Gold GOLD PRO WEEKLY, December 04 - 08, 2023

Sive Morten

Special Consultant to the FPA
Messages
18,451
Fundamentals

So, my dear "golden bugs", we congratulate you with new high on the market. The political life right now is highly interesting and intensive, right at the same degree as economical events are bore. Everyday happens something. If take a look at market performance and don't pay attention to sophisticated details, the one thought should raise in the mind of every investor. If the Fed at the eve of the rate cut and the US economy is booming, we do not have any hot political news by far, whether current rally on gold market comes from? Either something wrong with the US data on real affairs in the economy (which we discussed yesterday), or, something big is coming...

Market overview

The economic picture of the world is becoming boring, especially against the background of the political picture, which shines with all the colors and the further, the more. However, we must pay tribute to the economy: all political turbulence is a consequence of the ongoing economic crisis. And it is impossible to expect that the political processes will stop: the structural crisis continues. The specific feature of a structural crisis is that it continues evenly, without acceleration or deceleration, until the structural distortions are compensated.

By economists forecasts the structural decline will continue at the same pace for at least another 3-5 years. It is almost impossible to estimate accurately, since GDP statistics are highly dependent on calculation methods. It can only be noted that according to its results, the US GDP will be in the region of 7-7.5 trillion current dollars, and China — about 8 trillion.

On November 29, at the age of 101, Henry Kissinger died, who in the 70s of the last century made titanic efforts to lure China to the side of the United States against the USSR. Then this operation ended with (relative) success, today this economic model is dying completely, the United States and China are on the verge of a fierce confrontation over the markets of Southeast Asia and recovery is no longer possible. This is an extremely difficult situation for the whole world, including because the United States and China together account for more than 40% of the world economy. And as long as they worked in unison, it was completely impossible to challenge them. Today the situation has changed.

This creates problems for both the US and China. The latter multiplied its economy through American demand, while the former saved money for the development of a high-tech economy by replacing national consumer goods with Chinese ones. Today, they face extremely complex tasks, and there is no simple way to solve them. In addition, the inevitable fall in the standard of living in both countries will lead to serious socio-political changes, for which their elites, in general, are also not very ready. If some of the Chinese elites are ready for problems (Xi Jinping's team), then the American elite is not so ready. And this will undoubtedly create additional problems for the United States.

Gold has perked right up. It’s one of the better-performing commodities — up 10.5% year-to-date, compared to 4% when we last checked in with it. Indeed, the chartists are getting quite excited about it. As you can see from the chart below, gold has hit and then bounced off the $2,075 an ounce (or thereabouts) mark three times now. If you do buy into the pattern recognition element of technical analysis, then this does suggest that if and when gold gets back above $2,075 an ounce, it’ll likely go a good bit higher. In charting parlance, this is a chart that is simply bursting to break out. (Bloomberg also shows our reverse H&S pattern finally...;))
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Governor Christopher Waller, one of the most hawkish Fed officials, said policy is well positioned to return inflation to the central bank’s 2% goal, suggesting policymakers may not need to raise rates again. Governor Michelle Bowman said she remains willing to support rate hikes if inflation progress stalls, but stopped short of endorsing an increase next month. Treasury yields and the dollar extended declines, helping boost bullion.
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The outlook on the Fed’s next steps has seen hedge funds boost net bullish bets on gold to the highest in almost four months, the latest CFTC data on futures and options show. Meanwhile, holdings in exchange-traded funds have stabilized after months of outflows.

Traders are increasingly positioning for a hard economic landing and aggressive Fed policy easing next year, with speculators in the US Treasury market now the most bullish on record, according to a weekly survey conducted by JPMorgan Chase & Co. since 1991. Federal Reserve Bank of Cleveland President Loretta Mester signaled she would support continuing to hold rates steady at the December meeting, saying policy is “in a good place” to assess whether inflation is on a path back to 2%.
Data Wednesday showed the US economy growing faster than first estimated in the third quarter, while consumer spending rose less than expected.

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Gold is likely to trade around $2,000 for a little bit until we get some more information from the Fed on its plan on interest rates, said Bob Haberkorn, senior market strategist at RJO Futures. Gold will trade higher if they are done with rate hikes for the time being."

