Gold GOLD PRO WEEKLY, March 13 - 17, 2023

Sive Morten

Special Consultant to the FPA
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Fundamentals

So, yesterday we've discussed a lot of economical things, including recent NFP numbers, J. Powell speech and few scenarios of SVB crash, which we think also could be the reason why Fed has not intruded to prevent this collapse. But, still there is a last scenario of SVB tragedy, that is mostly related to politics and gold market, rather than to economy. By the way, guys - have you seen that there are no publications on recent gold rally in business media. As Bloomberg as Reuters totally ignore this subject, trying to not attract attention of investors.

Meantime, Singapore boosted its gold reserves by about 30% in January, joining central banks from China to Turkey in building up holdings of the precious metal. Although total amount is not large, just around 199 tons (6.4 Mln Oz), but here is important the different thing - the pace.

“This is Singapore’s second-largest gold purchase ever in one month,” Ronan Manly, a precious metals analyst at Singapore dealer BullionStar, said in a blog post. The biggest was in 1968, when it bought 100 tons from South Africa, he said.

Investors are keep running into cash. Assets invested in U.S. money market funds have reached a new all-time high of $4.9 trillion this year, as soaring short-term interest rates have sent investors rushing into cash, BofA Global Research said on Friday. Money market funds invest in highly liquid near-term instruments such as cash and short term debt securities.

Market expectations for further rate hikes from the U.S. Federal Reserve, which have sent U.S. yields higher, have also made money market funds more attractive. The yield on six-month U.S. Treasury bills reached 5.34% on Tuesday, its highest since 2006. Elsewhere, there were weekly inflows to bond funds of $8.2 billion, and outflows from equities of $500 million and from gold of $4 million, according to the report.

BofA also warned that the rapid increase in global interest rates, and market pricing for further hikes have generated what they call "crashy vibes of March".

"(There are) so many potential catalysts for a systemic deleveraging event that sparks policy panic/end of Fed tightening; ... and investors must be ready at that moment to deploy cash in new leadership assets which outperform in era of higher inflation," they said. These "vibes" could worsen unless there is a soft U.S February payrolls later on Friday, BofA said.

Indeed, if we take a look at recent SPDR Fund data, we do not see any enthusiasm among investors, at least by far. Investors mostly have ignored previous gold rally, which more stands in favor of deeper downside action on gold in near-term. Situation could change, if banking sector collapse turns to massive tendency but we do not know that.
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Speaking on J. Powell, we have touched this topic yesterday in details, but here is still few moments to mention. He said nothing new actually. P. Schiff also points that this was a repeat of the performance we saw over and over again last year every time somebody at the Fed talked tough about fighting inflation and indicated monetary tightening would continue, or when we got any kind of strong economic data.

The thing most people seem to be missing is that Powell didn’t really say anything he hasn’t been saying all along. Powell talked tough after both the December and February FOMC meetings. After the February meeting, Powell repeatedly said “the job is not done.”
We’ve raised rates four and a half percentage points, and we’re talking about a couple of more rate hikes to get to that level we think is appropriately restrictive. Why do we think that’s probably necessary? We think because inflation is still running very hot, Powell said on February meeting.

The markets didn’t believe their ears last month. Apparently, they do now. Indeed, swap traders, as we've mentioned, already are pricing in 25 points rate cut by the end of the year. So, Powell is going to keep talking tough until the economy goes into the gutter. And it will sooner or later. This bubble economy is built on easy money and debt. The Fed has taken that away. And SVB collapse has become the first fruit of this. So, the house of cards has to come crashing down eventually. When that happens, Powell’s tune will change. P. Schiff suggests three fundamental reasons the Fed will not win this inflation fight.

The sheer amount of inflation the government and the Fed have created. The central bank has pumped trillions of dollars into the economy in little over a decade. It needs to dry up that liquidity. It can’t. And it’s not even trying. With the current balance sheet reduction plan, it would take over seven years just to shrink the balance sheet to pre-pandemic levels. And it’s not even meeting the goals set in this tepid plan.

