Gold GOLD PRO WEEKLY, December 19 - 23, 2022

Sive Morten

Special Consultant to the FPA

Yesterday we've explained why Fed stands in really difficult situation - rate is near the limit, inflation is not dropping but reserves are melting. National debt ceil now under Republicans' control and US Treasury has problems with a new borrowing but Fed still has to keep up with QT. It can't be worse, probably. Treasury has cash around $345 Bln, 400 Bln was pumped into economy since October and guaranteed pre-election stock market rally and general stability on the markets. The rest should be enough for 1-2 quarters, probably, hardly longer. This is optimistic scenario when we will not get any new "Lehmans". But who knows...

From that standpoint investors are becoming more and more interested with alternatives, and precious metals are one of them, or maybe even the only one. The Austrian Mint, one of the world's oldest and biggest producers of gold bullion coins, is unable to keep up with demand as people rush to find a safe haven for their money amid surging inflation and economic fears caused by war in Ukraine.

"Demand for gold has never been as high as this year," the Mint's Chief Executive Gerhard Starsich told Reuters in his ornate office in a Vienna building where coins have been struck since the 1830s. Behind its quiet facade lies a warren of workshops where modern machines melt metals and thump out money. "At the moment, every gold coin that comes off the coining press has already been sold," said Starsich. "Right now we could sell three times as many as we are able to produce."

"I'm from an older generation. Whenever things get a bit uncertain we come back to gold coins and tell ourselves we'll always be able to sell them," she said. "Gold has that safety factor." Starsich said customers were of all ages and from all walks of life. Around a third of the Mint's sales are to foreign buyers.

The Austrian National Bank, which owns the Mint, said in a presentation on Austrian households' finances in October that more gold had been bought in the two-and-a-half years since the coronavirus pandemic started than in the five years before that. It noted demand for gold in the first half of this year was higher even than in the first half of 2020, "despite rising prices", suggesting a rush to an asset seen as a safe haven.

"It's a cascade," Starsich said of the causes. "It started with the corona crisis, with the pandemic, when people were unsettled, then war is started. That boosted sales again. And then the rising inflation over the summer/autumn, which increased sales further slightly."

This year at the end of November the Mint had sold more than 1.8 million ounces of gold and was approaching the record of more than 2 million set in 2009 after the global financial crisis. Sales in December are usually strong as gold is a traditional Christmas gift. Starsich added that the rush to gold was a global phenomenon seen at other major national mints. The gold price is currently around $1,800 an ounce, short of its peaks above $2,000 in March of this year and August 2020.

Goldman Sachs, in turn, expects gold, with its real demand drivers, to outperform the highly volatile bitcoin in the long term, the bank wrote in a Monday research note. Gold is less likely to be influenced by tighter financial conditions, meaning it is "a useful portfolio diversifier," said Goldman, especially given that gold has developed non-speculative use cases while bitcoin is still looking for one.

Goldman's analysis showed that while traders use gold to hedge against inflation and dollar debasement, bitcoin resembles a "risk-on high-growth tech company stock." While net speculative positions in both the assets fell sharply over the last year, gold is marginally up year-on-year against bitcoin's plunge by 75%, the bank noted.

"Tighter liquidity should be a smaller drag on gold, which is more exposed to real demand drivers" like Asian consumer buying, central bank monetary demand, safe-haven investments, and industrial applications, it said. "Moreover, gold may benefit from structurally higher macro volatility and a need to diversify equity exposure."

Seizures of smuggled gold in India reached a three-year high this year after the government raised the import duty on the precious metal and international flights resumed following COVID-19 curbs. India is the world's biggest gold consumer after China and meets most of its demand through imports. In July it raised the duty on gold imports to 12.5% from 7.5% to dampen demand, bring down the trade deficit and ease pressure on the rupee.

So-called grey market operators try to avoid the import duties by selling gold at discounts to market prices, which in turn forces competing dealers to lower prices.
Customs and other agencies seized 3,083.6 kilograms of gold illegally brought in the country up to November this year, based on data made public by the Ministry of Finance in the parliament on Monday.

Besides, India plans to invite bids to extract gold from 50 million tonnes of processed ore in a cluster of colonial-era mines in the southern state of Karnataka, a senior government official with direct knowledge of the matter said on Thursday. India's demand for gold rose 14% from a year ago to 191.7 tonnes in the quarter through September, according to the World Gold Council.

Recently Goldman Sachs released Commodities research, where it suggests 43% commodities performance in 2023. Here is few basic moments -

Major concept is based on Commodities "Super cycles". GS believes, that they happen because inventory management since the 1980s has been a just-in-time type endeavor. That low inventory method succeed for decades because supply chains were robust and practically frictionless as technological and logistical improvements underpinned growing globalized financial business. This is all part and parcel of the Goldilocks era of disinflationary tailwinds.

