Gold GOLD PRO WEEKLY, December 06 - 10, 2021

Sive Morten

Special Consultant to the FPA
Messages
15,481
Fundamentals

So, gold market has shown mixed results. Omicron appearing suggests support to the market, but J. Powell statement concerning rising inflation is a headwind, so as a result market drops a bit lower, but this action was rather choppy. Currently the overall situation we could describe as "uncertain" because investors have nothing clear except statements that Omicron is very dangerous, which is potentially supportive to the gold market. And in general, all talks about slowdown of global economy stands in favor of the gold, although effect might be extended in time.

Market overview

Gold steadied on last Friday, after Thanksgiving, taking a breather after an over 1% rally sparked by a rush into safe-havens as concerns over a new coronavirus variant
rattled risk appetite. Authorities globally reacted with alarm to the virus variant, with the EU and Britain among those tightening border controls as researchers sought to establish out if the mutation was vaccine-resistant, triggering a selloff across markets that seeped into oil and other precious metals.

But after the rally due to bullion's safe-haven appeal, the overall bearish turn in commodities eventually claimed gold as well, said Jim Wyckoff, senior analyst at Kitco Metals, adding the market reaction was probably overblown.

"Gold price should remain supported in this environment and the topic of (Fed) tapering should take a back seat for the time being," said Alexander Zumpfe, a precious metals dealer at Heraeus.

Gold prices edged higher on Monday as concerns over the impact of the Omicron coronavirus variant offset a stronger dollar.

"Given the uncertainty around whether this new variant is more dangerous than the Delta variant, gold's downside should be protected," Harshal Barot, a senior research consultant for South Asia at Metals Focus, said, adding that it could trade between $1,780 and $1,830. Barot also said while it was too soon to gauge if virus concerns have eased rate hike expectations, there is an upside risk for gold that the variant eventually leads the Fed to scale back on its stimulus tapering and rate rise plans.

While Atlanta U.S. Fed President Raphael Bostic was the latest among a growing number of policymakers to say he remained open to accelerating the pace of the central bank's bond taper.

Reduced stimulus and interest rate hikes tend to push government bond yields up, raising the opportunity cost of gold, which pays no interest. Capping gold's gains, was a stronger dollar which increased bullion's cost to buyers holding other currencies.

Jeffrey Halley, senior market analyst at OANDA, partly attributed gold's retreat from Friday's peak to the steep decline in platinum and palladium, and said gold's inability to rise substantially from their recovery on Monday was a negative factor for gold's price action, potentially pushing it lower.

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"If the virus does lead to renewed worries about economic activities, central banks will obviously be caught in between a rock and a hard place because inflation is not going to come down... but growth will, and that leaves them in a very precarious situation," Saxo Bank analyst Ole Hansen said. Until we get more news about the Omicron and its potential, "the market will continue to trade with uncertainty. That will not only impact some of the markets that depend on demand, like energy and metals and stock markets, but also gold," Saxo Bank analyst Ole Hansen said.

With people trying to digest news about the new COVID-19 variant, "the reality of the situation, with equities bouncing back right now and gold kind of flat, is people are into risk-on assets," said Bob Haberkorn, senior market strategist at RJO Futures.

Gold prices rose on Tuesday after Moderna's chief warned that COVID-19 vaccines are unlikely to be as effective against the Omicron variant as they have been against the Delta version. The Moderna chief's comments rattled financial markets, with Asian shares dropping to their lowest in more than a month while crude oil futures , fell over 2%.

"It is hard to say how much of an impact this will ultimately have on gold as markets are still digesting the comments," CMC Markets UK's chief market analyst Michael Hewson said, adding bullion prices could head back to the $1,800 level if equity markets decline further.

Gold could still march towards $1,900 by end-year due to the renewed economic concerns, Commerzbank analyst Daniel Briesemann said, adding silver could track gold's gains.

