Gold GOLD PRO WEEKLY, November 22 - 26, 2021

[Sive Morten]

Fundamentals

This week gold mostly was coiling around the achieved top. There are as technical reasons as relatively quiet week, when we've got only Retail Sales which was positive and mostly dollar supportive. Common view, explaining positive performance of the gold market is rising inflation and gentle central banks' policy across the Globe. But we suspect that this is just the half of the story. Definitely pure economical factors are highly important but we also should not discount geopolitics. This week we also see the official change of the sentiment that now is reflected in COT report and Precious metals ETF performance. It suggests that gold still has potential to go higher within few months.

Market overview

President Joe Biden signed into law a $1 trillion infrastructure bill at a White House ceremony on Monday that drew Democrats and Republicans who pushed the legislation through a deeply divided U.S. Congress. The measure is designed to create jobs across the country by dispersing billions of dollars to state and local governments to fix crumbling bridges and roads and by expanding broadband internet access to millions of Americans.

President Joe Biden's $1.75 trillion bill to bolster the social safety net and fight climate change passed the U.S. House of Representatives on Friday and headed to the Senate, where divided moderates and liberals still need to reach agreement.

"Now, the Build Back Better Act goes to the United States Senate, where I look forward to it passing as soon as possible so I can sign it into law," Biden said in a statement following the vote.

Senate Democrats hope to reach agreement by the end of December with centrist Democrats Joe Manchin and Kyrsten Sinema, who have raised concerns about the bill's size and some of its provisions.

The legislation follows the infrastructure investment bill that Biden signed into law this week - two key pillars of the Democratic president's domestic agenda - and a separate $1.9 trillion COVID-19 relief package that passed in March.

U.S. retail sales surged in October as Americans eagerly started their holiday shopping early to avoid empty shelves amid shortages of some goods because of the ongoing pandemic, giving the economy a lift at the start of the fourth quarter.

The solid report from the Commerce Department on Tuesday suggested high inflation was not yet dampening spending, even as worries about the rising cost of living sent consumer sentiment tumbling to a 10-year low in early November. Rising household wealth, thanks to a strong stock market and house prices, as well as massive savings and wage gains appear to be cushioning consumers against the highest annual inflation in three decades.

"It's more important to look at what consumers do than what they say," said Gus Faucher, chief economist at PNC Financial in Pittsburgh, Pennsylvania. "They are concerned about higher inflation, but they are still in good shape and are continuing to spend."

Retail sales jumped 1.7% last month, the largest gain since March, after rising 0.8% in September. It was the third straight monthly advance and topped economists' expectations for a 1.4% increase. Sales soared 16.3% year-on-year in October and are 21.4% above their pre-pandemic level.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity rose at a tepid 1.7% rate last quarter. Economists at JPMorgan boosted their fourth-quarter GDP growth estimate to a 5% rate from a 4% pace. Goldman Sachs raised its estimate by 0.5 percentage point to a 5.0% rate. The economy grew at a 2% rate in the third quarter.

The economic picture was further brightened by a separate report from the Federal Reserve on Tuesday showing manufacturing output surged 1.2% last month to its highest level since March 2019, after falling 0.7% in September.

"The economy has thrown off whatever lethargy it might have had in the summer, and it is growing quite strongly," said Joel Naroff, chief economist at Naroff Economics in Holland, Pennsylvania.

Businesses are also making steady progress replenishing depleted inventories, which should help to keep factories humming and support the economy. Business inventories increased 0.7% in September, a third report from the Commerce Department showed.

"If the U.S. economy is going to recover, it's going to be partly through consumption, which is still about 70% of the economy," said Marc Chandler, chief market strategist at Bannockburn Global Forex. "Today's retail sales number supports that."

The dollar index has rallied since U.S. inflation data last week showed annualized consumer prices jumping surged to their highest since 1990, fueling speculation that the Federal Reserve may raise interest rates sooner than expected.

The Fed should "tack in a more hawkish direction" to prepare in case inflation does not begin to ease, St. Louis Federal Reserve bank president James Bullard said.
Treasury yields also moved up on Tuesday's developments. Benchmark 10-year notes were last at 1.63%, up from 1.61% before the data was released.