Indeed, we've already considered previous attempt of QT by B. Bernanke. It was reversed when QT has reached around 750 Bln. Fed was not able to sell (withdraw) all accumulated bonds during first QE. Now Fed has passed around 600 Bln down (from 8.95 to 8.35 ). Yes, you could argue to proportional easing. In this case Fed has to go another 600 Bln to feel the effect. But, in 2008 the balance was two times smaller and interest rate was near 1%.... It means smaller expenses, smaller refunding needs etc. If we even suggest QT for 1.2 Trln, it is far less than 8 Trln printed. Fed needs almost 8 years to cut balance to pre-pandemic levels with 95 Bln/month pace. But who will buy these toxic bonds? And here we should agree with P. Schiff.

Even at 5.5%, interest rates wouldn’t be high enough to slay inflation – if the Fed can even get them that high before the inevitable crash. Even with the aggressive hiking over the last year, we still have negative real interest rates. And given that the CPI dramatically understates the reality of inflation, real rates are deeply negative. You don’t beat inflation with negative real rates. Besides, based on our recent FX report, we come to conclusion that the US economy stands at the edge of a new inflation spiral, despite all Fed efforts. This theory is yet to be checked by coming CPI/PPI data, but the fact that inflation remains high despite all Fed efforts indirectly confirms this.

The federal government won’t stop spending money. The US government is running an extremely expansionary fiscal policy. Furthermore, the Fed will eventually need to step in and monetize at least some of this debt. Monetary policy alone won’t bring inflation back to 2%. We need spending cuts. That’s not happening. Topic of unstoppable budget deficit we've considered last week. You need to finance government raising appetite but how? US economy doesn't produce enough taxes to satisfy it. As J. Biden suggested in his new plan - rising taxes, which means higher expenses. Higher expenses is higher costs, higher costs means inflation and drop in consumption. With the pace of budget deficit, new plan is absolutely unrealistic, except, maybe massive tax burden increase. By the way, J. Biden plan also suggests inflation of 2.4% by the end of this year.

A paper published last year by the Kansas City Fed admitted that the central bank couldn’t slay inflation alone. In a nutshell, the paper asserted that US government fiscal policy contributes to inflationary pressure and makes it impossible for the Fed to do its job. But the Federal Reserve will keep up the illusion of an inflation fight as long as it can. Until the economy cracks under the pressure of tighter monetary policy, you can expect Powell and Company to keep talking tough.

But at some point, the economy will crack.

The US economy is addicted to easy money. It is addicted to artificially low interest rates and quantitative easing. You can’t take an addict’s drug away without sending him into withdrawal. The economy can only limp along so long with tighter monetary policy. Interest rates haven’t been this high since 2007. At that point, the Fed was cutting rates due to the housing bust. The economy couldn’t handle interest rates that high then. What makes anybody think it can handle them that high now?

When the inevitable happens, the Fed will almost certainly abandon the inflation fight to rescue the economy. Until then, you can expect more open-mouth operations by Powell and his minions.

In general he said two major points - Fed doesn't know why inflation is rising, and second - market is just starting to feel impact of high interest rates. And he said that the major impact still stands ahead. Usually, effect lags for 7-9 months. It means that now we're living in time of late summer of 2022 and rate around 2.5-3%. Now rates are almost two times higher. Since this is not a discretional value, we should see gradual pressure rising of higher rate on the US economy in all spheres.

Hidden SVB crash consequences

Now the major discussion is either crash is systematic (i.e. should lead to chain reaction in other mid and small banks) or non-systematic, i.e. unique. Partially we've discussed this yesterday in our FX research. Today we would like to talk a bit of another scale scenario, I would call it as global political scenario. At first glance it seems absurd any attempt to tight together global politics and crash of domestic US bank. But, as more details appear as more confidence we get to suggest that it might be intended, managed crash.

So SVB crash is an extreme example of "Bank-run". And here we have few questions:

▪️Who created the information pressure that catalyzes the raid on the deposit base? There is evidence that in the range of three days, many major representatives of hedge funds and leading representatives of the largest banks have sharply revised their forecasts for SVB, recommending an urgent withdrawal of funds.