Gold beat a hasty retreat on Tuesday as investors latched on to seemingly hawkish remarks from the U.S. Federal Reserve chair, erasing gains from an over 1% rally fuelled by concerns over the Omicron coronavirus variant. In a testimony before the U.S. Senate Banking Committee, Fed Chair Jerome Powell said the Fed likely will discuss speeding up its taper of large-scale bond purchases at its next meeting.

Powell's comments drove a slight rebound in the dollar, which has steadied since then. Powell said the Fed will discuss whether to end their bond purchases a few months earlier than previously anticipated in December and the word "transitory" is no longer the most accurate term for describing the nature of current inflation. Fed officials are not happy with inflation above the central bank's 2% target and bringing actual inflation down will be important to keeping expectations anchored near the central bank's goal, Fed Vice Chair Richard Clarida said.

"Everyone got a little surprise as Powell moved closer toward the hawkish side," said Edward Moya, senior market analyst at brokerage OANDA, adding the Fed would likely implement rate hikes at a more rapid pace. But longer term, gold will be supported by worries over the virus variant, Moya added.

Gold's fall came alongside a tumble in Wall Street after Powell's comments hinting at a faster shift to tightening policy hurt risk sentiment already weighed down by concerns over Omicron.

"The prospect of slowing economic growth and persistent inflationary pressure could see the ‘stagflation’ debate regain traction. Gold could benefit from this economic backdrop but remains tied to additional Omicron data," said DailyFX analyst Warren Venketas.

Credit Suisse forecasts gold prices to average $1,850/oz next year before declining to $1,600/oz in 2023.

"The Fed will raise rates once in the second half of next year, and between now and then inflation will remain elevated, resulting in still deeply negative real rates, which is positive for gold," Credit Suisse said in a note dated Tuesday.

Wednesday gold's bounce came alongside a sharp rebound in stock markets as investors used the dip in prices to bet the latest COVID-19 variant would not derail the economic recovery, suggesting safe-haven inflows into bullion might not be as strong as anticipated.

Concerns over the virus variant are supporting gold as fresh restrictions will slow the global economy, with a weaker dollar also boosting demand for the safe-haven metal, said Phillip Streible, chief market strategist at Blue Line Futures in Chicago.

Craig Erlam, a senior market analyst at OANDA, said "gold is struggling for momentum in either direction which is a little strange given yields are still low and the dollar is softening. Choppy markets with underlying anxiety should also be supporting gold prices more but its inability to drag itself back above $1,800 isn't a great sign."

Meanwhile, Federal Reserve Chair Jerome Powell said with the U.S. economy growing strongly and supply-demand imbalances poised to persist in the near future, policymakers need to be ready to respond to the possibility that inflation may not recede in the second half of next year as expected. The latest COVID-19 variant could extend some of the supply-chain challenges and shortages that have led to higher inflation, and officials will need to factor that in as they decide how to withdraw their monetary policy support, New York Fed President John Williams said.

U.S. manufacturing activity picked up in November amid strong demand for goods, keeping inflation high as factories continued to struggle with pandemic-related shortages of raw materials

"The more hawkish shift in rhetoric from Powell could overshadow for gold any bullish impulse from the Omicron virus until at least Friday's non-farm payrolls report" said Stephen Innes, managing partner at SPI Asset Management. Palladium has failed to recover from last week's steep sell-off and continued to trade below gold for the first time since August, 2019. "Palladium's industrial use is getting weighed down because we're not getting big demand from automobiles and that's feeding into speculative fervor," SPI's Innes said.

Spot gold XAU= still targets $1,758 per ounce, as it has deeply pierced below a support at $1,780 and broken a rising trendline, according to Reuters technical analyst Wang Tao.
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The prospect of a faster taper could cap the upside for bullion and boost the U.S. dollar and Treasury yields, in a further dent to gold's appeal, said Michael Hewson, chief market analyst at CMC Markets UK. "A decent set of jobs numbers also has the potential to push gold lower, towards $1,740, but overall bullion remains in a range, capped around $1,810 and support at $1,740," Hewson said.

