Sive Morten
Special Consultant to the FPA
- Messages
- 18,659
Fundamentals
Gold is a unique asset that could bring profit when all other assets are losing value. No doubt, the major driver for the gold now is geopolitics. But the question is for how long this factor keeps supporting the gold market and what other drivers exist that also might be positive.
Market overview
Gold rallied to a three-month peak on Monday as fears around the Russia-NATO conflict boosted bullion's safe-haven appeal and sparked fears of supply disruption in the palladium market. Russia is one of the world's largest palladium-producing countries and any escalation in its conflict with NATO could lead to supply disruptions, analysts said.
Oil and gold rose on Wednesday after NATO and the United States said Russia was increasing its troop build-up, while a dovish reading of minutes from the last Federal Reserve meeting helped stocks close mostly flat on Wall Street. Stronger-than-expected U.S. retail sales data and higher inflation readings from Canada and Britain added to the outlook for tighter monetary policy worldwide, but geopolitical tensions kept markets for the most part focused on the NATO standoff.
Fed policymakers agreed it was time to raise interest rates but that any decision would depend on an analysis of inflation and other data each time they met, minutes from their two-day meeting in late January showed.
NATO questioned Moscow's stated willingness to negotiate a solution to the crisis, one of the deepest in East-West relations in decades, and accused Russia of increasing its massive military build-up. U.S. Secretary of State Antony Blinken backed the assessment, an outlook that lifted the price of safe-haven gold and boosted crude oil along with related assets as supply would be further constrained by any invasion.
Earlier, U.S. retail sales rebounded sharply in January amid a surge in purchases of motor vehicles and other goods, but higher prices could blunt the impact on economic growth this quarter. Data showed retail sales rose 3.8% last month, almost double the consensus forecast by economists of a 2.0% gain.
Inflation was still a market concern as data in Britain showed consumer prices increased at the fastest annual pace in nearly 30 years, reinforcing chances that the Bank of England will raise rates for the third meeting in a row. Canada's annual inflation rate accelerated again in January to hit a fresh 30-year high of 5.1%, bolstering the case for a steady series of interest rate hikes.
The U.S. Federal Reserve will kick off its tightening cycle in March with a 25-basis-point interest rate rise, a Reuters poll of economists found, but a growing minority says it will opt for a more aggressive half-point move to tamp down inflation. While inflation is rising across the globe, it is particularly hot in the United States, hitting a 40-year high last month.
That is putting pressure on the Fed to not only raise rates from a record low but also to reduce its nearly $9 trillion balance sheet, drastically inflated by emergency bond purchases as the Fed resuscitated the economy from COVID-19 pandemic damage. Now that the economy has recovered its pre-pandemic level, all 84 respondents in a Reuters poll taken Feb. 7-15 expected the Fed to raise the federal funds rate by at least 25 basis points at its upcoming March 15-16 meeting.
Almost a quarter of those respondents, 20, forecast a 50-basis-point move to 0.50-0.75% following the debate in markets over the past week after Fed officials discussed the merits of such a move. Rate futures are pricing in more than a 50% likelihood of a half-point hike.
Rates were forecast to rise each quarter this year to reach 1.25-1.50% by end-December, roughly where they were at the start of the pandemic two years ago. One-quarter of respondents, 21 of 84, saw rates even higher by end-2022.
The Fed was also expected to start reducing its balance sheet quicker than in the previous cycle, beginning as soon as June or July, only a few months after the first rate hike. The poll concluded the Fed would start by cutting $60 billion per month from its portfolio with predictions in a $20 billion to $100 billion range, according to the median of 27 responses to an additional question.
That follows a $120 billion-per-month purchase pace at the peak of pandemic-related stimulus. Respondents estimated the Fed's balance sheet would amount to $5.5 trillion to $6.5 trillion once this so-called "quantitative tightening" concludes. While that would leave the central bank's balance sheet about 30% lighter, it would still be larger than before the pandemic, roughly $4 trillion.
Poll respondents also said this would not be a typical interest rate cycle. Not only was it expected to be short, but the Fed is only forecast to reach a neutral rate: one which neither stimulates nor puts the brakes on activity. Respondents put both the terminal rate and their estimated neutral rate at the same level, 2.25% to 2.50%, according to median forecasts from additional questions. That terminal rate was expected to be reached by end-2024, marking a quick tightening cycle by historical standards, something which comes with its own risks.
