Gold GOLD PRO WEEKLY November 06 - 10, 2023

[Sive Morten]

Fundamentals

So, as we've said last week, signs of weakness from the Fed might be the "win-win" situation for gold market. While tensions on Middle East continues and still far from any solution, even official statistics (which we suggest "slewed") shows slowdown of employment in the US. Sentiment indicators, such as PMI, ISM etc. remain in negative area, while grown in GDP mostly relates to phantom components - appreciation of financial assets. You also could see corresponding reaction on the market - almost no response to recent data.

Market overview

Global gold demand excluding over-the-counter (OTC) trading slipped 6% in the third quarter as central bank buying fell short of last year's record levels and consumption by jewellers declined, the World Gold Council (WGC) said on Tuesday. The quarter's demand of 1,147.5 metric tons however stood 8% ahead of its five-year average, and official sector purchases in the full year are expected to approach their 2022 level, the WGC said in its quarterly demand trends report. Gold demand shot to an 11-year high in 2022 due to the biggest central bank purchases on record.

"With geopolitical tensions on the rise and an expectation for continued robust central bank buying, gold demand may surprise to the upside," said Louise Street, senior markets analyst at the WGC. Demand from investors, who see bullion as a safe asset during periods of instability, rose 56% in the third quarter, but remained weak compared to the five-year average, the WGC said.

Central bank demand totalled 337.1 tons, down from a record 458.8 tons a year before. For the first nine months of 2023 however, official sector gold purchases hit 800 tons, more than in any January-September period in WGC data going back to 2000.

"This strong buying streak from central banks is expected to stay on course for the remainder of the year, indicating a robust annual total again in 2023," WGC said.

Including OTC trading, which is conducted directly between two parties rather than via an exchange, total global gold demand rose 6% to 1,267.1 metric tons in the third quarter.

Gold prices will rise in 2024 from this year's average on bets that global central banks would start monetary policy easing and after the Middle East conflict provided a boost to gold's safe-haven rally above $2,000, a Reuters poll showed on Wednesday. The poll of 30 analysts and traders conducted in October returned a median forecast for gold at $1,986.5 a troy ounce for 2024, up from $1,925 expected this year.

Respondents have slightly lowered forecasts since July, when a similar poll predicted gold to average $1,988 per ounce in 2024 and $1,944.5 in 2023. While most economists still say the Fed will cut by mid-2024, the latest poll shows just 55% backing that scenario compared with over 70% last month.

"Heightened geopolitical tension in the Middle East will continue to underpin gold in the short term, although we do not envisage a sustained challenge above $2,000 per ounce until Western central banks, particularly the (U.S.) Federal Reserve adopt a more accommodative stance," Fastmarkets analyst James Moore said.

Carsten Menke from Julius Baer said "a return towards record-highs should only be possible in case of a severe slowdown of the U.S. economy, leading into a longer-lasting and broader-based recession."

For silver the poll forecast median prices of $24.85 per ounce in 2024 and $23.20 in 2023, down slightly from the previous poll. Silver, which shed over 2% in the third quarter, tracked bullion's safe-haven fleet with an over 3% gain in October.

"We expect it to outperform gold in 2024 on the back of strong demand growth from the photovoltaic sector," said Capital Economics analyst Caroline Bain.

Gold prices gained on Friday as the U.S. dollar and Treasury yields slipped after weak U.S. jobs data cemented expectations that the Federal Reserve is done raising interest rates. U.S. job growth slowed more than expected in October, while wage inflation cooled, pointing to an easing in labor market conditions. Data showed employers added 150,000 jobs in October, below the 180,000 expected by economists.

"If the labour market starts to deteriorate, the Fed will be unable to continue a hawkish path. The data cements the idea of a Fed pause, which is helping gold," said Phillip Streible, chief market strategist at Blue Line Futures in Chicago.

