Gold GOLD PRO WEEKLY, September 19 - 23, 2022

Sive Morten

Special Consultant to the FPA
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Fundamentals

For the gold CPI also has become a major trigger - market has dropped, completed major downside targets and now is coiling around 1650 area. On the gold market we have to understand few absolutely vital moments to avoid unnecessary frustration when we get next downside swing. First is, take in consideration that investors are thinking with the patterns, some well-known cliche that were working nice for few decades. These market patterns now plays evil tricks bring upsets to both sides. The major pattern suggests -
yields are going higher, rising attractiveness of interest-bear assets, such as bonds, because gold pays no interest. If Fed is rising interest sooner or later, inflation should slow down, while rates remain high for some time that should become another impact on gold market. Finally, as Fed is still rising rates - this cycle is still in the beginning, so we need to sell gold.
With the 1% rate change on horizon, as we've discussed this yesterday in our FX Report, it makes investors to be even more aggressive with this strategy. Above mentioned pattern suggests that real rate should turn positive, or at least equal to inflation for some considerable time. Now nobody considers the scenario when real rates remain negative and Fed can't reach breakeven level with the inflation. Nobody is thinking yet that inflation now is not just the by-product of the economy cycle with stable and strong economical system, but already the reflection of US Dollar devaluation. And we are, as gold investors, should be patient, to give market time until this understanding will come. Meantime - gold remains under pressure, because everybody believes that improvement should come soon and everything will be absolutely the same as it was in previous cycle. As we do know this, it should not become a surprise current gold drop due predictable market reaction. Situation will not change until investors understand that everything is going out of the pattern limits.

Somehow investors do not see that inflation that was promised to be "temporal" by the Fed, stands for 17 months above 8% and even rising in recent few months on a background of unprecedented Fed rate hike. Doesn't it prove that monetary tools of inflation control have limited effect and do not work. Nobody pays attention to record negative of "-6 - 8%" US Bonds interest rates and Fed efforts absolutely do not help to fix it. Nobody things about the reasons of suggesting that inflation should return back to 2-3% within the next five years. Why? Just because forward rate shows this.
The revelation comes when situation goes out of the pattern. When investors start getting absolutely different results compares to what pattern suggests and what they have expected. This should become a turning point. Supposedly it could happen within 6-9 months.
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Second moment - current gold's drop has pure technical reasons as well. Keeping aside any fundamental reasons, patterns and so on - markets now simply needs more cash to serve the debt. 70% of all USD-nominated debt has floating rate. Thus, higher rates - higher interest payments, but where to get cash? Right - by buying USD on FX market. More demand for USD pushes down other currencies and gold.

Thus these are major tactical drivers for the gold that make negative effect on it. Actually, our forum member Pieter, has put yesterday good Kitco analysis on this subject. Since Kitco starts talking about this, maybe some understanding slowly but gradually is coming.

Yesterday we've made an update of fundamental situation in the US economy, taken a look how it goes, and come to conclusion that no signs of improvement on the horizon. Situation in Real Estate market becomes dangerous already. This stands in favor of gold in the long term, as it has the same reaction on economical fundamental processes as FX market.

Today we intend to take a look at few specific moments, especially, situation on Crude Oil market. It is not because oil has tight relation with gold. But because oil now is a political tool and directly impacts on the conditions of global economy - the US and EU in particular. This in turn, makes impact on major statistics and Fed/ECB policy and... gold. Also there are few interesting political moments this week.

Crude Oil market tricky situation
Currently it is a bit unique case, as we intend to talk not about the crude oil itself, price levels etc., but how recent steps of US administration, Germany and Russia could significantly impact on the performance of the US and EU economies. Yesterday, talking on CPI report we've brought Peter Schiff quote.

Imagine how much higher the CPI would have been if Biden had not depleted the Strategic Oil Reserve. As soon as the reserve is empty, imagine how much oil prices will rise if we ever fill it again. Then imagine how much oil prices will rise if we don't do this.
If you remember last week we've mentioned that the US has burned unprecedented amount of oil strategical reserves, pushing them down to 1983 level, just to take under control gasoline prices inside the country. But, this is only the half of the story. And, by the way - what's wrong with strategic reserves? :cool:
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The US Strategic Oil Reserve has dropped to 442 million barrels, the lowest level since 1984. The 25 percent decline this year is already the largest in a calendar year by a wide margin, and there are still 3.5 months until the end of the year. Preliminary data from the US Department of Energy shows that last week the SPR showed the largest weekly oil release in history, releasing 8.4 million barrels (~1.2 million barrels per day) to the market. Overall, the SPR is now at its lowest level since October 1984. This has let to cut gasoline prices in August-September, that was the reason why we suggested that CPI could be a bit lower in September.

