Gold GOLD PRO WEEKLY June 03 - 07, 2024

Sive Morten

Special Consultant to the FPA
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Fundamentals

As we've said yesterday in FX report - this week is reach of political events rather than economical ones. But few gold specific news at all. But in general, if you're tracking overall political situation it becomes clear that as D. Trump accusation as the US navy carrier Eisenhower rocket hit by Houthis, US-China ongoing piking as many other political events of this week strongly support demand for gold.

Market overview

This was very quiet week for the gold market. In fact, if you surf in big media headlines this week, barely you will find any dedicated to gold market. In fact major action has happened in the middle of the week, when gold prices gained on Tuesday, helped by a weaker dollar as investors look forward to U.S. inflation data due later this week for more clarity on interest rate cut timings.
"The dollar index is down and we are seeing the yield curve rates drop a little bit. Gold is coming off a correction and is hovering around resistance levels and now it's bouncing again," said Bart Melek, head of commodity strategies at TD Securities. We continue to be fairly optimistic on gold. I still think that ambiguity of Federal Reserve monetary policy may very well keep gold from taking off and moves be very much data dependent going forward."

Fed meeting minutes released last week showed that the policy response, for now, would involve maintaining the benchmark rate at its current level. Traders are pricing in, opens new tab about a 63% chance of a Fed rate cut by November. Lower interest rates reduce the opportunity cost of holding non-yielding gold.
"Gold prices are likely to remain fairly supported by buying-on-dips demand and central bank diversification," said Amelia Xiao Fu, head of commodity market strategy at Bank of China International.
Demand from global central banks for gold has been elevated for two years as they diversify their foreign currency reserves. Meanwhile, global physically-backed gold exchange-traded funds (ETFs) saw net outflows of 11.3 metric tons last week, according to the World Gold Council. End April saw global gold ETF holdings fall to 3,079t, the lowest since February 2020. But the higher gold price in the month extended total AUM by 3% to US$229bn. Gold ETF trading volumes increased across all regions, with a surge in North America, indicating continued investor interest despite outflows.

Physically backed gold ETFs saw outflows of US$2bn in April, further extending aggregate monthly losses.2 Continued gold price strength, especially during the first half of April, spurred fresh buying although failed to counter wider selling. Collective holdings fell by 33t, ending the month at 3,079t, 6% below the previous 12-month average. Meanwhile, gold’s positive price trend pushed total assets under management (AUM) up by 3% m/m to US$229bn, the highest since April 2022.

The average daily trading volume across global gold markets rose by 12% m/m, ending April at US$247bn. Trading volumes at the over-the-counter (OTC) market averaged US$126bn per day, 6% higher than March. And while traders at the COMEX cooled slightly (-8% m/m), average trading volumes at the Shanghai Futures Exchange (+92% m/m) and the Shanghai Gold Exchange (+34%) both jumped. But it is worth noting that volumes in Shanghai remain comparatively smaller than the COMEX despite recent surges.

Gold ETF trading volumes also rocketed (+70% m/m), with activities rising across all regions, indicating that investor interest in gold ETFs remains intact, in spite of continued outflows. North American gold ETFs were heavily traded, registering a 66% m/m surge. Total net longs at COMEX rose to 717t by the end of April, a 6% m/m rise. Money manager net longs reached a 45-month-end peak, arriving at 520t. This is 29t higher than March and 66% above the 2023 average (312t), mainly supported by a 4% gold price rise in the month.

So we already familiar with the chart of divergence between gold price and ETF holdings. But here I also would like you to show the same chart not in tonnes but in US Dollars and picture looks significantly different - divergence is significantly smaller:
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Q1 gold demand (excluding OTC demand) slipped 5% y/y to 1,102t, due to continued ETF outflows. Inclusive of sizable OTC buying by investors, total gold demand increased 3% y/y to 1,238t – the strongest first quarter since 2016. Global gold ETF holdings fell by 114t. Europe and North America both saw quarterly outflows, slightly countered by inflows into Asian-listed products. US-listed funds saw a positive shift late in the quarter. Technology demand for gold recovered 10% y/y as the AI boom boosted demand in the electronics sector.