The core personal consumption expenditure (PCE) price index, the Fed's preferred inflation gauge, was forecast to clock 3.9% and 2.4% this year and next, before falling to 2.1% in 2024. Headline inflation was forecast to average 7.1% this quarter, before falling to 2.3% by the end of next year, and average 5.0% and 2.5% in 2022 and 2023, respectively.
Disruptions to economic activity following a surge in COVID-19 cases dented growth in the final months of last year and are expected to do so as well this quarter.
Growth for this quarter was downgraded for the fourth consecutive month -- to an annualized rate of 1.6%. It was expected to rebound to 3.8% next quarter and then gradually slow. Economic growth was predicted to average 3.7% and 2.5% this year and next, respectively, largely unchanged from a January poll.
More global fund managers surveyed by Bank of America this month identified "monetary risks" - as opposed to geopolitical, credit, business cycle or trade risks - as the biggest threat to financial market stability than at any point in near 20 years of polling.
Although the survey was conducted before the latest ratchet in Ukraine tensions, a net 64% of respondents saw either hawkish central banks or inflation as the biggest "tail risks". Just 7% opted for the Russia-NATO conflict.
All this angst led to the highest net cash reading in portfolios since the pandemic first unfolded, heightened recession fears, and the biggest net share of funds betting on a flatter yield curve since 2005.
But the worry list speaks loudly to investor fears of central bank policy errors, in part due to the still wild pandemic-related and now geopolitical distortions. Misinterpret the inflation surge and tighten too much or too hastily - or even underestimate it, allow high inflation to fester and then have to squeeze harder eventually to wrest back control. Neither is a great recipe for holding bonds or equities.
Bullard said he favoured a full percentage point increase in the Fed's main interest rate by midyear - mainly because the Fed's "credibility is on the line".
While some investors doubt the Fed will be that aggressive, it's unnerving to think central bankers might act just to be seen by markets, governments and the public to be "doing something" - even as their own analysis shows there's little they can do to ease an energy supply or geopolitical shock.
What's more, spooking markets in that direction can have a dynamic of its own if authorities then feel they then need to catch up.
Unigestion multi-asset manager Salman Baig also thinks the Fed will have more patience than markets now bet. But he added: "Tightening into decelerating growth runs the risk of a further slowdown, raising the concern of a policy mistake that would put a serious dent into 2022 earnings."
But all the furtive movement of tanks and troops in eastern Europe does have a role in seeding such a mistake. Although concerns have risen about broadening price pressures, the assumption in market and policymaking circles late last year was that even a flatlining oil price would see annual base effects get crushed early this year and take pressure off headline inflation rates everywhere in 2022.
And so these monetary and geopolitical risks are joined at the hip and hard to disentangle completely. War and an energy shock could simply up the risk of hawkish error. Avoiding those may be needed to confirm the still-benign year-end forecasts.
Gold prices on Thursday rose above $1,900 for the first time since June as investors flocked to the safety of bullion after U.S. President Joe Biden said there was every indication Russia was planning to invade Ukraine. Meanwhile, Russia expelled deputy U.S. ambassador Bartle Gorman, warning of a U.S. response amid heightened fears of a Russian invasion of Ukraine.
Minutes of the latest policy meeting on Wednesday showed while policymakers agreed that it would "soon be appropriate" to raise the Fed's benchmark overnight interest rate from its near-zero level, they would re-asses the rate hike timeline at each meeting.
"The latest FOMC minutes did not offer fresh hawkish clues," Exinity analyst Han Tan said.
Gold prices jumped to an eight-month high and safe-haven debt rose on Thursday after U.S. President Joe Biden said there was every indication Russia planned to attack Ukraine, while Moscow accused Washington of ignoring its security demands. A gauge of global equities fell more than 1% despite strong corporate earnings in Europe as the Ukraine standoff deepened. Russian-backed separatists and Ukrainian forces accused each other of firing shells across a cease-fire line and Britain, as well as the United States, said Russia sought to fabricate a pretext to invade.
U.S. Secretary of State Antony Blinken told the United Nations Security Council that Russia was preparing to attack its neighbor in the "coming days." Russian Deputy Foreign Minister Sergei Vershinin called the comments regrettable and dangerous. U.S. and German government bond yields fell and oil slid as talks to resurrect a nuclear deal with Iran entered their final stages, which could boost crude supplies. Losses were capped by the tension between the West and Russia, a top energy exporter.
