Gold GOLD PRO WEEKLY, July 25 - 29, 2022

Sive Morten

Special Consultant to the FPA
Messages
16,471
Fundamentals

Recent upside reaction on gold market was not totally unexpected, as we've suggested upside pullback in our daily updates. But, by looking at the strength of the reaction hardly it was triggered by purely technical factors. ECB decision is also weak driver for the gold. Most media tells about rising fears of recession that supposedly have become for gold reversal. Well, maybe, but why on this week when we had no important statistics? It is still unclear. My suggestion that market starts showing occasional unexpected spike by some cumulative effect of rising markets concern and week fundamentals, which from time to time trigger upside reactions. While gold market comes closer and closer to our major 1660-1680$ support area, these reactions should become more often.

Market overview

Gold held near an 11-month low as traders assess the outlook for further monetary policy tightening and the impact on global growth. Bullion hovered above the $1,700 an ounce level as it continued to be pressured by the strength of the US dollar, a sign of the prevailing caution in global markets. Still, a gauge of the greenback has retreated from a record hit last week.

“Gold has not been living up to its reputation as an inflation hedge and safe haven in times of crisis of late,” Commerzbank AG analyst Carsten Fritsch wrote in a note. “Although inflation rates in the US and Europe are higher than they have been for decades, and have been rising further recently, the gold price has been under selling pressure for weeks.”

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Investors are awaiting the Federal Reserve’s meeting July 26-27 for a hint on how aggressive the central bank will be in raising interest rates to tackle soaring inflation. For now, the latest US data reinforce policy makers’ support for another 75-basis-point hike, according to Bloomberg Economics.

“The Fed might not need to tighten policy as aggressively as markets were initially thinking, but the rate-hiking cycle could last into early next year,” said Edward Moya, senior market analyst at Oanda Corp. “The dollar is weakening to start the trading week, but this might not be the top, which means gold might struggle to make a move above anywhere close to the $1,750 level.”

Investors continued to shed holdings of bullion-backed exchange traded funds ahead of central bank meetings over the next week that may result in more aggressive interest rate hikes. The precious metal has hovered in a narrow trading range since late last week as a gauge of the greenback retreated for three straight sessions through Tuesday in a sign of waning haven demand. Holdings in gold-backed ETFs have dropped for 15 days, the longest stretch since March 2021, according to initial data compiled by Bloomberg.

Net selling in gold and precious metal funds stood at $1.1 billion, a 63% bigger outflow than the previous week. At the same time global equity funds recorded their biggest weekly outflow in five weeks in the week to July 20, on investor caution ahead of crucial central bank meetings in which rate hikes are expected to be announced. According to Refinitiv Lipper, investors offloaded a net $13.79 billion worth of global equity funds, marking the biggest weekly outflow since June 15.

Also weighing on gold is ongoing selling by exchange-traded fund investors, Commerzbank AG analyst Carsten Fritsch said in a note. Investors have withdrawn more than 100 tons from gold ETFs during the past four weeks. ETFs recently saw outflows on 17 consecutive days,” he said.

We don’t expect a sustained improvement in market sentiment until investors get greater clarity on the outlook for the economy, central bank policy and political risks,” UBS chief investment officer Mark Haefele said in a note. “Uncertainty in all of these areas remains elevated, in our view.”

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Standard Chartered Suki Copper said we believe gold prices are holding up remarkably well given the pressures that the market's facing at the moment in terms of the dollar's strength. Such a sharp move. In the past we've seen gold breaching that $1700 level and testing the downside. But here we've seen prices holding up quite well. The physical market's been quite price elastic but also says concerns that inflation may remain elevated for a longer period of time. That hasn't seen its core investors or ETF investors heavily shorting gold just yet. Yes they've scaled back their exposure. We've seen that redemptions across the across the gold ETF impact July's on pace to be its fastest month of outflows in almost a year since March last year. And tactical positioning has been scaled back close to neutral. So it hasn't.

