Gold GOLD PRO WEEKLY, November 21 - 25, 2022

Sive Morten

Special Consultant to the FPA
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Fundamentals

This week we keep considering long term fundamental factors that, as we suggest, have decisive impact on possible Gold market performance in mid term perspective. These factors have indirect impact, mostly via US Dollar value and US banking system. At first glance it might be not quite clear how problems in the US banking system and its disbalances could impact on the gold price. But these disbalances very soon will spread over real economy sector and households' wealth with direct impact on US economy in a whole. They are also explain why we think that Fed is loosing control over situation, that J. Powell strongly tries to avoid.

About politics a bit

Speaking on political background, as elections results are almost known we see few directions of political struggle. Republicans' initiatives are really brave, but it is unclear still, whether they have enough power, confidence and ability to complete them. In fact, Republicans have started really brave campagne in four directions. First is - elections frauds, fake ballots, ballots throw-ins, electronic voting frauds etc., second - Democrat financing, using cryptocurrencies and budget money laundering (FTX scandal), Ukraine spendings audit and H. Biden investigation. Additionally, it will be interesting to see debt ceil Congress debates. Now a lot of people are involved in the probes, including FBI head. Republicans try to lead situation to a 25th Amendment - "President resignation". In two words, Republicans plan as follows:

1. D. Trumb supposedly should be elected as a Speaker on January 3, 2023. In this case he gets immediate immunity from the Justice Department, FBI, raids, lawsuits, etc.

2. Trump appoints his sergeant at arms.

3. His Sergeant at Arms releases all 14,000 hours of footage from January 6, 2021 to reveal the real story and all communications in the Capitol, and also directs criminal cases against ANTIFA and BLM members who have not yet been arrested, and reviews all peaceful non-violent participants.

4. Hearings on the annulment of the falsification of impeachment begin. During these hearings, all 30 committees, of which Trump is currently the speaker, will have round-the-clock television broadcasting without censorship on all channels 1, 2 and 3 to expose the mainstream media, big tech and the last 3 administrations (Bush, Obama, Biden and the "Deep State" team) of all their illegal activities and the way the fake impeachment hoax happened, right up to the hurricane "Crossfire".

5. After that, the House of Representatives votes to annul the Trump impeachment fraud #1. And then the House of Representatives votes to expel the impeachment managers who were involved in the Trump's impeachment fraud #1.

6. Annul the falsification of impeachment 2. Take out all the players who were involved or excluded from the Congress.

7. Introduce articles of impeachment against Biden, which would include at least: (1) Hurricane "Crossfire" (2) Exposing General Flynn (3) Withdrawal of troops from Afghanistan

8. Garrett Ziegler testifies on Hunter Biden's laptop.

9. 60 former intelligence officers who claim that the Hunter laptop was Russian disinformation will testify as witnesses. Give them 6 hours, and if they don't show up, we'll give them Bannon's treatment.

But this is only in theory. Plan is really epic, and hardly Democrats will just watch how Reps are going with it. They will struggle. The result of this fight will shape the political structure in the US and on foreign arena. Also I wouldn't undervalue the social factor. People could go on the streets if they fill betrayed or cheated. Currently it makes no sense even to gamble on results. But, initiative is rather brave, no doubts. We will try to monitor any progress in our Telegram channel. I don't thing that it is too long to wait.

In general now it becomes more or less clear many things why these 2 years were needed, just to bring such a kind-of-"Biden" and his entourage who start breaking the system of the Old World Order and Finance.

Now it becomes clear why E. Musk and D. Trump are in the game. If you remember a little bit about Musk's life path, then you've probably heard about the PayPal payment system, and if you look at the Starlink space industry and the purchase of Twitter today - the next step is to combine all of them and create independent financial system for these two platforms.

Then you can recall what Trump said, in his years of rule, about Equal Playing Conditions in Finance under the Gold Standard. Well, in parallel, track all the agreements with Putin, XI, Modi, Prince Bin Salman and the picture will be revealed to you. Now the only single question remains - who will be responsible for CV-19, printing of 9 Trln dollars and destruction of the US economy? Not occasionally H. Clinton name was mentioned. Sounds epic, so, let's see...

Structural problems in the US Banking sector. Fed is loosing control

The Fed is losing control over the monetary policy, i.e., ability to transfer decisions on the key rate to the financial conditions in the banking system and level of the interest rates in particular.

