Gold GOLD PRO WEEKLY, June 26 - 30, 2023

Sive Morten

Special Consultant to the FPA
Messages
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Fundamentals

This week we have a kind of combination of political and economical news, that are important, but, maybe do not have direct and immediate impact on the markets. Changing rhetoric of EU regulation authorities concerning frozen Russian assets indirectly points on changing vector in foreign policy, as situation on Ukrainian battlefield is changing. Recent J. Powell speech suggests the worst scenario, when Fed intends to do nothing but go with the flow, plugging wholes when necessary. Now they are neither hawkish nor dovish. Correspondingly they could neither crash inflation nor stimulate consumption. That's why, J. Yellen recent comments sound evil -

"My chances for it, anyway, have decreased - because look at the stability of the labor market, and inflation is coming down.We probably need to see some slowdown in spending to bring inflation under control,” Yellen said, speaking of consumption. The main indicator of price increases, excluding food and energy, is "quite high," she said.

Otherwise, speaking, the US households prosperity is a kind of sacrifice on altar of inflation. The American consumer must become a victim in the fight against rising prices, and the main thing for the regulator is to achieve the necessary macroeconomic indicators.

Market overview

Gold prices on Friday were heading for their biggest weekly percentage fall in over four months, weighed by a stronger dollar and hawkish comments by Federal Reserve officials. The dollar strengthened after Fed Chair Jerome Powell, in congressional testimony this week, signaled more interest rate hikes ahead but vowed the central bank would proceed with caution.

"Powell was pretty hawkish. He favors more interest rate hikes and doesn't see any rate cuts anytime soon. That is pretty bearish on the metals," said Phillip Streible, chief market strategist at Blue Line Futures in Chicago.

San Francisco Fed Bank President Mary Daly said on Friday in an interview with Reuters that two more rate hikes this year is a "very reasonable" projection. Higher U.S. interest rates increase the opportunity cost of holding gold. Bullion has fallen nearly 2% so far this week and has lost more than $150 since scaling above the key $2,000 level in early May.

"Investor appetite lacks conviction in gold," Standard Chartered analyst Suki Cooper said in a note. The sharp drop in exposure since the last (Fed) meeting does not necessarily suggest imminent short-covering activity, but it does underscore a shift in sentiment as we head into a seasonally slower period for demand."

Gold-focused ETFs have resumed their decline. For 13 consecutive days, the stocks in the funds have been declining, which brings them to the level before the bankruptcy of SVB bank. With hawkish signals from central banks, high real rates can be expected to hurt gold. Given the technical weakness of the commodity, the risks for gold are growing.
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️Gold is usually seen as a hedge against inflation. Conventional wisdom says that an ounce of gold can buy about the same amount of bread as in the days of Babylon. (For reference, the answer is 350 loaves). But nowadays, owning and storing gold comes with a cost. Which means that the metal becomes very sensitive to changes in real yield.

At the end of 2021, 10-year TIPS returns were below -1%. Today they are above 1.5%. Thus, in the absence of demand for insurance against financial Armageddon (the other main use case for gold), investors should logically continue to sell the metal, which should lead to a decrease in the price of gold.
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A bit more about the Fed

Here is opinion of P. Schiff team, mostly they confirm what we've said yesterday - Powell is trying to sit on two chairs. The Fed chief engaged in some more open-mouth operations, trying to guide monetary policy with words instead of actions. To understand a few things he said, you have to read between the lines. Besides, he also got at least a couple of things wrong along the way.

During his testimony on Capitol Hill, Powell doubled down on the hawkishness, saying, “Inflation pressures continue to run high, and the process of getting inflation back down to 2% has a long way to go.” He also insisted that the skipped rate was not a “pause.”

We never used the word ‘pause,’ and I wouldn’t use it here today.”

The Fed chair also offered a little analogy.

Now we’re moderating that pace, much as you might do if you were to be driving 75 miles an hour on a highway, then 50 miles an hour on a local highway, then as you get closer to your destination, you try to find that destination — you slow down even further.”

There is clearly a disconnect between what the Fed is doing and what Powell is saying. After all, if the Fed was really that hawkish, why skip a rate hike? Mises Institute executive editor Ryan McMaken summed it up, saying Powell wants to have it both ways.