The near-term outlook for gold remains bullish, with the dollar index in a downtrend on hopes the Fed will no longer raise interest rates and will maybe even cut them by springtime, said Jim Wyckoff, senior analyst at Kitco Metals. However, "if (U.S.) GDP numbers and inflation indicators are stronger than expected, it will dent traders' enthusiasm in bullion," Wyckoff added.

"A sense of caution ahead of another busy week for global financial markets is also lending support to the precious metal. Given how the $2,000 level proved an extremely tough resistance to conquer, gold could end up dipping without a potent fundamental catalyst," FXTM senior research analyst Lukman Otunuga said.

The real Gold's drivers

I intentionally put few comments above to show you how analysts miss on real situation in gold, especially FXTM comments. This indicates total misunderstanding of ongoing processes or, too narrow view on driving factors - Fed pivot is the only thing that people have in mind. Meantime, gold has climbed out of the $1800-2000 quagmire and starting to show signs of life. In order to confidently break through everything, it would be necessary, of course, to drive to $2080-2100 (otherwise it could turn out like with oil), but in general, a set of positions is underway.

And this action not necessary stands due to rhetoric about an imminent reversal of rates - the point here is not the rates, but the fact that investors are buying insurance against rising prices, although it seems that official inflation has been actively falling for several months. But apparently this doesn’t convince everyone that it’s time to get out of the hole. By the way, the gold/oil ratio is already almost 25, and for almost a whole year it was 22-23. In general, preparations for the crisis are in full swing. In terms of geopolitics and what's happening in the economy, gold has virtually no risk at the moment. Until the price falls below 1840, there can be no talk of any medium-long-term fall in gold.

Meantime Gold, by the way, is only 2% from its all-time high. At face value, of course. If we take the price adjusted for inflation, then the price would need to rise above $2,400 to exceed the 2011 peak. It is also noteworthy that in order to beat the price of the beginning of 1980, adjusted for inflation, the price would need to exceed $2,680. Even if you look at the official(!) inflation, gold is generally not far from its peaks. Although, to be fair, in all large-scale crises, when the entire essence of the financial system was broken (70s, 2000s), the price increase was several times over several years. Even taking into account inflation.

EU debt - surprising driver for gold market...

A remarkable role reversal is underway across the euro area just over a decade since a series of fiscal crises almost broke the single currency. Back then it was the so-called periphery countries of Portugal, Italy, Ireland, Greece and Spain drawing the ire of investors after running up massive debts. Now it’s the core nations of Germany and France which are having to increasingly explain themselves amid budget crises and fiscal plans that are running up against European Union limits.
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While a repeat of the 2012 turmoil isn’t in the cards, the new fiscal landscape has already shifted investor behavior. They’ve been leaning into the bloc’s peripheral government bonds over traditionally safer notes, counting on better returns as situations switch. JPMorgan Asset Management has loaded up on Spanish debt alongside Neuberger Berman, where fund managers also favor Portugal and Greece. Goldman Sachs Group Inc. and Societe Generale SA forecast parts of Europe’s periphery will continue to outperform next year.

The positive view has come alongside ratings upgrades. In recent weeks, Portugal was raised at Moody’s Investors Service and Greece was lifted to investment grade at S&P Global Ratings.

Germany, meanwhile, has suffered a string of bad news. Its economy is forecast to shrink this year, and the outlook has been further undermined by a budget crisis.
Neighboring France got a ticking off from the European Commission, which told it to rein in spending to meet the bloc’s fiscal rules.

“A lot of the European pessimism really comes from the German economy,” said Robert Dishner, senior portfolio manager at Neuberger Berman. “It’s actually the peripheral economies that are the ones holding up better than the core.”

“Smaller euro area countries have significantly improved their fiscal metrics and their positive prospects have been reflected in European government bond markets,” said Sean Kou, a rates strategist at SocGen. “The divergent dynamics should continue in both ratings and market pricing.”

Goldman Sachs points to growth rates in Spain, Portugal and Greece supporting their bonds next year, alongside more modest net issuance levels. There’s around €50bn coming from the three nations in 2024 compared with almost four times that from France and Germany, according to Goldman Sachs. Spain sold three- and nine- month bills this month with lower yields than those paid by equivalent German notes at the moment of the auction.

The combination of aggressive ECB tightening and varying sensitivities to the Ukraine war have changed fundamental dynamics across European government debt markets, according to Commerzbank. Relative value trades are back and the country tier system has become redundant.