The LBMA (PM) gold price averaged a record US$2,070/oz in Q1 – 10% higher y/y and 5% higher q/q. OTC buying by investors, while opaque, is reflected in the pace and scale of the price rise. CME net managed money positions, which can be used as a proxy, rose by 91t in Q1.Western and Eastern investors exhibited different behaviour. Western gold buying remained robust, but was met with healthy levels of profit-taking. This contrasted with strong buying into the price surge in Eastern markets.
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From the table below it is interesting to see that demand from Electronic and Technology sector is raising, as well as Central Banks demand. People are also buying coins and bullions, that we're calling for every time.
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The ‘no-landing’ viewpoint has shifted from marginal to mainstream, supporting a ‘higher-for-longer’ (H4L) policy rate outlook. Yet the growth outlook is precarious in our view, in need of further government spending support and reliant on shaky labour market health: both factors that open the door for event risk. Meanwhile, inflation remains sticky and the outlook seems to point once again to ‘stagflation’, which, in turn, is helping the case for gold and could encourage Western investors to join strong demand from central banks and Far East buyers.

The recent Bank of America (BofA) Fund Manager Survey revealed a material shift in economic expectations with the probability of a no-landing scenario for the global economy increasing from 7% to 36%. While a soft landing still gets top billing, this shift suggests market participants are expecting growth and inflation to stay strong throughout 2024; reflected in investors drastically slashing their rate cut expectations for - both in the US and Europe.

Although BofA denies stagflation for now, in recent months inflation and growth have seen several consecutive up-ticks. The original expectation for seven Fed rate cuts during 2024 has now been slashed to one, and even that has been pushed back. And while this has been going on, gold prices have breached all-time highs multiple times.

Gold’s resilience is well noted by now. Central bank demand and investor demand – particularly in East Asia – as well as a persistent geopolitical premium have helped gold dismiss the challenges presented by the current investment environment. But even if some of the EM demand we’ve experienced to date wavers, there is an additional trend that warrants attention: stagflation. And it has historically been one of the best environments for gold returns, as we discussed back in 2021 and again in 2022.
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US GDP and PCE inflation data on 25 April surprised markets. Following consecutive months of strong economic data and middling inflation, these two prints nudged stagflationary, with a dramatic drop in GDP (1.6% vs e2.5%) and an unwelcome rise in core PCE inflation (3.7% vs 3.4%). As we pointed out in March, growth and inflation surprise indices had been flirting with such a dynamic. Admittedly, net exports were a major contributor to the lower US GDP figure, but we believe fiscal assistance is supporting an economy more fragile than meets the eye. After all the fiscal spending announced since COVID is almost four times the size of the Marshall Plan post WWII

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So, while fiscal support is often welcome, it does create concentration and event risk if the underlying economy isn’t strong. And indicators of labour market fragility are plentiful:
  • Household survey has shown no growth for six months
  • “Jobs plentiful”4 and “job finding”5 indicators are slowing as are full-time jobs vs temporary jobs
  • Small business hiring plans are very weak
  • Bankruptcies are shooting up
  • Recent GDP downside revision shows signs of weakness in consumption as well.
Meanwhile inflation remains problematic, largely due to the shelter contribution to core inflation. A stagnant housing market is driving demand for rental accommodation; a situation unlikely to be resolved in the short term and one which keeps shelter costs high. Besides, now there are more signs that inflation remains elevated - US treasury has started 15 Bln QE, the US PSR is almost burned and the US needs to buy oil at current price levels, commodities are raising across the board, started 2nd stage of trading war with China will increase cost of imported goods for population, shipping costs are raising due problems in logistics in Red Sea.

As a result WGC concludes:
The levels of inflation and growth deceleration we are seeing now are not as precarious as those experienced during the 1970s period of stagflation. But our analysis suggests that we do not need a repeat of those extreme conditions for stocks to be under pressure. Conversely, gold will likely respond positively to the combination of sticky inflation and less-than-stellar growth. As we move from soft landing to higher-for-longer, and while the Fed is not in any rush to cut rates, the rest of the economic picture may provide more incentives for Western investors to join their Eastern counterparts in adding gold to their investment strategies.

SOME OTHER INTERESTING STUFF

I would call as "event of the week" India's central bank move of 100 tons of gold from UK to domestic vaults. India's central bank has moved a little more than 100 metric tons of gold from the UK to its domestic vaults, the Times of India newspaper reported, opens new tab on Friday, citing sources. A similar quantity of the precious metal might be coming to the country in the coming months, the report said, adding that the move was for logistical reasons and diversified storage.
The Reserve Bank of India held 822.10 tons of gold at March-end, of which 408.31 tons were held domestically. The RBI decided to move gold to India as the stock was building up overseas, the TOI reported.