Adding to gold's shine, the dollar index (.DXY) fell 1% and benchmark 10-year U.S. Treasury yields fell to an over one-month low after the data. Traders are now pricing in a 95% chance that the U.S. central bank will leave rates unchanged in December compared to 80% before the data, according to the CME FedWatch tool.

Craig Erlam, senior markets analyst at OANDA said in a note that "$2,000 is a big psychological barrier (for gold) and momentum indicators suggest it may be a struggle at this time."

Investors also keep a tab on the Middle East conflict. Gold rose more than 7% in October on safe-haven demand.

"While peace isn't likely to break out, the situation might not escalate into a regional conflict in the short term. Given gold has had a tremendous run in the past month, we could see some consolidation or even a modest retracement," said Tai Wong, a New York-based independent metals trader

FPA COMMENTS

First is, WGC comments above look a bit frustrating at first glance, but we advise you to take a look at charts below, especially the one in the middle - how gold price relates to the purchases from Central Banks. Overall dynamic that we see in recent few years shows very strong demand on gold, especially among BRICS and other emerging markets. And this is not because of Ukraine. This is because of the US and EU sanctions. The reserve currency status suggests untouchable principle of preserving of private property that was crudely broken. The whole world has seen that it could happen to anybody and it is impossible to relates on reputation of the dollar and the US. So, the moment to search of alternatives has become. Now they are gold and cryptocurrencies, mostly BTC.

It is not needed to say that sell-off of the US debt has accelerated, especially by China, Middle East countries and... Japan. The latter maybe doesn't want to sell but it has no choice as it has to support JPY and ready to explode domestic bond market.

The same WGC tells that China’s appetite for gold will stay strong through the rest of 2023, the World Gold Council said, just as domestic prices for the safe-haven soared to a record amid the strongest investment demand in more than two years. Demand for gold bars and coins in China rose 16% year-on-year in the third quarter and will “remain robust” in the final three months, the council said in its latest outlook. Economic and political uncertainties, currency volatility and central-bank stockpiling have all fueled a buying binge.

“The fragility of the domestic economic recovery, along with intensifying global geopolitical risk, could continue to support Chinese investors’ safe-haven demand for gold,” the producer-funded association said. The Shanghai Gold Exchange’s benchmark contract rallied on Tuesday to its highest ever, heading for a near-7% gain in October.

China’s demand has also been propelled by a patchy and uncertain economic recovery that’s made other assets from property to stocks less attractive. Data released Tuesday showed the country’s factory activity back in contraction for October, suggesting that the economy remains fragile.

“Gold demand has been resilient throughout this year, performing well against the headwinds of high interest rates and a strong US dollar,” the council said of the global market. “Looking forward, with geopolitical tensions on the rise and an expectation for continued robust central bank buying, gold demand may surprise to the upside.”

Gold’s allure in China will be boosted further if the People’s Bank of China continues to build reserves in what’s already one of its longest buying sprees, the report added. Still, it noted that a slightly later-than-usual Lunar New Year in 2024 might delay some demand into the first quarter of next year.

So, they call as "fragile economy recovery". "Uncertain economy recovery" - this is probably how the withdrawal of Chinese capital from the United States (and vice versa) was encrypted. But in general, the hint is clear - it will definitely not be completed before the end of the year. The confirmation signal will be a report on foreign holders of treasuries, which, however, is two months late.

As for gold, even after the completion of active purchases, hardly it will fall. Simply because the dollar will begin to weaken. By the way, the gold/oil ratio at the moment is almost 23, that is, approximately at the level of the last year and a half. Two weeks ago we've discussed the ratio at "30", that is, with oil at $ 80-90, gold may well go somewhere in the range of $2400-2700. But this is probably already how the mutual withdrawal of capital will end, that is, closer to the end of 2024 or the beginning of 2025.

The Middle East always flares up when the US needs to attract money from the outside world. This machine worked perfectly before. Over the past 80 years, American debt has remained the most reliable refuge for preserving capital in the event of crises and turmoil. At any time when the domestic market could not supply the US Treasury with the necessary liquidity, external investors did so, panicking against the backdrop of another escalation of the Arab-Israeli conflict or any other in this region.