According to the FDIC consolidated bank statements in the United States, the weighted average deposit rates have hardly changed: Q4 2021 – 0.12% (the average federal funds rate is 0.08%), Q1 2022 – 0.12% (0.12%), IIQ 2022 – 0.19% (0.75%), IIIQ 2022 – 0.28% (2.24).

In Q4 2022, the average federal funds rate is expected to be 3.8%, provided that on December 14 the Fed raises the rate to 4.5%, while deposit rates practically do not change according to operational data – no more than 0.37-0.4%. Accordingly, a record spread in history is formed at the level of 3.4%. Not bad banking margin right? Take money from population at 0.4%, buy 6-months Bills at 4% or put the money on Fed Repo account with the same yield and daily payment. Easy money... This by the way explains, why the US banks feel great on a background of rising rate environment, although it should be absolutely different situation. It happens because it is so many liquidity in the system that banks become insensitive to (non-elastique factor) to changing of the interest rate. They do not need more people deposits and they do not care if somebody out.

As can be seen on the graph of weighted average deposit rates, in the phase of tightening of the policy, federal funds rates are usually higher than deposit rates and this is normal, there is also a natural lag in the cost of funding due to the structure and features of the deposit market.
1668951567027.png


The lag is on average 6-12 months, but it has to be corresponding slope of the curve, although more gentle on deposits in comparison with the Fed's key rate. But not this time. The reason is unprecedented excess of liquidity.

As a result, weighted average loan rates have hardly changed since 2021, with the exception of mortgage loans. This is what causes the credit boom in the United States, mentioned yesterday in our FX Report. Because loans has become more profitable than bonds issue in terms of the cost of the loan, and in terms of availability. Banks are able to provide loans, while the bond market practically is closed for business since March due to lack of demand due to record negative rates in real terms. Thus, the Fed no longer directly affects savings and investments in the economy, since the banking system and the Fed's rate policy have become disconnected.

The only way how Fed could fix this problem is to dry out extra liquidity. Banks should start fighting for clients' money, moving deposit rates higher and contract own appetites on profit margin (difference between deposit and loan rates). This is what we've discussed last time, speaking on Democrats "financial superstructure" - a kind of parasite on the body of the US economy, that becoming fatter using national money in own, egoistic interests, breaking the natural role of a banking sector to become just a intermediary for capital transfer to real sector. That's what D. Trump want to change, by the way.

Thus, US banks are the main beneficiaries of the inflationary crisis and, as a consequence of the Fed's reaction in a way of of record rate hikes. Normally, in such a situation banks should be in a vulnerable position, but not now. Excess liquidity of $ 6 trillion allows banks to restrain the growth of funding costs simply by freezing the deposit rates, while at the same time working more carefully with loan rates, getting them closer to the Fed's key rate.
For example:

▪️ A 60-month loan for the purchase of a car in Q4 2021 cost 4.7%, and in Q3 2022 only 5.5% - an increase of 0.8% .
▪️ Credit card rates within consumer loans in Q4 2021 had rates of 14.5%, and in Q3 2022 increased to 16.3% - an increase of 1.8% .
▪️ Consumer credit (non-targeted) in cash for two years was 9.1% in December 2021, and became 10.2% in September 2022 - an increase of 1.1%.

Thus, basic types of loans have grown several times less than the Fed's key rate – this knocks out the Fed's main tool for controlling and monitoring monetary conditions in the banking system - banks have become more independent.

Net interest income of US banks hits an absolute record, amounting to 151 billion in Q2 2022 compared to 129 billion a year ago. Net interest income after adjustment for provision reserves stands near the historical maximum of $140 billion. Having removed the interest rate risk, banks take credit risk and here the situation can be very vulnerable…

1668952648107.png


Previously, it was assumed that the tightening of financial conditions should cool investment, consumer demand, reducing the pace of lending, but in fact it happens differently – demand is high, lending is growing, and investments are frozen, because business does not believe in perspectives.

The decreasing of investments constrains the supply growth of goods and services, accumulating the gap between supply and demand month-by-month, forcing steady inflation, leading to structural price distortions. As a result demand is growing on a background of higher inflation expectations, declining savings and cheap consumer credit, which in turn spins up an inflation again. A closed inflationary cycle.