So, the metal has declined 1.4% so far in the week as a number of Fed officials suggested the central bank might accelerate stimulus tapering, with Chairman Jerome Powell saying that decision could be reached in its upcoming policy meeting.

"We got the Fed that is more hawkish and an environment where if anything hits the fan, especially with the new variant, traders will likely buy into the dollar. That is a negative environment for gold," said IG Markets analyst Kyle Rodda.

Data on Friday showed U.S. employment growth slowed considerably in November, but the unemployment rate plunged to a 21-month low of 4.2%, suggesting the labor market was rapidly tightening. U.S. employers added 210,000 jobs last month, a U.S. Labor Department report showed Friday, less than half of what economists had expected. But average hourly earnings over the past 12 months rose 4.8%, the unemployment rate dropped to 4.2%, and the workforce grew by the most in 13 months. Analysts said they believe the moderate job gains understate labor market strength and that they would likely be revised upward.

"Gold is benefiting from a flight-to-safety as investor worries around a faster Federal Reserve taper and the COVID situation as both Delta and Omicron pose a risk to short-term growth outlook," Edward Moya, senior market analyst at brokerage OANDA. "Gold's end of week performance is significant as it coincides with curve flattening that includes high expectations for a faster Fed taper."

Sentiment in wider financial markets remained weak, with the Nasdaq tumbling over 2%, as mixed U.S. jobs data and fears around the Omicron coronavirus variant weighed. Further lending support to gold, the U.S. 10-year bond yield dropped below 1.4% for the first time since September, reducing the opportunity cost of holding non-interest bearing gold.

EXPECTATIONS OF GLOBAL ECONOMY SLOWDOWN

Global economic growth projections from the International Monetary Fund will likely be downgraded due to the emergence of the Omicron variant of the coronavirus, IMF Managing Director Kristalina Georgieva said on Friday.

"A new variant that may spread very rapidly can dent confidence, and in that sense, we are likely to see some downgrades of our October projections for global growth," Georgieva said during the Reuters Next conference.

Georgieva said high inflation in the United States should be addressed by policymakers but that such hefty price pressures are not being observed equally around the world, allowing other economies to change policy at their own pace.

"We do believe that the path to policy rate increases may be walked faster," she said, pointing to 2022 as a likely target.

"The reality is that 2022 is going to be a very pressing year in terms of dealing with debt," she said, adding that sovereign debt has risen 18% during the COVID pandemic and it will take decades to go to pre-pandemic levels unless there is a "much more thoughtful and aggressive" policy. So far, interest rates are relatively low, this is not so dramatic. Going forward ... that may not be the case."

Copper prices fell to a two-week low on Tuesday as worries about the damage to demand and economic growth from the Omicron coronavirus variant and monetary policy tightening in the United States weighed on sentiment.

"While the severity of the new variant remains a big uncertainty, it casts a shadow over demand growth in the near future and further complicates the supply chain," said ING analyst Wenyu Yao.

Chile’s state-owned Codelco, the world’s largest copper producer, said on Wednesday it expects copper prices to fall in a year to between $3.80 and $3.90 per pound, down from prices currently just below $4.30 per pound.

"It's always very hard to forecast prices, especially in the short and medium term, but next year we will probably have prices slightly lower than this year," Codelco CEO Octavio Araneda told reporters during the inauguration of a virtual operations center. Araneda said he has less bullish expectations, forecasting that copper supply will outpace demand until 2024. Only then will higher demand for electric vehicles match up with copper output, he said.

Morgan Stanley on Monday cut its first quarter 2022 Brent crude price forecast to $82.50 per barrel from $95 on market expectations that the Omicron coronavirus variant could turn into a major headwind for oil demand.

