Gold GOLD PRO WEEKLY, November 07 - 11, 2022

Sive Morten

Special Consultant to the FPA
Messages
16,929
Fundamentals

Yesterday, guys, we've considered recent Fed meeting. As you could see from report, this was indeed unique event, has not seen, at least for recent 15-20 years. J. Powell statement was very evident and detailed. As we've found out - there were many reasons for that. And, of course, everybody have signed it. Recent gold rally at first glance, looks common - other markets, stocks in particular, have jumped as well on a background of dollar weakness. We think that there is something else behind Fed statement, where they have acknowledged problems publicly and recent rally. And, it is not as simple about gold market as well.

Market overview

Gold prices will average $1,712.50 an ounce next year, rising from current levels, as an end to U.S. interest rate rises is expected to revive investor interest in bullion, a Reuters poll showed on Wednesday.

"We will get a change of direction when the market gets convinced that the Fed will stop raising interest rates," said Frank Schallenberger, head of commodity research at LBBW.

Societe Generale analyst Florent Pele said returns on inflation-adjusted government U.S. bonds were likely to remain positive until at least the third quarter of 2023.
"Amid positive real rates in the U.S. and increasing ones in Europe, investors will likely shy away from non-yielding assets such as gold," he said.

The poll of 39 analysts and traders returned median forecasts for gold to average $1,660 an ounce in the fourth quarter of this year and $1,658 in the first quarter of next year. The poll of 39 analysts and traders returned median forecasts for gold to average $1,660 an ounce in the fourth quarter of this year and $1,658 in the first quarter of next year.

Gold is unlikely to fall too far because low prices will encourage more buying in Asia and of jewellery, said independent analyst Ross Norman. We would expect to see physical demand to accelerate at around the $1,550 support level," he said.

Meantime, Bank of America reports that investors are running to cash. Investors put money into cash at the fastest pace at the start of a quarter since the 2020 COVID crisis in the week to Wednesday, as heightened volatility and questions over the U.S. rate outlook triggered a safe-haven dash, BofA Global Research said on Friday.

Cash funds saw inflows of $62.1 billion in the latest week, reflecting investor demand for dollars, which in turn saw the 19th straight week of outflows from gold funds - the longest string of outflows since 2014, BofA said in its weekly "Flow Show" report, citing data from EPFR.

Fed Chair Jerome Powell has since poured cold water over such speculation, given stubbornly high inflation and a resilient labour market. And yet the bank's "Bull & Bear indicator" stayed at 0 for a seventh week, marking its longest period of "max bearish" since the 2008-2009 financial crisis.

"Easy to pivot when unemployment is 8% and inflation is 3%. Much harder to pivot when inflation is 8% & unemployment is 3%," BofA investment strategist Michael Hartnett wrote.

Net long position on Gold market is constantly dropping since the beginning of the year, and now stands around 65K contracts. Open interest is dropping either, but not as significant. Now compare the drop of net position to the price. It is a big difference guys. While net positions has dropped almost five times, the gold shows just 3/8 monthly retracement.
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Now we hear that private investors are leaving gold, moving funds out from gold ETF. But let's take a look what central banks do. Central banks bought a record 399 tonnes of gold worth around $20 billion in the third quarter of 2022, helping to lift global demand for the metal, the World Gold Council (WGC) said on Tuesday.

Demand for gold was also strong from jewellers and buyers of gold bars and coins, the WGC said in its latest quarterly report, but exchange traded funds (ETFs) storing bullion for investors shrank. Offloading of bullion by ETFs helped push gold prices down 8% in the third quarter, but this price fall helped stimulate demand for jewellery, the WGC said. In total, the world's gold demand amounted to 1,181 tonnes in July-September, up 28% from 922 in the same period in 2021, the WGC said.
Demand in the year to September had recovered to pre-pandemic levels, it said.

So, while private investors are running to cash out from Gold's ETF - Central banks are buying gold with outstanding pace. Indeed, by SPDR Fund dynamic, the fund's reserves are dropping, but gold price stands more or less stable. Who supports it?
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WGC says among the largest buyers were the central banks of Turkey, Uzbekistan, Qatar and India, though other central banks also bought a substantial amount of gold but did not publicly report their purchases. The Central Bank of Turkey remains the largest reported gold buyer this year, adding 31 tonnes in Q3 to bring its total gold reserves to 489 tonnes. The Central Bank of Uzbekistan bought another 26 tonnes; the Qatar Central Bank bought 15 tonnes; the Reserve Bank of India added 17 tonnes during the quarter, pushing its gold reserves to 785 tonnes.