▪️Why did the bank crash in less than 30 hours? In the entire history of the banking system, there has not been a single precedent for such a rapid liquidation of a bank (from the moment of the first information impact to the liquidation commission), at least with assets over $10 billion.

Given the size of the pot, there is no doubt that this was with the direct approval of Yellen, Powell and FDIC (less than 2% of deposits under 250K and are insured). SVB is a typical representative of fintech. Specialization in providing loans to private equity and venture capital funds, focusing on technology start-ups. Target audience of the bank: software companies and digital infrastructure (infotech), fintech, medical equipment and biopharma (biotech), digital advertising, crypto industry.

Someone desperately needed to bring down the enthusiasm in technology startups, high-risk venture investments and crypto-madness? The direction of the blow is localized in the crypto industry, small tech startups. It is important to emphasize that not in the giants of the level of Microsoft, Google or Oracle, but in plankton with revenues from 100 million to 1 billion and wildly inflated capitalization to the point of complete madness.

Additionally, probably in the context of a shrinking pie and increased competition for client funds, consolidation and concentration of bank capital will be necessary.

The "Gray eminence" and a member of the financial elite Summers actually confirmed the hypothesis. Summers is a mega bank lobbyist on Wall St and an important figure in the political establishment.

due to recent events, there may be a need for some consolidation in the banking sector. The mistake of the authorities lies in the fear of consolidation, which stems from a populist preoccupation with an alleged attempt to serve small businesses and society. Whereas the consolidation of banks (the merger of small ones with large ones) serves in the direction of financial stability.

The collapse of SVB itself will not have an impact on the financial system, unlike Lehman, because SVB is quite isolated, but there is a secondary effect of infecting the system and undermining trust, the inevitable redistribution of liquidity from small banks to large ones.

After this necessary introduction we're coming to deep meaning of this events that hardly you will read somewhere else. Maybe it is too early to talk about this, but we suggest that it might be the starting point of AUKUS strategy, that should replace Bretton-Woods system and suggest appearing of few currency zones. AUKUS - is US Dollar zone. Idea of AUKUS is totally opposite to Bretton Woods. If latter suggests dominant control by bankers via interest rate and money supply, the former suggest control by industrial sector, powerful real industry. It is impossible to include liberal banking system into AUKUS project of US industrialization, because de facto banks prevent and intercept cash flows from real sector and use them on financial markets due faster return, shorter term and higher gain. They are parasite on real economy sector.

But AUKUS can't exclude banking system totally. They need some big, totally controlled banks (or even belonged to government) that could just execute necessary cashflows for big industry programmes. At the same time, AUKUS doesn't suggest total control over global financial system as it stands right now with B-W. From this standpoint - massive centralization, concentration and enlargement of banking sector is reasonable. By this step government concentrates all assets of public and companies under tight control, liquidate any "zombie" companies and banks. Using this precedent for more control over crypto currency and high-tech sectors let them to make more pressure on rivals to introduce own CBDC.

Launching of CBDC (Central Bank Digital Currency) project could serve the same purpose. Start of "new currency" for AUKUS purpose only and their citizens could let "forgive everything to the ones who the US owed" and, in fact, cancel fiat US Dollar, with no matter how it will be done. From this point it is absolutely doesn't matter any QE, defaults etc. US just prints necessary amount of USD to avoid formal default, pay out 30 Trln of foreign debt and close USD project with initiating of AUKUS CBDC.

Simultaneously AUKUS has to isolate China from access to global markets but some blockage in Asia Pacific region, in a way of outposts chain on a line of S. Korea, Japan, Taiwan and maybe Malaysia. China is big factory but it doesn't have enough domestic consumption to be self-sufficient economy. They need access to foreign markets. AUKUS and EU limitrophe have it and their task to protect it from China influence. Otherwise, AUKUS realisation as geopolitical project will be doubtful. Based on recent facts, and rising US-China tensions, it seems that AUKUS strategy is accepted. Now we see how big high tech companies are migrating out from China (Samsung to US, Foxconn to India etc.). US limits China access to high technologies. And this trend probably will continue. That's what about on top level.

