Gold GOLD PRO WEEKLY, July 18 - 22, 2022

Sive Morten

Special Consultant to the FPA
Messages
16,471
Fundamentals

It is amazing guys, how political background intrudes markets performance, especially gold. Things that just a week ago was unclear - how gold could start turning up from $1660 area, for example, now is getting the evidence. Last week, we're not occasionally spent some time on discussing of the US political background and D. Trump initiatives and we come to conclusion that Republicans are not intend to wait for 2024 elections. They want to win November elections and start a legal claim on 2020 elections results in some "arguable" States. The result of this investigation means J. Biden impeachment. The campaign is already started there, as we show you below.

Second important moment - west is softening confrontation degree with Russia. The group of politicians that were standing in a head of heavy anti Russian politics are loosing their sits - B. Johnson, M. Draghi and some others. E. Macron and O. Sholtz are loosing popularity and political support while many international financial institutions, such as IMF, World Bank call to cancel anti-Russian sanctions. The US is already cancelled some. It means that west policy is changing and West/East confrontation is changing the shape. This might be the turning point for the gold market as well.

Market overview

Gold dropped back toward an 11-month low as investors again turned to the dollar as a haven asset amid expectations for more aggressive US monetary tightening.
The metal slipped as much as 2.2% after ending Wednesday 0.6% higher in the wake of a searing inflation report from the US. Investors bet that the Fed is more likely than not to raise interest rates by 100 basis points when it meets later this month, a move that would boost the chances of the economy entering a recession.

By Thursday, investors had digested the inflation news and again turned away from gold to the greenback as a hedge, according to David Lennox, a resources analyst at Fat Prophets. “We’d really need to see a much lower US dollar for gold to get a sustained positive kick going forward,” Lennox said. “Investors are turning more to the greenback than bullion as a haven asset.”

The strong dollar is weighing on bullion price “as are the higher interest rate expectations,” Commerzbank AG analyst Daniel Briesemann said in an interview. A Fed rate hike of 100 basis points at the next meeting is being priced in, according to the Fed Fund Futures,” Briesemann said. “In such an environment gold can still go lower.”

Gold is heading for its fifth weekly loss, the longest streak of such declines in almost four years, with haven credentials sidelined by investors becoming super-bullish on the US dollar. Bullion has come under relentless pressure in the past month as investors turn to the greenback in the face of an increasingly hawkish Federal Reserve. That trade got another boost this week from soaring US inflation.

“The set-up for a deep liquidation event in gold is building,” Bart Melek, global head of commodity strategy at TD Securities said in an emailed note. “With gold bugs falling like dominoes, prices are now challenging pre-pandemic levels, raising risks that the largest speculative cohort in gold will start to feel the pain under a hawkish Fed regime”

Spot gold slumped below $1,700 an ounce on Thursday for the first time in almost a year as Bloomberg’s dollar gauge climbed to a record.

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While high inflation and growth threats typically aid gold, the precious metal is wilting as investors weigh the prospect of bigger or more frequent interest-rate hikes from a Fed trying to curb price pressures. Gold doesn’t pay interest, and, like other dollar-denominated commodities, it suffers when the dollar rises.

Still, investors’ expectations of an economic recession in the US should benefit gold as a safe haven, according to Commerzbank AG analysts.

“This is one reason why we anticipate higher prices in the coming months and quarters,” they said in a note. “That said, for this to happen the still strong ETF outflows would need to end and buying interest would need to return to the market.”

Yesterday we explain why with the high degree of certainty, the Fed will fizzle to keep rate hiking, closer to the elections and end of the year. While big banks, due to recession fears suggest the same, for example, Bank of America:
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And even full step rate cut in IQ of 2023:
1658049120133.png


Although we agree on coming Fed capitulation and inflation victory over the Fed, we disagree on the consequences and suggest that inflation wouldn't go lower, keep standing on high levels and rising. Bank of America thinks different on a chart above, making forecast on inflation decreasing somewhere to 3%. As you understand - the end of the upside Fed cycle and high inflation is a absolute perfect combination for the gold market. Since we expect that all these stuff will happen on a background of total collapse on the bond market, the real interest rate could be even more negative than now.

