Gold GOLD PRO WEEKLY, May 06 - 10, 2024

Sive Morten

Special Consultant to the FPA
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Fundamentals

This week I would mention two groups of factors that will make impact on Gold market and already is making. First is a bit longer-term, such as recent IMF article about world fragmentation, Borrell statement on the US domination and some other issues. Things that previously hardly could become public now sound from persons that hardly you could imagine could tell this. It means that big processes already under way, and raising tensions between the US and China just confirm this. Second group of factors relate to the US economy data which we mostly have discussed yesterday. Since the problems in the US economy are disguised by statistics manipulation and smoothed by using of the US Treasury cash reserves, Gold also could get the major boost later, when it will come on surface. Until they will be able to keep the image of strength and well going economy.

Market overview

Gold has climbed more than 13% this year, hitting a record earlier this month, despite the timeline for Fed cuts being pushed back. The precious metal’s ascent over the past two months has been linked to central-bank purchases, robust demand from Asian markets especially China, and elevated geopolitical tension from Ukraine to the Middle East. With the Fed’s preferred measure of inflation rising at a brisk pace in March, swap traders now see only one Fed reduction this year, well below the roughly six quarter-point cuts seen at the start of the year. Higher rates are typically negative for gold as it doesn’t pay interest.
“Markets have already discounted a ‘no rush’ profile for rate cuts, whereas we see a low likelihood of the Fed’s next move morphing into a hike, suggesting the scope for Fed funds expectations to weigh on gold markets has declined,” said Daniel Ghali, commodity strategist at TD Securities. Ghali sees more upside in prices as “Shanghai traders are back on the bid in gold” with their bullish wagers inching back toward historical record highs.

Gold advanced later in the week, as investors found comfort in the Federal Reserve’s signals that it will still pivot to lowering borrowing costs after gaining enough confidence that price gains are cooling. The Fed noted the lack of further progress on inflation, but kept the language referring to a future reduction of interest rates, suggesting that the easing bias remains in place.
“We’ve stated that we do not expect that it will be appropriate to reduce the target range for the federal funds rate until we have gained greater confidence that inflation is moving sustainably toward 2%,” Chair Jerome Powell said during a press conference after the FOMC statement. He also said that “it’s unlikely that the next policy rate move will be a hike.”
“There was an absence of implicit tightness talk in the communique. This is convincing gold traders that a few rate cuts are possible,” said Bart Melek, global head of commodity strategy at TD Securities. Investors also seek safety in bullion as a hedge against still-high inflation, according to Melek.

Bullion dipped to about $2,300 an ounce as Powell struck a less hawkish tone than expected, saying policymakers need more evidence that price gains are cooling before reducing borrowing costs. Data Thursday showed US labor costs jumped the most in a year as productivity gains slowed, adding to risks inflation will remain elevated.
“The fact remains that rate cuts are not expected anytime soon,” said Ole Hansen, commodities strategist at Saxo Bank A/S. As long as inflation keeps surprising on the upside, gold is likely to see “a prolonged and potentially deeper correction than the one we have seen already,” he said.
US Mint Inc. reported Wednesday that sales of its American Eagle gold coin fell to 15,500 ounces in April, down about a third from the previous month, and less than a 10th of the volume sold in April 2023.

Finally, on Friday Gold slipped, erasing gains that were driven by a soft US jobs report as traders booked profits while assessing the Federal Reserve’s interest-rate path. Nonfarm payrolls advanced 175,000 last month, the smallest gain in six months, a Bureau of Labor Statistics report showed Friday. The unemployment rate ticked up to 3.9% and wage gains slowed.

The readings revived the case that the Fed will be able to start cutting rates this year. Treasury yields and the dollar slipped after the print, helping send bullion higher by as much as 0.7% before giving up those gains. Swap traders pulled forward bets on the first Fed rate cut to September from December.
“The report highlighted the current dilemma the Fed faces with weaker economic data but stubborn high inflation,” said Ole Hansen, head of commodity strategy at Saxo Bank AS. “The sudden reversal lower is sending a signal the current consolidation/correction has further to go” after the metal’s record-breaking rally this year.

