Gold GOLD PRO WEEKLY, November 01 - 05, 2021

Sive Morten

Special Consultant to the FPA
Messages
15,282
Fundamentals

In general gold was showing logical price action through the week, healthy and adequately reacted on major events. With real interest rates are start rising, this is additional headwind to the gold. Long term situation mostly stands the same but the one thing that is worthy to mention here - bullish sentiment unexpectedly jumps this week.

Market overview

Gold prices fell on Tuesday after a five-session rally, as the dollar steadied and investors awaited key central bank meetings for clues about rate hikes amid rising inflation concerns.

“There is a slight recovery in the dollar and this is not the best factor for gold. However, prices are not expected to fall sharply as investors have realized that risks are still just behind the corner,” said Carlo Alberto De Casa, external analyst at Kinesis Money. Gold, therefore, has not much room in the short term, said De Casa, adding: “Only a dovish Fed or a slowdown of USD could lift up gold to $1,900, otherwise it only has space for a moderate appreciation to $1,820-1,830.”

Gold is often considered an inflation hedge, though reduced stimulus and interest rate hikes push government bond yields up, increasing non-interest bearing bullion’s opportunity cost.

“Despite a firmer U.S. dollar, higher bond yields at times and firm stock markets, gold is holding its own above the psychologically important $1,800 per troy ounce mark,” Commerzbank analyst Daniel Briesemann said in a note, adding, bullion appears to be finding support from the ongoing inflation debate.

Fed Chairman Jerome Powell recently said the U.S. central bank should start the process of reducing its support of the economy by cutting back on its asset purchases, but should not yet touch the interest rate dial.

“It is almost certain that the FOMC will announce the start of tapering and U.S. yields and greenback should start to move higher. Gold will struggle to hold near $1,800 in this environment,” Jeffrey Halley, senior market analyst for Asia-Pacific at OANDA said. “The capacity for a surprise from the Fed is high,” Halley said, citing the possibility of a more aggressive or accelerated pace of stimulus tapering, which could weigh on gold further.

On the technical front, spot gold looks neutral in a range of $1,783 to $1,795 per ounce, and an escape could suggest a direction, Reuters technical analyst Wang Tao said.

Gold prices edged higher in seesaw trading on Wednesday, buoyed by a fall in U.S. bond yields and a softer dollar, although strong risk appetite in equity markets kept bullion’s gains in check.

“We are in a consolidation period for gold, but I think that eventually the policy tightening and inflation concerns should be positive for the metal,” said Edward Moya, senior market analyst at brokerage OANDA. “Earnings have been fairly impressive, and that is surprising a lot of people... U.S. tech stocks are a favorite place to go for many investors, which is dampening the demand for a safe haven right now.”

StoneX analyst Rhona O’Connell said interest in silver is building in the professional market and that bodes well for gold.

U.S. Fed officials face a ticking clock in their ability to ignore high inflation and are now navigating between their own senses of patience and risk, and a U.S. economy stymied by tangled supply chains, slow hiring and strong consumer demand. Central banks reducing emergency stimulus too quickly and further supply chain disruption are among the top risks to the world economy next year as the COVID-19 pandemic lingers, according to economists in a global Reuters poll.

Still, PIMCO expects the supply bottlenecks disappear by the year end.
We expect the supply bottlenecks to ease towards year-end, as production increases, shipping congestion clears, developed market demand for goods declines, and consumers in advanced economies shift spending to services (assuming no further disruptions from the pandemic).

Overall, Asian production has recovered better than other regions (see Figure 1). In East Asia, where the pandemic has been relatively well-contained and most factories have remained open, industrial production has picked up quickly since the second half of 2020. China’s industrial production had already rebounded and exceeded pre-pandemic levels by last June, and has remained solid since then, supported by strong exports and domestic investment. While global Purchasing Managers’ Index data in May generally showed lengthier delivery times compared with 1Q, Asian economies have fared better.

pimco_blog_liao_cao_jul2021_chart1_71217.ashx


Overall, we expect the supply-demand imbalance to ease toward the end of the year after demand for consumer goods peaks in developed markets and service-sector spending – which is less import-intensive – increases (assuming no further disruptions from the pandemic). In addition, production is likely to catch up and adjust to the demand recovery, while logistical bottlenecks should clear in 2022 as capacity ramps up and freight costs should gradually normalize by next year.