Now we are seeing de-globalization (mercantilism rising) from fractured supply chains that must be on-shored again. To the extent that companies are not securing supply chains in other ways, then they are susceptible to that Just-in-time method biting them.

Just as commodity markets have been dominated by the dollar in 2022, we expect them to be shaped by underinvestment in 2023. From a fundamental perspective, the setup for most commodities next year is more bullish than it has been at any point since we first highlighted the supercycle in October 2020. Despite broadly depleted working inventories (oil’s build was mostly at sea) and spare capacity nearly exhausted across most markets, capital in 2022 proved to be unresponsive to near record prices as market positioning remained skewed for a recession.

Without sufficient capex to create spare supply capacity, commodities will remain stuck in a state of long run shortages, with higher and more volatile prices. While investors remain concerned with the 2023 growth outlook – a large driver of the latest sell off – the global business cycle is far from over. Our economists argue that global economic growth is set to rebound with China seeing the reopening happening today, Europe improving its energy efficiency in a one-off decline in industrial activity and a slowing of the aggressive Fed rate hikes in the US. These underpin our expectation that commodities (S&P GSCI TR) will return 43% in 2023.


While investors rightly remain concerned with the growth outlook for next year – a large driver of the latest sell off – the global business cycle is far from over. It is clear today that recession risk is being increasingly priced into markets, with 1m-10yr yield spreads falling inline with oil time spreads (see Exhibit 3). Yet, our economists argue that global economic growth is set to rebound significantly with China seeing the reopening happening today, Europe improving its energy efficiency in a one-off decline in industrial activity and a slowing of the aggressive Fed rate hikes in the US. These underpin our expectation that commodities (S&P GSCI TR) will return 43% in 2023.


Based on ZeroHedge comments of GS report, The first driver is predicated on economic resurgence. The second is a product of identifying and running with a secular trend tied to the Anti-Goldilocks and structural stagflation. Short those two happening, their concept is heavily dependent on geopolitical uncertainty and/or regional weather. But their rationale is not wrong.

Goldman believes the Global economy will turn around in 2023. And in doing so, will expose the vulnerable underbelly of low investment in commodities. The lack of restocking will cause the spike. The lack of Capex will transform acute problems into chronic ones. Goldman also has believed for a while that if China comes back online in a big way, commodity inventories will quickly be depleted once again. They and JPM have cited the large % of above-ground commodities China already controls.


Therefore the bank, in our opinion, is looking at 2 related but different drivers as catalysts. The first one is stagflationary effects (high raw material prices and low capex) will conspire to create even more stagflation in inelastic demand (food/energy) commodities. The second is “sequential” growth— seemingly focuses on China recovering. So, GS expects that China reopening will create a bumpy start to 2023.

Morgan Stanley by the way, on Wednesday said it expects Brent crude oil prices to rally to around $110 per barrel level by mid-2023, citing support from rising demand and continued supply tightness.

"We remain constructive on oil prices driven by recovering demand (China reopening, aviation recovering) amid constrained supply due to low levels of investment, risks to Russia supply, the end of SPR releases, and slowdown of U.S. shale," the U.S. investment bank said in note.

But, still we have few problems with GS approach. First, is the weakness of Chinese economy is not due lockdowns only. In fact, China is a reverse side of medal of the US - they are the same economically. And crisis processes there are actively developing:

So, the conclusion that once China cancels lockdowns and economy starts boosting is arguable, to say the least. Besides, Fathom consulting, as we do, suggests that higher interest rates might be needed longer than many investors think now.

Ultimately, avoiding a recession will probably require a recovery in liquidity, followed by a rebound in consumer confidence. A prerequisite for this is likely to be an end to central bank tightening, which in turn requires clear signs that inflation is falling. It remains Fathom’s view that the tightening seen to date is probably already enough to tip both the US and euro area into recession, especially since monetary policy is traditionally assumed to take 18 months to have its full effect on inflation.

Investors, however, seem to be taking an overall more benign view. The Fathom Macro Portfolios (FMP) — our proprietary set of indicators which replicate key economic series through liquid financial assets — allow us to track investors’ perceptions of key macroeconomic trends daily. Since the beginning of the year, FMPs indicate a normalisation in inflation surprises and a rebound in assets linked to the macroeconomic cycle. Liquidity, while it remains tight, demonstrates some signs of reaching a trough.


These developments tell us that investors have grown progressively less worried about inflation since central banks started tightening monetary conditions. The FMPs also show how liquidity has been driving market prices and macro conditions — since 2020, there has been a close relationship between liquidity and equity prices, and between liquidity and macro conditions. This recent phenomenon points to the conclusion that liquidity appears to be all that currently matters to investors. The key question for market participants is therefore: will there be a pivot?

