Gold GOLD PRO WEEKLY, October 24 - 28, 2022

[Sive Morten]

Fundamentals

So, as I've promised we will touch the political topic a bit, as US elections are coming to the culmination point. Yesterday we've considered recent US statistics, updated real estate and bond market - crisis processes are accelerating but Fed has some margin of safety due to the job market stability (by far) and controlled negative factors. It means that hardly we could talk about Fed pivot, at least this year. By the comments from the Fed members, they confirm commitment to struggle inflation whatever cost. But whether they will be able to accept this challenge when job market will start deteriorating?

Gold surged as Japanese authorities intervened to prop up the yen, further driving down the greenback and increasing the appeal of the precious metal. Bullion surged as much as 1.8% on Friday, the most in more than two weeks, and was on pace for a weekly gain, while the dollar and Treasury yields pushed lower amid expectations that large interest-rate hikes by the Federal Reserve may soon be over.

The dollar and bond rates sold off after the Wall Street Journal reported that some Fed officials are concerned about overtightening, after having raised the policy rate by 3 percentage points since March, with another three-quarter point increase anticipated next month. The US currency weakened further after Nikkei reported Japan stepped in the market to support the currency.

“Gold is staging a comeback as expectations grow that this next 75 basis-point hike will be the last major one,” Ed Moya, senior market analyst at Oanda, said. “The peak of Fed tightening appears to be right around the corner and that is good news for bullion.”

The Fed’s relentless monetary tightening to fight inflation this year has sent bullion down about 20% from its March peak, with investor holdings of gold-backed exchange-traded funds -- a key pillar in driving prices to record-highs in 2020 - set to record a net. As we've said previously Fed has choice only between bad and very bad scenario. More people start to suspect that Fed will choose just "Bad" scenario.

"Bad" means massive dollar devaluation by starting QE again. This scenario anyway will lead to inflation, drop of the bond market and stocks collapse, but, at least, it lets to avoid default on national debt, because US Treasury could just print 31 Trln and pay out to all US Treasuries holders. Whether they will be upset? No doubts, but who cares? Legally, it will not be a default. On example of Brazil or Turkey we could see that economy could function with 50-100% inflation. But the major problem here - you never know when it will be over. This condition could last for decades.

"Very Bad" scenario suggests default on the US Treasury debt. This is hard landing that crushes everything and put the system on initial level when you could start from the blank again. More people start to suspect that Fed will go by first scenario. This is a bit smoother and slower crisis progress but almost totally uncontrolled. Here is what Peter Schiff said. We know that he is a big fan of gold, but still:

Next is N. Roubini said Bloomberg that we should not listen what Fed is telling. When he was asked, when Fed will pivot, he said the following:

Well, the Bank of England already wimped out. And if you remember what happened in ’18, ‘19, in December of ‘18, the Fed went from 225 to 250, then they said, ‘we're going to go to 3%, we're going to continue QT.’ What happened during that quarter? Stock market collapsed by 20%. High-yield spreads go from 300 to 900 and the entire CLO leveraged loan market shuts down. Two weeks later, January 2nd, 2019, Jay Powell comes up and says, ‘I was kidding when we said we're going to go to 3%. I was kidding when I said we're going to continue QT, we're going to stop raising rates, we're going to stop QT.’ And two months later, because there was a slowdown of growth, given the tension between the US and China on trade and because there were some problems in the repo market, what do they do? They cut rates from two and a half to 175 and they resume QE through the back door, through the reserve repo operation.

This was for a mild, mild financial shock and a growth slowdown. That's what they did. They totally wimped out. They totally blinked. Even the Fed. Later on the BOE. So when are they going to do it again? When the recession's going to start and it's going to get ugly and it's part of the recession. Inflation is not going to fall fast enough, because you have the negative supply shock. Remember when you have negative supply shock, you get the recession and high inflation, therefore we're not going to get a fall in inflation that’s rapid enough to go to 2%. And we're already in financial stress right now. Stock market down 25%, S&P, Nasdaq more than 30%. Meme stock collapse, stock collapse, crypto collapse, private equity collapse, housing is collapsing. CLO market is shut down, leveraged loan market is shutdown, high-yield spreads are already at 600+. Even high-grade is at interest rates like you’ve never seen in years. And this is just the beginning of that pain. Wait until it's a real pain. And then you have even a major financial institution that may crack globally, not in the US maybe now, but certainly internationally. There are couple of firms that are huge and systemic. They can go under. You might have another Lehman effect, then the Fed will have to wimp out. You'll have a severe recession and you'll have a financial market shock. They're going to wimp out for sure.