Inflation has scope to be elevated in the months ahead and to stay bumpy given some of these bottlenecks and disruptions. However, with production resuming and growth moderating into 2022, we expect inflation in developed markets will peak in coming months and moderate in the second half of 2021.

Gold prices consolidated slightly above the key $1,800 level on Thursday, supported by softer U.S. bond yields as investors focused on how central banks respond to rising price pressures.

“Negative real yield and inflation risks will help gold prices to move to $1,850/oz before retreating next year and beyond,” ANZ analysts said in a note, cautioning that an expected Fed taper announcement in November weighed on gold’s outlook.

Demand for gold fell in the third quarter to its lowest since the last quarter of 2020, the World Gold Council (WGC) said. India's gold demand could strengthen significantly in the fourth quarter, the World Gold Council (WGC) said on Thursday, with a drop in global prices and the release of pent-up demand expected to lift jewellery sales during the peak festive season. Higher demand from the world's second-biggest gold consumer could help support spot prices after a near 5% correction so far this year, but a rise in imports of the metal would widen India's trade deficit and weigh on the rupee .



"The fourth quarter is likely to be one of the best quarters in recent years. Pent-up demand, softening of gold prices and weddings will drive the demand," Somasundaram PR, regional chief executive officer of WGC's Indian operations, told Reuters.

Demand for the precious metal usually spikes towards the end of the year in India, as buying gold for weddings and major festivals such as Diwali and Dussehra is considered auspicious. Indians celebrated Dussehra earlier this month and anecdotal feedback from manufacturers indicated strong sales, he said. The pick-up in retail demand gave confidence to manufacturers, and imports in the September quarter jumped 187% from a year ago to 255.6 tonnes, he said. In a report published on Thursday, the WGC said gold demand jumped 47% in the third quarter from a year earlier to 139.1 tonnes as jewellery demand surged 58% to 96.2 tonnes.

The ECB left policy unchanged, holding fire before a set of crucial decisions in December on ending pandemic emergency stimulus and returning policy to a more normal setting.

“ECB’s actions will keep Eurozone bond yields under pressure because they’ll be buying bonds” and that should reduce the opportunity cost of holding gold, said Fawad Razaqzada, analyst with ThinkMarkets, adding that, even though the decision was mostly expected, it should be supportive for the metal. It seems major central banks are not likely to tighten monetary policy too aggressively even if inflation remains elevated, Razaqzada added.

Analysts also said the U.S. Federal Reserve’s meeting on Nov. 2-3 would be more crucial for gold after chief Jerome Powell’s recent comments on tapering asset purchases.

“Fed tapering should already be well and truly discounted, although there is bound to be a short-lived knee-jerk reaction to the Fed’s statement next Wednesday – there always is!” StoneX analyst Rhona O’Connell said.

Investors are gauging what a furious flattening of the U.S. yield curve suggests about expectations for growth and how aggressively the U.S. Federal Reserve may tighten monetary policy in the face of surging inflation.

The U.S. economy grew at its slowest pace in more than a year in the third quarter, data on Thursday showed. Analysts have trimmed their gold price forecasts for the rest of this year and next, a Reuters poll showed on Thursday. In another poll, forecasts for palladium and platinum prices were also lowered with a chip shortage forcing auto makers to cut production of vehicles containing the metals.

Gold prices fell to their lowest level in more than a week on Friday, weighed down by a stronger dollar after U.S. data showing inflation stayed hot last month put the focus back on the Federal Reserve’s policy meeting next week.

The consumer spending data fueled worries about aggressive monetary policy action from the Fed to combat a surge in prices, sending yields on the U.S. 10-year note up as high as 1.6190%, and the dollar surging 0.8%.

“Traders across global markets have aggressively raised their outlook for policy tightening, as an energy crunch and snarled supply chains drive inflation higher, leading market participants to price the risk of a faster exit,” analysts at TD Securities said in a note.