“Markets have fractured from the traditional country buckets,” said Michael Leister, head of interest rates strategy at Commerzbank. “Fundamentals no longer justify the long-established core, semi-core and peripheral tiering.”

Due to the actions of crazy European politicians to destroy the energy stability of their main producing countries in response to the Ukraine SMO, the so-called peripheral countries - Portugal, Italy, Ireland, Greece and Spain, which used to cause horror among financiers due to huge debts, are now showing better fiscal discipline and economic growth. And key countries Germany and France are mired in budget deficits and recession. While everyone was watching the US in its relentless rise in Treasury yields, smaller issuers such as Portugal, Ireland and Greece were ahead of their competitors. Portugal's 10-year bond yields have fallen by almost 40 basis points this year, while Greece's have fallen by 80.

It sounds like great heroic story, but world is very pragmatic and big whales buy PIIGS debt not occasionally. PIIGS are in power here and have become the favorite vassals of the hegemon and their papers are being bought up by large investment houses. Here you can build three or four relatively reasonable conspiracy theories and several dozen more completely insane ones.
For example:
1. Following the industrial crisis, the United States provokes a financial crisis in Germany and therefore stimulates the flow of capital accordingly
2. Germany and possibly France tried to secretly drain the treasuries beyond the permitted limit, but everything was discovered, and they are being punished in this way.
3. The United States understands that it cannot hold out in Central Europe and is consistently merging it, in particular Germany, trying to make life as difficult as possible for the forces that are replacing it.
4. The USA has nothing to do with this, it’s just that against the backdrop of the crisis, some kind of conflict broke out within Europe and capital ran to change jurisdictions.

But in any case, the credit quality of the countries of Southern Europe has remained crappy. Stably severe, as doctors would say. But most likely this is now perceived as the lesser of the available evils. Anyway, the ongoing process of re-balancing of debt market will have long term impact and increase general risk.

The first scenario looks as most probable. It is obvious that the result of today's situation will be the weakening of Europe, and more specifically and to the greatest extent from the point of view of systemic deterioration of the condition of its locomotive, Germany. Otherwise the North Stream would not have been blown up. Otherwise, European countries would not have been exposed to costs and would not have promoted sanctions against Russia that are absolutely harmful to Europe under the umbrella of the EU leadership. Because in the end, everyone will still find themselves on their own and will gather new alliances. And the Americans don’t need competitors here. And the medium-term goal of particular political leaders is also clear - to prevent the union of Russia and Germany from happening.

Gold market is under epic shift since 2008 (by Cyrille Jubert)

Here guys, some extraction from great article. It discovers current gold market from absolutely different angle...

At the heart of the 2008 systemic crisis, during the G20 in November 2008 in Washington DC, many leaders of the represented nations called for a change in the international monetary system. This was formulated very clearly by China in a document (still online on the BIS website) demanding the abandonment of the dollar and deploring that the system proposed by Keynes in 1944, the Bancor, has not yet been tested.

In any case, as of 2009, the policy of the central banks took a 180° turn. Instead of leasing or selling their gold, all the central banks are going to start buying it, on the one hand, and trying to recover the national gold, which was leased to bullion banks, on the other hand. But these leasings were made with long-term contracts and bullion banks played this gold on the markets; so it had been sold several times.

To accentuate this mess, as of August 2009, China encouraged its citizens to invest in gold and silver and became a very large physical gold buyer in the London market. Beijing took delivery of the metal, then had it recast in Switzerland into one-kilo bars, before shipping it to China. The numbered bars from the various National Treasures have thus lost their original identity and were no longer recoverable by the different nations, which had recklessly leased them to bullion banks.

When in 2013, Germany wanted to repatriate 300 tons of gold entrusted to the New York Fed, the Fed asked for a delay of 7 years to re-ship them. Upon receipt of the gold, the bars did not match the initial list assigned to the Fed and had to be further refined to obtain pure gold that met international standards.

