Gold GOLD PRO WEEKLY, August 01 - 05, 2022

Sive Morten

Special Consultant to the FPA
Messages
16,471
Fundamentals

Yesterday, our forum member, Pieter, has asked pressing question. Recent GDP numbers and its structure that we've considered in our FX Report are, no doubts, important. But the change in the Fed policy seems more important to the Gold. Today we consider change of the Fed rhetoric and how market's expectations changed since then, making the forecast of next Fed's moves.

So let's go with the Fed. Its 0.75% rate decision has not become a surprise, and some traders probably would call it as "dovish" as it were chances and reasons to expect 1.0% shift instead. J. Powell's comments barely differ from previous one. Since consumption and employment stand relatively high - "We do not believe that we should have a recession," is another masterpiece from JP after his legendary "about temporary inflation in 2020-2021", which gave rise to hundreds of memes already. Perhaps the "absence of a recession" should be fixed, just like Yellen's recent speech with a similar narrative. If you haven't seen - watch it, you find a lot of interesting stuff. Such as -

This report (IIQ GDP) indicates that the economy is moving towards more sustainable and sustained growth. This path corresponds to the one that reduces inflationary pressure while maintaining progress in the labor market over the past 18 months."

And J. Biden confirms - "...we are on the right path and we will come through this transition stronger and more secure."

You know, guys, what is interesting with all big financial institutes - all of them are wrong. Fed is wrong, the leading international institutions (IMF, World Bank, OECD) are wrong, Goldman Sachs is wrong, and of course the market is wrong. And here is the provement. Just compare Fed rate and 1-year US Treasury Bill yield. As you understand, 1-year bills shows nearest market expectations on Fed moves. The first upward action has started in January, where market expected 1.3% rate above the Fed, i.e. ~ 1.55%, because rate was 0.25%. But in 2021 nobody worried about inflation and made no bet on possible rate change. How it is possible? PPI jumps above 10% in September 2021...

1659265633728.png


This clearly shows the depth of the inadequacy of the market and the falsity of the statement that "the market knows everything" or "all risks, all available information in prices". The market doesn't know anything. The chart shows that the Fed lags for about 2-3 months behind the market, catching up with market expectations. Why they have increased the rate by 1.5% in 1.5 months? Just because the spreads are too wide between the Fed rate and the money market and they have to balance it and stay "marked to market expectations" somehow.

To foresee the next Fed step - let's compare once again 1-year yields and Fed rate now. Few weeks ago market were expecting 3-3.2% by the end of the year, but IIQ GDP and recent action by Fed and J. Biden administration have adjusted these expectations. The new reality is - "nobody believes any more to Fed tightening policy". Fed totally has failed its QT programme, missing the pace that it has set. As we've discussed in our recent BTC Fundamental report, the net inflow since the beginning of 2022 stands for ~ $225 Bln. Fed still has ~ $600 Bln as US Treasury deposit to pump into economy until the end of the year. This helps to prevent collapse on the bond and stock markets, keeping rates low. With the new J. Biden initiatives it is become clear that inflation fighting programme is cancelled:

More Bad Inflation News As U.S. Enters A Recession, Biden Pushes Spending

The two plans combined would cost taxpayers roughly $920 billion. CHIPS would cost nearly $250 billion and the Inflation Reduction Act would spend $670 billion total while raising certain taxes. Experts have also surmised that Biden’s $1.9 trillion “American Rescue” spending plan contributed to the current record-high inflation mentioned by the president.

The new reality looks like this (look at the chart below). First is, market dumps expectations from 3-3.2% to ~2.95-3.0%, which is different from current level just for 0.75%. It suggests only one rate change on September (December meeting will be after November elections). While 1-year yields suggest policy easing (!!!) showing 2.14% rate within a year. So what Fed has to do - rise rates, as inflation stands near 10% or ease rates as GDP is negative? You don't know, right? But, don't worry about it, because they do not know either.

1659265752683.png


Triple-J (Biden, Powell, Jannet) could bam people as long as they want, with the recent speaks. But reality doesn't change and others also understand it. Mayor Eric Adams declared the US has entered into a recession and “Wall Street is collapsing” – contradicting President Biden’s claims that the nation is doing fine earlier Thursday.

“You tell me what to take off the plate if you want me to put something else on the plate. I’m coming to you as a city and saying, ‘This is how much we have, that’s it,'” the Big Apple mayor said during an event in Staten Island at Sanzer Yeshiva hosted by nonprofit Project Hospitality, according to a report in Hamodia. We are in a financial crisis like you can never imagine,” he added. Wall Street is collapsing; we are in a recession.”

