Gold GOLD PRO WEEKLY, August 19 - 23, 2024

[Sive Morten]

Fundamentals

Gold performance this week shows that nervousness is not disappeared as market mostly thinks. Even when Iran hazard faded, gold has shown rally and re-tested the top again. Big whales and Central Banks still keep course on diversification and increasing safe haven asset value in portfolios. They do it silently, slowly, but stable. Maybe they saw the same things in recent inflation and retail sales data as we did, difficult to say. But the one thing could be said definitely, it is stable demand holds on the market. Some new numbers on the US budget and spending structure also do not add optimism. Nobody listen already any populistic slogans from President candidates, because it is clear that slogans will not help whoever will become a President.

Market overview

This was positive week for Gold market. Prices rose by more than 1% on Monday to hit the highest since Aug. 2, driven by safe-haven inflows as traders awaited U.S. inflation data. Israeli forces pressed on with operations near the southern Gaza city of Khan Younis on Monday amid an international push for a deal to halt fighting in Gaza and prevent a slide into a wider regional conflict with Iran and its proxies. Fed Governor Michelle Bowman on Saturday softened her usually hawkish tone slightly, noting some further "welcome" progress on inflation in the last couple of months.

"Every way you look at it, gold now screens as a well-populated trade. The Street is unanimously bullish, but macro fund positioning may now be tapped out without an imminent recession," TD Securities said in a note.

"What we're seeing today in the gold and silver markets is some price support coming from bullish charts in gold prompting some technical buying," said Jim Wycoff, senior analyst at Kitco Metals. You're also seeing a little bit of safe-haven demand coming from heightened tensions in the Middle East," Wycoff said.

Meanwhile, figures for money managers’ net bullish gold bets hit a five-week low, according to weekly data from the Commodity Futures Trading Commission.
U.S. producer prices increased less than expected in July, indicating that inflation continued to moderate, data showed on Tuesday.

"Despite recent profit-taking, ongoing geopolitical tensions and recent volatility in the market along with the anticipated rate cut continue to drive investors toward safe-haven," said Alex Ebkarian, chief operating officer at Allegiance Gold.

While a different set of figures — the core personal consumption expenditures price index — is the Fed’s preferred measure of underlying US inflation, the PPI and CPI readings still provide clues on the path forward for widely expected interest rate cuts by the central bank. Lower rates are traditionally seen as bullish for non-interest bearing gold.

“Gold’s focus continues to be on the scope and timing of the Fed’s likely move to cut rates,” said Ewa Manthey, a commodities strategist at ING Bank NV. “The US presidential election in November — and the long-awaited US Fed rate cut — will continue to add to gold’s upward momentum through to the end of the year.”

“For the longer-term, gold’s tailwinds still outrun any headwinds,” said Rhona O’Connell, an analyst at Stonex Financial Ltd. Fed cuts were already priced into the markets - it’s just a question now of by how much. There is probably a touch of profit taking going on here, with short-term moves belying the longer-term fundamentals.”

Gold prices fell 1% on Wednesday after data showed U.S. consumer prices rebounded as expected in July, pouring water on expectations for a sizeable rate cut from the Federal Reserve next month. The U.S. consumer price index increased 0.2% last month, after falling 0.1% in June, the Labor Department's Bureau of Labor Statistics said. In the 12 months through July, the CPI increased 2.9%, after advancing 3% in June. Markets now see a 36% chance of a 50-basis point rate cut by the Fed in September versus that of 50% prior to the release of U.S. CPI data, according to the CME FedWatch Tool.

"A September cut is a mortal lock; at the moment the data is suggesting the Fed will start with 25 bps which would be a disappointment to the market which likes to overshoot," said Tai Wong, a New York-based independent metals trader.

Atlanta Fed President Raphael Bostic said on Tuesday he wanted to see "a little more data" before he was ready to support lowering interest rates.

"We are still in an environment of significantly elevated geopolitical tensions which always benefits gold," said Ben Hoff, head of commodity strategy at Societe Generale.

"Expectations now have shifted back in favor of just a 25 basis point cut, so that could be taking some of the momentum away from the gold market," said Phillip Streible, chief market strategist at Blue Line Futures.