Last week we've mentioned that Hedge Funds have record positions in gold. But somehow in most cases this position stands below 1% of total assets:
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It is clear that the main buyers are now Chinese physicists and various central banks, but such statistics, indicate that the growth potential of gold is not only not exhausted, but has not even been realized in principle. However, it should be noted that the conditional manager traditionally goes into gold when the stock market has collapsed, there are holes in liquidity, which are just closed by selling gold, the manager has lost his mind and is looking for where to put money now so that there are not too many risks. Well, or when a real negative return on treasuries arises due to rising inflation. We don't see either of them yet, so the bright future of gold is still ahead.

The current momentum is a signal to increase holdings in gold, according to Rajeev De Mello, global macro portfolio manager at GAMA Asset Management SA. Prices may now be vulnerable to a slight correction, he said, but any pullback is likely to bring in more buyers.
“It’s a relatively small market and it can squeeze higher very fast,” he said, comparing it to the size of US government debt securities. “It’s a very momentum driven asset, really.”
One key factor has been enthusiasm among central banks, encouraging buyers like Matthew Schwab, head of investor solutions at Quantix Commodities with $933 million under management. The firm’s long-only fund has been overweight gold since 2022, with bullion’s weighting around 30% — compared with about 15% in the Bloomberg Commodity Index.

There’s one further reason to expect another boost. Unusually in this environment, investor demand for gold-backed exchange traded funds — typically a key driver for bullion — has yet to materialize. In fact, total holdings are close to the lowest level since 2019, according to data compiled by Bloomberg. According to Ben Ross, who manages about $410 million in commodities strategies at Cohen & Steers, that’s largely explained by investors chasing returns in the money market. But once the Fed actually deploys its planned rate cuts, that will eventually trigger fresh inflows into ETFs and give gold prices a further boost. That, argues MacInnes, will create a very squeezed market.

Gold, silver and copper rally has just taken a breather — new highs are not that far off, experts say. While all three are off their perch currently, they are still trading hovering near record highs, with analysts expecting prices to strengthen over the next 12 months.
“While geopolitical risks continued to bolster haven demand, an impressive rise in China’s gold demand in Q1 2024 has largely fueled the price rally,” ANZ’s strategists wrote.

UBS strategists in a note last week raised their forecasts for gold to $2,500 per ounce by the end of September, and $2,600 by year-end. The bank’s bullish outlook is owed to stronger Chinese demand, on top of a series of soft U.S. data in April, which has driven some repricing of expectations for U.S. Federal Reserve rate cuts. Higher rates tend to pressure gold as they make Treasuries — also a safe-haven asset — a more attractive option for investors.
“We think gold can continue to make new highs,” UBS’s Precious Metals Strategist Joni Teves told CNBC’s “Street Signs Asia” on Monday.

Silver tends to play “second fiddle” to the yellow metal, the two share a positive correlation when it comes to prices, albeit with a lag on silver’s part.
Silver has been arguably even more interesting - finally it managed to enjoy some decent catch up with gold,” Nikos Kavalis, managing director at precious metals research consultancy Metals Focus, told CNBC via email.
He elaborated that as the market gets more comfortable and convinced of gold’s bullish run, more of these investors are turning to silver.
“We think [silver is] actually the best placed precious metal to really benefit from higher gold prices. There’s a very strong correlation there,” said Teves.
She added that when the Fed eases, silver is in a “good position to really outperform gold,” especially as supply and demand fundamentals remain tight.
“Slower mine production growth and strong industrial demand suggest supply is lagging demand, which will keep the market in a structural deficit,” said Daniel Hynes, senior commodity strategist at ANZ.

The same is suggested for copper. Citi investment bank’s base case now is for consolidation in copper prices over the next three to six months, but believes that copper still has room to rally further, depending on the degree of the Fed easing and the global manufacturing recovery.
“We still firmly believe that copper is on a path to $12k/t, and $15k/t in our bull case over the next 12-18 months,” Citi’s strategists said.

CONCLUSION:

Here probably we should post some big political news, but major of them we cover in Telegram and all them are supportive for Gold market. As we've said - in nowadays all political news could be only negative, hence supportive to gold.

