Gold GOLD PRO WEEKLY, July 22 - 26, 2024

[Sive Morten]

Fundamentals

Since the world stands at the eve of truly epic, I would say tectonic shifts, it is becoming almost useless to scrutiny in some statistics data because anyway it will make no impact on gold market. As strong momentum of global and the US domestic political affairs is like a train at full throttle. Slightly better or worse inflation data, job market and consumer sentiment means mostly nothing in current situation and could trigger only short-term reaction. Keeping in mind that even this data is highly manipulated by the US statistics authorities, its meaning is becoming even lower. Today, as usual we will take a look at some events as usual (how we could miss it), but at the same time will try to explain you what a big challenge stands for new US President (supposedly Trump) and his administration. The structure of a new US policy now could be recognized, but there are still a lot of blank spots in details, which are not definitely determined yet and depend on particular situation in particular future moments. The one thing could be said definitely - gold should be highly demanded in nearest few years, at least during 1st D. Trump's term of his Second coming.

Market overview

Gold edged closer to an all-time high as expectations for Federal Reserve rate cuts grow and some traders ramped up bets on a second Donald Trump presidency. Traders see two quarter-point rate reductions this year — typically benefiting the non-interest bearing precious metal — as inflation cools. A recent uptick in holdings by exchange-traded funds is also aiding upward momentum.

“Optimism about US interest rate cuts as more economic data supports the case for a Fed pivot is supporting gold,” Ewa Manthey, a commodities strategist at ING Bank NV, said on Tuesday. “Gold is poised to keep its positive momentum going amid the current global geopolitical and macroeconomic landscape, while central bank demand is expected to grow.”

On Monday, Fed Chair Jerome Powell said recent data had given policymakers greater confidence that inflation is heading down to the central bank’s 2% goal. Traders have been adding bets there will be three cuts this year after Goldman Sachs Group Inc. said conditions were ripe for easing, with “a solid rationale” for officials to lower rates as soon as July. Gold’s latest rally isn’t necessarily unexpected: in June, consultancy Metals Focus predicted a fresh record this year, while earlier this month Citigroup Inc. said its base case for gold in 2025 was $2,700-$3,000 an ounce.

"Gold surges to new all-time highs despite stronger-than-expected core retail sales data, encouraged by Powell indicating yesterday that the Fed was growing more confident that inflation was back on its way to target," said Tai Wong, a New York-based independent metals trader. "This essentially etches a September cut in stone barring an inflation calamity in the coming weeks."

Data showed production at U.S. factories increased more than expected in June, contributing to a solid rebound in output in the second quarter. Markets now see a 98% chance of a U.S. rate cut in September, according to the CME FedWatch Tool. The number of Americans filing new applications for unemployment benefits rose more than expected last week, but there has been no material shift in the labor market, according to data released by the Labor Department on Thursday.

"Analysts foresee long-term gains for the precious metal, driven by the Federal Reserve's preparations to cut rates, believing inflation is under control," said Russell Shor, senior market specialist at Tradu.

Trump’s candidacy gained momentum after a failed assassination attempt over the weekend and a judge dismissed a criminal case against him.

A Trump presidency could have potentially positive and negative impacts on gold, said Giovanni Staunovo, a commodity analyst at UBS Group AG. It might lead to “tax cuts, supporting a shift to equities, and eventually limiting faster rate cuts,” he said. On the other hand, tax cuts would impact US fiscal balances, potentially weakening the dollar’s status and pushing buyers toward safe-haven assets such as gold, he said.

Gold could draw some support from a Trump presidency, said David Higgins, head of trading at Merrion Gold. “He’ll cause lots of people to buy when he’s elected,” because retail customers — mainly smaller buyers — associate him with instability, Higgins said.