Despite that Fed and ECB intend to initiate "new" QE, the crisis gradually spreads over different economy spheres. In our recent BTC fundamental report we've shown that Real estate market decreases in all ways - new home starts, permits, etc. Now, with the adjustment on demography factor, only 1.8 homes sold per 1000 capita. This is one of the lowest levels ever:

1659270393841.png


Inflationary-adjusted home prices stand at all-time record level:
1659270466397.png


Leading indicators all point on crisis continuation. Over the past 25 years, the indicator has decreased below 6% (YoY) only three times (now it is falling by 6.5%) – in Dotcom recession of 2001, the crisis of 2008-2009 and the crisis of 2020. This time, the rate of change of the indicator is the fastest since March 2020 and October 2008, there has not been a faster decline in 25 years. The turning point and the aggressive drop of the economic momentum have occurred since February 2022.

Not every month, but every week there are more and more signals about the inevitability of a crisis, while officials and leading international organizations continue to lie that everything is fine – there are no recession risks.

1659270515008.png


Stock market tells the same:
1659270737024.png


Moreover, IMF tells that political risks are rising. Here is quite interesting quote from the recent report:

The world economy fragments further. A serious risk to the medium-term outlook is that the war in Ukraine will contribute to fragmentation of the world economy into geopolitical blocs with distinct technology standards, cross-border payment systems, and reserve currencies. So far, there is limited evidence of re-shoring, and global trade has been more resilient than expected since the start of the pandemic. Fragmentation may also diminish the effectiveness of multilateral cooperation to address climate change, with the further risk that the current food crisis could become the norm.

This is what we've talked about previously that current geopolitical tensions could lead to re-shape of currency zones as globally, as in Europe. Now IMF tells the same. When reserve currencies are loosing its hegemony and value - gold becomes unique asset that saves the value. If earlier, with just a recession in mind, some doubts could exist on demand for the gold, as previously we saw deflationary recessions where people just bought the bonds with low demand for the gold. Now, with inflationary recession and ultimately negative real interest rate and with possible of new fragmentation of global economy - less and less doubts remains that demand for the gold should start growing.

As a result we have the following shape of fundamental factors. Inflation stands near 10%, Fed interest rate is around 2.25 and maybe up to 3.0%, at best. Central banks and US government start new QE programmes, on background of starting downside trend in the economy. And all these stuff happens on a background of difficult political situation as external as internal, at least in the US. It means that in near term, due re-starting of QE people should see the visuality of prosperity on the markets. Interest rates should stop rising, while stock and BTC market should stop falling and new liquidity pump helps control them both. At the same time, as a result of these measures, inflation will keep going higher, hurting the wealth of households. With this action we suggest that Fed postpones collapse for 6 months, maybe a bit more but it will happen anyway.
As we've shown above - the expectation of the Fed easing in the beginning of 2023 is supportive for the gold market, as well as recession in general. As more negative interest rates are - as better for the gold. With this new inputs on the board, we are not sure that gold could drop to 1500-1600 area. Technically, long-term AB-CD pattern to 1680 is done as well. Demand for the gold could start rising sooner rather than later.

Technicals
Monthly

This is completed AB-CD pattern that we've talked about above. In general 1660-1680 area includes all kind of supports that we ever could imagine. We can't call it as "222" Buy by far, just because "C" point is lower than "D" right now. Since market has some momentum, it could flirt around this area for awhile, until crisis signs in the US economy will become more evident, on a job market in particular.

From technical point of view, the recent bounce is absolutely logical thing as price enters our super strong support area. With the recent week lows of $1680 gold touches YPS1 level and monthly K-support area. OP target at $1672 barely has not been touched. But, as you understand the 8$ difference for the monthly chart is very minor difference.

UBS expected 1600$ area hardly will be tested any time soon because of monthly oversold level at 1660$. For strategic investments, it seems that current level could be considered for gold buying, at least at some fraction of total position. With some circumstance, gold could start reversal right from here. In fact, we have huge "222" Buy here, with absolutely superb support area of 1660-1680$.

To get more confirmation of our hypothesis, we will watch for lower time frames for more bullish signs.
gold_m_01_08_22.png


Weekly

Here pullback looks good but too small to make any conclusions. Trend remains bearish by far. Overbought level stands far enough and do not prevent possible upside continuation. Currently it would be better to treat this action as the pullback, not enough context yet to speak on reversal just yet.

gold_w_01_08_22.png


Daily

As we've got slow action on Friday - the scenario fo daily and intraday time frames stand mostly the same. We're watching upward action to the next resistance area around 1800 K-level. By looking a bit deeper in the future, we could recognize possible reverse H&S pattern with the neckline around 1875 area. This pattern could provide the reversal context that we've talked about above, and could put foundation for major reversal on monthly chart. It is a bit early, but we should retain it.

gold_d_01_08_22.png


Intraday

Here we also keep going with the H&S pattern. Once OP target will be hit - let's watch for the pullback, where 1735 K-area and neckline support suggest interesting area for long entry. XOP is the next target around 1806$ that agrees with daily K-resistance and overbought.
gold_4h_01_08_22.png
 

Sive Morten

Special Consultant to the FPA
Messages
16,471
I am an electrical engineer by education, slowly becoming a financial wizard.

