Gold GOLD PRO WEEKLY, December 12 - 16, 2022

Sive Morten

Special Consultant to the FPA
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Fundamentals

Yesterday we've taken in-depth view on recent US statistics, Fed comments trying to tie everything together to get the whole picture. Result that we've got maybe is not absolutely positive for the gold, because more or less but some rate hike still stands on the table and possible reaching of 5% terminal rate. But, by looking at current result, we suggest that hardly it makes any strong impact on inflation level, which is friendly for the gold market. Last week we've shown that, despite some sell-off and low interest from investors, gold now is coming to drastic shift. Only few investors (mostly CEO of big Hedge Funds) could recognize it, and speak about it. And we are, of course :p This week there are few events happened, that makes upside reversal closer.

Market overview

Gold prices beat a sharp retreat on Monday as the dollar rebounded on bets that strong U.S. economic readings may give the Federal Reserve fodder to accelerate rate hikes. U.S. services industry activity unexpectedly picked up in November, with employment rebounding, offering more evidence of underlying momentum in the economy as it braces for an anticipated recession next year.

Traders assessing fresh US economic data for cues on the Federal Reserve’s rate policy along with China’s relaxation of its Covid-Zero policies. Stronger-than-expected US services data from November boosted chances that the Fed will keep interest rates higher for longer, which hurts bullion since it pays no interest. Treasury yields and the dollar extended gains after the Institute for Supply Management data was released Monday, sending bullion down as much as 1.6%.

The hotter-than-expected ISM data prompted a rally in the dollar index, in turn causing a sell-off in gold and silver on expectations that the Fed is going to be more hawkish, said Phillip Streible, chief market strategist at Blue Line Futures in Chicago. On the technical front, gold "hit the 200-day moving average last night which is $1,823.90 ... we've been pulling back since," Streible added.

“We see signs of buying exhaustion in gold,” said Daniel Ghali, senior commodity strategist at TD Securities. A “notable consolidation in prices will be needed” before commodity trading trend followers spark renewed outflows, he said.

Gold also gave up some gains from an earlier rally, prompted by news on top bullion consumer China easing some COVID restrictions. Gold traders were still focused on the U.S. Federal Reserve's rate-hike path, with a recent softening of its aggressive stance giving a fillip to non-yielding bullion.

"The near-term path of gold will be strongly influenced by the upcoming US CPI data. We still look for further rate hikes weighing on gold over the coming weeks," UBS analyst Giovanni Staunovo said.

Gold prices in Pakistan surged to a record as people took refuge in the safe-haven metal on mounting concerns that the nation’s economic conditions will deteriorate further. The world’s fifth-most populous nation is dealing with a range of economic challenges, including a dollar shortage and a delay in the International Monetary Fund’s loan program for the country.

“People are looking at banks not clearing payments and fearing the worst,” said Khurram Schehzad, chief executive officer at Karachi-based Alpha Beta Core Solutions Pvt. The price jump is the result of aggressive buying by investors as another safe bet — buying dollars — is not widely available due to economic woes, he said.

Gold demand in Pakistan jumped 34% to 13 tons between July and September from a year earlier, according to data from the World Gold Council. That was the most amount of gold purchased during a quarter in at least about three years.

Deutsche Bank AG has applied to re-join (!!!) the London Bullion Market Association — the world’s foremost standard setter for gold trading — as the German lender seeks to expand its trading unit. The LBMA application “brings us into line with other banks that offer precious metal services,” Deutsche Bank said in a statement Friday. “It reflects the careful growth of our precious metals business in recent years, and growing client demand for our services.”

The lender was previously one of the few clearers of London-based transactions, and also participated in daily price-setting auctions for gold and silver. In 2014, the bank decided to stop trading physical precious metals.

China reported an increase in its gold reserves for the first time in more than three years(!!!), shedding some light on the identity of the mystery buyers in the bullion market. The People’s Bank of China raised its holdings by 32 tons in November from the month before, according to data on its website on Wednesday. That brought its total to 1,980 tons, the sixth-biggest central bank bullion hoard in the world.
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The gold industry has been rife with speculation over the central banks behind nearly 400 tons of sovereign purchases during the third quarter. Only about a quarter of the buying was publicly reported at the time, causing market watchers to tout both China and Russia as potential culprits.