However, judging by the fact that Israel is already on fire, Iran, Iraq, Yemen, Jordan, Lebanon, Turkey and Saudi Arabia are preparing for war, and American bonds continue to fall in price - the machine of man-made crises as an incentive to buy US Treasures has broken down. However, this is not surprising - the tandem of the Treasury and the Fed has greatly eroded the American dollar in recent years. The freezing of Iranian and Russian assets has made American debt toxic for many countries that were previously accustomed to keeping government reserves in the reliable assets of IOU. This is why gold is becoming more expensive even with rising US bond yields:

Domestic liquidity in the US is draining as we've shown this in our FX report yesterday. Here is the chart, just to remind you what we've discussed:

Domestic investors, seeing this outrage goes to cash, contracting activity on the markets. Warren Buffett's Berkshire Hathaway grew its cash pile by 7% to an astounding $157 billion last quarter, smashing the conglomerate's previous record of $149 billion in late 2021. When Berkshire's pile of cash and Treasury bills grows, it typically signals that Buffett and his colleagues struggled to find much to buy in the stock market or on the acquisition front. Berkshire's third-quarter earnings, published on Saturday, show that Buffett and his team spent only $1.7 billion on stocks last quarter. Meanwhile, they sold about $7 billion worth, making them net sellers to the tune of $5.3 billion. How this is possible when you hear calls from big banks to buy stocks and bonds from every corner? Inflation is defeated, the Fed turns to easing - it's time to buy stocks? It means that somebody is lying, and hardly this is W. Buffett. He is not the self enemy. This was our primary topic of FX report yesterday. Very soon public's rejoice will turn to frustration as they will understand that drop fo employment is "bad" thing.

Finally, just a bit of politics in the stream. Just a little bit. Here we see two points are important. First is - total collapse of the US plans on Middle East to create anti-Iran union of S. Arabia and Israel and turn to China problems. Now the US sits in this conflict up to the neck, loosing time and resources, political reputation and power. Second important thing is Ukraine. This project is over and Western partners licking out Zelensky&Co. Now even western press evidently writes about it. Here is few quotes from NBC:

U.S. and European officials have begun quietly talking to the Ukrainian government about what possible peace negotiations with Russia might entail to end the war, according to one current senior U.S. official and one former senior U.S. official familiar with the discussions. The conversations have included very broad outlines of what Ukraine might need to give up to reach a deal, the officials said. Some of the talks, which officials described as delicate, took place last month during a meeting of representatives from more than 50 nations supporting Ukraine, including NATO members, known as the Ukraine Defense Contact Group, the officials said.

The United States has begun sending smaller military aid packages to Ukraine in order to stretch out support given a stalemate in Congress over providing funding for Ukraine, the White House said on Friday. White House press secretary Karine Jean-Pierre told reporters the U.S. intention is to extend the ability to support Ukraine for as long as possible while Congress debates new aid.

Recently Time has published expose article about Zelensky. Later it was estimated that the magazine Time is closely associated with the CIA. This was pointed out by journalist Clayton Morris in the Redacted News program. The reporter pointed out that the publication is on a par with The New York Times and CBS, receiving money and instructions from the intelligence service.

"Why does a CIA-backed magazine suddenly show a real, gloomy picture of the situation in Ukraine? To (...) to prepare the ground for something unpleasant in society?" he suggested.

Morris also drew attention to the fact that the author of the article in Time, Simon Schuster, managed to get access to Zelensky's inner circle. As a result, the Ukrainian leader was shown as a mentally unbalanced and detached from reality politician, whose belief in the final victory of Ukraine over Russia began to worry some of his advisers. "He's deluding himself. We don't have any options. We are not winning. But try telling him that," one of the president's closest aides told the newspaper at the time. Earlier, the National Security and Defense Council (NSDC) of Ukraine accused Shuster of misinformation. The department believes that the article about Zelensky contained subjective assessments and "pro-Russian narratives."

