Gold GOLD PRO WEEKLY, June 27 - 01, 2022

Sive Morten

Special Consultant to the FPA
Messages
16,262
Fundamentals

In our FX report this week we've considered recent J. Powell speech in details and some fundamental statistics that were presented as positive in media. We've shown that this is not quite so, and market's spasms that forecast the crisis condition will continue. I general we have to warn you against making early conclusions when you see some rally on any market, such as 3% recent jump on S&P 500. This is market makers tricks guys. Big banks see that it smells burning but they have big packs of stocks on balances which they need to sell. With minor rallies they deceive households' investors who start buying and sell them their stock packs. This is the way how, on every crisis the final victim is always the households and common people.

The stock market nosedive is going with the plan. Global equity funds saw their biggest outflows in nine weeks as investors piled into cash amid fears that the US economy could be headed for a recession. About $16.8 billion exited global stock funds in the week through June 22, with US equities seeing their first outflow in seven weeks at $17.4 billion, Bank of America Corp. said, citing EPFR Global data. Bonds saw redemptions of $23.5 billion, while investors moved $10.8 billion to cash and $0.6 billion to gold, the data show.

Bank of America’s custom bull and bear indicator remains at “maximum bearish,” strategists led by Michael Hartnett wrote in a note, which is a buy signal for stocks. For the year, investors have bought $195 billion of stocks and sold $193 billion of bonds, meaning capitulation has not been reached for equities, they said.

The US stock market has struggled to meaningfully recover after it sank into a bear market last week, and the S&P 500 Index is still on track for its worst first half since 1970 amid fears of economic slowdown. Federal Reserve Chair Jerome Powell acknowledged this week that a soft economic landing was “very challenging.”
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Despite the selloff, strategists broadly believe equity markets haven’t seen a bottom. Hartnett said last week that based on past bear markets -- defined as a 20% drop for the index from recent highs -- the current one for the S&P 500 would end in October with the index at 3,000 points. That’s 21% below current levels.

Morgan Stanley strategist Michael J. Wilson also sees the index dropping to 3,000 to fully reflect the scale of economic contraction. And Societe Generale SA’s Manish Kabra said this week that a 1970’s style shock amid stagnation with higher inflation could send the index crashing more than 30% from current levels. Just to remind you - we expect S&P 500 drop below 2500 area in medium-term of 6-12 months and below 2000 point in longer term, as crisis likely to stay for 3-5 years, at least.

Market overview

This week we do not have a lot of events directly on gold market, but there are few to mention still. After spiking to a record on a background of geopolitical conflict in Ukraine, gold is back to where it started the year, and consensus forecasts for the fourth quarter put prices just a smidgeon above where they are now. If that looks a bit boring, remember that the powerful forces keeping the precious metal in check speak directly to the dynamics shaping wider commodity markets. Certainly, gold faces some intimidating headwinds: outsized interest rate hikes from the Fed and other central banks; a strong dollar; and struggling physical demand in top consumer China.

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But doubts over the Fed’s ability to fight inflation without a US recession are lending support, and a hard landing for the global economy could revive haven demand. In that sense, gold will be the measure of whether central banks can rein in price pressures without crushing growth. The tried and tested haven asset has been above $1,800 for most of the first half and might end the year there unless there’s another major shock.

Russia’s government and parliament are seeking to change rules on the sales and management of the state’s precious metal and gem stockpiles amid the war with Ukraine. The Finance Ministry proposed this week to put a portion of the country’s gold and gems into a special reserve that can be accessed in times of war, according to the government documents website. If the proposal passes, the president will have more right to decide what to do with those reserves.

Separately, Russia’s Duma, the lower chamber of the parliament, last week approved new rules that allow the President more freedom to use the state’s treasures without consulting the government or parliament. This could be necessary if the country has to sell the assets urgently.