Investors seem to think so, with recent moves in the FMPs suggesting that an expected recovery in liquidity will support economic activity. However, investors should beware looking beyond a recession before it has decisively started, and pricing in an imminent abundance of liquidity. The joint probability of both outcomes occurring is small, in our view, and conditional on a very benign outlook for inflation.

Looking beyond base effects, Fathom sees inflation easing more slowly than consensus. Moreover, we see a material risk (15% in the US and euro area, and 30% in the UK) of a continued loss of central bank credibility leading to spiralling second-round effects. In such a world, rates would need to go much higher, and economic growth would be pushed down much further, causing a significant reassessment of valuation and an abrupt end to the market rally.

Investors get a fresh read-out on the world's top economy and its inflation pressures on Tuesday when November housing starts and existing home sales numbers are due. In October, rising mortgage rates saw U.S. existing home sales sink for a record ninth straight month, home-building fell sharply with single-family projects dropping to a near 2-1/2 year low.

Wednesday will see the Conference Board consumer confidence survey, which slipped to a four-month low in November. The reading for the personal consumption expenditures index is also for release on Dec. 23 after recent inflation data came in softer-than-expected.

U.S. retail sales fell more than expected in November, but consumer spending remains supported by a tight labor market, with the number of Americans filing for unemployment benefits decreasing by the most in five months last week. Retail sales fell 0.6% last month, the biggest drop since December 2021, after an unrevised 1.3% jump in October. Economists polled by Reuters had forecast sales dipping 0.1%. Retail sales increased 6.5% year-on-year in November.


So at the end of research we come to the point that we've started with - liquidity. Yesterday we've shown that the Fed has rising problems with it. Statistics stands not in favor of inspiring conclusions. Fresh data shows that deterioration of the US Real Estate market continues and Retail Sales shows drop and slowly are becoming a reflection of crisis processes. Recall, guys, that November is Thanksgiving and Black Friday month, sales should had to go up, but, not this time. As ECB as the Fed intends to cut liquidity more with massive QT programmes. Fathom tells the same as we did yesterday - current rate effect is lagging for 1-2 quarters. So, today we're not in environment of 4.5% rate, but mostly of 3-3.3%, so major pressure is still ahead.

Speaking on GS suggestion of super-cycles and so on, I think we could keep it simple - the era of "free" raw materials are coming to an end. West prosperity, especially EU was based on cheap commodities coming from across the world, especially Russia and Africa's former colonies, that are exploited hard. So, the value of EUR and USD is backed by commodities that are not belong to EU and USD. And this era is coming to an end. OPEC countries, Russia, Africa do not want to sell their wealth for overpriced currencies that have to be strongly devalued to fair value. Once this was starting to happen, immediately EU economy shows that it has no strength margin, low efficiency and start falling like a card house. The EUR and USD devaluation will come in a way of commodities deficit and its rising price. This is the question of survival - either they will get cheap raw materials back or they will fall in poverty.

And based on these background, we suggest that commodities rally will be not because of some mysterious super cycle, but because G7 central banks will turn to easing again. They just have no choice - "delenda est Carthago". War by far is locked on Ukraine territory, but it could become wider, and it is for a long time. Because it is a global order stands on the table. Taking in consideration all this mess, Gold definitely is one of the assets, or maybe even exceptional one, which we could rely on. Many people start thinking the same finally - just look at the beginning of the research.

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.


Here we have first stop after impressive rally. Gold is not at overbought, compares, to DXY and EUR, but it also stands in wide K-resistance area of 1790-1850$. High wave pattern, that we've got this week, mostly is useful indicator that could either confirm or deny our suggestion of B&B "Sell" starting point. Gold has to drop down the lows of the pattern to confirm it:


Daily picture barely has changed since Friday. Mostly it shows few bearish signs - divergence, "Evening star" pattern, butterfly "Sell. But most important is potential huge reverse H&S pattern. Based on the timing, it is approximately 4-6 months between the head and the shoulder. Thus, the right arm should be formed somewhere around Feb 2023. This term more or less fits to our expectations on evidence of crisis in the US economy. And monthly B&B "Sell" trade should become a part of it. It should form the right arm...


Here everything goes well. Probably we could put here few Fib support levels, that market probably has met, but the 3-Drive "Sell" picture looks more important here. As you could see, its minimum target is not reached yet. Cross market analysis suggests more strength in US Dollar, so, here we also suggest that Gold should keep going lower. The tactical pullback that we've talked recently now stands underway:

On 1H chart market has reached K-resistance area and XOP Agreement @ 1795, which makes it attractive for short entry. At least this point reversal would seem natural for bearish context.
Greetings everybody,

So, we do not have any big changes on daily chart, all patterns are the same and valid.

