Gold GOLD PRO WEEKLY, February 06 - 10, 2023

Sive Morten

Special Consultant to the FPA

Gold has shown proper downside reaction last week, that we actually were prepared for and discussed it for few recent weeks already. Reaction looks strong, and at first glance some doubts on bullish perspective could appear. But we intentionally yesterday have considered recent Fed statement, possible J. Powell's bluff, very fragile Fed position and loosing of confidence from markets - markets just do not believe to the Fed. Despite that Fed is trying to look rock hard confident and strict, light signs of problems could change situation drastically, including the gold market.

Market overview

According to World Gold Council, annual gold demand (excluding OTC) jumped 18% to 4,741t, almost on a par with 2011 – a time of exceptional investment demand. The strong full-year total was aided by record Q4 demand of 1,337t. Jewellery consumption softened a fraction in 2022, down by 3% at 2,086t. Much of the weakness came through in the fourth quarter as the gold price surged. Investment demand (excluding OTC) reached 1,107t (+10%) in 2022.

A second consecutive quarter of huge central bank demand (417t) took annual buying in the sector to a 55-year high of 1,136t, the majority of which was unreported. Russians bought an all-time record number of gold bars in 2022, finance ministry data showed on Friday, as tax cuts on precious metals encouraged people to stock up on bullion as a safe asset. According to the data, Russians bought over 50 tonnes of gold bars in 2022, ten times more than the year before. The most sought after were 1 kilogram bars which accounted for about 60% of those sold.

Turkey was the biggest buyer of gold among central banks last year, with households also rushing to buy the commodity to shield from geopolitical uncertainty and rampant inflation. The central bank’s gold reserves were at the highest level on record, the World Gold Council said in a report Tuesday. The official figure was 542 tonnes, up by 148 tonnes.

Demand for jewelery in the country also increased and jumped 32% year-on-year in the last quarter of 2022. “Despite the rise in the local gold price during 4Q, soaring consumer inflation brought the investment motive to the fore,” the WGC said.


“Together with oil, gold is one of the most imported items,” President Recep Tayyip Erdogan said during the opening of a new gold mine facility in the country’s west. “We have the reserves to meet at least half of the demand in this area".

Central banks like gold because it is expected to hold its value through turbulent times and, unlike currencies and bonds, it does not rely on any issuer or government.
Gold also enables central banks to diversify away from assets like U.S. Treasuries and the dollar.

"This is a continuation of a trend," said World Gold Council analyst Krishan Gopaul. You can see those drivers feeding into what happened last year. You had on the geopolitical front and the macroeconomic front a lot of uncertainty and volatility," he said.


Previously we've said that physical Gold market is tight and highly structured when all supply is distributed on a years ahead with long-term contracts. Here I show it again:

As you could see from the table - the gold market has a critically low capacity. Global production averages 4.7 thousand tons per year and has limited space to increase supply. The demand for gold is distributed in the following proportion: 2.2-2.3 thousand tons to jewelry, 300-340 tons to industry and a little more than two tons remain, which are absorbed by investment demand.

Among the investment demand for medals, coins and bullion accounts for about 1.1 thousand tons and remains on average 1 thousand tons, which is "dumped" into the financial system (ETFs, Central Banks and the OTC market). At current prices, this is only $ 68 billion per year for the entire global financial system + demand from the Central Bank. It's nothing! The global money market of all countries of the world (cash + deposits) is estimated at $ 110 trillion. The share of gold in the gold reserves of all countries of the world is 14.5% as of December 2022 against 13% 10 years ago.

And this is usually mentioned as a reason why gold can't be used as global currency. It will take a long time when an alternative to reserve currencies in terms of volume, liquidity and convertibility will crystallize. Because gold is considered as strategic investments, the back for national debt and credibility but uncomfortable for operational tactical purposes, budget deficit covering etc.

It is difficult to agree with this. Especially with the pricing. Gold yearly productions costs just 68 Bln, but maybe US Dollar has to be devalued to provide fair gold price and correspondingly to its purchase power. It means that 1Oz should cost around $80K and it will be enough to replace 100 Trln. of fiat currencies. Use silver for small transactions. Second - nobody intends to use pure gold and transfer it physically, but use amount of real assets as collateral and value saving guarantees. Not necessary it will be gold only but other precious mentals, oil national reserves, rare metals etc. From this standpoint, it is nothing impossible to use gold as global financial currency. You could even use pure gold and peg your currency to it in some proportions - 1:1000, for example. But anyway it will be gold standard.