GOLD SUPPORTIVE FACTORS

Yesterday in details we've taken a look at recent data - NFP, the Fed comments and all the others, trying to understand what the Fed and US Treasury strategy is. At the same degree these factors will impact on Gold market. Despite that the Fed and US Treasury are trying to hide unpleasant moments and keep showing positive picture, but cat everytime is trying to go out of the bag. Intuitively people suspect something, which provides gradual and stable demand for the gold. Any market that shows strong rally attracts speculators. They are the source of big and wide swings on the market, making investment process a bit more difficult, but nevertheless, upside major tendency remains clear.

The big support comes from China. Not because of PBoC demand only but because of wide interest among domestic ETF's and population. Let's have a look at some charts. Below you could see the whole big picture of Gold demand from China. You could see that beyond of Central Bank demand, drop of real estate market and Renminbi devaluation make investors and population to search for alternative. This is found reflection in explosive jump of gold trading in China, constant demand on non-monetary Gold and fast inflows in ETFs.
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On the last chart you could see the Gold reserves of Germany, thus, China is not alone in this process. Since US Dollar is loosing its reputation fast because of recent Congress initiatives to expropriate Russian frozen assets, dollar can't be treat any more as a guarantor of private property, it is becoming the tool of political pressure. From the financial point of view - it can't guarantee return above inflation. All these features are vital for global reserve currency and it is loosing it.

As a result, the new calls come on gold reserves repatriation out from the US and UK. Now they come from African and Arab nations. This topic is not new, a year ago it has started actively moving forward. Here is the article in Houston Post, it was deleted later (as well as on other resources by the way), so I put it here in total:

African and Middle Eastern Nations Withdraw Gold Reserves Amid American Economic Concerns (By Jillian Bennett, APR 24, 2024)
In a move reflecting growing concerns over the stability of the American economy, several African and Middle Eastern nations have begun withdrawing their gold reserves from the United States in recent months. This trend marks a significant shift in global economic dynamics and underscores the increasing skepticism among nations regarding the traditional safe haven status of the US dollar and American financial institutions.

The decision to repatriate gold reserves is not merely symbolic; it reflects a deeper unease among these nations about the trajectory of the American economy. Among the countries taking such actions are
Nigeria, South Africa, Ghana, Senegal, Cameroon, Algeria, Egypt, and Saudi Arabia, each representing crucial regions in Africa and the Middle East. Their actions are prompting questions about the future of the US dollar as the world’s primary reserve currency.

The deteriorating state of the American economy serves as the primary impetus behind these withdrawals. Persistent inflation, mounting debt levels, and concerns about the Federal Reserve’s ability to maintain stable monetary policy have eroded confidence in the US dollar. Additionally, geopolitical tensions and uncertainties surrounding trade relations have further fueled apprehensions among foreign governments.

As a result, the dollar share in global reserves is dropping with the fastest tempo. The pace of shifting away from the dollar in countries’ reserves began to increase.
Last year they got rid of it 10 times faster than in the last two decades:
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According to experts from Eurizon SLJ Capital Ltd., adjusted for exchange rate fluctuations, the dollar has lost about 11% of its market share since 2016 and twice as much since 2008.
“In 2022, the dollar suffered a stunning collapse in its market share as a reserve currency, presumably due to the heavy enforcement of sanctions,” Jen and Freire wrote. “The extraordinary actions taken by the United States and its allies against Russia have spooked major reserve-holding countries,” most of them emerging economies in the so-called Global South, they write. (Stephen Jen is a former Morgan Stanley currency guru who came up with the dollar smile theory.)

