Gold GOLD PRO WEEKLY, March 07 - 11, 2022

Sive Morten

Special Consultant to the FPA
Messages
16,283
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.

"The range of near-term price outcomes for commodities has become extreme, given the concern of further military escalation, energy sanctions or potential for a cease-fire." Goldman said in a note to clients. "We expect the price of consumed commodities that Russia is a key producer of to rally from here - this includes oil, European gas (and hence aluminum), palladium, nickel, wheat and corn.

"The recent escalation with Russia create clear stagflationary risks to the broader economy, driven by higher energy prices, which reinforce our conviction in higher gold prices in coming months and our $2,150/toz (troy ounce) price target," Goldman said. Gold’s unique role as the currency of last resort will likely be apparent if restrictions on Russia’s central bank accessing its offshore reserves leave it leveraging its large domestic gold stockpiles to continue foreign trade, most likely with China," the bank said.

"When geopolitical tensions get really high, gold still is the main safe haven asset outperforming the crypto currencies and other even other assets like Treasuries," said Jim Wyckoff, senior analyst at Kitco Metals.

"Bond yields have fallen as prices have recovered on safe-haven flows and with some investors reducing their expectations about aggressive tightening from central banks. Against this backdrop, I am expecting gold to go well north of $2,000," Fawad Razaqzada, an analyst with ThinkMarkets, wrote in a note.

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.

"I’m inclined to propose and support a 25 basis point rate hike," Powell testified before Congress on Wednesday about the Fed's upcoming March meeting. He added that the central bank is "prepared to move more aggressively by raising the federal funds rate by more than 25 basis points" at one or more meetings if inflation does not come down later this year 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.

Meanwhile, Commerzbank analyst Daniel Briesemann noted that gold prices could go up despite a U.S. rate hike in March as "everything is dependent on how the Russia-NATO conflict develops."

"Given the supply constraints that we are concerned about due to the Russian sanctions, it is obvious that we would see platinum and palladium prices rise," High Ridge Futures' Meger added.

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.

"There was a broad belief they were going to create a big splash to get everybody’s attention," said Jack Ablin, chief investment officer at Cresset Capital Management.
"The fact the Fed was not expected to tighten that much, and then Powell confirmed that suspicion this morning, has led to this enthusiasm," he said.

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.

"This increase in energy prices makes it a challenge for the Fed because on the one end, it increases inflation," Loh said. "But, generally speaking, when you get these surges in energy prices there's a deflationary component associated with that, because it saps growth elsewhere," he said.

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.

"Gold has largely been trading at the mercy of Ukraine-Russia headlines, but has also started to rekindle its relationship with real yields ahead of the March FOMC meeting," Standard Chartered analyst Suki Cooper wrote in a note. Rate hike expectations have been scaled back and we continue to expect the Fed to hike by 25bps in March. Along with a flight to safety, the conflict has implications for the physical market as Russia restarts central bank gold purchases."

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.

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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.

"Investors seeking a bull market are finding one in commodities...prices have been trending higher, fuelled in part by supply chain disruptions as well as fundamental production issues which are contributing to supply/demand imbalances," said Jake Hanley, senior portfolio strategist at Teucrium Trading LLC.

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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.

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"Commodity funds should continue to appeal to investors seeking a hedge against inflation and exposure to a global consumption rebound." said Rich Pontillo, an analyst at Nasdaq IR Intelligence. More so especially when compared to fixed income, which could decline in value in a rising rate environment, and equities that will carry greater discounted cost of capital as rates rise."

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.

"The Russia-NATO crisis will continue to support the prospect for higher precious metal prices," Saxo Bank analyst Ole Hansen said in a note. "This not only due to a potential short-term safe-haven bid which will ebb and flow, but more importantly due to what this tension will mean for inflation, growth and central banks' rate hike expectations."

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:

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Source: cftc.gov, charting by Investing.com

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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)
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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.

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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:

gold_w_07_03_22.png


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 .
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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:
gold_1h_07_03_22.png
 

Sive Morten

Special Consultant to the FPA
Messages
16,283
Morning everybody,

So, 2K level has been hit a bit faster than we thought, supposing that Gold should flirt with 1975-1985 target first. Anyway, currently we should increase the scale of analysis as we did on other markets. Just because swings become wider and intraday charts can't provide necessary information.

