Sive Morten
Special Consultant to the FPA
- Messages
- 18,639
Fundamentals
While investors gamble on what will happen with the EU economy, whether ECB, FED changes the rate and for how much - for the gold market all these factors hardly could bring any problems. When the uncertainty takes the global scale - gold has stable demand.
Market overview
Goldman Sachs expects a rise in the prices of commodities that Russia is a major producer of and lifted its short-term Brent crude forecast as the West stepped up political and economic sanctions on Moscow for its invasion of Ukraine.
Gold slipped on Wednesday due to an uptick in risk appetite and U.S. bond yields, while concerns over a supply crunch that may follow sanctions on Russia kept the price of auto-catalyst metal palladium near a seven-month peak. Wall Street gained and benchmark U.S. 10-year Treasury yields edged higher after Federal Reserve Chair Jerome Powell signalled interest rate hikes could start this month despite uncertainties surrounding the conflict in Ukraine.
Federal Reserve chair Jerome Powell said he is inclined to support a 25 basis point rate increase at the March policy meeting but said the central bank is prepared to move more aggressively later if inflation does not abate as expected.
Although gold is considered a safe investment during such uncertainty, it is highly sensitive to rising U.S. interest rates, which increase the opportunity cost of holding bullion.
Powell told a congressional committee that he was "inclined to propose and support a 25 basis-point rate hike" when policymakers meet in two weeks. The remarks eased widely held expectations before the invasion of a 50 basis-point hike.
Markets are struggling with what happens to growth in Europe and the U.S. because of the Ukraine conflict, said Marvin Loh, global macro strategist at State Street.
Euro zone bond yields rose after dramatic declines a day earlier, with Germany's real yield hitting a record low as traders assessed the economic fallout of the Ukrainian situation. Repricing saw Germany's 10-year yield, the benchmark for the euro zone, recorded its biggest daily fall since 2011 on Tuesday. Markets unwound part of those moves, Germany's 10-year yield up 8.1 basis points to 0.009%. The yield on 10-year Treasury notes climbed 18.3 basis points to 1.894%.
Euro zone inflation soared to another record high last month, intensifying a policy dilemma for the European Central Bank, which needs to convey a sense of calm amid war-related market turmoil and also respond to mounting price pressures.
Among commodity funds, demand for precious metal funds surged to a five-week high as they obtained inflows of $1.46 billion. Global commodity funds are attracting huge inflows this year as investors seek to cash in on the rally in metals, gas and grains after an escalation in the conflict between major commodity producers Russia and Ukraine.
According to Refinitiv Lipper, commodity funds drew a net inflow of $7.9 billion in February, the biggest since August 2020. In January, they received $5.3 billion.
On the other hand, global bond funds experienced a net outflow of $84.2 billion last month, while inflows into equity funds dropped 67% over the previous month to $27.7 billion.
As higher inflation hits bonds and equities, investors are favouring commodity funds as the underlying assets often act as a hedge against rising price pressures.
Dutch gas prices have more than doubled, Newcastle coal has surged by 85% and Brent crude oil has climbed by a fifth. Lipper data showed SPDR Gold Shares led inflows with a net $3.2 billion in the first two months of this year, while Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF and Fidelity SAI Inflation-Focused Fund attracted $1.8 billion and $1.1 billion respectively.
Spot gold prices jumped 1.6% to $1,965.97 per ounce and were up about 4% for the week so far. U.S. gold futures settled 1.6% higher at $1,966.60.
Bullion, considered a safe store of value during such uncertainties, largely ignored a 1% jump in the dollar, an alternative safe haven, and the likelihood of an interest rate hike by the Federal Reserve later this month.
Stocks on Wall Street fell as concerns over the conflict in Ukraine overshadowed strong U.S. jobs growth last month. The survey of establishments showed nonfarm payrolls jumped by 678,000 jobs last month, leaving employment 2.1 million jobs below its pre-pandemic level. Economists expect all the lost jobs will be recouped by the third quarter of this year.
Wages rose 5.1% in the 12 months through February after advancing 5.5% in January. Wages for production and non-supervisory workers rose 0.3% from January. Though average hourly earnings were flat last month, that was because of the return of workers in lower-paying industries and a calendar bias. Companies are raising wages to attract scarce workers, which is contributing to higher inflation.