It's scary what's happening. And then if on the top of it, to fight inflation now we’re going to have a severe recession and unemployment going to 6%, 7%, 8% or more, and then your assets are collapsing, the value of your home, the value of your stocks and your debt service [cost] is going to go to a roof, there'll be a revolution. That's why the Fed cannot but monetize it because we're already having huge amounts of social tension.

It's going to get more ugly because we're already at the breaking point. We could have, literally in the US as we know, entire books written recently about the risk of civil war, violence, insurrection, succession. This is what is the risk that US is facing, let alone other countries. Not maybe in these elections, but in 2024. So we're already in a real time bomb in terms of social and political pressures and an economic crisis and a financial crisis and a geopolitical crisis that is going to make these things much worse. Much worse.

And it almost seems like the Fed's goals here, they're almost anti-American at this point, or like anti the American dream, right? Make housing more expensive, crushing demand, crushing the labor force. What are going to be the social consequences of central banks having to do this in order to put a cap on price increases?

I suggest you to read his interview in a whole. Maybe it is not the truth of last resort and it is arguable, but it worthy of our attention. Still, despite Fed policy already has triggered massive collapse of the markets across the board, BofA Says Investor Capitulation Yet to Show Up in Equity Flows. With inflation remaining persistently high and risks of a recession growing, stock markets have more room to fall, strategist Michael Hartnett wrote in the flows note, dated Oct. 20.

Hartnett said he remains negative “despite ubiquitous bear sentiment,” with global recession and credit shocks just starting. Strategists at Citigroup Inc. and Morgan Stanley also warned this week that both earnings estimates and equities have yet to fully reflect the outlook for slowing global growth. Even JPMorgan Chase & Co.’s Marko Kolanovic, who has been Wall Street’s most vocal bull this year, trimmed risk allocations in the bank’s model portfolio as he grows more cautious. Bank of America’s note showed the exodus from European stock funds continued for a 36th straight week.

Stock market comparision with performance in 1937 definitely shows that it still has room to fall. Actually if we consider current S&P chart with the crisis performance in 2000, 2008, 1929 - we see very similar chart. Previously we have shown 2008 chart comparison.

Now we have absolutely similar processes to 2008 crisis that N. Roubini talks about. He and P. Schiff think that Fed is bluffing, and we should see it as soon as markets will pass the "point of no return" with big collapse on all markets, once Fed will announce the rate that markets can't care. It seems that this point yet to come. Fed angles for more rate hike and see what will happen. Now, it seems that 4.75-5% is not this point yet, although, even now with 3.5-3.75% rate crisis processes are significantly accelerated already. Until we get it, gold remains under pressure, although it resists pretty good, keeping 1600 level, which is actually just 3/8 monthly retracement level.

Here I also would like to touch the topic of L. Truss resignation. But not because she set a record for the minimum term of premiership. The fact is that she came to this post with a program of economic reforms, and quite radical ones. It makes no sense to discuss this program anymore — the actual collapse of the pension system and other problems forced the UK government to abandon this program. It is possible that Truss had to carry out this program at the cost of her own authority and position, but as a result, instead of a kamikaze hero who sacrificed his career for the sake of the country and the people, but it has become a "big nothing". The plane has not even taken off, falling apart immediately in the process of starting the engine.

There may be several reasons for this, starting from the weakness of the L. Truss as politician, who has failed to overcome bureaucratic difficulties, and up to the objective problems of the UK economy. It is possible that economy has reached such a condition, when any attempt to change something only stimulates a sharp decline. However, such a situation is quite common for a structural crisis.

In any case, the history of the L. Truss has shown that, first - reforms in the current situation are a dangerous matter. Second - it becomes clear that there are no simple ways out of the crisis. Finally it significantly hurst the reputation of all liberal governments in all countries of the world (including J. Biden administration in the United States), because the story has shown a clear negative example.

Few political issues

There are few exceptionally important things have happened last week. First is, it seems that US political establishment is written-off the J. Biden's team. After public degradation with OPEC+, Mr. Xi was elected on a 3rd term, and now the US has lost even theoretical chances to make impact on political establishment and foreign policy inside the China in general, and around Taiwan situation in particular.