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Retail buyers of gold bars and coins also surged in Turkey to 46.8 tonnes in the quarter, up more than 300% year-on-year.

"We think they hike just to get to the end point. We do think they hike by 75. We think they do open the door to a step down in rate hikes beginning in December. The November meeting isn't really about November. It's about December," Michael Gapen, chief U.S. economist at Bank of America, has told CNBC. Gapen expects the Fed would then raise interest rates by a half percentage point in December. Recall what we've said yesterday, guys - 0.5% in December and 0.25% in February, and basta.

While inflation in the U.S. has remained stubbornly high, there are growing signs that high interest rates are beginning to slow the economy with the housing market slumping, and some mortgage rates nearly doubling. This calls for the Fed to go easy on its aggressive hikes. Gold traders appear to agree that the long-term gold trajectory is up.

According to another survey of the bullion industry, gold prices will rebound next year, despite higher interest rates. Traders expect prices to rise to $1,830.50 an ounce by this time next year, nearly 11% above current levels.

I tend to think that Fed hawkishness is largely now ‘in the price. That said, the scope for a near-term major rebound in gold prices is very limited while rates climb and the US dollar remains strong, "Philip Klapwijk, managing director of Hong Kong-based consultant Precious Metals Insights Ltd, said in an email.

Finally, a weakening dollar is likely to improve the gold outlook. The dollar may finally be losing its luster after a long period of relative strength against other major currencies. The dollar index--a metric that pits the U.S. dollar against six leading currencies--recently fell to multi-month lows. According to Wells Fargo, the dollar's surge is likely to continue this year as interest rates rise further but Fed rate cuts in 2023 should push the dollar into "cyclical decline." In other words, the dollar is set to fall in 2023 as the U.S. enters recession and the Fed cuts rates.

But this is only half of the story. Besides of the US own steps with monetary policy, there are other players on the side. First is China that has 3 Trln. in foreign reserves, which are gradually moving down. In recent two months, as we've reported in our Telegram channel, the burning of reserves have accelerated, because microelectronic US legal act against Chinese industry and other reasons. Now take a look at this - $250 Bln out this year.
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Down eight months in a row, China's reserves are within a whisker of the psychological $3 trillion level. A drop below would be a mirror on dollar strength, and perhaps the depth of resolve to resist it in North Asia, where reserves are draining from Seoul to Taipei and Tokyo, which is second largest player, who stubbornly goes with QE way to unavoidable crush. They have around $1 Trln in reserves, and have made two interventions that expectedly brought no effect. We already explained in previous report why Japan is doomed.
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As we've said, the only way how Japan could survive is trying to make it all the way to the moment when Fed starts easing. It is a question how much reserves they will burn from their 1.3 Trln but they have theoretical chances... If some crush of global economy happens - Japan will be among the first.

Together they have $4 Trln in a pocket - this is greater than all Fed available reserve, if we do not take in consideration new printing. And they are selling the dollar to support own currencies. But before selling the dollar, they have to sell US Treasuries to get the currency for selling. This pushes US Treasuries yields even higher. Fed now is tighten at highest ever level this week selling $46 Bln bonds off the table, but it doesn't hurt the markets at all. It is becoming more dollars on the markets.
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But at the same time, companies are loosing wealth. Total market capitalization of FANGMAN (Facebook, Apple, Microsoft, Amazon, Netflix, Google) is only 20% of the market capitalization of the S&P 500. Not so long ago, Big Tech had a 27% weight in the index. The increase in wages in October was probably the result of increased part-time work. More and more Americans are being forced to work multiple jobs as inflation continues to drive up consumer prices. But rising unemployment and declining labor force participation indicate a deepening crisis.

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FANGMAN have lost $670 billion, which was the biggest drop since January 2022. It was $4.6 trillion of the stock market destroyed by "the drop from the top". In 2008, no one expected a financial crisis, except for a group of people who everyone thought were strange. In 2022, the majority considers everyone who loves gold to be cranks. Sometimes it's useful to be weird.

Few political issues


Mostly we cover political events in our Telegram channel. Here we just tell in few words on recent events. First is, Germany Chancellor visit to China. Germany has huge trade deficit with China now (~ $70Bln). EU political elites also feel where wind is blowing, and O. Scholz brings very representative company of Germany business to China to discuss possible industry relocation or expanding in China.
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The US does like this visit and Bloomberg immediately releases the article - Is Europe With the US or China? Rumors tell that US could replace O. Scholz with A. Baerbock. In particular, German Foreign Minister Annalena Baerbock said last month -

I'm “very serious” about reducing the German economy’s reliance on China.

Meantime, German lawmakers have pressed for greater scrutiny over their nation’s business ties with China. Despite industry lobbying, in 2021 they pushed through a supply-chain law that now requires companies to do due diligence on their suppliers, ensuring they don’t use slave labor — a move clearly targeted at China, amid concerns over practices in Xinjiang. The Economy Ministry, led by Berbock’s Green Party colleague Robert Habeck, in May declined to renew investment guarantees for Volkswagen in China, over human-rights concerns, Der Spiegel and other media reported.

Germany is expected to release a fresh strategic gameplan with regard to China later this year, and it will likely see the formal ditching Merkel’s approach of “wandel durch handel, or “change through trade,” says Yanmei Xie, a China policy analyst at Gavekal.

So, O. Scholz now in tough position (as well as other EU leaders). From the one side he is under pressure of industrial giants and local elites who now stand at the edge of bankruptcies, and Scholz is at risk to become worst Chancellor in a history who has destroyed national heavy industry sector. From the other side, his political career under question if he loses US trust. Obviously O. Scholz makes the bet on Republicans' victory and soon vector changing in the US foreign policy, trying to turn own role from destroyer into saver.

In the US itself, situation is coming to the boiling point. Both leaders as J. Biden as D. Trump take their road shows across the country. Intermediate polls stand by far in favor of Republicans and statistics model forecasts their victory:

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Meantime, D. Trump is counterattack - Per RSBN, the Pennsylvania Supreme Court ruled that mail-in ballots with incorrect or missing dates could not be counted in the upcoming November election in a massive victory for proponents of election integrity. Ex-President Donald Trump took to Truth Social this week to share his thoughts on the latest ruling from the Pennsylvania State Supreme Court.

“So the Pennsylvania Supreme Court just ruled, in effect, that the 2020 Presidential Election was Rigged, but they’ll let that result stand, however, in future Elections, you are no longer allowed to do what was done in the 2020 Election,” the president wrote.

According to a report from The Wall Street Journal (WSJ), over 1.4 million Pennsylvanians have registered to vote by mail or absentee ballot in 2022, so the court’s ruling could potentially affect thousands of ballots.

“This decision represents far more votes than would have been needed to win Pennsylvania,” Trump continued, referring to the 2020 election. “What a SCAM!

So, guys, everything is turning to motion everywhere - in the US, Middle East, Europe. This is the time period when it would be better to just watch, as events flow just could wash us out. Speaking particularly about gold market and our recent report where we scrutinized recent Fed statement, it seems that Fed has made a decision to save the rest of the US Production Industry via destruction of Bretton-Wood system. Now it seems that the pivot level stands around 4.75-5.0% level because the US economy can't hold greater burden.

Taking in consideration the growing demand by Central Banks for the gold and huge derivative market manipulation of gold prices to keep them low (recall our July Gold report), it is not surprise that gold can't show all its power. But massive devaluation of the US Dollar put derivative players in very difficult situation as they will have to deliver gold that they actually do not have, or massively liquidate existed short positions. COMEX could explode. This is the reason why we recommend to buy physical gold now - small bullions 5-100 grammes or coins.
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Thus, it is not just provided liquidity stands behind the "pre-election rally", but also investors' fear that Fed could lose control. This is just a theory by far, but we should get more signs on November-January. First is, when we get new CPI numbers afer rate change in November and December. Second - we will not elections result. This should shape the new reality and new role of gold should become more clear.
 

Sive Morten

Special Consultant to the FPA
Messages
16,929
Technicals
Monthly

So Friday performance was rather strong and it even could be seen on monthly chart. November is just started and stands by far as inside month, but everything could change very soon. Anyway, appearing of monthly reversal bar could be an important signal.

Meantime market is just trying to climb above K-area and YPS1 area and MACD trend still stands bearish by far. Gold probably remains under pressure in nearest 2-3 months as the degree of entropy should increase. But, despite downside action price feels absolutely comfortable around 1600-1650 support area. Pay attention that this is just 3/8 retracement on monthly scale.

Based on our fundamental view, gold has more chances to stay around 1600 rather than keep going to next strong support area of 1400-1420, but it would be naive to promise something now.

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Weekly

Trend has turned bullish here and market forms bullish reversal bar, that actually catches previous two weeks' range. Bottom performance also looks interesting. We have a kind of tweezer triple bottom. Usually it suggests existence of strong support or demand. At the same time, gold market is very cunning, and very rare leaves stop orders in similar situation. These obvious lows are sensitive to wash&rinse action, and OP target that we have still could be reached, as we have big events ahead.
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Daily

Obviously daily chart has bullish context, but it is coming to bearish "Stretch" pattern, which, in turn, suggests the pullback. Market stands near Overbought and Fib resistance level. Those of you, guys, who have bought on intraday 5/8 resistance breakout on Friday - are a "yay team". But for others, now it is not best time to take a new long position:
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Intraday

In short term perspective we definitely could try to use an upside impulse and to ride on it, but by taking a look at a bit longer picture we see that it is more needed to be done. Take a look, that triangle that we have, has been broken up, but market is still just yet coming to resistance line, and has not formed yet bullish reversal swing, existing tendency of LH-LL is still valid. The trend line agrees with daily resistance level. So, despite the strength, we have good chances to get better entry price, as odds suggest the pullback:
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On 1H chart we have a kind of Double bottom shape and the neckline has been broken already. Gold probably will climb slightly higher to reach daily resistance level, then pullback could start. It would be perfect if price holds above nearest level and just re-test the neckline. Also we have perfect thrust, so we could watch for DiNapoli patterns as well:
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Venelin

Master Sergeant
Messages
415
Turkey, Qatar, Uzbekistan reportedly bought tons of gold. So Iran and Saudi Arabia conflict on the horizon?
 

Sive Morten

Special Consultant to the FPA
Messages
16,929
Turkey, Qatar, Uzbekistan reportedly bought tons of gold. So Iran and Saudi Arabia conflict on the horizon?
Hm, Iran vs SA is a tricky topic. The unrest in Iran has been organized by UK and Israel (by some articles that I've read), SA was framed, as usual. Because west is concerned as demarche from SA and Qatar of energy supply as rising China and Russia domination in the region. Besides, Gulf countries are coming closer to become an allies, finding compromises on many hot topics.

So, Venelin, I do not know. I still hope that Iran understands what is behind. If not, then you probably right, conflict is possible. Besides, have you seen Economist cover on Qatar FIFA 2022?

I can't find it right now (if I find it - I place it here), but the major idea was - Qatar is bad because it uses slaves' to build infrastructure for World Cup, so we should think about to boycott it. That has happened right after J. Biden visit to SA and Qatar refusing to increase LNG supply to replace Russia.

Thus, everything is possible.
 

Sive Morten

Special Consultant to the FPA
Messages
16,929
Greetings everybody,

So, Gold also shows more bullish signs, as EUR. On Daily chart we do not see any activity, which is logical before elections, so, recent session indicates that market is just waiting:
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Still on intraday charts, performance looks bullish. Although we do not have major upside breakout that we've discussed:
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1H chart has two moments that point it could happen. First is obvious bullish dynamic pressure. MACD is bearish while price action is not. Second- the shape of the price action. It is slow and looks like flag pattern, which is forming near resistance area. Usually tight consolidation near resistance suggests attempt of breakout. And 1656, 1667 levels could be used to play this combination.

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Sive Morten

Special Consultant to the FPA
Messages
16,929
Greetings everybody,

So, Gold has shown outstanding performance recently, but for the truth sake, BTC collapse has become a catalysts of this action, as there was an attempt of hostile takeover, I will share with you in telegram with this.

Meantime, Gold hits overbought area. Nearest target is 1730. This is intraday extensions and weekly K-resistance area. Despite the overbought, market could try to hit it. In general daily chart has big potential. First is, we could get larger Double Bottom, second - we could get big H&S pattern which has the relation to monthly time frame and could become the sign of reversal that we're waiting for.
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On 4H chart market completes first conditions - it has broken downside channel, although reversal swing yet to be formed. Here we also see the target of minor double bottom - 1732 area:
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On 1H chart we have steep AB-CD with the same 1731 target. Since market is at overbought, it makes sense to wait for the pullback. 1685 K-area looks nice, but nearest support of 1700 area looks more realistic in current situation. For the bears we do not see anything to do by far.
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Sive Morten

Special Consultant to the FPA
Messages
16,929
Greetings everybody,

So, Gold performs according to our yesterday's plan and I do not see something to change by far. Minor pullback that we've discussed is started. We still keep the same upside target of 1730-1732, which is weekly K-resistance area and few intraday extension targets:

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On intraday charts gold confirms our expectations of small pullback. Here on, 4H chart some consolidation, a kind of flag, is forming, which has a bullish feature.
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On 1H chart market accurately repeats the same flag pattern, showing pullback to 1697 nearest level. Let's see what will happen on CPI report, but for now gold keeps bullish context and behaves according to our expectations. So, we do not see any reasons to change the plan.

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