Additionally, idea of AUKUS is confirmed by leak from Financial Times, where reported that according to its data, the US presidential administration privately called on the largest commodity traders to call them keep trading Russian oil. Of course, it was only about oil that meets the price restrictions, but the EU, some time ago, actually allowed Russian oil to be mixed and pumped freely. Combined with the FT's message, this means that the attempt to switch to regulated prices in the oil market ended in failure.

The fact that the Bretton Woods system breathes incense, in general, has become clear to almost everyone. This system was built on free markets with the control of the elite of the "Western" global project (international bankers) over the issue of the dollar and credit. The attempt to regulate the prices of Russian oil (or any other asset) is a completely different conceptual model of control over the global economic situation, built on completely different principles, in particular, the rejection of free markets. And it has failed.

The failure of this operation means that there will be no controlled transition from the B.-W. model to some other one, since this other model is not observed. The industrialization of the AUKUS, which we have repeatedly written about, is, in fact, the rejection of global control over the world economy, the AUKUS itself is just a dollar currency zone, one of 4-5 more equal zones into which the world economy will disintegrate. And it is from this development of events, apparently, that we should proceed.

If we drop the scale a bit, and take a look at US domestic level, it seems that we're correct on US banking business concentration, and possible domino effect of recent SVB collapse. Hardly this will be a unique case. This should serve in the Fed advantage, redirecting cash flows on bond market. But what Fed is going to do with the interest rates?

Let's just follow the common sense. Do US 3-month Bills provide 5% return? Yes. Do US banks provide 5% annual return for the 3 months on deposits? No. Answer is - people race out of the banks continues. Will bank start rising rates to stop deposit loss? Yes. Will their profit margin drop or even become negative? Absolutely. They can't pay 5% on deposit and keep long-term 3-4% loans in portfolio. How they intend to close the gap? By selling the assets with realization of loss. How many small and mid banks will be able to hold this? Not too much, as all banks use the same strategy and have the same assets structure, that is based on decades of zero interest rates period. It means that bank collapse should become massive event.

This in turn, leads us to collapse of stock market, rising unemployment and all other consequences that we've specified previously. Demand for US bonds should increase, and Fed is not necessary to stop rate hike, because, it is already around 5%. Effect of high rate is already here. Fed could keep struggle with inflation. As a result yield curve inversion will increase, keeping real interest rates deeply negative, which is positive for the gold market. Panic in banking sector and run into safe haven is also positive to the gold.

Could Fed stop interest rate hike? Hardly, because it has no sense. As I said - they already have got the negative effect of high rate. If they stop it, effect doesn't disappear, it holds and keep working. But if they stop, inflation remains high. Thus, it makes sense for the Fed to go right up to the end and hike rate as high as they could. As we've said last time - they could "wait" for inflation above 10%, make sure that everyone who needs to be are sit in US Treasuries already (because of current banking crisis). inflation has not decreased, and then when there is nowhere to go, they will pull sharply up, dropping bonds prices down.

While all this mess stands in a starting point - gold could remain under some pressure, as we've suggested last time. But no doubts, any deep provides just better investing opportunity by our view. I've tried to explain complex things as easy as possible, hopefully we get it.
 
Technicals
Monthly

This week due well known events market showed deeper upside pullback. Based on monthly picture we can't turn back to bullish scenario, until price exceeds the 1950 top and erases engulfing pattern. Thus, recent rally is still a retracement.

price still holds above YPP, balancing on the edge between bullish and bearish sentiment. If downside action continues, pivots framework suggest that asset's failure to hold above YPP means possible downside action to YPS1, which is around 1603$. So, maybe our 2nd investing entry chance is yet to come and it makes sense to wait for better price levels for purchasing of physical gold.

