Gold (XAU/USD) LONG RALLEY continues

3 Mei 2023

STRATEGY LONG TREND


As mentioned With regards to gold (XAU/USD), the pullback has broken below the ascending trendline that was keeping the precious metal supported over the past month. Unlike with silver, gold has seen more fluctuations in its rally, meaning that there was not a greater need to see a sustained pullback to consider the continuation of the bullish momentum viable. Nonetheless, given the likelihood of continued fundamental support, this retracement will serve to increase appetite for buyers who seek a more profitable entry point.

I think there is no real risk of a reversal in momentum from here until 1,935, at which point the selloff could drag on further and gather more strength, risking a drop below 1,900.

Will gold continue rising amid banking fallout?


Gold prices skyrocketed to over 2,000 for the first time in over a year in March amid market volatility sparked by the Silicon Valley Bank’s collapse and further turbulence in the banking sector that led UBS (UBS) to acquire Credit Suisse.

Will the bullish momentum for the safe-haven asset continue amid sinking investor sentiment, and what’s the long-term outlook for gold prices?


Gold was first discovered by Ancient Egyptians over 4,000 years ago. Throughout centuries the precious metal was used as a store of value and showcase of wealth. In the modern day and age, gold’s demand has expanded to industrial use, most notably in production of electronics.

As with many commodities, gold’s price is highly influenced by the forces of supply and demand. Yet the yellow metal is also seen as an investment asset, preserving value throughout centuries. Some investors believe in its safe-haven quality and use gold to hedge against inflation and economic uncertainty.

Gold is denominated in US dollars, which means the precious metal has an inverse relationship with the greenback. The USD strength against other currencies hurts the price of gold as it becomes more expensive and hence less attractive for overseas buyers. Conversely, when the USD is falling in value, it fuels gold demand.

Gold can be bought as a bullion in its physical form, or traded through financial derivatives. Some investors choose exposure to gold-mining stocks, or gold-linked exchange-traded funds (ETFs).

Gold price regains momentum in 2023
After a turbulent 2022, the precious metal is making a comeback in 2023. Gold hit an intraday high of 2,009 per ounce on 20 March, the first time it has breached the 2,000 in 12 months. As of 21 March, the safe-haven asset has appreciated by 7% year-to-date and 19% since October 2022 lows.

Previously, gold had a lacklustre 2022, finishing the year with only a marginal 1% gain. The precious metal was briefly trading above 2,050/ounce in the first weeks after Russia invaded Ukraine in March 2022, yet climbed down as the US Federal Reserve (Fed) kicked off its monetary tightening to fight rising inflation.

Throughout the remainder of 2022, gold was caught in a battle between mounting inflationary pressures and the Fed’s cycle of hiking interest rates, which underpinned the strength of the US dollar. As a result, USD-denominated gold prices experienced a significant decline, falling by more than 20% between March 2022's peak and October 2022's low.

Banking sector fallout boosts gold
Gold prices soared in March 2023, spurred on by the risk-off sentiment caused by the collapse of Silicon Valley Bank on 10 March. This is the most significant banking failure since the 2008 financial crisis, pushing investors to seek out safe-haven assets such as gold.

Silicon Valley Bank held the majority of deposits in US government bonds, which have taken a hit amid the climbing interest rates. The bank had to sell the bonds it held to meet customer withdrawals, which led to significant liquidity problems, sparking a domino effect with more and more clients pulling their money from the bank as concerns over liquidity grew.

The SBV collapse has spread fears about the weakness of the banking sector, leading European banking benemouth Credit Suisse to acknowledge “material weaknesses” in its bookkeeping. The ailing bank was rescued with the takeover bid by rival UBS, leaving 17bn of Credit Suisse bonds worthless and seriously undermining Switzerland's reputation as a safe place to invest. The rescue package sent shockwaves through the financial sector, denting investor sentiment on banking stocks.

The KWB Nasdaq Bank Index (KBWB) plunged over 20% between 1 and 21 March as investors offloaded banking stocks.

In response, six central banks, including the US Fed, European Central Bank (ECB), and the Bank of England (BoE) have collectively announced an injection of US dollar liquidity into the financial system to assuage investor worries. This move is reminiscent of the measures taken during the 2008 global financial crisis and the peak of the coronavirus pandemic.