Gold retreated from an all-time high as traders assessed their bets on Federal Reserve rate cuts, while weighing the uncertain political outlook in the US. Bullion climbed to an all-time high of $2,483.73 an ounce on Wednesday, before erasing gains. Fed Governor Christopher Waller said Wednesday the economy is getting closer to a point where the central bank can reduce borrowing costs, but indicated he’d like to see a “bit more evidence” inflation is on a sustained downward path. He adds to a growing chorus of officials who have signaled that they are moving closer to cutting rates, though most — including Chair Jerome Powell — have stopped short of offering guidance on the exact timing of such a move. San Francisco Fed Bank President Mary Daly also said "confidence is growing" that inflation is heading toward the U.S. central bank's 2% goal.

However, the International Monetary Fund said on Thursday the Fed should not cut interest rates until late 2024. Meanwhile, the European Central Bank kept interest rates unchanged as expected, with its president Christine Lagarde saying a move in September was "wide open".

“The fundamentals have clearly shifted to offer investors increased reasons to re-weight gold holdings in the portfolio, and this has led to price-sensitive funds chasing the upside,” Chris Weston, head of research at Pepperstone Group Ltd. said in a Wednesday note. “With broad-based positioning and sentiment not near extremes, $2,500 could well be tested soon enough.”

"Thanks largely to weakness in economic data, and falling inflationary pressures, bond yields are continuing to remain under pressure," said Fawad Razaqzada, market analyst at City Index. "This is helping to boost the appeal of low- and zero-yielding assets, and thereby keeping the gold outlook positive."

July gold exchange-traded funds holdings were up 0.9% as of Tuesday, with net inflows at 749,141 ounces, according to data compiled by Bloomberg. That was an early indication that ETF investors, who have largely been net sellers of gold over the past three years, may have warmed up to bullion as chances of an imminent rate cut are increasing greatly.

"If ETFs add gold as interest rates decline, then gold should rise meaningfully," said Chris Mancini, associate portfolio manager of the Gabelli Gold Fund. If the weaker economy causes governments to stimulate, especially for infrastructure, then both gold and industrial metals will rise at the same time."

Money managers’ wagers in gold jumped to the highest level in four years, signaling investor concerns surrounding the US presidential election campaign as well as renewed focus on the timing of Federal Reserve interest-rate cuts. Hedge funds and other large speculators boosted their net-long position in gold, often used as a hedge against rising political and economic uncertainty, to the highest in more than four years as of July 16, weekly US government data published Friday showed.

"The expectation that we are getting closer to a Fed interest rate cut and we've seen this as yields continue to slowly grind lower in anticipation, that, along with a weaker dollar, are the main supportive factors behind this gold move," said David Meger, director of alternative investments and trading at High Ridge Futures.

Sales of tax-exempt gold coins by the UK’s Royal Mint jumped in the last quarter as investors fretted about potential changes to fiscal policy by an expected new Labour government. The total value of gold coins that don’t attract capital gains sold on the Mint’s website jumped by 9% during April-June from a year earlier, according to Stuart O’Reilly, market insight manager at the money producer.

“Our largest ever — multi-millions — single purchase of CGT-exempt coins by an individual occurred in late May this year,” O’Reilly said.

While the possibility of a capital gains hike by Labour adds to the coins’ appeal, it’s one of many potential drivers for the Mint’s increased sales. Recent reductions in the threshold at which the tax is due may play a part. At least one other precious metals dealer saw a similar trend. Between June 1 and the July election, Merrion Gold’s UK sales of Royal Mint CGT-exempt gold and silver coins almost tripled from a year earlier, reaching £1 million ($1.3m), according to the firm’s head of trading, David Higgins. Others still might be considering purchases too.

We have “noted a large increase in traffic to our CGT-related information pages and many more enquiries about CGT from customers,” Pete Walden, managing director of Jewellery Quarter Bullion Ltd., which operates online dealer BullionByPost, recently said by email. Clearly there are many people concerned who are starting to consider their options,” he said.