Powell wants to announce he and the FOMC are firmly committed to combating price inflation by allowing interest rates to rise—and, by the way, allowing more securities to roll off the Fed’s $8.3 trillion balance sheet. At the same time, Powell also wants to claim that now is a good time to pause on rate hikes, even though the Fed’s favored PCE measure of price inflation is more than double the Fed’s target rate of two percent.”
He went on to say the reason for this muddled messaging “is not completely mysterious.” We've also pointed few times on some nervousness of J. Powell in recent two meetings, pointing that next rate decision is more a political step rather than economical, because it could lead to the changes in economy of such scale that it makes direct impact on loyalty to government among population.

The answer lies in examining the political situation (!!!). Fantasies about “fed independence” might blind some observers to the reality, but the Fed is a profoundly political institution and must juggle a variety of political pressures. As it is, the Fed must seem like it is “doing something” about price inflation while simultaneously avoiding any moves that will cause the economy to slow to the point where it becomes politically problematic for the administration. The incoherence we now see from Powell is a direct result of the Fed’s desire to send several conflicting messages at once.”

Powell made a couple of comments that you need to read between the lines to fully appreciate. The Fed chair said, “We want to get back to price stability, want to get back to that place where inflation is low enough that people don’t think about it.”

In other words, the central bank wants to keep devaluing the dollar, but not so fast that you feel the pain on a daily basis. The Fed prefers a “boil the frog slowly” approach so you don’t notice that it is taking away your purchasing power year after year. In other words, keep the inflation tax low enough so as not to upset the masses. Consider this: at 2% inflation, you lose 10% of your purchasing power every five years.

And that’s the target.

Powell also said “Inflation has consistently surprised us, and essentially all other forecasters, by being more persistent than expected. And I think we’ve come to expect that — expect it to be more persistent.” In other words, we’re not very good at our jobs. Remember when Powell and Company were insisting that “inflation is transitory?” It wasn’t until December 2021 that government officials finally conceded inflation wasn’t transitory. I was saying this at least six months earlier. You will note that I am not a Fed official. How was it that I wasn’t surprised but the “experts” who are running the economy were?

Finally Powell got at least two things wrong during his chat with the Financial Services Committee. First, he claimed, “A very strong labor market is driving the economy.
Wrong! In the first place, a lot of the job data simply doesn’t add up. And whatever real strength exists in the labor market is the result of a weak economy, high price inflation, and falling real wages that are driving people to take on extra work in order to make ends meet.

Price inflation is eating everybody’s lunch, and more and more people are taking on part-time work (part-time jobs count as jobs) with many even opting for a second full-time job. Meanwhile, retirees are being forced to return to the workforce because inflation is ravaging their fixed incomes. This is not a sign of a “robust” economy. It’s a sign of economic desperation.

Second, Powell totally sidestepped the root cause of global price inflation, calling “the pandemic” the “common factor” driving prices higher. Wrong! The pandemic – or more accurately, the government response to the pandemic – was certainly part of the equation. But the real common factors were central bank policies of artificially low interest rates and quantitative easing, along with government deficit spending.

And this started long before the pandemic. Central banks around the world pumped trillions of dollars of new money into the global economy in the wake of the 2008 financial crisis. The Federal Reserve held rates at zero for years and some central banks, including the European Central Bank and the Bank of Japan, introduced negative interest rate policies.

Of course, central banks doubled down on these easy money policies during the pandemic, pumping trillions of additional dollars into the economy. This is the root cause of price inflation, not COVID-19. By pinning price inflation on the “pandemic” in the abstract, Powell shifts blame away from the real culprit – the man looking back at him in the mirror every morning and his fellow central bankers.

Long term Gold perspective still looks attractive

Indeed, the monthly mortgage payment for the average new loan has doubled since the start of last year to nearly $3,000. As households continue to draw down their excess savings, these higher mortgage payments will eventually start to have a negative impact on the housing market and consumers. In short, they do not let the market fall. But when the excess savings run out by the end of the year...
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With this background it is unclear who will buy all new "Housing starts" and "Building permits". Commercials? According to the Mortgage Bankers Association, $1.4 Trln should be returned for 2023 - 2024. When the time comes, many owners may choose to default rather than take on new debt to pay off old ones, especially with rates above 6%. Since March 2022, the cost of offices in the US has fallen by 27%.

According to Capital Economics, the drop from the pre-Covid peak should be 35%, and the recovery of the US office real estate market should not be expected until 2040. According to MSCI Real Assets, $43 billion worth of office buildings are at risk of default in the near term. Of course, all this may turn out to be just another story from the category of “a boy and wolves”. The good Fed will come, print another infinity of money and save everyone. But there is still a small chance of a domino effect, since in 2008 some were not rescued.

