Gold Price - Where is it heading?

[CityIndex]

Gold prices could actually be in for a week of added volatility with the US CPI figures out on Thursday.

The precious metal extended its break back above the 200-day MA on Monday, supported by a weaker US Dollar, and inflows into gold ETFs as a hedge against inflation and volatility in equities. But with the forecast for inflation to hit a 40-year high, it should be interesting to see whether gold prices continue to rally, or if this is just speculation in the build-up.

The US Dollar should already regain some ground after today’s bond market sell-off caused US 10-year yields to surge to their highest level in over 2 years. If the inflation print is strong, it will also likely add to speculation of a 50bps hike from the Fed as opposed to the original 25bps plan, which could see even more USD bulls re-enter the market.

The downward trending resistance coming from mid-2020, and the uptrend support from August 2021 are narrowing and will converge soon, so gold prices are likely on the cusp of a breakout in either direction. All trading carries risk, but will this week provide an early indication into which way the move will be?

 

[DaveTrade]

The appeal of gold as an inflation hedge​

Ole Hansen
Head of Commodity Strategy

Summary: Gold’s ability to defy gravity amid rising US real yields continues and so far, any weakness below $1800 has quickly attracted fresh buying. As the headline suggests we see part of the renewed demand for gold being driven by investors seeking a hedge against inflation and not least against the current optimistic view that central banks will be successful in bringing down inflation. Adding to this the recent turmoil in bonds and stocks as well as a general strong investment demand for commodities.

Gold’s ability to defy gravity amid rising US real yields continues and so far, any weakness below $1800 has quickly attracted fresh buying. The most recent and biggest challenge was in the aftermath of last month’s FOMC meeting where a surprisingly hawkish change in tone sent the yellow metal sharply lower before a steady recovery has taken the price back to unchanged for the year. Gold’s small dip last year after averaging 21.7% the previous two years was driven by long liquidation from asset managers amid strong equity markets and low volatility as well as the belief rising inflation would turn out to be transitory, and not pose a longer-term threat to growth and price stability.



Towards the end of last year, a major change occurred at the US Federal Reserve after President Biden’s team likely made it clear the if Team Powell wanted to lead the Fed, it needed to focus on the +150 million Americans at work seeing their pay reduced every month in real terms by the Fed’s inaction on inflation, rather than focusing on maximizing accommodation to support the remaining few million unemployed in finding work. Both Powell and Brainard (the incoming Vice-Chair) complied and forcefully so and the hawkish shift in language helped send US ten-year real yields sharply higher while the market priced in a rapid succession of rate hikes, with more than five now priced in for 2022.

Since then gold, the most interest rate and dollar sensitive commodity has managed to withstand a 0.6% rise in US real yields. Apart from a small bid from current geopolitical concerns we see several other drivers emerging, some of which are highlighted below.
Gold has during the past few months been exhibiting rising immunity towards rising real yields with investors instead focusing on hedging their portfolios against the risk of slowing growth and with that falling stock market valuations as well as increased turbulence in the bond market. Even more aggressive rate hikes may end up being positive for gold as it will further raise the risk of a policy mistake from the Federal Reserve as it increases recessionary risks.



Gold’s credentials as an inflation hedge as well as a defensive asset have received renewed attention with rising stock and bond market volatility amid a market adjusting to a rising interest rate environment. At the same time, we believe inflation will remain elevated with rising input costs, wages and rentals being a few components that may not be lowered by rising interest rates. With this in mind gold is also increasingly being viewed as a hedge against the markets current optimistic view that central banks will be successful in bringing down inflation.



The commodity sector has shown renewed strength during the past year with strong fundamentals underpinning many individual commodities where several will be facing a prolonged period of a mismatch between rising demand and inelastic supply. With some of the worlds most tracked commodity indexes holding between 5 and 15% of their exposure in gold, any demand for a broad exposure to the commodity sector will automatically generate additional demand for gold.



While asset managers as seen in the ETF chart below are showing signs of renewed appetite, the price action has yet to trigger any increased interest from leveraged money managers who often focus more on momentum than fundamentals. In the week to February 1 they held a net long in COMEX gold futures of just 62,500 lots or 6.5 million ounces, some 78% below the record peak from 2019. Money managers focusing on momentum tend buy into strength and sell into weakness, and in order to attract increased demand from leveraged trading accounts, gold as a minimum needs to break above the 50% retracement of the 2020 to 2021 correction at $1876 which is also the 2021 high. In the other direction, failure to hold above $1750 may signal a deeper correction.