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But now we're talking not about the CPI. Strategic oil reserves in the United States are melting at a rate of 70-75 million barrels in 12 weeks. Since February 24, 2022, the United States has disposed of 150 million barrels of oil, and before that another 50 million, stabilizing the gap between production and consumption.

Next week, strategic reserves will fall below commercial oil reserves for the first time since 1982. It seems that the red line is at the level of 400 million barrels of strategic reserves (now 434 million barrels). Normally, when they reach 400 million, they should either slow down sharply or stop export (in fact they have plans to put the brakes by the end of October). But it is hardly achievable. Why won't it come out?

Net exports of oil and petroleum products from the United States amounted to a record-breaking 2 million barrels on average for 4 weeks. Now the average oil and refinery products export stands for ~ 10.3-10.5 mln bls/day. At the same time, from March to September 2022, the United States is disposing of strategic reserves at a rate of almost 800 thousand barrels per day, accelerating to 900 thousand barrels/d from July, and net oil exports from March are about 1.1 million barrels/d, accelerating to 2 million barrels/d in September.

Accordingly, the potential of net exports is mainly due to the policy of utilization of strategic reserves. Almost all flows of oil and petroleum products from the United States are directed to Europe (more than 70% recently). It means that the only way to support EU oil sufficiency is to burn the US reserves.

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You could argue, telling - what's the problem, the US could extract more and just restore the reserves? The answer is - Nope. They can't extract more at this moment. Due to multiple "green" programmes, the shell oil extraction is frozen at current levels without any investments to expand. Over the past six weeks, the number of oil and gas drilling rigs has decreased for the first time since 2020. Companies are not increasing production even at current energy prices. In fact, US oil production has not changed in recent months.
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Actually all experts tell now that the US can't help EU with oil export this winter:

Financial Times: US not going to help Europe survive the coming winter
The publication reported that U.S. shale oil executives, with vast oil and natural gas reserves that could be used to mitigate the energy crisis in Europe, would not be able to increase supplies fast enough to prevent a winter shortage.
“It doesn’t look like the US can produce any more. Our production is what it is,” said Wil Vanloch, head of private equity group Quantum Energy Partners, one of the largest investors in the shale gas field. There isn’t any bailout for Europe coming from U.S. producers, “Not on the oil side, not on the gas side,” VanLoh added.

Analysts fear that the upcoming EU embargo on Russian oil will send prices to new record highs. According to the International Energy Agency, oil sales from Russia could fall by almost 20% when the EU embargo takes full effect, which is a vast amount for the global market to lose with Russia being one of the world’s largest petroleum exporters. Over the past several months, Europe has increased purchases of oil and liquefied natural gas (LNG) from the US, but according to shale industry executives, there is not much more they can do. The global oil market will have to prepare itself for a loss of 2.4 million bpd supply when the EU embargo kicks in, the International Energy Agency (IEA) said in its Oil Market Report earlier this week. An additional 1 million bpd of products and 1.4 million bpd of crude will have to find new homes, which could result in deeper declines in Russian oil exports and production, the Paris-based agency added.

We’re not adding [drilling] rigs and I don’t see anyone else adding rigs,” Scott Sheffield, the CEO of Pioneer Natural Resources, one of the biggest oil producers in the US, told FT.

According to the report, the overall number of operating oil rigs in the US has not grown in weeks, while the productivity of those in operation has dropped. Moreover, despite recent calls from Washington for the shale industry to hike production to lower prices at the pump at home, experts say that investors are unlikely to allow it.

Investors generally don’t want shale companies to pursue a growth model… The capital availability is extremely limited,” Ben Dell, the chief executive of private equity group Kimmeridge Energy, was cited as saying. In other words, there is no way to be sure that prices will stay high long enough to make up for the cost of drilling new wells.

