Gold GOLD PRO WEEKLY, January 29 - 02, 2024

Sive Morten

Special Consultant to the FPA

Gold now mostly follows the common tendency. As geopolitical tensions from Middle East come off the headlines of media agencies and everybody turns to TX problems, markets stuck in indecision. Forex, and gold stand in tight range without any big swings in any direction. Of course, this stagnation will be broken sooner rather than later. But first some power has to be built to get release later.

Market overview

Gold prices eased on Monday as investors rolled back expectations of a U.S. interest rate cut at the end of March, with a surge in equity markets further dampening interest in safe-haven bullion. Technical selling and a rally in stock markets are likely the two main factors limiting buying interest in the gold and silver markets, said Jim Wyckoff, senior analyst at Kitco Metals.

"We have had better U.S. economic data lately, that suggests the Fed may have to hold off longer on lowering interest rates."

Higher interest rates increase the opportunity cost of holding bullion. Gold fell about 1% last week, its biggest weekly decline in six, after the U.S. Federal Reserve said it needs to see more inflation data before any rate cut judgment could be made and that the baseline for cuts to start was in the third quarter.

Speaking about other precious metals, UBS expects platinum to be undersupplied by 300,000 ounces in 2024, for a second consecutive year, mainly on the back of the platinum to palladium substitution in auto catalysts.

"The gold market is just above the $2,000 mark and it seems to be a neutral market. Every time we start to break higher, we come back down," said Daniel Pavilonis, senior market strategist at RJO Futures. There is a lot of uncertainty on what is going to happen here economically in the United States."

Markets are pricing in the U.S. central bank to hold rates unchanged at the end of the policy meeting on Jan. 30-31 and have pared back the timing of the first interest rate cut, according to CME's FedWatch Tool. On the physical front, India increased the import duty on gold and silver findings, used in making jewellery.

Recent rebounds (in gold) appear to be getting shallower, which raises the prospect of further weakness if central banks continue to push back on market expectations of rate cuts, Michael Hewson, chief market analyst at CMC Markets, wrote in a note.

Gold eased on Wednesday after data showed strong U.S. business activity, even as a weakened dollar limited losses, while investors looked ahead to more economic indicators to assess when the Federal Reserve might first cut interest rates. U.S. business activity picked up in January and inflation appeared to abate, an S&P Global survey showed. A strong U.S. economy and push back from central bank officials is leading some investors to rethink their bets on how quickly the Fed will cut rates this year.

"Gold prices are pretty insulated from a hawkish re-pricing in rates markets, because there are signs that investors are historically under-positioned in gold despite markets expecting an imminent start to the Fed's cutting cycle," said Daniel Ghali, commodity strategist at TD Securities.... China is putting together a more comprehensive package to stem the pervasively pessimistic sentiment that has plagued their markets for months which is weighing on the broad U.S. dollar," Ghali added.

China's central bank announced a deep cut to bank reserves that will inject about $140 billion of cash into the banking system.

Gold edged higher on Thursday as Treasury yields fell after U.S. GDP data highlighted that pace of inflation slowed, while focus shifted to inflation data for further hints on the Federal Reserve's interest rate cut strategy. Benchmark 10-year Treasury yields slipped after the GDP data. The U.S. economy grew faster than expected in the fourth quarter amid strong consumer spending, with growth for the full year coming in at 2.5%. The report also showed fourth-quarter inflation pressures subsiding.

"The economy is running a lot hotter than expected, but at the same time, we are having a situation where inflation is coming down, therefore we shouldn't prepare for a big spike in interest rates," Bart Melek, head of commodity strategies at TD Securities, said, adding that it was helping gold.

Gold also got some support from a separate report that showed initial claims for state unemployment benefits in the United States increased 25,000 to a seasonally adjusted 214,000 for the week ended Jan. 20. Economists had forecast 200,000 claims in the latest week.

"The initial jobless claims data says that the jobs picture is deteriorating, labour markets cooling, that is helping gold," said Phillip Streible, chief market strategist at Blue Line Futures, in Chicago.