While central bank buying rarely drives sustainable gold rallies, it can provide an important pillar of support when prices fall. The precious metal has been under pressure this year from the Federal Reserve’s aggressive monetary tightening, though it has held up relatively well against moves in the dollar and Treasury yields.

“As deglobalisation accelerates, the non-G-10 nations are expected to ‘re-commoditize’ and ramp up gold holdings,” said Nicky Shiels, head of strategy at MKS PAMP SA.

Central banks bought a record amount of gold last quarter as they diversified foreign-currency reserves, with a large chunk of the purchases coming from as-yet unknown buyers. Almost 400 tons were scooped up by central banks in the third quarter, more than quadruple the amount a year earlier, according to the World Gold Council. That takes the total so far this year to the highest since 1967, when the dollar was still backed by the metal.

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SPDR Fund reserves has increased slightly this week (~ 2 tons), makes no significant impact on the reserves volatility, as change stands in the range of week-by-week fluctuations by far.
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On Friday, data showed producer prices rose in November by more than forecast, driven by services and underscoring the stickiness of inflationary pressures that supports Federal Reserve interest rate increases into 2023. There are tentative signs of cooling in the labor market, with data showing Thursday that recurring applications for unemployment benefits rose to the highest level since early February.

The precious metal has risen about 10% in five weeks as the greenback sank on signs the central bank was softening its hawkish stance. The Fed has been hiking rates aggressively this year in a bid to fight inflation and cool the labor market. The consensus estimate among analysts is that next week’s data will show annual inflation rising at the slowest pace this year.

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The macroeconomic backdrop is key for gold prices, said John Reade, chief market strategist at the World Gold Council. “Unless the central banks or the Fed is able to engineer a miraculous soft landing,” there’s likely to be a more favorable backdrop for the metal in the second half of next year, he added.

Saxo’s ‘Outrageous’ Prediction? Gold Will Top $3,000 in 2023
(it is released as 50 min podcast, just follow the link if you want to hear it or you could do it in FPA Telegram as well)
Holding gold? Better load up since it may hit $3,000 next year. Work in private equity? Get out now before a new tax regime arrives. As for 2% inflation? Not in this “war economy.” These are among Saxo Bank’s self-described “outrageous” predictions for the year ahead, which the Danish bank says will see policymakers shift into a full defensive posture. China and India probably won’t ditch the dollar and the International Monetary Fund, Steen says, but the “underlying micro-trend is actually what’s going on.”

Few other Issues

Here we would like to mention few events, as economical as political, that maybe do not have direct impact on gold market (by far), but still very accurately describes situation in the world. First is, our suggestion that Chinese economy is slowing seems to be correct. Last time we've explained in details, why this is important. China economy vitally needs economy performance above average, because otherwise, the debt burden starts losing its efficiency, and instead of stimulating productivity will start hurting the economy performance. To achieve this, Chinese economy should keep working at the same pace near the full capacity. It suggests strong consumption as inside as outside. But this balance is very fragile. Domestic consumption is hurt by Covid restrictions and starting layoffs, while international demand is dropping because of insolvency of former major consumers (EU and US have terrible trade deficit with China).

As a result, China's exports in November contracted 8.7% from a year earlier, while imports tumbled 10.6%, both missing expectations by large margins, customs data showed on Wednesday. Imports were forecast to have contracted by an even larger 6.0% from a 0.7% fall in October, hurt by sluggish consumption at home amid widespread COVID-19 restrictions and a protracted property slump. China posted a trade surplus of $69.84 billion in November, compared with a forecast $78.1 billion surplus in the poll and a $85.15 billion surplus in October. All this stuff means, guys, that China still has to serve its ~ 3xGDP debt and pay interest, but this assets are not working and utilized at 100%. This is the same like you take the 100K loan but use just 50K to generate income and compensate credit rate. Obviously loan becomes two times more expensive to you. The same is in China but with less degree, of course.