"Brent prices rising above recent highs again is probably something from mid 2022 and beyond," the bank said, while raising its third quarter Brent outlook to $90 a barrel from $85

Newmont Corp projected a jump in gold production for 2022 on Thursday. The world's top gold producer forecast output of 6.2 million ounces for next year, up from the 6 million ounces it expects to produce in 2021. Total gold output combined with other metals is estimated to be 7.5 million gold equivalent ounces in 2022. Denver, Colorado-based Newmont said it expected full-year gold production to rise to between 6.2 million and 6.8 million ounces over the next five years. It forecast 2022 attributable capital expenditure of about $2.13 billion.

"The next two years, two and a half years are the most significant reinvestment period that Newmont has had in at least a generation," Chief Executive Thomas Palmer said on a conference call. "And it's a bit of a combination of the pandemic having those projects stack up on each other a bit more than would have been our intent."

Bank of England policymaker Catherine Mann said on Tuesday that the new Omicron coronavirus variant could hurt consumer confidence, which would weaken economic recovery

COT Report


This week data shows contraction of positions in gold. The longs were closed mostly, so the net long position has dropped but, a lot of shorts were closed as well. Here is we have the same interesting thing as on EUR yesterday - while speculators have closed positions in both direction, hedgers are not, and they keep positions against gold's drop, while hedge against more expensive prices have been contracted.

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On SPDR Fund performance situation is still unclear. Uptick was just once and this week reserves have dropped again:
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Source: FPA, SPDR Fund

As a result net position has dropped but still holds above previous top around 216K contracts:
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Source: cftc.gov, charting by investing.com


Conclusion:
To keep our brains safe from blowing out, because of too many information, we should focus on primary driving factors of the gold market and this helps us to keep things relatively simple. The major driving factor for the gold is real interest rate, despite what stands at the back - Fed policy, Inflation, Omicron or whatever. The second factor is a dollar value, but it is derivative from real interest rates as well. Hence, until real interest rates remain depressed - gold should keep ability to go higher, or at least fluctuate in wide range, without turning to collapse.

Within nearest 6-8 months real rate should stand low as first Fed rate change is anticipated only in the summer of 2022. And here we agree with Credit Suisse opinion, mentioned above. As inflation already stands high and Fed worries that it could rise more - real interest rates supposedly should be "deeply negative". Whether gold will show any rally - we will see, but it definitely should safe it from big collapse. So, we've got the matter for the first question.

Speaking on longer-term perspective, now it is commonly suggested that Fed starts interest cycle, real rates are going to rise and gold should start falling. It seems reasonable, but only if inflation remains at high level. We see big chances that it will. Mostly because of specific of pandemic and targets that are followed by the masters. There are a lot of them but the major one is to erode China financial stability.

It could be done by making Chinese goods very expensive and drop natural demand for it. Yesterday, we already have touched this topic briefly in FX video, and showed that "40 feet" container rent from China to US is 36 times more expensive than from US to China and 16 times more expensive from EU to US than in opposite direction. The sabotage of cargo off-loading in EU and US ports makes Chinese production cycles longer and leads to slowdown of turnover, making big financial pressure of small Chinese companies, increasing their constant expenses. Keeping demand for the goods at the same level - price should keep rising as supply is artificially contracting. This is not the breaking of supply chains, but this is intended sabotage of cargo shipping.

Although markets have tried to resist and object against "Omicron menace" within first week, "Masters" stand by the arguments and forced that omicron is awful and super dangerous. So pandemic has to last. I would say that it will last until China gets obvious problems in economy, US companies start to move production back to US, and the US forces China to start spend its foreign reserves, selling US Treasuries bonds. This in turn, should lead to contraction of US debt and increase demand for US Dollar.

