Gold GOLD PRO WEEKLY, November 13 - 17, 2023

Sive Morten

Special Consultant to the FPA
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Fundamentals

So, yesterday we've considered recent J. Powell statement and situation in the US economy, showing that no real growth exists there. Also pointed that interest rates could get other reasons to keep climbing, despite the Fed rate decisions, just recall recent 30-year Bonds auction, showing weak demand and pushing yields higher. Today we take a look at some macroeconomic issues and try to find out how it relates to the gold.

Market overview

Gold prices retreated as investors looked for fresh cues on the U.S. central bank's interest rate stance, while palladium hit a five-year low. A slew of Federal Reserve officials on Tuesday maintained a balanced tone on the central bank's next decision, but noted they would focus on more economic data and impact of higher long-term bond yields.

"Traders will start looking at economic data and potential actions from the U.S. central bank. Gold will react based on whatever the data is showing," said Daniel Ghali, commodity strategist at TD Securities. It is hard to see a catalyst for further upside in gold without a notable deterioration in the data."

"The risk premium gold gained from the Israel-Hamas war is eroding. If you see an escalation in the conflict, then gold can get some momentum behind it," said Phillip Streible, chief market strategist at Blue Line Futures in Chicago.

World auditors suggest that China is buying gold as before a war or a global collapse of currencies. Military Time experts, studying the global market in conditions of financial and political turbulence, revealed an interesting fact. China (already in the top 3 buyers of gold) has intensified the purchase of the precious metal - it is being “feverishly” (and even on the verge of the price threshold) bought by private companies hired by Beijing, not disdaining semi-legal sellers. At the same time, China does not leave gold in storage in third countries, but exports it as much as possible within itself.

“China is buying up “gold, gold, gold,” as if it has decided to scoop up the “golden ocean,” Swiss auditors share with MT, adding, “often representatives (of China) take out loans against gold, with such collateral everyone gives them. And with this money they buy gold again"

According to investigators, the PRC probably has about 30,000 tons of gold - however, it does not show it in its gold and foreign exchange reserves, but holds state gold in the ownership and management of commercial structures. As expected, experts suggest:
  • Either Beijing knows (or maybe they have agreed within the framework of the SCO, BRICS+, etc.) about the imminent collapse of the world’s leading currencies or the reformatting of the planet’s foreign exchange market;
  • Or China is preparing “for a forceful solution to the Taiwan issue and the most severe sanctions for it in the history of the Earth.”
  • Either the PRC is expecting a major regional war or several major wars, during which gold is a universal means of payment and the most solid market guarantees.
Russia is also “turning over” into gold - however, in an incomparably smaller volume.

By official data, China topped up its gold holdings for a 12th straight month in October, adding to a wave of purchases by global central banks that’s lent support to bullion prices. Stockpiles of gold reported by the People’s Bank of China rose by about 740,000 troy ounces in October, according to official data released Tuesday. That’s equivalent to about 23 tons, and takes total holdings to 2,215 tons.
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China’s government has been among the biggest stockpilers of gold in the past year as nations from Poland to Singapore diversify their financial reserves by adding the precious metal. Central-bank purchases rebounded in the third quarter to the highest amount this year, according to the World Gold Council. China has been a bright spot for overall gold demand in in 2023, and domestic prices were trading at record levels last week. Investment demand for gold will remain robust through the end of this year, the World Gold Council said.

The Fed rhetoric has changed this week. Treasury yields surged, while stocks finished lower as Jerome Powell threw cold water on Wall Street’s dovish wagers. Powell said officials won’t hesitate to tighten if needed. While that’s essentially what several Fed speakers have been signaling, it’s the part that drew investors attention, especially after a rally in equities and bonds. A weak sale of 30-year notes also weighed on sentiment, raising concern about the market’s ability to absorb new debt. Powell’s comments also made traders price in slightly higher odds of an additional Fed hike, while paring bets on a rate cut happening before July.

“Powell’s comments coupled with a disappointing auction is a logical excuse for the market to begin consolidating gains,” said Quincy Krosby, chief global strategist at LPL Financial. “Markets have had a strong move, but have edged closer to overbought levels.”

Markets were jittery as Powell warned investors not to be misled by the “head fakes” of a few good months of data, said Jeffrey Roach at LPL Financial.
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Powell was not alone with more hawkish statements. Mary Daly the voting Fed member, Head of FRB San Francisco) said that she is not sure that the rate is at a high enough level to bring inflation back to the target. It is too early to say the tightening cycle has ended.