Recent US bank regulations and capital requirements adding insult to injury to already fragile lenders sitting on weak legacy loans and simultaneous credit contraction. Adding to this irony is the rise in new home construction permits which fail to ask the question of who will be buying such properties as real estate, like autos, head toward a “negative equity iceberg.” This current café society calm, however, ignores the inevitable consequences of rising rates and undefeated inflation whose longer-term economic pressures, lagging for now, will emerge with crippling force in the months ahead. In the end, all broke governments become the best of friends to precious metal investors, for the historically-confirmed reason that all broken regimes always debase their currencies.

All these things that we see here confirms our bullish long term view on Gold market. Sooner or later but slow rusting processes beneath the curtain will come on surface. Fed does nothing, taking tactical decision, trying to satisfy markets. This week market was more or less calm, because US Treasury was quiet, without big new borrowing. But soon this will happen. And that might be the first test. They still have 2-3 times larger sources, where they could get necessary money. But this is only for this year. Where they will get funds for next year - that's the question.

The Biden administration is blowing through about $500 billion every single month. This pace isn’t about to slow down despite what you might have heard about spending cuts in the “Fiscal Responsibility Act.” That means we can expect more massive monthly budget deficits. On the other side of the ledger, government receipts are falling. In May, the Treasury reported inflows of $307.5 billion. That was a 26.5% drop from May 2022. Receipts fall, and government tax revenue will decline even faster if the economy spins into a recession.

The sheer size of the debt isn’t the only problem. The interest payments on that debt are growing exponentially. The trailing 12-month (TTM) interest on the debt clocked in at just under $600 billion in May. This was up from $350 billion at the start of 2022, less than 18 months ago. The government has added an extra $250 billion in expenses per year on just debt service.
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This is just the beginning of an upward trend. Based on the current interest payment, The Treasury is paying less than 2% interest for now. But a lot of the debt currently on the books was financed at very low rates before the Federal Reserve started its hiking cycle. Every month, some of that super-low-yielding paper matures and has to be replaced by bonds yielding much higher rates. That means interest payments will quickly climb much higher unless rates fall.

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If interest rates remain elevated or continue rising, interest expenses could climb rapidly into the top three federal expenses. If the national debt climbs to $40 trillion (and given the current deficits it won’t take long) and interest rates remain at 5% (which Jerome Powell says will be necessary to tackle inflation) interest payments on the debt alone would skyrocket around $2 trillion per year. let’s assume the federal government can maintain the current deficit level of around $1 trillion annually (minus interest expense). Even with this overly-optimistic scenario, the Treasury would be running a $3 trillion annual budget deficit. What to do with the rates? Cut? Let's take it closer:

Option 1: The Fed beat inflation (in fact, no, and again no, but let's assume) GDP stagnates or fell, debt also stopped growing, but remained large. Weight on the legs, which still interferes with life and the risk of default remains.

Option 2: The Fed does not even try to beat inflation, but actually accelerates it (the rhetoric here is exactly the same as with Ukraine or China - the opposite of what is actually happening). In this case, inflation eases the debt burden, and if we manage to make it double-digit for a long time, in general, in a few years, you can start life from scratch. No defaults, and completely controlled media will talk the people into stupefaction. In the end, it worked out with the Second World War, it will work out here too. Yes, the issue income associated with the status of the dollar as the world reserve currency disappears, but firstly, not totally, secondly, not immediately, and thirdly, look at China - the same problems are there. In general, subjectively, the second option is more viable. Therefore, elections or not, but it seems that the rate will be raised and the banks will also drop.

Since 2014, it has become harder to export Uncle Sam’s inflation (or launder its debt burdens) by expecting other nations to simply absorb his increasingly unwanted USTs and openly embarrassing bar tab. As the following graph provided by Luke Gromen makes “clear, all too clear,” the gap between Uncle Sam’s embarrassing deficit (blue line) and the meek level of foreign buyers of his debt (red line) reveals two historical points:
  • US deficits are appalling;
  • Who or what is going to fill that “gap”?
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Notwithstanding the otherwise undeniable and changing patterns in the aforementioned global FX and geopolitical stage, one merely has to consider the seemingly unlimited supply of otherwise unwanted USTs with their intrinsically limited duration and then compare such toxicity with a simple bar of gold, which, unlike Uncle Sam’s IOUs, has an infinite duration and limited supply.