The global motion to "ecological" and "green" production is the part of the same puzzle. This production, its technologies are very expensive. With coming restrictions on consumption of "non-green" food, energy or whatever - emerging countries will loose EU and US markets. And China will not be an exception, as its production not "green" definitely. I would say US has two major opponents - Russia stands in military sector, while China in economy. Green energy also hits on hydrocarbon exporters, where Russia stands among the major ones. This should slow EU economic growth, while the US has a lot of its own oil and gas reserves, and Saudi oil also de-facto is US-owned. The military component is resolved by uniting the Anglo-Saxons world. So the US keeps a very intelligent global domination policy.

But first, the major consequence of this situation is global slowdown of economy, which is already expected widely on forecasts on 2022, as we've shown above. IMF also not occasionally said, that 2022 will be the "year of the debts". D. Trump was not a quarreler stupid who has started trade war with China. This is long-term plan. If US will succeed, this should lead to big production boom in the US, and gold indeed, should start dropping. But, this is very long-term view.

Now, in the short term, recent gold drop mostly stands due to riskier assets sell-off and run into the cash. It is interesting that despite Fed has become more hawkish - interest rates dropped, stocks were sold off and BTC falls as a first victim of "running into the safety trend. So, we think that current gold drop stands mostly due excess demand for US Dollar rather than sell-off in gold. It means that gold still keeps chances on rebound in nearest time. So, we should keep watching for bullish scenarios on daily/weekly charts.

That's being said, future gold price will be determined by balance and mutually exclusive strength of inflation on the one side, and potential global slowdown on the other. This is very thin edge and a lot of factors should coincide tightly. If the US fails to achieve desirable effect and inflation starts dropping and global growth slowing before economical China defeat - it turns gold North again.
 

Sive Morten

Special Consultant to the FPA
Messages
15,481
Technicals
Monthly

For the whole week we were watching downside action to major 1760$ support area, which was a bit bumpy.

In short-term performance looks a bit poor, as market pulls back inside the flag consolidation and under YPP, showing upside spike. So, we can't totally exclude some downside continuation on lower time frames as well. At the same time, it doesn't break yet the monthly picture. The support line that makes shape of triangle here seems to be more important at current moment.

Speaking about upside target, we have very thrilling combination. Major COP is completed, but we also have all-time COP, when A point equals to ~ 40$ - fixed gold price to US dollar before the Bretton Wood. In this case all time COP agrees with YPR1 around 2165$. This is next nearest target on gold...

Once we've mentioned that overall price performance doesn't look truly bearish in long term. Market stands too close to the top, forming tight consolidation and has not reached even 3/8 major support. And potential appearing of pennant pattern just confirms this. This in turn, cares signs of bullish dynamic pressure, as market stands tight while MACD is going down...

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Weekly

Despite of a bit extended downside pullback, trend remains bullish here, and price starts flirting with MACDP line that could give us bullish grabber next week. This is the primary thing that we intend to keep an eye on here.

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Daily

Here trend remains bearish, market is not oversold, and mostly has reached 1758 area, forming lows around 1761$. By the Friday's pullback we've got nicely looking bullish engulfing pattern. Let's see whether it leads to some more extended bullish performance here.
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Intraday

Here we have a bit tricky situation, as price bounced up, leaving behind major targets. We have divergence and bullish trend but it might not become a barrier for final downside spike:

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As we saw the same bounces before, I would wait for bullish reversal swing here, at least. That potentially could give us reverse 1.27 H&S pattern as well. Meantime, market has only "222" Sell pattern:

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So, it would be better to get action above 1795$ top, the bullish reversal swing to avoid downside continuation. And keep an eye on reverse H&S then. If price turns down again, as previously - then we should wait reaching of our major 1755-1758 target cluster.
 

Sive Morten

Special Consultant to the FPA
Messages
15,481
Greetings everybody,

So, markets stand a bit confused by contradicted information around Omicron, and worry that something new "bad" will be announced. As a result, we have nothing but the same daily engulfing setup. Potentially it could trigger action to 1800 area, but also it has few tricky moments.