What other factors affect gold prices in 2023?
In 2023, gold received support from the wider economic pessimism and fears of the upcoming recession. Investors tend to hoard during times of uncertainty hoping that the metal will preserve its value.

Yet investors aren’t the only ones who saw gold as a hedge against economic downturn and inflation. Central banks’ demand for the precious metal rose to record volumes by the end of 2022, data from World Gold Council showed. The renewed appetite has boosted gold’s price since the end of 2022.

The reopening of China’s economy – one of the biggest buyers of gold – improved the outlook for the precious metal’s demand in 2023. The country’s central bank, People’s Bank of China (PBoC), has already increased its gold purchases by 32 tonnes, the first increase in its gold reserves since September 2019.

Plus, the weakening of the US dollar and the perceived slowing of Fed’s rate hikes supported the USD-denominated gold. The monetary policy decisions by the US central bank are likely to continue shaping the gold price in the next 5 years.

The Fed raised the federal fund rate by 25 basis points (bps) at the February 2023 meeting, lower than the previous hikes of 50 bps in the December meeting, and the four consecutive 75 bps hikes before that.

The Fed is expected to hike rates by another 25 bps at the meeting on 22 March, yet if the central bank signals any easing of policy, such as halting the rate hikes or even reducing them, this could bolster gold prices, according to analysts. As explained by Kathy Bostjancic, Nationwide’s chief economist:

“While the Fed might follow through with a rate increase, it might be more about market psychology and trying to shore-up confidence that the banking and financial systems are strong enough to withstand further tightening than really fighting inflation. If the Fed does not tighten, it could engender fear that the Fed knows something the markets don’t, implying that the banking system is more fragile than thought, potentially undermining the confidence-building efforts the Fed, Treasury and FDIC have taken thus far.”
Final thoughts
Note that analysts’ and algorithm-based outlook for the gold rate prediction for the next 5 years can be wrong and shouldn’t be used as a substitute for your own research. Commodity markets remain volatile and shaped by the constant flux of economic and geopolitical events.

It’s essential to always perform your own due diligence before trading, looking at the latest news, a wide range of commentary, technical and fundamental analysis.

Note that past performance does not guarantee future returns, and never trade more money you can afford to lose.

6 Mei 2023

Nota

After hitting a new ATH, XAU/USD retreated below the 61.8% Fibonacci retracement and was $2 shy of hitting the 78.6% Fibonacci level. Nevertheless, Gold bounced from its daily low of $1999.57, above the 61.8% Fibonacci retracement at $2015.26. Notably, the Relative Strength Index (RSI) indicator remains in bullish territory, although it’s moving down. The 3-day Rate of Change (RoC) turned neutral in a possible sign of buyers booking profits ahead of the weekend.

For a bullish continuation, XAU/USD buyers must reclaim the 50% Fibonacci level at $2028. Break above will expose the 38.2% Fib retracement at $2040.60 before clearing the path toward the ATH. Conversely, a fall below $2000 would expose a one-month-old support trendline that passes around the $1970-80 area.

12 Jun 2023

Nota

GOLD STRONG BUY , short term correction coming soon

13 Jun 2023

Nota

US Dollar Index: DXY fades recovery below 104.00 on downbeat Fed bets, US inflation eyed
US Dollar Index struggles to extend the previous day’s corrective bounce off three-week low, snaps two-day winning streak.
Markets remain nearly sure of witnessing no rate hike from Fed in June but concerns about July stay dicey.
Bond market moves, challenges to sentiment prod DXY bears ahead of the key US CPI.
Core CPI will be closely observed as high inflation can allow FOMC to remain hawkish despite no rate hike decision.
US Dollar Index (DXY) remains pressured around 103.60 as it fades the previous two-day winning streak on Tuesday as the key US inflation data looms. That said, the greenback’s gauge versus the six major currencies rose in the last two consecutive days amid the market’s positioning for the Federal Reserve’s (Fed) pause to the rate hike trajectory. However, the recently mixed concerns about the US central bank’s future moves join the challenges to the sentiment to prod the DXY buyers ahead of an important data point for the markets.

