Gold GOLD PRO WEEKLY, November 28 - 02, 2022

Sive Morten

Special Consultant to the FPA
Messages
16,963
Fundamentals

Gold market now stands in some really curious informational vacuum. I've not seen it before. In fact if you try to find some gold market news or events in recent 2-3 weeks, or even for longer term, then you'll find nothing. No gold-specific news. I suspect that partially this situation stands because everybody are involved with Fed policy journey and now there are a lot of other subjects to talk, but partially is because big monetary policy shifts impact all markets mostly in the similar direction, thus it is no need to talk on gold separately. Second - there are too many political processes are going on across the Globe and many of them really have global meaning. As they are not finished yet, it is not time yet to speak about their impact on the markets. Thus, whether we would like or not, but currently we could make only technical analysis of the gold market directly and look at fundamental background indirectly, via economy fundamental analysis, including Fed policy, as we did yesterday, and political events that have relation to economy.

For example, yesterday we have taken in-depth view on recent Fed minutes statement and found that basic point are not as positive as market treats them now. They have 2nd layer, telling us that Fed stands in some frustration. They're coming to threshold, telling us that now Fed rate is becoming more important to economy than inflation per se. We're not around inflation peaking and Fed pivoting literally, because Fed suggests higher rate level is needed and they do not know when inflation could turn down. It means two things - rate is still needed to be raised significantly, but they do not see any meaningful effect on inflation. That leads them to idea to make a pause. Besides, sharp drop in PPI commodity index and rising tension on job market tells that Fed is coming to the edge, the threshold level. Behind this level negative processes in economy will accelerate and it will be difficult to control and manage them. That's why we said that this situation mostly stands in favor of the Gold market. Whatever Fed will do (or not do), target of 2% inflation hardly will be achieved. Keep rising rate will crush the economy, Fed confidence and USD value, while stop at the half-way keeps rate insufficient, too low, to control inflation and keep US rates in negative territory. If they stop, they will have to start printing money again to provide some short-term stabilization on the markets. In long-term perspective, inflation will keep going higher and situation will become even worse than a year ago. This is dead way situation, guys, that supports our long term positive view on the market.

Public across the World are not stupid, the demand and selling of physical gold (coins, bullions) have increased significantly. You could check it in your own country. For example, here, in Russia, two major banks (Sberbank and VTB) have sold circa 40 tonnes of gold to population in last 6-8 months. Demand has raised for a few times. Yes, Russia is a bit specific now, but the same tendency we see in UK, Switzerland, China, India and other countries. This tendency indicates the drop of confidence to USD and other fiat money. This comes not because they value nothing right now, but because of political uncertainty. This is not slow crisis process, but it might be fast, sharp devaluation. Otherwise, why we should buy gold - it is relatively cheap, no panic demand, currency is more liquid etc. But anyway, people are buying, slowly, step by step, mostly coins or 5-25 grammes bars. Besides, what alternatives banks could offer? Deposits? Last week we've discussed that US banks get pretty brazen, giving rates around 1% for long-term deposits when Fed rate is around 4%. The same is in EU. With inflation 8-10%, what the pleasure to get negative rate on your money? Gold pays no interest, but currently, deposit rates are so low that we could ignore them. At the same time the degree of safety is incomparable. Recall Credit Suisse.

Recent SPDR Fund statistics that we're tracking, shows that gold demand mostly was ignoring pullbacks, started in September, keep going lower. But now SPDR reserves are stabilizing around 900-910 tonnes level and not dropping in recent four weeks.

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World Gold Council also reports on rising demand in IIIQ 2022. Gold demand (excluding OTC) in the third quarter of 2022 hit 1,181 tonnes, up 28% year-on-year. Strong demand pushed the year-to-date total to its pre-COVID levels. Gold demand was bolstered by consumers and central banks, although there was a notable contraction in investment demand.

Investment was down 47% year-on-year, as ETF investors responded to a challenging combination of markedly higher interest rates and a strong US dollar with significant outflows of 227 tonnes. We see it on the SPDR reserves chart above. These movements, alongside weakness in OTC demand and negative sentiment in futures markets, hampered gold’s price performance – contributing to an 8% quarter-on-quarter drop in the price during Q3 2022.

Despite these headwinds, gold continued to hold favour with retail investors who reacted to different market cues and turned to gold for its status as a store of value amidst rampant inflation and geopolitical uncertainty. Investors sought to hedge inflation with bar and coin investment, driving total retail demand up 36% y-o-y. This was supported by significant purchasing in Turkey (up more than fivefold YoY ) and in Germany (+25% YoY @ 42 tonnes), but also from visible contributions across all major markets.