Michelle Bowman on 07th of November said - I remain prepared to support a rate hike at the upcoming meeting if the macro data suggests that progress against inflation has stalled or is insufficient to cut to 2% in a timely manner.
As we've said, there are more factors of possible yields increasing than just the Fed rate. Coming risk of another Government shutdown and anticipated hot debates concerning budget also could play negative role in the US yields performance.

Meantime, the disengagement of financial markets, that we've mentioned few weeks ago, between West and China continues. Not only did foreign direct investment in China fall to negative levels in the third quarter. 2023, China's outward direct investment also grew, resulting in the largest net outflow of direct investment in history. Money now does not come, but leaves China. Soon institutionalists will start talking about how flawed Chinese institutions have led to capital flight. Until recently, within recent 40 years, somehow they haven't led but now they took it and led...
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Statistics from Goldman Sachs tells that over the past 120 years, 98% of countries whose public debt to GDP reached 130% defaulted. The US national debt reached 123% of GDP in September 2023, and according to IMF forecasts it will exceed 130% in 2026. The United States has defaulted on its obligations 4 times, the last time in 1971. If the US goes into default again, creditors will likely just have to swallow it. Because when a borrower owes $1 million, that's the borrower's problem. And when the borrower owes $30 trillion, that's the lender's problem.

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The missing 7% of GDP is approximately $1.8 trillion. We must get things done by the elections. Or, to the edge by the 1st quarter of 2025. But still, the issue of default is still not very relevant. If only by political reasons. In other words, the United States is one of those 2% exceptions. Like Italy and Japan.

MACROECONOMICS

It is not necessary to take big view very often, but sometimes it is useful. As Pieter Schiff said concerning recent CPI data:

“The main reason for the slowdown in CPI inflation from 9% to 3% YoY was the strong rally in the dollar. Now that the dollar is ready to give up its positions, CPI will rise again to 9%. Rate increases will be another cost item that businesses will pass on to consumers. "

What primarily saves us from inflation is the strong strengthening of the dollar exchange rate, but it cannot continue indefinitely. But business interest payments will now increase and they will not only translate this into prices, but also pay less in taxes due to the declining rate of profit. This means that the American government will have even less free money. This trend of declining federal government revenues has been very visible over the past six months.

Regarding the prospects for risky assets and raw materials in general in 2024. The US have essentially followed the path of that same Reagonomics (Biden changed this brand for good reason) and are insanely increasing their debt load. Temporary, this supports demand, the economy and businesses. But the cost of maintaining this very debt very quickly increases, which means that very soon you will have to save.

They have already officially started talking about “fiscal dominance”. In essence, this is an announcement that Powell is already on his side of inflation. He hasn’t met his KPI (Key Performance Indicator of 2% inflation) for 3 years already. He doesn't care about it and will save the pyramid of debt. And bailing it out means more unsecured dollars in the system and negative real yields on debt instruments. More dollars means higher prices for goods, while preserving capital will be problematic.
Therefore, in 2024, an increase in prices for risk and raw materials seems inevitable. It’s not for nothing that Bitcoin is already set to fly to $100k.

First a bit of history. Public Law 93-373 was supposed to be so boring that Congress didn’t even bother to give it a name. You know how most laws passed by Congress have some fancy name– like the “Inflation Reduction Act” or the “USA PATRIOT Act” or some such nonsense?

Well, on November 7, 1973, US Senator James Fulbright introduced a very short bill– it was only ONE page– that didn’t even have a name. But Fulbright’s unnamed bill ended up being one of the most important pieces of legislation in US history. By the time Fulbright introduced his bill, it had been two years since the legendary “Nixon Shock” of 1971. That was when US President Richard Nixon implemented wage and price controls, and canceled the US dollar’s convertibility into gold.

Nixon famously promised the American public that there wouldn’t be any negative consequences from his actions. Yet inflation hit 3% the following year, in 1972. Then 4.7% in 1973. Then 11.2% in 1974. Simultaneously, gold prices around the world were surging… from $35/ounce before the Nixon Shock, to more than $170 in 1974.