On the same date, the Netherlands also requested the repatriation of 120 tons of their national gold, followed by Austria and some leading central banks.
It was the BIS that was charged with unravelling the inextricable tangle of leasing contracts and successive mortgages on the same bars initially generated by central banks and then by bullion banks, whether in London or New York. To get an idea of the scope of this work, these are the contracts that the BIS has had to close in March alone since 2010:

  • March 2010: 346 tons
  • March 2011: 409 tons
  • March 2012: 355 tons
  • March 2013: 404 tons
  • March 2014: 236 tons
  • March 2015: 47 tons
  • March 2016: 0 tons
  • March 2017: 438 tons
  • March 2018: 361 tons
  • March 2019: 175 tons
  • March 2020: 326 tons
  • March 2021: 490 tons
  • March 2022: 358 tons
And now, look at the contracts settled for the last 3 years:
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Every month, year after year, the BIS has settled swaps for hundreds of tons of gold. In July 2022, these numbers dropped to 56 tons, followed by 75 tons in August and 57 tons in September. In October 2022, only 7 tons of gold! It seems that the BIS has almost finished closing down the gold swaps.

After the implementation of the Basel III rules, mortgaged gold will not be recognized at its full value. Options, futures and gold loans will be recorded on bank balance sheets as speculative items, therefore negative in terms of security and stability, while physical gold on the balance sheet will be a bonus added to the credit of the bank.

All European and American banks are already in compliance with the Basel III rules. Only banks linked to the London precious metals market had been showing resistance. This is why the markets have been in tight flux since 2020. Swiss refineries have been operating in 3×8 to meet bank demand, focusing on refining gold for months.

After the Western sanctions against Russia, which resulted in the banning of gold from Russian refineries, the tension increased. This likely explains why COMEX gold inventories are down 38.7% since January 2021, down 15 million ounces. Banks, which lent their gold bullion by the day, week or month to ETFs, will now have to recover them to improve the quality of their balance sheets. It should be noted that the conditions of the SPDR Gold Shares ETF (GLD) were modified on April 29, 2022. From now on, the SPDR Gold Trust fund grants itself the right to refuse requests for delivery of gold from investors holding units.
ETFs do not have to comply with Basel III standards. But once the lending banks have recovered all their bullion following the application of the NSFR, GLD could become a simple tracker of the gold price, without being backed by any physical gold reserves. For its part, the BIS seems to have finished unraveling the imbroglio of gold swaps just before the implementation of Basel III in January 2023. It took the bank more than 11 years. Is it pure coincidence that this period corresponds to the consolidation phase of the strong bullish leg observed between 2011 and 2022?
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During the bullish rally that followed the devaluation of the British Pound on November 18, 1967 and the collapse of the "London Gold Pool", there was a first leg up, followed by a phase of consolidation between the end of 1974 and mid-1978. In 1974, resistance was at $190-195. In 1978, prices fluctuated between support at $170 and resistance at $190, before the latter was broken on July 24, 1978, triggering an extraordinary rise for the next 18 months.

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During the consolidation that began in August 2020, prices fluctuated between $1,700 and $1,900... Get ready for a very big rise in gold in 2023. All the conditions are now in place, not to mention the energy crisis, the economic recession, the cracks in the bond market, the cryptocurrency crash and the growing geopolitical tensions.
As for silver, like during every bullish rally in gold, it will amplify the movement.

Conclusion:


So, as we could see, the gold performance absorbs much more factors than just "Fed pivot", which is actually becoming even not the major factor, especially in the light of geopolitical events, when the US could get the 3rd battlefield, now in Venezuela. Middle East situation is becoming hotter. The Ukraine is becoming real headache especially at the eve of election year. While China stands in epicenter of the US geopolitics. Inner financial problems we've discussed yesterday. So, with all this mess on the back, hardly gold could remain calm or start dropping. We suggest that this is just a beginning and gold should keep going higher in long term.

Here I also would like to mention
the speech of Stratfor founder and CEO George Friedman. It is already 8 years passed but it is still actual. If you would like learn more, we suggest you to listen it. Many things that he was talking about have become to reality.
 
Technicals
Monthly

So, even bloomberg has mentioned our H&S pattern on monthly chart. Upside performance looks perfect here. Trend is up, market is not at overbought and shows healthy acceleration. It's time to specify the target - 2250-2270$, which is OP. But it is also XOP exists...