COT Report
Recent data confirms bullish sentiment on gold, although changes of this week are not too significant. Net long position slightly has increased:
Source: cftc.gov, charting by Investing.com
So, yesterday we've talked a lot about financial component of ongoing processes. And everything that we've discussed sounds positive to the gold. A month ago nobody could say how war scenario goes. Yes, the US, UK probably supposed that Russia could start military operation in Ukraine. Actually they have started to "prepare" public opinion for the long time before it happens, even before the Olimpic Games. But, the way how operation develops, and the width of the operation that spreads over whole Ukraine - it was not able to predict. And, I suspect that the US, when they saw it, have decided to extract more bonuses from this. Geopolitically situation stands not too good, crushing globalists plans on spreading "green" programs across the Globe etc., but tactically and financially it promises great benefits to the US and to the UK at some degree.
With the 2-digits inflation in the US, it critically needs external capital inflow that could support its economy. Properly speaking, they need to rob somebody. The USSR was robbed in 90's already, Russia doesn't let them to do it by far, China as well. But at current situation the US opens its last available"piggy bank" - EU. Without ability to make independent foreign politics, EU takes the whole burden of anti-Russian sanctions. As the US as UK barely impact by them. I'm sure that UK should find the way to damp impact of high energy price. As we've said yesterday, now we see the "robbery of the century", or decade at least , when the US suck out all capitals out from Europe, providing safety, stability and higher interest rates. By our opinion, EU could lost 1.5-2.0 Trln of assets, on average. This is not big money for the US, but it provides support to the economy until the end of 2022 or even longer a bit. And J. Powell already starts talking on "expectation of inflation easing" later in this year. Coming money push consumption and demand for the US assets, including bonds, pressing on the interest rates and let Fed to not hurry up with rate hike or make it smoother.
ECB, in turn, appears to be in very difficult situation. Inflation should keep going higher and they neither could keep the rate flat nor to rise it. In first case it hurts consumption and economy, which is deadful combination when households wealth are melting and you make money more expensive. At the same time they can't leave rates low as inflation is rising.
US, in turn, besides of grabbing the capital from the EU, will get huge defence contracts, start to sell LPG with even higher prices, etc, etc., getting more and more bonuses. As a result, inflationary expectations eased and rates turns down a bit, disguising real inflationary problems. This combination is just perfect for the gold, when you have as gepolilical tensions, providing demand across the Globe as diving real interest rates:
GOLD vs 30-year TIPS (blue)
Finally, as the last factor - geopolitical tensions stand for a long-time. Nobody cancels Russian demand to move NATO borders back to the 1997. And the Ukraine is the first brick in the wall. This makes us to keep our positive view on the gold, at least until the end of 2022. The nearest target that we have is 1975$ top, but we do not exclude action above 2000-2150$, mentioned above by other analysts.
Technicals
Monthly
Last time we've mentioned bearish Feb grabber that suggests drop below 1750$ area. But should follow to healthy skepticism and use common sense in current situation, as chances of failure of this patterns remain high. Market has solid upside momentum, no strong Fib levels and no oversold until all time high around 2075, which is actually the next target here.
In February market has shown already downside reaction to respect first touch of YPR1 and now it is coming back. This is important sentiment indicator, and moving above YPR1 suggests further upward acceleration. As previous 2075$ top agrees with monthly overbought - it seems that this level should be next medium term target here, as monthly trend in March is turning bullish. Flag consolidation has been broken up, which is continuation pattern. We talked in every research that from the long term point of view - retracement is anemic, less than 3/8, which is bullish long term sign. As flag was a reaction on COP of huge AB-CD, pattern, and market keeps going higher - the OP stands around 2600$, and nobody could bet now that it can't be reached.
Weekly
Weekly trend stands bullish. Market has broken already all major resistance levels and, in fact, only overbought prevents its upward continuation. Major target stands at 2060-2075$, and consists of major XOP and 1.618 butterfly target. Also we should mention 1.27 extension around 1980$ as well, just because it coincides with the overbought and also could trigger tactic retracement on daily chart:
Daily
Gold totally ignores the NFP data and accelerates to the top, which means that our grabber is working and washing of 1975$ is a question of time. In fact, reaching of weekly target and completion of the grabber should be the same event. The daily XOP in general agrees with the weekly major target around 2075$. Thus, if you have longs, you could keep them, if not - maybe it makes sense to wait until downside reaction on 1975-1980$ target starts.
As market stands at daily overbought, action might be a bit choppy, but commodities not so sensitive for OB/OS levels compares to financial markets, thus gold could hit the target, even been overbought .
Intraday
Although we have a butterfly with 2000$ target, now it seems too extended for short-term perspective, and it is more probable that gold tries to hit inner AB=CD 1980$ OP target on 1H chart and also some other targets in the same area. Since price is going to challenge the top - stops triggering could result in short-term spike, that should let price to hit 1984 OP as well:
While investors gamble on what will happen with the EU economy, whether ECB, FED changes the rate and for how much - for the gold market all these factors hardly could bring any problems. When the uncertainty takes the global scale - gold has stable demand.