Gold prices swung as traders digested US data on retail spending that underscored strength in the world’s largest economy — weighing that with the outlook for the Federal Reserve’s expected interest-rate cuts next month. U.S. retail sales increased 1.0% last month after a downwardly revised 0.2% drop in June, the Commerce Department's Census Bureau said. Separately, a Labor Department report showed the number of Americans filing new applications for unemployment benefits dropped to a one month-low last week. Meanwhile, two Fed officials on Thursday lined up behind the possibility of an interest rate cut at the U.S. central bank's policy meeting next month, reversing their previous skepticism about lowering borrowing costs too soon.

"Retail sales being so positive shows the economy is strong and that has kind of turned the markets, and the dollar is regaining some of its strength and gold's losing some of its lustre," said Chris Gaffney, president of world markets at EverBank. "The industrial precious metals like silver and platinum benefited from stronger data this morning because of expected increase in demand with stronger economy," Gaffney said.

Several Chinese banks have been given new gold import quotas from the central bank, anticipating revived demand despite record high prices, four sources with knowledge of the matter told Reuters. The new quotas, aimed at helping the People's Bank of China (PBOC) control how much bullion enters the world's leading consumer of the precious metal, were granted in August after a two-month pause largely due to slower physical demand in the wake of a bullish market.

"The quotas have been issued but the local premium to offshore is low so there is no guarantee that the quotas will be used until things improve," one of the sources said. Jewellery demand is still weak but investment demand is healthy."

Gold prices soared to an all-time high on Friday as the dollar weakened on growing expectations for an interest-rate cut from the Federal Reserve in September, and as tensions in the Middle East bolstered demand for bullion. Fed Bank of Chicago President Austan Goolsbee said the U.S. economy is not showing signs of overheating, so central-bank officials should be wary of keeping restrictive policy in place longer than necessary.

Disappointing reading on the US housing market reinforced expectations of fast and deeper cuts by the Fed. Figures showed new-home construction in the US fell in July to the lowest level since the aftermath of the pandemic as builders respond to weak demand.

It “is another indicator that a recession’s on its way,” said Bob Haberkorn, senior market strategist at RJO Futures. The Fed will cut rates “and go further than what was expected before.”

"Gold surged to a fresh all-time high and breached $2,500 after two weeks of extremely choppy trading as bulls finally impose their will," Tai Wong, a New York-based independent metals trader, said. Attention will now shift to focus on Jackson Hole and Fed Chair Powell's speech a week from today to provide a more detailed outlook on the shape of the upcoming rate cuts."

Gold investors are “typically more prone to think the Fed will be more aggressive on the monetary accommodation front,” said Bart Melek, global head of commodity strategy at TD Securities. Prices could rise further to $2,700 in the coming quarters, as “the macro/monetary and central bank ducks are aligning in a row,” he said.

Speculators boosted their net-bullish bets on Comex gold futures to a near four-year high in the week ending Aug. 13, Commodity Futures Trading Commission data show. Meanwhile, gold holdings in exchange-traded funds have risen in recent months following a couple of years of outflows, data compiled by Bloomberg show.

JAPAN UPD

We have a bit specific interest with this topic as we don't care about Japan financial wealth or what statistics do they have. Our interest is pure practical and relates to collapses on the markets due huge amount of carry trade. Just because this is important for gold market. I've decided to make this small update because things that I've found recently looks interesting. First is - it seems that long time of prosperity, fat life and zero rates totally blind the minds of investors. Just recent shock has faded a bit, they run back into carry trade again. As I said - life teaches them nothing... and only death cures stupidity.

It is a lot has been said already that carry margin will narrow soon again because of the Fed rate cut and BoJ said that they take pause in rate hike until markets are volatile. Also it is well known that JP Morgan said that 50, then 75% of carry trades were unwound already. So existence of Carry Trade adds spice to the situation. It is now becoming clear that Japan's entire public financial sector is likely involved. About 56% of the country's GDP is actually invested in foreign assets, mostly risky ones, such as tech stocks, through government entities, including pension funds and state banks (i.e. they themselves borrowed cheap yen to buy securities) without hedging currency risk. And seems that the samurai had a talk with the cowboys, who had really bullied them for the market fuss, and decided to return to the known route to be on the safe side.