Second important issue here that we mentioned already - YPR1. Upside breakout means new upside tendency. Price right now is challenging this level. It is interesting to mention also that this year retracement was accurately to YPS1, which has confirmed validity of long-term bullish tendency... Now it comes to another test, right at the end of the year:
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Weekly

Here is actually only minor add-on to monthly analysis. We have COP target around 2095$. Overbought stands slightly higher around 2106$, so, we probably could use it as a target for coming week:
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Daily

Here upside action looks great, price has passed COP with very small response. still market is near overbought around 2085. Taking together weekly COP and daily overbought, we could suggest that 2090-2100$ probably will become the ceil for coming week, if nothing extreme will happen, of course.

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Intraday

Since market stands near overbought, it makes sense to wait some bounce. In fact, on 4H chart we have the same levels to watch. Since market just has jumped, we do not have any patterns on lower time frames. Until market hits 2095 weekly COP target, it is possible to consider minor pullbacks on lower time frames to buy the deeps:
gold_4h_04_12_23.png
 
Last edited:
Master Sive.
I think you should become the next president of the World Bank.
Your knowledge is so far going, your influence could do more for this world.

Well, it is pleasure that you have so high opinion on my erudition, my dear friend. But, many things that I share with you do not belong to me. My 2 cent is just an ability to find important things and extract them from a big amount of junk. Just to let us stay focused on really important things. Here I see my primary object. But, I'm not a professor ;)
 
Greetings everybody,

So, gold shows absolutely stunning performance but without breaking our major objective points. Thus, on Monday was outstanding upside spike, but precisely to our OP @2130. Now daily chart shows few short-term bearish patterns, suggesting that downside action should be more extended. We have huge bearish reversal session and engulfing.

Still, price stands near 2012-2016 daily K-support area. And if you plan to go short, maybe it makes sense to wait for some rally to sell into:
gold_d_05_12_23.png


On 1H chart it might be in a way of some AB-CD action, either right now or from slightly lower levels, when gold hits daily K-area. Anyway, the first level that seems interesting is 2065 K-resistance:
gold_1h_05_12_23.png
 
Greetings everybody,

So, daily picture mostly stands the same. Price is coiling around major support, so we're still watching for the bounce to sell. No grabber has been formed here but COMEX chart looks different and it is still theoretically possible within 1-2 sessions:
gold_d_06_12_23.png


On 4H chart price has re-tested previous top, as we've suggested. Those who consider scalp long positions - be aware of possible bearish grabber here:
gold_4h_06_12_23.png


On 1H chart, butterfly that we've talked about is done. Actually it looks the same as on EUR. 2060 K-resistance looks interesting for another short entry, hopefully market will reach it somehow. We do not care much on what pattern will trigger the bounce, maybe H&S, by the way... For us the pullback is important per se, as we do not consider yet new long positions.
gold_1h_06_12_23.png
 
Greetings everybody,

Gold market now looks more interesting than EUR and here are couple of moments to discuss. First is, although you probably do not see it on Retail brokers charts, but COMEX shows that grabber is possible today - let's keep watching. Because upside action that we've expected seems like started...

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On 4H chart no grabber has been formed. This is good...
gold_4h_07_12_23.png


While on 1H chart, maybe market is not successful with H&S pattern that we've talked about yesterday. Still, another one could be formed. 2060$ is still of particular interest - butterfly target, XOP and K-resistance. Let's see whether NFP tomorrow will push gold higher a bit... The problem now is 2060 resistance and potential daily grabber... They suggest opposite positions...
gold_1h_07_12_23.png
 
DAX has shown resilient upside action in the last month and a half, moving past the all-time highs yesterday, but it seems it's soon gonna complete to major targets from the Weekly chart.
Yep, DAX looks like out of reality. Strong growth when Germany economy is ruined.
 
Greetings everybody,

So, gold market there are two moments today. First is, one problem is resolved - we've got no bullish grabber by yesterday's close. Second is, if we wouldn't have NFP today, I would say that upside retracement seems to be over.
gold_d_08_12_23.png


Because on 4H chart we get evident sign of bearish dynamic pressure. MACD stands bullish but price action is flat:
gold_4h_08_12_23.png


The same you could see on 1H chart - gold is unable to form any puny bullish pattern. But as we have NFP, occasionally could happen spikes so, gold could touch OP.
gold_1h_08_12_23.png


That's why, you should have to make a decision on how to enter (if you want to sell, of course). Either to wait for NFP, or split position in parts or find some other solution...
 
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