Intraday Market Thoughts

Gold was the Easy Part

by Ashraf Laidi
Aug 4, 2022 19:29

It's time to revisit the weekly gold chart and its similarity with the horror year of 2013, which included a 25% collapse in the Apr-Jun period. This time last year, I published several videos on why gold's decline to 1690s (in summer 2021) would be reversed, rather than repeat the collapse of summer 2012. The arguments were made here and here .  But now that we've held the lows of March and Aug 2021, is the signal flashing an unequivocal green light for the rest of the year? Or, will gold bulls sustain fresh blows as inflation comes back to bite in autumn?

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Gold was the Easy Part - Gold Real Yields Aug 4 2022 (Chart 1)

Before getting to the intermarket technicals, let's briefly address the fundamentals. There are several scenarios ideal for gold bulls. Realistically, the most plausible set-up is for the Fed to retreat from (or reduce the scale of rate hikes) in order to accommodate broader signs of economic cooling, but not a total growth standstill or harsh recession. We're currently at the easy part-- when CPI and core PCE are pulling back off their peaks. 

That was the Easy Part

Things will get tricky around October/November, when various inflation readings (breakevens, survey, consumer expectations, factory) start to send mixed signals. These could entail rebounds in core PCE and declines or no change in CPI. Variations between m/m and y/y readings, or contradictions between consumer demand and wage data. Don't get me started with divergences between breakeven inflation and employment cost index, or the contrast between fed funds futures and the dot plot. Imagine the loud cacophony of mixed rhetoric from a dozen FOMC officials during such a messy direction. Such a period will revive volatility in indices, bonds and metals, but may not necessarily alter the general trend.

Reading some Charts

Reading the above charts, we notice the clear contrast between the renewed decline in real 10-year yields (red graph in C), and the sharp run-up in real yields in 2013 (red graph in A).  Although breakeven inflation appears currently to fall off its peak (white graph in D) as it did in 2013 (B), the current phase is more gold-positive as it is accompanied by declining nominal bond yields (pink graph in D), in contrast to soaring yields in 2013 B. This sounds favourable for metals.

On the short-term, a weekly close above 1805 (with the help of mixed-to-weak NFP), should extend to $1840s next week in the event that Jul CPI (due Aug 10th) shows sufficient signs of pullback.

Recapping the past two weeks, we began picking up gold for our Whatsapp Broadcast Group (WBG)on Jul 27 (when Powell shifted to data dependence), calling for 1730s. On Monday, we cautioned that corrective pullbacks would extend to 1751, before resuming the ascent to 1793/95. Members get intraday updates in the form of text, charts and voice notes and remain anonymous to other members (not the everyday WhatsApp Group). More here. 

We'll provide real-time coverage for our of NFP, UnempRate, AHE and its trading implications for FX, indices and metals (in English and Arabic) as well as updating the crucial technical developments with chart updates.  

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Gold was the Easy Part - Whatsapp Boe Aug 4 2022 (Chart 2)


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