A sell-off on Wall Street increased late in the session as the weekend approached with the Ukraine crisis unsettled, said Michael James, managing director of equity trading at Wedbush Securities in Los Angeles.
The number of Americans filing new claims for jobless benefits unexpectedly rose last week, while freezing weather depressed homebuilding in January. The Ukraine crisis has unnerved investors who also must watch the Fed and efforts by other central banks to fight soaring global inflation.
"There's a lot of confusion right now and everybody's crystal ball is pretty cloudy," said George Mateyo, chief investment officer at Key Private Bank, speaking of both of Ukraine and how the Fed might tighten monetary policy.
The U.S. economy has weathered COVID-19's hit on the economy well, with GDP and corporate earnings at peak levels, which bodes well for the market, Mateyo said.
Gold prices rose above $1,900 for the first time since June. U.S. gold futures settled 1.6% higher at $1,902 an ounce. The dollar , also considered a safe haven, initially rose against most currencies but gains subsided and it later was marginally lower - suggesting investors were not yet panicking about the Russia-Ukraine tensions.
Rising levels of new credit in China suggest that Beijing’s recent policy-easing measures may be beginning to feed through to the economy. Newly-increased total social financing (TSF) rose a record RMB 6.17 trillion in January, significantly in excess of expectations for a RMB 5.46 trillion increase. This wasn’t altogether unexpected as TSF typically registers strong gains in January, although this month’s reading was almost 20% higher than last year. Domestic bank loans, corporate bonds, government bonds and equity financing were significantly up compared with January 2021. The total stock of TSF grew by 10.5% in the twelve months to January, up from around 10% in September and October. M2 growth has also firmed in recent months and increased by almost 10% on a twelve-month basis.
Fathom expects further policy easing in coming months, as President Xi will not want to take any chances with the economy in such an important political year. We will gain a greater insight into the government’s thinking on the economy at the annual ‘Two Sessions’ meetings early next month.
Global trade bottlenecks are more the result of demand spikes than supply chain snags, with pressure likely to ease in the coming months, the World Trade Organization's chief economist said on Monday.
Chief economist Robert Koopman said consumers had then continued to skew spending towards goods rather than services given they could not or preferred not to dine out or go on holiday. Koopman said that for goods trade, excess demand likely explained two-thirds to three-quarters of apparent shortages.
Koopman said leading U.S. indicators such as back-ups of ships at ports and prices of used cars were tapering and throughput at U.S. ports had picked up.
COT Report
So, here we do not need a lot of comments, demand for the gold is rising and that could be seen from multiple sources. Thus CFTC data shows a big jump in open interest and massive demand as from speculators as from the hedgers:
SPDR Fund also shows solid performance and it seems that divergence between the gold price and fund's reserves stands in favor of upward action:
So the overall picture is regrettable, my friends. Yesterday we've taken a look at it from the 2022 Elections point of view. Today we do not need to make a lot of comments. For investing purposes I would like to say only one thing - buy gold. Yes, it could be down a few times in 2022 by Fed rate decisions but in general, it should be a temporal impact. Besides, moves for 1.5% in 2022 is mostly priced in and only exceptional 0.5% could become negative for the gold market. In general, If the situation goes really bad, the Fed decisions might be ignored totally, but I hope that it doesn't go so far.
I would say that whatever decision Fed will make - it should be in favor of the gold, mostly because the terminal rate stands around 2.25-2.5% that is not vital for the gold market and should keep real interest rates near zero. If Fed hikes rate just for 0.25 - this probably will be treated as dovish decision and once again supportive for the gold. If, conversely rate will be charged for 0.5% it makes economy slowdown closer. With current indecision and big suspicious about efficiency of Fed policy, its timing, gold should keep demand among investors.