Gold prices could be expected to come under a lot more downside pressure. Say if you go back to 1980 where we saw this sort of pace hiking gold on an annualized basis lost 20 percent. But for gold prices to really rally we think we need to see a few factors come into play. Firstly a stabilization in those ETF outflows. Secondly we need to see if that physical market is still price elastic. We're now entering the seasonal slow period for consumption for gold. So that floor is quite vulnerable in the near term. But also we need to see that the market has already priced in a lot of this downside risk. And if we look at that tactical positioning we can see that it was actually quite elevated with the first hike back in March but now it's being rapidly scaled back. So we think there's actually scope for a relief rally coming up to the July FOMC meeting where we could see a little bit of a bounce and perhaps prices edging back towards $1750 the near term.

UBS Group AG’s wealth management unit has cut its gold forecasts to $1,600 at end-September and end-year from $1,800 and $1,700. Citigroup Inc. also flagged a potential drop to around $1,600 at some point in 2022.

Gold has lost more than $110 in July alone as traders increased bets on a full percentage-point increase in US rates after the consumer price index in June came in with a scorching 9.1% annual gain. That’s been dialed back as policy makers expressed reluctance about such a big move. The Fed is now expected to hike by 75 basis points for a second straight month when it meets later in July. The rest of the tightening cycle will depend on prevailing economic data and any evidence that prices are stabilizing.

“Dollar strength is likely to continue,” said Kristina Hooper, chief global market strategist at Invesco. “The Fed’s relative hawkishness versus other major central banks should help support the dollar.” But there may “be bouts of popularity” for the precious metal if geopolitical tensions increase or inflation doesn’t peak soon, she said.

Both Citigroup and UBS see prices reaching a trough this year before rallying in 2023. A drop to the $1,600 level is likely to be short-lived and attractive for investors, Citigroup analysts including Aakash Doshi said in a July 12 note.

Others remain confident in the metal’s role in a portfolio for diversification benefits. “Gold has done better than US cash holdings in real terms during this period of volatility, and even better in other currencies.” said Evy Hambro, global head of thematic and sector-based investing at BlackRock Inc.

Gold rose, erasing its previous decline to the lowest level in 15 months, after the European Central Bank raised rates by a larger-than-expected 50 basis points. European stocks and bonds slumped and the euro rose after the ECB joined global central banks in driving outsized rate increases to quell inflation. Bullion climbed back above $1,700 an ounce. Thursday’s increase, the first interest rate hike in 11 years by the ECB, comes as a brewing political crisis in Italy ramps up the pressure on the central bank to shield the most vulnerable euro-zone members from market speculation.

Before the ECB’s decision, bullion had been struggling to maintain its traditional status as a haven asset, according to Jeffrey Halley, a senior market analyst at Oanda Corp. Should support at around the $1,675 level fail, there’s a risk prices could fall further toward $1,450 to $1,500 an ounce, he said.

More than 5,000 “butterfly” call spreads centered around $1,825 an ounce traded Thursday, according to data compiled by Bloomberg. Here is how it looks like:
1658662043882.png

Gold held onto gains and headed for its first weekly advance since early June as investors weighed renewed concerns over economic growth. Bullion’s reversal comes with more economic data fueling fears of a recession. US business activity contracted in July for the first time in more than two years, according to data released Friday, adding to a slew of indicators earlier in the week that are painting a gloomy outlook. Meanwhile, a gauge of the greenback has retreated from its July 14 peak.

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“The preliminary PMI data for July point to a worrying deterioration in the economy,” Chris Williamson, chief business economist at S&P Global Market Intelligence, said in a statement. Manufacturing has stalled and the service sector’s rebound from the pandemic has gone into reverse, as the tailwind of pent-up demand has been overcome by the rising cost of living, higher interest rates and growing gloom about the economic outlook,” Williamson said.

Similar results were seen in Europe. The group’s index of activity in the euro area unexpectedly shrank for the first time since early 2021. Output worsened among manufacturers, while growth in the service sector came close to stalling.