To resolve it, tighter financial conditions are necessary and absorb excess liquidity, but the tightening of the policy just increases the cost of debt servicing. This, in turn, increases the demand for loans as they are cheaper and more affordable than bonds issue. It is no problem with this. The problem that growing consumer credit increasing demand. And additional demand on a background of limited supply of goods and services means higher inflation.

Banks, in turn, due to excess liquidity could manage deposit and loans rate independently, making their own monetary policy without a Fed. As a result, Fed could make impact on financial markets but loses control over real economy. The loss of connection with the real economy is equal to the loss of control over inflation, and the loss of control over inflation, in turn, destabilizes all markets, destroying confidence in the dollar and the stability of the financial system.

That's why we see many Fed officials to be surprised. Why are we (the Fed) tightening the policy, but the labor market is full to capacity, demand is high, and inflation is not decreasing? At the same time, they have brought turmoil to the debt markets, and who knows where this road will lead? The most surreal thing is that they absolutely do not understand where everything is moving and what to do next. System is still holding, there is still no signs breakdown by far. And if there is a breakdown? Turn on the printing machine again? And what about inflation and the degradation of debt markets?

Loans boom is not unique for the US. The same story is in EU, but maybe of a less degree:
1668956919606.png


Conclusion:

So, I think it is not necessary to explain how big disbalances that we've mentioned here could impact the economy. Our readers are very smart. This is the story until first bankrupt person on consumer loan. With total amount of consumer loans around 700+ Bln, provisions around 11 Bln seems not enough. Chain reaction could trigger not only big write-offs by banks but also the outflow of households deposits. Together with the Fed tightening policy and QT it could bring big problems. Yes, maybe not now and not tomorrow. But, this is big heavy process, and if it will start - it will be impossible to stop it. US Dollar position in the world is becoming more fragile, and any structural problems in the US economy, especially in banking sector definitely boosts demand for Gold. Maybe these factors, that we've considered today looks a bit boring, but they show the depth of structural problems together with the ones that we've considered yesterday in FX report.

Technicals
Monthly

It seems that our monthly support holds and this is great. Besides, we get the chance to see the reversal month that engulfs the two previous ones. Although gold remains under pressure by far, but its action could be different compares to EUR. Gold now is getting more independence from US Dollar performance as additional risk factors are involving. That's why, if any negative effect will happen, it still could be muted or damped a bit. Trend still stands bearish here, but market is not at overbought and clear bullish long-term context is yet to be formed here. But first signs looks inspiring.

We do not have here minimum required 8 bars in downside thrust and no 3x3 DMA crossing yet, but action was rather straightforward and I suspect that we have a B&B "Sell" Look-alike pattern. Sometimes it happens that market gives classic B&B performance but earlier than B&B conditions are met. Other words, we could get downside pullback although we have no cross of 3x3 DMA on monthly chart.

gold_m_21_11_22.png


Weekly

Another reason why I suspect that it might be B&B LaL is reaching of 3/8 Major Fib level. This is important B&B condition. Hopefully market will spend some more time around it, and maybe hit our 1800 target to give us monthly close above 3x3 DMA, but at the same time we do not want to miss weekly trading setup with good potential, so we should be careful to daily / intraday bearish signs and patterns as well, just to not miss the starting point of bigger pattern:
gold_w_21_11_22.png


Daily

Here market has formed another bearish session. The most tricky moment here is "ignored" XOP at 1800$, especially after very strong upside action. Combination of these two moments are irrational a bit. It is easy to accept target ignoring if upward action is slow, but after strong rally, odds stand in favor of XOP completion. That is why it is especially interesting to see what will happen around 1720-1730 area and MACDP line. Appearing of the grabber brings more confidence with another upside spike and XOP completion.
gold_d_21_11_22.png


Intraday

On 1H chart market completes the shape of H&S pattern, suggesting the target around 1730$:
gold_1h_21_11_22.png


On 4H chart we have K-support area right around 1735-1738 area. Previously we've warned that downside action looks weak and we called to avoid short position taking. Still, gold was able to form minor H&S and if you still have sold the gold, now could try to wait for reaching of the target. Still we suggest not to take any new short positions by far. Currently possible daily bullish grabber and uncompleted 1800 target outweigh bearish intraday context. Gold has not eliminated totally chances for final spike yet.
gold_4h_21_11_22.png
 
The week started very calmly, but.... will it end like this? :rolleyes:
Well, the weekly chart is still the same, so I focus on one hour chart only. Everything is very simple here, if gold wants to trigger another bullish leg before failure we have to look at 1.740/1.735 area. Today we will know if this rally is bullish action (I-II-III-IV-V) or simple ABC pattern.