As J.P. Morgan said, “Gold is money, everything else is credit.”

With recent events that speed up, this discussion is becoming very in time. It can't be just occasion that all central banks are buying gold in the same time. They are preparing for something. Business Insider tells that US Dollar hegemony is coming to an end. Russia and China propose to create a new BRICS reserve currency, China seeks to replace the dollar with the yuan in oil trade, Russia and Iran have started discussing the creation of a gold-linked joint stable-coin etc. Are all of these people crazy? Why they are started the same processes across the Globe? This is going not on the individual or even corporation level. This process on government and international level. No occasions could happen here.

Global picture stands in favor of Gold

esterday we've explained why markets do not believe Fed, thinking that J. Powell is bluffing. But for the markets this is a reason for rally that we see now, and gold collapse. While, for the truth sake, action should be in opposite direction. The mistrust to the Fed should be not because they overvalue the interest rate hiking cycle and chances on recession but because they undervalue it. The Fed will have to change its course soon, but not because of victory over inflation and turning of the US economy to growth but because of opposite thing - Fed's capitulation and inability to overcome the circumstances. We do not want to repeat detailed fundamental analysis of US economy and talk about the same things - partially we've done this yesterday, but let's move on a higher, macro level. For example, QT issue.

Fed never could cut its balance sheet. This is the fact. B. Bernanke started 1st QE and raise balance from few Billions to 4.3 Trln, assuring Congress and markets that it is temporal and needed by 2008 crisis situation. He lied. This time repeats the same. While Dallas Fed President Lorie Logan said, “I am confident that we have room to continue running off our assets for quite some time.” It seems that she was also confident inflation was transitory.

There are two primary reasons I think these Fed officials are blowing smoke and balance sheet reduction won’t last much longer.
  • The balance sheet reduction so far has been less than impressive
  • The US government needs quantitative easing, not quantitative tightening
In the first place, the Fed isn’t even keeping up with its own balance sheet reduction plan. The central bank has missed its reduction target seven out of the last eight months. Given the plan, the Fed balance sheet should have dropped by $655 billion as of the end of December. To date, the balance sheet had only shrunk by about $420 billion.

In the wake of the 2008 financial crisis, the Federal Reserve ran three rounds of quantitative easing, pushing the balance sheet from $8.98 billion to just over $4.5 trillion. The central bank tried to unwind some of this and reduce the balance sheet in 2018. Well, that didn’t last long. The Fed quickly reversed course after the stock market crashed and the economy got wobbly in the fall of that year. At its low point, the balance sheet dipped just below $3.76 trillion. Total cut was just for ~750 Bln. Now Fed has passed only the half of this distance. But, in 2008 the balance was two times smaller and interest rate was near 1%.... It means smaller expenses, smaller refunding needs etc.

In effect, between 2008 and 2022, the Fed injected nearly $8 trillion in money created out of thin air into the economy. To put the balance sheet reduction efforts into context, if the Fed followed the current plan at $95 billion per month, it would take 7.8 years for the Fed to shrink its balance sheet back to pre-pandemic levels. But this is only half of the problem. Another half, and the bigger one - who will buy this toxic, negative real rates bonds?

This raises a question: if the Fed is really committed to slaying inflation, why is it shrinking its balance sheet so slowly? The answer is that it knows it can’t shrink the balance sheet significantly without wrecking the bond market and putting the US government into an untenable position, not to mention tanking an economy that depends on low interest rates and easy money. That brings us to the second reason I think these Fed officials are full of it.

Here’s how it works in simplified terms. The Federal Reserve buys Treasury bonds with money created out of thin air and puts them on its balance sheet. This is debt monetization. Fed buying creates artificial demand for Treasuries. That boosts the price and holds interest rates down. With the central bank buying bonds, the US Treasury can sell more into the market without running interest rates too high.