But here we have something to add. First is, nobody really knows the size of this trade in Japanese yen [even without taking into account the peso and other EM currencies]. Estimates range is $20-40 trillion - and that's without borrowing. According to the BIS, the volume of USD/JPY swaps as of March 24 was about $14 trillion + $1 trillion in foreign assets. The BIS statistics are taken from open balance sheets, which does not give an idea of the true scale of trade.

The same JPM, stating that the unwinding of shorts against the yen has exceeded 75%, operates only with data on open trades of managers through the CME. They have no idea what is happening in the OTC market, even if the liquidation volumes between markets are correlated. This is where the cascading risks are buried for bad corporate debts, the speculators themselves, including broker-dealers. In OTC transactions [including shadow banking], most positions are effectively left unhedged.

So, no unwound of carry trade have happened. It was just flowers on so-called "Black Monday". The second issue that confirms this is central banks swap turnover. If carry trade indeed is closing, the turnover on swap market should jump significantly, but we do not see it. So while there is no great need for Fed swaps, the events can be considered a crisis false start. By the way, pay attention to 2008 crisis USD demand and everything becomes clear to you:

It means that JPY carry trade driving factor is sleeping now, but it has not disappeared and still on the table. And we have great boosting wild card for gold market in our pockets.

BACK to the USSR with a FEW NUMBERS

Today we turn to a kind of "Statistic is fun" series or "entertaining stats" for dummies book. The printing press in the US is closer than it seems. The US economy has already collapsed as the number of bankruptcies of companies under Section 11 (protection from creditors) is a record high since 2011. The 2020 surge has already been overcome. The fact that the crisis is not reflected in macro statistics (GDP growth, unemployment) can be explained by election manipulations: no US president has been re-elected during a recession. it seems that inflation has been overcome, the economy is on the rise, gasoline is cheap, and all enemies have been defeated.

It is becoming increasingly difficult to create the illusion of well-being. The US Treasury needs an influx of new money to support the debt pyramid. An increasing number of indirect indicators(delinquencies on debt, losses from the depreciation of securities, the collapse of the commercial real estate market etc.) indicate that the crisis is already raging in the States. This means that it must be urgently extinguished with a new batch of helicopter money.

Do you suggest different affairs in public sector? Nope. The same story. Americans, following the government, are spending more than their budgets allow, so they are aggressively increasing their loans. As a result, the costs of servicing consumer loans for the average household have exceeded the costs of servicing mortgages for the first time in at least half a century. This in itself perfectly characterizes the situation among consumers in the States: in order to maintain the level of consumption, they have to increase their debts.

Credit money spent today is a reduction in the income base in the future. Interest on loans will reduce the possible spending of Americans on consumption and suppress its growth. And here is the moment when timing question comes on the first stage. It is clear that everything is gradually moving towards a recession and a financial crisis, but "turning on the machine" can be postponed by certain instruments. Yellen's $771 billion TGA piggy bank could easily last half a year if she starts spending it, even if the Fed continues to reduce its balance sheet. Again, the balance sheet reduction could be stopped or slowed down, all of which would keep the system from collapsing.

The Federal Reserve System has been quiet for the second week and is not conducting active operations . Banks still had a lot of liquidity after the powerful inflow the week before – $3.34 trillion. The influx of dollars into the system in the last couple of weeks has apparently supported the rapid recovery of the markets. By the end of the quarter, an outflow of dollar liquidity should be seen due to the increase in the balances of the Ministry of Finance in the Federal Reserve to $850 billion and QT.

Meantime, the budget policy of comrades Obama, Trump and Biden has led to the budget deficit, amounting to $1.5 trillion for 10 months of the 2024 fiscal year.
The largest expense items are social spending 1.2 trillion and ️public debt servicing - $763 billion. It is around these articles that the political bargaining is actually taking place: in the next political cycle, in order to balance the budget, it is necessary to either cut social programs or interest on the government debt, that is, to lower the Fed rate.