It’s worth noting that a study from the San Francisco Fed about the correlation between wage growth and inflation could be cited as the reason for the US central bank to remain less hawkish, which in turn weighs on the DXY, apart from the pre-data anxiety. The survey concluded that wage growth has a very small impact on inflation, which in turn raises doubts about the central bankers’ emphasis on wage cost numbers as a source of information to gauge inflation pressure.
Talking about the latest challenges to sentiment, a trade dispute is developing after the US expands its ban on imports from Xinjiang. China vows to protect China firms against any US sanctions, per Reuters. Recently, Bloomberg released prepared remarks of US Treasury Secretary Janet Yellen’s scheduled Testimony in front of the House Financial Services Committee as she said that the International Monetary Fund (IMF) and the World Bank (WB) serve as important counterweights to nontransparent, unsustainable lending from others, like China.
Additionally, the increase in the bets favoring the Federal Reserve’s (Fed) 0.25% rate hike in July also prod optimism and put a floor under the US Dollar Index. It should be noted that the CME’s FedWatch Tool suggests nearly limited scope for the US central bank to act on Wednesday’s Federal Open Market Committee (FOMC).
Looking ahead, the US Consumer Price Index (CPI) figures for May will be in the spotlight as the Fed decision looms on Wednesday. That said, the market forecasts of witnessing no change in the Core CPI MoM figure of 0.4% gain major attention as softer figures could push back the July rate hike concerns and may not allow the Fed to sound hawkish, which in turn can drown the US Dollar.

14 Jun 2023

Nota

US Dollar Index: DXY licks US inflation-inflicted wounds at three-week low above 103.00 on Fed day

US Dollar Index grinds near the lowest levels in three weeks after snapping two-day winning streak.
US inflation data bolsters market’s bets on Fed’s status quo and weigh on the DXY despite upbeat yields.
Cautious mood ahead of the FOMC announcements put a floor under the US Dollar price.
Expectations of witnessing a hawkish halt from US central bank highlight qualitative updates from the Fed.
US Dollar Index (DXY) steadies above 103.00, after bouncing off a three-week low, as markets brace for the Federal Reserve (Fed) announcements on Wednesday. The greenback’s gauge versus six major currencies slumped the most in a week, to the lowest levels since May 22, after the US inflation data fuelled speculations of the US central bank’s halt to the rate hike trajectory present in the last 10 monetary policy meetings.

As per the latest US inflation data for May, the headline Consumer Price Index (CPI) drops more-than-expected and prior releases to 0.1% MoM and 4.0% YoY. However, the Core CPI, known as the CPI ex Food & Energy, matches 0.4% monthly and 5.3% yearly forecasts. It’s worth noting that the US headline CPI dropped to the lowest since March 2021 and hence justifies the market’s expectations of the US Federal Reserve (Fed) hawkish halt, which in turn should have weighed on the US Dollar.
Following the data, the CME’s FedWatch Tool suggests more than a 90% chance of the US Federal Reserve’s (Fed) no rate hike during today’s monetary policy meeting, versus around 75% chance before that.

It’s worth noting, however, that the ex-Fed Officials have been pushing for a hawkish halt to the rate hikes and prods the DXY bears. On Tuesday, Former Dallas Federal Reserve Bank (Fed) President Robert Kaplan said that he would support a "hawkish pause" at this week's meeting while also adding that he would “leave the question of a July hike open.” Previously, Ex-Boston Fed President Eric Rosengren tweeted, “Expect a hawkish skip this week.”

As a result, Wall Street benchmarks rose for the second consecutive day but the US Treasury bond yields remain firmer. That said, the US 10-year Treasury bond yields rose to a 13-day high of 3.83% whereas the two-year counterpart poked the highest levels in three months with 4.70% mark before easing to 4.67% in the last hours.

Looking ahead, the pre-Fed sentiment may prod the DXY, as well as allow the greenback’s gauge to pare recent losses. However, the traders will pay attention to the US central bank’s economic forecasts, dot-plot and Chairman Jerome Powell’s press conference for clear directions afterward, as the rate hike pause is almost given.