The retail data added to a more buoyant mood after U.S. President Joe Biden and Chinese leader Xi Jinping held more than three hours of virtual talks Monday.
The conversation between the leaders of the world's biggest economies appeared to yield no immediate outcome but is widely seen as a joint effort to improve icy relations and avoid direct confrontation.

The Biden-Xi summit "had the potential to do damage but seems not to have done so," said Rob Carnell, head of research for Asia Pacific at ING.

"Ultimately we're in a place where it looks like growth is still pretty strong," said Mike Bell, global market strategist at J.P. Morgan Asset Management. "The Fed is going to taper before they put rates up, and I think that's supporting dollar."

Yields on benchmark U.S. 10-year Treasury notes were last at 1.58%. They have jumped from a low of 1.415% last week and are holding below five-month highs of 1.705% reached on Oct. 21.

Bond moves may stay choppy, however, as the market deals with reduced liquidity that is likely to worsen during the end- of-year holiday season.

"There has been a pretty notable decline in market liquidity, which I think has been contributing to some of the outsized moves," said Jonathan Cohn, head of rates trading strategy at Credit Suisse in New York. The fact that we’ve already experienced some diminished liquidity suggests that this choppiness that we’ve seen can persist."

Gold prices slipped on Thursday as encouraging weekly U.S. jobless claims data strengthened bets for an earlier-than-expected rate hike by the Federal Reserve following recent strong inflation data out of the United States. Despite the drop in prices, bullion was holding near its highest level in five months touched on Tuesday.

"One of the major reasons for this spike in gold was that rates fell off pretty hard. But then, they came bouncing back, so that's keeping the upside limited in gold," said Daniel Pavilonis, a senior market strategist at RJO Futures. "It just correlates with a higher probability of the Fed actually having to raise rates," Pavilonis said.

The number of Americans filing new claims for unemployment benefits fell close to pre-pandemic levels last week, data showed on Thursday. Any signs of a recovering economy reduces demand for the safe-haven metal.

"At the moment, it's difficult for gold to find direction because of the uncertainty related to the dollar's performance, and the likely response of the Fed and other central banks to inflation," said ActivTrades senior analyst Ricardo Evangelista.

Gold prices were flat on Friday, as traders were caught between concerns over broadening inflationary risks and the prospects of quicker interest rate hikes, which challenged bullion's appeal as an inflation hedge. Gold scaled its highest level in more than five months earlier this week as an acceleration in U.S. consumer prices last month heightened concerns that inflation could stay uncomfortably high well into 2022.

"While elevated inflation has enticed strong buying interest in gold, expectations of policy normalization by the U.S. Fed and other major central banks amid a sharp recovery in growth remains the key headwind for the metal," said Sugandha Sachdeva, vice president of commodity & currency research at Religare Broking.
"Gold prices are likely to consolidate in a range between $1,835 and $1,880 in the short-term. But in the long term, the metal is likely to witness buying interest at lower levels and if prices nudge past $1,880, it could surge to $1,920."

"The focus on rate hikes and their impact on inflation makes gold's near-term price action very sensitive to economic data like next week's personal consumption expenditures (PCE)," DailyFX currency strategist Ilya Spivak said.

"The Fed announcing a rate hike at some point next year is gold negative, (but) there is still a lot of uncertainty, a lot of inflation concern to help gold stay supported in this environment," said UBS analyst Giovanni Staunovo. The potential for inflation to keep moving even higher could propel gold to move above $1,900 an ounce, Staunovo added.

Investors are keeping a close tab on U.S. President Joe Biden's nominee as the next chair of the Fed, with analysts expecting a potential appointment of Lael Brainard, considered to be more dovish than Jerome Powell, to trigger further gains in gold.

"Gold prices are declining after some hawkish Fed speak about accelerated tapering boosted the dollar," said Edward Moya, senior market analyst at brokerage OANDA. "Inflation and Fed speak are the primary catalyst for gold and right now traders will need to see what happens over the next couple of weeks before having strong conviction on assessing what the Fed will do regarding interest rates."

Waller said the U.S. central bank should increase the pace of its reduction in bond purchases to give more leeway to raise interest rates from their near zero level

Saxo Bank analyst Ole Hansen said in a note that lockdowns in Europe have helped provide the yellow metal a fresh boost. "The recent white-hot inflation prints, especially the 6.2% recorded in the U.S., will likely continue to support gold in its defence against the stronger dollar," Hansen added.