It is possible to cut social services and it will probably be necessary, but I really don’t want to – it is fraught with unrest, plus the budget problem may not be solved in the end: consumption will decrease, taxes will decrease, the budget hole will not go away, although it may shrink a little. The same with interest on debt. But as we see from the figures, both will have to be cut. One or the other will not save us. But priority will, of course, be given to interest on the debt - it is safer. And accelerating inflation will ensure a reduction in the debt burden without obvious and too frequent defaults. That is why, comrades, both the reduction of rates and the growth of inflation in the USA are inevitable.

Now we're coming to most interesting things. As for budget updates, let's look at Yellen's progress.

• In July, the state budget deficit was +10.4% y/y. The preliminary estimate of the deficit for the 24th fiscal year increased to $1.9 trillion [currently $1.52 trillion].
• Expenditures on servicing the national debt turned out to be 33% higher than defense expenditures [$88.6 billion versus $67 billion].
• 43% of all government spending in July was financed by loans from the Ministry of Finance!

According to data from a U.S. Treasury report, the federal government has accumulated $142 trillion in debt, liabilities, and unfunded obligations. That staggering figure represents 93 percent of all the wealth accumulated by Americans since the country’s founding, which the Federal Reserve estimates at $152 trillion.

From the diagram above you could see that Individual taxes gives ~ 30% of all budget revenues and they tightly related to performance of US stock market. And every second dollar of the American federal budget is formed by income tax. Budget expenditures are spread evenly across everyone in the form of various services, medicine, public infrastructure which means that the quality of these government services for the individual taxpayer is falling. Hence the public conflict and demand for change in the form of "Make America Greate Again".

Today, the share of Americans' financial assets invested in public stocks is approaching record highs, just short of the peak seen in 2021.

Breaking it down further, 87% of high-income Americans own stocks, followed by 65% of middle-income Americans and 25% of low-income Americans. In Q1 2024 alone, the value of assets held in the stock market increased by $3.8 trillion.

Similarly, Americans invested in stocks during the Internet bubble. After the crash, that amount fell sharply. Now imagine what will happen with the budget if this source of public income collapses. I don't want even to mention public debt, insolvencies etc. Now you could see how everything is tied in deadly chain. While stock market is growing, budget gives its taxes and households could take consumer credits. Any collapse here, triggering by JPY carry trades close or any other reasons could detroy the whole system.

In August, the share of money managers begging on their knees for a rate cut said the Fed's monetary policy was too tight reached nearly 60% according to BofA survey. This is a record since October 2008:

So, the background looks more or less clear. Now let's take a look what sweety candidates promise to us. Both Trump's and Harris's election proposals would amount to roughly the same amount of about $1.7 trillion in additional deficits over 10 years. But these are plans; the harsh reality usually costs several times more. Harris, of course, is more creative and plans to introduce price controls on food products. With this logic, there are still contenders, you can add price regulation for: gasoline, electricity, gas, cars, even rent... and many more groups of goods where prices have grown comparable or even more).

On average, the US budget deficit under the last three presidents has been ~6.4% of GDP, and the reality is that neither the first nor the second are likely to have the power or political will to change that trajectory.

 

[Sive Morten]

Only Trump's people voiced something more or less intelligible: to try to re-industrialize the country and, perhaps, at the same time, butt heads with China for control in the Asia-Pacific region, while backing off from other areas. True, there is a whole tangle of contradictions there: it is necessary to lower rates/weaken the dollar [hello, inflation], whether and how to take control of the private Fed status and put our people in the Ministry of Finance. The biggest headache: it is necessary to somehow carefully unravel the knot with the burden of the reserve currency status/debt. At the same time, they are preparing to raise taxes, tighten regulation on all fronts, as well as a bunch of new tariffs/sanctions for key trading partners. The delights of democracy have not disappeared from Agent Donald's agenda.

Now it's time to figure out what the democrats are up to in the person of Harris, who is Kamala. To say that the economic proposals/"statements" voiced by the "talking head" are wild populism [at the level of Biden's insanity with freezing rents] is to say nothing. First, Kamala proposed to establish price controls on food products. Fix Price, American style. Well, you know how it was in the USSR for a short time - it worked great, right?

