Gold GOLD PRO WEEKLY, June 10 - 14, 2024

Sive Morten

Special Consultant to the FPA
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Fundamentals

For the gold market only Friday has become the decisive session, while market was quiet through the week. Decreasing of Central Bank purchases and strong NFP report have triggered solid sell-off on the market. In general market was ready for deep retracement few weeks ago. Technically it was seriously overheated. But due to central banks' support it was holding on surface. From strategical and investing point of view we see opportunity here to get gold at much better price. Because major sources for gold growth are still working.

Market overview

On Monday market was feeling good yet, as weaker-than-expected U.S. economic data cemented expectations that the Federal Reserve would cut interest rates later this year, sending the dollar and bond yields lower. Data showed U.S. manufacturing activity slowed for a second straight month in May, and U.S. construction spending fell unexpectedly for a second consecutive month in April on declines in non-residential activity. Data on Friday showed that the U.S. inflation had stabilised in April, suggesting the U.S. central bank's interest rate cut plans later this year remained intact.
"We've had a bit of a pullback, we'd prefer to call it a consolidation. But again, the underpinning positive bias really comes from strong expectation that we are moving towards a interest rate cuts at some point later this year," said David Meger, director of alternative investments and trading at High Ridge Futures.

But on Friday situation drastically has changed. Gold dipped below $2,300 an ounce, falling the most in almost three years as surprise strength in a key US jobs report dashed hopes that the Federal Reserve will be able to start lowering borrowing costs soon. Treasury yields and the dollar surged after the US government’s May employment report showed job growth exceeded expectations and wages were hot. Bullion slumped as much as 3.7%, the most since August 2021, while silver tumbled 7%. Base metals also extended declines.
“A strong jobs report reversed a great deal of the rate cut excitement that had built during the past week,” said Ole Hansen, head of commodity strategy at Saxo Bank AS. “This report removes hopes for earlier rate cuts, with sticky wage growth and robust employment in need of high rates to cool.”

The Labor Department's report showed Nonfarm Payrolls (NFP) rose by 272,000 jobs in May, against expectations of an increase of 185,000. Traders lowered their bets to price in 37 basis points (bps) of cuts by end-December, from 48 bps before the NFP data, with the first cut more likely seen coming in November instead of September.
The gold market is seeing a bit of liquidation, along with other metals since the data shows the U.S. economy is quite robust and the Fed may delay that first cut, said Phillip Streible, chief market strategist at Blue Line Futures.
"We will find out today whether gold has the stomach to absorb the one-two punch of a strong employment report and a pause in Chinese buying," said Tai Wong, a New York-based independent metals trader.

After surging to a record above $2,450 an ounce, bullion has traded in a fairly narrow range amid the uncertainty over the Fed’s rate trajectory. Swap traders now no longer fully price in a rate cut before December. Gold was already trading lower earlier Friday as data showed that China’s central bank didn’t buy any gold last month, ending a massive buying spree that ran for 18 months and helped drive the precious metal’s rally. The People’s Bank of China had been stocking up its reserves since November 2022, leading a flurry of purchases by the world’s central banks amid rising geopolitical tensions.
“My initial thought is that China, a major driver of the gold rally in the past year, is nowhere near done buying gold,” Hansen said. The pause shows that they are balking at the prospect of paying record-high prices.

There had been signs that China’s demand was cooling as higher prices took their toll. In April, the PBOC bought only 60,000 troy ounces, down from 160,000 ounces in March, and 390,000 ounces in February. The country’s imports in April, meanwhile, slipped 30% from the previous month. The risk for gold bulls is that China’s voracious appetite for bullion has left the precious metal vulnerable to any potential shift in demand.

Spot prices for gold fell 1.5% after the People’s Bank of China said its bullion holdings were unchanged at the end of May. The bank had been stocking up its reserves since November 2022, leading a flurry of purchases by the world’s central banks amid rising geopolitical tensions.
The initial price reaction “looks a bit technical,” said Nicholas Frappell, global head of institutional markets at ABC Refinery in Sydney. “It would be surprising if the announcement represents anything other than a pause in the general trend of ongoing official sector demand.”