COT DATA and Sentiment analysis

Data for commodity funds showed precious metal funds drew a net $817 million after seven straight weekly outflows as gold prices rallied to a five-month peak this week.

"10-year U.S. real rates now -4.6% , a level in the past 200 years that has been associated with panics, inflations, wars & depression, and a level today increasingly responsible for froth in crypto, commodities, and U.S. stocks," said Michael Hartnett at BofA.

Recent CFTC data shows the big boost of net long position that actually has happened last week, but is reflected only in the last report. Open interest has jumped for almost 10%, 1/3 of this volume stands for long speculative positions. Hedgers also have increased hedge against gold growth, but their positions are more balanced.

SPDR Fund reserves also turn up slowly and now we see a kind of hidden bullish divergence between reserves and gold price:

Source: SPDR Fund, FPA

As a result, the net long position has broken long standing range:

Source: cftc.gov, charting by Investing.com

To be continued ...

 

[Sive Morten]

Hidden gold support factors
(By ForexPeaceArmy)

All the things that we've said above are correct and we totally agree that combination of rising inflation and gentle, soft Central Banks' policy across the Globe support gold market. As well as expectations of more aggressive Fed steps and ongoing strong US economy performance are headwinds for the market as well. But we also see additional and more stable and durable support for the gold market. This is growing US-China confrontation. It has started in D. Trump era. Now politicians make the vision that it doesn't exist and both sides are coming to normalization and improvement of mutual relationships but this is not quite so. It is a mistake to suggest that D. Trump was so stupid to start the economy war against China, so that now it should be over and stopped by J. Biden. Things that we see in reality suggest that confrontation still stands and is heating up.
China is major economic opponent of the US, and it keeps growing getting more power in all economy spheres, including high technologies and machine intellect. China is among few countries that could follow to own and independent international policy that sends challenge to the US hegemony. Anglo-Saxons world is consolidation by extraction of Great Britain out of EU and setting new military alliance with Australia. This new project stands against China and its domination in Asia Pacific region. In fact, now all Anglo-Saxons nation is united as never - Great Britain, US, Canada, NZ and Australia. United States crucially needs to dump Chinese growth. Here we consider only economy steps that US takes to achieve its target. Although geopolitical tools exist as well, such as conflict around Taiwan.

Once was started and announced by D. Trump, later it was under disguise of US elections and started CV19 pandemic, but it was not stopped. It is an arguable question of CV19 genesis, that is beyond the scope of this article, but for the US purposes and against China - CV19 has appeared quite welcome and quite in time. Chinese economy has got very sensitive hit that is still echoing. The recent China political demarche with Australia and problems with coal supply is the part of the same chain. This has triggered big lack of energy in industry regions and lead to sky rocket price on LPG and Natural gas. US shots two targets and hit the 2nd rival, which is EU by high hydro carbon prices.

What the US wants to achieve? By our view the main target is to make Chinese goods too expensive. All people across the board are habit that Chinese goods are cheap and you could replace them at any time that you want. But no more. US makes price for Chinese goods higher through artificial sabotage and time stretch of cargo delivery and off-loading. This leads to freight transfer and shipping more expensive. Delay of cargo processing the ports do the same:

The number of container ships waiting to enter the busiest U.S. seaport complex hit a new record of 84 on Tuesday, as growing piles of empty containers crowd docks at the Southern California facility that has been racing to remove lingering imports. The conundrum illustrates the challenge faced by a U.S. government task force charged with tackling supply chain snarls that are contributing to product shortages and inflation.

U.S. ports have been inundated with cargo since the pandemic shifted spending away from restricted entertainment like travel and dining out to physical goods. COVID-19 also reduced labor needed to keep goods flowing smoothly. Aging truckers retired early, while infection control measures have limited dock and warehouse staffing.

There are now roughly 65,000 empty containers on the Port of Los Angeles docks, up about 18% from just a couple of weeks ago, said the port's executive director, Gene Seroka. He added that "sweeper" ships are inbound to shuttle some of those boxes back to factories in Asia.

Railroads and truckers have made progress moving import containers off docks at the adjacent ports of Los Angeles and Long Beach - prompting executives from to delay imposing a new fee on overstaying imports by one week to Nov. 22.

The new fee would hit imports destined for truck removal after nine days or more on docks, and would start after six days or more for rail-bound cargo. Ports would charge ocean carriers escalating fees for overstaying container - with a $100 charge for the first day, $200 for the second, and so on.