Gold prices held steady on Friday as investors' attention shifted to the U.S. Federal Reserve's policy meeting due next week for more insights into the interest rate outlook. U.S. prices rose moderately in December, keeping the annual increase in inflation below 3% for a third straight month, which could allow the Fed to start cutting interest rates this year. Another set of data on Thursday showed the U.S. economy grew faster than projected in the fourth quarter.

"We are seeing the gold market consolidating at the moment as the expectations of rate declines aren't quite as soon as the market would like," said David Meger, director of metals trading at High Ridge Futures. But underlying theme or the idea that interest rates will come down in 2024 continues to underpin and support the gold market."

On the physical side, China's gold premiums climbed this week as additional stimulus measures aided sentiment, days before Lunar New Year celebrations begin.
In the short-term, the direction of gold and silver will continue to be dictated by incoming economic data and their impact on the dollar, yields and rate cut expectations, said Ole Hansen, Saxo Bank's head of commodity strategy in a note.

XIB Asset Management, the Canadian hedge fund that gained more than 200% in the first two years of the pandemic, is now betting that gold and uranium will outperform as interest rates decline. The firm, founded by Sean McNulty and Peter Hatziioannou, expects policymakers to begin lowering borrowing costs soon.

“This creates a much more compelling outlook for global resources and is likely to drive a considerable improvement in Canadian capital markets activity,” the firm said in an investor letter seen by Bloomberg. Gold and other commodity-driven equities have traditionally performed well during the next stages of the credit cycle,” McNulty said in an emailed statement, adding that there’s a looming supply shortfall in the uranium sector that’s garnering global attention.
WGC considers three possible scenarios for 2024, with the soft landing one as most probable. As we look forward to 2024 investors will likely see one of three scenarios. Market consensus anticipates a ‘soft landing’ in the US, which should also positively affect the global economy. Historically, soft landing environments have not been particularly attractive for gold, resulting in flat to slightly negative returns.

That said, every cycle is different. This time around, heightened geopolitical tensions in a key election year for many major economies, combined with continued central bank buying could provide additional support for gold.

Further, the likelihood of the Fed steering the US economy to a safe landing with interest rates above five percent is by no means certain. And a global recession is still on the cards. This should encourage many investors to hold effective hedges, such as gold, in their portfolios.


One of these scenarios focused on the consensus view that a soft landing would be engineered in the US and Europe; China’s growth would be soft; inflation risks would abate but longer maturity interest rates would remain stubbornly elevated, and high prices would restrain consumer demand. In this context, gold performance could be lacklustre and any upside may depend on continued central bank demand.

Financial conditions have eased markedly on the back of the bond market rally but market expectations of policy rate cuts seem excessive - a concern some Fed officials have voiced since the December meeting - and the tensions around the Suez Canal have highlighted how continuing geopolitical factors can have swift inflationary (cost-push) implications.

Although we still view a material resurgence of inflation as a remote possibility, this scenario would likely be positive for gold, as it undermines monetary policy and risks an even harder landing further down the road. In 2023, gold played more to the tune of the 2-year Treasury yield (real and nominal), than the historically more important 10-year yield, something that tends to occur during heightened policy uncertainty. This anomaly diminished during the summer, as peak rates appeared more certain and supply issues focused attention on the back-end of the yield curve. Over the last few weeks, however, it appears we‘ve seen a shift back to monetary policy, perhaps highlighting the perilously narrow path to an economic soft landing.


Gold was a surprising star in 2023, surging against the odds of rapidly rising interest rates and resilient economies. Central banks are largely to thank for the outperformance, but elevated geopolitical risks likely created investor reticence to give up gold as well as being a key driver of central bank demand. Meanwhile, the rates-driven weakness seen in developed markets, led by European ETF flows, was insufficient to dent gold’s performance.

In the near term, a tug-of-war between historically positive January seasonality and some pushback against the dovish sentiment that drove prices to all-time-highs in December is likely. Equally, there may well be a battle between intermittent inflationary scares (shipping costs) and recessionary impulses (JOLTS hiring), highlighting how perilously narrow the path to an economic soft landing is.