The S&P/TSX Composite Gold Index slid as much as 6..2%. Silver, platinum and palladium all tumbled, with silver seeing the biggest intraday drop since February 2021. Among base metals, copper dropped as much as 3.9% to its lowest since May 2, and zinc saw its biggest intraday decline since October 2022.
But analysts at TD Securities wrote in a note that while the China news notably hit the yellow metal, "the pause in purchasing could just be a hint of a return to a more price sensitive operation given the run up in prices."

It seems improbable, if not impossible, that the Federal Reserve will cut interest rates next month. That prospect hardened after blowout May payrolls report, with both the headline number and wage growth coming in above expectations. But there’s a concern lurking here, and Mohamed El-Erian picked up on this theme today after seeing the numbers: The longer the Fed remains on hold, the more damage gets done to an economy that appears strong on the surface but is showing more signs of fragility ahead.
“I do focus on the forward-looking data,” said El-Erian, the president of Queens College, Cambridge, and a Bloomberg Opinion contributor. “That is weakening significantly.” “It does close the door on a July rate cut. I think that is it — almost regardless of what the CPI number says next week,” El-Erian said. “But then step back and ask the question of reconciliation with other data. And then the story gets a lot more interesting. You have this situation where the backward-looking data is strong, the forward-looking data is weak. We’ve got to sort of reconcile those two things.”

For BlackRock’s Jeff Rosenberg, today’s report not only choked off the prospect of a July cut but teed up a “debate about whether or not policy is indeed restrictive as the Fed thinks it is.”
“And this is a little more evidence to bring that debate back into the fore that you have the big financial conditions easing, and we may not be as tight as we think we are,” Rosenberg said.

That debate will spill beyond the Fed’s meeting room next week and onto Wall Street as some forecasters tinker with their models. Citigroup’s Andrew Hollenhorst changed his call for a rate cut to September from July. Others got validation today. Becky Frankiewicz at ManpowerGroup had predicted that May would provide evidence of a “great staycation” for US workers, as employees stayed put and bosses refrained from layoffs.

Morgan Stanley’s Ellen Zentner said beforehand that the slowdown catching everyone’s attention recently was to be expected, a sign that the Fed’s rate policy was working. But she doesn’t have a recession in her forecast, and her pre-report call on the Fed held up well after the data: “The bar is insurmountable for July.”
The Fed’s rate decision and Chair Jerome Powell’s news conference come next Wednesday — hours after the US consumer price index report.

In the wake of India’s surprise election result, political risks were a big theme at the Bloomberg Wealth summit held in Hong Kong on Wednesday. Participants from UBS Group AG to Hang Lung Group Ltd. highlighted how geopolitics are on the minds of the richest investors, as they try to navigate wars in Europe and the Middle East, escalating tensions between superpowers, and a year of key elections around the world from Mexico to South Africa and the US.
“Geopolitical risk and the possibility of a tail risk event has gone up dramatically,” said Sonja Laud, chief investment officer at Legal & General Investment Management Ltd. “As investors, we should not ignore this.”

Family offices around the world ranked geopolitics as the biggest risk over the next 12 months in a UBS survey published last month.
“Geopolitics are definitely a big concern on all fronts, not just in Asia, but across the world,” said Pierre-Yves Lombard, head of private banking in Japan at Lombard Odier Group. “That concern is leading clients to look for the safest and strongest financial centers” and institutions, he said.

NEAR STANDING DRIVERS

Yesterday we've considered secondary statistics and data that shed the light on real affairs in the economy. Top rated data, such as CPI, GDP, NFP and other are strongly manipulated adjusted, while secondary data is not because of low popularity among investors. Still it gives great information and understanding of real situation. Now we will take a look at some more of them, which have relation to gold market as well.