The US contraction was led by a steep decline in service-sector activity. The group’s services gauge slid to 47, the lowest print since May 2020. Excluding the pandemic, the July figure was the weakest in records back to 2009. Even so, firms continued to add jobs at a solid pace. Firms’ expectations for the future also deteriorated, falling to the lowest since 2020, as weaker demand and inflation weighed on sentiment. While the employment gauges signaled continued growth in July, the report said more firms mentioned plans to cut costs and reduce staffing numbers.

We've considered PMI and recent survey with more details in our FX Report yesterday.

“We are finally starting to see some weakness in the US dollar index, as gold bounces off an oversold level, recovering above $1,700 for now,” said John Feeney, business development manager at Sydney-based bullion dealer Guardian Gold Australia. “We now expect this initial flight to the US dollar to start rotating back into gold as investors search for a true and reliable hedge against inflation.”

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Investors will closely watch the Federal Reserve’s meeting on July 26-27 for clues about its monetary policy path.

Personally, guys, I do not believe that ECB decision has triggered the gold rally and think that PMI data has more chances to do it, as it really looks discouraging. Hopefully, you've read our FX report yesterday where we talked about ECB and Fed recent activity. Things that we've seen look not very pleasant. As Fed as ECB ignores all promising on tightening and keep printing money by announcement of new QE that now calls as TPI in EU, while Fed just silently keep providing liquidity to the market, breaking announced QT shedule. It means the only one thing - inflation keep going higher and we do not see any reasons to agree with big banks that it should slow down.

As we said previoulsy - one of the nearest signs of economy difficulties should be rising unemployment. Here we go - Initial claims are rising for eight consecutive week, reaching the level of 2020:
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While shares of AT&T slumped for 11%. Do you know why? Because people postpone payment for the phone, having problems with the wealth. AT&T triggers the same drop among other companies, such as Verizon:
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I would ask you - if people start saving money on the link, what you could expect from economy?

Thus, we make a suggestion that recent gold jump is an indicator that more and more people start to understand what is going on. As lower gold will go and as more evident signals we get from economy statistics - the higher demand for the gold will be. Thus, we agree with two conclusions made above -

  • Guardian Gold Australia - We now expect this initial flight to the US dollar to start rotating back into gold as investors search for a true and reliable hedge against inflation.”
  • UBS - We don’t expect a sustained improvement in market sentiment until investors get greater clarity on the outlook for the economy, central bank policy and political risks
Second point is now stands under way, and as more data we get the more evident situation becomes. Statistics shows not temporal problems as Fed suggested but long-term structural crisis and the safe haven is not the Treasury Bonds. Once this becomes as major opinion - investors turn to completion of 1st mentioned point - search for true and reliable hedge. And they come to the gold, no doubts.

We suggest that gold could rise two-three times as result of this crisis, at least to $3500-5000 per Oz. Ultimate crisis scenario with tail probability could suggest even more radical rally, up to $20K/Oz, but this is in the worst case.

And gold price manipulation by central banks and their dealers now start playing very definite role. Previously I already talked about it, that gold markets are controlled artificially by big futures positions without delivery and controlling investors minds, spreading the information that gold is not attractive now. But Basel III requirements show the truth - they oblige banks to disclose their derivative positions. Just take a look at this - $500 Bln !!! When the whole market capitalization stands for ~ 5000 tonnes or ~$300 Bln annually. Free float of the market is two times smaller. We've talked about it in recent report.
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Thus, don't be surprised why gold market is dropping - because central banks and primary dealers control it with 500 Bln futures positions. It is interesting from the chart that position starts growing as soon as global economy situation starts deteriorating. Since 2017 banks need to make growing efforts to control situation. Once demand for physical gold delivery start rising the $500 Bln could blow.