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Jewellery consumption continued to rebound and is now back to pre-pandemic levels, reaching 523 tonnes – 10% higher compared to Q3 2021. Much of this growth was spearheaded by India’s urban consumers who drove up demand 17% YoY to 146 tonnes. Similarly impressive growth was also seen in much of the Middle East, with Saudi Arabian jewellery consumption up 20% since Q3 2021, and United Arab Emirates up 30% for the same period. Chinese jewellery demand also saw a modest 5% increase YoY driven by improved consumer confidence and a dip in the local gold price, prompting the release of some pent-up demand.

Just as consumer gold demand firmed, central bank buying picked up significantly with estimated record purchases of nearly 400t in the third quarter. This pattern reflects insights from our recent central bank survey, in which 25% of respondents said they intended to increase their gold reserves in the next 12 months.
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Turning to supply, mine production (net of hedging) was up 2% versus Q3 2021, with gold mining seeing its sixth consecutive quarter of growth. By contrast, recycling was 6% lower y-o-y in Q3, as consumers held onto their gold in the face of surging inflation and an uncertain economic outlook.
Louise Street, Senior Markets Analyst at the World Gold Council commented:

“Despite a shaky macroeconomic environment, demand this year has reflected gold’s status as a safe haven asset, underscored by the fact that it has outperformed most asset classes in 2022. Looking ahead, we anticipate central bank buying and retail investment to remain strong and that could help offset potential declines in OTC and ETF investment that may prevail if the dollar strength persists. We also expect to see jewellery demand continue to perform strongly in some regions such as India and Southeast Asia, while the technology sector will likely witness further decline in the face of economic deceleration.”

Pay attention to banks' hypocrisy guys - they pay you poorly 1% on your deposit but keep buying gold for themselves, telling you every time that it is not perspective right now.

Few Political issues

Also we would like to share with you our thoughts on recent political events that you could understand a bit wrong. The main economic events were the discussion of the ceil price for Russian oil and the recognition of Russia as a sponsor of terrorism by the European Parliament. At first glance it is purely political issue and sound a bit curious to say the least. But in reality it has absolutely economic background. EU just needs money, a lot of money. And recognition has been prepared just to confiscate Russia's reserves in Western banks frozen in February (after the special military operation has started). As you understand, the "terrorist sponsor" status allows you to confiscate any assets of Russian citizens as well. Nothing personal, just business. Sometimes the answer stands o surface and it is not needed to search for hidden sense and smart plan.

Thus, as crude oil ceil as reserves' stealing - both events are precedents that completely destroy the model of capitalist interaction that has been operating for the last centuries. Yes, of course, the United States and a number of other countries have acted this way before (for example, with the assets of Iran, Syria, Afghanistan and Venezuela), but in this time the scale becomes prohibitive for the system in general. Obviously this was not possible if system is healthy. For instance, there was long term of USA/USSR Cold War but nobody grabbed foreign reserves. Therefore, it is necessary to be aware: such actions, by themselves, regardless of their consequences, mean that their initiators do not believe that it is possible to restore the previous system!

Actually, the plan to return of the "Western" economic system to the borders of AUKUS+ only with the liquidation of the economic system of the European Union is already widely discussed. But events of this week shows:
  • First is, this decision highly likely already has been made.
  • Second, the current EU leaders already understand its fate and is trying to find resources to somehow survive in the conditions of the upcoming chaos (although it has no strategic plan). So grabbing Russian reserves could let them to get some margin and stay for some time.
  • Third, the current EU leadership does not have political subjectivity.
And pay attention, guys, all these stuff is economic news, not political, because they speak about the strategic orientation of the actions of various forces in the world. In particular, it can almost certainly be said that the elite of the "Western" global project (which today stands behind both the Biden team and the EU leadership), international bankers, are facing extremely difficult times.

The echo of this process you could see in mutual relationship of US-EU and inside the EU. This week the Politico has covered this subject rather accurately and we've mentioned this in our Telegram.
EU plans subsidy war chest as industry faces ‘existential’ threat from US. Europe is facing a double hammer blow from the U.S. If it weren't enough that energy prices look set to remain permanently far higher than those in the U.S. Additionally President Joe Biden is also currently rolling out a $369 billion industrial subsidy scheme to support green industries under the Inflation Reduction Act. EU officials fear that businesses will now face almost irresistible pressure to shift new investments to the U.S. rather than Europe. EU industry chief Thierry Breton is warning that Biden's new subsidy package poses an "existential challenge" to Europe's economy.

