Gold GOLD PRO WEEKLY, June 17 - 21, 2024

Sive Morten

Special Consultant to the FPA
Messages
18,984
Fundamentals

This week gold has not shown any significant action and even was showing weaker reaction on major drivers like Fed meeting and CPI. Once strong demand from Central Banks has temporary faded, gold is appeared inside of kind a information vacuum, where difficult to find direction immediately. Our long-term strategy has not changed at all, because fundamental situation in the world is not changing either. But in shorter-term, when big bullish factor stops action, minor bearish factors could manifest themselves. Gold was overextended even 1-2 months ago and by technical reasons downside pullback was ready along time ago. At the same time geopolitical events in the world are accelerating and soon not only Central Banks' demand will support gold. We're taking about a new stage of Russia-West confrontation in Ukraine, about possible drop of real interest rates by the end of the summer, political instability in EU, especially in France etc.

Market overview

Gold prices rose over 1% on Friday and were on track for their first weekly gain in four, as signs of slowing inflation in the U.S. raised hopes of a rate cut later this year and a stock sell-off across Europe also lent support. In wider financial markets, European stock indexes dropped as French assets took a beating due to the country's political turmoil. Cautious mood prevailed on Wall Street, with investors pausing after strong gains in the S&P 500 and the Nasdaq indexes. Traders raised their bets to price in about 52 basis points (bps) of cuts (or two quarter-point cuts) by December-end after softer inflation data this week. That was an increase from 37 bps last Friday, when a stronger-than-expected jobs report doused early rate cut hopes, according to LSEG's interest rate probability tool, IRPR
"That combination of weaker equities, and some interest rate declines (in Fed funds futures pricing), are reigniting interest in gold, despite the fact that the Federal Reserve has moved the dots at its FOMC meeting," said Bart Melek, head of commodity strategies at TD Securities.

Data this week showed consumer prices were unchanged in May for the first time in nearly two years, while producer prices unexpectedly fell. However, the U.S. Federal Reserve's median "dot plot" released after its two-day policy meeting - where it kept interest rates steady - showed the policymakers projecting just one quarter-point cut.
"It's still not a done deal here. There could be continued pull below $2,300 in the near term as the market reassesses the dots," Melek added.
"While the tamer consumer price index print was a net positive for gold, the takeaway from the Fed meeting was that the number of rate cuts in 2024 have been reduced and are still some distance down the road," said Tim Waterer, chief market analyst at KCM Trade. In the short term, I expect gold could be trading in choppy fashion until we get greater clarity on when that first rate cut from the Fed may arrive."

The U.S. central bank held interest rates steady on Wednesday and pushed out the start of rate cuts to perhaps as late as December with policymakers citing still elevated levels of inflation. Policymakers in their December 2023 forecasts had envisioned an imminent kickoff to three years of steady rate reductions.

Inflation data published hours before the Fed statement showed the consumer price index (CPI) rose not at all on a month-to-month basis in May, causing some analysts to argue the latest projections were already "stale." Strong U.S. jobs data and reports of China's central bank holding off gold purchases triggered bullion's biggest daily drop since November 2020 last Friday.

Gold's lightning rally to successive record highs shows every sign of continuing in the second half of 2024 as the fundamental case for bullion remains firmly in place, though $3,000 per ounce looks just out of reach, traders and industry experts said. Investors have flocked in droves towards the precious metal, driven by expectations for monetary easing, geopolitical tension in Europe and the Middle East and - most notably - central bank purchases led by China.
"There are lots of reasons driving gold right now..., but one of the major factors is China," Ruth Crowell, CEO of the London Bullion Market Association, told Reuters on the sidelines of the Asia Pacific Precious Metals conference in Singapore. Usually China and Japan have been budget shoppers, but given the state of the economy, real estate challenges and equity markets, gold is a safe choice... I think gold is going to be of interest for some time."

Central banks across the globe, especially China, have been ramping up reserves held in gold due to currency depreciation and geopolitical and economic risks.
"Physical demand for gold is strong, but we have not seen retail investment demand coming in yet like exchange-traded funds, demand from the United States...I see prices reaching $2,600 - $2,700 very easily this year," said Amar Singh, Head of Metals - Asia Pacific and Middle East at StoneX.