There isn’t anything that can stop gold’s decline right now,” said Phillip Streible, chief market strategist at Blue Line Futures in Chicago, adding that funds become active sellers each time gold crosses the key $1,800 per ounce level.

Overall, worries about rising prices kept both gold and silver on track for monthly gains of over 1% and 7%, respectively.

China’s factory activity contracted more than expected in October, shrinking for the second straight month, as high raw material prices and power disruptions pressured manufacturers in the world’s second-largest economy.

The official manufacturing Purchasing Manager’s Index (PMI) was at 49.2 in October, down from 49.6 in September, data from the National Bureau of Statistics (NBS) showed on Sunday. The 50-point mark separates growth from contraction. Analysts had expected it to come in at 49.7.

In line with the softer headline PMI, a subindex for production slipped to 48.4 in October from 49.5 in September. A subindex for new orders also contracted for a third month, coming in at 48.8.

"About one-third of the surveyed companies listed insufficient demand as their biggest difficulty, indicating inadequate demand had restricted their production," said Zhang Liqun, an analyst at the China Logistics Information Center.



More worryingly, a subindex for output prices rose to 61.1, the highest since 2016 when the statistics bureau started publishing the indicator, suggesting rising inflationary pressures while broader economic growth slows.

"The production index has dropped to the lowest level since it was published in 2005, excluding the global financial crisis period in 2008/09 and the COVID outbreak in February 2020," said Zhiwei Zhang, chief economist at Pinpoint Asset Management. "The output price index rose to the highest level since it was published in 2016. These signals confirm that China's economy is likely already going through stagflation."

Factory gate inflation rose to a record last month on soaring commodity prices but weak demand capped consumer inflation, forcing policymakers to walk a tightrope between supporting the economy and further stoking producer prices. Analysts polled by Reuters expect the People's Bank of China to refrain from attempts to stimulate the economy by reducing the amount of cash banks must hold in reserve until the first quarter of 2022.



"Production remains weak, indicating the demand problem may be relatively large, and some easing of policy is still needed," said Zhou Hao, senior economist at Commerzbank.

Looming rate rises to keep a lid on gold prices: Reuters poll

Analysts have trimmed their gold price forecasts for the rest of this year and next, expecting the precious metal to hover around current levels in the fourth quarter before edging lower in 2022, a Reuters poll released on Thursday showed. Typically seen as a safe investment, gold performs well when investors are anxious and when returns on other assets like bonds are low. Prices leaped to record highs above $2,000 an ounce last year as the coronavirus spread, but fell as economic growth recovered and central banks began to signal interest rate rises that would push up bond yields.

A poll of 37 analysts and traders this month returned a median forecast for gold to average $1,795 an ounce in the fourth quarter of 2021, in line with current prices and up from its average of $1,770 in the third quarter. The poll forecast an average price of $1,750 an ounce in 2022. A similar survey in July predicted averages of $1,841 an ounce in the fourth quarter and $1,785 in 2022.

Bullish analysts pointed to solid demand for gold from retail investors, jewellers and central banks. They said prices could increase if rising inflation fuels demand for gold as a hedge.

But gold is unlikely to rise much while investors expect the U.S. Federal Reserve to reduce its asset purchases and raise rates, “both of which are events that traditionally see gold prices put under pressure”, said Mooris Tjioe at Phillip Futures.

For silver, the poll forecast average prices of $24 an ounce in the fourth quarter - roughly in line with current levels - and $23.95 in 2022. The poll three months ago predicted averages of $26.13 for the fourth quarter and $25 for 2022. Silver is a ‘safe-haven’ asset like gold but is also used by industry.

“Silver remains under pressure from its industrial exposure and the impact of the ongoing semiconductor shortage, which is limiting output of a range of silver-containing electrical items including cars, smartphones, and televisions,” said independent consultant Robin Bhar. “It should continue to underperform,” he said.

