Gold GOLD PRO WEEKLY, March 30 - 03, 2020

Sive Morten

Special Consultant to the FPA
Messages
13,385
Fundamentals

Gold this week was under impact of outstanding liquidity injections from US authorities - Fed and Congress. This subject we've discovered in our FX report yesterday. But there was another one, specific for the gold driving factor - lack of physical gold in storage as for public selling as for delivery purpose.

The week has started in "common" trend, when announced measures from the Fed pushed gold price higher. Gold prices soared more than 4% on Monday, shrugging off early losses after the U.S. Federal Reserve took aggressive new steps to combat the economic impact of the coronavirus outbreak, boosting investor sentiment. The U.S. central bank said it would begin backstopping an unprecedented range of credit for households, small businesses and major employers in an effort to offset the “severe disruptions” caused by the coronarvirus outbreak.

“The Fed unveiled its biggest cannon seen to date - even bigger than in the great financial crisis,” said Tai Wong, head of base and precious metals derivatives trading at BMO. “The market reacted instantly with equities and gold soaring behind the Fed’s new ‘Draghi’ approach. However, the acid test here is whether this optimism will hold for more than one day.”

“When you’re seeing so much wiped off the stock market on a regular basis, the shortfall has to be made up somehow and gold remains the favoured option,” OANDA analyst Craig Erlam said in a note.


Later it was the turn of employment data shock, when initial Jobless claims hits 3 mln. level. Gold prices jumped to a two-week high on Thursday, after a record surge in U.S. jobless claims dented the dollar and boosted expectations of further stimulus to cushion the global economic toll from the coronavirus pandemic.

“More countries are expected to release some sort of stimulus packages which is a big event for gold. In addition to it, unemployment claims jumped. That tells the investors that QE is going to have more longevity,” said Michael Matousek, head trader at U.S. Global Investors.“It’s an indication that things are slowing down dramatically. The worse data you can get right now, the market should respond favourably, because that provides more ammunition for the Fed to be keep on stimulating,” Matousek added.

Data showed a record high of more than 3 million Americans filed claims for unemployment benefits last week as strict measures to contain the pandemic hit economic activity.



The U.S. Senate on Wednesday overwhelmingly backed a $2 trillion bill aimed at helping unemployed workers and industries hurt by the outbreak.

This came after the U.S. Federal Reserve said on Monday it would buy as many bonds as needed to stabilize financial markets and backstop direct loans to companies.

“Extraordinary steps by the Fed this week, including uncapping the size of asset purchases and buying investment grade bonds, should push real interest rates deeper into negative territory and in turn support demand for real assets like gold,” said UBS commodities analyst Giovanni Staunovo in a note.

Gold market participants remained concerned about a supply squeeze following a sharp divergence in London and New York prices as the coronavirus closed precious metals refineries. U.S. exchange operator CME Group on Tuesday announced a new gold futures contract to combat price volatility caused by the shutdown of gold supply routes, but traders and bankers said it would not immediately calm markets.

Thus, prices were set to post their biggest weekly gain since 2008 as economic damage expected from the coronavirus boosted bullion's safe-haven appeal.

"The market is looking to assess the impact of numerous lockdowns and business closures on the economy," Standard Chartered Bank analyst Suki Cooper said in a note. "Gold prices have gained further ground in anticipation of further stimulus and weaker data to come. Price risks remain to the upside barring profit-taking and
(we) expect prices to average $1,725 per ounce in Q2-2020," she said.

Gold market participants also kept a close eye on physical supply as virus-led lockdowns stalled supply chains. CME Group announced the initial listing of enhanced delivery gold futures that will be deliverable in 100-ounce bars, 400-ounce bars, or kilo bars, effective April 6. Physical gold dealers struggled to meet surging safe-haven demand this week, especially in Singapore, as the pandemic choked global supply chains, while massive discounts were offered in India amid a lockdown.
Here is how this story has began. Gold prices in London and New York diverged sharply on Tuesday as the coronavirus outbreak grounded planes and closed precious metals refineries. Traders worried they would be unable to move gold from London to New York. The price gap disrupted trading in the London market and caused a plunge in liquidity.

Major gold trading banks and the London Bullion Market Association asked the CME to change its rules to accept 400-ounce bars in London against its contracts, removing the need to reshape and transport metal and allowing prices to normalise, sources told Reuters on Tuesday.

London, a leading gold storage hub, runs on 400-ounce gold bars while the CME’s Comex exchange uses 100-ounce bars. CME instead said it would launch new gold futures that could be settled using 400-ounce, 100-ounce and 1-kilogram gold bars and instruments to link these with its existing contracts.