Russian President Vladimir Putin announced that BRICS nations are going to roll out a new alternative to the US dollar’s global reserve currency status. As reported by IndiaTimes.com:

According to the Russian president, the member states are also developing reliable alternative mechanisms for international payments. Earlier, the group said it was working on setting up a joint payment network to cut reliance on the Western financial system. The BRICS countries have been also boosting the use of local currencies in mutual trade.

Russia’s Vladimir Putin unveiled a new scheme of international settlements, moving further away from the US financial system. In an address to the BRICS Business Forum Wednesday, he proposed a new reserve currency that will be used for payments in international trade. Putin said the new payment method will be based off the basket of national currencies of BRICS member states: Brazil, Russia, India, China (PRC), South Africa and Russia. He then noted trade in goods and services within the bloc has surged in recent months amid failed Western sanctions.

“Our countries are home to more than 3 billion people and together account for about a quarter of the global GDP, 20 percent of trade and roughly 25 percent of direct investments, while the total international reserves of the BRICS countries (as of the beginning of 2022) amount to about 35 percent of world reserves,” Putin stated. “The Russian MIR payment system is expanding its presence. We are exploring the possibility of creating an international reserve currency based on the basket of BRICS currencies.”

Putin went on to say Russia is deepening trading ties with China and India while increasing technology cooperation with South Africa and Brazil.

The new replacement currency will be powered by blockchain and backed by gold, which is why member nations have been rapidly stockpiling gold supplies in anticipation of the big announcement. When that announcement comes, nations that represent nearly 75% of the world’s population will simultaneously denounce the US dollar and roll out a gold-backed, blockchain-audited international currency system that will instantly become the world’s currency choice for free trade and a store of value.

Russia, China and India will emerge as the economic leaders of the world, and the US empire will cease to exist. The former United States of America will be broken into regional nation states, divided largely among political lines with the satanic, anti-American Left seizing control of the coasts, and conservative, pro-America, pro-liberty, pro-Constitution groups dominating the rest of the country. Expect a very real civil war to ensue, with massive casualties.

Take a look that three of five BRICS currencies are among strongest this year:
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The first bell is already sounded - Texas aims for "TExit". Texas Republicans push for a referendum to vote on the state seceding from the U.S. in 2023 at meeting that declared Biden's win illegitimate. Texas Republicans want to hold a referendum next year to decide whether or not the state should secede from the U.S.
Matter came to a head at the state party convention this weekend. The Texas GOP also voted to ratify a resolution that declared President Joe Biden 'was not legitimately elected'. Highlights from the convention saw a rebuking of Sen. John Cornyn for engaging in gun reform talks and voting in favor of the repealing of the Voting Rights Act. In addition to declaring homosexuality to be 'abnormal' the party also voted against 'all efforts to validate transgender identity'.

Recent decision of Supreme court, concerning abortion and weapon accessibility puts the chances of Democrats to stay in the head of the country down:
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And the final nail in the coffin - The Group of Seven rich democracies will announce a ban on imports of Russian gold on Tuesday. The ban will come into force shortly and apply to newly mined or refined gold, the government statement said ahead of a meeting of Group of Seven leaders in Germany on Sunday. The move will not affect previously exported Russian-origin gold, it added. Russian gold exports were worth 12.6 billion pounds ($15.45 billion) last year.

It means that it will be fewer gold on open market. At the same time hardly it makes strong impact on prices as Russia freeze gold export by far. So, G7 decision is mostly populistic rather than practical. But it could have long lasting political consequence as golden collateral of Russian Ruble will grow, and it makes BRICS initiatives stronger. Here is dry numbers:

The leaders in gold production in 2021:
1. China (370 tons);
2. Australia (330 tons);
3. Russia (300 tons);
4. USA (180 tons);
5. Canada (170 tons).