 

[Sean K]

Gold price is teasing us bulls again, poking through the top of the flag around $1850. Just waiting for JP Morgan to start selling again.





AUD Gold:





A couple of excuses over at Kitco:

Gold price looks to take $1,850 as markets fear emergency Fed move​

Gold price jumps on fear that Russia could soon invade Ukraine​

But, maybe some shorts are being unwound.

 

[rederob]

Resumption of bull trend confirmed overnight:



Strong movement suggests follow through will continue.

 

[gartley]

Resumption of bull trend confirmed overnight:

View attachment 137400

Strong movement suggests follow through will continue.

Yep, started accumulating gold miners last week as this bullish wedge been slowly building.

 

[Sean K]

View attachment 137358

This looks positive @DaveTrade Finishing over 1870 next week will be important. If not, vulnerable to another drop off.

 

[Logique2]

TA, inflation, geopolitics, it all looks supportive of gold sentiment.
Thanks all for the charts.

JFK was considered a hero for hunting the Soviets out of Cuba, why shouldn't Putin get antsy about NATO potentially expanding into Ukraine?
Let's hope it's just sabre-rattling from him.

 

[finicky]

JFK was considered a hero for hunting the Soviets out of Cuba, why shouldn't Putin get antsy about NATO potentially expanding into Ukraine?

The soviets were shipping ballistic missiles into Cuba - an 'existential' threat when the west was terrified of nuclear warfare. Ukraine seeks NATO affiliation for protection against Russian domination. The Ukraine has not made any provision for an offensive base that would threaten Russia's security. It's plain who is the aggressor - to the point of bringing up the nuclear threat which Putin has done before. A lot of Ukraine and Russian boys stand to get killed because of Putin's empire ambition. Putin is striking while the U.S is weak under a Biden administration.

 

[divs4ever]

what about all the bunkers and arms storage depots left as a legacy on the Soviet occupation ( the ones the civilians are hoping to hide in should Russia invade ) after all there are already legacy artillery and missile batteries there one would wonder about abandoned nuclear and other WMD arsenals

don't leave out the girls they are liable to be conscripted as well to just fight the pesky rebels , BTW what happened to the ISIS mercenaries sheltering in the West end ??

and don't forget is was JOE BIDEN that was the de-facto Ukraine President between 2014 and 2016

 

[DaveTrade]

If the invasion starts then the big unknown will be what it will take to stop it. The markets don't like the unknown, the combination of war, interest rates and supply chain issues, not mention over extended markets, could likely make this much more than a decent correction for the $SPX.

 

[qldfrog]

TA, inflation, geopolitics, it all looks supportive of gold sentiment.
Thanks all for the charts.

JFK was considered a hero for hunting the Soviets out of Cuba, why shouldn't Putin get antsy about NATO potentially expanding into Ukraine?
Let's hope it's just sabre-rattling from him.

Sabte rattling so far is more Biden side, but what can you expect when POTUS is blackmailed by Ukraine after his son's" gifts" episodes.
Which makes a hot conflict even more likely IMHO

 

[Sean K]

If the invasion starts then the big unknown will be what it will take to stop it. The markets don't like the unknown, the combination of war, interest rates and supply chain issues, not mention over extended markets, could likely make this much more than a decent correction for the $SPX.

I think Putin is only after the south eastern side of Ukraine. The stuff going on to the NE and Belarus is a distraction to spread Ukraine's defences thin and to spread NATO. I'm not sure if anything will actually happen, Russia has more to lose I think.

If they do attack, I think there will be a feint to the north and then they'll attack from the east and south. What's hardly been reported is that Russia has amassed a huge number of ships in the Black Sea and Sea of Avov including amphibious forces and NATO has pretty much vacated to the Med. There are currently 3 x aircfraft carrriers in the Med as some sort of deterrence. Once Russia cross the LD they'll get to a predetermined line, likely the red line on the map below, and then they'll stop and negotiate a ceasefire and Russia will then own the Eastern side of Ukraine with control of the northern parts of the Black Sea right across to Moldova making Ukraine land locked. Ukraine (and the UN and NATO) won't want to give up Odessa, Mykolaiv and Kherson, so they might negotiate to hold that section of coast line up to the Dnipro River indicated by the blue line forming a natural border. NATO should not let this happen because, what do they take next? Just my random thoughts.

 

[Sean K]

I think Putin is only after the south eastern side of Ukraine. The stuff going on to the NE and Belarus is a distraction to spread Ukraine's defences thin and to spread NATO. I'm not sure if anything will actually happen, Russia has more to lose I think.

If they do attack, I think there will be a feint to the north and then they'll attack from the east and south. What's hardly been reported is that Russia has amassed a huge number of ships in the Black Sea and Sea of Avov including amphibious forces and NATO has pretty much vacated to the Med. There are currently 3 x aircfraft carrriers in the Med as some sort of deterrence. Once Russia cross the LD they'll get to a predetermined line, likely the red line on the map below, and then they'll stop and negotiate a ceasefire and Russia will then own the Eastern side of Ukraine with control of the northern parts of the Black Sea right across to Moldova making Ukraine land locked. Ukraine (and the UN and NATO) won't want to give up Odessa, Mykolaiv and Kherson, so they might negotiate to hold that section of coast line up to the Dnipro River indicated by the blue line forming a natural border. NATO should not let this happen because, what do they take next? Just my random thoughts.

View attachment 137459

This is another potential future border I just found in a google, based largely on Russia speakers.

 

[DaveTrade]

If they do attack

Thanks for your insight.

 

[divs4ever]

If the invasion starts then the big unknown will be what it will take to stop it. The markets don't like the unknown, the combination of war, interest rates and supply chain issues, not mention over extended markets, could likely make this much more than a decent correction for the $SPX.

probably the repayment of the loan they gave to the government in 2013 ( which is currently being litigated in the UK courts )

apart from some loyal Russians ( ethnics ) and a bit of cropping land ( and a Soviet era tank factory ) i don't see a lot of value in the Ukraine .. i bet they haven't paid back that $US 1 billion loan Joe Biden black-mailed them with either ( you know the 'son-of-a-bitch , he got fired ' loan )

 

[divs4ever]

yes that Black Sea port ( and the Russian bases ) in Crimea are very important but depending on your perception they have already rejoined Russia , or been annexed by the large number of troops stationed there

HOWEVER if Russia really wanted some decent ports ( and was willing to fight for them ) , Japan would be perfect for them .. flailing economy , plenty of tech savvy etc etc etc ( both North Korea and China liable to give tactical support )

 

[againsthegrain]

Ukraine claim they could get upto 2m conscripts, anybody of legal age and females. They also claim they could repel a Russian invasion.

Who knows, with the weapons and training from the west and heaps of cannon fodder it would be very embarrassing for Putin if they did.

 

[Sean K]

Ukraine claim they could get upto 2m conscripts, anybody of legal age and females. They also claim they could repel a Russian invasion.

Who knows, with the weapons and training from the west and heaps of cannon fodder it would be very embarrassing for Putin if they did.

It’s the anti armor weapons the West have been providing which will provide the greatest threat to Russia. Similar to the effect of Stingers given to the Muj in the 80s. Russia will get a very bloody nose. They won’t go as far as Kiev, but if they did, the insurgency from ethnic Ukraines will be fierce. Russians in the red zone of this map will be resisted by every man woman and child.

What does all this have to do with gold? Well, it’s all over the news isn‘t it. Geopolitical tension combined with inflation and rising interest rates = gold. The AUD gold price has gone nuts.

 

[qldfrog]

It’s the anti armor weapons the West have been providing which will provide the greatest threat to Russia. Similar to the effect of Stingers given to the Muj in the 80s. Russia will get a very bloody nose. They won’t go as far as Kiev, but if they did, the insurgency from ethnic Ukraines will be fierce. Russians in the red zone of this map will be resisted by every man woman and child.

What does all this have to do with gold? Well, it’s all over the news isn‘t it. Geopolitical tension combined with inflation and rising interest rates = gold. The AUD gold price has gone nuts.

View attachment 137476

Russian is not interested in having troops in kiev, just trying to save its access to sea and population..roughly the yellow bits in the map.But biden wants need a war so this is good news for gold and the corrupt Ukrainian mafia in power, less for the Ukrainian people
Some will soon call me Vladimir here LOL

 

[Garpal Gumnut]

Just over 1.5 hours before Sydney starts the ball rolling this week on Spot trading.

Interesting times.

I'll be doing a little selling on any large rises, too many people are discussing politics.

I even had a Kashmiri Uber driver at 12.30 am this morning explaining Donetsk to me while I was doing today's Wordle in the back seat ( I got it in three ).

I've been to Jammu Kashmir but didn't tell him.

gg