Do you want to know what Germany did on a background of all this stuff? Take a look:

Germany takes control of Russian-owned oil refineries
Germany’s economy ministry announced on Friday that it had temporarily taken over Russian oil giant Rosneft’s subsidiaries in the country. Rosneft Deutschland and RN Refining & Marketing account for about 12% of Germany’s oil refining capacity, the ministry said in a statement. The Schwedt refinery is particularly important to Germany’s energy needs, processing about 220,000 barrels of crude a day. It is responsible for supplying about 90% of Berlin’s fuel, according to Reuters.

So, they have Refinery, but where they will get the oil? Russia delivers crude oil to the Schwedt refinery via the Druzhba pipeline. The German economy ministry said that it would try to find alternate supply routes. Would you like to take a look at Druzhba map (Green)?

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And now the major question. How do you think, what Rosneft will do, as response to Germany so called "temporal take over" of its property? Right, it just cuts the pipe:

"We are preparing for possible short—term restrictions in the supply of crude oil via Druzhba," the Rosneft company said in a statement.

You will be laughing maybe, but take a look what Germany did in response -

"The Federal Government will continue negotiations with the Polish government on the framework conditions for oil supplies through Gdansk to Schwedt as a matter of priority. The same applies to the negotiations between the federal government and the government of Kazakhstan on the supply of Kazakh oil through the Druzhba pipeline in order to provide additional volumes for refineries this year," TASS quotes the statement.
Now - take a look again on the map above. Do you see Kazakhstan anyway near the Druzhba pipeline? :confused:

Ok, we've found out that it is troubles with the oil, but how it relates to the Gold? I guess you get it already. US provides 70% of oil export to EU, mostly by burning its strategic reserves. They can't increase shell oil extraction. Now reserves are dropping below the vital area, so, in October right before the winter, they cut crude oil export to EU. Meantime, Germany does everything to close Russian supply as well. Now the question - what will happen in the crude oil price by the end of the September and October? Right. As a result it means another energy inflation spiral, which nullifies any ECB and Fed efforts to hold it, pushing real yields back deeply in the negative territory. Stock market crush inevitable, as Fed stubbornly will keep rising interest rates with CPI/PPI numbers above any logical limits. Don't forget that August is over, people back to work, so demand for the fuel will increase. Gold will get new source of support from the fruits of structural crisis.

Few political issues
Also we would like to show you briefly few political issues that might be the signs of big changes. First is - special order from the Pope, concerning Vatican assets. All of them should be returned back to Bank of Vatican by the end of the September. Whether they do know something?

Pope Francis instructs Vatican entities to move all funds to Vatican bank by Sept. 30

Pope Francis has ordered that the Holy See and connected entities move all financial assets to the Institute for Works of Religion (IOR), commonly known as the Vatican bank. According to Francis’ rescript, financial and liquid assets held in banks other than the IOR must be moved to the Vatican bank within 30 days of Sept. 1, 2022.
The IOR, based in Vatican City State, has 110 employees and 14,519 clients. As of 2021, it looked after 5.2 billion euros ($5.6 billion) of client assets.

Next political issue supports our long-term view that EU, as a project will be closed, or deeply reformed. And recent Poland-Germany confrontation is just the first bell.

Independent: Poland demands $1.3 trillion war reparations from Germany
Poland’s top politician says that the government will seek equivalent of $1.3 trillion in reparations from Germany for the Nazis’ World War II invasion and occupation of his country.

But this is not all yet. Poland imposes sanctions over Germany. (yes, read it again, guys).

Poles close their port to sea ships from Germany
From October 1, the port of the Polish town of Darlowo will be closed to seagoing ships from Germany. Owners of all vessels (including yachts) that are currently in the port of Darlowo, registered in Germany and German companies must "evacuate" their transport by October 1, 2022. A complete ban on German ships will be introduced in the near future. On September 14 the Minister of Infrastructure of the country Andrzej Adamczyk held a video conference with the heads of local ports, during which he announced the decision to suspend the reception of ships from Germany until the full payment of reparations to Poland for the damage caused during World War II. However, the ban will not apply to German ships that bring gas, oil, pharmaceuticals, medical products, and coal to Poland.:D

Life is becoming more interesting, guys... Another bell sounds in Scotland:

Scottish government seeks independence vote in Oct. 2023
Scotland's First Minister Nicola Sturgeon announced plans on Tuesday for a second referendum to be held on Scottish independence in October next year, vowing to take legal action to ensure a vote if the British government tried to block it. Sturgeon spoke as the Scottish government, which is led by her pro-independence Scottish National Party, published a referendum bill outlining plans for the secession vote to take place on Oct. 19, 2023.