Andreas

GOLD (1H).PNG
 
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Greetings everybody,

At first glance gold and EUR setups are similar, because we have the same patterns as on daily as on intraday charts. But in reality they are quite different. Because while EUR already has hit daily XOP and overbought on weekly chart, Gold is not - XOP still stands above and no overbought. Still cross market correlation via USD suggests more or less same direction, which just adds more confusion.

On daily chart we also haven't got the grabber here. Thus, we have no choice but to follow the plan that we've discussed in weekend.
gold_d_22_11_22.png


As we've decided, we intend to watch for strong intraday support areas and see what reaction gold shows. Appearing of bullish reversal patterns, signs of thrust could a signal for long entry. Now price stands at 1st strong area - K-support 1734-1739 and OP target. But no solid reaction happens by far.

Next level is XOP and 2nd K-area 1711-1721. We suggest that EUR should reach the same XOP, thus gold could follow either.
gold_4h_22_11_22.png


Bears should think about gradual result booking... I still suspect that current action is not yet the major downside pullback and Gold could make the last effort to daily XOP around 1800 still.
 
Hi everybody!
No change on the weekly chart and from a technical point of view a consolidation is possible before seeing the last potential medium-long term rally (wave 5). That said, I've already explained why I'm biased towards a deep pullback or bearish leg, so while I can't rule out a sqeeze around 1,800, this rally should be sold. IMO

Andreas

GOLD (W).PNG
 
The week started very calmly, but.... will it end like this? :rolleyes:
Well, the weekly chart is still the same, so I focus on one hour chart only. Everything is very simple here, if gold wants to trigger another bullish leg before failure we have to look at 1.740/1.735 area. Today we will know if this rally is bullish action (I-II-III-IV-V) or simple ABC pattern.

Andreas

View attachment 81058
Also on intraday chart I don't see any changes, here is the possibility of last rally (Wave V)
Andreas

GOLD (1H).PNG
 
Greetings everybody,

So, as we've mentioned in EUR update today - Dollar index has formed bearish grabber, that brings more bullish context to Gold as well, especially because it still has not completed 1800 XOP target. Patterns might be the same as on EUR, including DRPO "Sell" as gold also has failed to touch 3/8 daily support, which is necessary condition for B&B.
gold_d_23_11_22.png


On 4H chart price is still coiling around our 1st K-support and OP area. As we've said previously and repeat it again - we do not consider taking of a new short positions by far.
gold_4h_23_11_22.png


Although we do not have W&R here, but gold reaction is taking the shape of Double Bottom. And, as usual bulls have two major options. Either to jump in now, taking of more risk but smaller potential loss and greater potential benefit, or to wait when market breaks the neckline up on 4H chart and then try to buy on a pullback. Without a DXY grabber, I would wait, but after we've got one, scenario with "anticipation" looks not as bad... But final decision is up to you...
gold_1h_23_11_22.png
 
Good morning,

Gold also shows positive action, but still stands two steps behind the EUR, and just is coming to the same neckline on intraday charts. On daily chart, market has not touched 3/8 support level and this keeps intrigue around potential DRPO "Sell" pattern. Technically 1800 XOP target remains valid and reasonable, although recent reaction on Fed minutes looks a bit weak:
gold_d_24_11_22.png


Just we've said that it is curiously to not see W&R here and bing - here it is. Gold and US Bonds markets are most cunning among all the others... Now price is re-testing the neckline of former H&S pattern. EUR has already broken it up:
gold_4h_24_11_22.png



Since we also have a kind of Double Bottom here, on 1H chart - now price is trapped between two vital lines. To prove the bullish context market has to break up and stay above the double bottom line. For the bears the opposite should be done - market has to drop under 1745 support area. Technical background stands in favor of upside continuation, but let's see...
gold_1h_24_11_22.png
 
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