Let's go further. Another interesting moment is about money supply You probably think that the US is ahead of the Globe with this. You're wrong - China prints more money than US. But, what is interesting - if previously the US has exported inflation to other countries, now China exports inflation to the US and EU.
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China is the world leader in issuing money. Since 2000, China has surpassed the United States and the Euro zone combined in terms of the speed of printing yuan. Emissions in China, the USA, and Europe take place under loans. However, there is a slight difference: the main borrower in China is business, population and provinces. Through loans, investments are attracted into production and services, new real estate and infrastructure, respectively.

In countries of the developed world, the main borrower is the state (which, apart from violence and propaganda, generally produces nothing). In the same States, the main item of federal budget expenditure is social services . That is, money borrowed by the state directly or indirectly ends up in the pockets of residents of countries. This money very quickly flows from pockets to stores, and from there to China (because Chinese goods are cheaper and get priority among consumers over domestic goods). As a result, all major economies print money. However, inflation is affecting countries in the developed world. The PRC has come up with an excellent tool for channeling excess liquidity - it is being invested in production and concrete.

Finally, there two other major and long-term factors, suggesting higher demand for gold. The first one is the US sanctions against China. In recent couple of months the US politicians and economists have visited China more often than the whole year before, trying to force them own will. Everything has started from microelectronics and ban of last generation chips supply. Then J. Yellen said that China is developing too fast and producing too much, taking the big part of the global trade, where, by J. Yellen opinion, the US should be. So, they said that China has to slow its production. Last issue - the treat to cut Chinese banks from the SWIFT because of cooperation with Russia. What all these moments mean?

It does mean that sanctions will come anyway, and all reasons mentioned above are just an excuse to impose them. Just take a look how the American plan with the introduction of sanctions against China “for Taiwan” has grown into a more practical and concrete plan of “sanctions against Chinese banks for China’s support for Russia.” Moreover, we went through a series about direct military support, because, apparently, it was not possible to justify it in any way.

This once again shows that there will be sanctions in any case, because China needs to be weakened, and the outflow of American ones was not without reason. Moreover, there will be this demarcation, primarily from the point of view of the capital market, regardless of the resistance of players interested in preserving the existing order of things, such as the same bankers in the first place.

And recent IMF article right about it. This is second last moment that I would like to mention. IMF already writes about fragmentation due big barriers in trade, sanctions and other imposed limitations that break apart global economy:

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IMF tells that this will be costly and the expenses could reach 2-3% of GDP:

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In March, world central banks, according to preliminary estimates from the World Gold Council (WGC), increased the volume of gold in their gold and foreign exchange reserves by 15.7 tons: purchases of 40.4 tons more than compensated for sales of 24.7 tons. The largest buyers were Turkey (14.1 tons), India (5.1 tons), China (5 tons), Kazakhstan, Singapore (4.5 tons each) and Russia (3.1 tons)

It is interesting that the buyers of gold are entities (Central Banks) who, in principle, are never speculators. They proceed from pure fundamentals (including, of course, political ones) and, it seems to me, the point is not even in potential sanctions, but solely in the fact that they are not confident in treasuries as a means of storing reserves from the point of view of maintaining purchasing power capabilities. Otherwise, how would Singapore fit in here?

Because they understand that inflation will go up, and rates in the best-case scenario will remain in place unless they go down to zero, and maybe even lower, when the fading economy needs to be revived.

This process will continue. Even J.Borrell already is talking about loose of Hegemony by the US. When If the dollar ceases to be the world's main reserve currency, the standard of living in the United States will fall, according to various estimates, by 27% - 57%. This corresponds to our assessment of structural crisis result. The US economy should contract for ~40% to reach demand/supply balance. I do not want even try to imagine what will happen inside the US in this case....
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Add on to tactical factors

Mostly we've considered all of them. Here I just add few pictures that look interesting. But first is - more confirmation of our suggestion recently came out. If you remember few weeks ago in our detail analysis we said that everything could start from the banking sector. Now CNBC writes that Hundreds of small and regional banks across the U.S. are feeling stressed.
“You could see some banks either fail or at least, you know, dip below their minimum capital requirements,” Christopher Wolfe, managing director and head of North American banks at Fitch Ratings, told CNBC.
Consulting firm Klaros Group analyzed about 4,000 U.S. banks and found 282 banks face the dual threat of commercial real estate loans and potential losses tied to higher interest rates.The majority of those banks are smaller lenders with less than $10 billion in assets.
“Most of these banks aren’t insolvent or even close to insolvent. They’re just stressed,” Brian Graham, co-founder and partner at Klaros Group, told CNBC. “That means there’ll be fewer bank failures. But it doesn’t mean that communities and customers don’t get hurt by that stress.”