As investors seek clarity on the timing of interest rate cuts from the Federal Reserve, the November U.S. elections are likely to add more volatility to the market, analysts said. While most of the analysts and traders remain bullish on gold, the possibility of the precious metal surpassing $3,000 per ounce looks remote at this point, they said.
"It's not a case of some particular factor holding back gold but rather that $3,000 would mean another 30% from here, which is quite a lot given we have already had some hefty gains," said Nikos Kavalis, managing director, Metals Focus.
India's silver imports in the first four months of the year have already surpassed the total for all of 2023, on rising demand from the solar panel industry and as investors bet on an outperformance versus gold, government and industry officials told Reuters last month. The silver market is currently in the fourth year of a structural market deficit due to expectations of higher industrial demand, Metals Focus said in research produced for industry body the Silver Institute.
"The future is bright for silver with respect to its use in green energy transition. Also there is further room for gold prices to go higher and silver prices will follow as well," said Michael DiRienzo, president & CEO of The Silver Institute.

Demand for gold in Asia is surging despite prices hovering near the record highs it hit in May, industry officials say, as buyers snap up the metal to hedge against geopolitical and economic uncertainty. Lower confidence in other investment options, such as real estate and equities, is also a factor behind the demand for gold, analysts say. Chinese investors grappling with currency devaluation, a protracted real estate downturn and trade tensions are also finding value in gold, experts said. China's purchases of gold coins and bars surged 27% in the first quarter of this year.
"When the macro-economic backdrop returns to normal, when real estate and equities are more interesting, I think that price sensitivity will return," Ruth Crowell, chief executive of the London Bullion Market Association, told Reuters.
"The trend in the market has been that if the consumer wants to buy gold, they will. The price doesn't matter," Albert Cheng, CEO of the Singapore Bullion Market Association, told Reuters on the sidelines of the Asia Pacific Precious Metals Conference.
In Japan, there are more gold bulls than bears despite record high prices, according to Bruce Ikemizu, chief director of the Japan Bullion Market Association.

Thailand’s Government Pension Fund is expecting gains from investments in gold, commodities and private equity to help counter a slump in domestic stocks, following a period that’s seen its performance struggle.
“There will be more extreme volatility with ongoing geopolitical conflicts and the upcoming US presidential election,” Songpol, secretary general, said in an interview Thursday in Bangkok. “Commodity, gold and private equities will still be our good hedging for any excessive movements in financial markets.”

ITS GETTING HARDER TO FIND GOLD

Gold is getting harder to find as miners struggle to excavate more, World Gold Council says. The gold mining industry is struggling to sustain production growth as deposits of the yellow metal become harder to find, said the World Gold Council. According to data from the international trade association, mine production inched up only 0.5% in 2023 compared to a year ago.
“We’ve seen record first quarter mine production in 2024 up 4% year on year. But the bigger picture, I think about mine production is that, effectively, it plateaued around 2016, 2018 and we’ve seen no growth since then,” WGC Chief Market Strategist John Reade said.

According to data from the international trade association, mine production inched up only 0.5% in 2023 compared to a year ago. In 2022, the growth was 1.35% year on year, the year before it was 2.7%, while in 2020, global gold production logged the first decline in a decade, sliding 1%. New gold deposits are becoming harder to find around the world as many prospective areas have already been explored, he elaborated.
“I think the overwhelming story there is: after 10 years of rapid growth from around 2008, the mining industry is struggling to report sustained growth in production,” said Reade. New gold deposits are becoming harder to find around the world as many prospective areas have already been explored, he elaborated.

Large-scale gold mining is capital-intensive, and requires significant exploration and development, taking an average of 10 to 20 years before a mine is ready for production, according to WGC. Around 187,000 metric tons of gold has been mined to date, with the majority coming from China, South Africa and Australia. Gold reserves that can be excavated are estimated at around 57,000 tonnes, according to the United States Geological Survey.
Additionally, many mining projects are planned for remote areas that require infrastructure such as roads, power, and water, resulting in added costs in building these mines and financing operations, Reade said. It’s getting harder to find gold, permit it, finance it, and operate it,” he said.