China still has plenty of appetite for official gold purchases despite pausing in May and June, as its bullion holdings remain low as a share of reserves and geopolitical tensions persist, according to a policy insider, industry experts and data. Beijing's gold buying, which helped the spot price rally in April and May, is no longer perceived to be immune to price sensitivity, but ongoing geopolitical risks are expected to keep its longer-term programme to diversify exposure from U.S. dollar-denominated assets active.

China's gold reserves need to rise in absolute and relative terms because they do not match the status of the world's second-largest economy and gold's share of its reserves is the lowest of any major economy, said a Chinese policy insider involved in internal discussions who declined to be named due to the sensitivity of the matter. China has the world's largest foreign currency reserves, at $3.22 trillion in June. But gold's share of China's overall reserves, which include its reserve position and special drawing rights (SDRs) at the International Monetary Fund, while at a record high of 4.9% is low compared to the global average of 16%.

"Given that base and very large scale of FX reserves we believe the PBOC will be buying gold at higher volumes for decades," said Nitesh Shah, commodity strategist at WisdomTree.

Demand from investors in China is also set to stay strong, he said, amid a prolonged property crisis and as central bank purchases give confidence in gold as a store of value.

"The official sector buying is a free advertisement for gold in China," said Shaokai Fan, global head of the central banks sector at the World Gold Council. "In the sense that if the central bank is buying gold, maybe I, as a retail investor, shall buy some too."

China now has an estimated 60% of its reserves in U.S. dollar-denominated assets. It took China nine years to raise the share of gold in its total reserves to 4.9% from 1.8% in 2015. China holds 72.8 million ounces of gold worth about $170 billion. If it eventually lifted the share of gold in its reserves even to 10% at current reserve levels and prices, the purchases would total another $170 billion. For comparison, Russia's central bank stopped active buying of the precious metal in 2020 when gold reached 20% of its total reserves. Gold's share has since grown due in part to its rising price.

"The main motivation of the PBOC is to be less dependent on the U.S. dollar and – in an extreme case – to be less susceptible to U.S. sanctions," said Carsten Menke, analyst at Julius Baer. He expects China's desire to diversify reserves to persist as "the geopolitical tensions between China and the United States are unlikely to disappear anytime soon, independent of the outcome of the U.S. presidential elections."

Some safe-haven demand is being triggered from China "because of the negative rhetoric coming from both U.S. presidential candidates towards China," said Jim Wyckoff, senior market analyst at Kitco Metals.

Gold prices dipped more than 2% on Friday, as the dollar gained and profit taking kicked in following bullion's all-time peak hit earlier this week, which was fuelled by rising expectations of U.S. interest rate cuts in September.

"Besides profit taking, the market is down on this narrative of a soft landing; it could put pressure on the price of gold, as investors will shift money from a safe to more riskier investment," said Alex Ebkarian, chief operating officer at Allegiance Gold. We are seeing a lot more investment-driven decisions demand rise in gold," he added.

GAME OF THRONES IS READY TO BEGIN

The plenum of the CPC Central Committee decided on the economic course of China. Should we try to resist the United States or sign a surrender? Judging by some details, for example, reports of Xi Jinping's stroke, the capitulators were quite seriously counting on victory. But it didn't work out. If we consider that it is the capitulators who are behind the serious deterioration of economic relations between China and Russia, this can entail numerous serious consequences.