The Fed reduced its government bond portfolio by $29.7 billion this week, fulfilling its monthly plan. But there were more dollars in the system, the volume of reverse repo by the Fed decreased by $78.8 billion, and the Ministry of Finance spent another $12.7 billion from its accounts at the Fed. As a result, banks' liquidity increased by $66.7 billion, to $3.46 trillion.
Yellen spent a lot, although she also borrowed a lot, as a result, only $680 billion remained in the accounts of the Ministry of Finance, against the plan of $750 billion at the end of the quarter. By the end of the month there should be an outflow of dollars from the system , both to the accounts of the Ministry of Finance (~$70 billion) and through RRP, because banks will “draw” quarterly reports. PS: We are waiting for inflation for May, decisions on Fed rates and auctions of the Ministry of Finance (3/10/30 years).
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In May, interest expenses on the US national debt were almost one and a half times higher than last year (+48% y/y) and amounted to $103 billion - for the first time in history, the Ministry of Finance paid debts of more than $100 billion for two months in a row. ️Over 12 months, the US Treasury paid $1.08 trillion (~3.8% of GDP) in interest, or 35% more than a year earlier. In fact, more than 22% of federal budget revenues are now spent on interest.

The average rate on market debt rose to only 3.27% per annum , on market debt - to 3.33% per annum, which is significantly lower than even the current rates of about 4.3% per annum for ten-year terms. Over the long term, the US budget can hardly afford to pay more than 3.5-4% for any long time.

The volume of Treasury bills in the debt structure remained virtually unchanged at $5.87 trillion, but market debt increased by $124 billion over the month, exceeding $27 trillion for the first time (~96% of GDP), while the non-market portion of debt decreased by $74 billion to $7.62 trillion. As a result, total debt rose to $34.67 trillion, or about 124% of GDP.

Government debt continues to rise in price as it is refinanced, although not as rapidly as before (thanks to a reduction in the issuance of more expensive bills) but for longer terms. It is clear that Yellen and Powell are looking at these processes with concern, because... They understand perfectly well that even if rates are reduced to 2-3%, debt will not become cheaper over the long term...

Unrealized losses on securities in the first quarter increased by $39 billion to $517 billion. The sharp increase was caused by higher bank losses on mortgage-backed securities due to rising mortgage rates. This quarter marked the 9th consecutive quarter of abnormally high unrealized losses since the Fed began raising rates in the first quarter 2022.
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The Federal Deposit Insurance Corporation just reported that 63 banks are on the verge of collapse due to insolvency. U.S. banks have $517 billion in unrealized losses, mostly from residential real estate exposure, according to the FDIC. In the first quarter of 2024, the number of problem banks increased from 52 to 63. While there is no immediate risk, inflation and market volatility remain concerns. Meantime, Federal bank regulators have been ordered to refrain from seizing any of these 63 banks until November. We are at a level of collapse that will eclipse the 2008 financial crisis. This is what happens when you bail out banks. They keep taking big risks, it's like a casino where they cover your losses. So, they are fattening banks up like a Christmas goose, or better to say Thanksgiving Turkey - this is closer to election day...

Treasury secretary Janet Yellen has issued a serious warning over the spiraling $34 trillion U.S. debt pile. Earlier this year, Bank of America analysts warned the U.S. debt load is about to ramp up to add $1 trillion every 100 days.
"We’ve raised the interest-rate forecast," Yellen told Bloomberg on the sidelines of a Group of Seven meeting for finance ministers and central bank governors in Italy. "That does make a difference. It makes it somewhat more challenging to keep deficits and interest expense under control."

The Fed Quietly ‘Admits’ Gold Is Replacing The Dollar As Collapse ‘Fear’ Predicted To Trigger A $15.7 Trillion ETF Bitcoin Price Flip. The Federal Reserve Bank of New York has written a report outlining the narratives around "declining dollar shares in official reserves, and increasing roles for gold holdings by central banks," which it says has been "inappropriately" generalized beyond "the actions of a small group of countries."
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The report authors found global central banks and finance ministries held nearly $12 trillion of foreign exchange reserves as of the end of 2023, with nearly $7 trillion composed of U.S. dollar assets. World Gold Council data shows "global central banks purchased over 1,100 tons of gold in 2022—more than double the purchase amounts of the previous year—and maintained a similar purchase level in 2023," according to the report.

"The Fed now admits some countries are moving to gold," tech investor and former Coinbase chief technology officer Balaji Srinivasan posted to X, pointing to what the Fed says is a "small group" that "represents 3 billion people. So 37.5% of the world is moving away from dollars towards gold."