We woke up. The story has been dragging on for a year and a half now. The emphasis is just placed incorrectly. Banks are not “at risk”, but already are. All that remains is to wait for the event that will trigger a reassessment of risks in the banking industry. For example, some significant and relatively large bank will begin to fall. In this case, all banks will think ten times before lending to each other. Because it is not clear what is actually on the balance sheet and behind the balance sheet of a colleague.

It would be nice if BTFP was still in effect - it would be possible to urgently re-borrow it in order to repay it. Well, it’s strange that they don’t talk about the problems of the Bank of America. There, at the time of September, when yields on long-term treasuries had not yet risen to their maximum, the unrealized loss was 40% of capital. With the current fall in prices, this hole may increase by more than half of the capital. As we've discussed yesterday hardly further increase in the Fed rate will happen. This way you can bring down large trees. This is not Lehman. But nevertheless, yield could raise due to the other factors that we've considered yesterday.

And the last one, before we will turn to technical analysis... Unemployment chart. Job creation, even with this stretched methodology, has dropped dramatically and unemployment has risen. If you look at history and remove post-recession surges, an increase in unemployment has always ended in a recession and a sharp increase in unemployment itself. Moreover, the current growth is observed against the backdrop of powerful job creation in the civil service and semi-public service. In 15 years the population has grown by ~11.7%. So the current figures, if taken to 2008, are somewhere at the level of May-June 2008. So the trend is obvious
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CONCLUSION:

So, guys, today we almost do not talk about the gold per se. But nevertheless have discussed a lot of very useful stuff that clearly shows the global background where market stand right now. As we've said yesterday - run out from the US assets. Here we could say - keep investing in Gold. Yes, in short-term we will get pullbacks etc. But currently with the processes that we see - we have no doubts that gold should keep raising. And we have not low chances that it could raise significantly higher as the process of fragmentation, global division on trading zones and destruction of Bretton Wood system is just entering in active stage. All that we saw before was just a preparation...
 
Technicals
Monthly

Gold on monthly chart shows positive dynamic. Despite that it is strongly overbought - it doesn't show too deep pullback, standing above YPR1. May is an inside month by far, making no impact on the big picture. As gold already has passed OP target of AB-CD pattern - it also stands above it, which is also the bullish sign.

Once retracement will be traded out, gold should keep going to the next upside target, which is XOP @2567
gold_m_06_05_24.png


Weekly

Weekly trend remains bullish. Despite solid downside action on lower time frames - here gold has dropped not enough to give us any DiNapoli patterns. Following general context, appearing of B&B "Buy" seems more logical here. But to get it price has to reach 2260 area at least and close below 3x3 DMA (Green line). Now we have neither first nor second.

So, let's keep watching, supposedly in an area between oversold level and Fib support we should get chance for long entry. This is 2195-2260 area. In a case of DRPO "Sell" analysis will be different. Local upside target stands approximately in the same area as monthly one - 2516$
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Daily

Trend remains bearish here. We do not have any bullish directional patterns. Market was not able to complete B&B "Buy" trading setup last week, that could be treated as a bearish sign. Friday has become an indecision session, or, it might be just a reaction on daily oversold level. Based on a daily picture - gold keeps chances for deeper action and reaching of 2255$ support, that is, in general, fits to our trading plans.

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Intraday

NFP reaction on Gold market was a bit nervous and obviously it has overreacted initially as data was not as bad. Later you could see that price has returned back. Spike up has happened, but was a bit weaker than we thought.