Second topic is gepolitics. As we warned you with previous 2-3 weeks - it stands for a long time, and real events have not even started yet. As its already shelling are heard on the east of Ukraine - it is a background preparation for widening the conflict:
This is only first shy step and hint, but it already shows the direction. It is an opinion exist that NATO could try to blockade Kaliningrad (ex Koenigsberg) that is separated from Russia. When Russia will try to de-blockade, it will be accused in Baltic countries invasion. So, Baltic countries should become the next victim and reason to increase the conflict in Europe. I will not be surprised if Poland comes next after some time. Despite the way how events will go - gold should get consistent support, despite Fed decisions. Besides, gold could get even more boost, if the US inflation will not ease after first Fed steps (and it will not ease, as it has absolutely different source by our opinion). That's being said - yes we get larger volatility, sometimes deep retracements maybe but, now for perspective of 6-12 month we suggest that the gold probably will become the only asset that should feel more or less comfortable in current tough time.
Technicals
Monthly/Weekly
So, gold shows impressive action that could be seen even on higher time frames. Today probably, it makes no big sense to take a look at monthly chart. Here, the next most probable target is YPR1 around 1967$.
As we've mentioned previously, market moves above January top, and price return back above the YPP after initial testing and pullback - make signs of bullish dynamic pressure brighter, and from a short-term perspective, we should keep an eye on challenging of 1910$ tops.
Weekly chart shows solid upside acceleration, trend stands bullish here and market is not at overbought. So, it has no solid barriers until the major target around 1922$. This is combinations of previous top and OP Agreement area with major 5/8 Fib level. If it will be broken, then the road to 2075$ top will be open, which is also XOP of the same pattern and 1.618 of huge butterfly here, based on BC leg (not shown)
Daily
As we've suggested, market shows very small intraday pullbacks, because of tough geopolitical picture. Price stands at Overbought that could slowdown a bit upward action. In general we have three target clusters. The nearest one is 1910-1920, middle is 1950-1965$ and the extended stands around the 2075$ top. As market is tending to 1920 area and challenge 1916 top, hardly it shows more or less deep retracement, until this happens. I suspect that we could get gap up opening tomorrow...
So if you plan to buy gold, maybe it makes sense retracement, whatever it will be from the 1920$ weekly resistance area?
Intraday
On Friday we haven't got reaction even to 1880$ area. Theoretically, the DRPO "Sell" could be formed, but we treat the chances as phantom to get it, because of events of this weekend. It seems more probable that Gold jumps and hit 1920$ area, which is also an XOP target here, and only after that maybe some pullback starts, because it coincides with weekly resistance
Gold is a unique asset that could bring profit when all other assets are losing value. No doubt, the major driver for the gold now is geopolitics. But the question is for how long this factor keeps supporting the gold market and what other drivers exist that also might be positive.
Market overview
Gold rallied to a three-month peak on Monday as fears around the Russia-NATO conflict boosted bullion's safe-haven appeal and sparked fears of supply disruption in the palladium market. Russia is one of the world's largest palladium-producing countries and any escalation in its conflict with NATO could lead to supply disruptions, analysts said.
Oil and gold rose on Wednesday after NATO and the United States said Russia was increasing its troop build-up, while a dovish reading of minutes from the last Federal Reserve meeting helped stocks close mostly flat on Wall Street. Stronger-than-expected U.S. retail sales data and higher inflation readings from Canada and Britain added to the outlook for tighter monetary policy worldwide, but geopolitical tensions kept markets for the most part focused on the NATO standoff.
Fed policymakers agreed it was time to raise interest rates but that any decision would depend on an analysis of inflation and other data each time they met, minutes from their two-day meeting in late January showed.
NATO questioned Moscow's stated willingness to negotiate a solution to the crisis, one of the deepest in East-West relations in decades, and accused Russia of increasing its massive military build-up. U.S. Secretary of State Antony Blinken backed the assessment, an outlook that lifted the price of safe-haven gold and boosted crude oil along with related assets as supply would be further constrained by any invasion.
Earlier, U.S. retail sales rebounded sharply in January amid a surge in purchases of motor vehicles and other goods, but higher prices could blunt the impact on economic growth this quarter. Data showed retail sales rose 3.8% last month, almost double the consensus forecast by economists of a 2.0% gain.
Inflation was still a market concern as data in Britain showed consumer prices increased at the fastest annual pace in nearly 30 years, reinforcing chances that the Bank of England will raise rates for the third meeting in a row. Canada's annual inflation rate accelerated again in January to hit a fresh 30-year high of 5.1%, bolstering the case for a steady series of interest rate hikes.