But on 4H chart we've got the bullish grabber. It suggests that upside bounce could be more extended. So, if you do not have any short position - wait when grabber will be resolved:

Although market has bounced down from K-area, as we've suggested, but now potentially we could get "222" Sell pattern around 1800 area. So, if you have entered short yesterday, it would be better to move stops to breakeven. For others - wait, when situation around the grabber clarifies.
This went bullish like the EUR all gold trades lost today I am so confused with your videos. Feel like have been led in the completely wrong direction. What am I missing.
This went bullish like the EUR all gold trades lost today I am so confused with your videos. Feel like have been led in the completely wrong direction. What am I missing.
You are missing that fundamentals drive markets as well. My take is Japan raised rates which is negative for the US dollar, which also will have an effect on inflation (probably up) increasingvneed for Fed to raise more (no pivot). USD down means gold up. I am no expert but I have been following Sive for years now. He has helped me understand fundamentals and provides great macro insight in his weekly. The news and takes he provides is difficult to find. It's up to us to manage money and our risk. Can't tell you how much I have paid (the hard way) for market education. I am sticking to 4h swings in this market.
Hey Josh, thanks for the reply. I do get the basics of fundamentals I just did not think that the Yen would have that much effect on the overall strength of the USD. As Sive was still bearish I took trades accordingly. I don't expect anyone to manage my risk I was just following the advice. I will keep following as Sive knows a whole lot more than me but will be a lot more cautious.
Can you update now that Japan policy has changed fundamentally?
I have, some doubts about it, Josh. I think that they were have to change the rate, but they did not want to.
Otherwise, how to explain their stubborn QE? This is the reason why I think that hardly this is the change of the policy. They probably will keep acting by circumstances, if something fires somewhere. But this is even worse as it becomes totally unpredictable.

This went bullish like the EUR all gold trades lost today I am so confused with your videos. Feel like have been led in the completely wrong direction. What am I missing.
Hi Daren, Josh has explained everything above correctly. Unfortunately we can't control everything, especially Central Banks moves.
It was impossible to predict the margin calls on Japanese Gov. Bonds market that was totally crushed on Monday, breaking BoJ artificially held 0.25% yield level. As a result BoJ has raised the rate to 0.5%. But even with this background no real upside breakout has happened on EUR and on Gold.

Besides, take in consideration thin pre-holidays market, any news now get strong resonance and lead to greater swings on the market. It would be better to not make any action by far and wait when situation calms down a bit. I think it should happen soon.

JPY strength is a technical by-product of Bond market collapse, when everybody was needed cash to close positions. In reality this is bad factor for JPY. So, this rally is temporal.
Greetings everybody,

So, Japan is major news maker now, triggering big discussion here as well. Now, it is more or less clear, as we've brought an explanation. I've structured it a bit, so you could read it in today's JPY update, or watch JPY video.

At first glance Gold market rally looks confusion, as technically this is irrational action and it should not happen. This is correct. But gold depends on USD (as it trades in $) and any change in currency makes impact on gold as well. Due to recent JPY rally, Dollar index has dropped a bit (as it includes JPY as well). This has made corresponding impact on Gold that has jumped higher than we suggested. Besides, market is thin now, so any event gets greater price swings than usual.

As a result, Evening star pattern is valid, but upside bounce looks too strong. Let's watch over possible grabber today. JPY reaction hardly lasts for too long.

On 4H chart the same is about 3-Drive, it is valid, but obviously so strong upside action is irrational as it has no purely gold market reasons or technical background. It is external:

Yesterday we've warned about 4H grabber and called to not take any new shorts by far. But it was boosted by Japan news and upward action was even stronger than we thoughts. On 1H chart all Fib levels are broken. Now market stands near XOP and I would say that chances are solid that price hits XOP and shows Wash&Rinse of previous top:

That's why, lets not to be hasty with new shorts and just keep watching what will happen.
Greetings everybody,

So, gold in general showed the performance that we've discussed, and even grabber has been formed on top:

But we have surprise on intraday charts - market has formed lower top. So, previous tops are not washed out. 3-Drive literally is still valid, although it has irrational shape now:

In fact, market hits a bit different XOP, if you use 1774 lows as "A" point. This is the lows where upside action directly has started. Still, major XOP is untouched and bring some tricky situation, despite we have the grabber on daily chart:

Besides, here we see signs of bullish dynamic pressure, as trend stands bearish while price action is not. In current circumstances, conservative approach is to wait, when trend will be confirmed by price direction, or top will be washed out. Alternatively, you could try to take position with the grabber, but stop has to be above 1825, or even higher. But this is risky setup. As we saw previously in current market conditions grabber is not sufficient context, so risk of loss is significant.