Prior to the pandemic, containers intended for local truck deliveries spent fewer than four days on average on docks, while containers earmarked for trains stayed less than two days, the ports said.

A surge in container shipping rates poses a threat to the global economic recovery, with small countries dependent on deliveries by sea expected to be hardest hit by a spike in import prices, U.N. agency UNCTAD said on Thursday. A surge in demand for consumer goods during the pandemic has created major supply bottlenecks around the world, which has impacted the supply of container ships and boxes to transport cargo.

"The current surge in freight rates will have a profound impact on trade and undermine socioeconomic recovery, especially in developing countries, until maritime shipping operations return to normal," said UNCTAD Secretary General Rebeca Grynspan. "The impact is expected to be more significant for smaller economies that depend heavily on imported goods for much of their consumption needs," it said.

In its Review of Maritime Transport for 2021, UNCTAD said that the current surge in container freight rates, if sustained, could increase global import price levels by 11% and consumer price levels by 1.5% between now and 2023.

Now let's take a look at some interesting numbers. First is, MAERSK and other west companies control the major part of global container shipping market:
Leading ship operator's share of the world liner fleet as of October 29, 2021 (Source: Statista.com)

Global container freight rate index from July 2019 to October 2021(in U.S. dollars)

As a result -

China's factory gate inflation hit a 26-year high in October as coal prices soared amid a power crunch in the country's industrial heartland, further squeezing profit margins for producers and heightening stagflation concerns. The producer price index (PPI) climbed 13.5% from a year earlier, faster than the 10.7% rise in September, the National Bureau of Statistics (NBS) said in a statement.

It is clear that with artificial delay in Chinese goods shipping and off-loading in the ports, and creating deficit of containers US extends average production cycle, making China to finances the lag between goods delivery and getting payment for them. This sabotage makes direct impact on the Chinese goods price and reduce its attractiveness for the consumers. China economy has a weakness in social sphere and massive bankruptcy of small and private producers could trigger the chain reaction and collapse in economy and social sphere. The process is going slow by far but it definite has impact and result.

Try to stand on China's place. The production hits the new records. In fact you produce at the same pace or even faster and more than pre-pandemic period. Then you send the goods to counterparties, but you do not know where they disappear. All of them stuck somewhere. In fact, now huge amount of the goods from China are stuck in the containers somewhere in the global ocean. Don't forget that US and GB control the world ocean and ocean trade ways. It means that China sends as previously but doesn't get any payment for them, or get it partially caring risks of counterparties.

Counterparties in turn, can't produce as they get components and semi-products from China and speak about delivery deficit and "bottlenecks". Everybody have the problems, except Anglo-Saxons countries, as they could deliver to themselves as much as they need and gently control the delivery and off-loading process and its timing.

Why we're taking about it in relation to the gold? By two reasons. First is, any breaking news on Chinese economy deteriorating and coming global crisis should warm up gold demand. Second - additionally to economical factors, we have geopolitical ones. Rising tensions in Eastern Europe and around Taiwan, escalation in Sothern China Sea - are the parts of the same chain. This is the big game and it can't stand just in single direction. Brexit is not an occasion and not just "voting of GB nation" - this is the big political step either to distant from EU problems.

While the economy factors of inflation in the US and stories around Fed policy change are relatively short-term, the echo of big geopolitical game supposedly sounds for more extended time. It probably lasts until the US gets the result. Depending on the amplitude of this process - gold could get valuable backwind on more extended run.

2-words conclusion

In short-term perspective, Fed December meeting comes on the first stage. We also should get few inflation numbers before it takes place. More aggressive steps from the Fed and acceleration of the tapering process should become a headwind for the gold market and hold its paces for some time. Markets now expect higher inflation numbers in December. While dovish statement and stubborn keeping of "transitory" inflation opinion should push gold to new highs. Additional printing of another 3% of Global GDP (Biden's multiple packs) also brings support to the gold.

In longer-term perspective, we see the new stage of escalation of economical war (with geopolitical tensions) when the US and its allies will try to down China and other economical and geopolitical rivals (such as Russia). This could lead to loud events in China and around it that could keep demand for the gold on relatively high level. But these processes is very difficult to forecast.

