Gold GOLD PRO WEEKLY, November 27 - 01, 2023

Sive Morten

Special Consultant to the FPA
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Fundamentals

Despite that week was short due Thanksgiving holidays in the US, we've got few interesting events, news that have special meaning that not everybody understand, at least for now. We will consider most important of them. But one of the most important event we consider new article by Ruchir Sharma in Financial Times, dedicated to China economy. If you do not know who is he, just read.

Market overview

Gold hurdled over the $2,000 mark on Tuesday, buoyed by expectations that the Federal Reserve had reached an interest rate peak after minutes from the U.S. central bank's latest meeting anchored a cautious approach to more hikes. Fed officials agreed at their last meeting, its minutes showed, that interest rates would only need to move higher "if" incoming information showed insufficient progress in lowering inflation.

"Bulls are gorging themselves on gold ahead of the Thanksgiving holiday," said Tai Wong, a New York-based independent metals trader."The minutes suggest that bond and gold bulls shouldn't overindulge just yet," Wong added.

The dollar hit more than a 2-1/2-month low, making gold less expensive for other currency holders. The benchmark U.S. 10-year Treasury yields also hovered near two-month lows touched last week. Signs of slowing inflation in the U.S. have boosted expectations that the Fed has curbed rate hikes. Lower interest rates decrease the opportunity cost of holding gold.

"It doesn't look like there's going to be any more interest rate hikes here coming up on the horizon, so that's bullish for gold," said Bob Haberkorn, senior market strategist at RJO Futures.

Precious metals bulls have lost momentum and need fresh, fundamental impetus, analysts at Kitco Metals wrote in a note. Holdings of SPDR Gold Trust , the world's largest gold-backed exchange-traded fund, rose 1.5% on Friday.
"Now that concerns about the conflict in the Middle East have abated noticeably, the U.S. interest rate outlook has regained the upper hand for gold," Commerzbank said in a note.

"Technically we've seen gold hit resistance and is back to range-bound trading with somewhat higher rates as a catalyst here," said Bart Melek, head of commodity strategies at TD Securities.

Gold prices edged up on Thursday as the U.S. dollar ticked lower, but investors remained largely on the sidelines in holiday-thinned trading with uncertainty around the Federal Reserve's rate path. Benchmark U.S. 10-year Treasury yields closed at a two-month low on Wednesday. Lower interest rates decrease the opportunity cost of holding gold.

"Absent any fresh influences, I still don't think that gold has the momentum to maintain prices much above $2,000 for the rest of the year," said StoneX analyst Rhona O'Connell. Underlying forces are still supportive for the longer term - geopolitics, especially the Middle East and the probability of further banking stresses in the States and elsewhere - but unless either or both of these escalate, we are likely to see prices drift."

Investors dialled back expectations of rate cuts in 2024 after data on Wednesday showed the number of Americans filing new claims for unemployment benefits fell more than expected last week.

"Dollar is slightly cooling down after yesterday's (economic) data, but it's very feeble... it's just a normal market movement amidst lower liquidity," said ActivTrades senior analyst Ricardo Evangelista. "The uncertainty in relation to what the Fed will do next will persist for a bit longer," said Evangelista.

This Thanksgiving may call for a feast on gold as prices push towards all-time highs, according to Fundstrat's Mark Newton. In the past couple of weeks, gold futures have surged 3% and briefly breached a key psychological threshold of $2,000 per ounce on Tuesday. In fact, Tuesday's action marked the highest daily close of November, and any movement above $2,006.37 per ounce this week would make it the highest weekly close since the spring, the technical analyst said in a note Wednesday.

"This is quite positive technically, and I expect that gold has begun its push back to new all-time highs," Newton wrote, adding that a move above $2,009.41 should lead to the $2,060-$2,080 range.

In follow-up comments to Business Insider via email, he said a breach of resistance at $2,080 would signal a "definite technical breakout," which he expects to happen and quickly drive gold even higher. To be sure, different datasets have different record highs for gold, but they all go back to 2020. According to Dow Jones Market Data, the intraday high is $2,089.20. For Refinitiv, it's $2,072.50, while Bloomberg puts it at $2,075.47.

Either way, Newton sees gold prices eventually blowing well beyond those figures.

