inflation) and the price of gold broke down. The metal did well when real government bond yields rose.
– In 2024, the inverse correlation between the DXY dollar index and the price of gold in dollars broke down. The strengthening of the dollar went in parallel with the rally in the metal market.
Now the gold market is controlled not by Western speculative funds, but by real demand in the East.
As US Treasury yields are constantly raising right now, it is an empirical question, what yield level will start bringing big problems? Goldman calculates that a change of 2 standard deviations in the US 10-year yield, equivalent to about 60 bps today, exceeds a month - this is the point when the tough moves really begin, and "given that we closed books at the end of March books at 4.20%, this simple rule of thumb states that a move in the 10-year yield towards 4.80%-5% will lead to noticeable difficulties in the stock market.

As we've mentioned above, government has tax revenues that could help to hold US yields at some lower levels, at leas for some time. But as we keep going closer to 5%, as more tension will be on stock market and any sharp pullback could trigger cascade reaction, boosting gold demand... (continuation is below)...


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Let's make a historical analogy with 2008:
August 2005, gold price $435.
August 2007, gold price $673.
July 2008, gold price $913.
October 2008, gold price $723.
January 2009, gold price $927.
August 2011, gold price $1823.

All that remains is to decide what year we are in now, according to this analogy. From August to October 2008, obviously, a serious financial crisis was unfolding with all the delights like a liquidity shortage. Therefore, the price of gold fell by 21% in 3 months. But then, in general, everything fell before growing due to incentives.

The price quickly recovered as soon as the Fed and the government came into play. Whether or not there will be a similar financial crisis and the situation, instead of leading to a crisis, will be stopped by easing conditions in advance is unknown. But the fact is that the price of gold increased 7 times from a protracted sideways trend long before the crisis of 2008 and the first QE - in 2001. As soon as the real negative rate became negative for the first time in history. So Citi came clean and raised its forecast for gold. Only the deadlines indicated were quite extensive. It sounds like “it’s going to bang, it’s definitely going to bang, but we don’t know when.”

But what is the reason for big central banks demand? Geopolitics? Yes. Sanctions, assets stealing? Yes again. But not only. Recently BIS has announced the new programme of global banking system development
“The main idea of our approach is to create a financial system based on the exchange of tokens in the context of unified ledgers. Intermediaries will facilitate transactions, registration, withdrawal and tokenization of assets. Token management will be carried out by various intermediaries and registry owners who will become part of the system. Key procedures will be party authentication (who is trading), ownership verification (who has what), and entry and exit steps, as these are key to integrating the system with the rest of the economy.”

Moreover, BIS is already ready to attract AI, - “The transformative potential of artificial intelligence in the financial sector is especially encouraging.” Details are promised to be revealed in June. the future of the global financial system - tokens, registries, everything is on a pencil and no one will escape the transparency of cross-border payments. And all this stuff is under control of western economy system. How do you think - is this system fits to everybody? So, It would seem that what does gold have to do with it?
Judy Shelton speaks about "Return to gold-backed currency in the form of cryptocurrency"
“I like the idea of a gold-backed currency, it could even be done as a cryptocurrency” “A single monetary system, so when you talk about the international market, everyone is playing on a Level Monetary Playing Field”

Sounds good, but what you intend to do with the old system? Just forget about it and make the image like it doesn't exist any more? We forgive to everybody that we are owed to? It sounds like big mess ahead, and in every big mess as more gold you have as easier way will be. Everything is just a beginning. And in current situation with all these new data we see no reasons by far to stop investing in gold for long term.


On monthly chart we do not seen anything new. Due to technical reasons gold can't move higher immediately and is taking some breath. Next upside target stands at XOP around 2567$, while for now price stands at 1.618 extension of BC leg, which is also could be treated as upside target. Context remains bullish here, but price in retracement mode on lower time frames:


This week we've got the first downside action after long thrust. Trend remains bullish, here we have another upside target around 2516$ that we've discussed already. For now we do not see anything to do here. As market stands at overbought it is definitely not the place for taking new long-term bullish position and we should wait for deeper pullback.

At the same time, we have no patterns on top by far and no cross of 3x3 DMA to give us a hint on possible B&B or DRPO patterns. So, on a weekly chart context remains bullish but we need to wait:


Here and on intraday charts our plan remains the same - we try to complete our B&B "Buy" trade here. Market starts it well, with the upside bounce from oversold and Fib support level, but it has not reached yet its target:

2377$ is a minimum B&B target that theoretically should be reached...

This is also upside XOP. But now price stands in reaction to local 1H OP target that we've talked about on Friday. Here we should control the depth of retracement, we do not want to see it too deep. Best case if it stops right around K-area and gold turns up again. Ultimately we could accept 5/8 drop to 2315$ area, but this is the vital level. Sometimes price even could re-test the lows and keep B&B intact, but these cases are rare and more an exception than rule of thumb.
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Thank you so much for all your work Sive. Incredible really to put all that together so quickly.