Recent polls stand not in favor of the Democrats. Current poll shows minor advantage of Republicans, but they get more pace:
⦿ OH: R+12, FL: R+10, AZ: R+6
⦿ GA: R+6, NC: R+6, WI: R+4, NV: R+4

D. Trump has made correct conclusions from previous elections and learned the lesson. Now most vulnerable states are in the pocket of Republicans already:

Besides, Republicans keep active campagne and call to not use internet or electronic voting as it could be easily manipulated - only personal appearance on polling place. The struggle is becoming really hot. J. Biden indirectly has confirmed the victory of Republicans, maybe he didn't understand that he did it. If everything goes legal - Republicans will take Senate, additionally to Congress and Democrats hegemony will be doomed. Democrats know it. This explains why there are a lot of probes of D. Trump and his nearest followers, such as M. Flynn, and others in recent time. Everybody should remember FBI raid on D. Trumps Mar-a-Lago estate. Now this one - Trump's company faces criminal tax trial as his legal woes mount. What is the reason for that? Very simple. The only way to defeat the Republicans is to destroy its major candidate - D. Trump. They can't defeat them on fair elections and in fair political struggle. The only way that should look like legal more or less - is to jail him, whatever reason it will be. That's what they try to achieve now. But american people are not stupid, they understand which way the wind blows. People are ready to fight for their prosperity and future as recent events run the cup of patience over. It start smelling like social confrontation. N. Roubini also talked about this:

There is already massive political polarization. There are already so many people who are angry, whether they're voting for the right or the left, it doesn't matter. There are those who are left behind, those who have been screwed by globalization and the current sets of policies, those who don't have jobs and skills and income and well, you have, you know, 100,000 deaths of despair every year in the US from opioids and other drug overdoses. You have 2 million people that are addicted to opioids. This is a massacre. Literally a massacre. People are helpless, hopeless, jobless, skilless, worthless, and they're desperate. That's leading to that resentment. And people either voting for on one side, Trump or right-wing conspiracy types, or for very extreme leftist policies, depending on whether you are socially and religiously conservative as opposed to liberal.

We could have, literally in the US as we know, entire books written recently about the risk of civil war, violence, insurrection, succession. This is what is the risk that US is facing, let alone other countries. Not maybe in these elections, but in 2024. So we're already in a real time bomb in terms of social and political pressures and an economic crisis and a financial crisis and a geopolitical crisis that is going to make these things much worse. Much worse.

Not occasionally we have the cover from the Economist (we've put it in our previous research):

Now it is the Time :

This is not some yellow press. This is solid journals. The risk of social collusion increases if Democrats will try to falsificate election results. I'm sure that D. Trump is ready, hardly he will make the same mistake and there is some trap around this scenario. But potentially this could lead to big social unrest. Actually they were, but locally without big united motion across the country. Now situation might be different. In 2020 people were more or less happy and satisfied. Now they are not, or at least, not as previously.

From the D. Trump and Republicans point of view, everything should collapse before the election and blame all the troubles and failures on J. Biden. The surrender of their Vassals around the World, along with the Collapse of Stock Markets and Old Money, will all fall on Biden and his "Circle of trust". To do this, Trump weeded out the traitors of the Republicans, taking into account the elections of 2020. who enlisted his support but betrayed him in the elections (RINO).

If the Stock Markets will fall after the Election day, then we do not envy to D. Trump and Republicans, as there will be a reason to blame Trump and his followers for all the troubles. D. Trump and his "updated" team come for drastic change the course but not to correct all the mistakes after J. Biden and the Democrats. Now, from big picture view, it seems that two years of CV19, lockdowns, the collapse of world chains, printing $9 trillion, acceleration of inflation to the moon, Oil and Gas Crisis. It was necessary to come up with such a Biden to break everything in two years. There are only 18 days left until the elections on November 8th. Let's watching.

Recall what we've talked last time - D. Trump and Republicans represents conservative (Industrial) political establishment of the US that intends to focus on AUKUS structure and domestic economy, mostly rising production level but not the financial sphere. Democrats and big banks represents their opponents of liberal financial establishment that now stand at the edge of the defeat. It seems that these two sides haven't come to agreement in summer. This explains many things. First is - acceleration of Russian Military Operation right since summer and public J. Biden team write-off on foreign arena. Some statements from B. Obama and E. Musk also indirectly shows that. In particular, B. Obama, speaking about the weapons supplied to Kiev, Obama urged:

"to pay attention to where the defense ends and the attack begins."