Other investors also start suspect something.

"The massive monetary binge is over. The Fed is taking the punch bowl away. The hangover is coming. The best cure is – except for the broth – gold.

According to the Taylor rule, the federal funds rate shouldn’t be just between 1.50% and 1.75%, but at least above 5% (see the chart below taken from the Atlanta Fed)! At such a level, the Fed will be “neutral,” but to beat inflation it should be restrictive, not merely neutral.
1658049650692.png


It means that the U.S. central bank remains behind the inflation curve and would have to raise interest rates much further to combat high inflation. However, it raises a very important question: Could the Fed raise rates so decisively without triggering the next economic crisis? This is, of course, a rhetorical question. Monetary policy tightening should be negative for gold prices, as higher real interest rates usually lead to lower gold prices. However, gold has been generally very resilient during the current tightening cycle. It’s true that it didn’t rally despite the outburst of inflation, but its gave a stellar performance (even when we take July plunge in the account) in the face of rising rates and in comparison to plunging equities or cryptocurrencies, as the charts below show. By the way, it seems that the debate about whether gold or Bitcoin is a better store of value has been settled.
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Powell still believes in a soft landing, but he may be the only one. You see, after a gigantic binge, there is always a hangover. When the host of the great party is taking away the punch bowl, drunken guests loudly express their dissatisfaction, which can even translate into brawling. Similarly, after a massive increase in the money supply, there is high inflation that you cannot just wait out, lying in bed and eating broth. You have to hike interest rates, but then borrowing costs are increasing, which hits many excessively indebted companies and investors, and the economic boom translates into a bust.

Busts are awful, but not for gold. The yellow metal rallied during both the Great Recession and the coronavirus crisis (and also during the repo crisis), and this time won’t be different. We just have to wait until deteriorating economic conditions force the Fed to deviate from its planned course. Initially, when the next crisis hits, there might be a panic sell-off in the precious metals market in order to raise liquidity, but after this short period, gold should rally, shining brightly as a truly safe haven.


The political component of Gold reversal

Last week we've discussed possible D. Trump return and how Republicans intend to do this. We've concluded that this plan highly likely means J. Biden impeachment. And take a look - we're not alone with our suggestion:

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Republicans are spinning up their political media machine, pressing on Democrats, trying discredit their foreign policy and show public their mistakes. I give you just few links. You could read them, but even with the headlines it becomes everything clear:
This is what about domestic political struggle. Situation is changing on foreign arena as well. West rhetoric is changing drastically, taking soft position against Russia. Leaders of anti-Russian coalition are loosing their sits - B. Johnson has become the first bell, now is M. Draghi. J. Biden hardly safe its post as well. He has met total fiasco on its Middle East visit. E. Macron and O. Sholtz are loosing political support in France and Germany correspondingly. It is rebooting of west political position that can't happen by the same people in the Head of the Governments. New people should come. Big media sources start show the opinion of useless of anti Russian sanctions. While some sanctions are already cancelled. Here are just few to mention:

Simultaneously, we see offensive Russian plans in Ukraine and following US embassy call:
Of course, this is not the west capitulation and not the denying of long-term global plans, this is just fine tuning and adjustment of confrontation strategy. It should go differently, but this is big shifts anyway that lead to change of political elite. Big shifts definitely make impact on markets across the board and this epic changes start happening on the background of economy crisis of all times. All wars were starting during economy rising, nobody starts wars and confrontations when economy falls. This time, confrontation is already underway, and crushing of global economy makes investors to recall about the gold. This enlightenment should happen relatively soon.