Sticking to my story that this is a lagging but accurate correlation. Keep in mind it is an index of a "market of stocks" (my preference to stock market as some will go up in a down market) so it has an bigger fear factor built in for "market of stocks" down turn. Its only when the inistu value is believed and recognized that it will outperform the metals themselves. Still a lot of denial out there so still early and a long way to go imho. I am also seeing what I hope is a H&S look-a-like but recognize wishful trading when I spew it! lol It could also be interpreted as non-confirmation. I have seen some elliot wave analysis suggesting end of wave 4 forming in gold so near the end not the beginning
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Thank you so much for all your work Sive. Incredible really to put all that together so quickly.

Sticking to my story that this is a lagging but accurate correlation. Keep in mind it is an index of a "market of stocks" (my preference to stock market as some will go up in a down market) so it has an bigger fear factor built in for "market of stocks" down turn. Its only when the inistu value is believed and recognized that it will outperform the metals themselves. Still a lot of denial out there so still early and a long way to go imho. I am also seeing what I hope is a H&S look-a-like but recognize wishful trading when I spew it! lol It could also be interpreted as non-confirmation. I have seen some elliot wave analysis suggesting end of wave 4 forming in gold so near the end not the beginning

Hi Mike, it seems that gold is breaking relation here as well - the same as it did with ETF direction and interest rates. Lets see...
Greetings everybody,

While EUR accurately follows to our plan - we can't say the same about Gold. Yes, B&B on daily theoretically is still valid, but gold now is flirting with the area of last resort - 5/8 intraday support that we've agreed to treat as vital area for this pattern.

Although some phantom chances exist that B&B still will work later in a way of some intraday Double Bottom, but this is more an exception for now. Usually market keeps 5/8 support area.

On 4H chart market was not able to move higher to 2375 area. If downside breakout still will happen, we consider 2275, 2253 and 2237$ as a sequence of downside target:

On 1H chart you could see that our planned entry after downside AB-CD has worked perfect as upside action has started, but later (why actually I have some doubts about B&B) - it has dropped through. So, K-area was broken. This is not good for bullish action, suggesting that it is not too strong (or maybe not bullish any more ;)

What could be done here? Personally I'm not too inspired with idea of long entry here, mostly because of downside acceleration. Still if gold will turn up - this will be the best area for buying. As a compromise between caution and greed is try to use lower time frames and watch there for bullish reversal patterns such as reverse H&S, butterfly etc. around Fib support. This could safe a lot of money and reduce risk.

Otherwise, if market fails here, it would be better to wait - we should get either Double Bottom here or downside breakout and action to ~2255 daily support.
Greetings everybody,

So, as you could see our doubts were not in vain. Market indeed has erased daily B&B totally. Gold hits daily oversold now and we obviously have downside AB-CD pattern:

On 4H chart we have following downside targets... But today it makes sense to focus on the nearest one - 2275$ first butterfly extension. Mostly because gold at oversold and we're coming to the FOMC meeting results. Chances on upside bounce seem not bad:

THat's being said - if we want to take new short positions, it would be better to wait for the pullback. Meantime, intraday scalpers could consider bullish trade due to the same reasons - butterfly+oversold. Besides, we have perfect downside thrust (same as on EUR) and potentially we could get either B&B "Sell" or DRPO "Buy" patterns. So, if you want to make scalp long trade - stay focused on bullish patterns around 2275 when 4H butterfly will be completed. Upside target for this setup $2306-2313 area
Greetings everybody,

So, Gold has started the bounce from the level that we've specified. As we've said in EUR update, it is not because of JPow statement but because of QE announcement from the US Treasury. And here is where tricky moment comes. Because by technical look, we have not bad situation to consider short entry on intraday charts - daily trend is bearish...


...bounce has happened and market right now at K-resistance, as you will see on 4H chart:

But, taking in consideration bullish divergence that we've got on 4H chart and announced QE, that probably will have extended effect, I do not want to hurry up with taking new shorts... Besides, we see signs of USD weakness as on EUR/USD as on DXY...

That's why, I do not exclude to get here similar reverse H&S pattern as on EUR... and more extended upside bounce to ~2375 area. Let's see what we will get on NFP release date. Although technical background for short entry exists as well and maybe at the end they will appear to be correct... To not sell now is my personal decision, of course you could make your own one. Because I'm not 100% sure that it is correct ;)
Welcome back,

So, as on EUR we have little comments to gold either. On daily chart market shows the reaction on oversold level but third day in a row we have inside sessions.

Yesterday we've made the suggestion that gold could try to climb higher and explained the reasons for this. Now, additionally to divergence that stands here for a few days already, we've got the bullish grabber, that suggests re-testing of K-area resistance at least:

For now - our big patterns are not ready yet and actually the only one that I've found is small "222" Buy. But it is really nice - clear shape, small risk, based on 4H grabber pattern, clear invalidation point. Thus, if you do not scare of NFP report and ready to trade - this is the one that you could think about. Any weakness in NFP today should support upward action... let's see.