18 Jun 2023

Nota

The Dow finished more than 100 points below the flatline on Friday, the S&P 500 and the Nasdaq lost nearly 0.4% and 0.7%, respectively, as investors continued to assess the outlook of monetary policy for the Fed amid a massive options expiration at the second 2023’s quadruple witching date. Among stocks, Microsoft fell 1.7% and Micron Technology dropped 1.7%. Conversely, Virgin Galactic surged 16.3% on plans for commercial space tourism. Tesla added 1.8% after hitting a 37-week high during the session and Adobe gained 0.8% with positive earnings and guidance. On the week, the Dow Jones added 0.9%, marking a three-week winning streak despite the Fed's warning of future rate hikes. The S&P 500 gained 2.2%, its fifth consecutive weekly gain, the longest since November 2021, rising 2.2%. The Nasdaq was up 2.7% for an eighth straight positive week. Markets will be closed on Monday for the Juneteenth holiday.

28 Jun 2023

Nota

Fed Chair. Powell reiterated at the ECB Forum on Central Banking that interest rates will rise further and that he wouldn’t take moving in consecutive meetings off the table at all, but noted that a recession in the US is not the most likely case. Nvidia was down by over 2% and Advanced Micro Devices by 1% after the Wall Street Journal reported that the US government is considering new restrictions on exports of artificial intelligence chips to China. The Fed is also due to release the results of its annual stress tests to banks, and more details on Basel III Endgame and changes to bank supervision will be in the spotlight.
The Dow Jones was down over 100 points and the S&P 500 dipped by 0.1% on Wednesday afternoon, on the prospect of further interest rate hikes following the Federal Reserve's chair Powell Speech at the ECB Forum. He said he does not see inflation reaching the Fed's 2% target any time soon. He reiterated that interest rates will rise further and did not rule out a boost in the cost of borrowing at the next policy meeting scheduled for the end of July. Meantime, the Nasdaq was up 0.2% powered by megacap momentum stocks. Among stocks, shares of Nvidia and Advanced Micro Devices were down by 2% and 1%, respectively, after the US government is considering new restrictions on exports of AI chips to China. Intel, Applied Materials and Qualcomm fell more than 2% each. On the other hand, Apple hit an all-time high of $189.8 during the session, while shares of Tesla and Alphabet advanced 1.4% and 2.5%. The Fed is due to release the results of its annual stress tests to banks.

29 Jun 2023

Nota

The US economy grew by an annualized 2% on quarter in Q1 2023, well above 1.3% in the second estimate, and forecasts of 1.4%. The updated estimates primarily reflected upward revisions to exports and consumer spending that were partly offset by downward revisions to nonresidential fixed investment and federal government spending. Imports were revised down.

6 Jul 2023

Nota

TREND BLLISH
PROFIT TAKINGS AND MORE ACCUMULATIONS
US Mortgage Rates Rise to 8-Month HighUnited States 30 Year Mortgage Rate
The average rate on a 30-year fixed mortgage increased by 10 basis points from the previous week to 6.81% in the week ending July 6th, the highest November 2022 as higher interest from the Federal Reserve underpinned expensive mortgage rates for American consumers. A year ago, the 30-year fixed mortgage rate was at 5.3%. “Mortgage rates continued their upward trajectory again this week, rising to the highest rate this year so far,” said Sam Khater, Freddie Mac’s Chief Economist. “This upward trend is being driven by a resilient economy, persistent inflation and a more hawkish tone from the Federal Reserve. These high rates combined with low inventory continue to price many potential homebuyers out of the market.”

10 Jul 2023

Nota

Wall Street Ends in the Green

The Dow Jones closed more than 209 points higher on Monday, while the S&P 500 and the Nasdaq added 0.2% each, as investors awaited the US consumer and producer inflation reports later this week and braced for the start of the second quarter earnings season. The upcoming inflation report is expected to offer additional evidence regarding inflationary pressures and provide insights into the Federal Reserve's future actions. Traders are currently pricing in a nearly 92% chance for a 25bps increase in the fed funds rate this month, but the odds for another quarter point hike later in the year have been swinging, currently standing at 22% for September and 33% for November. Healthcare shares were among top performers of the session including Amgen (+2.5%). Also, Inter (+2.8%), Honeywell (+2.2%) and Home Depot (2.5%) outperformed while mega cap shares dragged as Apple (-1.1%), Tesla (-1.7%), Microsoft (-1.6%), Alphabet (-2.5%) and Amazon (-2%) ended in the red.