An interest rate cut by the Federal Reserve could signal trouble in the US economy, say strategists at Bank of America. US equities have been rallying since October as the economy and company earnings held up despite the higher-for-longer rates environment. Investors are hoping the US central bank will start to ease policy before economic growth is significantly harmed.

But Bank of America’s Michael Hartnett said a Fed rate cut would be the “first hint of trouble,” with the chance of a hard landing increasing if the market grows more confident of lower rates in the second half of 2024.
Traders have consistently pushed back expectations of a Fed cut through this year, and now see the first one coming in September. If traders boost bets on a rate reduction and economically sensitive cyclical stocks fail to rally, bonds will outperform as the fear of a significant slowdown rises, Hartnett said.

The main thing here, of course, is that the mainstream media, following the big whales, begin to mention this more often, otherwise the retail investor is such a dull one. You may not realize that it’s time to sell everything...

Conclusion

No sign to suggest reversal on gold market. As yesterday in our FX Report as today we see that situation is worsening. The Fed and US Treasury have to start burning reserves to inject liquidity in the markets. This happens when major pay-offs are still yet to happen. Big investors acknowledge geopolitical risk as the major one. Initially it was small group of analysts who were speaking about earlier rate cut in July - Citi, JPM, Fathom consulting. Now, although Citi has changed their forecast, M. El-Erian thinks the same. So we do either. July is quite comfortable month to do it - this is mid summer, vacation time and a big gap until next September meeting. September is too close to November and the Fed could be not in time with the effect of rate cut. While July seems perfect. Besides, 0.25% rate cut is more the psychological action. As you understand, this change is too small to make serious impact on economy.

Fed has released article dedicated to global de-dollarization. We think that the fact of release such a document confirms the worryings. It means that they see something, despite that the scale of ongoing process might be not as strong by far. "Small part of countries" sounds tricky. Because very soon we could get such a headlines:

"A small group of countries collapsed the dollar", "A small group of countries launched an interplanetary mission to Mars" or "The nasty tricks of a small group of countries have led to the fact that we have nothing to eat and nothing to drown".

Banking sector also stands at the edge. One by one central banks are capitulating - Sweden, Switzerland, Canada, ECB, Denmark, who is next? Falling under pressure of its debt burden and devastating effects in domestic economies. But the problem is inflation goes nowhere. Inflation-tolerant C. Lagarde survived only 9 months at maximum rates, while:
"...domestic price pressure remains strong as wage growth accelerates. ...Eurosystem staff forecasts for both headline and core inflation have been revised upward for 2024 and 2025. "

Inflation forecasts for 2024 have been raised to 2.5% (for core inflation to 2.8%), and inflation will return to the target only in 2026. Therefore, they did not dare to give a signal for a further reduction..
The Board of Governors makes no pre-commitments regarding a specific rate trajectory.

The funny thing about this situation is that the ECB promised a rate cut, but inflation has “stuck” and now it has to lower the rate when the inflation forecast increases. As a result, government bond yields went up... Everything turns back to the situation when real interest rates start falling again, that fundamental pure economical supportive factor for gold market.

And here we haven't mentioned any political news. In current combination of driving factors gold just can't make strategical reversal. That's why we treat current action as a pullback with long-term upside trend and still think that any drop now is not a loss but opportunity to buy more gold. Of course, it relates first of all to investment, w/o any leverage (or minimal one, like 1:2) and for a long-term.
 
Technicals
Monthly

So, as we've said, market was ready for major retracement few weeks ago. Our 2460 target which is 1.618 extension of all time BC leg (XA-swing on the chart) has become unbreakable target for now. And this is understandable. If gold is overbought at all time frames, starting with Quarterly chart and down to daily one. We will go with this retracement step by step. Technically, any pullback, down to YPS1 around 1860$ could be acceptable from long-term point of view, we think that the pullback should be smaller. Since 2024 is election year and major events probably will happen soon, market just has not enough time to show such a deep drop. Besides, fundamental background also resists to this scenario.