On weekly chart price is overbought, but if you take a look to the left, you could see that last time gold was feeling comfortable enough, been overbought for the three weeks. This is common feature of commodities, as they are not as sensitive to OB/OS as financial markets.
So, upward action might become a bit slower, but anyway we expect Gold to hit next 2060-2075 target cluster. Be prepared to high volatility as market makers start to grab stops above it:
gold_w_08_03_22.png


On daily chart we have another XOP in the same area, and gold is overbought here as well. The major pattern that we need to keep an eye on - B&B "Buy". If it will be formed, it could be used for the long entry:
gold_d_08_03_22.png


4H chart patterns also point on the same area. 2033 target is minor one, hardly we see solid reaction on it.

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Thus, for long entry - try to use retracements. If we get B&B "buy" on daily - all the better. it is not good time for bearish trades, but if you still would like to - do it only from strong resistance levels, targets accompanied with overbought.
 

Sive Morten

Special Consultant to the FPA
Messages
16,283
Greetings everybody,

So, our 1975-1985 target is completed and from technical and (speculative) point of view - we need to wait for the pullback. Buying gold is reasonable now only for the long term and only for investment purposes, if you intend to keep for months and without a leverage.

So, once our targets are done and price is overbought on weekly/daily basis, we need to watch for the pullback. The best scenario here is B&B Buy around 1950, although it is not clear whether gold is ready to drop for 50$ now...
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On 4H chart OP is done as well. CD leg acceleration gives clear hint on continuation to XOP once reaction to OP will be completed:
gold_4h_09_03_22.png


1H setup is mostly interesting for speculators. Right on top we have bearish signs - reversal bar and bulls capitulation action (watch video for explanation). This supposedly could lead to retracement. But we have a nuance - weekly 2075$ target is not reached yet and weekly top is not washed out as well. Thus, it could be "222" Sell, but it could be spike to 2100 and re-shaping to butterfly. Knowning gold cunning, second scenario seems very probable. Thus, if you intend to make scalp short trade here - be aware of possible spike to 2100 and either adjust stops or wait when it happens.
gold_1h_09_03_22.png
 

Sive Morten

Special Consultant to the FPA
Messages
16,283
Greetings everybody,

So, the first step is done accurately, the retracement stands under way and we have more details now. First is, on daily chart it takes the shape of big engulfing pattern. Not always, but in most cases this type of reaction suggests two-leg downside action in a shape of AB-CD pattern. It means that once our B&B "Buy" will be done - another downside action could happen.

Speaking on the B&B, market stands around the point where it could start. It would be nice if we get downside action a bit more, but 1951-1957 area seems relatively safe for position taking, as it also accompanied by oversold:
gold_d_10_03_22.png


On 1H chart price hits pre-defined XOP, but I do not like the reaction, it seems a bit week. Thus, there are to ways to act - either gradual entry, or wait for the patterns. It is possible that 1958 butterfly target could be met. But this is a kind of "fine tuning", as mostly the background for the bounce is ready.

gold_4h_10_03_22.png
 

Sive Morten

Special Consultant to the FPA
Messages
16,283
Good morning,

Gold doesn't show a lot of changes by far, briefly reacting on recent CPI numbers. We still expect upward bounce and more extended downside action after that, just because of big bearish engulfing pattern here:
gold_d_11_03_22.png


At the same time, intraday balance has changed slightly, as chances for immediate upward action decreased. First is, we get forming H&S pattern here, second, recent performance and reaction on CPI erodes the shape of minor reversed H&S pattern.

Still, I wouldn't say that upward action is impossible, gold could rebound by "222" Buy pattern. Currently bullish setup stands a bit tricky, but advantage is - very small potential loss, just few bucks. Thus, if you're ready to take this risk, you could consider it. If you're conservative do nothing and watch for stronger support, such as 1955 area that we've mentioned yesterday.
gold_1h_11_03_22.png


For the bears it is also tricky question how to take position. Now it is a bit risky as stop probably will be too far. We see two possible decisions. Either to wait for upside AB-CD pattern, if it works. Or, use Stop "Sell" order just under the recent lows.
 
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