Something tells me that this time the "Brave Heart" should win... Especially with the new UK Prime Minister:

Bloomberg: Iron Lady? UK Should Just Hope Liz Truss Isn’t a Laughingstock
Today the ascent to Downing Street of Liz Truss, amid the near-collapse of the pound and prospect of an industrial and social Winter of Discontent, represents a historic moment. Britain is in grave danger of becoming not merely diminished, but worse: a laughingstock.

Conclusion

Today, just to not repeat the same things that we've said in FX report, that have the same meaning for the Gold market - we've taken a bit specific, not common view on the gold market through the prism of politics and cross market analysis. The crisis processes are going as they should and as we've discussed in previous reports. Here we have no surprises. Fed has ability to stay on the surface for 6-12 months due to solid reserves that it has, but it can't change the situation and when reserves will be exhausted, the end comes. Fed is started to dissect the stock market already, as we've said households are started to sell shares.
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Goldman Sachs intends to fire as many as one to five per cent of its low-performance employees, come the next week. This will mean losing anywhere between 500 to 2,400 employees. While Fedex shares slumped for 20% on a background of expected business conditions to worsen for its next quarter. As a result, the company said it would cut its capital spending for this year by about $500 million from its earlier projections. Diesel prices has dropped for 13% this year, confirming decreasing of business activity. All leading indicators now point on the recession, I even do not show you charts, guys, while stock market, despite recent collapse is still two times above the fair value. Now we have P/E around 35 but it has to be around 14.8 for current inflation rate. And it will go down, no doubts. That's what about classic view on fundamental factors. All of them are supportive to gold market.
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But Gold market is so versatile and wide-applicable that it could have drivers in areas where you can't imagine. Now we show how conjuncture on crude oil market could impact on the future of the gold, irrelevant to the crude oil market itself. Political risks are also going up, especially in the US, as country is coming to elections. Results of elections could change political vector but we do not suggest any economical or monetary shifts. Despite the administration - whether it will be Republicans or Democrats - nobody of them know what to do with current economical problems. D. Trump now mostly is focused on critics of its political opponents without clear programme on how to restore the economy.

That's being said, gold might be depressed in a near term, until technical factors are working and pressing on the gold. But longer term perspective looks positive, and our task here is not to miss the reversal point of the century, or decade, at least. Unfortunately with so big bulk of drivers, most of them are hardly predictable, it is difficult to say what particular levels gold could hold. We've spoken on 1650 and now market stands around it but Fed hiking cycle is not near the end and more pressure is possible. The best buying strategy right now is gradual step-in, buying a little bit on every strong support area.
 
Technicals
Monthly

So, finally we have few changes on the monthly chart as well. Gold has completed $1670 major OP and formed "222" Buy pattern. Gold has dropped as deep as to 1652$ level here, but take a look how small this difference is, compares to the 1680$. Whether we could speak on downside breakout already? It seems not yet.

In general 1660-1680 area includes all kind of supports that we ever could imagine. Since market has some momentum, it could flirt around this area for awhile, until crisis signs in the US economy will become more evident, on a job market in particular.

For strategic investments, it seems that current level could be considered for gold buying, at least at some fraction of total position. With some circumstance, gold could start reversal right from here. In fact, we have huge "222" Buy here, with absolutely superb support area of 1660-1680$.
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Weekly

Here our grabber is done, trend remains bearish. Market also has completed, few other targets, such as local OP. Weekly oversold stands around 1630, so price could flirt a bit around 1630-1650 area. To make next trade decision we should wait for reaction, what response comes on strong support area and few targets achievement. Weekly chart doesn't show yet anything.

If stronger downside action starts, next meaningful targets here stand around 1600$ area.
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Daily

Trend here remains bearish as well. Next butterfly target also stands around 1600$ area. Now we need to see what reaction will follow. This week, 1740-1750$ area probably will be the ceil for the market as it coincides with daily Overbought area.
Market probably needs 1-2 weeks to form something on daily/weekly basis, so we have no choice but deal with some intraday setups by far.
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Intraday

As we've discussed on Friday, downside thrust here looks nice, so some DiNapoli patterns might be formed that we could watch for. And the first one is B&B "Sell", as market comes close to 3/8 Fib level:
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On 1H chart XOP is done already, but upside action is rather fast. Let's take a look whether market completes the butterfly and touches 4H Fib level, which is necessary for B&B pattern. Conversely, if level will not be touched and price will turn down instead - DRPO is the next pattern that we will watch for.