"My technical target for gold is $2500/oz, and it looks appealing to be long precious metals given falling real rates, rising cycles and ongoing geopolitical conflict," he wrote in his note.

He later clarified to Business Insider that his timeline for $2,500 isn't necessarily for the end of the year but is an "intermediate target."

So, definitely markets (except few experts, such as M. Newton) are watching for some driving factors but not the proper ones, suggesting more sideways action for Gold market, and not believing on solid upward continuation. First is let's add few more. It is a rumor that UBS bank gets some problems with liquidity. Clients can't withdraw the money. And Monday morning could bring surprises on gold market as well, if this rumor appears to be true.

In general, the crisis came much later than expected, but still suddenly. The collapsing dollar pyramid is creating a massive outflow of capital from recently respectable jurisdictions - Japan, Australia, China and even the UK. Panic indicator - gold. Its price in many currencies is reaching new historical highs. This indicates high demand for “capital preservation metal” among investors.
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However, the price of an ounce of gold is close to historical highs in the US dollar. There is only 3-4% growth to the peaks - that is, one session of stampede, and this despite record high yields on US Treasury bonds - a “safe haven” that many investors are now diligently avoiding. The reason for gold to reach a new maximum in dollars can be any trifle - from the aggravation of the situation in the Middle East to the fall of another small-time bank in the United States (or Switzerland?). Such a price jump will create a mechanism of self-sustaining demand, when new records will create even more panic and attract new capital.

Everyone is waiting for the rally in gold. But When? The latest US inflation data has strengthened market expectations that there will be a soft landing next year and the Fed will begin to ease monetary policy, despite a relatively strong labor market. In such a scenario, it would make sense for investors to favor stocks and even bonds over gold. However , the market notes several factors that could support gold even if hopes for a soft landing come true.

Central banks continue to buy gold for their reserves in anticipation of the global nix. China is likely to lead this process for the second year in a row. Especially with China's real estate deleveraging putting pressure on the country's economy and domestic assets, forcing not only the Bank of China but also Chinese households to turn to gold as their store of value of choice.
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When it comes to the world's central banks and gold, it is important to remember that reserve assets are chosen primarily for reasons of liquidity and stability. This is a key reason why almost all the world's central banks hold US government bonds. But in recent years, the top priority for central banks has shifted toward diversification to protect against geopolitical shocks. The West’s sanctions madness towards Russia does not pass without leaving a trace.

Looking at regulators in different countries, retail investors can also trust gold. If Central Banks hedge against macroeconomic and geopolitical risks through gold, then why not follow their example?! In addition to geopolitics, there is also regional politics: elections will be held in dozens of countries in the coming year; more than half the world's population will choose their leaders. The results could trigger dramatic changes in the politics and economies of critical countries including the United States, Taiwan and even Mexico.

Global separation continues

Meantime, few exceptional events have happened. They are really beautiful. First is, UK payments report calls for alternatives to Mastercard and Visa. Britain needs a "digital alternative" to relying on Visa and Mastercard for card payments regardless of steps being taken by regulators, a report commissioned by the government said on Wednesday. The conclusions of the Future of Payments Review echo longstanding complaints across Europe about heavy reliance on the American duo for card payments, though calls and attempts to create a 'home grown' alternative have made little progress.

"While cards make a tremendous contribution to the payments landscape, we heard notable dissatisfaction with the cost of card schemes on the part of shops, services, and other merchants – which may be in part due to a lack of choice or digital alternatives to the existing card schemes," the review said.

Second is - Greek shippers exit Russian oil trade as U.S. tightens price cap scrutiny. Greek shippers Minerva Marine, Thenamaris and TMS Tankers have stopped transporting Russia oil in recent weeks, the four traders said. So, Greeks are scared to keep transportation of Russian oil. And you could ask what the common thing between these two news about Greek shippers and Mastercard/Visa? I'll explain.

First, is Greece refinery plants are of major Pentagon supplies of oil in the region. Greeks and all maritime trade in the region are traditionally covered by UK and located near London, then the following turns out: the English “cousins” are seriously concerned that after Germany (which can already be considered sent into recession), their turn will come and, in connection with this, they began to vibrate.
This is indirectly confirmed by the mobilization of former Prime Minister David Cameron in the Asian direction in order to agree with China to be “friends” against the United States. Formally, the first "exchange of courtesies" among the “cousins” have happened: the terrorist attack in the United States and massive unrests in Ireland. In general, the new fault seems to have gone along the London-Washington axis.