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First is - US yields are rising as well, which should be the headwind for any gold upside performance. Second - we still have untouched major 1755$ targets and potentially here we could get as upside AB-CD as downside butterfly, right?
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At the same time, setup has advantages as well. First is bullish reversal bar above. This provides us great assistance as we do not need to place too far stops and could hide it right under reversal bar's lows. Since we're dealing with daily engulfing - market has to go up right now. If it doesn't do it, it means that downside action should start soon.
Bears, in turn, could watch for the same lows. In a case of downside breakout - this becomes the signal of downside continuation and potential 1755$ downside butterfly pattern.

Finally, if we would get AB-CD, maybe we could get the butterfly, at least:
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That's being said - all that you need to do is just to choose the direction and decides whether you would like to take part with it...

P.S. Today Biden talks to Putin, who knows, but potentially this is the subject for gold market as well...
 

Sive Morten

Special Consultant to the FPA
Messages
15,481
Greetings everybody,

So, situation remains tricky and gold shows very slow upward action. Recall that our major pattern is potential bullish grabber on weekly chart, as it could change situation drastically. Meantime, while price is moving to engulfing target - it also starts flirting with MACD on daily chart and this is potentially dangerous situation as we could get the bearish grabber here:
gold_d_08_12_21.png


It means that it is dangerous to anticipate appearing of the weekly pattern. Interest rates stand flat and do not clarify overall situation. Recent action was also a bit tricky as gold has washed out the stops below reversal bar, that previously we've mentioned as background for upward action. Gold is the most cunning market. As a result the AB=CD pattern is re-shaped, and now we have 1798$ target:
gold_4h_08_12_21.png


So, within 2 sessions we keep an eye on daily chart, hoping that no bearish grabbers will be formed. If still we get it - it might be the chance for the bears, but for the bulls it potentially is not good as it could cancel weekly pattern.
Those who already have bullish position with engulfing could keep it, just move stops to breakeven. Current price action has no features of reversal as it is too slow, mostly looks like as just short-term AB-CD pattern.
 

Sive Morten

Special Consultant to the FPA
Messages
15,481
Good morning everybody,

So, we can't offer anything new by far but to wait. As we've suggested yesterday - gold starts flirting with MACDP line on daily chart, and today we could get the bearish grabber. Overall market performance looks not very impressive and with 1755-1758 targets under the current price action we have no wish to buy right now:
gold_d_09_12_21.png


On 4H chart on a way to OP target market suddenly stops, confirming the upper range border. Overall price performance has more retracement features rather than signs of upside reversal. Here we need to keep an eye on "C" point lows. In a case of the breakout - this will be the confirmation of downside action.
gold_4h_09_12_21.png


On 1H chart market reacts on local 5/8 Fib resistance level. Appearing of the flag pattern also cares some bearish sentiment:
gold_1h_09_12_21.png


So, as interest rates are rising today as well, in current situation with target right under the market and potential bearish grabber - we would stay aside from long position by far.
 

Sive Morten

Special Consultant to the FPA
Messages
15,481
Greetings everybody,

so our worrying was not in vain and gold has formed the bearish grabber. This is different question whether you would like to play with CPI report and take short position today - it is possible if you want, but appearing of the grabber should, at least, keep us aside from taking any new long position by far. It could trigger strong downside action, but first it would be better to focus on nearest target, which is 1755-1758$ daily support, where positive reaction is possible as well:
gold_d_10_12_21.png


Appearance of the grabber lets us suggest possible 3-Drive "Buy" pattern here and action to 1755$.
gold_4h_10_12_21.png


So, nothing to do for the bulls by far. While, if you would like to go short - it is possible to consider resistance levels. Mostly there are two of them - K-area and major 5/8 at 1284$ as here we also could recognize potential H&S pattern that could be formed. Shorts should be taken against the top, which is also invalidation point of the daily grabber. As usual you could wait either for 5/8 retracement or combine both levels for entry, using scale-in approach.
gold_1h_10_12_21.png
 
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