ETFs SHOW FIRST INFLOWS IN 12 Months

Gold-backed exchange-traded funds (ETFs) reported net inflows of gold for the first time in 12 months in May. Funds based in Europe and Asia led the way as total gold holdings by ETFs globally rose by 8.2 tons. ETFs globally now hold 3,087.9 tons of gold. Assets under management (AUM) by gold-backed ETFs rose to $234 billion, a 2 percent increase. AUM growth was due to a combination of inflows of metal and rising gold prices. It was the highest AUM reported by gold-backed funds globally since April 2022.
  • European funds reported gold inflows of 5.6 tons. This ended a 12-month streak of declining gold holdings. According to the World Gold Council, inflows were mainly driven by expectations that the European Central Bank would cut rates in early June (which they did), and the demand was primarily reflected in Swiss and German funds.
  • Asian funds reported their 15 consecutive months of gold inflows, as they have bucked the trend in Europe and North America. This reflects a broader trend of gold moving from West to East. Asian ETFs reported a 5-ton increase in gold holdings. China has driven Asian ETF demand. According to the WGC, local gold prices rallying to all-time highs and continued yuan weakness were both drivers of gold ETF demand in the country. Japan also reported healthy inflows amid attractive local gold price gains.
  • North American funds reported outflows of gold after two months of rising gold holdings. North American ETFs reported a 2.3-ton decline in gold holdings in May. Even with the outflow of metal, the region’s total AUM climbed further to $119 billion thanks to an increasing gold price.
According to the World Gold Council, hawkish Fed minutes from its May meeting weighed on the gold prices, leading to outflows in North American funds. The rallying equity market may also have diverted investor attention away from gold. Inflows of gold into ETFs can have a significant impact on the global gold market by pushing overall demand higher.

Oddly enough, a very slight decrease in the US inflation and the outflow from gold ETFs, which was reversed back , are interconnected events. The lack of inflation growth is an obvious consequence of the gradual cooling of demand in the economy, evidence of which we have seen in recent weeks, and, as a result, the approaching recession.

But the nuance is that following the results of Covid, we saw quite clearly that any crisis will be flooded with money. Because there is no other choice. If you don’t stimulate the economy, it will continue to fall (let me remind you that the budget deficit as a percentage of GDP still corresponds to periods of stimulation during recessions) and you can forget about the subsequent healthy recovery. And it is this stimulation that will push inflation up again, even though it may be decreasing at the moment.

As for gold, just look at the price dynamics in 2007-2008 . From August 2007 to January 2008, the price of gold increased by more than 25%. In hindsight, a recession was declared in mid-2007, so we can conclude that buying gold as a reserve asset is an attempt to escape from risks. And now we are not talking about Chinese individuals who are running from the yuan to gold and not about the Chinese Central Bank, which is moving there from the risks of dollar assets, but about a wide range of investors who choose gold ETFs to park their money there. That is, the additional geopolitical factor of the current period could not be taken into account.

Basically, with the period 2007-2008. We can continue to draw analogies. As you can see, about a couple of months after gold began to rise, the stock market also turned downward. In fairness, it took about another year for a truly full-fledged acute crisis to occur. Let's see how everything works out this time.

ECONOMY WEAKNESS PROMISES MORE SUPPORT TO GOLD

Now five central banks have cut the rate - Sweden, Canada, Switzerland, EU and Denmark. Some others are going to do the same in nearest time. They haven’t been playing around with their Higher for long, even though inflation, in general, remains quite high. In the NY Times, by the way, you can see an excellent graph, which clearly shows that a) the ECB begins to reduce the rate earlier than the Fed, b) their recessions also begin earlier (not counting that another recession, which did not happen in the United States, occurred during the European debt crisis) and lasts longer. In short, the harbingers of a global crisis continue to emerge. Although what are the harbingers here - they have either a minus in GDP or zero for the past year and a half. A full-blown recession.