Gold exporting countries:
1. Switzerland ($61.9 billion ~ 1000 tonnes)

2. Hong Kong ($25.1 billion)
3. Great Britain ($23.3 billion)
4. UAE ($17.7 billion)
5. USA ($17.1 billion)
Russia is in 13th place, exporting ~5.7 billion dollars in 2021

Gold importing countries:
1. Great Britain ($70.7 billion)
2. Switzerland ($60.6 billion)
3. China ($43.9 billion)
4. India ($32.1 billion)
5. Hong Kong ($13.9 billion)

As you understand - Switzerland, UK, HK just re-sell gold, as they do not produce it, and it makes no impact on market's competition. China and India are major importers and easily could absorb Russian gold, once it become available for export, which I have doubts about. So, economical impact is small. But political resonance is greater, because as more Russia increases gold reserves (and China as well), as stronger BRICS ambitions and more realistic plans to launch their own reserve currency.
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Meantime, Fed has not started tapering yet - it is more like "Quantitative holding" for now:

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Conclusion:
In general, everything goes with our long term scenario. Temporal positive spikes in statistics should not confuse you because of reasons explained above. Geopolitical stakes are rising as Lithuania won’t compromise on transit of sanctioned goods. Social tension is rising across the board. Even in the US that should be the "safe haven", social situation is volatile, partially because of recent Supreme Court decisions, but people patient threshold constantly tested by inflation. Baltic countries demarche and Texas initiative just confirm this. And winter is still ahead, guys.

Economical situation is deteriorating across the Globe. It is clear now that the Fed has no tools to cut inflation to 2%. This is the fact that is already recognized by J. Powell &Co. Financial crisis, banks' bankruptcy, collapse of the stock market, real estate and bonds are stand ahead and not too far. The government will default on treasury debt and cut social benefits and pensions. Rampant crime, homeless people, drug addicts, suicides, etc. Unemployment will skyrocket.

The only way that they could go is to accept high inflation turning into hyper one. The Fed will go this way. History has already seen such sunsets of empires hundreds of times. And this one will be no exception. The euro is being destroyed further on the way to hyperinflation: The Austrian government is giving 500 euros to every citizen to fight inflation. This is the same like fight fire with fire...

With a such high level of global disorder, we do not exclude quite serious EU countries borders' shift begin. Since all the countries of Eastern Europe are absolutely not economically self-sufficient, this means a serious change in economic relations and, as a result, financial flows. This is few who believes, but we've talked about possible Civil tensions and separatism in the US in 2017 and few times later. And now, when we talk that NATO and EU as beurocratic government block will fall apart in nearest 2-3 years, while such countries as Romania, Poland, Baltic countries likely lose big territories or get borders' big shifts - it is up to you whether to believe or not.

Thus, our long term view on gold market remains the same. In fact, I'm sure that gold will become in one or other way but collateral for BRICS currencies. Once this will be announced, and some country, say,
Ruble or reminbi officially get the gold background whatever way it will be - fiat currencies get the deadly hit, and demand for the gold start rising. Obviously this will not become a return of 50 years back, gold probably will be among of many others valuable collaterals of reserves on some floating basis in relation to real GDP, national Debt numbers, but anyway this probably becomes the decisive point.

Technicals
Monthly

And once again - market stabornly stands above the Pivot. June range is inside one by far. This is the sign of bullish sentiment. Now, trend turns bearish, but generally speaking - gold shows great performance with the negative background that we have - just compare it with other markets behavior. Definitely it should be treated as a pause in long-term bullish trend, rather than reversal down.
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Weekly

Here we have minor changes as well - recent week has become the inside one, making no solid impact on price performance, so the bearish setup here holds.
Weekly trend stands bearish, market is coming higher with big efforts, so overall performance starts to look like wide flag consolidation, which is potentially bearish. At the same time, market resists well to any solid sell-off.