But instead we would like to mention couple of moments. We've signed that not only we start speaking about the Fed and US Treasury tricks around stocks and bond markets. As we've explained yesterday, speaking about "world reserve currency" role, for the US it is vital to keep control over financial global market and transaction rather than goods and commodities market. So they will carry about stock market bubble right up the end:
For now, clever traders and speculators can, will and should keep their eyes on a DXY (and Dollar) which, like the markets, can and will gyrate on the wings of a vast range of current and pending liquidity (backdoor QE) tricks, from the Treasury General Account, the repo markets and Supplementary Leverage Ratios to the Treasury’s Quarterly Refunding Announcements. These same tricks (artificial liquidity-deck-chair shuffling on the Titanic) can have short-term implications on moving equities as well, perhaps buying more time for an otherwise narrow and entirely Fed-supported basket case S&P et al. But what these same liquidity tricks are hiding in plain site is that America’s fiscal problems have gone from embarrassing to the iceberg-level desperate, and investors are measuring their “liquidity-supported” returns with an openly diluted Dollar, Matthew Piepenburg from "Gold Switzerland" said.

Now stock market shows unbelievable thing. It has lost any relation to real economy as it was just few years ago. We have to ways right now - everything bad while stock market rallies, like in the US. And everything is more or less good but stock market tumbles, like in China. So, stock market is no more the barometer of real economy conditions but just the tool in the hands of regulators that could move it for achievement of some points. Particularly in the US, keeping bubble growing the Fed and US Treasury support GDP in positive zone, support consumption because nominal wealth of population is raising and preserve global interest to dollar denominated assets as they show solid return.

Everyone believes in miracles. Into a soft landing, victory over inflation and other myths and legends. It is generally a human characteristic to believe in the good and try not to think about the bad, until the moment comes when the entire market begins to see the light and understands that paying 20-30-40x P/E for companies from which booming profit growth was expected, but in reality They deflate at the first sign of a recession - it's too expensive. t was the same with mortgages - everyone simply ignored the signals they received that they had something ugly and foul-smelling wrapped in a beautiful wrapper.

In general, the market usually does not reassess risk/return until the very last moment, when the onset of a severe crisis is obvious even to the average person. Well, the media usually try to do this too. So it was, is and will be.

And the last thing for today. Recently I've read an interesting thoughts - linking the crisis to the elections. This is not something new. We've considered it as well, hinting on possible Fed's action in July. But here is a contrary opinion.

In the sense that neither the Fed, nor the government, nor a large company like JP Morgan will allow any acute phase of the crisis until the elections are held. In general, there is logic in this, but I would like to remind you that the 2008 Obama elections took place in November, just when the crisis was raging in full force. That is, then they finally allowed it to happen before the elections. And then the combo comes to mind...

Trump said he doesn't want to be the next Hoover, whose presidency included the Great Depression. In 2019, the bank repo crisis, which was supposed to start the 2020 recession but was replaced by the sudden covid crash, was essentially initiated by JP Morgan, which stopped lending to other banks. Then the Fed got involved and began pouring liquidity into banks. Jamie Dimon, CEO of JP Morgan, Republican. Fed Chairman Jerome Powell too. One of two things - either it's a coincidence or it's not. So, it might become the set up of the century...
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Technicals
Monthly

This week market has spent in rather tight range, so as on monthly as on weekly charts we have almost no changes. As we've said last week 2456 is an important quarterly upside target. So, price is flirting around it since then. Due to strong overbought technically gold can't keep going higher right now. May has become almost an inside month:
gold_m_03_06_24.png


Weekly

While here we have confirmed bearish DRPO "Sell", suggesting deeper retracement. Currently it makes sense to watch for 2260$ area as a combination of weekly oversold and 3/8 Fib support. But, DRPO potentially has deeper target, somewhere around 2200$ area:
gold_w_03_06_24.png


Daily

Daily chart keeps bearish context and nearest destination point stands around 2262-2272 K-support area. This is also daily oversold and potential neckline of Double Top pattern. Upward continuation that we've suggested on Friday has happened, but was reversed by PCE report.
gold_d_03_06_24.png


Intraday

4H picture starts looking so that 2nd leg of upside retracement that we were considering has failed. Price shape now looks like flag consolidation. Besides, signs of bearish dynamic pressure have appeared. While MACD points up, price is forming downside action:
gold_4h_03_06_24.png


So, as we've said - 1H upside flag breakout was nice, but reversed on PCE report. So maybe we could start next week with recent sell-off. If our suggestion on failed higher retracement is correct, then gold should start moving lower and we could keep an eye on Fib resistance levels for position taking (Once again - only for those who accept short trading positions on gold).
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Morning everybody,

So, on Gold market we have a bit tricky picture. While other markets as EUR, DXY, Bonds show bullish context, on gold we have bearish trend, potential DRPO "Sell" pattern on weekly chart. On daily chart market stands for a long time above minor 2330 support level, which might be treated as a bullish sign. At the same time we could argue that gold can't start upside action...