But individual Americans weren’t allowed to benefit from those gains thanks to a forty year old executive order that had been signed in 1933 by then President Franklin Roosevelt. Roosevelt’s Executive Order 6102 criminalized the private ownership of more than $100 worth of gold in the United States. Roosevelt also gave Americans just 25 days to turn over their gold to the Federal Reserve… or else face up to ten years in prison. Naturally, plenty of Americans were outraged, and a number of lawsuits were filed claiming that Roosevelt’s order was unconstitutional.

Roosevelt was rightfully worried that the Supreme Court would overturn his order. And at a certain point he considered packing the court, i.e. appointing several sympathetic judges to the Supreme Court to ensure his victory. He also considered issuing another order which would make it illegal to sue the federal government.

Fortunately for Roosevelt, however, he didn’t have to implement any of those actions; the Supreme Court very narrowly ruled in his favor, and his Executive Order stood as law of the land for four decades… until Senator Fulbright’s no-name law was finally passed on August 14, 1974. It went into effect the following year, and Americans were suddenly free once again to exchange their rapidly-depreciating US dollars for gold.

Unsurprisingly, gold prices started rising dramatically in the second half of the decade… from about $180 in 1975, to a whopping $850 in January 1980. And the declining dollar was just one reason for gold’s popularity; remember, the United States suffered a deluge of troubles during the 1970s and early 1980s. The world found out that the US President was a criminal during the Watergate scandal of 1974. Then there was the humiliating US withdrawal from Vietnam in 1975, complete with a helicopter evacuation of the American embassy in Saigon. Iran seized 52 US citizens in 1979 and held them hostage for more than a year. Inflation raged, peaking at 13.6%. The economy stagnated and fell into recession. Troubles in the Middle East (including conflict with Israel) led to energy shortages and rising fuel prices. ((Does it remind you something guys - Afghanistan, J. Biden probes, Israel conflict now...)

Civil unrest and ‘mostly peaceful’ protests were a constant problem in the 70s and 80s. Meanwhile, criminals rampaged across American cities, and the murder rate soared. Major cities like New York, LA, and Chicago became synonymous with violent crime. The world stopped making sense. And gold became a safe haven from that chaos.

There’s an old saying (originally a Danish proverb) suggesting that if history doesn’t repeat, it certainly rhymes. it’s obvious that we’re facing many of the same challenges today. There are major problems in the Middle East. Energy is becoming scarce (especially in Europe). The US military suffered a humiliating withdrawal from Afghanistan. Civil unrest and crime rates are totally unacceptable. Inflation continues to rage. And the President, a.k.a. “the Big Guy” appears suspicious A.F.

Just like in the 1970s, gold represents a safe haven from this chaos. And even though it’s hovering at a near-record around $2,000, There is still a long way for gold to rise. The US national debt is now $33.7 trillion; that’s up more than HALF A TRILLION just in the month of October.

The people in charge have absolutely zero fiscal restraint. Zero responsibility. Zero sense of how destructive their actions are. They spend money and go deeper into debt as if there will never be any consequences, ever, until the end of time. They’re disgustingly ignorant, and dangerous. The truth is that there are serious consequences to all of this debt. And we don’t have to guess what they are.

The Congressional Budget Office is already projecting that, by 2031, the US government will spend 100% of its tax revenue just on mandatory entitlements (like Social Security) and interest on the debt. This means that, after 2031, the funding for literally everything else in government– from the US military to the light bill at the White House– will have to be funded by more debt. That’s only 7 years away.

Then, two years later in 2033, Social Security’s primary trust fund will run out of money; this will cost the government an additional $1 trillion in additional spending each year to keep the program running. Naturally they’ll have to borrow that money too. Eventually the national debt will become so large that simply paying interest each year will consume more than 100% of tax revenue.

The Federal Reserve will most likely attempt to bail out government by creating trillions upon trillions of dollars. But just as we saw over the past few years, such actions will most likely result in much higher inflation. Disgusted with their financial circumstance, voters across America will likely turn to Socialist politicians who blame all the problems on the evils of capitalism, rather than their own incompetence. And with a majority of leftists running the country, they’ll only make things worse.

Supposedly it could be more conflict in the world, thanks in large part to the continued decline of America’s stature and reputation for strength. It’s also quite likely that the US dollar could lose its royal status as the world’s dominant reserve currency by the end of the decade. It is not necessary that the dollar will simply vanish from global trade. But it won’t be “King” dollar anymore. Perhaps more like “Earl” or “Viscount” dollar, alongside other currencies and exchange mechanisms– including gold.