The U.S. Federal Reserve will kick off its tightening cycle in March with a 25-basis-point interest rate rise, a Reuters poll of economists found, but a growing minority says it will opt for a more aggressive half-point move to tamp down inflation. While inflation is rising across the globe, it is particularly hot in the United States, hitting a 40-year high last month.
That is putting pressure on the Fed to not only raise rates from a record low but also to reduce its nearly $9 trillion balance sheet, drastically inflated by emergency bond purchases as the Fed resuscitated the economy from COVID-19 pandemic damage. Now that the economy has recovered its pre-pandemic level, all 84 respondents in a Reuters poll taken Feb. 7-15 expected the Fed to raise the federal funds rate by at least 25 basis points at its upcoming March 15-16 meeting.
Almost a quarter of those respondents, 20, forecast a 50-basis-point move to 0.50-0.75% following the debate in markets over the past week after Fed officials discussed the merits of such a move. Rate futures are pricing in more than a 50% likelihood of a half-point hike.
Rates were forecast to rise each quarter this year to reach 1.25-1.50% by end-December, roughly where they were at the start of the pandemic two years ago. One-quarter of respondents, 21 of 84, saw rates even higher by end-2022.
The Fed was also expected to start reducing its balance sheet quicker than in the previous cycle, beginning as soon as June or July, only a few months after the first rate hike. The poll concluded the Fed would start by cutting $60 billion per month from its portfolio with predictions in a $20 billion to $100 billion range, according to the median of 27 responses to an additional question.
That follows a $120 billion-per-month purchase pace at the peak of pandemic-related stimulus. Respondents estimated the Fed's balance sheet would amount to $5.5 trillion to $6.5 trillion once this so-called "quantitative tightening" concludes. While that would leave the central bank's balance sheet about 30% lighter, it would still be larger than before the pandemic, roughly $4 trillion.
Poll respondents also said this would not be a typical interest rate cycle. Not only was it expected to be short, but the Fed is only forecast to reach a neutral rate: one which neither stimulates nor puts the brakes on activity. Respondents put both the terminal rate and their estimated neutral rate at the same level, 2.25% to 2.50%, according to median forecasts from additional questions. That terminal rate was expected to be reached by end-2024, marking a quick tightening cycle by historical standards, something which comes with its own risks.
The core personal consumption expenditure (PCE) price index, the Fed's preferred inflation gauge, was forecast to clock 3.9% and 2.4% this year and next, before falling to 2.1% in 2024. Headline inflation was forecast to average 7.1% this quarter, before falling to 2.3% by the end of next year, and average 5.0% and 2.5% in 2022 and 2023, respectively.
Disruptions to economic activity following a surge in COVID-19 cases dented growth in the final months of last year and are expected to do so as well this quarter.
Growth for this quarter was downgraded for the fourth consecutive month -- to an annualized rate of 1.6%. It was expected to rebound to 3.8% next quarter and then gradually slow. Economic growth was predicted to average 3.7% and 2.5% this year and next, respectively, largely unchanged from a January poll.
More global fund managers surveyed by Bank of America this month identified "monetary risks" - as opposed to geopolitical, credit, business cycle or trade risks - as the biggest threat to financial market stability than at any point in near 20 years of polling.
Although the survey was conducted before the latest ratchet in Ukraine tensions, a net 64% of respondents saw either hawkish central banks or inflation as the biggest "tail risks". Just 7% opted for the Russia-NATO conflict.
All this angst led to the highest net cash reading in portfolios since the pandemic first unfolded, heightened recession fears, and the biggest net share of funds betting on a flatter yield curve since 2005.
But the worry list speaks loudly to investor fears of central bank policy errors, in part due to the still wild pandemic-related and now geopolitical distortions. Misinterpret the inflation surge and tighten too much or too hastily - or even underestimate it, allow high inflation to fester and then have to squeeze harder eventually to wrest back control. Neither is a great recipe for holding bonds or equities.
Bullard said he favoured a full percentage point increase in the Fed's main interest rate by midyear - mainly because the Fed's "credibility is on the line".
While some investors doubt the Fed will be that aggressive, it's unnerving to think central bankers might act just to be seen by markets, governments and the public to be "doing something" - even as their own analysis shows there's little they can do to ease an energy supply or geopolitical shock.
What's more, spooking markets in that direction can have a dynamic of its own if authorities then feel they then need to catch up.