Now we have the pattern here, that I call as "2 bar grabber". It looks different but cares the same features as common grabber. Besides, we have falling wedge shape and recent action looks like a kind of W&R. This makes me think that gold could try to show higher pullback before it could turn to 2250 level. That's fine if you do not want to buy - but be aware of this if you would like to sell. It would be better to wait for failure of this pattern or wait when it will reach the target.

Now we can't recommend to use Stop "Sell" entry orders either because of daily oversold level that is too close.

That's being said - it is nothing to do by far on daily and above time frames. To go short intraday we need some pullback. Scalpers could consider long position based on the setup that we have, although it is also not perfect.
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Greetings everybody,

So, we've got upside action that we discussed and now market perspectives are a bit of uncertain. This week we have no big data releases, except maybe US bonds auctions. Now background is not bearish - escalation in Rafah, dovish NFP and QE announcement, yields are dropping.

gold_d_07_05_24.png


At the same time, market returns back to 2330 resistance area... I would say so that personally I do not want to sell, although to be honest was thinking about 3-Drive here... Thus, if you have longs, maybe it makes sense to keep it, especially if we get the bullish grabber here in few hours:
gold_4h_07_05_24.png


On 1H chart you could focus on upside local XOP as the target. For now it is difficult to say, could we speak about big reverse H&S here or not, as gold has not reached yet the neckline. At the same time upside action is choppy and slow, which makes sense to not look too far in the future.
gold_1h_07_05_24.png


Thus, my personal decision for now - do not sell. Those who have longs, just think, maybe you decide to keep it for some time more. No need to say that stop has to be at breakeven already. And watch for 4H grabber, it could give you more confidence if it will be formed.
 
Welcome back folks,

So, could you see everything by yourself. Market is not ready yet for long entry with weekly trend direction, because it is not yet at 2255-2260$ support level. So, we have to wait. At the same time, despite we have bearish context on daily/intraday combination - its performance makes me stay aside for now from bearish position as well:
gold_d_08_05_24.png


After gold has re-tested the resistance area on 4H chart, it is start showing some pullback, but take a look at the shape. This is not the way how bearish reversal usually starts. Now it looks more like a kind of "flag" pattern, suggesting that another upside swing could follow:
gold_4h_08_05_24.png


But, as we have bearish major context here, we do not consider long entry with it (although if you want - you could try). Our XOP is not done yet and together with gradual flag pattern it seems as bullish intraday combination:
gold_1h_08_05_24.png


Once it will be reached - it also some clarity should come for this big reverse H&S pattern. At least we will get the understanding whether it will be formed or not.

That's being said, conservative approach suggests no positions now. But if you want you could try to play with the intraday patterns that we've discussed.
 
Greetings everybody,

As on EUR, here, Gold is also very slow market by far. WE do not need even daily picture today. On 4H chart it seems that our suggestion of some light bullish sentiment exists, as price is out of the flag, although it doesn't show yet any acceleration.

At first glance it seems that we could get bearish grabber here, but COMEX futures shows that we do not have it. At the same time, it is obvious slowdown of bearish action inside the flag, that turns sideways:
gold_4h_09_05_24.png


On 1H chart we have minor bullish grabber as well... So, perhaps it makes sense to keep an eye on 2335$ area as the nearest upside target. Besides, in fact, this is the only setup that we have by far:
gold_1h_09_05_24.png
 
Greetings everybody,

So, upside action is started. Today is not many things to discuss really. On daily chart we're coming to 2382$ overbought area. As we have bullish trend on all time frames - current action might become long-term upside continuation rather than just upside retracement. Besides, daily trend has turned bullish as well:
gold_d_10_05_24.png


On 4H chart market is also coming to 2372 Fib level. But action is rather fast and we still have XOP above:
gold_4h_10_05_24.png


It means that if we get downside reaction to 2372 level we could get great B&B "Buy" on 1H chart if retracement will reach at least 2345 Fib level. In this case we're going to consider long entry with at least 2377$ target:
gold_1h_10_05_24.png
 
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