Quantitative tightening, or balance sheet reduction, has the opposite effect. If the Fed stops buying bonds and lets Treasuries roll off its books, somebody out there has to buy more bonds to take up the slack. In effect, there is a larger supply of bonds on the market and less demand. Prices fall and interest rates rise.

According to an analysis by the New York Times, net interest costs have already risen by 41% over the past calendar year. According to the Peterson Foundation, the jump in interest expense was larger than the biggest increase in interest costs in any single fiscal year, dating back to 1962. That’s just with the tepid balance sheet reduction we’ve seen so far. If interest rates remain elevated or continue rising, interest expenses could climb rapidly into the top three federal expenses. (You can read a more in-depth analysis of the national debt HERE.)

And again, if the Fed isn’t buying a bunch of Treasury bonds, who will take up the slack? The federal government is not going to suddenly stop spending money. It has to keep issuing bonds in order to pay off holders of maturing bonds and to fund new spending. The Biden administration is already spending at a half-a-trillion-dollars per month clip. And there’s more spending coming down the pike. That means the US Treasury will need to sell even more bonds to cover the massive deficits once Congress jacks up the debt ceiling again.

The bottom line is the US government depends on the Fed to backstop its borrowing and spending. That’s why any balance sheet reduction scheme has a very short shelf life. Today, we know that all talking about reducing of Balance sheet by B. Bernanke was complete BS. Not only are most of the bonds bought during those first three rounds of QE still on the Fed’s balance sheet today; the central bank has piled on trillions of dollars more.

We should know by now that people at the Fed constantly say stuff that ends up being wildly untrue. “This isn’t debt monetization.” “The problems in subprime are contained.” “Balance sheet reduction is on autopilot.” “QE won’t cause inflation.” “Inflation is transitory.” As Peter Schiff said in a 2021 interview, the Fed’s primary role is that of a public relations firm selling the populace on bad economics and trying to convince everybody that everything is great. You should analyze everything these Fed officials say in that light.

Pieter Schiff, for example, tells -
"I think it’s a virtual certainty that the economy will spiral into a downturn. And I don’t think it will be short and shallow. I think it will be deep and prolonged.
My pessimism is rooted in the fact that the US economy is addicted to easy money. It is addicted to artificially low interest rates and quantitative easing. You can’t take an addict’s drug away without sending him into withdrawal. The economy can only limp along so long with tighter monetary policy. Interest rates haven’t been this high since 2007. At that point, the Fed was cutting rates due to the housing bust. The economy couldn’t handle interest rates that high. Powell and Company have backed themselves into a corner. They just don’t know it yet (or more likely, they haven’t admitted it).
That's actually that we talk about it every time.

Ok, then. And what is on macro level?

Is there a way to sidestep the destructive forces of central banking and fiat money? I pose this question to you so that you can begin to consider that there is currently a macroeconomic problem that is more important than all other problems this country faces. That macro condition is the relentless destruction of capital throughout the world and the US in particular. Merriam-Webster Dictionary defines capital as “accumulated possessions to bring in income.”

For our purposes here, let's just call it SAVINGS. In economics, one of the important identities is S=I or Savings = Investment. You cannot invest if you have not saved, and you will be able to invest less if your savings fall. This may seem obvious but bear with me.

Your savings can be destroyed by other than your own bad investment decisions. Negative real interest rates (interest rates adjusted for inflation) are the central driver in the destruction of capital for at least the last 14 years from the start of the 2008-2009 collapse.

By keeping interest rates below the rate of inflation, the Federal Reserve has destroyed saving on an unimaginable scale. Even today, US Treasury interest rates are still 3% points below the rate of inflation. And that’s using the government’s numbers. The real inflation rate using the methodology of the 1980s would put today’s inflation rate near 15% (what we've said yesterday?). Either of these numbers is disastrous, but taking the average of the number between 7% and 15% or 11 ½ % means that the value (purchasing power) of your savings is being destroyed in a very short number of years. Even if inflation falls back to 3 – 4%, your real inflation-adjusted saving will decline at a rate that will ultimately lower your standard of living.

The Real wages never keep up with inflation. This is why that real disposable income is less today than in the early 1970s. We are now living on capital generated by past generations. We are destroying the seed corn left to us by those previous generations. Unless going forward you as an individual can maintain your inflation-adjusted purchasing power, you are destined to suffer a serious decline in your standard of living, as is the rest of the country.