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Daily

Daily trend has turned bearish this week and our stake on bearish grabber last week is working. With coming Fed meeting in July and possible next 0.75% rate change we do not exclude appearing of butterfly pattern with 1760$ nearest target. Market moves slowly but this is the pattern that we should keep in mind as well:
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Intraday

But first we start with closer standing targets. Daily grabber suggests reaching of 1805 daily lows, and approximately the same target is based on 1H setup - butterfly and AB-CD pattern. On Friday gold has reached the first 1.27 target and now shows the reaction. Due to choppy action, the gold market is very difficult to trade now. For taking the new short position, let's wait for reaching of intraday resistance and see how market response to it. Our task here is to minimize risk with stop placement above the "C" point.
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RahmanSL

Major
Messages
2,884
Hi Sive, as usual, great analysis.
Yes, indeed, "Due to choppy action, the gold market is very difficult to trade now." Normally, silver is correlated to the movement of gold, but since silver has many more industrial applications & usages than gold, I think silver might diverge from that correlation in the weeks to come. Still waiting for the 20.50-40 levels to go long, and, if that don't happen soon, I will abandoned that and start trading EUR/USD which, I believe, favor US$ due to FED's next expected rate hike on 26-27 July 2022.

Here is some snippet news I got from a news portal date 22 March 2022:
Fueled by inflation fears, demand for gold is at record levels. Sanctions will remove Russia’s massive gold stockpiles from the market. Limiting supply in the face of growing demand will most likely result in even higher prices for gold.
I am not sure how the sanction on Russian gold will play out.

Cheers & all the beat!
 
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Merjem.96

Recruit
Messages
3
Hi Sive, thanks for your in-depth analysis. Every weekend I read both the forex report and the gold report, and as I see every week things are getting worse. Very sad. I cannot just understand how it is possible to allow so much money to be printed and how it is possible that so many erroneous estimates have been made in terms of inflation. The Fed has been repeating all last year that inflation is temporary, while many, even those who were not experts in economics, had more accurate forecasts. Geopolitics is a special story, it may be time for the end of Western rule, but the whole situation at this point does not give a calming picture. I would also like to ask you what your opinion is in terms of fiat currencies... If the value of certain currencies will be defined by gold, what will happen to the entire forex market and exchange rates
 

Georget@

Private, 1st Class
Messages
25
This is pretty scary picture. What do you mean by eastern European countries redefining borders? Historically, Romania has no recent disputes over territories. Hungary is the only neighbor which can raise demands over enclaves. I don't see how this could play out.
Talking about bullions, I think it is a good time to buy. I see absence of inventory at bullion dealers. Waiting for better price could be a good tactic for trading but not for physical owning.
 

Sive Morten

Special Consultant to the FPA
Messages
16,262
I would also like to ask you what your opinion is in terms of fiat currencies... If the value of certain currencies will be defined by gold, what will happen to the entire forex market and exchange rates
Hi Merjem, all fiat currencies remain the same, but their mutual value to each other (i.e. exchange rates) will take significant changes, because of coming changing of global financial system. BRICS intends to set currency rates, based on real value of national economies and collateral (i.e. real assets) - GDP, Debt burden, reserves of different kind. Of course, hardly it becomes return to golden standard of 70's, the approach will be more flexible, but it will reflect the relative value of each currency.

What do you mean by eastern European countries redefining borders? Historically, Romania has no recent disputes over territories. Hungary is the only neighbor which can raise demands over enclaves. I don't see how this could play out.
Hi Georgeta - this is big topic for separate report :)
The borders very often changes not because of disputes with neighbor countries, but because of political processes of big players. Now we have this process. The borders are changing by big players - what borders dispute Yugoslavia had in 1999? But it was split in 4 parts by US and NATO. As global financial system is changing drastically - the big players want to set their own currency zones to hold control and domination in particular area. It should be US zone in N. America and some part of S. America, probably. It will be BRICS zone, which takes the major part of the world. UK as big player also wants own zone, and they want it on a ruins of EU. This is the last chance for UK to hold important role on political arena. That's why they will try to do everything to break EU in parts. But Russia as a part of BRICS is the problem for them, which has its own interests. Somehow they need to come to consensus and this might trigger the reshaping of EU countries' borders. It is not new to the Europe, especially for Poland and Baltic countries, as well as for Eastern EU countries.
Please, understand me correctly - I'm just talking about the rising risks for that, based on political processes that we see but not telling that it will definitely happen.
 