Over the past 10+ years, there was no such a secret party event as the current third plenum of the 20th Congress of the Communist Party of China - perhaps at the beginning of 2018, when the constitution was changed with the unlimited powers of Xi Jinping. Result was Xi Jinping’s landmark article on upholding sovereignty and self-reliant development, which in Chinese political language actually means preparedness for the risks of decoupling from Western markets. To do this China proclaims liberalization of its domestic markets. Excerpts from the PRC Plenum :

• China calls for economic growth to target 5% this year
• China calls for support for technological “breakthroughs”
• China will further open its markets to foreigners
• China will treat foreign companies as its own, providing them with equal access to government procurement

Xi clearly understands that the war for South-East Asia with the US will start soon. He understands that China can't hold it alone without Russia's help just become the only way for them to world ocean is through Russian ports in N. Korea, The Sea of Okhotsk and through Kuril islands to the Pacific Ocean. But China has too strong domestic pro-American lobby, whose interests are "there", overseas, as well as their own assets and children. And they strongly resist to a "new" turn that China vitally needs. We suspect that due this resistance Xi was not able to fulfill promises that were given to Russia.

And what is about the US? Donald Trump has done many remarkable things during his presidency, including a full-fledged trade war with China. The result was a trade deal in which Beijing committed to buying more American goods and significantly increasing imports from the United States. Nowadays, few people remember the deal, but it’s hardly worth thinking that Trump forgot about it.

And so, almost immediately after being confirmed as a candidate from the Republican Party, Trump announced that if elected, he intended to increase duties on products from China, and at the same time from other countries. In a conversation with Bloomberg, he said that “foreign countries are not buying enough American goods,” which means that 10% tariffs should be imposed on imports from other countries. And yes, this will be in addition to the introduction of tariffs ranging from 60% to 100% (on cars). In fact, this is an announcement of a new trade war, although this is not the first time Trump has spoken about this. In January of this year, the Washington Post reported that he discussed with his advisers the possibility of imposing tariffs of 60% on imports of goods from China if re-elected.

And this despite the fact that the old trade war did not actually end. Currently, the United States has tariffs of 25% on Chinese imports, and the tariff increase also affects electric vehicles from China. That is, everything indicates that next year we should expect a new trade war between the two largest world powers - with all the ensuing consequences. And by the way, it is not a fact that the matter will be limited only to China: previously, the list of potential candidates included Vietnam, which also supplies much more to the United States than it imports.

New tariffs of 60% on all Chinese exports to the US would more than halve China's annual growth rate, according to UBS:

Can this trade war 2.0 be avoided? Unlikely. In China, they quite rightly note that they would be happy to buy much more from the United States, but importing products that are important for the Chinese, such as chips, is now, to put it mildly, quite difficult. In addition, it simply does not make sense to bring most goods from the United States to China, since it will not have a chance in the Chinese market due to high costs. So, dear subscribers, a new trade war is becoming more and more real.

Conflict over the South China Sea is inevitable in one or another way. It has not only an economic background (rich shelf, fisheries and safety of navigation), a political one ( up to 2 billion people live in the basin) , but also a strong ideological basis : the religious division of countries. In some states Islam dominates, in others Buddhism, but there is also Christianity. That is, already at the level of beliefs there is a marking - friend or foe.

There are not many places in the world where cultural plates meet, and these junctions are chronically engulfed in war: for example, the Balkans, the Caucasus, the Black Sea. A hot conflict - China - Taiwan will only become a trigger for a major confrontation in the region. It will be almost impossible to finish it. The number of actors here is more than ten. This is well understood both in the United States, which in every possible way provokes China into aggression, and in the CPC: the party is trying with all its might to integrate the island into the mainland without bloodshed.

Another area for the potential outbreak of a third world war is the East China Sea. The four largest economies in the region - China, Japan, Korea and Taiwan - consider part of the water area to be their exclusive economic zone. The hottest spot on the map is the Senkaku Archipelago. The islands are controlled by Tokyo, and Beijing and Taipei lay claim to them. The islands are uninhabited, but have strategic military importance - they give control over shipping in the East China Sea. There is also an economic reason: in the area of the islands there are deposits of natural gas, which China intends to develop.

By the way, although everybody forgets about Japan, but it could be interested in war as strong as the US, because situation in Japanese economy rapidly is moving to the dead way.