“It’s totally logical,” said an executive at a gold-trading bank. “In London there’s no shortage of metal.”

Gold futures on Comex were trading around $1,640 an ounce at 1600 GMT while London spot metal cost around $1,605. The gap ballooned to as much as $70 on Tuesday - the biggest premium for Comex futures in at least 40 years. Usually the two trade within a few dollars of one another.

But conditions remained difficult, with the spread between offered buy and sell prices for spot gold - normally below 50 cents – ranging from $5-$20 an ounce on trading platforms run by banks and brokers, having risen as high as $50 the previous day, traders said. “(The) market is still stressed and thin,” said one, adding that traders were waiting for clarity from the CME on how the new contracts would work.


Gold dealers in Switzerland are rushing to keep up with a surge in demand as worried investors seek out lower risk investments in precious metals with financial markets roiled by the coronavirus pandemic. Some sellers are seeing a ten-fold increase in sales of gold bars, coins and other pieces as existing buyers increase their holdings and newcomers enter the market.

Banks too are seeing a sharp rise in demand for other precious metals, including silver, as well as smaller investments like 20 or 50 gram gold combibars which look like credit cards and can be divided into 20 or 50 squares.

“The physical demand for gold at Zuercher Kantonalbank is currently enormous. All available products — bars, coins, etc — are in demand,” said a spokesman for the bank. “The high demand for silver bars is also astonishing.”

“We are in principle completely sold out. You can already say that,” said Philipp Bachofen, from Geiger Edelmetalle in St. Margrethen, close to the border with Austria.
“In the last few weeks, it’s all about getting gold,” he said, adding there were many smaller customers buying smaller bars while the bigger customers tended to favour 250 gram bars.

“Everyone expects the price of gold to increase in the next few weeks. I cannot predict what will happen and I can’t give financial advice, but I’m buying more gold myself, and so is my family and my girlfriend.” Chief Executive Alessandro Soldati told Reuters.


So Gold rush has started...

Here some few other source, including CNN, Kitco that writes about the same stuff. But here guys, I would like to remind you similar story that has happened in 2009, right in a hot time of crisis when 15% of COMEX futures were held open for delivery. So, mismatch in bullions is not the problem now. The problem will be, when all these paper futures will be set for delivery. As we see, physical gold dealers are out of stock and soon they will need more gold to restore reserves. As you know the physical gold extraction stands around 6-7K tonnes annually and distributed by long-term delivery contracts for different spheres - industry, dentist, jewelry military and electronic etc. Central Banks purchasing takes 2-5% of whole production. Extraction rises very slow, just few percents per year. Thus, I suspect that more and more futures will fall under delivery, not only in EU and UK but in US as well. I'm not dare to suggest that this will be some shortfall in delivery, just because I do not know for sure, but, at least this should push prices higher. Fast drop of gold reserves in Banks and Exchanges could seriously impact on physical gold demand/supply balance that was mostly unchanged in decades. Delivery is a big problem that you can't resolve by just artificial price holding at some level. Whatever price will be - you have to deliver. Buyer has an option to execute delivery even if delivery price for contract stands below market price now. Thus, keep an eye on time spreads on Futures of different delivery dates and cross market spreads, as well as spreads on physical public market and exchange market. As greater divergence will be, especially between spot and exchanges - as greater chances on delivery problems and derivative market shortfalls or even temporal collapse. We're coming to serious problems, guys...

COT Report

Although usually we're watching for speculative positions, today it is interesting to take a look at hedgers. In general, you could see that net long position has dropped slightly:
1585479604162.png

Source: cftc.gov
Charting by Investing.com


But this drop was on a background of decreasing of open interest and stands due closing of long positions by hedgers. Changes by speculators (non-commercials) are minimal. Hedgers, as you know keep opposite position to anticipated trend. Thus, recent change suggests that they less worry on possible price drop and reduce hedge against the downside price change.

1585479534385.png


SPDR Gold Fund storage increases this week for 1.74% as well:

March 25 (Reuters) - Holdings of the largest gold-backed exchange-traded-fund (ETF), New York's SPDR Gold Trust, rose 1.74
percent on Monday from Friday, while the largest silver-backed ETF, New York's iShares Silver Trust, rose 0.62 percent during
the same period.