Technicals
Monthly

This week market mostly stands in tight range, so long term picture stands the same. As we've said last time with the new facts and new reality, our recent mentioning of flag consolidation and that

"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."

now takes the special meaning. Gold strongly has broken above the YPP. Price now not at overbought. Flag consolidation could be treated as reaction on COP, response to the target. Upward breakout could mean that the reaction is over. In fact, erasing of potentially bearish scenarios on weekly chart now could be treated as a bullish sign.

August range, that is vital for short-term performance is broken up as well now. Trend still stands bearish here by far, but it needs some time to reverse. Speaking about upside target, we have very thrilling combination. Major COP is completed, but we also have all-time COP, when A point equals to ~ 40$ - fixed gold price to US dollar before the Bretton Wood. In this case all time COP agrees with YPR1 around 2165$. This is next nearest target on gold...

Weekly

Weekly trend has turned bullish and market hits nearest OP target, breaking the triangle resistance. Next logical target is 1920-1925$ area that includes larger scale OP, major Fib resistance level (which creates an Agreement, right?), and weekly Obought area. Meantime we see logical reaction on achieved minor target that, actually, we were waiting through the whole previous week:

Daily

Retracement that we've discussed last week is started. Thus, we could keep our major trading plan and watch for B&B "Buy" setup around 1830 area. Now it seems as most logical for market potential upside reversal. Besides, on US interest rates we've got the bullish grabber, that suggests possible action back to 1.65% top, which supposedly makes some bearish pressure on gold as well:

Intraday

4H flag pattern is broken down right now and OP target is hit already. We're mostly watching for XOP and Agreement with 1830 Fib support to consider long entry:

 

[Sive Morten]

Greetings everybody,

So, downside action on Gold market that we've discussed has happened. But, as you can see, it is more extended compares to what we've discussed initially. Despite the strong sell-off, theoretical background for B&B trade exists, as market stands now at K-support area around 1803 level. It is another question whether it is psychological comfortable to buy gold now. So, if you have some doubts - it would be better to skip this trade:

IF you still intends to try - it is possible to consider DRPO "Buy" pattern on 1H chart that could be formed in a few hours. The positive moment here - we do not need to place too extended stop here, and hide it just slightly below the daily K-area or daily oversold which stands also rather close. Currently it is unclear whether gold will be able to re-start upward tendency or it will be just moderate upside bounce. Thus, it would be better to focus on nearest targets first.
As alternative way - you could wait for more extended classic pattern here, instead of DRPO.

 

[Sive Morten]

Good morning,

So let's go back to the gold analysis. Yesterday market has not formed intraday DRPO "Buy" pattern, so we even haven't got any subject to consider the long entry. Maybe this is good in current circumstances. Anyway... now we do not have even theoretical reasons to consider gold buying. Trend stands bearish on daily chart and directional bullish pattern has not been formed. It means that now we do not consider any new bullish trade and wait when market hits next support area around 1760 level.

Another bad thing (additionally to K-area breakout) is drop below YPP again.

Still, as we have great thrust on 4H chart, we could consider some short-term trading setup there. For example, it might be B&B "Sell", which potentially could start pushing gold right to 1760 daily support. As gold is oversold on daily, the pullback has not bad chances to happen, especially at the eve of Thanksgiving, when investors could start booking the collapse results.

That's being said - it is nothing to do on daily chart by far, as we have context bearish, but market stands at oversold now. While on 4H chart potentially we could get nice short-term setup.

 

[Sive Morten]

Morning everybody,

Here is just minor update for the gold and, probably for tod-tom, as today is Thanksgiving and market is closed. As we've said, to make decision on long entry (or not entry) we wait for next support area of 1760$. Based on the market's performance around this level, we should get some clarity on direction.

Yesterday we've talked about possible B&B "Sell" trade. We haven't got it, but market has formed 4H DRPO "Buy" instead. Approximate target of this pattern, if it works, stands around 1820$. In a case of failure, which is also become a direction pattern- market keep going to the next support area.

That's all that we have currently...

 

[Sive Morten]

Greetings, guys,

Today we prepare no updates as Gold market was closed and everything stands the same. With new headline today - Stocks lurch lower, bonds jump as virus variant spooks investors, and collapse on US bond market, gold should get additional support.

So the DRPO pattern that we've mentioned yesterday starts to work. Let's keep watching...