At the same time, EU 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. We do know that Germany inflation is growing again, as well as unemployment. 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...

The share of the euro in foreign exchange holdings tumbled last year at the expense of the dollar and the yen, and further drops are possible whenever Russia becomes free to reduce its own euro stockpile, a fresh report from the European Central Bank showed. The euro's share among foreign reserves fell one full percentage point to 20% in 2023 and official reserve managers were net sellers of euro assets to the tune of around 100 billion euros, the ECB said in a report on Wednesday.
By contrast, the shares of the US dollar, Japanese yen and other non-traditional reserve currencies increased," the ECB said. "In particular, there were purchases of yen-denominated reserve assets by official investors, presumably aimed at offsetting the yen’s depreciation over the review period. Respondents to this survey cited weak growth prospects in the euro area, lack of supply of highly rated assets and centralised debt issuance as potential factors hindering investment in euro-denominated assets," the ECB said.

The future is also clouded by Russia's plans. The Central Bank of Russia held around 8% of global reserves in euro before they were immobilised in 2022, the ECB estimates. The ECB has repeatedly expressed concern about plans to use Russian assets stranded in Europe to help Ukraine, fearing that others may then start doubting the security of their euro holdings.
"This suggests that sanction-related measures might be relevant to the share of the euro in global foreign exchange reserves going forward," the bank said. Weaponising a currency inevitably reduces its attractiveness and encourages the emergence of alternatives," Bank of Italy Governor and former ECB board member Fabio Panetta said earlier this year.

The Fed also has increased inflation forecasts. Forecast for 2024 the rate was increased from 4.6% to 5.1% and inflation to 2.6%; for 2025 the rate forecast was also slightly increased from 3.9% to 4.1%. Another important point is the increase in the long-term (neutral) rate from 2.6% to 2.8%. In general, 5-year inflation expectations are hit the records:
1718539786055.png


Yellen ... there is nothing to save on, we need more money. The topic of the US budget has become a little lost, but it has its own nuances. US budget revenues in May amounted to $323.6 billion - only 5.3% higher than last year. Expenses soared to $670.8 billion (+22.4% y/y). Cost growth outpaced revenue growth.

The formal budget deficit was high at $347 billion, but adjusted for June spending was $263 billion, up 9.5% from last year. Adjusted for the June factor and the “scam” with student loans, expenses for 12 months ($6.72 trillion) were 42% higher than revenues ($4.73 trillion), the budget deficit was $1.98 trillion (~7% of GDP). More than half of this deficit is spent on interest on the national debt.

April taxes helped slightly correct the deficit, but did not change the overall trends - spending continues to grow at an accelerated pace , and J. Yellen entertains everyone with his comments:
"... if the debt stabilizes relative to the size of the economy, then we will be in a reasonable position... half of discretionary spending - defense, growing social spending, pensions, healthcare... it is impossible to achieve spending cuts there... rich Americans must be asked to pay "fair share"...raise corporate taxes slightly..."
That is, it would be nice to at least stabilize here by raising taxes, but we can’t cut expenses... then more taxes... then more, because Biden’s $3 trillion deficit reduction over 10 years is not enough to stabilize the debt, even at its current value service (3.3%), you need to find ~2...2.5 times more.

Despite that China and PBoC is considered as "outside" of western banking system, it is too involved in western economy. In fact the US and China economies are the sides of the same medal. And falling bond yields leave China's central bank facing tough call. This conundrum highlights the difficulty Chinese policymakers face in maintaining both ambitious growth targets and financial stability after decades of debt-fuelled expansion. The appetite for long-term government bonds is fed from multiple directions, analysts say. Worries over deflation and uneven growth push investors towards safer assets. The property crisis and a crackdown on municipal debt limit investment alternatives. While Strong stimulus could lift growth and inflation expectations, catching investors off guard.

Continued below...
 
MAJOR GEOPOLITICAL ISSUES

No doubts, this is new Russian initiative of peace agreement in Ukraine. But here we need to provide some translation from bird political language. Just to not repeat the content of this offer, you could read it here. These offers have a hidden sense of future global security order, but it is not as interesting to us from gold investing point of view. What we're really interested in is tactical changes.

