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Whoever Owns the Most Gold Wins – Technical Analysis

With so many diplomatic and economic fires smoldering that put pressure on the financial markets, it was inevitable that something would nudge gold out of its spring seasonality doldrums. I find it fascinating that as gold experienced a solid $30 rally over the last 48 hours, there was barely a peep out of the media punditry. Alternatively, when gold falls $10 or $15, a conspiratorial plunge dominates the alternative media.

Over the last couple of weeks, negotiations to avoid a full-blown trade war with China apparently collapsed, and both sides are ramping up retaliatory rhetoric. Back in Sep. 2018, it was becoming clearer that the denuclearization talks with North Korea were at a potential dead-end. At the same time, references to rare earths were appearing in headlines regarding trade negotiations with China. A little bird tapped me on the shoulder with a prescient reminder that North Korea is sitting on the  largest known rare earths deposit on the planet and Rocket Man just happens to be China’s best friend on their southern border.

  • Rare Earth Trade War as an Ultimate War TriggerTraderStef, Sep. 2018
  • North Korea nuclear summit ends abruptly with no dealNBC News, Feb. 2019
  • China Gears Up to Weaponize Rare Earths in Trade WarBloomberg, May 29
  • North Korea executes envoy to failed U.S. summitReuters, May 30

 

Drudge Report Rare Earths Trade War Threat

 

Pimco Sees ‘Age of Disruption’ in New Secular OutlookWe have the riskiest credit market that we probably every had… people starting to come to a more realistic outlook about both the forward looking growth prospects, as well as the power of central banks’ to pump up asset prices.” Bloomberg, May 29

 

On the morning of May 30, the Fed’s Vice Chair Richard Clarida opened the door to interest rate cuts if the economic outlook takes a turn for the worse. He emphasized that mounting risks, not just negative-leaning economic data, could be a trigger for the Fed to cut rates preemptively, as inflation remains below the central bank’s 2% target level.

  • Business activity growth falters to three-year lowIHS Markit, May 23

Business activity growth falters to three-year low IHS Markit Flash May 23, 2019

 

  • Fed Funds Futures Now Show Two Cuts Fully Priced In This YearBloomberg, May 31

Fed Funds Rate Futures Chart

On the evening of May 30, the POTUS announced that beginning on June 10, a 5% tariff will be imposed on all goods imported into the U.S. from Mexico, which will increase to 10% on July 1, 15% on Aug. 1, 20% on Sept. 1, and 25% on Oct. 1. The monthly increases will continue on schedule until Mexico takes immediate measures to stem the flood of illegal immigration across the southern U.S. border.

“Mexico is the United States third largest trade partner not far behind China and Canada.  To put further context on the amount of trade between the U.S. and Mexico, the combined trade of Japan, Germany, and South Korea with the U.S. is less than that with Mexico.”  – Michael Lebowitz, May 31

The POTUS has shaken up world trade with tariffs and threats of tariffs on several countries to bring fair trade back to the negotiating table. The announcement about Mexico appears to have surprised the financial markets, but the POTUS has hinted at imposing tariffs on Mexico for at least two months.

  • Trump Threatens Car Tariffs on MexicoBloomberg, Apr. 4
  • Trump threatens swift but vague action against MexicoPolitico, May 21
  • Mexico says will not retaliate against tariffs until its more seriousCNBC, May 31

Gold responded first to Clarida’s speech on May 30, then decisively on May 31 due to tariffs imposed on Mexico. Before moving on to a technical analysis on gold, there are a few salient points to be made about gold’s fundamentals. To view a larger version of any graph or chart, right-click on it and choose your “view image” option.

Global Investment Demand for Gold 15 Percent Average Growth Per Year Since 2001

Source: Physical Gold Fund – Apr. 2019

Central bank binge buying fuels red-hot gold demand: WGC… “Strategic buying by central banks helped push global gold demand up 7% in the first quarter of 2019, 68% more than a year earlier and follows purchases of 651.5 tonnes in 2018, which was the most in any year since 1967.” – Reuters, May 2

 

Central Banks Are Ditching the Dollar for Gold… “First-quarter gold purchases by central banks, led by Russia and China, were the highest since 2013 as countries diversify their assets away from the U.S. dollar.” – Bloomberg, May 2

Central banks bought more gold than any first quarter for six years in 1Q19

Gold reserves of major gold companies have declined 26% since 2012 and are below 2007 levels.

Reserves of major gold companies declined 26% since 2012 now below 2007 levels

Incrementum’s 2019 “In Gold We Trust Report” is a must-see chart-fest for gold savvies.

Jim Rickards Twitter on In Gold We Trust 2019

In Gold We Trust Key Takeaways

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Gold weekly chart as of Apr. 23, 2019 at 8am EDT…

Excerpt from the Apr. 24 analysis:

“The StochRSI has dropped into extremely oversold territory and is due for an upside pivot at some point during the spring seasonality pattern. Volumes are falling through the pullback, indicative of a weakening downtrend.”