Gold - to - Oil Ratio

Since now we do not have clear driving factors for gold market, at least those that we haven't mentioned yet, we could recall our discussion of Gold-to - Oil ratio. Historically it counts that level of 30 is a breakeven. Now gold trades around 26-27. It means that it has potential of ~100-200$ per Oz, if crude oil will not raise anymore. But with the recent statement there are lot of questions...

Bloomberg has released interesting article - OPEC's mission to protect oil prices is starting to look even more difficult this year because... supply from the US and non-OPEC+ countries began to grow beyond expectations. The oil market expects a surplus if OPEC+ does not act yet. And here we have to ask uncomfortable question. Let's to take note of this provocation on the part of Bloomberg based on the IEA forecast (from the Union of Energy Consumers) and, based on the results of the second quarter, check whether the forecast deficit of the 1st quarter has turned into a surplus. Why should production volumes suddenly increase despite the fact that, with higher oil prices, drilling volumes decreased? Let us leave this aside. Besides, with the new reality in Red Sea of oil delivery, expectations of oil price probably will be skewed to the upside.

No Recession yet?
Yesterday we've considered US liquidity issues and how it could make impact on US Dollar value and inflation. Now we take a look at some external factors. First is, the core market for any economy - Real Estate. Previously we already have shown you this chart, now it slightly has changed:

The home prices has very interesting feature for the US budget. So, if real estate prices fall, then the tax base also falls. A good example could be seen after the 2008 crisis. In general, maintaining real estate prices by all means as long as possible is a critically important story, because taxes may not be collected. Not only because property taxes will be reduced, but also because federal revenues will fall due to lower profits from the resale of residential real estate. It's much the same with the stock market. A growing stock market is a supplier of taxes to the state budget.

Therefore, if a recession begins and asset prices begin to deflate, we can expect an even greater growth rate of public debt. Here, by 2030, they promised that the national debt would reach 50 trillion. dollars In principle, you can wait a couple of years earlier.

Obviously, the long-term cycle of rate cuts played a key role here. Taking into account the fact that the rate has risen to the values of 20 years ago, it would be nice for real estate prices to fall by 30 percent, but this is obviously hampered by the fact that no one wants to sell real estate, having a mortgage for 30 years at 3%.

On the other hand, one cannot expect that this ratio will improve due to income growth. To do this, labor productivity in the economy must increase by 30%, which, of course, is unrealistic. Therefore, we are waiting for the bubble to deflate. It is not necessary explain the effect of bubble blow to the US budget, taxes will drop further and burning of existed cash will accelerate to approach QE whatever form it will be.

Heading into 2023, the annual Federal deficit burn rate was already at $1.5T, which is not only embarrassing but dangerous. Unfortunately, hard math suggests that this figure is likely to get worse in 2023. Much worse.

Using the prior deficit growth percentages (800 and 1000 bps) in 2008 and 2020, respectively, 2023 could mathematically see annualized Federal deficit burn rates hitting $2T to $2.6T, which would conservatively place the U.S. Federal deficit somewhere between $3.5T and $4T in 2023.

But that’s just the beginning. But as for inflationary pain and gold’s gradual victory over the same, our genius policy makers in DC have come up with a simple and familiar solution: Just lie about it. As former Finance Minister and European Commission President, Jean-Claud Juncker, famously confessed, “when it becomes serious, you have to lie.” And when it comes to lies from high, the empirical abundance of such lies over the years is not fable but fact.

From employment data to CPI data, or from central bank distortions and digital currencies to Ex-Items accounting scams and media fictions on viral science or the re-definition of a recession, the rising levels of open fantasy passing for daily reality seems to suggest that things must indeed be getting “serious.” Just yesterday we've talked about big mismatches in the US data and outstanding 3.3% GDP growth. Despite such serious problems, the latest changes now being made to redefine an already dishonest CPI scale for measuring inflation is nothing short of comical, or at least tragi-comical.