COT Report

This week gold surprises with big jump in open interest on COMEX exchange, while SPDR Fund doesn't show yet big change in storage. CFTC data shows around 57K+ contracts were opened this week, counting around 8% of total trading volume. This is huge jump for just single week. Changes are mostly bullish. Speculators have taken 25K net, while hedgers have increased positions against gold's jump for 33.7K contracts. Data stands for Wed and doesn't include recent reaction on US consumer spending jump.

1635675215688.png


This kind of changes can't happen occasionally and it definitely cares some secret. To what investors are preparing? If this is Fed statement then it means that market expects more dovish comments from it. Currently it is unclear and bring confusion to common view of weak market.
1635675384867.png

Source: SPDR Fund, FPA

As a result net long position jumps back above 200K and stands near upper border of consolidation that lasts for the few months already:

1635675559394.png

Source: cftc.gov, charting by Investing.com

To be continued in the next post
 

Sive Morten

Special Consultant to the FPA
Messages
15,282
Well, now the medium and long term gold market perspective is a big concern. The task to identify gold future performance is the same as to answer the question on global business cycle - whether it is reflation or stagflation, how strong and long term inflation will be, what the interest rates performance and overall economy growth etc.
Based on Reuters poll mentioned above and UBS forecasts that we've mentioned last week - market expects nothing from the gold within a year. Approximately the same 1700-1750$ levels in IVQ and 1600-1700$ in 2022. No big changes in gold suggests no big changes in interest rates as well. Correspondingly - no big shifts in economy dynamic and inflation. Otherwise, if we suggest bullish economy cycle - it suggests rising real interest rates, growth and inflation. This is the deadly combination for the gold that should push it down. Maybe analysts keep this in mind but outside 2022 horizon.
In fact, the major driver for the Gold is real interest rates. Gold behaves now as an asset with 30 year duration, according to PIMCO research. It means that a 100-basis-point move lower in U.S. Treasury real yields has translated to a roughly 30% increase in the price of gold.


pimco_blog_johnson_aug2020_chart.ashx


Real interest rates are rising now, turning to the positive area for the first time after the long period of negative values. As US TIPs (Inflation-Protected Treasuries), as forward rates show rising of inflationary pressure, including the common statistics such as CPI, PPI, PCE, wage inflation etc. At the same time many analysts now suggest (together with Fed) that this is temporal situation. Thus, Fathom Consulting tells:
"Most likely, inflation will fall back towards target over the next two years, without the need for significant policy tightening."

PIMCO in the middle of the year wrote on inflation:
Overall, we forecast DM (Developed Markets) inflation to end 2021 running at a 3% average annual pace, before moderating back to 1.5% in 2022 – below DM central bank targets. For the U.S., we expect the y/y rate of core inflation to peak in 2Q 2021 around 4%, and end the year at 3.5%, before moderating back to 2.3% in 2022.

Finally, notwithstanding the expected changes to DM central banks’ QE programs, we don’t expect DM central banks to begin hiking policy rates over our cyclical horizon. Indeed, the central banks in Canada, New Zealand, and Australia are likely to lead with the first hikes in 1H 2023, followed by the Fed and BOE in 2H 2023, in our view. The ECB, which has had more difficulty in meeting its 2% inflation target over the last decade, isn’t expected to hike until much later, while the Bank of Japan continues to struggle with deflationary trends.

We continue to favor U.S. dollar underweights – with careful scaling – versus G-10 commodity-related currencies and select EM currencies. This reflects a combination of the forecast for ongoing global expansion (with the currencies of small, open economies poised to benefit from the ongoing cyclical upswing), valuations, and the Fed’s very patient approach compared with its history and the potential for somewhat faster policy tightening elsewhere.

So, based on recent comments we have very interesting data segment. Nobody expects big drop on gold, despite rising expectations on interest rate policy among all developed Central Banks. Inflation is expected to be faded within a year that suggests limited activity from Central banks as well. China production is slowing due the lack of demand. On the long term gold chart picture doesn't look bearish, as we mentioned in our reports, as price stands just near 30% pullback from the top that indicates minimum retracement. Finally, it is short-term, but still, almost 10% jump in open interest last week.
All these moments make us to be careful in long-term judgements. What if we, indeed, stand not at the eve of a new bullish economy cycle? The Central banks' activity, major statistics and interest rates performance could have the look of reflation stage because of pandemic intruding, but not to be the reflation by nature. Within few months gold could move lower because of interest rates change, but it could not become a major bearish trend. And the levels around 1500 could become attractive for investing instead of signals of collapse. Recent information makes us pay more attention to flat gold performance and treat it as possible sign of temporality of current processes in economy.

