Technical Analysis

Monetary conditions continue to tighten and the debate over whether the Federal Reserve would pivot to weaker rates in the face of recession fears appears to have been settled with hawkish commentary at Jackson Hole Symposium, which has also knocked the recent ‘BRM’ – Bear Market Rally. The USD was bid up on continued expectations around tightening. Inflation prints – and projections – moved higher, especially for the UK. Inflation break-evens remain very low.

The USD continues its powerful rally. Why? The yield gap between the Dollar and its major trading pairs continues to dominate. The ECB is also not only slow to tighten, but the Eurozone also faces serious trade balance issues that arise directly from the tripling of energy imports  Markets await expected ECB tightening on July 21st and will Nordstream 1 come back online on Thursday the 21st after scheduled maintenance? Most likely yes… it’s a huge FX earner for Russia, and winter hasn’t yet come…

The USD continues its powerful rally. Why? The yield gap between the Dollar and its major trading pairs continues to dominate. The ECB is also not only slow to tighten, but the Eurozone also faces serious trade balance issues that arise directly from the tripling of energy imports  Markets await expected ECB tightening on July 21st and will Nordstream 1 come back online on Thursday the 21st after scheduled maintenance? Most likely yes… it’s a huge FX earner for Russia, and winter hasn’t yet come…

May saw USD gold decline to US$1787 spot, before reversing to display significant support at the Weekly Ichimoku cloud.

Gold traded to within five US dollars of the August 2020 highs before rolling over very rapidly as the initial ‘insurance effect’ diminished, despite justified fears of broad-based inflation and lower real GDP impacting returns in other asset classes. Concerns about stagflation and recession grew…

Gold in January made a spot high of US$1,853.87, just within US$10 of the Weekly Cloud top, a key resistance level for gold in recent months, before sliding off over sixty US dollars to a wan-looking close at around US$1,791, the weakest close since early December.

Gold closed 2021 a little higher, with a two-phase rally distinguished by short covering in the period from mid-December through to early January, with new longs arriving in late December.

The pivot to a faster pace of taper allows the Fed to raise rates sooner and expectations have moved relatively quickly with the Fed no longer lagging market expectations as sharply as before.

This month, Nick Frappell discuses inflation has been the theme that has energised gold – particularly in the sense of really testing the ‘transitory’ beliefs deployed by the Federal Reserve.

The US debt ceiling problem has been delayed by around seven weeks and Republicans joined the Democrats to break the Republican filibuster. Hundreds of billions were added to the statutory debt ceiling, and the US avoided the October crunch date.

The dominant (market) news for August was the Jackson Hole symposium, where Fed Chair Jerome Powell gave a dovish speech, followed by some weak ADP and NFP data. Given the focus by the Federal Reserve on the primacy of labour markets and the goal of full employment, the effect was initially US dollar weak and supportive of gold.

This has impacted Australia of course, and the other 131 countries that it has spread to bringing with it the appearance or possibility that it will out-run vaccine development and distribution at this point in time.

Gold dropped from the recent high as markets absorbed the Fed thoughts on tightening, interpreting the notes as evidence of faster rate of tightening and sooner than expected.

Gold fell sharply, and the Dollar found broad support and staged a recovery. The price found support at the Weekly Ichimoku cloud base. Will the second half prove as interesting as gold’s journey since January?

The last few weeks have seen a slight recovery in inflation linked yields and Dollar Index technical rebound took some of the oxygen out of gold. Should dips in the gold and silver price play out, the macro bullish case for gold implies that these would be buying opportunities.

August was a huge month for gold, posting all time new highs and then a $212/10% drop over 4 days. In today’s 360 Monthly Review, Nick evaluates the action and says that while the market remains in a bullish uptrend caution is warranted as gold’s supporting factors re-configure and the possibility of a counter-rally in the Dollar Index.

An enormous month for gold in July, with USD gold closing US$202 above the open. It has been very hard to call a top, and a bit pointless to try, but recent targets to US$2,060 levels may indicate where a nearby top may form. The longer-term target is US$2,395.

Gold made an uncertain start in June, hitting cloud base support and then making a steady climb to end the month on the highs, as bond yields declined, equities gave up some ground and the Dollar Index recovered in a generally ‘risk off’ environment. Gold's immediate resistance is at $1,802 and support at $1,746.

Gold is clearly bullish with resistance at $1,765 and support at $1,712. A powerful rebound by Aussie dollar appears to have run much of its course, targeting 0.686 & 0.697.  We also look at equities (the SPX), inflation-linked bond yields, the gold-silver ratio, the dollar (DXY) and silver.

As Coronavirus forced the shut-down of a number of large refineries, a shudder of fear passed through the Comex shorts as concerns rose over the ability to deliver into April and subsequent contracts, causing the contango to spike aggressively. Technicals are bullish, but it is reasonable to say that they allow for a move lower in the price. This allows for those who are bullish to be patient. Resistance is at US$1734-40 which is the 78.60% retracement of the 2011-2015 move and support is at the Hourly Point and Figure trend line of US$1678.

The sudden increase in European COVD-19 cases and deaths, particular in Italy and a wave of lock-downs across the globe propelled equities downwards, and helped push crude lower, forcing gold down as markets drove for cash. Resistance levels are US$1734-40 which is the 78.6% retracement of the 2011-2015 move, and US$1707. Support is at the Weekly Cloud top of US$1459.

How easy are financial conditions? ‘This easy’ – much easier than they were in the run-up to the GFC, another indicator that helps contextualise the floaty nature of almost everything not directly affected by COVID-19.

Gold launches into the New Year after being galvanised by the drone killing of Qasem Soleimani in early January. CME gold longs have risen to the highest level since September 2019. Uncertainty in the Middle East should remain a factor. US—China trade discussions and the signing of Phase 1 have added little new to the macroeconomic picture, but nonetheless are a slight drag on gold. That story also has plenty of legs.

Gold bullish medium term. Early December Managed money longs 21.23 million Tozs, shorts slightly up at 2.93 million.  Support levels at US$1445 and US$1413. Targets in 2020 US$1590. Scope for rising US yields and limited scope for rate cuts a likely drag.

Gold dropped to a low of US$1,445.70 on the 12th of November, touching the 38.20 pct. Fibonacci retracement before recovering slightly. The 7.00 pct. move down from the US$1,557.10 high looks corrective after the powerful swing higher in May.