As for the CPI methodology changes scheduled to take effect next month, the inflation fiction writers over at the Bureau of Labor Statistics (i.e., the BLS, or “Office of BS” for short) have decided to adjust the weightings for Owners’ Equivalent Rent (or, “OER”). Among other tricks, the aim of the Office of BS is to now use neighborhood level information on housing structure types for a calendar year to effectively manipulate a lower than honest CPI inflation rate. This is rich coming from a CPI scale (red line below) that is already notorious for under-reporting genuine inflation by 50% when compared to the old inflation scale (blue line below) used in the Volcker era.


Effectively, such lies may never be right, but as the official data point of the US Government, they are also never wrong. Now let's take a look at definite rate numbers. For example, the Fed likes to use Taylor rule most of all. Based on current unemployment rate (which is ~ 2.5 times lower than U-6 form) and CPI numbers (which is also ~ 2 times lower) Taylor rule shows that the Fed could cut the rate ~ for 1% down to 4.5% level:

The fact is that the Fed has been using the Taylor Rule for decades to figure out what the Fed funds rate should be, and factoring in the current rate of inflation and unemployment into the Taylor Rule calculation shows that the Fed rate should be 4.5% today. It is very convenient when there is a simple formula.

Now, if we take a look at Germany, the same Taylor rule points that rate has to be 6.7%, which is 2.2 p.p. higher than the current rate, according to the Taylor rule, with German inflation at 3.7% and unemployment at NAIRU. The spread has risen again recently and there is a risk that inflation will start to rise again.

The difference between wage inflation in Europe and the United States is becoming noticeable. Both economies have strong labor markets, but wage inflation in the US is falling and wage inflation in the eurozone is trending upward:


The source of this difference is European trade unions, which often look back at last year's consumer price inflation when formulating wage demands for the following year. This inertia in wage formation makes inflation in Europe more persistent and more difficult for the ECB to control. But worse, is that the business finds itself in pincers. A year and a half after the peak of inflation, it has lower selling prices at higher costs.

But wait a minute - official inflation in EU is dropping even faster than in the US. We think that ECB will start rate cut earlier than the Fed, while Taylor rule tells the different thing. But this is correct only if the US data is fair, where we have big doubts. Taking in consideration the new reality of global logistic expenses, as it is shown on the chart-


Hardly we could count on big rally of real interest rates in the US, as the Fed is limited with rate change and stands at the eve of the rate cut. Based upon the foregoing, each of us must therefore ask ourselves where to find his or her safe haven in a time of extended war, dishonest math, re-defined recessions, dying bonds, debased currencies and gyrating equity markets trending noticeably south. it becomes increasingly clear their “risk-free-return” of so called riskless Treasuries is little more than return-free-risk.

That is why more informed investors, willing to take the extra minutes to understand simple bond history and math soon discover that yes, even the 0% yield of gold with its naturally-derived/constrained stock to flow ratio (i.e., a nearly “finite” annual production of barely 2%) and infinite duration does a far better job of preserving wealth than bonds of finite duration and seemingly infinite issuance… It seems that in nearest 3-6 month we should go to some culmination as things around are becoming really tight and stretched - stock market, liquidity level, budget deficit, geopolitical tensions, inner US political struggle. Tension is growing, people become nervous everywhere, but it can't last for too long.

As on Forex market, Gold gives no hint on next step here. It stands near top, nominal trend and context remains bullish, price is above YPP. But, at the same time, the High Wave pattern range is not broken yet. Nominal picture stands in favor of upward continuation:


Despite recent volatility market stands around the same 2016 Fib support level. MACD trend has turned bearish, but here we still have bullish directional pattern - the grabber, that is still valid. It means that weekly context remains bullish as well:


Formally, we do not have rights to go short until grabber's lows are valid, despite that daily context is bearish. Any trade that you take right now, before confirmation, will be a kind of gambling and attempt to anticipate the confirmation. It means that risk of this trade will be high.

This is not forbidden, but we usually try to act when clear background exists. Thus, for short entry we prefer to wait when situation with the grabber will be resolved, or, as a compromise it is possible to use stop "Sell" order in an area where grabber will fail - i.e. under its lows:


This discussion leads us to the same picture as on Friday. In general market keeps bearish context, but price action is too wobble and choppy. 2035-2040$ area could be watched as an indicator of bearish validity. Now it has been tested three times and still holds.