The weakest trade data for 2-1/2 years gave reason for caution, pointing not just to the effects of COVID lockdowns but weaker international demand. Retail and factory data due Thursday could make for further gloomy reading.
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Few other events have dual politico - economic meaning, but both could hurt US Dollar dominance. First is, President Xi Jinping told Gulf Arab leaders on Friday that China would work to buy oil and gas in yuan, a move that would support Beijing's goal to establish its currency internationally and weaken the U.S. dollar's grip on world trade. Xi was speaking in Saudi Arabia where Crown Prince Mohammed bin Salman hosted two "milestone" Arab summits with the Chinese leader which showcased the powerful prince's regional heft as he courts partnerships beyond close historic ties with the West.

China's growing influence in the Gulf has unnerved the United States. Deepening economic ties were touted during Xi's visit, where he was greeted with pomp and ceremony and on Friday met with Gulf states and attended a wider summit with leaders of Arab League countries spanning the Gulf, Levant and Africa. At the start of Friday's talks, Prince Mohammed heralded a "historic new phase of relations with China", a sharp contrast with the awkward U.S.-Saudi meetings five months ago when President Joe Biden attended a smaller Arab summit in Riyadh.

Second comes inside of US. Arizona Senator Kyrsten Sinema has announced leaving the Democratic Party and would become an independent senator. Now the Democrats retain control of the Senate with just 50 mandates, the deciding vote will remain with Vice President Harris. But this is not all yet. An American former political candidate Kari Lake, who files a lawsuit about the election, asks to cancel them. To summarize, complain cites errors with tabulation machines allegedly causing votes to be illegally tabulated (such as double-counting). It also cites errors with voting machines at polling places causing long lines, thereby allegedly disenfranchising voters. Lake’s legal team then offers the following statement on how to rectify the situation.

Lake received the greatest number of votes and is entitled to be named the winner. Alternately, the election must be re-done in Maricopa County to eliminate the effects of maladministration and illegal votes on the vote tallies reported by Maricopa County.

So, if it goes further, then Democrats have to start worry about majority in Senate. Anyway, this increases US political risks, additionally to Twitter scandal that is far from to be over yet.

In Europe, people dissatisfaction is rising. People feel betrayed and deceived, because politicians that have been elected and for whom they have voted, now ignore people interests and sabotage the common politicians obligation - to serve its people. People start understand that their elected persons are serving of some other interests.

Europe is deceived by the promise that Russia will fall to its knees as a result of sanctions, in fact, the Europeans have harmed themselves first of all, said former Vice-Chancellor of Austria Heinz-Christian Strache. "We have been through a lot lately, we are going through the sanctions that were adopted and deceived us that we can win something due to the fact that Russia will be brought to its knees. This is absolutely not true, " the politician said at a rally in Vienna.

He pointed to the trade surplus in Russia, whose revenues have grown this year from $ 100 billion to $220 billion. "There is no question of "bringing Russia to its knees" at all," stressed Strache. According to the former vice-Chancellor, as a result of anti-Russian sanctions, "we are experiencing harm to ourselves, Austria has harmed itself."

And this sentiment is spreading across the EU. By the way, recent fake failed Coup attempt supposedly was a rent-a-mob coup, to let O. Scholz government free hands and tighten the screws on opposition and public opinion. Winter is just started...

Crude Oil for Gold

Finally, our forum member Pieter shared with interesting article, some update from Credit Suisse's Zoltan Pozsar. Few months ago we already considered his revolutionary article, concerning structural inflation. Now he speaks on Gold price perspectives. In particular, Zoltan Pozsar said it is not improbable for gold to double to $3,600 an ounce if Russia responds to G7's oil price cap by accepting gold for crude. In a note to clients, Pozsar said that a year-end money-market liquidity crunch is unlikely unless Russia decides to accept gold for oil in light of sanctions.

n this scenario, Russia's President Vladimir Putin responds to the recently introduced $60-a-barrel oil price cap by asking for a gram of gold for two barrels of crude.

At current market prices, the cap of $60 per barrel for Russian oil equals the price of a gram of gold, Pozsar said. What essentially happens here is the U.S. pegs Russian export at this price, and Russia, in return, pegs it at a gram of gold. And this would come at a time when the U.S. is working to refill its strategic reserves with cheap petroleum.