Bumpy ride on next week

We think that turning point on the gold market is approaching. We consider 1660, while Citi, UBS consider 1500-1600$ and tell that 1600$ drop will be very short-term. For long-term period it is no difference between 1660$ and 1600$. But the point is not only with technical markings. Fundamentals... they should make reversal closer. Yesterday we already talked about 27-28 of July next week. It is important for the FX market, but for the Gold market it might be even more important. Take a look:

Microsoft and Alphabet Inc. (Google) are expected to report earnings on 07/26/2022 after market close. According to Zacks Investment Research, based on 12 analysts' forecasts, the consensus EPS forecast for the quarter is $1.28. Microsoft EPS according to Zacks Investment Research is $2.28. The reported EPS for the same quarter last year was $2.17. It is rumor that reports will be worse than expected.

Finally, on 28th of July, the US economy officially steps in recession as IIQ GDP numbers will be negative:
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Next day we also get PCE index, personal income and consumption that are also vital to the whole picture. So, be prepared to verbal intervention across all media screaming "recession, recession..." Within these two days of 27-28th we expect big collapse on stocks and cryptocurrencies. This, in turn, could provide positive impulse to the gold, that actually already stands under way.

To be continued...
 
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Sive Morten

Special Consultant to the FPA
Messages
16,471
Technicals
Monthly

From technical point of view, the recent bounce is absolutely logical thing as price enters our super strong support area. With the recent week lows of $1680 gold touches YPS1 level and monthly K-support area.
OP target at $1672 barely has not been touched. But, as you understand the 8$ difference for the monthly chart is very minor difference.

UBS expected 1600$ area hardly will be tested any time soon because of monthly oversold level at 1660$. For strategic investments, it seems that current level could be considered for gold buying, at least at some fraction of total position. With some circumstance, gold could start reversal right from here. In fact, we have huge "222" Buy here, with absolutely superb support area of 1660-1680$.

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Weekly

This time frames shows nothing revolutional yet. Bounce starts from oversold and XOP target, while close price still stands in the range of the previous week. Thus, we haven't got any reversal signs by far. Next week should provide more clarity:
gold_w_25_07_22.png


Daily

Daily trend has turned bullish. Here we intend to continue the same work as we've announced on Friday. Reversal bar provides good chances on further upside action. As volatility is promised to be high we could get as longer-term bullish reversal pattern as short term patterns, such as B&B "Sell" or maybe DRPO "Buy":

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Intraday

4H trend stands bullish as well, and by MACD Predictor it should remain bullish, if even price drops to 1703$ support area:
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As we haven't got minor H&S pattern on Friday, it seems that we could watch for the bigger one, something like on 1H chart below. Gold is tending to ultimate 1.618 butterfly upside target, that coincides with major daily resistance and 1750$ level, mentioned by Suki Copper from Standard Chartered.

This level is also potential neckline of large H&S pattern. Besides, around 1750$ the daily B&B "Sell" could start, if we're correct on H&S. So, as you can see - a lot of things to do on gold market next week:
gold_1h_25_07_22.png
 

Sive Morten

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

Just take a look at this - the chest is opening easier than everybody thought:
Three Large American Multinationals Bought 17 Million Hectares of Ukrainian Agricultural Land

Three large American multinationals bought 17 million hectares of Ukrainian agricultural land.

These are Cargill, Dupont and Monsanto (which is officially German-Australian but with American capital). Five percent of Ukrainian agricultural land was subsequently purchased by the Chinese state. For comparison, the whole of Italy has 16.7 million hectares of agricultural land.

In short, three American companies bought more useful agricultural land in Ukraine than the whole of Italy. Among the main shareholders of these three companies are Vanguard ($6Trln under management), Blackrock ($10Trln under management), Blackstone ($881 Bln). Bankers, bankers once again... everywhere.

(5% of Ukrainian agricultural land was subsequently purchased by the Chinese state)

Who is speaking on coming starvation and lack of food? Right, those who control it! It seems it is already planned-in... And it is not surprisingly once again that the greed is the background of all woes.
 