Market overview
Goldman Sachs expects a rise in the prices of commodities that Russia is a major producer of and lifted its short-term Brent crude forecast as the West stepped up political and economic sanctions on Moscow for its invasion of Ukraine.
Gold slipped on Wednesday due to an uptick in risk appetite and U.S. bond yields, while concerns over a supply crunch that may follow sanctions on Russia kept the price of auto-catalyst metal palladium near a seven-month peak. Wall Street gained and benchmark U.S. 10-year Treasury yields edged higher after Federal Reserve Chair Jerome Powell signalled interest rate hikes could start this month despite uncertainties surrounding the conflict in Ukraine.
Federal Reserve chair Jerome Powell said he is inclined to support a 25 basis point rate increase at the March policy meeting but said the central bank is prepared to move more aggressively later if inflation does not abate as expected.
Although gold is considered a safe investment during such uncertainty, it is highly sensitive to rising U.S. interest rates, which increase the opportunity cost of holding bullion.
Powell told a congressional committee that he was "inclined to propose and support a 25 basis-point rate hike" when policymakers meet in two weeks. The remarks eased widely held expectations before the invasion of a 50 basis-point hike.
Markets are struggling with what happens to growth in Europe and the U.S. because of the Ukraine conflict, said Marvin Loh, global macro strategist at State Street.
Euro zone bond yields rose after dramatic declines a day earlier, with Germany's real yield hitting a record low as traders assessed the economic fallout of the Ukrainian situation. Repricing saw Germany's 10-year yield, the benchmark for the euro zone, recorded its biggest daily fall since 2011 on Tuesday. Markets unwound part of those moves, Germany's 10-year yield up 8.1 basis points to 0.009%. The yield on 10-year Treasury notes climbed 18.3 basis points to 1.894%.
Euro zone inflation soared to another record high last month, intensifying a policy dilemma for the European Central Bank, which needs to convey a sense of calm amid war-related market turmoil and also respond to mounting price pressures.
Among commodity funds, demand for precious metal funds surged to a five-week high as they obtained inflows of $1.46 billion. Global commodity funds are attracting huge inflows this year as investors seek to cash in on the rally in metals, gas and grains after an escalation in the conflict between major commodity producers Russia and Ukraine.
According to Refinitiv Lipper, commodity funds drew a net inflow of $7.9 billion in February, the biggest since August 2020. In January, they received $5.3 billion.
On the other hand, global bond funds experienced a net outflow of $84.2 billion last month, while inflows into equity funds dropped 67% over the previous month to $27.7 billion.
As higher inflation hits bonds and equities, investors are favouring commodity funds as the underlying assets often act as a hedge against rising price pressures.
Dutch gas prices have more than doubled, Newcastle coal has surged by 85% and Brent crude oil has climbed by a fifth. Lipper data showed SPDR Gold Shares led inflows with a net $3.2 billion in the first two months of this year, while Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF and Fidelity SAI Inflation-Focused Fund attracted $1.8 billion and $1.1 billion respectively.
Spot gold prices jumped 1.6% to $1,965.97 per ounce and were up about 4% for the week so far. U.S. gold futures settled 1.6% higher at $1,966.60.
Bullion, considered a safe store of value during such uncertainties, largely ignored a 1% jump in the dollar, an alternative safe haven, and the likelihood of an interest rate hike by the Federal Reserve later this month.
Stocks on Wall Street fell as concerns over the conflict in Ukraine overshadowed strong U.S. jobs growth last month. The survey of establishments showed nonfarm payrolls jumped by 678,000 jobs last month, leaving employment 2.1 million jobs below its pre-pandemic level. Economists expect all the lost jobs will be recouped by the third quarter of this year.
Wages rose 5.1% in the 12 months through February after advancing 5.5% in January. Wages for production and non-supervisory workers rose 0.3% from January. Though average hourly earnings were flat last month, that was because of the return of workers in lower-paying industries and a calendar bias. Companies are raising wages to attract scarce workers, which is contributing to higher inflation.