And you could find a lot more examples among senators and congressmen from both parties, hinting that J. Biden is doing something wrong. These signals have exacerbated in recent month. In fact, when Biden won elections and has become a President, there was a prophecy picture in "The Time" - D. Trump gives crushing ship to J. Biden, suggesting that it should complete the crush:

Meantime, Joe Biden Announces Release of Another 15 Million Barrels of Oil from Strategic Reserves to Boost His Chances in Midterm Elections. Biden continues to deplete the US oil reserves in order to artificially bring down the price of gas. It completes the release of 180 million barrels authorized by Biden in March that was initially supposed to occur over six months. That has sent the strategic reserve to its lowest level since 1984 in what the administration called a “bridge” until domestic production could be increased. The reserve now contains roughly 400 million barrels of oil. This is merely a political ploy ahead the midterms to help Democrats hold on to the House and Senate. Just two years ago the Democrats blocked President Trump from filling the Strategic Oil Reserves at $24 per barrel.

For the first time since 1983, strategic reserves (orange) have become lower than commercial oil reserves (yellow), and the overall level is at its lowest since June 1984. Now oil sales from strategic reserves are taking place at a rate of 70 million barrels in 12 weeks:

With imports stagnating over the past six months, exports of oil and petroleum products from the United States are at their highest ever – over 10.4 million barrels per day on average over the past 4 weeks. The energy doctrine has fundamentally changed and the United States has transformed its energy balance from the main importer of oil in the world to the leading exporter. This, in turn, is reflected in geopolitics, both in the Middle East and Europe.

Previously, friendly relations with Saudi Arabia and key OPEC countries were the key to US energy security, and now Americans can easily light the "fog of war" without reflecting on the ability to ensure the stability of the energy balance, especially since most of the imports are confined to Mexico and Canada. Moreover, now the United States is becoming a leading player in the European energy market, even at the cost of eliminating its own strategic reserves. The rate of dumping of strategic oil reserves in the United States corresponds to net exports from February to October. It means that they cover export to EU by burning reserves to satisfy domestic demand.

But it makes as US as EU exceptionally depended to crude oil market fluctuations and supply. Exhausting of reserves makes US to lose the safety margin and potentially could lead to collapse. Besides, from pure economical view. If US domestic prices holds by burning of national reserves - what price will be when reserves will be over? Just read comments to the article, guys. They are, by the way, also show the attitude to J. Biden and his team.

Conclusion:

The major thing that we could say now - we have to be patient. Crisis situation is coming to the nosedive, maybe uncontrolled. Taking political and economical situation we could say that chances are above zero that Fed is bluffing and comes to the point when it will have to acknowledge this, turning to QE in some way. Second - all sins supposedly should be put on J. Biden administration. Otherwise, it is not a big sense in Republicans victory now. Hardly D. Trump desires to clear out the Augean stables after J. Biden. It would be easier to let them drive everything to collapse, and come on 2024 elections with the clean slate. Meantime the degradation of J. Biden team on foreign arena is absolutely evident. US can't manage foreign affairs for another two years with this team. This is obvious. Something should have to change.

Our economy analysis that we've made yesterday confirms that crisis processes are controllable by far but accelerating, and coming to the point of no return. All these moments tell that gold reversal should happen earlier, but until everything is going to the point - it remains under pressure. This lets us to consider current price level for long-term investment and accumulation of the metal as attractive, but it seems that we should be more conservative in short-term trading now.

 

[Sive Morten]

Technicals
Monthly

October mostly shows indecision action by far, flirting around 1615 lows. This is good to us, as gold shows good resistance, standing above 1600 area despite external negative factors. MACD trend still stands bearish by far. Performance shape also looks bearish, as market stands near monthly lows. Gold gets more pressure in nearest 1-2 months as the degree of entropy should increase. But, despite downside action price feels absolutely comfortable around 1600-1650 support area. Pay attention that this is just 3/8 retracement on monthly scale.

Based on our fundamental view, gold has more chances to stay around 1600 rather than keep going to next strong support area of 1400-1420, but it would be naive to promise something now.

Weekly

Despite recent upside bounce, we still can't treat it as a bullish scenario. Trend remains bearish here. Retail broker's chart shows the grabber, although CME futures do not confirm it. Anyway, last week sell-off was relatively strong, and currently gold performance looks more like the bounce but not a reversal yet. Appearing of clear bullish pattern could our view. It would be perfect if its appearing coincides with some important political event:

Daily

Although on a daily chart we have reasons to consider short-term bullish scenario. We've got bullish reversal session on Friday, that soon might be accompanied with divergence. Now we do not have it yet, as MACD is still bearish here. Nearest upside potential seems at 1700 area - daily overbought:

Intraday

On 4H chart market has broken the channel and now stands at K-resistance area:

Thus, on 1H chart, short-term traders could consider reverse H&S with the pullback to 1632-1642 levels. Maybe some other pattern will be formed:

And I just thought... all news agencies explain recent rally here by BoJ intervention. I do not know whether this is true or not, but... if BoJ has sold a little bit from its 1.3 Trln USD reserves and pushed gold, making dollar weaker. Soon other countries could follow... The dollar strength is double edged sword and both sides could play this game...