In this example, "the U.S. dollar effectively gets 'revalued' versus Russian oil," Pozsar pointed out. "But if the West is looking for a bargain, Russia can give one the West can't refuse: 'a gram for more.' If Russia countered the price peg of $60 with offering two barrels of oil at the peg for a gram of gold, gold prices double," Pozsar described.

This is how gold can get to $3,600 an ounce from current levels of $1,794 an ounce.

"Russia won't produce more oil, but would ensure that there is enough demand that production doesn't get shut. And it would also ensure that more oil goes to Europe than to the U.S. through India. And most important, gold going from $1,800 to close to $3,600 would increase the value of Russia's gold reserves and its gold output at home and in a range of countries in Africa," Pozsar described.

But gold doubling would be an issue for banks involved with futures markets as most have assumed that governments won't get back to paying for goods with commodities.

"Banks active in the paper gold market would face a liquidity shortfall, as all banks active in commodities tend to be long OTC derivative receivables hedged with futures (an asymmetric liquidity position)," Pozsar wrote. "That's a risk we don't think enough about and a risk that could complicate the coming year-end turn, as a sharp move in gold prices could force an unexpected mobilization of reserves (from the o/n RRP facility to banks) and expansions in balance sheets (SLR) and risk-weighted assets. That's the last thing we need around year-end."

It is very interesting theory but I'm skeptic on its practical realization by few reasons. First reasonable question is why 1 barrel per 1 or 2 grammes of gold? It is based just on current price relation. But, the correct price has to be set by analysis of available extraction reserves, maybe some other issues. Second is Russia could set the price, but who will pay it? Definitely not EU and the US. Russia has imposed the price floor for Crude oil as a counter-sanction, but in reality it stands in very difficult situation. It has problems with tankers insurance and crude oil transportation, it has not diversified market (i.e. consumers), which mostly is presented by India and China. And hardly they will lose the bargain to get the hair cut of 15+% to "normal" price. Urals oil is already traded with solid (up to 30%) discount to Brent.

Besides, I suppose this is more a political question. As EU as the US by hook or by crook but find the way to buy oil, Russian, Arab or any other, directly or indirectly as they did with Russian oil through India. But they definitely deny to pay for oil in gold, and Russia can't force them to do it. First, is US is self-sufficient of oil supply, and there other sellers around. It is possible only in a case of OPEC+ collusion.

So, guys, everything goes well for Gold market. Despite that we could get some pressure due the rate up to 5% from Fed, but it will be spread in time and easily could be overruled by stubborn inflation and other strong political and economical processes. If gold has shown just 3/8 retracement on a background of 4 times rate hike, hardly it drops more due another 0.75-1% gradual change, especially when it makes no visible effect on basic inflation level. Hopefully we get our B&B right on background of "dead Fed's cat bounce" up to 5% and major reversal right after.
 
Technicals

Monthly


Monthly picture barely has changed compares to last week. As we've said, we have few important moments. First is, we have to recall YPP around 1821$ that has been broken down. Now it becomes a resistance. Second - our 1650 support area and YPS1 has worked perfect. Since it is the end of the year, December, the fact that YPS1 has held downside action tells that this is just a retracement of long-term bull trend. This is important. Third is - we have "222" Buy pattern now, started at the same $1650 area

Speaking about B&B, as we've said - we do not have here minimum required 8 bars in downside thrust but action was rather straightforward and I suspect that we have a B&B "Sell" Look-alike pattern. We have similar patterns on other markets as well. Since market comes to 3/8 resistance and YPP, which potentially could become a starting area for B&B - we should be careful to any bearish signs on lower time frames.