In short: Supply and demand still matter. Toward this end, it’s worth noting that gold discoveries are shrinking in supply as demand for the same is, and will continue, to rise. In the 1990’s, for example, there were over 180 major gold discoveries (i.e., 1m oz. and higher); in the 2000’s there were 120 such discoveries, 40 in the 2010’s and NONE since 2019. Think about that for a second or two.

Also, think about the simple fact that Uncle Sam, the holder of the world reserve currency, has been hiking rates into the greatest debt bubble in once proud national history, thereby increasing US solvency risk (and thus pointing toward dollar debasement down the road) with neon-flashing clarity.

Gold, quite simply, is separating from real rates and acting more and more on its own, as the fear trade gets easier and easier to see, and gold gets easier and easier to, well…TRUST.

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Thus, we repeat and repeat this again, that current levels are interesting for gradual gold accumulation and long-term investments in physical gold - coins, bars, bullions etc. Although under the current circumstances, gold remains under pressure which will last for some time more.

At the end of the report, we would like to mentioned the changes in rhetoric of ECB, concerning confiscated frozen Russian assets. The European Union has assessed that it can’t legally confiscate outright frozen Russian assets and instead is focusing on using those assets temporarily, according to a document obtained by Bloomberg. It could mean that the ice has broken. Since the EU has taken care of legal grounds, then the illusions about an imminent military victory have dissipated. In addition, we were talking about a "voluntary" contribution, and not confiscation or otherwise, which means there are chances that you will have to unfreeze assets and return the money (by the way, those who have earned on confiscated assets and made a voluntary contribution in favor of Ukraine can still run into courts and end up paying twice. In general, one gets the impression that the "steel hand in a kid glove" is urgently looking for toilet paper :cool:
Of course, all this is just the beginning and the situation may unfold several times, but the symptom itself deserves attention. And yes, appreciate how the rhetoric has changed in just over a year.
 
Monthly
Technicals

So, last week gold has slipped lower, confirming our view that in nearest 5-6 months it should remain under pressure. As we've mentioned last time, W&R, inability to break YPR1 and multiple "shooting stars" on top suggest compounded retracement on lower time frames. Market doesn't show yet even 3/8 pullback. Even drop back to YPP should not treated as something negative. Currently action should be treated as retracement within bullish tendency, although it really could be big on daily chart.

Since we see big shifts in market sentiment in a way of Fed's policy easing, negative effect could be softer, especially when we will see upside CPI turn in July-August.

gold_m_23_06_23.png


Weekly

Here we mostly have the same picture as well. The most important thing for us is strong K-support area. This clearly points the floor for coming week and predefined our trading plan - watch for bullish reaction, patterns on lower time frames.
gold_w_23_06_23.png


Daily

In fact, we already have the one - butterfly "Buy" on daily chart with 1.618 downside target around 1900. Daily oversold also stands close, that makes this level even stronger. Butterfly actually is reversal pattern, which later could turn to reverse H&S, but we could use it separately for long entry around 1900 if no surprises will happen:
gold_d_23_06_23.png


Intraday

On 1H chart we're watching for the same XOP and around the same 1900 area. Once Friday's bounce is over, I wouldn't be too surprised, if we get another one, minor butterfly here as well.
gold_1h_23_06_23.png


So, next week we're focused on reaching 1900 support area and upside reaction, which potentially is very interesting and could bring clear trading setups.
 
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................Once Friday's bounce is over, I wouldn't be too surprised, if we get another one, minor butterfly here as well..............

Great, picking up better shorts then when this would happen.
 
Greetings everybody,

So, speaking shortly - everything is OK, market keeps our trading plan valid by far. On daily chart we see tight consolidation in the range of Friday, right under major target, which is more bearish sign:
gold_d_27_06_23.png


On 4H chart it takes the shape of pennant. With rising MACD, it starts getting signs of bearish dynamic pressure:
gold_4h_27_06_23.png


Finally our 1H butterfly is alive. Untouched XOP and daily butterfly target - both around 1900, now is dominant factor, magneting the price. So, odds stand in favor of 1900-1905 to be completed, before any other action will follow. BTW, once it will happen (if it happens), we start looking for bullish signs around it. In fact, butterfly is already the bullish sign...
gold_1h_27_06_23.png
 
Hi Sive, Hi everyone,
Here is an update on the NATGAS Weekly DRPO, buy swing trade.