 

[Sive Morten]

Good morning,

Although gold is going well with our trading plan - we've got bad surprise on daily chart, at least for the bulls. For the bears it might be positive one Its grabber(s). The one is already in place and another one could be formed today:

So, if the recent jump indeed due Japan intervention, as media suggested - it is reasonable. Once short-term support exhausted, gold is turning down again. Also I would like to say - Japan has burned only $50 Bln of its reserves for two interventions, and that has pushed gold higher solidly. Now China has pegged yuan to dollar, which means more dollars should be sold in nearest time. Besides, who knows maybe Japan repeats intervention as recent one has not helped to much...

Anyway, on 4H chart we've got the pullback out from K-resistance that we've discussed.

And reverse H&S shape is not destroyed yet, potentially it could work. Here we suggest that 1635 support area is a vital one, which is also Agreement with downside COP target. If gold has bullish sentiment - it should hold this level and start upward action. Besides, it is vital for the shape of H&S as well. If it fails, then grabbers won. And we should be ready for drop under the lows. BTW, it could lead to appearing of downside butterfly on daily chart, and we have uncompleted weekly 1595 target as well...

So, situation stands tricky indeed. If you decide to buy - try to minimize potential loss. First is avoid position taking if strong downside action happens. Second - do not place too far stop. Right under support area should be enough, or slightly lower. It is not needed to place it under 1615 lows.

Those who would like to sell - you could stick with the grabbers. That's all. Reward will be high if they work.

 

[Sive Morten]

Greetings everybody,

So, Gold now is driving by the same factor as EUR - Japan and China have to sell USD to support own currencies. This provides technical support to the gold. The only problem - we do not know how long it will last. Still, it should be long enough for daily patterns, as it is more time needed for investors to abandon Chinese stock market...

Anyway, technically gold looks strong enough to let us set another upside target. As we do know the background right now - the bearish grabber that we have here has low chances to work:

On 4H chart gold has broken K-resistance, H&S now is evident to everybody. Its target stands at 1685-1691, in Agreement with major 5/8 resistance level :

Gold was able to hold vital support of 1635 and H&S pattern. If you haven't taken position there, but would like to buy - consider minor pullback out from the neckline and use nearest support level. Here by the way we have minor H&S in a place of right arm as well. As you understand - no shorts by far:

 

[Sive Morten]

Greetings folks,

So, Gold shows not as bright performance as EUR, right? And, in fact, it now stands at vital area as you will see below. On daily chart, since overall action is losing the pace, I've put potential bearish pattern. Some gut feeling tells me that we should not rely too much on current rally, at it seems a bit artificial to me and driven by some specific short-term technical factor. Supposedly this is intervention from China, Japan and Switzerland

As we've suggested price hits the the neckline. And now it becomes most interesting stuff. To prove the bullishness market has to stay near neckline, it should not show too deep pullback:

By looking at Fib levels, first K-area is preferable, we could accept the 2nd one @ 1650. But it is vital. Downside breakout puts gold back to the 1635 shoulder bottom, which almost equals to the H&S failure and daily butterfly starts playing...
Thus, bulls - could watch for mentioned levels, bears should sit on the hands by far...

 

[Sive Morten]

Greetings everybody,

Yesterday we've discussed some doubts on bullish perspectives, because of weak Gold performance on intraday charts. Now we expect pullback at least on FX market and Fed will take action on Wed next week, so, for the gold it could be solid pressure in near days. Thus, we keep our butterfly shape here:

On 4H chart I've checked the spike of the right arm on CME Futures. Because if would not have it - it might be right arm is just forming. But, no, on futures it also exists. It means that current performance is irrational to the pattern and brings high chances of failure:

Gold was not able to follow perfect bullish scenario with just minor retracement to nearest K-area. This area has been broken. If you bought there yesterday, bounce up was nice actually, but now you probably stopped out @ breakeven. The last hope for the bulls is next, 1650 K area. Yes, we have strong level, Agreement with XOP, but to be honest, guys, I'm not fascinating with it. Gold is dropping too fast with AB-CD pattern. This has not to happen on a bullish market. And I suggest to not take new long position by far.

 

[ZuoRd]

Can always rely on Sive Morten for good analysis