Secondly, Kamala wants to give every first-time homebuyer in the US $25,000! Of course, to help with buying a home when there is simply a shortage of supply on the market. There is only one question for the guys here - why not $250k or $500k, etc.? Why did you stop halfway when you have a machine at hand? In this case, of course, hyperinflation will eat up both the national debt and people at the same time.

We have only one conclusion: they still don't have a clear program. There is only one temporary trump card - " Yellen hedge" in way of new round of QE, started September, but it is not eternal.

Conclusion:

Detailed look at major issues of global financial system shows how it is fragile right now and explains why gold has stable demand. The fact that this demand is not explosive is even better. Today we even have not considered situation in China that reflects the US economy problems, as they are actually the two sides of the same medal. We do not consider geopolitics although this is important component and risks are raising here. Just to not speak much, I give you the screenshot that is two year old, telling that Gold is loosing it safe haven status.

Thus, two years ago, the gold era ended at $1,600-1,800 per ounce. Now it ends completely at $2500. Will it start again from $3000 next time?

Technicals
Monthly

So, gold is successfully passing 1st big 2455$ target. Next one is 2870$ - all time OP extension. Geopolitical situation escalates in recent days. Special telegram channels report that the operation in the Kursk region has brought the risk of a major war between Ukraine and Belarus closer. Troops are being pulled in from both sides. Lukashenko announced the transfer of a third of the Belarusian army.

It makes me think that Ukrainian operation in Kursk is not isolated adventure but just initial step of big NATO operation, and the major task is to move war on Russian territory. When this target is achieved, NATO could enter Eastern Europe troops (Poland, Romania, Baltic etc) officially or not officially. Otherwise it is difficult to explain possible conflict with Belarus, as Ukraine itself has no reserves already for this. It gonna be a suicide. As we've said two months ago - in August and September we expect big events on battlefield. And now it is fulfilled.

Nobody on the west just thinks about it yet as it not widely announced by far. When it will be widely announced by big media, situation could change. So, recent gold action has chances to continue very soon. 2525$ level is monthly overbought. But you could see on previous months that it could penetrate it for ~100$. It means that 2600$ area is potentially reachable.

Weekly

Here gold successfully erased multiple grabbers on top. Which is no doubt a positive sign. Trend has turned bullish, flag is broken to upside, weekly overbought stands around 2565$:

Daily

Grabber worked perfect guys, giving great results for this week. Nearest target remains the same by far - 2520$. As it stands close to daily overbought, maybe we will get more or less reasonable pullback. Still, acceleration to the target suggests that chances to reach the next one are not bad. It is 1.618 butterfly extension around 2565$ area, which agrees with overbought levels on weekly and monthly charts:

Intraday

Once 2520$ target will be reached, gold start technical bounce. The first area to watch is 2455-2480$ where we have two major support levels and a trendline of the broken triangle.
The one thing that we definitely want to avoid, while following bullish context is bearish reversal swing. Thus, gold should stay above 2430$ lows. But if K-area will be broken, this already will be important bearish sign.

 

[Georget@]

Thank you, Sive!
Gold is at OB and 1.618 extension on 1M. Isn't this some kind of Stretch Sell patern?
Strictly technicaly, the retracement could last for months or years. I am tempted to take profit. The only problem is I cannot find another asset. Maybe some other commodity like Silver or Coal.

 

[jomina]

Thank you

 

[Sive Morten]

Thank you, Sive!
Gold is at OB and 1.618 extension on 1M. Isn't this some kind of Stretch Sell patern?
Strictly technicaly, the retracement could last for months or years. I am tempted to take profit. The only problem is I cannot find another asset. Maybe some other commodity like Silver or Coal.

Hi,
Literally not quite. Stretch is a combination of OB/OS with Fib level. "Kibby" (Kiss goodby) trade is a combination of OB/OS with Fib extension....

I see silver undervalued at this moment, because it follows gold but not gradually, in some discrete mode, jumping. Besides, it is in the middle between base and precious metals... because its use in industrial production of different things.

Technically, you probably right, pullback has reasons to happen. The only thing that could push it higher surprisingly is a geopolitical wild card. But nobody knows what and where could happen. Now Kursk and Iran on the table...