Unigestion multi-asset manager Salman Baig also thinks the Fed will have more patience than markets now bet. But he added: "Tightening into decelerating growth runs the risk of a further slowdown, raising the concern of a policy mistake that would put a serious dent into 2022 earnings."
But all the furtive movement of tanks and troops in eastern Europe does have a role in seeding such a mistake. Although concerns have risen about broadening price pressures, the assumption in market and policymaking circles late last year was that even a flatlining oil price would see annual base effects get crushed early this year and take pressure off headline inflation rates everywhere in 2022.
And so these monetary and geopolitical risks are joined at the hip and hard to disentangle completely. War and an energy shock could simply up the risk of hawkish error. Avoiding those may be needed to confirm the still-benign year-end forecasts.
Gold prices on Thursday rose above $1,900 for the first time since June as investors flocked to the safety of bullion after U.S. President Joe Biden said there was every indication Russia was planning to invade Ukraine. Meanwhile, Russia expelled deputy U.S. ambassador Bartle Gorman, warning of a U.S. response amid heightened fears of a Russian invasion of Ukraine.
Minutes of the latest policy meeting on Wednesday showed while policymakers agreed that it would "soon be appropriate" to raise the Fed's benchmark overnight interest rate from its near-zero level, they would re-asses the rate hike timeline at each meeting.
"The latest FOMC minutes did not offer fresh hawkish clues," Exinity analyst Han Tan said.
Gold prices jumped to an eight-month high and safe-haven debt rose on Thursday after U.S. President Joe Biden said there was every indication Russia planned to attack Ukraine, while Moscow accused Washington of ignoring its security demands. A gauge of global equities fell more than 1% despite strong corporate earnings in Europe as the Ukraine standoff deepened. Russian-backed separatists and Ukrainian forces accused each other of firing shells across a cease-fire line and Britain, as well as the United States, said Russia sought to fabricate a pretext to invade.
U.S. Secretary of State Antony Blinken told the United Nations Security Council that Russia was preparing to attack its neighbor in the "coming days." Russian Deputy Foreign Minister Sergei Vershinin called the comments regrettable and dangerous. U.S. and German government bond yields fell and oil slid as talks to resurrect a nuclear deal with Iran entered their final stages, which could boost crude supplies. Losses were capped by the tension between the West and Russia, a top energy exporter.
A sell-off on Wall Street increased late in the session as the weekend approached with the Ukraine crisis unsettled, said Michael James, managing director of equity trading at Wedbush Securities in Los Angeles.
The number of Americans filing new claims for jobless benefits unexpectedly rose last week, while freezing weather depressed homebuilding in January. The Ukraine crisis has unnerved investors who also must watch the Fed and efforts by other central banks to fight soaring global inflation.
"There's a lot of confusion right now and everybody's crystal ball is pretty cloudy," said George Mateyo, chief investment officer at Key Private Bank, speaking of both of Ukraine and how the Fed might tighten monetary policy.
The U.S. economy has weathered COVID-19's hit on the economy well, with GDP and corporate earnings at peak levels, which bodes well for the market, Mateyo said.
Gold prices rose above $1,900 for the first time since June. U.S. gold futures settled 1.6% higher at $1,902 an ounce. The dollar , also considered a safe haven, initially rose against most currencies but gains subsided and it later was marginally lower - suggesting investors were not yet panicking about the Russia-Ukraine tensions.
Rising levels of new credit in China suggest that Beijing’s recent policy-easing measures may be beginning to feed through to the economy. Newly-increased total social financing (TSF) rose a record RMB 6.17 trillion in January, significantly in excess of expectations for a RMB 5.46 trillion increase. This wasn’t altogether unexpected as TSF typically registers strong gains in January, although this month’s reading was almost 20% higher than last year. Domestic bank loans, corporate bonds, government bonds and equity financing were significantly up compared with January 2021. The total stock of TSF grew by 10.5% in the twelve months to January, up from around 10% in September and October. M2 growth has also firmed in recent months and increased by almost 10% on a twelve-month basis.
Fathom expects further policy easing in coming months, as President Xi will not want to take any chances with the economy in such an important political year. We will gain a greater insight into the government’s thinking on the economy at the annual ‘Two Sessions’ meetings early next month.
Global trade bottlenecks are more the result of demand spikes than supply chain snags, with pressure likely to ease in the coming months, the World Trade Organization's chief economist said on Monday.