Of course, we have short-term bearish signals as well and we do not intend to deny them, but gold has to be traded more gently right now with flexible mind and care to bullish signs as well. Despite that right now and in near term bearish factors should keep its dominant role.

Monthly

Long-term charts are not very interesting to us right now as recent price action barely impacts on the long-term picture. October is an inside month by far. On a technical side, we have few bearish moments that suggest deeper action, but, in general, market stands in very small pullback from ATH comparing to the scale of the rally. Market again shows problems with breaking through YPP. We have three equal tops month by month around YPP. It means that somewhere around 1835-1836 big selling orders hold gold from further upward action.

In a shorter-term everything is based on August huge trading range. With the more information from the Fed, we suggest that sentiment becomes more bearish and action to 1650 support area gets more chances to happen in near term. Next target is YPS1 at 1540$. October month right now doesn't make our task easier as it stands inside the September range and brings no information.

At the same time, as we've mentioned before, in long term scale price action has the features of retracement, forming big flag consolidation with choppy action inside and standing above nearest 3/8 Fib level. This type of action is difficult to call as strong bearish reversal, at least for now.
gold_m_01_11_21.png



Weekly

Despite recent sell-off due US consumer spending jump, weekly trend remains bullish. With the wide triangle in place market keeps door open in both direction, as it usually happens with the triangle. We easily could imagine as downside butterfly patterns as the upside one. The week dynamic was inside one and also brings nothing new here.
Market has no solid barriers to move inside the triangle, which suggests 1700-1835$ range remains open. The start of the week might be bearish as everybody expects BoE first rate change (or bullish if this not happen). Then, major driving factors comes on Thu - this is Fed. Here attention stands on its comment on economy conditions and forecasts, but not on tapering announcement which is totally priced-in already.
gold_w_01_11_21.png


Daily

Daily picture stands tricky. Despite the drop, that we've discussed on Friday - bearish performance looks sketchy. Trend remains bullish and we've got bullish grabber right around 3/8 Fib support level. Despite that we do not have it on COMEX Gold futures - I would be careful with it. With big jump of bullish positions last week - it might be bullish ambush around. Besides, big uncertainty remains around BoE and Fed, mentioned above:

gold_d_01_11_21.png

Intraday

Bearish action that we would like to get has happened. Market dropped and broke the support line with acceleration. The target of divergence stand below "C" point, and, as we could see from 1H chart downside XOP target also stands at the same 1760$ support area:

gold_4h_01_11_21.png

Downside acceleration was fast, so that price dropped even in excess of OP target. Now it shows the bounce. For short entry there are only two levels. First is a K-resistance, 2nd is major 5/8 around 1800$ where the broken line stands as well. Bearish market has to stay below it. Otherwise upside acceleration stands on horizon.
gold_1h_01_11_21.png


After this discussion it is easy to consider possible trading setups. Bullish setup now technically looks weaker, because we have tricky grabber that is not seen on futures charts and some hopes that BoE tucks its trail and Fed will be chary for hawkish rhetoric. Bearish setup technically looks better with downside fast breakout. But technicals this week takes secondary stage. Choose the scenario that you think to be correct. Whatever scenario you choose - try to take position to invalidation point as closer as possible. For bearish scenario this is 1800$ resistance level. For bullish - grabber's lows.
 

Sive Morten

Special Consultant to the FPA
Messages
15,282
Greetings everybody,

Recent price action shows that markets are nervous, forming multiple contradictive signs and preparing to major fundamental events this week, starting from BoE meeting tomorrow and following to NFP report on Friday.