The Inflation Reduction Act is a particular bugbear to EU car-making nations — such as France and Germany — as it encourages consumers to "Buy American" when it comes to electric vehicles. Brussels and EU capitals see this as undermining global free trade, and Brussels wants to cut a deal in which its companies can enjoy the same American benefits.

The timing of this protectionist measure could hardly be worse as Germany is in open panic that several of its top companies — partly spurred by energy cost spikes — are shuttering domestic operations to invest elsewhere. The last thing Berlin needs is even more encouragement for businesses to quit Europe, and the EU wants the U.S. to cut a deal in which its companies can enjoy the American perks.

The tentative solution now being prepared in Brussels is to counter the U.S. subsidies with an EU fund of its own, the two senior officials said. This would be a "European Sovereignty Fund," which was already mentioned in the State of the Union address by Commission President Ursula von der Leyen in September, to help businesses invest in Europe and meet ambitious green standards.

Meantime, the tensions inside of EU is also rising. The Franco-German Motor Is on Fire. The war in Ukraine has turned Europe’s most powerful countries against each other like hardly ever before. Since NATO-Russia war starts, Franco-German divergence has suddenly come to the surface of EU politics after long term of silence, causing friction for both sides. Because of the war, Germany now has two major headaches. First, its growth model is endangered both by the sanctions against Russia and by the abrupt cutoff from abundant Russian gas. For the first time in years, Europe’s central economic actor, on which so many of its fellow EU members depend, finds itself importing more than it exports. This is the reason that German Chancellor Olaf Scholz was so at pains to defend his much-criticized trip to China.

The second German headache is the fact that it is not France that shields Europe against the Russian threat, but NATO. All of a sudden, Germany realizes that Europe urgently needs a security and defense policy for which it cannot rely on France. French President Emmanuel Macron has interesting ideas about Europe’s “strategic autonomy” but is vague about what it means and under whose leadership this should take shape. This is why Scholz’s new priority is to improve Germany’s relations with Washington.

France feels snubbed. The exposure of its military limits is hurtful—as French columnist Luc de Barochez wrote,
“it barely managed to send eighteen tanks to Ukraine.” As a consequence, Paris showers Berlin with criticism. Why is Berlin striking out on its own after years of not responding to Macron’s numerous European initiatives? Why did Scholz travel to China alone? Why did Berlin order American F-35 fighter planes this year, not French Rafales? The fact that Germany suddenly takes unilateral initiatives without coordination with France upsets the delicate balance between Paris and Berlin. “The German attitude is egoistic, short-termist and does not take Europe’s interests into account, despite the fact that the risks are well established,” Harvard Business School’s Philippe Le Corre told the newspaper Le Monde.

Thus, additionally to external pressure, EU meets now rising internal contradictions as well.

Speaking on oil prices ceil, once again this is US impact on EU economy. US do not buy Russian oil, UK buys it indirectly, via India. As it was said and Bloomberg repeats - Russia Drafts Decree Banning Oil Sales to Price-Cap Participants. The Kremlin is drafting a presidential decree that will prohibit Russian companies and any traders buying the nation’s oil from selling it to anyone that participates in a price cap, according to a person with knowledge of the matter.

The decree will forbid dealings with both companies and countries that join the price-cap mechanism, the person said, without giving an exact definition of how participation in such a mechanism would be defined. It would essentially ban any reference to a price cap in contracts for Russian crude oil or products, and prohibit loadings destined for any countries that adopt the restrictions, according to the person, asking not to be named because the matter isn’t public yet.

Meantime, Russian Fuel Suppliers Rush to Beat EU Ban, Sending Exports Surging. The nation’s average daily exports of oil products from Nov. 1 to 10 jumped 22% from the prior month to around 3.17 million barrels, according to estimates from data and analytics firm Kpler. Despite, some embargo and banning acts, EU and UK keep buying Russian oil via third countries, such as India, paying higher price, but still getting necessary energy to their industries. We could say even more - Russian crude oil export to EU and UK have increased in 2022. Now, with new US initiative, the life could be beyond endurance, especially in the beginning of the winter. This is just confirm what we've said above...

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As you could see the water is really mud. And its difficult to find something better than gold (and other precious metals) now for long term capital saving. In general, there is few positive, but our readers can be more calm, because they know the real state of affairs. And we wish them a good weekend and a successful working week.