Thank you, Master Sive, would be lost without you !!!
You know, almost all of my friends have technical education, but few of them are engineers. But they are very intelligent in all spheres, whatever they do. Many of them work in finance. So technical/maths education is a great basis for any sphere.
 

Sive Morten

Special Consultant to the FPA
Messages
16,471
Greetings everybody,

So, as in the FX update, here I also warn you on possible big volatility and surprising action on the gold if US-China tensions around Taiwan will out of the control later in the session. Pelosi should land around 14:30 CET. Any escalation could lead to uncontrolled upside jump here.

Second - it seems that we are correct in our treatment of Fed and Treasury strategy. They start printing money again:
Bloomberg - US Treasury Lifts Quarterly Borrowing Estimate to $444 Billion
It means that markets should stabilize temporary but inflation will keep going higher and this is very good combination for the gold market.

In short-term, price now stands too close to our resistance area, and without a pullback it is not very attractive to take long position now:
gold_d_02_08_22.png


On 4H chart, personally I like K-area to consider the long entry, if we get no vital surprises, of course.
gold_4_02_08_22.png


On 1H chart we have minor bearish signs, such as divergence, wedge, 3-Drive... so let's keep watching.

If you would like to bet on upside breakthrough and gamble on geopolitical games, then, probably you could try to use Stop "Buy" order, somewhere around 1782-1785 area. If nobody bluffing, it works... :cool:
gold_1h_02_08_22.png
 

Sive Morten

Special Consultant to the FPA
Messages
16,471
Greetings everybody,

Thankfully, we've escaped the tragedy yesterday but recent provocation hardly improves China-US long-term relations...

Anyway, gold has started the pullback, that we've discussed recently. Personally I prefer to wait for a bit deeper retracement to 1740-1747 K-area on 4H chart. On daily chart market has solid downside momentum and completed upside harmonic swing:
gold_d_03_08_22.png


On 4H chart we have B&B "Buy" in progress that is not completed yet. Theoretically gold has chances to proceed to XOP right from here, based on B&B. But still, I'm tending to deeper retracement - $1740-1747 K-area.
gold_4h_03_08_22.png


The approximate swings' structure might be like follows. Now we get minor ab-cd to complete the B&B and then, somewhere around 1775 might be downside reversal with larger AB=CD pattern, that agrees, btw with K-support area.
gold_1h_03_08_22.png


Here are few trading options. First is, you still could trade B&B, trying to take position on current "BC" leg retracement and 1775 target. If gold goes directly to 1805 XOP - all the better. Bears could watch for short entry around 1775. And, finally 1740-1747 we consider for long entry in perspective of this week.
 

Sive Morten

Special Consultant to the FPA
Messages
16,471
Greetings everybody,

Yesterday we've suggested very similar price shape as for EUR as for Gold, but take a look how different action was. EUR has dropped to the new intraday lows, while gold is not. Recent Gold performance hints on bullish sentiment and upside action could be re-established right now, to 1806 short-term target:
gold_4h_04_08_22.png


If we take a close look at 1H chart performance - we see clear bearish capitulation. After upside AB-CD retracement bears have tried to push price through the lows but failed. As a result, we've got double test of the Fib support level with the divergence.

Second bullish sign here is total erase of collapse by upside action. Thus, we think that it is relatively safe to make an attempt of long entry on minor support area against recent 1753 lows with 1800-1806$ target:
gold_1h_04_08_22.png
 

Sive Morten

Special Consultant to the FPA
Messages
16,471
Greetings everybody,

So, it is not needed to talk a lot today. Based on weekly claims data we have big reasons to suggest NFP data below expectations today. Market now is flirting with K-resistance area, but we do not see any problems for Gold to complete 1806$ target, although it stands slightly above the K-area.

Still, once the target will be hit, Gold should show reasonable downside reaction. Don't forget about solid bearish momentum here, in general. And current bounce is not the reversal by far:
gold_d_05_08_22.png


That's the target:
gold_4h_05_08_22.png


On 15 min chart now we have local AB-CD, that has mostly the same target - 1807.7$. Market easily could show some spike on volatility during NFP release to complete them both. Scalp traders still could try to take long position...
gold_15m_05_08_22.png
 
Top