Weekend analysis suggests bearish setup that is still valid, but yesterday we, no doubts, have got clear bullish pattern, additionally to arguable Friday's one. This one tells, that conservative traders should stay aside and do not take any short positions. While others could try it, but have to react fast and move stops to breakeven as soon as possible - if you still would like to trade it.
Additionally we have the bullish setup, that also could be considered.
gold_d_02_11_21.png


Concerning bearish scenario market - all preparations are done as price re-tested broken trend line:
gold_4h_02_11_21.png


Hourly chart shows that price could climb slightly higher to complete minor XOP and Agreement resistance around 1800$. Thus, if you still want to try it - you could take position once XOP will be hit with stop slightly above it. Move it to breakeven as soon as possible, as market now is very vulnerable and sensitive to any action.
Task for the bulls a bit easier - yo could try to catch the retracement with stops under the lows on daily grabber to take position...
gold_1h_02_11_21.png


Now guys, in any trade some gambling component persists. So, it is not just technical question what scenario wins, but mostly on result fundamental events.
 

Sive Morten

Special Consultant to the FPA
Messages
15,282
Morning everybody,

So, let's keep going with our tricky thing. Today, actually, I'm telling the same words as in EUR as in Gold videos, as overall situation is very similar.

So, yesterday, trying to resolve somehow the tricky situation, we've said that both scenarios could be taken as we have some time till the major events of this week. So, they could start well. Yesterday was the time for bears. And setup is started very accurately, so now position could be covered by breakeven stop.
Today is time for bulls to make the decision about the entry. Retracement that we've discussed yesterday is underway, so, risk for this trade stands around 10$ per contract:
gold_d_03_11_21.png


On 4H chart, if bearish context prevails - our next target is 1760 major Fib support:
gold_4h_03_11_21.png


Here you also could see the XOP that makes Agreement to it... Downside action has started accurately right at specified area of 1800$ major resistance.

Speaking on bullish position, retracement now stands close to ultimate point - major 5/8 support and XOP target slightly lower. To keep bullish patterns valid price should stay above the lows, and preferably in an area between XOP and 5/8 support, at least. Which is 1777-1781$. This is the point, where you need to make a decision on position taking (or not taking), if you would like to trade the grabbers.
gold_1h_03_11_21.png
 

Sive Morten

Special Consultant to the FPA
Messages
15,282
Greetings everybody,

Here is our journey of hunting to rabbits at once comes to an end. Bears win. As a result gold has completed our 1760 target forming Agreement on daily and 4H chart. Still we see a bit overreaction on the Fed statement that was relatively gentle and dovish. So, it seems that big emotional component stands in recent sell-off. Since market stands at strong support we suggest that upside retracement should be more extended and even do not exclude possible return to 1800$ area in near-term:
gold_d_04_11_21.png


Here is few reasons to see stronger pullback. First is harmony, that suggests higher pullback, right to the K-resistance area. It means that upside bounce should take the shape of AB=CD pattern. Second is, possible 3-Drive pattern. In this case market should move above the recent top, which is 1800$ area. These technical moments together with fundamental background suggest that gold could show more extended reaction within nearest sessions. If NFP doesn't hurt it too much, of course.
Concerning entry process - if you would like to, it makes sense to consider current level, trying to catch minor retracement here (the "C" point lows) with stops under recent lows of 1760$.
gold_1h_04_11_21.png
 

Sive Morten

Special Consultant to the FPA
Messages
15,282
Morning everybody,

So, our setup is done perfect, with even better performance that we've expected initially. The same we could say on US rates - the H&S that we've discussed is started and should be supportive for the gold performance next week as well:

1636096520091.png


On 1H chart market has completed both targets in one session - harmonic swing around former K-resistance and 3-Drive target @1800 - challenging the top between 2 and 3 drives. On a way up XOP is done. Although we do not consider taking any short positions right now - scalp traders could watch for "222" Sell or maybe butterfly (H&S) for fast trade.
gold_1h_05_11_21.png


Since today we have the final test from NFP numbers and they have good chances to be positive, gold could show the pullback. It would be nice if we would get something like this. In this case we return back to discussion of long entry in weekend and on next week.
gold_4h_05_11_21.png
 
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