Technicals
Monthly

We do not have as many changes on technical side by far. Still, recent shifts are definitely positive. 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.

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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. Right now price stands near the top, it is not overbought, which has bullish sentiment.
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Daily

Here are no changes as well. Market has not touched 3/8 Fib level and turned up. Potentially it might be background of daily DRPO "Sell", if we get spike up, preferably to 1800 target. But while we have daily bearish trend, we still could get deeper retracement. So, on daily chart we do not have any clear trading setup:
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Intraday

So, we have to keep going with the plan that we've specified on Friday. Market is trapped between two important lines. Now it tries to realise bullish scenario. At least, here we have bullish grabber, that suggests upside breakout:
gold_4h_28_11_22.png


And on 1H chart Gold keeps bullish context, showing the pullback just to nearest 3/8 level and neckline. Hopefully bulls have taken position there already. Let's see how it will go. Currently short-term context is bullish and it is interesting to see what will happen after upside breakout and whether gold will be strong enough to exploit success.

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Sive Morten

Special Consultant to the FPA
Messages
16,963
Greetings everybody,

Gold picture is not simple as well. Yesterday we've got the same reaction as on EUR, with bearish reversal bar on the table. But a bit wider picture shows, that market might be forming upside butterfly to complete 1800$ target. So, if you intend to go short - it is better to focus only on nearest targets, somewhere around 1726-1730:
gold_d_29_11_22.png


Before position taking - keep an eye on 4H chart for bearish grabber confirmation. Gold has failed to break the trend line, forming bearish engulfing pattern. Thus, appearing of the bearish grabber is important:
gold_4h_29_11_22.png


Besides, market stands now at 5/8 1754 resistance level on 1H chart. And early downside reversal inside megaphone pattern should support bearish scenario. Potential target in this case should be around 1726-1730 lows:
gold_1h_29_11_22.png


Bulls should wait either for completion of failure this bearish setup. It is nothing to do by far here...
 

Sive Morten

Special Consultant to the FPA
Messages
16,963
Greetings everybody,

On Gold market we have the same story as on EUR - too slow action that doesn't fits to normal bearish behavior. On daily chart price keeps chances for upside butterfly:
gold_d_30_11_22.png


On 4H chart we've got bearish grabber as we've planned, but price hasn't followed it. Besides, now, overall action is start taking the shape of triangle, which is potentially bullish. Normally, market should had to turn down faster after re-testing of trendline and forming of bearish engulfing pattern. This has not happened:
gold_4h_30_11_22.png


On 1H chart price turns to diamond consolidation that is also not very typical for bearish market. Maybe something will change on NFP report or due to some another driver, but for now I do not want to take new short position, at least until we get clear bearish signs. Now bearish context seems insufficient:
gold_1h_30_11_22.png
 

Sive Morten

Special Consultant to the FPA
Messages
16,963
Greetings everybody,

As on EUR, Gold has been boosted up by J. Powell comments, and recent performance just confirms previous price action that was not looking like typically bearish. This moment has stopped us to consider any bearish setups by far.

Now, on daily chart, and with recent acceleration, the upside butterfly becomes our primary scenario with the same 1800 target and Agreement resistance area:
gold_d_01_12_22.png


On 4H chart market has broken finally the trend line, that we were waiting for few sessions already, and has erased downside AB-CD pattern finally.
gold_4h_01_12_22.png


On 1H chart diamond consolidation has been broken up, now we do not consider any bearish positions by far, waiting for completion of major target on daily. Here bulls probably could consider position taking, but have to control that recent thrust is not broken - 1745$ lows have to stay. But, 1759-1761 support area also could be used as signal area. Normally, bullish market should not break it down. For position taking you could consider 1770$ FIb support as well.
gold_1h_01_12_22.png
 

Sive Morten

Special Consultant to the FPA
Messages
16,963
Greetings everybody,

So, Gold has hit predefined 1800 XOP target, but it has happened slightly faster than we thought :)
Since market is not at overbought, it could climb higher, at least to 1.618 target of our butterfly pattern. Still, I hope that B&B will start and we will get reverse H&S pattern here as well. At least right now we still keep it on the table:
gold_d_02_12_22.png


4H chart shows that the next butterfly extension is 1823$:
gold_4h_02_12_22.png


As on EUR - here, on Gold, we also do not consider any short positions by far. Bulls could watch for minor pullback, hardly lower than 1785 area, to decide on long entry with at least 1823$ target:
gold_1h_02_12_22.png
 
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