That's why for now we consider 2000$ level as our ultimate downside target. It doesn't mean that market definitely should drop there. We just think that deeper drop has low probability to happen. This is very strong support cluster for now - monthly K-area, oversold, YPP and former resistance zone. But even drop to 2K level is very shallow retracement from monthly chart point of view.

gold_m_10_06_24.png


Weekly

DRPO pattern starts working perfect. We have two bearish reversal weeks within this pattern. Although it suggests deeper target - around 2200$ or even 2140$, but next week we also will be watching for 2260$ support area, which is combination of the Fib support and weekly oversold.
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Daily

We have bearish context. Strategical investors, as we've agreed - do nothing, sit on the hands and wait for sweet price to buy for long-term. Those who is ready to take short positions on gold market now could try to go with the major technical context here.

Market now is overextended down, reaching oversold area, besides 2262-2272 K-support is very close. Thus, for short entry it makes sense to wait for the bounce through the week. At the same time, bounce should not be too strong, below 2400, to not erase recent sell-off. Otherwise, weekly DRPO "Sell" pattern could fail.
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Intraday

That's why we consider Fib levels only from recent drop. Thrust looks good, so, scalp traders also could watch for DRPO or B&B patterns here:
gold_1h_10_06_24.png


When retracement will be over, market could keep going with 4H AB=CD with 2250$ downside target. It fits perfectly to daily K-support area. You also could recognize butterfly shape here, but has deeper target around 2230$.
gold_4h_10_06_24.png
 
Thank you Sive, for a comprehensive report. How probable is Retracement to at least 30% fib level given China stopped buying spree?
 
Thank you Sive, for a comprehensive report. How probable is Retracement to at least 30% fib level given China stopped buying spree?

Since we still think that the Fed will cut rate in July meeting. This should compensate at some degree drop of Central Banks demand factor. Thus, too deep retracement is not very probable. If we will be wrong about the Fed, then it will be more bearish sign for Gold and indeed it could keep moving down.
 
Good morning,

So, gold brings no surprises by far. As we've agreed, we're watching technical bounce after strong collapse and reaching of daily oversold area. Our downside target stands around 2250-2260 daily support level:
gold_d_11_06_24.png


In fact we intend to follow this AB-CD pattern :
gold_4h_11_06_24.png


Although we have nominal 1H DRPO "Buy" shape at the bottom, by price performance this is not quite a DRPO. Anyway, it seems retracement is taking AB-CD shape. So, 2325$ is the first level to watch for. Once it will be reached we will decide on taking short position here...
gold_1h_11_06_24.png
 
Greetings everybody,

Now let's have a look how Gold is going with our plan. On daily chart - nothing has changed, everybody are waiting for CPI and the Fed meeting results. As it often happens at the eve of big events, markets start sending contradictive signals. Obviously today the driver will be the US Dollar, but not EUR or Gold. It means that both should show the same reaction on coming events.

But, on EUR we have reverse H&S while Gold has DRPO "Sell" on weekly chart. They are difficult to combine. On US Dollar and yields charts also not everything perfect. Dollar is raising while yields are dropping. It should be vice versa.

So, if you're a conservative trader - it would be better to wait for data release.
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On 4 H chart we keep an eye on the same pattern and target:
gold_4h_12_06_24.png


Here market accurately is moving with our AB-CD pattern. But target is not reached yet. Minor pennant points on bullish sentiment and soon target achievement. If you still would like to go short and ready to gamble on CPI + Fed event, you could follow the trading plan and consider 2325 area for short position taking.
gold_1h_12_06_24.png


If butterfly still will appear here - it gives great assistance for stop placement and safe a lot of potential loss, if gold jumps on data release.
 