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Weekly

Weekly chart is a great example how technical picture could predict important events, if even you have no idea about them. Our B&B "Buy" stands in progress. Theoretical minimal target is $1900 area
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Daily

So, grabber on daily chart has worked perfect, but unfortunately events were going to fast, giving us no more or less meaningful pullback. Market is not at overbought, so, we could consider ways of long entry here:
gold_d_13_03_23.png


Intraday

Upside XOP perfectly Agrees with major 5/8 1900 Fib resistance level, where B&B target stands. Now price is around 3/8 resistance level. If any deep happens, we could consider long entry:
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1H XOP is accurately hit (this explains minor penetration of 3/8 resistance level). As market is not at overbought, more probable that pullback hardly become lower than nearest two support levels -
gold_1h_13_03_23.png
 
Greetings everybody,

So, gold market is coming on the new stage. Our B&B has been completed very fast, and now we should start thinking about 1958 top, because this is the key to long-term trend. Upside breakout of 1960 means action to the new top and erasing of monthly bearish pattern.

Meantime, gold hits overbought near major 5/8 1900 resistance area, forming daily bearish "Stretch" pattern. Intraday traders probably will turn to profit booking, especially due coming CPI numbers:
gold_d_14_03_23.png


On 4H chart we have great thrust up, where we also could watch for DiNapoli patterns - either DRPO or B&B:
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Also you could watch for the same patterns on 1H chart. Thus, here it seems market is forming DRPO "Sell".
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That's being said, currently we do not consider new long positions, watching for pullback at least to 1960 area. It is possible to consider intraday bearish setups.
 
Greetings everybody,

So, bearish setup has started well, it seems daily "Stretch" is working. But now price is coming to nearest downside target:
gold_d_15_03_23.png


On 1H chart it most probably will be 50% - 3/8 support area. So if you have short position, think about to manage it:
gold_1h_15_03_23.png


Meantime, we could get a kind of B&B "Buy" on 4H chart. Strictly speaking, this is not B&B because of too many closes below 3x3 DMA. But, it is the momentum trade, still. And upside bounce from 1865-1875$ area could happen. This is the 2nd intraday setup that you could try to follow:
gold_4h_15_03_23.png
 
Greetings everybody,

Although Gold has shown proper reaction on Credit Suisse saga, the upside potential was limited due to daily overbought area. Market has started up even earlier than we've suggested, not reaching of 3/8 intraday support.

Since price remains near weekly highs, it seems that investors are still nervous, which also could indirectly mean that on EUR situation is more bearish rather than bullish:
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On 4H chart theoretically we have bearish grabber, that suggests drop at least to 3/8 support area. But, the price shape here makes us to stay aside for awhile from any bearish positions. Market shows very lazy pullback, too slow. This is not the background for reversal. Besides, we have no bearish patterns by far, except this grabber on the top:
gold_4h_16_03_23.png


Yes we also have unfilled puny gap below, but commodities feel OK with unfilled gaps. Thus, this is also minor reason. Thus, here is difficult to find reasons for short entry by far. Long entry probably could be possible, if we wouldn't have overbought. Now upside potential is limited and trading probably could be made only on 1H and lower time frames, with upside potential until the top. Currently we do not see anything else. Maybe something will change later in the session.
gold_1h_16_03_23.png
 
Greetings everybody,

So, it seems that we were correct yesterday, suggesting slow upside continuation and ignore any minor bearish setups here. In general with think that big picture is also changing as Fed has capitulated starting QE. That's why, on the daily chart, we could see already the half of big upside Butterfly pattern (?):
gold_d_17_03_23.png


On 4H chart our grabber is still valid, market is near overbought, so, right now we could consider only scalp bearish setups.
gold_4h_17_03_23.png


It is a big question how reliable it is, but, gold very often forms "222" Sell pattern at exhausting moment of upside action. Besides, it is great price possession right now that makes potential risk minimal. The only tricky moment is OP above the top. So, if you still decide to trade it - either wait for OP and W&R of the top, or place the stop somewhere above OP. Because stops still could be grabbed above it.
gold_1h_17_03_23.png


Setup is a bit tricky, but this is the only that we have by far...
 
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