Exposition:
Long term buying position around 2.05 on 28.03.23 TP1 3.75 TP2 5
Second buying position around 2.30 on 22.05.23 TP1 2.80 ✅

Posted on 28th March:
I'd like to post here a trading plan on the NatGas with a possible DRPO on the weekly chart.
We are on a big zone on the Monthly timeframe and on the OP (100% extension) target of the previous downward ABCD pattern. I bet on the upside reversal
Capture d’écran 2023-03-28 à 11.51.51.png


More recently i posted a new buying position around 2.30

Posted on 22nd May:
We can see that there has been a nice double bottom formed. We have average price for our long term position around 2.05 now, but we would like to enter again for short term trade. So we could wait for a 38.2 retracement from the last upside swing and that coincide with the previous resistance, the small green zone around 2.30/2.35. That will be my next entry point. Take profit would be a report from the previous W consolidation around 2.70/2.80.
Please note that it is important if we can make it with this trade, that you don't shut all your position on TP but keep a small amount of this position for the long term targets.

Capture d’écran 2023-05-22 à 08.33.38.png



Charts:

MONTHLY
NATGAS has tested its long term support, support is holding.

Capture d’écran 2023-06-27 à 13.40.10.png


Weekly:
The DRPO Weekly setup is still valid, so we keep our long term swing position untouched.
Capture d’écran 2023-06-27 à 13.42.26.png


Daily:
On the daily chart we have reached our predefined level of 2.70/2.80 for Profit Taking, it s now time to close 30-50% of the daily position opened at 2.30

Now we shall wait for reaction, if market decide the continuation of the upward trend, next destination could be the 3.10/3.20$ zone, that's why I have put a Take Profit number 2.

If market tries to consolidate from these levels, we could use it as an opportunity to buy again in the 2.30 zone.
Capture d’écran 2023-06-27 à 14.13.42.png
 
Greetings everybody,

Well, on gold market we do not talk too much now - everything goes just perfect. Intraday butterfly is taking the shape and we're going to 1900 target. On daily chart this is the butterfly -
gold_d_28_06_23.png


On 4H chart dynamic pressure works well, gold has broken pennant pattern down. The fact that it stands there and doesn't show fast return is a good sign, increasing chances in favor of 1900 target:
gold_4h_28_06_23.png


On 1H chart this is XOP target and another butterfly of a smaller scale:
gold_1h_28_06_23.png


The one thing that I still have to remind you - the weekly level is 1901-1908. It means as deeper gold will move inside, under 1908 as more resistance it will meet, so, action down will be tight inside the range. In most cases, intraday targets are hit, despite that they are inside of weekly strong support area. But, still, manage risk, move stops to breakeven and control the situation.
The next stage of our trading plan - is upside reaction on weekly K-support area, where we will change the direction and start looking for bullish patterns around it.
 
Greetings everybody,

So, not many things to say - it two words, we have to start thinking about booking result from our bearish positions and start watching for signs of upside reaction on strong weekly support area. Daily butterfly mostly is completed:
gold_d_29_06_23.png


As well as 1H butterfly. If you want, you could play a thrilling game, trying to outsit the market and catch XOP spike around 1899 on PCE release tod/tom, if you want. But mostly downside trade is completed:
gold_1h_29_06_23.png


Now there are two ways of taking part in coming upside reaction. First is simple one - just use the patterns that are already exist. I mean daily and 1H butterflies. They are bullish reversal patterns. Just place sufficient stop to let market breath on PCE report. Second way - use a kind of "fine tune" and wait when upside action starts. Then, watch for small bullish reversal patterns and take position with them. You also could combine both ways.
 
Greetings everybody,

So, trading setup for this week is completed. Yesterday we were not able to escape price tricks around 1900 on data release, a kind of W&R action. Now let's watch for the market response:
gold_d_30_06_23.png


On 4H chart we see nothing by far, except just minor divergence:
gold_4h_30_06_23.png


On 1H chart first reaction starts to form. Take a look, Gold is forming minor shape of reverse H&S pattern, based on recent W&R action, in a way of bullish engulfing. This is the one that we could keep an eye on. If everything goes well - right arm should appear around 1900-1905 area. Don't take any longs if market suddenly drops under the recent lows. The point is - all major targets are done, and gold has no technical reasons to drop more. If this will happen - it means that something wrong with bullish setup.
gold_1h_30_06_23.png


If it is no problem to hold positions through weekend - you could consider this setup today, just be aware of Core PCE and EU CPI numbers later in the session. If you prefer not to hold positions through the weekend - its OK. On Monday picture should not change too much.
 
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