Monday's second-quarter growth figures in China pointed not only to an economy growing below target, but also showed there is no sign of improvement in its anaemic property sector and the domestic consumer is more pessimistic and unwilling to spend. That backdrop is a signal to investors it will be a long wait before the world's second-largest economy is able to have any meaningful recovery that lifts its stock market, which is up just over 1% this year.

"Being a China investor right now is frustrating," said Phillip Wool, U.S.-based senior managing director at asset manager Rayliant Global Advisors.

Overall, the consensus seems to be that while peak pessimism towards China has passed, most investors are still waiting on the sidelines for a more definite recovery to play out. And the patience of those already committed is being tested. For global investors, China is a slow-burning trade:

 

[Sive Morten]

Now we hope you better understand why possible D. Trump victory of President's run so important for foreign political course and China in particular. These events have very high level of probability to happen.

To keep it simple, the US urgently and absolutely vitally need new consumption markets. In last decade they have tried to stimulate domestic demand by money printing. But this source now has reached its limits. Further stimulus triggers uncontrolled inflation. Accumulated previous stimulus are already spent totally. So this plan doesn't work any more.

It means that the US domestic producers now meets the situation that they can't find consumer on their goods. It is impossible to sell "Made in USA" goods inside. We could say - what's the problem? Close the border and impose tariffs on import. In this case american consumer has to pay more, which means decreasing of the wealth and living standards.

The US, to save resources have to leave EU and Middle East, focus on confrontation with China and try to push back at least ~ 500 mln of consumers in the region. Then force them somehow to buy US made goods and with this background start making investments in the US economy. This is in general what Vance has said in his speech. How to achieve this - this is separate question. Additionally, as Vance s D. Trump understand that keeping Dollar global reserve system is very expensive thing. They could easily destroy it to stop crediting Central Banks by the Fed reserve. But in this case they immediately will loose chance for stimulation of domestic consumption.

The way how to resolve this - is to follow P. Volcker Reaganomic idea - to withdraw all households debts totally and start it right from the beginning. But in this case they clash with transnational bankers and significantly increase probability for civil war in the US. But this is different question.

And all these stuff has to happen as early as in 2025. As you understand, the balance of power gives almost no room for bearish scenario on gold market. In fact, if new US president will do nothing - US economy will collapse due exhausting of resources and unavoidable new money emission. There are other topics to talk about as well, but I'm afraid to make research too extended to not bother you too much. As China topic is the central one and we clearly explained it, let's stop this time here.

Technicals
Monthly

Market sets the new top, but, if you take a look at very extended charts, say, quarterly, you could see that gold hits overbought there as well. This will work as technical holding factor. In fact gold is at overbought at all time frames. Of course strong geopolitical events could move it on a backstage, but such events happen not too often. As we've shown above, fundamental picture for gold remains bullish and should stay so for a long time. But, in shorter term, we could get common market behavior - pullbacks, consolidations etc. In fact, price is coiling around major 2460$ all time upside extension. So it could spend more time around it.

Weekly

Here we have more signs, pointing on possible pullback. Most important, as you can see - bearish grabber, and a kind of W&R of the top, that is accompanied with daily overbought. In general market stands in the same flag consolidation. And recent performance (even without the grabber) keeps chances on possible action back to the lower border. Otherwise market has to break out above the top, which seems hardly possible when it stands at overbought:

Daily

Here market is coming to 2370$ area, which is oversold level. And starts flirting with the MACDP line. Here we have different trading plan, depending on what time frame you're trading at. For weekly/daily combination you have bearish setup, based on the grabber and have to wait for bounce to get better entry point for short trade (if you want to trade gold down at all, of course). For daily/intraday combination we have bullish context and could watching proper setups to consider bullish trade. Reaching of oversold and/or appearing of the grabber might become a part of overall context:

Intraday

Downside action was strong, but gold now stands at K-support area. Here are two things matter. First is - keep an eye on daily trend breakeven point. If it will turn bearish - our context also will turn bearish. Second is - watch for DiNapoli directional patterns. Say, if market will drop to 2355 level and hits daily oversold potentially we could get bullish "Stretch" and suggest some bounce at least.