Yes, we're coming to 0.75-1.0% rate change within two weeks and then we get the break until September that should keep gold under pressure, which makes us to stay focused on our 1660$ target. But the speed of events suggests that we might be closer to reversal than we thought initially.

Technicals
Monthly

Here we have no adjustments by far. As we've said last week - breaking down May lows opens the road to the next support around 1680-1700 area. Technically it could happen by flat AB=CD pattern that has an OP target precisely in this area. It is interesting guys, that UBS mentioned the same 1700$ area as potential level for the end of the year.

Indeed, technically this level is very strong, and it might be the one that we're looking for. Take a look - K-support and AB-CD Agreement, accompanied by monthly Pivot Support 1 and oversold. What stronger combination we could get? Thus, now we're aiming on 1660-1684 area as the target of downside action and potential reversal area.
gold_m_18_07_22.png


Weekly

Here market finally hits the XOP target, accompanied with oversold level. Technically this combination suggests the pullback, which is really could happen as all eyes will be on ECB statement, that barely effects the gold market. Ahead of the Fed meeting on 26-27 of July, the pullback might be good chance to consider another short entry:
gold_w_18_07_22.png


Daily

Friday doesn't bring more clarity as session was inside one. As gold is oversold on weekly chart, it is not good point for taking new short position. Thus, it makes sense to wait and see whether pullback happens. In general, $1800 area looks like the ceil for coming week because of combination of strong technical tools - K-resistance, daily overbought and former lows. It means that hardly we get more extended pullback, at least during the next week.
Additionally we could watch for tactical B&B "Sell" setup, as recent downside action is acceptable thrust for it.
gold_d_18_07_22.png


Intraday

On intraday charts we have nothing yet, except divergence. It is unclear still, what particular pattern might be formed here, to trigger upside bounce, maybe H&S. We will see. This is important for those who intends to trade gold long. But we need this pattern mostly for upside targets calculation to identify potential areas where downside action could start again, daily B&B "Sell", for example.
gold_1h_18_07_22.png
 

RahmanSL

Major
Messages
2,886
Hi Sive... great analysis as always and you have basically captured all the fundaments & technical. So, now we wait and see how market behaves leading up to much anticipated expected 26-27 July FED's interest rate hikes.
 

xolah

Recruit
Messages
1
Great analysis, Sive. I've been following you for quite a while. I wonder if you could do S&P500 analysis while we're waiting for Gold to move? I think it's in an interesting situation at the moment for the stock market.

Regards.
 

Sive Morten

Special Consultant to the FPA
Messages
16,471
Great analysis, Sive. I've been following you for quite a while. I wonder if you could do S&P500 analysis while we're waiting for Gold to move? I think it's in an interesting situation at the moment for the stock market.

Regards.
Hi mate,

Well stocks stand under same pressure. I'm not a big expert on stock indexes, but we expect S&P drop below 2500 in near term (till the end of the year), and potentially below 2000 level next year when the US economy falls in total collapse. Personally I like this chart very much, dedicated to the EWave fans:
IT seems like a last bubble :)
1658153725258.png



And this one is also interesting - Fed policy is killing US banks, but the Democrats' power is based on them. The correct question is what Fed will do next:
1658153787943.png
 
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Sive Morten

Special Consultant to the FPA
Messages
16,471
Greetings everybody,

Gold market seems a bit forgotten by investors, as FX, stocks are more active and attract more attention. As a result, gold stands in tight range near the bottom, showing no reaction to XOP target, which seems bearish.
gold_d_19_07_22.png


But very soon everything should change. ECB decision hardly make impact on Gold, as everybody wait for the Fed decision. But not the Fed could become the major driver. Around the Fed data we get two other events that might become vital. First is preliminary IIQ GDP release, which we expect has to be negative and the US economy "officially" should turn to recession. Media will start spin-up this news very actively. Second - on 26th of July Google and MSFT release earnings reports that are expected to be negative. These three factors could crush the stock market in 26-28 of July.
As you understand, gold market hardly will by untouched with these events. So, don't upset with current silence, there are big events ahead.