Sive Morten

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

So, gold market also stands in tight range, waiting for the coming big events. First important thing that we should adjust here is suggestion of B&B. As market already stands for the 4th day above 3x3 DMA and has not reached 3/8 FIb level - no B&B could be formed any more. Thus, if any DiNapoli pattern will appear here - it might be only DRPO "Buy".
gold_d_26_07_22.png


On 4H chart price is forming triangle consolidation, that stands more in favor of spike to 1750$ resistance area and supports our weekend idea of possible reverse H&S pattern.
gold_4h_26_07_22.png


With this scenario also agrees AB-CD COP target here, on 1H chart and, who knows, maybe minor butterfly "Sell" will be formed - the same as on EUR later.

At the same time, as we've said above, it could be DRPO, that suggests some downside spike to 1700 area to form the 2nd penetration of DMA on daily chart. And it could happen if we get different shape of H&S, with sloped neckline.
gold_1h_26_07_22.png


To understand what scenario is forming now - keep an eye on "C" point. Downside drop suggests sloped H&S and DRPO "Buy" on daily, while upward action to COP stands in favor of our intial plan with horizon neckline around 1745-1750$ area.
 

Sive Morten

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

So, Google and MSFT have shown worse that expected earnings, as we've suggested. The miss is not vital, but still...
As all markets across the board just wait for the Fed, nobody knows anything - this leads to random walk on intraday charts that confuses technical picture, makes it blur. With the recent performance, it seems that chances on DRPO on daily chart are higher now than direct upside continuation - some spike down to 1700 area should happen before upward action starts.
gold_d_27_07_22.png


A the same time, gold stands stable and starts forming signs of bullish dynamic pressure:
gold_4h_27_07_22.png


1H chart is most blur. Gold has not formed upside butterfly pattern, slipping down to major support area. We have re-adjusted "C" point of AB-CD pattern. Although minor divergence is forming here, but we still worry on possible downside spike first.

In current circumstance, best choice by our view is to keep patience and wait for clear patterns. Position could be taken "approximately" somewhere around, with stops below 1700$ but it would be acceptable if we wouldn't have Fed and GDP on horizon. Now this adventure might be rather costly...
gold_1h_27_07_22.png
 

Sive Morten

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

So, gold has shown proper performance on Fed statement. As we expect IIQ GDP negative, we should discus few technical moments here. First is, on daily chart we have neither B&B nor DRPO. Performance probably could be called as B&B Look-alike. But, with our view on GDP, we do not consider taking short position:
gold_d_28_07_22.png


Now the question is with the H&S shape. As you can see - our triangle has been broken up, as we've suggested and price is around horizon neckline. But, here we have two problems. First is GDP again. Negative numbers definitely push gold higher without any right arm forming. Second - we already have the H&S, that we discussed yesterday on 1H chart:
gold_4h_28_07_22.png


1H H&S perfectly fits to overall situation as upside action already stands under way and right arm is formed. Here few options how we could act. First is - use the most recent upside swing for position taking at some Fib level with stop below the lows. Second - use Stop "Buy" order slightly above COP target, put it closer to GDP release moment. Or use some combination of these two ways.
gold_1h_28_07_22.png


Investors do not believe in aggressive Fed policy any more, suggesting one, maximum two rate changes, as 1-year yields already equal to 10-year and just 0.7% above Fed rate now. This is perfect long-term combination for the gold. While economy turns to recession, inflation will keep going higher, turning rates in more negative territory.
 

Joshnix

Corporal
Messages
109
How much of this run into gold has to do with Russia and China creating a new reserve currency based on rare earth metals?
 

Sive Morten

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

So, as I already said in today FX update that we present at epic event - Fed's defeat. Here is what Yellen said about recent data. Enjoy.

It means that the consequences of this day will spread over long time and current rally that we see across the board is not a 1-day performance. It should stay for awhile.

On daily chart this gives us more confidence with our 1800-1805 target which probably should be reached on the next week:
gold_d_29_07_22.png


Technically we're following with AB-CD pattern. OP @1770 mostly is done. So, if you have longs - you need to make decision what to do as we're coming to the weekend. Second step is to watch for the pullback to one of the levels. For instance, we could get B&B "Buy" around 1750$... Next target is 1805 - XOP. Currently we do not consider any new short positions by far:
gold_4h_29_07_22.png
 

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