Chief economist Robert Koopman said consumers had then continued to skew spending towards goods rather than services given they could not or preferred not to dine out or go on holiday. Koopman said that for goods trade, excess demand likely explained two-thirds to three-quarters of apparent shortages.
Koopman said leading U.S. indicators such as back-ups of ships at ports and prices of used cars were tapering and throughput at U.S. ports had picked up.
COT Report
So, here we do not need a lot of comments, demand for the gold is rising and that could be seen from multiple sources. Thus CFTC data shows a big jump in open interest and massive demand as from speculators as from the hedgers:
SPDR Fund also shows solid performance and it seems that divergence between the gold price and fund's reserves stands in favor of upward action:
So the overall picture is regrettable, my friends. Yesterday we've taken a look at it from the 2022 Elections point of view. Today we do not need to make a lot of comments. For investing purposes I would like to say only one thing - buy gold. Yes, it could be down a few times in 2022 by Fed rate decisions but in general, it should be a temporal impact. Besides, moves for 1.5% in 2022 is mostly priced in and only exceptional 0.5% could become negative for the gold market. In general, If the situation goes really bad, the Fed decisions might be ignored totally, but I hope that it doesn't go so far.
I would say that whatever decision Fed will make - it should be in favor of the gold, mostly because the terminal rate stands around 2.25-2.5% that is not vital for the gold market and should keep real interest rates near zero. If Fed hikes rate just for 0.25 - this probably will be treated as dovish decision and once again supportive for the gold. If, conversely rate will be charged for 0.5% it makes economy slowdown closer. With current indecision and big suspicious about efficiency of Fed policy, its timing, gold should keep demand among investors.
Second topic is gepolitics. As we warned you with previous 2-3 weeks - it stands for a long time, and real events have not even started yet. As its already shelling are heard on the east of Ukraine - it is a background preparation for widening the conflict:
This is only first shy step and hint, but it already shows the direction. It is an opinion exist that NATO could try to blockade Kaliningrad (ex Koenigsberg) that is separated from Russia. When Russia will try to de-blockade, it will be accused in Baltic countries invasion. So, Baltic countries should become the next victim and reason to increase the conflict in Europe. I will not be surprised if Poland comes next after some time. Despite the way how events will go - gold should get consistent support, despite Fed decisions. Besides, gold could get even more boost, if the US inflation will not ease after first Fed steps (and it will not ease, as it has absolutely different source by our opinion). That's being said - yes we get larger volatility, sometimes deep retracements maybe but, now for perspective of 6-12 month we suggest that the gold probably will become the only asset that should feel more or less comfortable in current tough time.
Technicals
Monthly/Weekly
So, gold shows impressive action that could be seen even on higher time frames. Today probably, it makes no big sense to take a look at monthly chart. Here, the next most probable target is YPR1 around 1967$.
As we've mentioned previously, market moves above January top, and price return back above the YPP after initial testing and pullback - make signs of bullish dynamic pressure brighter, and from a short-term perspective, we should keep an eye on challenging of 1910$ tops.
Weekly chart shows solid upside acceleration, trend stands bullish here and market is not at overbought. So, it has no solid barriers until the major target around 1922$. This is combinations of previous top and OP Agreement area with major 5/8 Fib level. If it will be broken, then the road to 2075$ top will be open, which is also XOP of the same pattern and 1.618 of huge butterfly here, based on BC leg (not shown)
Daily
As we've suggested, market shows very small intraday pullbacks, because of tough geopolitical picture. Price stands at Overbought that could slowdown a bit upward action. In general we have three target clusters. The nearest one is 1910-1920, middle is 1950-1965$ and the extended stands around the 2075$ top. As market is tending to 1920 area and challenge 1916 top, hardly it shows more or less deep retracement, until this happens. I suspect that we could get gap up opening tomorrow...
So if you plan to buy gold, maybe it makes sense retracement, whatever it will be from the 1920$ weekly resistance area?
Intraday
On Friday we haven't got reaction even to 1880$ area. Theoretically, the DRPO "Sell" could be formed, but we treat the chances as phantom to get it, because of events of this weekend. It seems more probable that Gold jumps and hit 1920$ area, which is also an XOP target here, and only after that maybe some pullback starts, because it coincides with weekly resistance
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