Sive Morten

Special Consultant to the FPA
Messages
16,262
Morning everybody,

As we've discussed - gold has moved slightly higher on Monday, reacting on G7 decision, mentioned in our weekly report, but it was very short-term reaction and overall sentiment has returned very soon. As a result, on daily chart we've got another bearish grabber with the same target - 1804 lows:
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Overall price action stands slow and choppy, which makes trading more risky. At the same time, we have clear patterns, that make it a bit easier. On 4H chart the breakout of "C" lows might be decisive. In this case gold breaks as 5/8 support as erase AB-CD pattern.
gold_4h_28_06_22.png


We do not exclude either, that it might take the 3-Drive "Buy" shape. At least, ratios stand pretty accurate and 3-Drive target stands very close to the daily lows and grabbers' target.
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So, it is not many things to do for the bulls by far. If you just considering taking short position - try to do it as close to trendline resistance as possible. Local invalidation point stands around "C" top. Action above it will erase both grabbers, and bearish context will be doubtful in this case.
 

Sive Morten

Special Consultant to the FPA
Messages
16,262
Greetings everybody,

This is just brief update as everything goes with the plan. Gold actually is entering the final stage of our trading setup as minimal downside target stands around 1805 and we have few targets in 1805-1810 area. Potentially we also consider the butterfly pattern here, but it is a bit longer term story.

On Dollar Index we also have bullish grabber, suggesting upside action on USD that also supports our setup:
gold_d_29_06_22.png


On 4H chart downside reversal happens shortly after our report, when gold has formed another bearish grabber but on 4H chart. Now price stands in "free space" as 5/8 Fib support is broken already:
gold_4h_29_06_22.png


On 1H chart we're watching the completion of 3-Drive target and not consider any long positions by far.
Once targets will be completed - bulls could get the chance as 3-Drive is also reversal pattern and its potential target stands around 1840$ area:
gold_1h_29_06_22.png
 

Sive Morten

Special Consultant to the FPA
Messages
16,262
Greetings everybody,

Despite solid volatility on intraday charts yesterday - it couldn't change the scenario that we're following to. On a daily chart no changes have happened at all. Recent poor US statistics leave no chances to Fed but push interest rates higher that in mid term becomes negative factor for the gold. But Fed already stands under pressure as GDP shows negative numbers:
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On 4H chart upside bounce has become an another bearish grabber. Later reversal bearish bar has been formed as well. The pullback has happened precisely from our 1812 OP target. Now upside AB-CD pattern has been erased and Gold stands under major 5/8 support area.
gold_4h_30_06_22.png


Although, potentially we're considering downside butterfly with 1760$ target, but in short-term we focus on the nearest target of 1805-1809$:
gold_1h_30_06_22.png


Currently is not too much to do. Bears already have positions and it is too late for the new one, as price is too close to the target already. While bulls should wait when 3-Drive will be formed...
 

Sive Morten

Special Consultant to the FPA
Messages
16,262
Greetings everybody,

So, Gold market shows good downside performance, even better than we've expected as our minimal targets, based on grabbers have been completed. Now we turn to the next one - butterfly extension to 1760 area.
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Those who have shorts - keep them, just don't forget to manage stops. For the new position taking, at first glance, it seems that using of Stop "Sell" order near 1805 lows looks attractive, but we have nuance:
gold_4h_01_07_22.png


Take a look that local OP target stands slightly below the lows. This increase chances for W&R and for the bounce up immediately once stops will be washed out. Thus, in current circumstances, for new position taking it would be better to consider the upside bounce to one of the Fib resistance levels.
 
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