If you're careful enough, you should know that first "peace offer" which called as "Russian memorandum" was prepared in December 2021 and offered soft conditions of European balance of power and security. It was denied by NATO. Within 2 months Special Military Operation has started In Ukraine (Feb 2022). Now the new conditions pack is offered and it is tougher and harder to accept. But, the fact of the offer suggests radical changes in battlefield within 2 months. As V. Putin said as longer west and NATO will deny our peace offers - next offer will be tougher and harder to accept. Here we could make a conclusion that closer to the end of the summer, somewhere in August, the conflict will come on a different stage and we expect big escalation and wide big military operation. This might become big gold driver.

The truth is, current western political elites can't accept this peace project because it will mean their political death. But, as long as they will keep denying it, the death could be not only political but physical as well. Fall of Ukraine together with West could turn to new Neuberg legal process over war crimes for EU and US leaders. Although this topic was briefly mentioned in big media, but we think that this is major political event in a few recent months.

Second is creation of BRICS currency concept. Just last year we've discussed fantasies of Zoltan Pozsar, who suggested pegging BRICS currency to gold. Now, A decentralized ecosystem "Unit" is being developed with its own settlement and payment unit UNT, which will solve the problem of cross-border payments under sanctions.
"It is assumed that 1 UNT will be measured in gold equivalent with reference to 1 g of gold, but its basket will consist of several components: 0.4 g of physical gold, the rest in half in any two currencies of the BRICS countries."

Credit Suisse strategist Zoltan Pozhar is to peg the price of Russian oil to gold, which would push world prices to $3,600 per ounce of the metal. Zoltan, who worked at the Fed and the Treasury and is a well-known supporter of the commodity model and the new Bretton Woods in narrow circles, recalls that US oil reserves are the last thing that keeps the commodity and financial markets from collapsing. Sales of SPR - strategic oil reserves in the United States - a mechanism to protect the Treasury bond mark. Here is just to remind you Zoltan idea.
CONCLUSION:


Today guys we've prepared specific report - almost no charts, just text. But whatever component of global events we've considered - each of them confirms positive background for gold market. As we've said, current action should be treated as retracement. We will have two tough months ahead. July, where we think the Fed should cut the rate by multiple reasons mentioned yesterday in FX report. Market absolutely doesn't expect this, and it could trigger really big action across the board, including gold. This also will make strong pressure on real yields in the US. Second is August, where big military operation in Ukraine could start. For now nobody could predict how far it could go. Besides, other hot conflicts are far from been over as well. Things that we see this week just confirm our initial view - current action is a temporal pullback that gives great chance for accumulation of gold. Second is - long term bullish investing strategy stands intact.

Technicals
Monthly

June still remains an inside month, which is not surprising because technically market is overbought as on monthly as on quarterly chart. Last time we already described situation here so I wouldn't repeat it again here. Our next big upside target stands around 2870$ - major OP on yearly chart. We do not set any timing forecasts on when it could be reached, but just specify the level.

As we've said technically, any pullback, down to YPS1 around 1860$ could be acceptable from long-term point of view, although 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. With the recent political events on the table, starting with EU elections and ending by V. Putin peace initiatives - retracement could be over in any moment.

gold_m_17_06_24.png


Weekly

This week we haven't got any significant changes here. In fact, week is also inside one. DRPO stands in place, trend remains bearish. Following technical indicators here, we consider 2240-2260$ as the nearest downside target as a combination of weekly oversold and Fib level.

As an alternative scenario, as usual we keep a careful look at possible DRPO Failure if something will go wrong (or right, depending on your side).
gold_w_17_06_24.png


Daily

So, upward action that we've suggested is started. As price is coming closer to MACD line, we will keep an eye on possible flirting with it and appearing of bearish grabber that could shed some light on situation and give more confidence with expectations of downside continuation.