It will be very difficult to maintain purchasing power because you have to pay taxes on any interest income received even when the purchasing power of the principal and interest you receive back has lower purchasing power than when you bought the CD or Treasury Securities. You are actually paying taxes on phantom profits that you got in return. Are you starting to ask if the title of this article is possibly true?

As negative real interest rates continue, bank deposits and currency are becoming less valuable as a claim on goods and services. There are currently $18 trillion in bank deposits and $2 trillion in fiscal notes (cash). If negative rates continue, it is only a matter of time before holders of these deposits and currency begin to convert them to something else (anything else), rental property, land, gold, art, etc. Nobody will let those $20 trillion lose purchasing power at the rate that is occurring now.

As deposits are withdrawn, the foundation of bank lending will be reduced, causing loans to be called in. This will accelerate the collapse of the economy. If the Federal Reserve tries to stop this loss of deposits by continuing to raise interest rates and thereby giving depositors a real rate of return, then the high interest rates coupled with the massive debt load will make many debt obligations unpayable and a financial disaster much worse than 2008-2009 will occur. And if they give in and print more money when the economy turns down, inflation will explode again. As you can see from the choices above, the possibilities of a soft landing in the economy, from this situation are VERY LOW.

The entire fabric of our society is being ripped apart because of the rapid increase in debt of all types. In particular, the unfunded liabilities of the US government now total $181 TRILLION (bottom right). Now, look at the upper left at the US national debt of $31 TRILLION. If we were able to keep deficit spending to the same level as growth in GDP, the debt of $31 trillion would be manageable.

The problem for everyone is the unfunded liabilities.

The annual deficit is nearly $1.5 trillion each year now, but unfunded liabilities are rising by over $5 trillion each year. These unfunded liabilities consist of Medicare, Medicaid, prescription drug benefits, military and civilian retirement, and other programs. These unfunded liabilities used to show up in the annual deficit, but the law was changed to accrue them in a separate category so people would not see them.

Why? you may ask.

The justification was that they were not REAL LIABILITIES because they never actually have to be paid. Only interest on the national debt has to be paid. Because the total amount of the US debt plus US unfunded liabilities is so great that what can’t be paid, won’t be paid and the people writing the law KNEW IT.

Gold is now one of the best-performing assets, as bonds, as well as stocks, are down substantially in 2022. When this conversion occurs, not if, not only will gold outperform other asset classes but the derivatives of gold such as gold mining shares will also. Most investors and traders are moving in and out of stocks and bonds in order to garner a profit. Over time, most never realize a real return over inflation, brokerage fees, management fees, and taxes. Those who do not believe me simply have not looked at the data. Most investors look at nominal dollars and don’t factor in inflation and the opportunity costs of not considering other investments such as a business, farmland, or a host of others.

The goal of anyone who has “savings” is to have those savings retain purchasing power over time. You have earned it and paid income tax on it. Now you need to make sure those savings retain purchasing power. Everyone who has savings should convert some of those savings to real money — gold.

Gold is money that is no one else’s liability. Gold is money par excellence. Gold is the best money because it has the highest stocks to flow of any commodity. Gold is not an investment, it is MONEY. Once you have an allocation to REAL MONEY, you can now invest (i.e. speculate) in other areas, comfortable that in an inflationary or deflationary crash, you will survive financially. Gold is the only money that has retained its purchasing power over the last 5,000 years.

By converting part of your savings to gold at least you will have some portion of your savings that will not lose purchasing power. In addition, you will be able to survive a complete collapse in the monetary system.

Here is what what Alan Greenspan the past Chairman of the Federal Reserve, said about deficit spending and gold. After reading you can see John Exter’s pyramid that shows what dies first as everything eventually flows to Real Money — gold.

In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other goods and thereafter declined to accept checks as payments for goods bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves. This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard.”