On 1H chart price bounces from 5/8 support that we've set as the level where bulls could try to step in, making the bet on the weekly bullish grabber. Level holds but price performance is very weak, looks not very attractive and slow to suggest major upside reversal:

That's being said, overall price action looks unstable and indecision, and not too attractive for any position for now. Still, bulls have directional pattern and, at least theoretical reasons for position taking. For the bears it would be better to wait when situation with the grabber will be resolved.
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Greetings everybody,

So, at least for now it seems that our conclusion was correct. Now even nominal daily trend has turned bullish and we do not have even theoretical reasons to consider bearish position. Market starts moving with weekly grabber. From the cross market point of view - mostly this action is triggered by the drop of the US yields. It seems it doesn't have big geopolitical component:

Most interesting thing stands on 4H chart as gold is returning back to vital 2040$ area. Upside breakout will destroy natural structure of bearish swings and potentially suggests action above 2090$, where actually the grabber's target stands as well:

on 1H chart bulls had good entry around 5/8 support. Upside targets stand around 2046$ and 2070$. Here is also resistance of two trendlines.

Since resistance still is rather strong, we do not exclude possible reverse H&S on top, if price will pullback to 2020-2025$ area. This might be another good chance for long entry. Optionally you could split position as usual, and buy here and around 2025$ if it will happen.
Greetings everybody,

Mostly everything goes with the plan. On daily chart we have minor changes, context remains bullish:

Now we need to take in consideration few moments. First is - bullish grabber on DXY. It might be the product of geopolitics factors, but anyway it is important. Second is - a lot of coming data, starting with the Fed today and up to NFP on Friday. As usual, it brings tricks in market performance.

On 4H chart market has broken bearish context, price jumps above 2040$, butterfly is cancelled. AB-CD pattern nominally is still valid, but as we already explained many times - normal bearish action doesn't suggest this type of performance that we have.

At first glance recent action looks like W&R of 2040$. Indeed stops have been grabbed there. We have nice bearish engulfing (recall DXY grabber!) suggesting that pullback might be two-leg.

But at the same time this reaction might be on completed 2047 OP that we've discussed yesterday. Once again if would have split your position yesterday, you get nice result.

Now we have the same dilemma - where to buy? Wait for 2020$ support and downside AB-CD retracement, buy now or split position, wait for Fed and NFP? Choice is up to you. Split, as always, provides good compromise between risk to miss the trade and risk to get larger loss.
Greetings everybody,

So, the Gold holds the Fed's punch well. Reaction was moderate and it hasn't even needed retracement to 2020$ although we've talked about it. Now on gold market performance doesn't look impressive, day by day some upside spikes are forming. But, we suggest that this is the sign of inner power. When all other markets are going down - gold is climbing, showing very small pullbacks on intraday charts. So, we keep our bullish view intact:


On 4H chart I keep downside AB-CD just nominally, because it still has no theoretical cancellation. But, of course we do not count on it any more. Now market stands at last 2055 resistance. With two new bullish grabbers the entry process looks more simple today:

In fact, if you consider how price has erased engulfing yesterday and strongly protected 2030$ - this leads to conclusion that 2030$ should remain and could be used as short-term vital area. With the grabbers on the board, retracement might be small and potentially we could get upside butterfly that perfectly fits to 2070$ XOP target. Hopefully NFP tomorrow will not break everything:

No reasons for shorts by far.
Greetings everybody,

So, our bullish scenario on Gold works fine by far. With new bearish grabber on Dollar Idex and drop of the US yields it now gets more background:

On 4H chart gold now have destroyed even nominal downside setup, forming upside reversal swing. 2055$ now is the last strong resistance. Breaking it up, gold will enter a kind of "free space" which should make upward continuation easier. Our major target stands around 2100$ area for now. :

Still, as we get NFP numbers, downside retracement is possible. Since we could get reverse H&S on 1H chart, we also intend to watch for ~2030$ area as potential deep to buy. No shorts for now.