In fact we could easily see central banks around the world ditching their US dollars and loading up on gold as part of a new, de-dollarized global financial system.
This could potentially trigger trillions of dollars worth of capital inflows into the gold market, causing a surge in gold prices. And these are just some of the reasons why gold could still have a long, long way to rise from here.

This is big picture and not the forecast for the next month, of course or maybe not even for the next year. This is just based on trends that will likely continue to unfold over the next decade. In an upside down world where there are such obvious long-term threats to the US dollar, it makes sense to look for real stores of value. And that’s why $2,000 gold could just be the beginning of a much bigger story.

This is great story from Simon Black, the Founder of Sovereign Man. It is great article, but it is necessary to explain few things, how it relates to Macroeconomics and potential gold price. To begin with, We should introduce the term “failure to fulfill obligations.” One could say “default,” but this word is more likely associated with non-fulfillment of credit obligations, and non-fulfillment of obligations may have, let’s say, a non-credit nature.

When Nixon ended the gold standard, it was precisely a default. They essentially said, "We will not fulfill our obligation to exchange dollars for gold." Instead, another dollar backing system was proposed. Roughly speaking, it was looking like - "Yes, a dollar is a “green piece of paper that is not backed by anything,” but with that piece of paper you can buy X amount of goods today. If you invest your dollars in risk-free instruments (treasuries), then in 10 years you will be able, taking into account the interest received, to buy the same amount of X goods." This is vital statement guys. The Global status of "reserve" currency suggests rate above inflation and preserving of purchasing power of this currency. Until the US Dollar keeps it - everything is OK.

The mechanism that ensured this was called, so to speak, inflation targeting. That is, the rate had to be guaranteed to be higher than inflation, which was the responsibility of the Fed. And, in general, they have been coping with these responsibilities for 40+ years.

It is clear that all this was superimposed on cooperation with China on consumer goods and with the Arab States on oil in particular (goods in exchange for a currency in which value can be stored) and globalization in general, which, in principle, made it possible to keep inflation at a low level, but this is, in fact, just details.

The problem is that we have now come close to the point where the new commitment may not be fulfilled. The Fed will no longer be able to target inflation as a consequence of the recession and the subsequent financial crisis and will be forced to lower the rate and begin buying assets from the market. More precisely, the Fed could target inflation further, but only at the cost of the collapse of the banking system and a large-scale decline in the real sector of the economy.

Although, as we see, the state apparatus is clearly against it and continues to keep the economy afloat due to a budget deficit of 8% of GDP. And it is not clear what in their approach can or should change. They created an inflationary wave and are still supporting it. Moreover, they will be the first to rush to save all the drowning people, handing out money left and right. Yes, perhaps not immediately, after all, whoever needs to pick up the fallen assets, but still they will do it.

Moreover, the whole world will ask them to lower the rate and to save banks and other actors, because at this moment they will be even worse off. The only consequence of such a rescue will be another surge in inflation at a low rate.

The bottom line is -
In general, another obligation will be violated and, of course, this will have consequences. Will investors rush into gold in this case? Almost certainly, and the growth will be multiple. The same as in raw materials/goods. But if we draw an analogy between gold in 1973, which was “authorized to buy,” then I would draw an analogy with the BTC and “authorized to buy” through an ETF. The truth is not for physicists, but for institutionalists. I'm sceptic on crypto assets and have more traditional view on assets valuation and its intrinsic value. But, I'm a realist, and don't deny blindly the tendencies in financial world, despite whether I like or dislike some financial assets. Although, of course, gold is a more obvious candidate for “protecting capital” from inflation.

Meantime, Cinderella still is waiting for the Prince but this bastard is not coming somehow...investors are waiting for the Fed's ceil and coming rate cut:

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To illustrate the history of the issue, take a look at this “beard of expectations.” This beard, dear friends, still needs to grow and grow. And very probable at least up to 9-10%, or even up to 14%:

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Technicals
Monthly

So, on monthly chart we have no reasons to doubt with bullish context. As trend as price behavior are positive. Market has formed huge bullish reversal month and engulfing pattern - I also call it as 2-bar grabber. Besides, in November we could get another one.

On a larger scale we also consider reverse H&S pattern on top with far going targets. Price stands above YPP, showing proper bullish reaction on its test last month. Current deep now looks like tactical pullback, that should be considered for long position taking on a big charts and for investing purposes into physical gold without any leverage.