11 Jul 2023

Nota

US 10-Year Treasury Yield Down for 2nd Session

The yield on the US 10-year Treasury note fell below 4%, retreating for the second consecutive session after hitting its highest since November 2022 at almost 4.1% as investors turned cautious ahead of key economic data that could influence the Federal Reserve’s next interest rate policy moves. The CPI report on Wednesday is expected to show headline annual inflation fell to 3.1% in June from 4% in the previous month, while the core index probably decreased to 5% from 5.3%. Markets are now pricing in a 94.9% chance of rates being hiked again during the central bank’s upcoming meeting on July 25-26 but uncertainty remains for the other three Fed meetings scheduled for later in the year. In the latest Fed commentary, Fed President Mary Daly said that she expects two further rate hikes to be announced this year to lower inflation, in line with early comments from Fed Chairman Jerome Powell.

Americans Become More Pessimistic in July
The IBD/TIPP Economic Optimism Index in the US unexpectedly fell to 41.3 in July 2023, the lowest since November last year, compared to 41.7 in June and market forecasts of 45.3. It also marks a 23rd month the reading stands below 50, indicating Americans remain pessimistic. “The economy continues to be the number one issue for Americans as we prepare for earnings season and new inflation data. The Six-Month Economic Outlook was the lone bright spot for July, as optimism slightly increased for the long-term, but it’s still a long way from positive. Expect some more twists and turns before consumers trust that the economy has stabilized”, said Ed Carson, IBD's news editor. The Personal Financial Outlook, a measure of how Americans feel about their own finances in the next six months, fell to 50 from 51.9 and the gauge for Confidence in Federal Economic Policies edged lower to 38.5 from 38.6. On the other hand, the Six-Month Economic Outlook rose to 35.5 from 34.5.

11 Jul 2023

Nota

Wall Street Extends Gain Ahead of CPI Data
US stocks closed higher on Tuesday, extending gains for the second session, as investors looked forward to the key inflation report due tomorrow. The Dow Jones finished over 316 points higher, as Salesforce rose 3.9% after the company announced it will be increasing list prices an average of 9% in August. 3M and Boeing were also among the top performers and advanced by 4.8% and 2.6%, respectively. The S&P 500 gained nearly 0.7%, led by the energy sector as APA (+6.3%), Halliburton (+4.2%) and Schlumberger (+4.5%) outperformed. Meanwhile, the Nasdaq added 0.5%. Traders were also digesting comments from several Fed officials which continued to point to the need of further tightening this year. The odds for a 25bps increase in the fed funds rate this year currently stand at 95%, but investors remain divided about another rate hike. The economic calendar is soft today and the earnings season kicks off later in the week.

14 Jul 2023

Nota

The greenback is approaching a make-or-break moment — at least as far as a closely watched technical indicator is concerned.

The Bloomberg Dollar Index has now surrendered more than 61.8% of its gains since May 2021, bringing it to one of the Fibonacci retracement levels popular among chart watchers. They tend to keep a close eye on these indicators to determine whether or not trends will extend or reverse.

What happens next is therefore crucial.

If the index remains below this point over the coming sessions, it would be a strong signal to traders that the currency’s losses are the beginning of a new longer-term downtrend, and not just an aberration.

The latest bout of weakness comes as the market now sees an end to a tightening spree that Federal Reserve officials begun communicating more than two years ago. The prospect is narrowing interest-rate differentials with other major currencies and weighing on the dollar.

This week, it dropped to the weakest level against euro and pound since early 2022. It’s even falling out of favor against the yen — where rates are still negative — with the cross falling to a two-month low.

The bearish signal seen in the chart of the Bloomberg Dollar Index could be soon validated elsewhere too. The ICE Dollar Index — a popular alternative to the BBDXY — stands just 0.6% higher than the 61.8% Fibonacci retracement of a rally that kicked off in January 2021.

To be sure, options paint a more mixed picture. While long-term bets are supportive of the US currency’s prospects, sentiment over a one-month sentiment has reached its least bullish level since September 2020.