Whatever it is, we suggest that bears have more points right now.
gold_d_04_06_24.png


Additionally to DRPO on 4H chart we have bearish dynamic pressure and flag consolidation:
gold_4h_04_06_24.png


On 1H chart our setup in general works, although upside bounce was above major Fib levels due to data release that appeared to be softer than expected. But, now gold is accelerating lower. Taking it all together, we can't speak about long position now because context stands bearish. So you want to buy gold - it makes sense to wait. If you're ready to sell - you could consider patterns mentioned above and try to take short position.
 
Greetings everybody,

Gold now is most boring market among the others, just moving nowhere. Weekly/daily bearish context remains intact. So, hype around gold is fading, investors turn attention to other subjects. We suggest that gold could reach at least 2260 or, potentially, if DRPO will work - 2200$ area. So, if you would like to make an investment, it makes sense to wait a bit:
gold_d_05_06_24.png


On 4H chart it remains inside the flag. Bearish dynamic pressure is still forming. Here I want to show you very important chart - 4H on COMEX. Just compare it with the chart below. They are very different. Although COMEX chart also has growing bearish pattern - it is different. Always check your trading ideas on Futures charts...
gold_4h_05_06_24.png


On 1H chart downside action and challenge of the lows has happened, but lows were not broken. It means that currently we could wait for the next attempt to sell around 2350$ targets level and channel's border.
gold_1h_05_06_24.png
 
Greetings everybody,

Gold shows its bullish character... yesterday 10-year yields have dropped to 4.3% boosted gold action, so upside action was higher than we've suggested. Still bearish context is not destroyed. Today we could get bearish grabber on daily chart. You can't see it on Retail Broker charts but COMEX shows it clearly.

As we've said - market has too much room until vital area of 2400$ for bearish setup. Thus, today's upside break doesn't mean yet the failure of bearish context, and particularly speaking weekly DRPO "Sell" pattern. We should get some clarity from NFP report:
gold_4h_06_06_24.png


On 1H chart our 2330 targets have been completed, but due to breakout we have to consider a few others. First one - nearest XOP is done as well, while another one still stands untouch. To keep bearish scenario valid, market should stop on current XOP. Otherwise daily grabber will not be formed:
gold_1h_06_06_24.png


Since grabber is not confirmed yet, we have NFP tomorrow and still no pattern on intraday chart - it makes sense to wait a bit. Mostly we're interested with validity of bearish scenario. Could gold keep it...
 
Greetings everybody,

So, gold shows exactly the cunning action that we've discussed. As we've said bearish context has invalidation point around 2400$ area and this might be the headache if you plan to go short. Because if gold will close around 2300 this week - you will not see anything bad on weekly chart. There we still have perfect DRPO "Sell". But all fluctuations remain here, on daily and intraday patterns.

Now, on daily chart, if we get close around 2330 or lower we could get, as I call it "2-day grabber". It works similar but takes two bars to be formed. Besides Friday might become a reversal session as well:
gold_d_07_06_24.png


On 4H chart price drops back in flag consolidation, which is bearish sign as well:
gold_4h_07_06_24.png


Although we don't like it, but gold still has completed 2-nd higher stand XOP target. This is the reason why our daily grabber has not been formed yesterday. Interesting that gold is dropping despite drop of the US Dollar and yields. This tells that gold is really overheat, needs deeper retracement and breath taking. So we suggest no hurry with the new long positions.
gold_1h_07_06_24.png


Speaking about short positions - this is up to you. Because NFP still stands ahead and whole bearish context is based on unconfirmed patterns and price levels. We do not know where today's session will close, right? So patterns that we see and which are the core of bearish background are not confirmed yet as well. We could not get them by the end of the week. So, we prefer to wait.
 
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