Gold weekly chart as of May 31, 2019 close…

A bullish Ascending Triangle is the long-term pattern that dominates the chart. Following the $1,346.75 high on Feb. 20, the gold price stopped dead in its tracks at the overhead 500 Simple Moving Average (SMA) and encountered lateral resistance from the extended price chop that occurred in early 2018. Note that the weekly candlestick at the February high closed as a bearish Plunger Candle, which signaled that a pullback was in the cards.

A bullish Falling Wedge formed since the Feb. high and its topside trendline was breached this morning with a bullish Long Day candlestick in response to tariffs imposed upon Mexico. Note that the lower trendline drawn up from the Aug. 2018 low was never violated, the 100 and 150 SMA provided support over the last two months, and the 50/200 SMA Golden Cross has remained intact since early 2017. All of the moving averages except for the overhead 500 SMA are realigning back under the price action. The DMI-ADX remains in a positive stance and is beginning to reassert a bullish momentum. The StochRSI has returned to positive momentum with a pivot out of oversold territory.

The daily chart will add more color to how bullish the price action is or isn’t.

Gold vs. USD daily chart as of Apr. 24, 2019 at 5pm EDT…

Excerpt from the Apr. 24 analysis:

 “I included blue vertical lines on the daily chart to highlight a few significant pivot points between the gold and USD price action. Gold held up extremely well this afternoon despite the USD rally, as the StochRSI is close to breaking out topside and telegraphing that the gold price is nearing an upside pivot.  “I recommend a neutral near-term outlook until the topside trendline of the Falling Wedge and $1,300 are taken out with conviction. Spring is typically a bad time of the year to layer bullish positions due to seasonality patterns, but short-term speculative scalps and swings are possible in the volatility.”

Gold daily chart as of May 31, 2019 close…

The price momentum through the Falling Wedge’s topside trendline and $1,300 included a bullish Closing Marubozu and an Opening Marubozu candlestick. As noted on the weekly chart, the lower trendline drawn up from Aug. 2018 was never violated. All of the moving averages are realigning back under the price action and the 50/200 Exponential Moving Average (EMA) Golden Cross has remained intact since early 2019. The DMI-ADX has reverted to a positive stance, but the ADX has not caught up to signify powerful momentum due to the sudden upside move in price. The StochRSI has broken out to a bullish stance and into overbought territory and can remain up there for an extended time period. Volumes are rising, along with a rising price, which is indicative of a sustainable upside move.

The next resistance level is $1,325 and must be taken out with conviction on both price and volume in order for $1,350 to be reached in short order, otherwise there will be a period of chop before the price can ascend higher.

The chart is bullish in the near-term but must hold the $1,300 level without issue and conquer $1,325 easily for a sustained upside move toward $1,350.

Before closing up shop tonight, here is a link garden of articles to consider since my last gold analyses on Apr. 24:

  • Gold: A Zero-Risk Monetary Asset – Basel III – BMG, Feb. 2019 Postscript PDF
  • Returning to currencies with hard anchors? – Adam Smith Institute, Apr. 15
  • Texas Builds Gold Depository To Rival Fort Knox – Safehaven, Apr. 24
  • Why The U.S. Needs To Encourage Americans To Hold Gold – The Federalist, Apr. 25
  • Gold demand sparkles in India ahead of festiva – Reuters, Apr. 26
  • Will Fed’s New Balance Sheet Policy a Reason to Buy Gold? – Sunshine Profits, Apr. 26
  • Fed looking at new program that could be another version of QE – CNBC, Apr. 29
  • Societe Generale resigns as London gold and silver market maker – Reuters, Apr. 30
  • OMC holds fed funds rate steady, cuts rate on excess reserves – MarketWatch, May 1
  • Gold To Trade Multiples Higher Than Quoted Today – Hugo Salinas, Apr. 30
  • Top 10 lowest cost gold mines on the globe in 2018 – Mining.com, May 2
  • Fed’s Evans says lower rates may be needed if economy softens– Reuters, May 3
  • Fed’s Bullard: policy rate a little tight and inflation uncomfortably low – Reuters, May 3
  • Federal Reserve issues fresh warnings on high-risk corporate debt – BNNBloomberg, May 6
  • European Union Slashes Growth Outlook – Zerohedge, May 7
  • Gold: Gordon Brown’s sale remains controversial 20 years on – BBC, May 7
  • U.S. CPI Misses Estimates, Adding to Fed’s Worries of Low Inflation – Stansberry, May 10
  • H.R.2559 to provide for first true audit of U.S. gold in 65-years – 116th Congress
  • Judy Shelton, Trump’s Next Fed Choice, Favors Gold Standard & Free Trade – Mish, May 12
  • Australian gold miners on the hunt for Canadian assets – Reuters, May 14
  • Gold & Silver Go Up When Most Everything Goes Down – SRSrocco, May 24
  • Gold Rush by Central Banks Gets Boost as Philippines Joins Push – Bloomberg, May 29
  • Gold Not Going To $1,900, It’s Going To $3,000 Or Higher – Daniel Oliver, May 6

 

 

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TraderStef on Twitter

Website: https://traderstef.wordpress.com

Whoever Owns the Most Gold Wins – Technical Analysis

Whoever Owns the Most Gold Wins – Technical Analysis