This is evident sign that this project is coming to an end. For gold it could have far-going consequences, because this is hard, I would say, strategical, not tactical defeat of the US and NATO. This is lost of reputation and respect. And it will have direct consequences on the Middle East, where only power is respected. Besides, it will trigger new probes on corruption in J. Biden's family inside the US. Finally it will have hard consequences for the EU that is blindly following to Washington policy in the region. You could track your subject by yourself - just watch what aid will be provided to Ukraine. It needs at least $3.5 Bln per month, just to live. So if aid will be very small, this once again confirms our suggetion.

All in all, we suggest it still will be bumpy ride for the gold in nearest few months. Volatility definitely will raise, because major factors are non predictable, especially in politics. Headwinds of high interest rates will still make impact on the market. As World Gold Council said -

• With bond yields continuing to move higher alongside a still buoyant US economy, gold is likely to face continued turbulence over the next few weeks
• But we don't see a material down trend being established as support remains from fragile equities, rising recession risk, inflation volatility and continued central bank interest in gold. This could represent a buying opportunity to some investors should the market become excessively short.
• Bond yields continue to rage higher, as central banks, led by the Fed, are defiantly resisting a pivot in the near future, and higher supply chases reluctant demand
• At the same time underlying economic conditions remain buoyant so a soft landing is still the consensus outcome
• The cocktail of economic resilience and rising yields is likely to bring continued turbulence to gold
• Yet, in our view, gold is more likely to experience choppiness than material weakness as support from a number of factors remains, including a poor risk reward for equities, rising recession risk over the next 6-12 months, inflation volatility and central bank buying
• Opportunity in gold from a short squeeze will continue to present itself from COMEX short positions at levels not seen since March 2023 and persistent ETF outflows.

Gold is likely to face some choppiness over the next few weeks as rising real yields, a firmer US dollar and a buoyant economy batter some sectors of investment demand. But longer-term concerns and continued central bank buying should, in our view, ensure that this turbulence doesn’t establish a more material downtrend. As such, this could present potential gold buying opportunities for some investors. Historically, gold has tended to mean revert in instances when the market (futures positioning) becomes excessively short.

This is our view either. Although we could get moderate pullbacks here and there but we do not expect any stable downside trend and reversal and suggest that deeps should be considering for increasing gold position.

 

[Sive Morten]

Technicals
Monthly

The trading range of the passed week is not very large, so monthly comments mostly remain the same. Two-bar" grabber, as I call it, once again shows good result. Obviously the nearest destination point is YPR1 and tops around 2060-2080$. Market is not on oversold, and purely technical moments suggest that upward action should be more extended. Even from pivot points framework - take a look, market already dropped from YPR1 back to YPP. Now it returns, confirming bullish sentiment. But, now YPR1 should be passed.

The same we could suggest from classical patterns - we have reverse H&S on top in progress, and 2060-2080 is just a neckline level. Obviously, on monthly chart context is bullish. H&S shape looks good, right arm is smaller, that also hints on bullish activity.

Weekly

Recent week has become inside one, making no impact on the picture yet. Local AB-CD shows 2094 COP target. With stop triggering gold easily could squeeze slightly higher. Meantime price is approaching overbought and we sould try to catch the pullback.

Here is have another AB-CD pattern (initial one), but I do not show you it, because it has 2145$ target. We consider it when nearest target will be achieved:

Daily

Here we have nothing new and just follow with our trading plan. First point of the plan is the grabber - it suggests action above the top, whether just spike or breakout. But since market is near weekly overbought, spike seems also probable.

Second step is potential DRPO "Sell" pattern. Currently it is unclear what reason could trigger moderate pullback, but technically picture looks suitable. Definitely we do not get B&B because grabber's low above the Fib support. Also DRPO idea perfectly fits to the grabber. With upside spike we get 2nd DRPO top.

Intraday

Here we do not see any reasons to deny idea of 3-Drive as it agrees with the daily grabber. Friday's action was relatively small and doesn't break an idea of this pattern.

On 1H chart the H&S pattern starts taking unnatural view, with too high right arm. Here we have also 2013 local target and it seems that it is minimal target for daily grabber. As we've said - we do not consider any short positions now. Also we have to control "C" point lows. Everything is OK with bullish scenario until price stands above it. Downside breakout will be the negative sign, telling that something turns wrong.

 

[Sive Morten]

Greetings everybody,

So, Gold has destroyed short-term bullish context. In fact, we were waiting for DRPO "Sell" pattern on 1H chart and starting of the pullback, but thought that Gold will be able to complete intraday patterns, which has not happened.

On daily chart, formally, it is not perfect DRPO "Sell" because we do not have 2nd close above 3x3 DMA, so we have to call it as LAL (Look-alike). But, by its nature, this is goo DRPO "Sell" pattern.

As you could see - grabber has been erased either. If DRPO works properly, gold could reach 1905 area:

Another confirmation of sharp change in sentiment stands on 4H chart - 3-Drive pattern is broken on a halfway, which is not typical for normal behavior. It means that bearish activity is accelerating. Now market is forming downside reversal swing, erasing chance for upside butterfly as well:

On 1H chart, Gold has failed to erase H&S pattern and it still has started to work, although mostly has lost its normal shape. Anyway, now market stands near local OP target. But, since price is not at Fib level or oversold - pullback should be small, up to nearest two levels at best. Our control point (purple spot) has been broken - that was the moment when the red line of bullish setup was crossed.

Thus, now we suggest no long positions. Those who would like to sell - could try to join this DRPO party, watching for minor rally to sell near 1H Fib levels.

 

[Sive Morten]

Greetings everybody,

On Gold market picture barely has changed. Price hits first 1955 support area and shows tactical bounce:

On 4H chart we have two-in-one patterns. First is "222" Buy, that suggests tactical bounce somewhere to 1980 area. At the same time, we have a bit ugly H&S shape, but "222" destination point may become the top of the right arm as well:

On 1H chart AB-CD points at the same area of 1974-1979 - K-resistance, enveloped with two targets. Supposedly it might become interesting for short entry:

Second is, as on EUR - we keep an eye on DXY bullish weekly grabber this week. If we get it, it might be additional background for deeper retracement on the gold. Which is, to be honest, is logical, because recent rally was too fast.

 

[Sive Morten]

Greetings everybody,

So, gold markets is heavy, DRPO "Sell" on daily chart is spinning up. Yesterday we haven't got even minor bounce after "222" Buy on 4H chart. Price drops under 1955 support area. Next destination point is 1922-1930 - K-area and daily oversold:

Here is the puny reaction on our 4H pattern, suggesting bearish activity:

On a way down tactical bounce is possible because gold starts flirting with XOP target around 1940-1942. This is also an area where could think about profit booking, just to not hold position through the weekend. (Personally I do not like it). For new shorts it would be better to wait for bounce to one of the nearest levels:

 

[Sive Morten]

Greetings everybody,

So, the bounce that we've discussed yesterday has happened. Meantime gold keeps bearish context. Besides, other markets - DXY, yields suggest dollar strength, which supports our bearish scenario on gold market:

On 4H chart I see nothing interesting. While on 1H chart, we see supposed bounce done - gold stands at K-resistance area. Here we could recognize skewed H&S shape. Theoretically chances exist that it might be higher action to 1770$. But taking in consideration all aspects, chances are not significant and downside continuation seems more reasonable.

So, if you have short position already - you could turn it into breakeven. If you still plan to go short - you could wait either until 1770 pullback happens, or, if you scare to miss the trade, and what to jump it - do it with less trading volume, just to keep ability average position if bounce to 1770 still happens.