If this is actually the case and it didn’t seem to us, then the following events should await us in the near future:
  • “adventure” in pound sterling - they may try to drop it;
  • mutual speculative and information attacks on banks in order to provoke a banking crisis;
  • ️some outrageous corruption and/or violation of the rights of transgender people, which will become a reason for the imposition of sanctions, fines and confiscation of assets (most likely this will be carried out by the United States).
Besides, just to remind you - Poland is under the influence of the British. What is extremely important to understand in order to correctly assess some of the events that have taken place over the past week... This is first bulk of let's call it "not quite evident" news. Also recall what we've talked about few weeks ago concerning Israel-HAMAS conflict and explained why it is benefited to UK and not good for the US.

Second bulk is dedicated to China. As we've mentioned yesterday, China efforts to re-fresh and stimulate activity in national economy are not quite successive. Right at this moment, FT releases article by Ruchir Sharma dedicated to... (ding!) China. This is not occasional article guys, if you know who is R. Sharma. This man worked for 20+ years in Morgan Stanley Investment Management and now is working with Rockefeller Capital Management. He is not just "occasional" writer and such an articles never published just occasionally. FT subscription is not free, so we bring few extractions from it here and explain what do they mean:

"The multi—year period of huge growth in the Chinese economy has finally come to an end," Ruchir Sharma wrote in the Financial Times. The world's second-largest economy now accounts for a smaller share of global GDP. In a historic twist, China's rise as an economic superpower is being reversed. The biggest global story of the last half-century may be over, " said the chairman of Rockefeller International.

In nominal dollar terms — which Sharma believes is the most accurate measure of the relative strength of the economy — China's share of global GDP began to decline in 2022, as strict zero-Covid measures remained in place for most of the year. Despite expectations of a rapid recovery, China's share will continue to fall in 2023, reaching 17%. That puts China on track for a two-year decline of 1.4 percentage points, a decline not seen since the 1960s and 1970s, when Mao Zedong presided over a weak economy, he added.

... In 1990, China's share of the global economy was less than 2%, but by 2021 it had soared to 18.4%. Sharma noted that such rapid growth has never been observed before. But in the current downturn, China will not be responsible for the growth of global GDP over the past two years, which is estimated at a total of $ 113 trillion.


"The decline of China can change the order of the world," Sharma said. "Since, the country's share of global GDP has grown mainly at the expense of Europe and Japan, share has remained more or less stable over the past two years. The gap, left by China been filled mainly by the US and Japan and other developing countries.

India half of the growth of emerging markets, he added later, calling it "a clear sign of a possible change of power in the future. For its part, Beijing has kept its annual growth target at 5% and expects to reach it this year. forecast is supported by the International Monetary Fund,which forecasts economic growth of 5.4% in 2023.


But Sharma rejects the use of real GDP growth as an indicator, saying that this leaves the Chinese authorities free to adjust the figures in accordance with their forecasts and hide the possibility of a downturn. In nominal dollar terms, the country's GDP will fall this year."

So, serious economic crisis has begun in China already. In fact, it should have started, since the United States and China are two sides of the same coin from an economic point of view, and in the United States, an active structural crisis has been going on since the beginning of autumn 2021.

However, the fact that this topic has become so loud seems to be a very interesting circumstance. It is clearly political in nature, since the economic argument does not stand up to any criticism. Indeed, an increase of 5% is a lot, against the backdrop of the US and EU recession. India, Indonesia, Poland and Brazil do not have such growth rates, and China simply cannot help but increase its share in the global economy in this situation.

One can, of course, assume that in reality China is not doing so well at all but this means contradicting the data of the key Bretton Woods institutions. The author clearly did not have enough strength for this, so the distorted static information limits him very much. Although he makes various hints in order to explain it.

But his real task could be is to convince speculators that China's problems do not pose a threat to world markets, since China is already falling significantly, even if this does not correspond to formal figures, then the article finds its explanation. In fact, we can assume that the US is going to actively limit China's economic influence in the world and is trying to convince financial market participants that this will not lead to critical consequences (for US of course).