Conversely no grabber and trend shifting into bullish could lead to opposite reaction and become a trouble sign for weekly bearish pattern. We'll see...
gold_d_17_06_24.png


Intraday

It seems that 4H chart will become our major trading picture for coming week. Keeping in mind potential daily grabber, I would watching for 2350$ resistance area. Normally, real bearish market should not break it up. This is K-area, and we will get "222" Sell pattern. Besides, you could see flag area to the left that also will work like a swamp, trying to not let gold to break it. So, for the bears this is primary area to watch.

At the same time, if still this area will be broken up, this could totally change situation and lead to more extended upside action, if not to say continuation of the major bullish tendency...
gold_4h_17_06_24.png
 
Last edited:
Greetings everybody,

Gold shows quiet action by far, so, our trading plan remains the same. Unfortunately upside action recently was not strong enough to touch MACDP line, but, as we have Retail Sales ahead and price stands very close to the line - we still have chances to get it:
gold_d_18_06_24.png


On 4H chart 2350$ resistance area and our AB=CD target have not been completed as well. So, we still wait:
gold_4h_18_06_24.png


One of the possible scenarios might be the upside butterfly with 2352$ target... We do not consider any long positions right now, but if you like it - you could try. Keep an eye on the bullish patterns on the bottom of the wing. Here is something like reverse H&S is forming...
gold_1h_18_06_24.png
 
Greetings everybody,

Today the major intrigue stands around daily grabber. Here we need to be caution because of the US holiday. The point is we get additional bar on retail broker chart but we do not have it on COMEX. And if you take a look you could see that price is just started to flirt with MACD there. While on FXCM chart trend is already bullish:
gold_d_19_06_24.png


Still, even without grabber some other bullish signs exist here - divergence, flag and potential bearish dynamic pressure. Bets are high now. Because action back to 2400 could totally erase bearish context.

Meantime, our tactical setup remains the same - upside action starts accurately, thanks to Retail Sales report, but 2350$ target area is not done yet. So, let's keep watching:
gold_4h_19_06_24.png


On 1H chart our butterfly pattern works fine, also market is taking triangle shape. 10 year yields have dropped again yesterday. So, for not it seems it is not necessary to change the plan.
gold_1h_19_06_24.png
 
Morning everybody,

As we've said yesterday - due to the US holiday we have additional candle on retail broker charts that significantly distorts the picture. In fact, gold is just flirting with the MACDP line. Minor downside action could give the bearish grabber that will support bearish context:

gold_d_20_06_24.png


On 4H chart our 1st part of the plan is mostly done. We've got upside continuation yesterday and market is around $2346-2350 area. So, if you would like to, this is the moment for decision making on short entry:
gold_4h_20_06_24.png


Still, nominally 2350-2354 butterfly and OP targets are not hit. Thus, it would be better to foresee it and hide stops above them for some case. It is possible that market still could show minor spike trying to touch them.
gold_1h_20_06_24.png


It means that conservative approach is to wait when these targets will be hit and 2nd - wait for confirmed bearish grabber on daily chart. Those who intends to follow this scenario have nothing to do until tomorrow when we will get this information.
 
Hi there,

Gold now is setting bearish context at the edge of the failure. Since US yields stand low, dollar and gold are raising together, we suggest that geopolitics intrudes again. We suggest that this might be the results of V. Putin visit to N. Korea and Vietnam. This has happened right after "peace offer" on Ukraine that was rejected by the west. As we already discussed in weekly report, we expect major events somewhere in August where geopolitical background and situation on battlefield could change drastically.

Meantime, recent rally makes us to not take any new positions with the bearish setup. Nominally it still exists, but market performance makes it not attractive:
gold_d_21_06_24.png


On 4H chart market has broken not just K-resistance area around 2350, but flag trading range (to the left), which is not normal for any bearish market.
gold_4h_21_06_24.png


Now we're watching for 2385-2390$ area for two moments. First is - weekly DRPO possible Failure. Second - it might be big reverse H&S is forming and this level is potential neckline.
gold_1h_21_06_24.png


Correspondingly, we do not consider any shorts. Potential long entry could happen around 2320-2330$ area. Intraday traders could think about short position still, once price will reach predefined level of 2385-2390$.
 
Back
Top