Meantime, it seems that some downside action should happen first. As market shows no reaction on support area, showing signs of bearish dynamic pressure:
gold_4h_19_07_22.png


On 1H chart pattern that we've discussed in weekly report has not been formed:
gold_1h_19_07_22.png


This makes us to stay aimed on 1660-1680$ major monthly support area.
 

Sive Morten

Special Consultant to the FPA
Messages
16,471
Greetings everybody,

As you can see - it is nothing to discuss on gold market by far. So, I decide to take a look at few other , mostly commodities currencies where we have long-term trading setups.

Starting from GBP, as it is widely expected further BoE rate action, daily 3-Drive pattern has been triggered. We talked about it last week, as you remember.
gbp_d_20_07_22.png


Now market is forming wide reverse H&S pattern on 1H chart. So, if you haven't taking position at the bottom and still consider it - you could wait for the right arm of the pattern to make a decision. Hopefully H&S will not fail and lead GBP to completion of 3-Drive.
gbp_1h_20_07_22.png


You probably remember setups on AUD and NZD that we've considered, with huge reverse H&S weekly patterns. As AUD as NZD have completed downside extension around major support areas. Now they have started the bounce up. For example, NZD has completed 1.618 butterfly and weekly XOP and turning up. Thus, H&S pattern here might be formed as well:
nzd_4h_20_07_22.png


AUD has very similar chart as NZD. Both countries have good fundamentals, especially Australia, and both are aimed on further rate tightening, which makes them good rival of USD.

The same thing we said on CAD. Although here is no details, but overall performance on monthly chart stands in favor of CAD as it is forming bearish flag, suggestion further CAD Strength.

cad_m_20_07_22.png
 

Sive Morten

Special Consultant to the FPA
Messages
16,471
Morning guys,

Gold obviously is gravitating to very strong support and target cluster of 1680-1660. By our analysis method this is most powerful support as it includes everything - YPS1, K-support, AB-CD target and monthly oversold. This is all tools of support that we generally have. With so strong level just few bucks below - it is natural to see price gravitation to it.
gold_d_21_07_22.png


On 4H chart market is forming a kind of downside channel:
gold_4h_21_07_22.png


The only two factors that support gold market now are - weekly oversold and 1H butterfly pattern. Since market now has no other solid supports except weekly oversold, the upside reaction should be equal or smaller than previous one. That actually also was reaction on oversold. Thus, we consider 1700 and 1710$ resistance levels as potential ones, where gold might turn down again.

If you intend to trade it long - you could rely on butterfly directly, taking position at the bottom, or watch for AB-CD upside shape, similar to the previous upside action.
gold_1h_21_07_22.png
 

Sive Morten

Special Consultant to the FPA
Messages
16,471
Greetings everybody,

So, it seems that gold traders have treated ECB decision with inspiration. Indeed, 0.5% rate change for the few months and announcement of new QE programme is real gift to the gold market. As a result, upside bounce that we've discussed has become more extended and could be even greater.

On daily chart we've got bullish reversal bar that suggests further upward action. Also here we have not bad thrust down that potentially is suitable for B&B "Sell" trade from higher standing levels. First one is 1748:
gold_d_22_07_22.png


Thus, right now we could focus on upside continuation. The probable pattern that might be formed here is reverse H&S. So, we keep an eye on ~1700 area where the right arm might be formed:
gold_4h_22_07_22.png


On 1H chart gold has broken as harmonic swing as K-resistance area around 1700 that are bullish signs as well. Now it is coming to next 1722 resistance level, that coincides with 4H H&S neckline.
gold_1h_22_07_22.png


That's being said, let's first consider the H&S with entry around 1700 and 1750$ target. And then decide what to do next.
 
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