So, guys, it is not needed to write long bottom line story - everything stands on a surface. Our suggestion that recent gold drop was triggered non-market driving factor and shouldn't last too long is confirmed. As "dash for cash" rally is coming to an end, investors apply school time math to divide new amount of cash to whole gold reserves on a planet to get correct price of the metal. Although not everybody could buy it right now - but those who could do it right now. We have no tools to forecast results of gold rush, whether its price will rise 2, 5 or 10 times, but we could say definitely the one thing - hardly price will fall significantly anytime soon and continue to rise. The major driving factor for that - call for more delivery of physical metal than usual. Thus, as we said three weeks ago - buy real assets,non-financial stocks, and physical gold and silver. Do it gradually, do not hurry, especially with stocks but just do it. This is the only assets that could save the real value of your wealth.

Technicals
Monthly


Take a look - as on EUR as on Gold situation has changed drastically. Just last week we've talked on possible reversal month and deeper downside action but now candle shifts to doji-kind price action, keeping monthly trend intact.

On a way down price has completed only nearest target - K-support and YPP around 1430-1445 area. But now it leaves it without breakout and shows healthy bounce up.

Although we tend to bullish scenario, especially on a background of fundamental events, mentioned above, formally gold keeps both scenarios valid. As we have doji - next direction depends on breakout. It's a huge size and correspondingly action after breakout also should be significant. In the situation of upward breakout, I will not surprise if we will see gold at 2K point.

Downside target mostly stands the same - YPS1 and major 5/8 Fib level around 1300 area.

gold_m_30_03_20.png


Weekly

Gold right now is traded by rumors. This is not purely market driving factor. Investors trade the hype of LME/COMEX settlement mess, and bullion re-sizing. They will be hungry for any news on this subject to make the bet on it. Only NFP report on Friday could add additional direction to the market.

So, following COMEX hype, technically, despite last week's rally - we have bearish trend still. And should treat recent upside action as retracement searching chances for bearish position. Sounds scaring, right? But - this is what technical picture shows by far. And, if indeed some calming news come from COMEX market indeed could show the bounce, because this rush here stands due sentiment and psych, run for sensation. We expect that demand for delivery will rise gradually, despite normalization of situation with bullion's size, but this is long-term process. In shorter-term, if rush will be over soon - gold could show tactical bearish reaction as well. So let's keep eyes wide open...

gold_w_30_03_20.png


Daily

Here is nothing to comment specially, as price shows tight consolidation which is better to consider on lower time frames. Trend is bullish here, but price struggles Overbought:
gold_d_30_03_20.png


Intraday

Last week we saw price action that rarely could be seen at all. It was "churning" price action, when huge trading volume stands in very tight range. As we've suggested on Friday - it was seemed that market calms down a bit. At least we haven't seen any more this curious long downside spikes, when every minor retracement bought out.

As market gets some relief, and depending on degree of this relief, we suggest that it should reach 1585 support area with high probability. In a case of breakout - next level to watch is 1545-1550 support area. Tight price standing at high level was totally based on mess with gold delivery and , as this story gets some final - moderate retracement is possible.
gold_1h_30_03_20.png


Conclusion

Crisis shows unexpected driving factors for different markets. Last week on gold this factor was the delivery of physical gold to fulfill obligations on futures contracts. As Comex and London use different bullion size and plane transfers get problems - market meets technical problem of size mismatch as major reserves of gold for delivery are in UK.

As a result gold was coiling around the tops in tight range. Hype around COMEX mess keeps market tough and let to speculate on different rumors, seeding stress and fear around. We expect that hype should start to fade which in short-term perspective leads to moderate pullback. In longer-term still, demand for settlement should rise, keeping COMEX under pressure of additional delivery and support price. That's without other factors that should appear soon - for example coming NFP release by the end of next week.
 

minimax

1st Lieutenant
Messages
1,456
Sive, looks like lots of brokers will start new week with gap: your broker closed week @ 1605,87, my broker @ 1627,81.. Checking Tradingview: Oanda @ 1627,724, ICE @ 1626,15, Forex.com @ 1631,35, Saxo @ 1626,89, but there are some higher prices to find too, like JM Bullion @ 1645,58...
Or maybe your broker just washed some stops below that lows after market hours...
 

gpeter991

Private, 1st Class
Messages
34
Sive, looks like lots of brokers will start new week with gap: your broker closed week @ 1605,87, my broker @ 1627,81.. Checking Tradingview: Oanda @ 1627,724, ICE @ 1626,15, Forex.com @ 1631,35, Saxo @ 1626,89, but there are some higher prices to find too, like JM Bullion @ 1645,58...
Or maybe your broker just washed some stops below that lows after market hours...
1624.51 here
 

Synchronicity

Sergeant
Messages
173
The churning gives the shape of a potential DRPO on an 8 hour timeframe but I wonder how valuable signals would be on a non standard timeframe? This is a Tradingview chart using Oanda data.