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Nowadays, politicians would stop at nothing to fill the agenda. Nothing is off the table: medical control of the whole planet, digital ID and control, war, mass starvation, anything goes. I don't see how this could end well.
Sive Morten is offering the reasonable analysis of the world that gives me confidence that I am not insane. Seeing my friends confident in the future, although they rely only on a lousy job that could easily vanish tomorrow, I sometimes wonder if I am only imagining things.
My best whishes for every good and kind person!
 
Morning guys,

As a expected, Gold stands quiet, just waiting for Fed. Today, guys, actually we need to clarify only one minor thing with DRPO on 4H chart. On daily one we have nothing new by far:
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While on intraday charts Gold shows very similar performance to EUR. Here guys, on 4H chart, it seems that we still have got the B&B "Sell". By looking now, we should had to use different reaction point for the downside thrust, not the absolute top at "C" point, but the top to the right - of thrusting bar, where thrust directly has started. That gives us lower Fib level and it seems that B&B still had happened...
Anyway, right now we do not have DRPO, but not because of completed B&B. But because of the way how price moves. DRPO suggests bears' capitulation on attempt to break the lows, but we do not see any attempt. Downside action is just a 5/8 retracement after initial upside bounce. This is not the way how DRPO behaves:
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It means that the only pattern that we have on 1H chart is AB-CD - the same as on EUR. Now 1685 Agreement resistance seems as most probable upside destination. We have XOP agreement as well, around 1700-1705$, but it could be completed only as a result of some Fed comments. Technical picture stands in favor of 1685 area.
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Sive, SIR Sive!
Your Fundamental analysis on Sunday was absolutely awesome. Fantastic. Amazing. Thank you
Thank you mate, its great that you enjoy it. Now we need just to wait when it will be realised in practice;)
 
Greetings everybody,

Gold shows no activity at the eve of Fed statement. Daily picture shows appearing of the pennant, which is potentially bearish. We have two downside targets for today - 1647 and 1600. First one probably will be reached with no doubts.
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On 4H chart we have very similar butterfly as on EUR today, and with the same 1647 target. Don't pay attention to recent upside spike that makes butterfly shape a bit ugly, this is outstanding emotional reaction on Putin's statement that is over within recent few minutes. The same reaction stands on EUR.
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Soon market turns back to the Fed, so, just imagine that recent spike doesn't exist:
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Greetings everybody,

Here reaction was not as bearish as on FX market. Gold gives us big volatility on intraday charts but no direction at all. Thus, on daily chart picture barely has changed - price stands inside the pennant, so we just wait for completion of 1645-1650 target here:
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If you do not have short position - it is few that you could do now. Market has formed high wave pattern and direction currently depends on breakout. Possible scenario that you could consider - using of Stop "Sell" entry order slightly above the bottom, hoping that gold will challenge lows within 1-2 sessions. Because we do not have any clear patterns neither here nor on 1H chart. For the bulls it would be better to wait for completion of daily butterfly target. Besides, we do not have any bullish performance as well by far.
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Greetings everybody,

On a gold market now we start to see more bearish signs. They do not promise strong downside action but suggest testing of former lows, at least, and complete 1650 butterfly target. First is on a daily chart - take a look that price starts flirting with the MACD and we could get bearish grabber :

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Most important things we have on 4H chart. First is - recall our HW pattern, it has not been broken, market still stands inside its range, showing indecision. Meantime, MACD is growing while price stands flat - this is the sign of bearish dynamic pressure.
Finally, just compare how long downside thrust is and how long price stands flat after that. Almost similar amount of bars. And sideways action stands strictly under 3/8 resistance level. It means that market for a long time can't move out of 3/8 restriction, showing the weakness of the bulls as well:
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On 1H chart we do not see anything particular interesting. Recently we've got "222" Sell, but right now no other new patterns have been formed.
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It means that now we do not have good intraday setup for short entry. You could apply just "general" entry on 4H chart - take position inside the range with stop above HW. Alternatively - wait for another pattern on 30-min chart.
If you consider long entry on gold - it would be better to wait until downside target will be completed and stops below 1650$ will be washed out.
 
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