Now these processes, mentioned above have accelerated significantly in all directions - big debt burden, geometric rising of interest expenses, high inflation, crush of Real Estate market etc. Now is high demand for the gold from central banks. The huge debt problem exists for the long time already, but somehow explosive demand for the gold has appeared just recently. It seems that situation is coming to some major turning point. And it is always better to be prepared and over-insured rather than under-insured. It doesn't matter whether you believe in theory of big collapse or not, it absolutely doesn't prevent you to have some gold in your portfolio.

You know our position. We stand far from conspiracy theory, but can't ignore obvious negative processes in the US. Fed is trying to put on a good front, but information start to slip out. Taking in consideration everything that we've discussed through 2022 year, making week by week fundamental analysis, we suggest that if even US will avoid total crush, the big challenge still stands ahead. And we suggest that current gold pullback has a temporal nature, providing great opportunity to increase investments, especially in physical gold.



Recent decline was so strong that it is even visible on monthly chart. Technically our suggestion looks correct - reaction on monthly overbought level is started. But trend remains bullish and MACD divergence suggests action above 2060$ level. Let's see what the progress we get with downside action:



Here we have much stronger reaction than on FX market. Besides of reversal week, we've got 1st close below 3x3 DMA. As we've agreed last week, we will be watching for DiNapoli patterns here - either DRPO "Sell" or B&B "Buy". For B&B market has to keep moving to 1830 Fib support area. While for DRPO it should stay above it, forming 2nd cross of 3x3 DMA. So, big trades stand ahead...


So, our DRPO "Sell" pattern has worked perfect, reaching the last week's floor destination point - K-support, oversold and trend line. Technically, odds stand in favor of a bounce. Gold could try to press down the strong support area, but chances are against this. We should follow the probability. For new shot positions it would be better to wait for the bounce. Those who have shorts have to think about result protection/booking.:


Here no reaction starts yet and we could only set the levels. Now it seems that pullback to 1900$ K-resistance has not bad chances to happen. Let's see what shape retracement will take (if any), so that we could estimate the upside targets.
Greetings everybody,

Gold has shown the strongest collapse among other assets, so now it is just waiting when the currencies catch up with it. So EUR is just coming to the same K-support area where gold is for two days already.

On daily chart we do not have anything new. Now shorts as market stands at K-support and oversold area. And we have DiNapoli bullish "Stretch" directional pattern. So, now we're waiting for the bounce:

Although everything is ready for the pullback, but intraday charts hint on final downside leg before retracement could start. Thus, on 4H chart we see some signs of bearish dynamic pressure - triangle with upside MACD:

On 1H chart this could be seen even better. THat's why, I would wait for something like this, before considering long entry:
Greetings everybody,

Although J. Powell's speech hasn't brought anything new, except some accent on job market and needs to make it weaker, but still, it has moved markets from the dead point and retracement is started. On daily chart we do not see yet any big changes:

Pullback now is taking the shape of the flag. Unfortunately we haven't got our butterfly "Buy" pattern, but it makes no difference to our major scenario as we're watching for bearish position taking now. Here it seems that 1900$ K-resistance area is the first level to pay attention to:

Upside XOP stands around 1895$ and agrees with it. Also we have previous lows in the same area. So, let's see:
Greeting everybody,

So, changes come slowly here. Which is actually, not bad. Today I would like to point two major things here. First is, overall action on gold very slow and gradual, which mostly stands in favor of downside continuation, once the pullback over:

On 4H chart we have clear bearish flag pattern and no signs of thrusting action, necessary for reversal background. Odds stand in favor of downside continuation when pullback will be over:

Second moment that I would like to mention here - is performance inside the flag. Market has challenged nearest 1880 resistance for three times. It means that gold intends to show higher bounce. And we have reasons to consider 1885-1900$ K- resistance area and Agreement with 1H XOP for short entry:

Greetings everybody,

Here we probably should say the same things as in today's EUR video, although gold has shown even more extended intraday downside action. Still, when price stands at strong daily support area and after long-term upside action, odds stand in favor of more extended upside bounce. That's it, despite nice plunge yesterday, upward retracement might not be over yet:

Our 4H Flag has been broken down, so you could move stops to breakeven now if you have sold yesterday:

But on 1H chart we now see some acceleration, bullish divergence. This makes me think recent downside action was just the residual of previous downside momentum, while upside retracement is just starting. We'll see. Anyway, right now it would be better to wait for clarity: