Gold GOLD PRO WEEKLY, May 20 - 24, 2024

Sive Morten

Special Consultant to the FPA
Messages
18,880
Fundamentals

The world is falling apart guys. I'm speaking not about some catastrophe but directly about falling on parts. Recent events very evidently show this - Fico incident, Putin visit to China, Iran-India agreement. All these moments point on starting fragmentation. This once again confirms our suggestion that we're just in the beginning of the long path, and, generally speaking, the raising of the gold price is not started yet. Now we could see that gold market doesn't need any "gold specific" news, as we previously were watching for COT reports, sentiment, global consumption and some other specific stuff.

Now we see that it is driven by factors that can't be directly related to gold market. But, because they are global, they are become particular drivers for performance of the precious metal. This is because investors see what's going on. The majority still think, that everything bad will pass sideways, as it was many times in the past. But they are mistake. Those who are more careful and intelligent start taking some steps, until they could be taken. As we've said - go out from all the US assets and buy gold. We suggest that very soon all financial assets will be strongly devalued. Yes, we trade gold day by day, but our major task is accumulation and wealth preservation, finding good points where to do this with the best result.

Market overview

Gold rose to the highest in more than three weeks after latest data showed ebbing inflation and weak retail sales, reinforcing expectations that the Federal Reserve will start cutting interest rates this year.

Gold prices rebounded, helped by a pullback in the dollar and Treasury yields after data showed U.S. producer prices rose more than expected in April, suggesting inflation remained high. U.S. producer prices increased more than expected in April amid strong gains in the costs of services and goods, leading traders to pare back bets of a first rate cut in September. Meanwhile, Fed Chair Jerome Powell said he expects U.S. inflation to continue declining through 2024 as it did last year and noted it was unlikely the Fed would have to raise interest rates again.
"The dollar is down and I think that's giving a bit of a lift to the gold market," said Marex analyst Edward Meir. "The fact that Federal Reserve Chair Jerome Powell was not signaling higher rates was also a positive, and that could have given gold additional boost," Meir added.

On Wednesday, data showed U.S. consumer prices rose less than expected in April, boosting chances of the Federal Reserve cutting interest rates. U.S. CPI rose 0.3% last month after advancing 0.4% in March and February, suggesting that inflation resumed its downward trend at the start of the second quarter in a boost to financial market expectations for a September interest rate cut. Market participants are pricing in a roughly 68% chance that the Fed will cut rates in September, according to the CME FedWatch Tool.
Technically, the gold futures bulls have the firm overall near-term technical advantage. Bulls' next upside price objective is to produce a close in June futures above solid resistance at $2,400.00, wrote Jim Wyckoff, senior analyst at Kitco Metals in a note.

Fed Bank of New York President John Williams said that positive news around cooling inflation is not enough to call for the U.S. central bank to cut interest rates sometime soon. Lower interest rates reduce the opportunity cost of holding non-yielding gold.
"Weaker US dollar, declining US Treasury yields as well as elevated geopolitical tensions offered support to gold over the past week and we expect gold prices to stay above $2,250/oz in the coming months," Fitch Solutions analysis unit BMI said in a note.

Gold prices, aided by China's stimulus measures, looked poised to clock their second consecutive weekly gain on Friday on renewed hopes for U.S. interest rate cuts, with silver breaking the $30 barrier to hit an 11-year high. The market was lifted after China, a major consumer of industrial metals as well as gold, announced "historic" steps to stabilise the crisis-hit property sector.
"Gold is moving higher despite (an uptick in) the dollar and yields. I think in this instance, China stimulus has helped as we're also seeing other (base) metals do very well," said Bart Melek, head of commodity strategies at TD Securities. Ultimately gold is responding to the idea that U.S. inflation is probably under control ... any talk of a prolonged period of high interest rates is going to be mitigated," Melek said.

While the data provided some relief for policymakers looking to start cutting interest rates this year, they also pointed to potential economic weakness and sticky inflation, which would benefit gold as it’s a hedge against financial stress and price pressures.
Still, for bullion to reach a fresh record, “we need more clarity on the number of rate cuts given its potential positive impact on ETF demand, a source of demand that has been absent since 2022,” said Ole Hansen, head of commodity strategy at Saxo Bank AS.

Investors remain net sellers of gold exchange-traded funds so far this year, with total holdings down 5.9%, according to data compiled by Bloomberg.

Spot silver jumped 4.8% to $31.02 per ounce after breaking above a major resistance level of $30. The last time silver hit the $30 price level was in early 2021, but sustaining it for an extended period has eluded silver for more than a decade.

Carlyle Group’s Jeff Currie brought enthusiasm for commodities and a prop to his Surveillance appearance today. He brandished the copper bracelet on his right wrist to punctuate his point about surging prices for an industrial metal. Three factors drive the voracious appetite for copper: green energy, AI and military applications. As recently as 2019, before the pandemic, the latter two weren’t factors at all, Currie said, and that demand helps underpin his $15,000-per-ton price target.
“It is the highest conviction trade I’ve ever seen,” he said. “We’ve been telling the story for three years, and maybe now it is beginning to work.”

Oil remains a solid asset, even with a recent pullback in Brent and WTI crudes. Still, “it’s not like the underlying copper story” because the Biden administration has election-year levers to pull, like tapping the Strategic Petroleum Reserve, to keep down prices temporarily, Currie said.
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As with copper, gold is still poised to keep rallying, he added. And also like copper, the reason is a new constellation of drivers. “Dollar recycling” used to accompany price increases for commodities such as oil, when producers such as the Saudis would take their dollar proceeds and plow them back into US Treasuries.
“That’s not playing out this time,” Currie said. “Why? Because many of the BRICs countries back in November last year decided to start trading with one another, using local currencies and then settle their differences in gold. So what we’ve replaced dollar recycling with is gold recycling.”

THIS IS NOT A JOKE ANY MORE - GOLD RUSH IS SPREADING TO OTHER COMMODITIES

A key gauge for raw materials prices rose to the highest level in more than a year, throwing a wrench in central banks’ efforts to tamp down inflation. The Bloomberg Commodity Spot Index — which tracks 24 energy, metal and agricultural contracts — inched up Wednesday to the highest reading since April 2023. The overall consumer price index in the US rose 0.3% from the prior month and 3.4% from a year ago. Shelter and gasoline accounted for over 70% of the increase, the Bureau of Labor Statistics said in the report.
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“Overall, the commodities rally reflects a late-cycle economic environment where demand remains robust but supply constraints are evident,” Sam Vogel, chief operations officer of Cayler Capital, said in a mid-April email as prices continued their steady rise. In oil specifically, the commodity trading adviser expects a “very strong supply-demand balance in the second half of the year.”

The mismatch between rapidly-growing demand and sluggish supply has already helped push copper prices to more than $10,000 a ton in London trading this week. But according to commodities veteran Jeff Currie, the metal still has more room to run.

Second is, silver has soared by more than a quarter this year, outpacing gold and making it one of the year’s best-performing major commodities. Yet in relative terms, silver is still cheap. It currently takes about 80 ounces of silver to buy 1 ounce of gold, compared with the 20-year average of 68. Recall how just 2-3 weeks ago we talked about the same ratio and the chart.
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With gold hitting a record on central-bank buying, retail interest in China, and a resurgence in bets lower US interest rates are on the way, silver’s gone along for the ride. Although there’s been scant interest from investors in silver-backed exchange-traded funds, physical sales have picked up, including at Singapore-based dealer Silver Bullion Pte.
“Even clients who are interested in buying gold are starting to say ‘well, maybe I’ll buy silver first, and wait for the ratio to sort of rebalance’,” said founder Gregor Gregersen.


The metal is a key ingredient in solar panels, and with robust growth in that industry, usage of the metal is expected to reach a record this year, according to the Silver Institute. Against that backdrop, the market is headed for a fourth year in deficit, with this year’s shortage seen as the second biggest on record.
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Citigroup Inc. reckons that if the Federal Reserve proceeds with interest-rate cuts and economic growth stays strong in the second half, the ratio could move to around 70, although it cautioned that a slowdown would push it the other way, according to a note.
“We are slowly going to see supplies tightening because industrial demand is set to go higher,” Gregersen said. “If investors are also starting to buy, then I think in two or three months’ time, my biggest problem might end up being ‘Where do I find supply?’ rather than ‘How do I sell the silver?’”
“While there were a lot of western funds that missed out on the gold rally, it’s clear that they’re very eager to participate in copper,” Matthew Heap, a portfolio manager at Orion Resource Partners, the largest metals-focused fund manager, said in an interview this week. “That reflects the fact that, thematically, there’s a very clear story to tell for copper, and you can explain in an elevator ride why prices are likely to rally substantially higher from here.”

Nickel prices spiked as much as 7.9% on the LME on Friday after violent protests broke out in New Caledonia, the world’s third-biggest supplier.
“Whilst people have talked about poor demand in the here and now, we’ve got supply issues — as you’ve seen with copper and nickel,” said Al Munro, a base metals strategist at Marex in London. “We’re a futures market, and the future we’re talking about? Big demand.”

In general, guys - just briefly take a look at Commodities table and its performance YoY basis. It will be clear that it is not the story of just copper, silver, gold etc. This is actions across the board - basic, precious metals, rare metals, food, hydrocarbons etc. Yes there are exceptions, not all commodities are raising, but they are in minority. Besides, some of them are derivatives from the core, such as some fractions of natural gas, or steal is produced from Iron Ore that is also rising etc. How all these stuff relate to gold? We will explain lower...

What is going on?

The question that many people start to ask. To explain we should also put in chain few other interesting events. Let's step back for a moment out from commodities topic and take a look at China. There are two important events have happened recently. First is, China sold a record amount of Treasury and US agency bonds in the first quarter, highlighting the Asian nation’s move to diversify away from American assets as trade tensions persist. Beijing offloaded a total of $53.3 billion of Treasuries and agency bonds combined in the first quarter, according to calculations based on the latest data from the US Department of the Treasury. Belgium (!!!), often seen as a custodian of China’s holdings, disposed of $22 billion of Treasuries during the period.
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Rumors tell that the peak of sell-off was a reason of sudden jump of the 10-year yields to 5%+ level and forced the US Treasury to made some efforts to hold market stable. With China selling dollar assets, its holdings of gold have risen in the nation’s official reserves. The share of the precious metal in the reserves climbed to 4.9% in April, the highest according to central bank data going back to 2015.
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Second is - China starts Real Estate QE with unprecedented volumes. Initially programme suggests inflow for ~ $150 Bln. Let me remind you that China, with approx. equal to the US economy size has two times larger Money Supply already. Why it doesn't trigger inflation - this is different question. In two words speaking, the reason is in the way how China sterilizes the extra cash. They do it differently.
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Yesterday we've talked about the US stimulus and the Fed and US Treasury activity on this way. Probably it is no needed to explain that all this huge inflows create healthy background for raising of the real assets, such as commodities. Although you do not see inflation in official data, but it doesn't mean that it doesn't exist, right? So let's have a look at some details...

Considering the fact that the second wave of inflation in the dollar is obviously accelerating - although now it’s not hydrocarbons that are leading the charge, but metals and food, any alternative to cash/non-cash money will be good.
And yes, in this case, the question for China and other large treasury holders is not to make money, but to save at least something. You can still jump out of there with a million, but it is impossible when you have $500 billions. Elections are coming soon and it is unknown how things will end for the new president. Or rather, it is known that the course will not change, but the speed of disengagement and its form may change - now the US lets China to out from its assets, but what will happen in 2025?

For now it probably makes no sense for China to introduce mutual trade import duties against America, but it is easier to dump American debts without noise and dust, because the negative effect on the American debt market is no less, but even greater than import duties. Sooner or later, the main “donor” of the American debt market, namely Japan, will also begin to sell US debt assets when the Japanese financial system runs out of excess monetary resources. This will be disaster, although it is difficult to suggest the way how it could happen, as the US have strong influence on Japan. But either buy back debt assets on the Fed’s balance sheet or allow a deep fall in the prices of your debts - anyway situation is unpleasant.

Speaking about Chinese "Real Estate QE", we could point on industrial deflation as the major reason and the first reduction in lending since 2005. At the same time, they talk about GDP growth of 5%. Taking into account the fact that yields on long-term government bonds are falling, it can be assumed that part of the new issue will be taken over by the market and, in particular, by state banks, but given the volume of placement, this cannot be done without the Central Bank.

Here is the news quote:
Profits earned by Chinese industrial companies in the January-March 2024 period rose 4.3% to $207.7 billion, less than the 10.2% rise in the previous quarter.To understand, if we extrapolate, then over the year it is 5% of nominal GDP. (In Russia this figure is about 20%).
Considering the industry's contribution to GDP, Chinese manufacturers have suspiciously low profits. In general, they already work on a thin scale. So, in any case, it will be necessary to stimulate demand for industrial products; exports will definitely not grow due to duties on the part of buyers. But the problem is China has no as strong domestic resource of demand as the US does:
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China vitally needs the demand for its goods from EU and the US - that's why Xi met with Macron and every time repeats that China is not in confrontation with the west. But, recent EU and the US steps suggest the opposite thing. The slogan is "You produce too much". And we suggest that this process will not stop. Once we already discussed this in details - previously it was justified by "Taiwan" issue, then it was "Russia support" but now the steps to hold China are evident and without any reasons. WTO is dead totally.

They increase the share of exports denominated in yuan instead of dollars, encourage state banks to sell American treasuries, drain dollar reserves to cover capital outflows of foreign investors, and at the same time control the movement of private capital outward, preventing private traders from accumulating American treasuries on their balance sheets, which may seem safer to them, than assets inside China. This is so far the most direct path for de-dollarization...

To be continued...
 
ABOUT THOSE WHO SEE

As I said in the beginning. There are two groups of investors/people/political leaders. First group thinks that "it will pass aside me", while others are take an action. On a macro scale we have to mention more talking about BRICS currency as summit in Russia is coming closer, second is, particular steps are taking to get out of Anglo-Saxons control. What is most unpleasant thing that other countries are joining. India signed a strategic agreement within the framework of the North-South project, developed jointly with Iran and Russia.
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India and Iran have signed an agreement on the operation of the Chabahar port located in the south of the Islamic Republic. For ten years, Delhi will manage the only Iranian port with direct access to the Indian Ocean, which is planned as a key point of the North—South transit corridor. The United States has been trying to prevent this project for a long time and has again threatened sanctions. But the development of the situation in the global economy has led India to decide that the North-South corridor seems more promising than the satisfaction of the United States.

This decision does not just create a new transit option, an alternative not only to the US-British (by sea), but also to the Chinese (through the Pakistani port of Gwadar). The main thing here is that it is not controlled by the American Navy anywhere. Taking into account China's transit through the ports of the North Korea, the Sea of Okhotsk and the Northern Sea Route, this in the near future destroys the US monopoly on control over the main transit routes.

Taking into account Putin's agreements with Xi in Beijing, which, in fact, offer the world to consider a new model of economy and security, the monopoly of the Anglo-Saxon world on control over the global economy is gradually being destroyed. And although the supporters of this monopoly take extremely drastic actions, it is no longer possible to stop the objective process of destroying the Bretton Woods dollar system. Those who try to maintain the current order at all costs begin to commit harsh acts. In particular, the assassination attempt on the Prime Minister of Slovakia is most likely due to the fact that he was going to seriously raise the issue of the need for sanctions.

Recent the US earnings period shows that the US stock market is growing much faster than companies' earnings. In other words, a very solid bubble has formed on it, which threatens to dry out. With understandable consequences. If we add that the US industry is not growing either (this is according to official inflation data, but in reality it is falling quite substantially) and there are no resources for demand growth (namely, demand forms about 70% of US GDP). People are over-leveraged (with ~$18 Trln in consumer loans) and have no resources to support demand. Recent Fed report shows that situation is deteriorating as people are lagging to serve the debt and take new loans to buy essentials. it turns out that there are no more or less serious reasons to assume some kind of positive, but even relative peaceful development of the situation. The world is on the verge of the most powerful crisis in the history of mankind!

Against this background, the proposals from Putin and Xi look extremely attractive. It is for this reason, most likely, that the Western media discuss this visit very sparingly. There is no doubt that this topic, alternative models of building the economy, finance and security, will actively find more and more new supporters. We already see what is going on in Africa.

INSTEAD OF CONCLUSION

Trump promises significant tax cuts for all Americans if he is elected president.
"Instead of a Biden tax hike, I'll give you a Trump middle class, lower class, business class, big tax cut. You're gonna have the biggest tax cut."

Well, if this is not a campaign slogan, then this is a great toast plan. In principle, the approach is correct if you want to give some impetus to the economic growth of the national economy and bury the world dollar system. Because the only option to do this is to directly monetize the additional government debt, which will grow due to the growing budget deficit, by the Fed and accelerate inflation.

Strictly speaking, there is nothing better to depreciate the dollar reserves of other countries/foreign investors. Moreover, with such a targeted strategy, getting rid of their dollar debt will go much faster than now. One problem is that you have to get rid of something for the sake of something. And not to buy your own currency., right? Therefore, everyone will get rid of it by buying either non-debt assets or goods. The first is a clear for gold, the second is for rising prices for raw materials (and for our exports) in general, for an even greater acceleration of inflation. In general, good luck to him. The first test is the debt ceiling, which will come into effect again in January 2025. Just after the inauguration.
Now not only national leaders, big corporations and hedge funds are start moving. But common households, Chinese people, scaring of possible yuan devaluation are searching for something "more material". This makes us think that we're still in the beginning of the journey...

Technicals
Monthly

Now it is extremely difficult to forecast the speed of upside action, because market is strongly overbought on monthly chart. This usually happens when we have really strong powers on the demand's side. As this might be States and their Central Banks - it is almost impossible to make any forecasts, based on technical tools, as they usually are not working.

So, here we could mention just some points. First is, our major chart is yearly one, when we have 2870$ upside target. Still, 2456$ level that has been hit in April also makes sense, as this is 1.618 of all-time BC leg extension.

On Monthly chart the next upside target stands around 2565$ - the local XOP extension. Meantime, May is inside month, so, it will be interesting to see on the reaction on lower time frames.
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Weekly

Particularly speaking - weekly picture. It has almost equal upside target - 2516$, but at the same time we could get DRPO "Sell". You can't see it on retail broker chart but on COMEX futures we do have 1st close below 3x3 DMA. So, this is definitely the first pattern to watch as it could bring the clarity, either we will get the pullback or DRPO "Failure" push it higher and we turn to 2520-2565$ target area:

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Daily

Here Gold is also overbought and we keep watching for butterfly pattern. Chances are melting as price comes closer to the top, but still, it is possible. From technical point of view this is not the best area for taking new long positions, until you make a bet on some external fundamental factors.
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Intraday

But the problem is the nearest 4H target stands few cents above the top. It agrees with idea of weekly DRPO but it could destroy potential butterfly, so we could have to start searching for something else.
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On 1H chart we have nothing to stick with for bearish scenario. Recent upside swing is too high to suggest H&S pattern. Now we totally depend on market and could just wait when it will give us suitable entry point. We will start with the 2435$ upside target on 4H chart and then will see what will happen.

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I agree Sive, the World is getting into a mess with unrest developing all around. Historically there has been a major world conflict about every 40 - 50 years...we are overdue another! It seems the human race forgets lessons from the past and needs to reset its self (like a retracement on the charts) before surging ahead again. This is all good for physical Gold and the resultant action in the markets! Many thanks for your continued careful analysis, it is very much appreciated.
 
Greetings everybody,

So, as we've said in weekly report - upward spike is not bad for potential DRPO "Sell" on weekly but is deadly for the butterfly. So, that has happened - Raisi murder reaction destroyed the butterfly here. Now price stands at overbought and we're watching for the pullback:
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On 4H chart OP is done, but market stands tight near the top. Despite we keep in mind potential DRPO "Sell" on weekly chart - it could be just "overbought" pause before upward continuation:
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This is the reason why we still consider 2370 and 2400$ areas for potential long entry this week:

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Morning everybody,

So, no big shifts by far. Today will be the Fed minutes, let's see. But now gold seems too stubborn to go down and this works more in favor of upside continuation. Situation looks so that gold takes the pause only because of overbought without any other bearish reasons. The butterfly pattern already has been cancelled yesterday, and we have multiple targets inside 2525-2565$ range. So, the one of other scenarios it might be 3-Drive pattern...
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On 1H chart market remains inside tight triangle shape, which is totally disagreed with idea of moderate downside reaction. Let's keep watching for 2400 and 2365$ support areas of course, who knows... But now situation looks so that upside continuation is more probable with nearest target of 2480-2500$
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Unfortunately we can't recommend to buy right now because of daily overbought level. It would be better to wait for better levels, or trade on very small time frames, such as 15 min chart.
 
Greetings everybody,

So, Fed's minutes have brought back activity to the market. In fact, minutes have become not as dovish as market suggests, so reaction you could see on the screen. Still, it hasn't become something surprising. Gold is overextended on long term charts for long term time already, thus retracement was ready for a long time ago. Besides, it perfectly fits to idea of DRPO "Sell" on weekly chart.

Still, while DRPO is still forming, we're coming to daily oversold at 2350 area. It means that we could get some other patterns but of a smaller scale here:
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Both are stand on 4H chart. First is, once 5/8 Fib level will be touched - we will get bullish "Stretch" pattern that suggests the pullback. So, this is potentially interesting for scalp long position. Once bounce will happen - it might be B&B "Sell", which in turn agrees with the major direction and idea of weekly DRPO "Sell":
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So these are two that we intend to be busy with today and tomorrow...
 
Greetings everybody,

So, a lot of hype stands in the net about commodities weakness, big media try to present this as a prove of weakening inflation. But we stand calm as we do know that gold will move significantly higher, no relief in inflation exists. And this helps us to stay with the plan and be thankful to this gold collapse as it provides great chance for taking it at much better level.

Now it is real bearish pressure exists as gold ignores oversold and is dropping. On daily chart we see that 2nd day of dropping shows acceleration. Tale closing also point on constant bearish pressure. This is good as for Double Top here as for our DRPO "Sell" on weekly chart:
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Yesterday none of our patterns have been formed - neither Stretch setup nor B&B on 4H chart. But thrust is still great so, patterns are still might be formed.
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On 1H chart we have no other ways to estimate downside target but only by T. DeMark way, which is downside target equals to the upside distance above the trendline before breakout. It seems it is done already.
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Thus, bears show constant pressure, which gives solid background to bearish patterns that we have. Thus, following weekly DRPO "Sell" and daily Double Top gold could keep going lower and give us 2100$ level at least. This might be great gift for taking long position later in the month.

Meantime on intraday charts we're watching what will happen with the thrust that we have and whether we get any patterns around it.
 
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