Greetings everybody,

So, gold indeed has shown upside action as we've discussed, even slightly higher than we've suggested. Still, its reaction much weaker than on other markets - S&P, EUR etc. I suspect that Central Banks' demand factor was stronger than everybody suggests. As a result when it disappeared, technical over-extension now dominates over even positive factors. This leads to contradictive action on gold and EUR, yields markets:
gold_d_13_06_24.png


Based on this reaction we do not see yet reasons to step out from our AB-CD downside pattern on 4H chart:

gold_4h_13_06_24.png


On 1H chart now we see that the Fed upside reaction was reversed fast. This makes us to treat this action as hybrid bearish engulfing pattern and suggest a kind of downside AB-CD to ~2300 area again. Also you could recognize minor H&S shape:
gold_1h_13_06_24.png
 
Greetings everybody,

So, gold indeed has shown upside action as we've discussed, even slightly higher than we've suggested. Still, its reaction much weaker than on other markets - S&P, EUR etc. I suspect that Central Banks' demand factor was stronger than everybody suggests. As a result when it disappeared, technical over-extension now dominates over even positive factors. This leads to contradictive action on gold and EUR, yields markets:
View attachment 92831

Based on this reaction we do not see yet reasons to step out from our AB-CD downside pattern on 4H chart
Greetings everybody,
Sive, thank you so much for your completely selfless long-term daily work, which allows us, traders, not to lose our capital if possible, and sometimes even earn! ;)
I would like to add a little to your comment by expressing my view of yesterday's gold movement from a slightly different angle.
CPI data yesterday at 12:30 was just great for gold, and it really showed a higher performance, however, the dot plot and Powell's comments at 18:00-18:30 were perceived as more hawkish by the market, which caused the further reaction.
It seems to me that this only corrects, but does not fundamentally change the short term bullish mood after the May CPI. I do not think that gold will reverse the June bearish movement, and is even unlikely to fall below the lows of the current week - all this taking into account the resumption of a fairly optimistic forecast for slowing inflation, and an increase in the likelihood of a Fed rate cut.
 
Greetings everybody,
Sive, thank you so much for your completely selfless long-term daily work, which allows us, traders, not to lose our capital if possible, and sometimes even earn! ;)
I would like to add a little to your comment by expressing my view of yesterday's gold movement from a slightly different angle.
CPI data yesterday at 12:30 was just great for gold, and it really showed a higher performance, however, the dot plot and Powell's comments at 18:00-18:30 were perceived as more hawkish by the market, which caused the further reaction.
Spot on, no doubts.
It seems to me that this only corrects, but does not fundamentally change the short term bullish mood after the May CPI. I do not think that gold will reverse the June bearish movement, and is even unlikely to fall below the lows of the current week - all this taking into account the resumption of a fairly optimistic forecast for slowing inflation, and an increase in the likelihood of a Fed rate cut.
Yes, I also hope for this. We also think about rate cut in July as highly likely. Still, I'm a bit worry on the dominance of Central Bank demand factor for recent gold market. It seems it was too important and now consensus suggests 1 rate cut somewhere in fall or winter. Both together could have short-term negative impact. But hardly it will last too long.
 
Greetings everybody,

Well, guys we've got minor downside action with our intraday 1H H&S pattern as we said, but this is just short-term episode. Now it is extremely difficult to make suggestion on the next gold move. And here is why.

Dollar is raising... on EUR we stand at the vital point, so on Monday we could start talking about bearish setup already. At the same time - we see sharp drop of the US yields. Why? Powell was relatively hawkish, new concensus is just 1 rate cut this year. IT seems that market doesn't believe it. Then why the US DOllar is raising?

So, if we would have some gold rally we could definitely conclude that this is geopolitics. But we have DRPO "Sell" on weekly chart. All this stuff together tells that either weekly pattern has to fail soon or other markets, at least US yields should change the direction.
gold_d_14_06_24.png


On 4H chart it is still no reasons to deny from downside AB-CD pattern:
gold_4h_14_06_24.png


But, indeed we could get more extended upside action here. And there are few reasons for this. First is, our H&S has worked great, but it is done and gold is above the neckline already. Second is - you could find the opposite H&S pattern now in progress with the head at "C" point lows.
gold_1h_14_06_24.png


But, at the same time we could get large downside Butterfly, where A-B-C is a left wing right? So, 2300-2310$ area could help us a lot with this problem. If gold starts forming H&S and stay above 2300-2310$, which will be the right arm - then upside action could continue.

Otherwise, downside breakout will open road for bearish pattern. Thus, we suggest that maybe it makes sense to wait a bit with short-term trading decisions on gold. Besides, today is Friday already...
 
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