I think that you shouldn't be worry too much about it. If you decided - just book it and forget about it. There will be many pullbacks, so you will get another moment to step in.

 

[Sive Morten]

Greetings everybody,

So, gold is going with the plan, 2520$ is done. In nearest sessions market could be more quiet as everybody is waiting for Wyoming results. Still we see that gold is not at overbought now. Next target is 2565$. Meantime, some tactical pullback has reasons to happen due 2520$ target completing:

Usually, market shows 3/8 reaction on the butterfly target. It means that we should care about 2465$ support area, hopefully. But reaction could be smaller. So stay sensitive, keep an eye on the way of retracement. If it is too fast - skip long entry, if it slow and gradually - we could take it. The trend line by the way also in the same area, so it could be re-testing of the border as well:

 

[Sive Morten]

Greetings everybody,

Gold mostly stands in the same area, yesterday retracement has not started, but maybe today... EUR at Overbought, DXY has completed the butterfly and we will get Fed minutes. Besides, gold is still at the 1.27 butterfly target:

On 4H chart $2470 looks perfect as destination target - K-area, trend line support. BTW, take a look that we have a grabber here. We do not care about it, as we need the pullback first. But if you trade intraday and consider short positions - be aware of it. It could mean that before downside action starts some spike back to the top and volatility around the top might happen

On intraday chart I do not see anything interesting yet. Price stands in the consolidation and has not formed yet any reversal swing. Maybe divergence only...

 

[Sive Morten]

Greetings everybody,

So, if EUR was moving higher and finally completed our weekly 1.1180 target - gold was standing flat for the whole week around 2520$ butterfly target. At the same time such a stubborn standing in tight range confirms bullish sentiment. Still, as on other markets we see signs of tactical retracement, so, maybe gold also will show something similar:

In fact, we do not ask too much, and action to ~2470$ K-area would be absolutely perfect. Now price stands at 1st Fib support area. Here we also have a bearish divergence, but I wouldn't trust them too much, just because gold has no strong resistance levels now

On 1H chart we see nothing new, price is taking the shape of triangle consolidation.

That's being said, if you want to sell gold - it would be better to wait for clear bearish patterns on top. Now we do not see it. Scenarios of JPow speech is bullish-skewed for gold, so risk to sell without any patterns seems too high to us.

For the bulls, there are two options. Either to step in gradually, buying here, at 1st Fib support some part, and wait for 2470$ then, to add more. Or, do nothing, wait clarity from Wyoming and then take an action.

 

[Sive Morten]

Morning guys,

So, on Gold market we have nothing to complain on. We've got our 2470$ retracement, so, position is taken already. It makes no sense trying to create "special" Wyoming plan. Thus, the only thing that I could say now - "move stops to breakeven and watch the movie". We've made all preparation that we could. Now its time to watch for results.

The only thing is worthy to mention is COMEX Futures chart. There we could get the bullish grabber by the end of Friday. It might be very handy to our position - just keep an eye on it as well. BTW, you do not see it on Retail Brokers charts (at least at mine FXCM it doesn't exist).

 

[omega-ko]

Morning guys,

So, on Gold market we have nothing to complain on. We've got our 2470$ retracement, so, position is taken already. It makes no sense trying to create "special" Wyoming plan. Thus, the only thing that I could say now - "move stops to breakeven and watch the movie". We've made all preparation that we could. Now its time to watch for results.
View attachment 94772

The only thing is worthy to mention is COMEX Futures chart. There we could get the bullish grabber by the end of Friday. It might be very handy to our position - just keep an eye on it as well. BTW, you do not see it on Retail Brokers charts (at least at mine FXCM it doesn't exist).
View attachment 94774

Greetings everybody,
Sive, great thanks for your work! and maybe a stupid question:
if yesterday, unfortunately, а pending order in gold did not work (the market almost reached the level of the order), what do you recommend?
Should I take it from the current levels?
or wait for the American session in the hope of at least a slight downward movement?
I really don't want to miss this movement in gold, I think it will be the strongest by the beginning of September and without significant pullbacks