00-22-32.png


Michael
 

Sive Morten

Special Consultant to the FPA
Messages
13,385
The churning gives the shape of a potential DRPO on an 8 hour timeframe but I wonder how valuable signals would be on a non standard timeframe? This is a Tradingview chart using Oanda data.
Michael - be careful with this. I do not like the pause after second top and upside turn. This is not typical for DRPO, as at this moment buyers have to capitulate, when they was not able to push price higher. But this reversal tells different thing.
 

Sive Morten

Special Consultant to the FPA
Messages
13,385
Sive, looks like lots of brokers will start new week with gap: your broker closed week @ 1605,87, my broker @ 1627,81.. Checking Tradingview: Oanda @ 1627,724, ICE @ 1626,15, Forex.com @ 1631,35, Saxo @ 1626,89, but there are some higher prices to find too, like JM Bullion @ 1645,58...
Or maybe your broker just washed some stops below that lows after market hours...
Well, mate. They are retailers, stuck with some larger banks. As mess probably still exist on cross-border pricing, even in larger banks, retailers' spreads indicate also their own greed level. Thus, it seems that JM Bullion and Forex.com are most greed :)))
Last data directly from the delivery markets shows spread about 5$ on cross border quotes. While it was above 30$ last week as we've mentioned in our report. So, it seems 5$ difference among retailers is normal stuff in current situation.
 

Sive Morten

Special Consultant to the FPA
Messages
13,385
Greetings everybody,

Despite that yesterday was relatively quiet session - we get a lot of information. On daily chart we see that market too long stands in tight range, showing no reaction on overbought and Fib level. This is bullish sign. It means that gold prepares to breakout:
gold_d_31_03_20.png


On 4H chart we have clear signs of bullish dynamic pressure as price forms higher lows, while trend stands bearish by MACD:
gold_4h_31_03_20.png


The same is on 1H chart. No H&S that potentially was possible in weekend. After W&R market has not reached even the lower border of rectangle consolidation.
gold_1h_31_03_20.png


This picture tells us two thing. First is - no shorts by far. Second - you have to think where to go long. It would be great if we will get drop to our K-support at lower border of the consolidation. But now it seems that we could not get it. Entry in the middle of the range demands too far stop order. So, you could either take small part inside the range and add more at support, or just wait for support.
 

Sive Morten

Special Consultant to the FPA
Messages
13,385
Greetings everybody,

Gold has turned to deeper retracement as situation around COMEX physical delivery starts to fade. Despite short-term technical moments - our long-term view is the same as we expect continuation of gold trend. In shorter-term, we have huge doji pattern on monthly chart (the same as on EUR) and further direction depends on its breakout, while inside of it we could get a lot of volatility.

Now price mostly plays the scenario that should happened two weeks ago, but COMEX hype was holding price at high levels. It means that gold could show deeper retracement and now it is relatively safe to buy from strong support areas:
gold_d_01_04_20.png


Thus, on 4H chart market now shows the pullback from 3/8 major support level, but price action doesn't exclude deeper retracement in a shape of AB=CD pattern.
gold_4h_01_04_20.png


As recent sell-off is relatively strong, despite that we see healthy upside bounce up fro Agreement area, it could be minor AB-CD upside pullback and appearing of "222" Sell pattern. That's why if you haven't bougtht from Agreement level as we've discussed it recently - currently it would be better to not go long by far. For the bears - watch for bearish continuation patterns and re-testing of broken trend line, where 2nd downside leg could start:
gold_1h_01_04_20.png


Situation will change only if price climbs back to A top. In this case, indeed, upside action could start again.
 

minimax

1st Lieutenant
Messages
1,456
Silver Shock Update: A New and Major Threat to Supply
Jeff Clark, Senior Analyst, GoldSilver.com
MAR 31, 2020
Incredibly, an estimated 51% of silver production is currently offline.

To Sell or Not to Sell?
With silver prices trading between $13 and $14, many primary silver mines are suddenly unprofitable. Yes, costs are lower with the falling oil price, but many operations were already operating on very thin margins. Even some of the better deposits were having a hard time making much profit before the Coronavirus struck.
If silver continues to trade in this lower range, what will executives do? As the CEO of First Majestic Silver says (full disclosure, I own the stock), “
some will refuse to sell their metal at current prices because it would be selling at a loss.”

What response we should expect on metals and US$? Price of metals supposed to go up but..???
 
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