MACDP also comes in play within 1-2 months. Appearing of bearish grabber here is two-edged sword. From the first side - bears get better background, but from the other - it suggests that gold should drop below the lows.
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Weekly


Here we can't say anything definite. Price enters wide K-resistance area, trend is bullish and market is not at overbought. So, it is too early to speak about bearish context, at least on a weekly chart. The only thing that we could mention - recent two weeks looks like a part of potential "Evening star" pattern, and gold has to show sharp downside reversal on coming week to get it.
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Daily


In general gold shows some background for this action (downside turn). On Friday we've got the bearish grabber here. While EUR is tending to reach 1.0632 target and make a new top - gold performance could be slightly different. As on Gold as on EUR we've recognized that upside action had have to happen, but since gold has shown stronger downside push initially, the upside pullback also could be smaller, not in excess of the top. Besides, gold already has completed major daily XOP target, while EUR is just coming to it.
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Intraday


On 4H chart we have the same riddle about 3-Drive pattern, which contradicts to daily bearish grabber. Upside action looks too slow to call it as bullish action, but still, market stubbornly was creeping higher through the whole week. As a result we've got tight upside channel. In current circumstances it would be better to wait when situation becomes more clear, maybe after CPI and Fed decision. If you would like to go short now, you have to place stop at least above daily XOP. Bullish action looks week, so I do not consider taking of a new long position now. Still, if you would like to, target is 3-Drive's top @ 1821-1823$ area, invalidation point - 1765 lows.

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Greetings everybody,

Here we have almost similar story as on EUR. Recently we've got downside action, so those who have taken short position based on daily grabber now could move stops to breakeven, especially because CPI and Fed are coming soon.
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Still, we do not see erasing of upside patterns. Say, 3-Drive here, is still valid, and its final part also could take the shape of butterfly. Actually 3-Drive in a way fo two side-by-side butterflies is very typical story:
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The same is on 1H chart. Yes, we've got some drop, but it was in a way of AB=CD pattern, giving us here "222" Buy.
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All these moments, maybe be are not vital, but definitely enough to wait with taking short position by far.
Besides, we see similar bullish hints on other markets as well.
 
Greetings everybody,

It could seem amazing but our 3-Drive pattern is done, and gold now has prepared reversal background. On daily chart upside butterfly is completed around predefined $1823 level. Market has big chances to start downside action here, but it still stands indecisive because of coming Fed meeting. But, if B&B starts here, it becomes a part of reverse H&S pattern and forms the right arm before major upside trend starts here:
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Here is our 3-Drive. It's minimum target is lows between 2nd and 3rd Drives:
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On 1H chart we also have big engulfing pattern on top, and black candle also is reversal one:
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Psychologically it is a bit difficult to go against so strong upside action immediately. And alternative way is to wait a bit more. B&B is a big monthly pattern. So it is possible to wait for Fed press conference , wait for market reaction and then make a decision.
 
Greetings everybody,

Gold market today brings a lot of interesting stuff. First is, pay attention that EUR and gold reaction on the same Fed meeting stands different this confirms two our suggestions. First is, as gold is moving lower, Fed statement still was slightly hawkish. Second - EUR positive is mostly based on expectations of ECB that has no impact on gold market. IF ECB fails to provide hawkish view, collapse might be miserable...
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Meantime gold is accurately moving with our 3-Drive "Sell". Those who have sold yesterday could move stops to breakeven. Minimum target is 1765 - lows between 2nd and 3rd Drives, at least in theory :p
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On 1H chart we could consider few things, mostly for those who want to sell but didn't do it yesterday. We have two different extensions here but with the same target. Initial AB-CD shows XOP around 1783, which is very close to 3-Drive target. Larger AB-CD (Blue) has OP approx. in the same area. So if you would like to step-in, watch for nearest Fib levels of 1796 and 1801. If market indeed will drop to 1780, it might be important, because CPI rally will be vanished, and this is important bearish technical sign:
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Greetings everybody,

Gold shows logical action, mostly following to our trading plan. As we've said - Dollar has few bullish patterns, suggesting more strength, which should keep pushing gold down. On daily chart we have "Evening Star" pattern on top. As on EUR we have few ways how to take position:
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On 4H chart 3-Drive is almost completed, but later, gold could form large H&S pattern with the neckline around 1730$. This is one of the patterns that you could watch for, if you're conservative enough:
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Alternatively, it is possible to catch some minor pullback on 1H chart. Now it seems that both K-areas looks suitable for this. Gold is forming tight triangle consolidation, which mostly stands in favor of downside continuation. So, 1st K-area now is more realistic for position taking than the 2nd one.
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