COT Report
Recent data confirms bullish sentiment on gold, although changes of this week are not too significant. Net long position slightly has increased:
Source: cftc.gov, charting by Investing.com
So, yesterday we've talked a lot about financial component of ongoing processes. And everything that we've discussed sounds positive to the gold. A month ago nobody could say how war scenario goes. Yes, the US, UK probably supposed that Russia could start military operation in Ukraine. Actually they have started to "prepare" public opinion for the long time before it happens, even before the Olimpic Games. But, the way how operation develops, and the width of the operation that spreads over whole Ukraine - it was not able to predict. And, I suspect that the US, when they saw it, have decided to extract more bonuses from this. Geopolitically situation stands not too good, crushing globalists plans on spreading "green" programs across the Globe etc., but tactically and financially it promises great benefits to the US and to the UK at some degree.
With the 2-digits inflation in the US, it critically needs external capital inflow that could support its economy. Properly speaking, they need to rob somebody. The USSR was robbed in 90's already, Russia doesn't let them to do it by far, China as well. But at current situation the US opens its last available"piggy bank" - EU. Without ability to make independent foreign politics, EU takes the whole burden of anti-Russian sanctions. As the US as UK barely impact by them. I'm sure that UK should find the way to damp impact of high energy price. As we've said yesterday, now we see the "robbery of the century", or decade at least , when the US suck out all capitals out from Europe, providing safety, stability and higher interest rates. By our opinion, EU could lost 1.5-2.0 Trln of assets, on average. This is not big money for the US, but it provides support to the economy until the end of 2022 or even longer a bit. And J. Powell already starts talking on "expectation of inflation easing" later in this year. Coming money push consumption and demand for the US assets, including bonds, pressing on the interest rates and let Fed to not hurry up with rate hike or make it smoother.
ECB, in turn, appears to be in very difficult situation. Inflation should keep going higher and they neither could keep the rate flat nor to rise it. In first case it hurts consumption and economy, which is deadful combination when households wealth are melting and you make money more expensive. At the same time they can't leave rates low as inflation is rising.
US, in turn, besides of grabbing the capital from the EU, will get huge defence contracts, start to sell LPG with even higher prices, etc, etc., getting more and more bonuses. As a result, inflationary expectations eased and rates turns down a bit, disguising real inflationary problems. This combination is just perfect for the gold, when you have as gepolilical tensions, providing demand across the Globe as diving real interest rates:
GOLD vs 30-year TIPS (blue)
Finally, as the last factor - geopolitical tensions stand for a long-time. Nobody cancels Russian demand to move NATO borders back to the 1997. And the Ukraine is the first brick in the wall. This makes us to keep our positive view on the gold, at least until the end of 2022. The nearest target that we have is 1975$ top, but we do not exclude action above 2000-2150$, mentioned above by other analysts.
Technicals
Monthly
Last time we've mentioned bearish Feb grabber that suggests drop below 1750$ area. But should follow to healthy skepticism and use common sense in current situation, as chances of failure of this patterns remain high. Market has solid upside momentum, no strong Fib levels and no oversold until all time high around 2075, which is actually the next target here.
In February market has shown already downside reaction to respect first touch of YPR1 and now it is coming back. This is important sentiment indicator, and moving above YPR1 suggests further upward acceleration. As previous 2075$ top agrees with monthly overbought - it seems that this level should be next medium term target here, as monthly trend in March is turning bullish. Flag consolidation has been broken up, which is continuation pattern. We talked in every research that from the long term point of view - retracement is anemic, less than 3/8, which is bullish long term sign. As flag was a reaction on COP of huge AB-CD, pattern, and market keeps going higher - the OP stands around 2600$, and nobody could bet now that it can't be reached.
Weekly
Weekly trend stands bullish. Market has broken already all major resistance levels and, in fact, only overbought prevents its upward continuation. Major target stands at 2060-2075$, and consists of major XOP and 1.618 butterfly target. Also we should mention 1.27 extension around 1980$ as well, just because it coincides with the overbought and also could trigger tactic retracement on daily chart:
Daily
Gold totally ignores the NFP data and accelerates to the top, which means that our grabber is working and washing of 1975$ is a question of time. In fact, reaching of weekly target and completion of the grabber should be the same event. The daily XOP in general agrees with the weekly major target around 2075$. Thus, if you have longs, you could keep them, if not - maybe it makes sense to wait until downside reaction on 1975-1980$ target starts.
As market stands at daily overbought, action might be a bit choppy, but commodities not so sensitive for OB/OS levels compares to financial markets, thus gold could hit the target, even been overbought .
Intraday
Although we have a butterfly with 2000$ target, now it seems too extended for short-term perspective, and it is more probable that gold tries to hit inner AB=CD 1980$ OP target on 1H chart and also some other targets in the same area. Since price is going to challenge the top - stops triggering could result in short-term spike, that should let price to hit 1984 OP as well:
