Gold GOLD PRO WEEKLY, November 08 - 12, 2021

Sive Morten

Special Consultant to the FPA
Messages
15,289
Fundamentals

Things that we've discussed yesterday, in our FX report have even more importance for the gold market as it stands in tighter relation to the interest rates, especially real ones. We've come to conclusion that nearest 3-6 months with high degree should be positive to the gold as all Central Banks push the reverse pedal on interest rates change, making investors to hold their "tightening horses" and promising to follow soft and gentle approach on this subject. The only risk that we see with this approach if inflation will be out of control and not follow the idea of to be "temporal". But even with this case, mismatch needs time to become evident, and anyway it should give markets 3-5 months of freedom.
Besides Fed probably will stretch time with rate change to the most vital moment when it is impossible to ignore mentioned "mismatch". Because they believe that inflation is temporal and should start decreasing soon. Another major concern that they have is employment. It still has 5Mln gap to pre-pandemic level. And their primary task is to minimize this gap. That's why they should try to hold interest rates low as long as possible, using just gentle methods, such as gradual tapering. Despite the announcement - the Fed balance will increase for another $400 Bln. until the QE will be closed. The same approach is supported by other Central Banks. By our view such policy lets gold to get more freedom in performance, especially if interest rates loose the direction and become wobble. The drop of real interest rates back to zero could become additional bullish driver for the Gold market.

Market overview

Gold prices jumped 1% on Thursday after the Federal Reserve indicated it would be patient on raising interest rates and as the Bank of England defied expectations of more hawkish policy. The Fed said it would start trimming its monthly bond purchases in November with plans to end them in 2022, and held to its belief that high inflation would prove “transitory” and likely not require a fast rise in interest rates.

Following that, the Bank of England kept interest rates on hold on Thursday, dashing expectations for a hike that would have made it the first of the world’s big central banks to raise rates after the pandemic.

Data on Wednesday showed U.S. private payrolls increased more than expected in October, while U.S. services industry activity surged to a record high last month. Share markets firmed on Thursday after the U.S. Federal Reserve engineered an orderly start to unwinding its massive stimulus programme.

“Gold is trying to recover some of yesterday’s losses and the market is taking some comfort from the fact that there was no strong signal with regards to future rate hikes from the Fed,” Saxo Bank analyst Ole Hansen said. There was some nervousness ahead of ahead of the Bank of England announcement ... but since there was no change (in rates) that may have added additional bids to the market,” Hansen said.

Ultra-loose U.S. monetary policy has helped drive gold sharply higher since the financial crisis of the late 2000s, with low interest rates cutting the opportunity cost of holding non-yielding assets and inflation fears stoking demand for a hedge.

Reduced stimulus and interest rate hikes tend to push government bond yields up, raising the opportunity cost of gold, which pays no interest.

Independent analyst Ross Norman said strong physical demand for gold was supporting market, as India’s Diwali festival generally boosts sales of the precious metal.
Physical gold demand in India, the world’s second largest consumer, jumped this week as buyers took advantage of a slight dip in prices and bought the precious metal during the festival season.

“Retail demand during Dhanteras and Diwali was 25% more than the pre-pandemic level of 2019,” said Amit Modak, chief executive officer at jeweller PN Gadgil and Sons, adding that consumers were mainly buying jewellery.

Dhanteras, one of the busiest buying days in India, is when demand peaks as buying gold is considered auspicious. The festival saw retailers dole out a wide array of offers to attract buyers. The December quarter usually accounts for about a third of India’s gold sales as it includes the start of the wedding season, as well as festivals like Dussehra and Diwali.

“We saw some interest from the Indian market (during Diwali) to buy gold, but it was very lacklustre compared to previous years within Singapore,” said David Mitchell, the managing director at Indigo Precious Metals. Meanwhile, premiums in China edged up to $3-$6 an ounce from last week’s $2-$3 an ounce, charged over global benchmark spot prices, with demand expected to pick up in December-January ahead of the Chinese New Year, traders said.

The Fed indicated that they are probably not going to mess with interest rates, and that is bullish for metals, said Bob Haberkorn, senior market strategist at RJO Futures. The Bank of England leaving rates unchanged overnight shows central banks right now don’t have an appetite for higher rates,” Haberkorn said, adding that gold could by Friday go “north of $1,800 just based on sentiment and the technicals.”

Gold rose more than 1% on Friday to a near two-month high as major central banks’ dovish tone on interest rates this week lifted the demand for the safe-haven metal.

The limited reaction to the data shows “despite the strong labor market report, it is not going to change what Federal Reserve Chair Jerome Powell signalled this week,” said Edward Moya, senior market analyst at brokerage OANDA.

Near-zero interest rates to spur economic growth during the COVID-19 pandemic have propelled gold prices to new highs over the last two years, as easy monetary policy cuts the opportunity cost of holding non-yielding assets.

This week, the central bank announcements helped gold reverse from early losses to be on course for its best weekly gain since late August of about 1.8%.

“Gold bulls seem to be drawing strength from the Fed’s unhurried stance on raising interest rates,” said FXTM analyst Lukman Otunuga, adding that subdued treasury yields were also underpinning the gains.

Yields on the U.S. 10-year treasury notes slipped to their lowest level in about a month.

After a daylong standoff, Democrats set aside divisions between progressives and centrists to pass a $1 trillion package of highway, broadband and other infrastructure improvement, sending it on to President Joe Biden to sign into law. The 228-to-206 vote late on Friday is a substantial triumph for Biden's Democrats, who have bickered for months over the ambitious spending bills that make up the bulk of his domestic agenda.

Biden's administration will now oversee the biggest upgrade of America's roads, railways and other transportation infrastructure in a generation, which he has promised will create jobs and boost U.S. competitiveness. Democrats still have much work to do on the second pillar of Biden's domestic program: a sweeping expansion of the social safety net and programs to fight climate change. At a price tag of $1.75 trillion, that package would be the biggest expansion of the U.S. safety net since the 1960s, but the party has struggled to unite behind it.

"Welcome to my world. This is the Democratic Party," House Speaker Nancy Pelosi told reporters earlier in the day. "We are not a lockstep party."

The $1.75 trillion bill cleared a procedural hurdle by a vote of 221 to 213 early on Saturday, which will enable Democratic leaders to quickly schedule a final vote when the time comes. The standoff came just days after Democrats suffered losses in closely watched state elections, raising concerns that they may lose control of Congress next year.

COT Report


In short term net position lightly has changed since last week's boost. This week speculators have closed positions in both directions and almost with equal amount of ~4K contracts.

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Nevertheless, open interest remains the same, that probably could be treated as positive sign for the gold. Besides, data doesn't include yet results of Fed meeting and adoption of $1Trln infrastructure pack that should get the echo on next week COT report. As a result net long position mostly remains the same as last week:

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SPDR Fund performance also shows no change by far as reserves are going lower.
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Precious metals funds faced a sixth weekly outflow of $606 million. Gold-backed ETFs (gold ETFs) experienced net outflows of 25.5 tonnes (t) (-US$1.4bn, -0.7% AUM) in October. Outflows of near equal magnitude from Europe and North America were marginally offset by inflows in Asia. Global gold ETF holdings fell to 3,567t (US$203bn) during the month2 – notching year-to-date low levels – as investor appetite for gold diminished in the ETF space following price declines in August and September.
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In general, gold demand (excluding OTC) fell 7% y-o-y to 831t in Q3. This drop was almost exclusively driven by ETFs – which swung from very large inflows in Q3 2020 to modest outflows this year – overshadowing strength in other sectors of demand during the quarter. Jewellery, technology and bar and coin were significantly higher than in 2020. Modest central bank purchases were a solid improvement on the small net sale from Q3’20. Supply was down 3% y-o-y due to a significant drop in recycling.

Jewelry continued to draw strength from the ongoing global economic recovery: Q3 demand rebounded 33% y-o-y to 443t.
Bar and coin investment increased 18% y-o-y to 262t. The sharp August gold price dip was used by many as a buying opportunity.
Small outflows from global gold ETFs (-27t) had a disproportionate impact on the y-o-y change in gold demand, given the hefty Q3’20 inflows of 274t.
Central banks continued to buy gold, albeit at a slower pace than in recent quarters. Global reserves grew by 69t in Q3, and almost 400 ytd.
Technology gold demand grew 9%
y-o-y, driven by continued recovery in electronics. Demand of 84t is back in line with pre-pandemic quarterly averages.

So, last week we were gambling on investors' decision to boost gold positions on long side. Definitely market society was preparing to some important shifts, at least in short term, but it was difficult to identify the reason. We can't say that it was Fed decision because it was widely expected and, if you take a look at Wed performance you see nothing significant. It means that not the Fed was the reason. Hence, it seems that market mostly was waiting approvement of $1 Trln. infrastructure pack. Surprisingly BoE pushes the back pedal and keeps rates unchanged, which has provided the new big stimulus to the gold as decision drastically has changed the global Central Banks policy. This has made so big resonance because BoE was closer to the rate change as nobody else. This just affirms markets with gentle global interest rates policy that should last at least within few months, as RBA, ECB, Fed now have no intention to change rates until mid 2022. BoE and BoC could hike, but this with high certainty becomes a one-step measure, not a cycle.
Combination of these factors gives gold room to breath. At the same time, investors are very careful on judgment of current changes. We do not see any new long term forecasts as market still needs to re-assess the new information. The same reason shows no dynamic by far in ETF reserves. But the changes should come, at least for market's perspective of nearest 3-5 months. Fed clearly lets to know that it intends to stretch time as long as possible to give employment chance to reach pre-pandemic levels. As we said in our FX report yesterday -

Try to stand on Fed's place, what would you do, if you need the rising of employment to pre pandemic levels, but inflation occasionally jumps too strong, while you also see that it might be temporal but do not know where particular it starts to decrease again? The most logical decision is to wait and stretch the time with adoption of very gentle measures, such as tapering.
The reverse side of this coin is Fed sensitivity and market nervousness around any inflation report. Fed will pray to inflation remains at current levels or starts dropping, which is even better. If it keep rising - things will turn bad and this is the primary risk that we see currently. Now the inflation is a cornerstone of fiscal policy and markets performance across the Globe. Still, as we've said in the beginning - until Fed understands that they are wrong with treating inflation as temporal, some time will pass. Our view that Fed starts nervous if inflation will not start dropping by the end of 1Q of 2022. In this case radical changes could come and this period probably becomes the one of big achievements and big looses.
We're not pretending on Gold's long-term rally and do not point that the big bullish spiral stands ahead. But, as interest rates should remain depressed at least until the end of 1Q of 2022, we think that gold should get easy time and it should have more chances for bullish performance. Besides, Oct-Feb is seasonally bullish period for market as well.


Technicals
Monthly


The only achievement for November now is the new top as price is out of October's range. Gold also now stands above YPP but it is too early to treat it as a hard fact. As we've said previously, although 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. 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.

In a shorter-term everything is based on August huge trading range. Three equal tops month by month around 1835 suggest that somewhere around it big selling orders hold gold from further upward action. So, market is next achievement could be the breakout of 1835 area.

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Weekly

On a weekly time frame we also have bullish performance. It is a question still how durable it will be, but right now it looks like we could try to use it. Trend has turned bullish and market has formed bullish reversal week. It suggests that market should try to challenge triangle resistance and tops around 1835-1845$ area. In a case of success the next target is 1920$ top and major Fib resistance area.
Here we have few upside extensions. The major one is OP that makes an Agreement with 1922 Fib level (red). While nearest one (blue) OP stands around 1868$.

gold_w_08_11_21.png


Daily

So, daily trend has turned bullish, and for the short-term perspective recent impulse has the decisive meaning. "C" point lows probably are vital now. If market keeps bullish sentiment, price should proceed to the OP target, breaking the triangle and tending to 1850$ OP target. While nearest destination point is 1830 resistance.
As we have no context to go short, we could consider long entry at some intraday support area against "C" point lows.

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Intraday

It seems that the H&S shape that we've discussed on Friday is formed. The OP target is not completed yet, while XOP agrees with the daily 1850$ destination point. Anyway, next week we intend to keep an eye on minor pullback. It would be preferable if retracement stops around 1797 K-area or even 1805 support. It is unwelcome drop to 1781$ as it breaks H&S shape, but it is still not vital yet and doesn't mean that bullish context is totally broken.

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Sive Morten

Special Consultant to the FPA
Messages
15,289
Greetings everybody,

We've talked a lot about changes in fundamental background and first market reaction on it. Daily chart has bullish context and nice upward momentum. Nearest target that we have here stands around 1850$. Intraday target that we've discussed in weekend now is completed, and price is approaching to most tricky level that includes Fib resistance, weekly triangle border and tweezers tops that are better seen on monthly chart - approx. 1835 area where three times sellers stepped in and pushed price down. Market vitally needs to break this area to keep bullish context and moving to next upside targets:
gold_d_09_11_21.png


On 4H chart market hits OP target of our minor H&S pattern. Next, XOP target agrees with the daily OP at 1850... Overall price action is fast, which suggests upward continuation later. But existence of strong resistance area should trigger downside retracement that we could use for potential long entry. From that standpoint there are two levels to consider - 1811 and 1800:
gold_4h_09_11_21.png


It is difficult to say what particular pattern we get on top, but now it seems that it might be H&S. Once it will played out, we consider support areas for entry:

gold_1h_09_11_21.png
 

Sive Morten

Special Consultant to the FPA
Messages
15,289
Morning everybody,

So, gold has reached 1833 tricky area where we already see market makers tricks. Interest rates also hits support and completed OP target, which is also stands in favor of technical pullback out from resistance area by Gold:

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The trick stands with 1833 level, which is like tweezers top, tells that sellers were stepping in there so strong, that haven't let bulls to fluctuate around this level. Every time, when gold hits this area - downside collapse was solid. That's why it is juicy area for m-makers as they see stops above it. This explains why market barely respected OP target and keep going higher. Don't surprise with it. It doesn't mean yet that gold is preparing for direct upside breakout. This is just a stops hunting process by far:
gold_4h_10_11_21.png


We suggest that retracement still should happen and we still keep watching for K-support area for long entry around 1800-1805. But before it starts, we could get W&R of 1830-1835 area...

On 1H chart market has not confirmed our suggestion of H&S pattern, so, to take the short position, bears have to wait for something else, maybe for W&R of 1833. Right now price action takes some flag shape.
gold_1h_10_11_21.png


Finally, if you still would like to bet on direct upside breakout and you have fast reaction - you could try to use Stop "Buy" order around 1832. But W&R could catch you on a wrong way. This is tricky setup.
 

Sive Morten

Special Consultant to the FPA
Messages
15,289
Greetings everybody,

So, those who have taken more risk recently and used Stop 'Buy" order, betting on upside breakout are rewarded the most. Anyway, those, who follows more conservative approach should not upset too much as well.
Everything that we've said about inflation importance in our FX weekly report and Gold report is coming to reality even faster than we thought. By this recent report, we see the dominance of inflation and its major role as a driving factor for the market. That's because Fed is too dependent from it now.

On daily chart CPI has pushed gold to major OP and Obought area. Next target is previous 1916 top. Momentum seems strong enough to let gold keep going higher within few days or maybe weeks. Still, current combination suggest retracement:
gold_d_11_11_21.png


From the technical point of view, it is important to keep recent upside rally range. As 1833 area was very important to gold - very probable that it could try to re-test it before upward continuation:
gold_4h_11_11_21.png


Currently it is unclear what particular pattern could be formed on top. Right now we suggest that it might be gradual AB-CD, that brings "222" Buy later. Grabber could bring more confidence to this scenario. Whatever it will be - now it makes sense to wait when gold will be out of Obought area:
gold_1h_11_11_21.png
 

Sive Morten

Special Consultant to the FPA
Messages
15,289
Greetings everybody,

Market is coiling around reached OP target. As market stands at Obought area as well, gold has difficulties with immediate upward continuation. Although we do not see the signs yet but odds suggest, that minor pullback, at least could happen. Recent thrust up looks nice, so maybe we could get DiNapoli patterns on daily or 4H chart. Still, with such an acceleration, odds stand in favor of upward continuation after retracement.

gold_d_12_11_21.png


On 4H chart thrust looks nice, so bounce to 1825-1830 area could provide good chance for long entry, as it will be a kind of B&B "Buy" trade.
gold_4h_12_11_21.png


On 1H chart the "222" pattern that we've discussed yesterday has not been formed. Now we do not have any signs of bearish reversal here as market is forming the triangle, which potentially a continuation pattern. It means that gold could try to go higher right from it, or, at least another pattern will be formed, but with preliminary upward breakout.
gold_1h_12_11_21.png


Thus, we do not consider any short positions by far. For long entry you could consider triangle, or wait for pullback to predefined area. The most simple way is to combine the both - take minor position inside the triangle with stops below 1825$. In a case of retracement - take the bulk of position with 4H B&B trade with the same stop.
 
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