By the way, if you will take a look at the list of R. Sharma articles, you could see that this is not the first one. He consistently speaks about US Dollar problems and weakness of China. We strongly recommend to find his article "What strong gold says about the weak dollar" and read it (written in April 2023). Here is few parts from this article

Today, commentators overwhelmingly believe that the weakening US dollar cannot lose its status as the dominant currency of the world, because there is no "alternative" to the dollar on the visible horizon. Perhaps, but do not tell this to a lot of countries that are trying to find an alternative to the dollar, since such self-confidence will only accelerate their search.

The best example now is gold, which has risen in price by 20% in six months. Usually, large and small investors looking for a hedge against inflation and low real interest rates are responsible for the growth in demand for gold. But now the main buyers of gold are central banks, which are sharply reducing their dollar assets and looking for a safe alternative to the dollar. Central banks are buying more tons of gold today than at any time since data collection began in 1950, and currently account for a record 33% of global monthly gold demand.

This buying boom has helped push the price of gold to near record levels and 50% higher than models based on real interest rates suggest. Obviously, something new is pushing gold prices up. (!!!)

Thus, the oldest and most traditional asset, gold, becomes an instrument of the revolt of central banks against the dollar. In the past, the dollar and gold were often considered safe havens, but now gold is considered much safer. During the brief banking crisis in March, gold continued to rise while the dollar collapsed. The difference in the movement of the two assets has never been so significant.

And why are developing countries rebelling right now when world trade has been based on the dollar since the end of World War II? Because the United States and its allies are increasingly resorting to financial sanctions as a weapon. Surprisingly, now 30% of all countries face sanctions from the US, EU, Japan and the UK,
instead of 10% in the early 1990s. Suddenly it became clear that any country could become a target.

The risk for America is that its self-confidence will grow, fueled by the story of "there is no alternative." This version depends on global trust in American institutions and the rule of law, but the militarization of the dollar has done a lot to undermine this trust. It is also based on confidence in the US ability to repay its debts, but it is also declining as US dependence on foreign financing continues to grow. The dollar's last line of defense is China, which is the only economy large enough and centralized enough to challenge the dominance of the US currency — but even more deeply mired in debt and institutionally dysfunctional.

But he points out that analysts 20 years ago also advised buying up shares of IT companies when the US currency reached its peak and said that there was no alternative to this (2000 Dotcom bubble):

Then everything ended badly. Having no alternative has never been a viable and effective investment strategy, especially in times like these when the foundations are crumbling. So don't believe the strong dollar. The dollar world is coming after.

Conclusion:

This time it is too many letters and too few pictures ;). We choose very special analytics for you, guys, because many absolutely vital things might be intentionally not covered by media to support easy-to-understand croud opinion. If we assume that the FT article is not an accident, then we can expect a sharp increase in trade wars between the US and China in the first place. This is quite consistent with the strategic line that we outlined for the United States in previous reviews, but the question of the timing of its start was open. It is possible that the article is a symptom of the fact that this war will begin at the very beginning of 2024...

As we could see Gold market now stands beyond the common barriers of just market/financial scale. It is involved in big tectonic shifts that could trigger its price fluctuations of the similar scale. And hardly you could intentionally catch it. As we told this when gold was around 1650-1700 as we tell this again - gold remains one of the last assets that could preserve your wealth (if not the last one). Here we talk about physical gold and its accumulation. Because now nobody could predict to what limits geopolitical confrontation could raise, even those who intends to start it...
 
Technicals
Monthly

So, gold was able to move slightly higher this week, despite that it was short, but still, stands in October's range, making no impact on big picture. So, all things that we've discussed in recent weeks are still valid.