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Weekly

Trend remains bullish. In fact, our whole trading process stands in relation to huge Morning star pattern. Now we're watching for retracement. To keep context valid market ultimately has to stay above 1810$ lows. But, for pure bullish context should try to hold above 1886 5/8 Level.

With the upside target we have few options. Big one is monthly COP around 2094$. Additionally it might be upside butterfly later and some smaller targets based on Morning star pattern directly, in a way of AB-CD on lower time frames.

For now our task is control Fib support areas and watch for bullish signs. Once we get it - we consider long entry:
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Daily

So, DRPO "Sell" works perfect by far, coming to our target of K-area and daily oversold around 1922-1933$ area. This is the first range where we start looking for bullish signs through the week.

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Intraday

On 4H chart trend remains bearish. Now we do not see yet any bullish signs, despite that gold briefly has touched 1933 level. For now we could imagine only one pattern here - reverse H&S with the head around 1930$. But this is only if price indeed will show sharp reversal. As DRPO usually gravitates to 50% support level, real situation change could start at lower levels... Let's keep watching.
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Friday's drop also looks like excellent thrust, so scalp traders could watch for DiNapoli patterns with it as well, either DRPO or B&B "Sell".
 
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Greetings everybody,

So, gold starts minor bounce up from daily K-support area. We've discussed this in weekend. Still, it doesn't tell us that this is precisely bullish reversal with major long-term trend. Now it seems that tactical bounce within downside daily tendency because of coming CPI and profit taking by short-term traders. Other words speaking - it is too early to possess ourselves with long-term bullish trend as we do not have any clear signs of reversal
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On 4H chart market shows bounce from trendline, forming upside reversal candle:
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On 1H chart you could see that major tendency of LL-LH is not broken yet. And by far we could consider 1961 resistance area, as nearest target of the retracement. Then - let's see what will happen. There we get either more bullish signs, if market keep going higher above 1966 top, or it will "222" Sell and chance to take the scalp short position, especially if CPI will be a bit above expectations...
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For now it is no clear signs that daily DRPO and downside action is over.
 
Greetings everybody,

So, on Gold market as on EUR price shows upside performance. Although we think that combination of deflation, unemployment and low retail sales is bad one, investors see only Fed pivot and can't think about anything else...

Now it is a big temptation to think that it might be the starting point of major upside trend. Maybe it is... but technically we do not have yet enough confirmation and need to see a bit more. Daily trend remains bearish by far:
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On 4H chart market stands in wide consolidation. Next upside target is 1980 last Fib level:
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On 1H chart we have two upside targets, enveloping Fib level. Thus, 1975-1985 is important area for Gold. Either we get upside trend continuation or two-leg AB-CD downside retracement. Hardly we get any effect from PPI, but Retail Sales could make some impact..
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Greetings everybody,

Many traders suggest that started upward action on gold is a continuation of major tendency, aiming on 2000+ area again. Indeed, by looking at long-term charts, picture stands positive. Still, on daily trend remains bearish by far, and formal chances on two leg downside retracement remain. Market stands in a 3rd session in the same range:
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Still, as we've said yesterday - as gold has targets above and coming to 1980 resistance area, it is relatively safe to make attempt on long entry, as we should get some time and space to move stops to breakeven. Today this theory gets more background - we've got bullish grabbers, suggesting upward continuation:
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Now, on 1H chart market hits our first 1.27 extension target and showing bounce. Taking "2+2" we could conclude that action to next 1.618 extension is very probable. Once this target will be reached, we consider market reaction and decide what to do next. (Here actually you could recognize H&S shape).
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The major result for now, is we get ability to keep long position relative safe, at least until 1980-1986 area.
 
Greetings everybody,

So, gold performs really well, and what I do like the most - without any surprises. Yesterday short-term bullish setup is done well. Market hits predefine level and now is overcoming it. Indeed, this might be continuation of major upside tendency... At least now gold has no barriers on the way to previous 2010 top - it is not at overbought and no Fib levels above:
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4H grabbers worked perfect, 1979 Fib level is broken, and now price is coming to the line of wide consolidation:
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On 1H chart local AB-CD target stands at 2K. If any downside reaction happens, we could consider long entry. Those who have longs since yesterday, probably it is possible to keep it. No shorts by far. As we've said in our fundamental report - gold appears to be in "win-win" situation. As fast inflation above Fed rate as coming recession and Fed's rate cut - both support gold in long-term.
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