For now we see no bullish signs. We do not intend to buy blindly just because of K-support area:

On 1H chart also there are two important moments. First is - take a look that gold is breaking even lower border of the channel. This is bearish. Second is - we have great downside thrust, so scalp traders could watch for DiNapoli patterns around, such as B&B "Sell" if anything will be formed...

 

[Sive Morten]

Greetings everybody,

So, here we have clear plan. On daily chart we're sitting on the hands and waiting for the bounce to take position with the weekly bearish grabber. It suggests that Gold could drop to ~2300$ area.

Price has reached more or less strong support area, forming potential background for B&B Buy from here. But, as we've said about it - we will not buy only because market stands at support. We need more bullish signs around support area before considering long entry. But it is a problem with patterns.

On 4H chart I see nothing by far. Yes, some hint on a kind of DRPO "Buy" exists, but price behavior looks week and was not able to form normal right arm. Gold has turned down fast and reversed Biden's out reaction:

On 1H hart there are also a lack of signs. So we need to wait for a pattern. Maybe it could be 3-Drive Buy later... or H&S, we'll see. Without pattern it is risky enough to take position as sentiment around stands bearish:

 

[Sive Morten]

Greetings everybody,

So, in general our plan on Gold market is working. The pullback and our B&B "Buy" trade starts. It has minimum target around 2445$ area, which correspondingly means that those who would like to take bearish position with weekly grabber could start thinking of $2440-2450 area to do this:

On 4H chart predefined K-support works well by far. It seems that the only bullish pattern that we've got is DRPO "Buy". Still, as we have similar setups on FX market, suggesting the bounce, perspective on Gold market looks not bad. Besides, we have nice upward momentum as well. So 2440$ seems as possible to reach, although currenty action looks slow a bit:

Now market hits 1st resistance area. Thus, if you still want to go long - you could try to use the pullback from this level to consider long entry, probably somewhere around $2390-2400 area.

 

[Sive Morten]

Greetings everybody,

So, major bearish setup has worked perfect, gold has turned down precisely from 50% resistance area of 2433$ level - minimal target of 4H DRPO "Buy". Now, after the drop, gold stands near oversold and Fib support area. Potentially we have bullish "Stretch" pattern. It means that if you would like to go short - you have to wait for some upward pullback:

On 4H chart we have clear downside AB-CD pattern and gold already hits COP. So we have Agreement support. At the same time, CD leg has clear signs of acceleration. So, once the effect of the Stretch will be over, downside action should continue.

On 1H chart the most probable upside target is 2405-2410$ area, as a potential target of the Stretch pattern:

That's being said, for short entry we need to sit on the hands and wait for the retracement's fruits. If you want to trade the Stretch pattern - you need to drop the time frame to ~15 min chart and search for bullish patterns there. This is very unstable and short-term pattern and the bounce to 2405 area is the one that it could achieve. If Gold will jump higher, showing bullish reversal - this is not about the Stretch. This will be something different. Stretch is just a product of the temporal overextension.

 

[Sive Morten]

Greetings everybody,

So, no new comments are needed about long term bearish scenario. We just follow our plan and wait for the bounce. But for intraday scalp trading setup we have some changes. It seems market starts the bounce that we've discussed yesterday:

On 4H chart price hits 5/8 support around our COP target and starts upside bounce.

On 1H chart we're getting clear H&S shape. So, if you would like to make a bet on PCE report and ready for pain or gain situation, this setup might be for you. On 4H chart above I also put the sign of potential grabber in a few hours. Keep an eye on it. If we get it - this will be the risk factor for bullish setup.

That's all actually. Bears sit on the hands, wait for bounce. Bulls (i.e. PCE gamblers) could consider this reverse H&S on 1H chart.