Gold mostly reversed the drop of previous week. On monthly chart we have no reasons to doubt 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. YPR1 stands around 2060, but, on a big picture it is very close to the top, so, we could consider it as a range of 2060-2090, together with previous top as the next upside target.

gold_m_27_11_23.png


Weekly

Market shows more and more signs that confirm our suggestion of possible upside continuation. Trend remains bullish. Market shows nice jump up from nearest 1930 Fib support area and passed through all intraday resistance levels. Nearest weekly upside target stands around 2095$. Huge engulfing pattern in general suggests upside continuation.
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Daily

This AB-CD we could see on daily chart. OP stands around 2130 and not very important by far. But COP around 2044$ might be interesting because it agrees with YPR1 of 2057$ and daily overbought. So, as a most probable target for coming week, if gold takes out the top, of course, we could name ~2045-2060$ area:
gold_d_27_11_23.png


Intraday

Here on 4H we could suggest butterfly pattern with 2013 and 2020 local targets:

gold_4h_27_11_23.png


Meantime, on 1H chart, based on the same swings we have "222" Sell. But not be deceived with it. FIrst is, slow CD leg might be due thin market in holidays. Second, we have acceleration right on Friday. Besides, if we take wider view - we have triangle that is potentially bullish. Let's just control "222" Sell performance. If we are correct, suggesting upside continuation market should not drop below "C" point and break triangle down. With recent UBS news, chances of bearish scenario look not too high.
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Greetings everybody,

Gold brings no surprises by far. As we've said in weekly report - it should open higher on Monday. On daily chart price stands above the top, we have no W&R, which is also bullish sign. 2055 stands a bit high but theoretically it is reachable target, as gold has no Fib levels above and is not at overbought:
gold_d_28_11_23.png


On 4H chart market completes our butterfly pattern, almost hit 1.618 target. Here we also have local XOP @2025 area, which seems like next nearest upside target:
gold_4h_28_11_23.png


On 1H chart another minor butterfly could be formed with precisely 2025 destination point:
gold_1h_28_11_23.png


If you intend to keep/open long positions with the butterfly - control that market stands above broken top. It should not form bearish reversal swing. So, makes no big sense to place stop too deep. With the butterfly we also have signs of bullish dynamic pressure, as MACD shows bearish direction while price forms higher lows.
 
Greetings everybody,

So, on a background of yields drop and dollar weakness Gold has touched our "target for the week" around 2050$, although yesterday we spoke just on 2025$. Still, despite the strong pace, we suggest that upside potential is limited now. Technically, because 2066 is daily overbought and dollar index comes to daily support area around 102.30-102.50. Second - because of statistics release and short-term traders could start booking result at the eve of GDP and PCE reports. Besides, J. Powell will speak later in this week as well:
gold_d_29_11_23.png


Thus, for long entry it makes sense to wait for the pullback. Most probable area is 2010K support. 1965 support also looks interesting, but with current environment, it has less chances to be reached.
gold_4h_29_11_23.png


On 1H chart we see nothing interesting by far, as gold just has touched the daily target and needs more time to show response. Thus, for bulls its nothing to do and wait for the bounce. Bears should wait for clear patterns on 1H chart, say "222" Sell that gold likes to form at tops when deeper retracement comes.
 
Greetings everybody,

Gold shows just light signs of retracement. Mostly on daily chart we do not see any changes by far. So, as for bulls as for bears the trading plan is the same. Bulls still wait for some pullback as market still is coiling around the top:
gold_d_30_11_23.png


On 4H chart we're still watching for the same support levels to consider long entry. First one is the same 2006-2011$:
gold_4h_30_11_23.png


On 1H chart gold has formed precisely the pattern that we've talked about - "222" Sell. So, if you have got short positions, there are two downside targets to consider 2032$ and 2021$. The last one stands relatively close to 4H K-support. Also move stops to breakeven, as context remains bullish. So, let's see what will happen on PCE release:
gold_1h_30_11_23.png
 
Greetings everybody,

Today we need just brief update to consider gold reaction on data releases through the week. Data actually was dollar-supportive. Stronger GDP, high inflation suggest longer period for high rates. EUR reacts correspondingly, but take a look at Gold - almost no reaction. It suggests that gold has own driving factors and shows a kind of inner strength:
gold_d_01_12_23.png


On 4H chart it is nothing to change - 2011 K-area still looks attractive, but it could happen so that gold will not reach it, turning up somewhere from current levels:
gold_4h_01_12_23.png


Our OP target on 1H chart has been reached. But, in fact we have "222" buy and flag-type of action, which is potentially bullish. So, based on market reaction, it seems that chances on reaching of XOP are not too high and it is quite possible that upward action could start again right from 2030-2040 area, where market stands right now:
gold_1h_01_12_23.png
 
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