While revisiting “Margin Call” this week and digesting mainstream financial media headlines scrolling across my desk, the little hairs on my neck stood at attention. Watching that movie triggered memories of gold nuances in the news when I traveled through investment banking and risk management corridors preceding the Great Financial Crisis. Here are a few excerpts of the compelling commentary and data points before moving on to an end-of-month technical analysis of gold.

Gold is looking more and more attractive… “Gold bugs have always struck me as paranoid…. So, it’s rather worrying that some investors and central bankers are talking up gold. The Dutch Central Bank recently argued in an article that if there were to be a major monetary reset, ‘gold stock can serve as a basis’ to rebuild the global monetary system. ‘Gold bolsters confidence in the stability of the central bank’s balance sheet and creates a sense of security.’ Investor Ray Dalio recently spooked attendees at the Institute for International Finance conference when he mentioned the possibility of a flight to gold because of concerns about America’s fiscal position.” – Financial Review & Financial Times, Nov. 25

 

Goldman Sachs recommends going long on commodity index, oil in 2020… “Goldman maintained its bullish target of $1,600 per ounce for gold, reasoning that factors including heightened political uncertainty and an only modest acceleration in growth supported investment demand.” – NASDAQ, Nov. 25

 

Bold Bets That Gold Could Triple to $4,000 Trade in New York… “The gold options market saw $1.75 million in block trades betting the precious metal could almost triple in more than a year, surpassing the record. Around noon in New York Wednesday, 5,000 lots of a gold option giving the holder the right to buy the precious metal at $4,000 an ounce in June 2021 changed hands. The bets were sold at $3.50 an ounce. ‘It’s like 18-month term life insurance; what will the world look like if gold is at $4,000,’ Tai Wong, the head of metals derivatives trading at BMO Capital Markets, said in an email. ‘They are hoping for a quick violent move,’ he said, referring to the people who bought the call options.” – Bloomberg, Nov. 27

While the Fed is pressing the pedal to the floor with a “Not QE” REPO liquidity crush at the end of 2019, one must ask which niche in the financial plumbing is on the precipice of a potential implosion this time around. I do not have a specific answer to that question, but the circumstances are in the process of surfacing.

“Today marked the first term repo operation offered by the Fed with a maturity in 2020. In other words, this was the first chance for banks concerned about liquidity issues around year-end to secure funding into 2020. This operation was almost two times over-subscribed, with the Fed offering $25 billion in term repo versus the banks’ bids of $49.05 billion. Similar term operations will be conducted over the next two Mondays (12/2 and 12/9). As the chart below shows, the Fed has now spent over $300 billion through its repo operations and T-bill purchases, a new record. Again, the repo market is “fixed” only because the Fed drugged it into submission. This is not a long-term cure, anymore than thinking the long-term cure for an ADHD child is large quantities of Ritalin.” – James Bianco, Nov. 25

“The Federal Reserve Bank of New York added $108.95 billion in temporary liquidity to the financial system today” – WSJ, Nov. 27

For perspective on the above chart, here is the FRED REPO data from 2002 through Nov. 29, 2019.

 

Poland knows what time it is…

• A Polak’s Message to Central Banks’, Poland Repatriates 100 tons of Gold – TraderStef, Nov. 29

Germany knows what time it is…

 

The gold mining industry knows what time it is…

 

The bond’s market knows what time it is because its Falling Wedge mirrors gold…

TLT – iShares 20+ Year Treasury Bond ETF vs. gold weekly chart as of Nov. 26, 2019…

 

Here is gold’s annual price performance in various currencies from 2004 through Nov. 25, 2019…

 

 

Here are links to my analyses on the price advance of gold since Jun. 2019. To view a larger version of any chart, right-click on it and choose your “view image” option.

• Silver Note and the Screaming Gold Rally Pauses After Dog Days of Summer – Aug. 31
• Savvies Were Aware of the Near-Term Risk for a Pullback in Gold and Silver – Sep. 7
• Gold Gamblers Spoofed Into RICO Prison – Sep. 22
• Monkey Hammered Muppets – Oct. 14.
• I.-Hammered Muppets and Gold Technical Analysis – Nov. 7
• Econ Data is Burning, and Gold Technical Analysis for Luddites – Nov. 15

Gold weekly chart as of Nov. 29, 2019 close…

Excerpt from the Nov. 7 weekly chart analysis:

“This is the sixth week that the gold price has not been able to retake the $1,526 Fibonacci level. Despite the pullback, there is no major technical damage to the chart thus far, but the situation is precarious. Today’s price action tapped the $1,463 Fibonacci that matches a low put in five weeks ago, and due to that length of time, the 21 Exponential Moving Average (EMA) is now acting as support. If the 21 EMA is breached to the downside on heavy sell volume, the price could free-fall inside the gap between two Fibonacci levels where there are no moving averages… A worse-case scenario is $1,400 if significant progress with China confirms in the near-term, but several lateral support levels with substantial buy volumes in the previous Flag Tilt pattern will provide some support between $1,430 and $1,450… I remain bullish long-term, but caution is warranted until $1,526 is taken out with conviction. In the meantime, it is a scalping environment for traders and a core position-building opportunity for the seasoned investor.”

Excerpt from the Nov. 15 daily chart analysis:

“The China trade war headlines have become a dominant force in the price action for gold. In late September, a bullish Half Staff Flag was threatening a breakout before news triggered automated trading platforms again and whipped gold back under its topside trendline. Positive headlines on the potential for a trade deal are currently having a more pronounced effect on downside price action than negative headlines are having on upside movements… A seesaw of sentiment about the deal triggered more downside to $1,445.62 over a three-day period… The choppy price action and pivot off $1,446 morphed the Half Staff Flag into a Falling Wedge pattern… keep eyes on $1,500 for upside momentum, and beware of the China trade war headlines because the mindless machines buy and sell without a conscious.”

China trade war headlines continue to trigger automated trading platforms and push around the stock markets and gold on a whim, with recent economic reports having minimal impact. Following the POTUS’ signing of the Honk Kong legislation that passed with an overwhelming majority on Capital Hill and China chewing up headlines with their “furious” displeasure, gold managed to catch an end-of-month bid on Friday. The continued increase of Open Interest within the CFTC’s Commitments of Traders Report data has had no significant effect on the price action for nearly three months.

Over the past four weeks, the price has closed on or around the 21 EMA and $1,463 Fibonacci. The high buy Volumes that were responsible for the price spike through the summer, and most especially at the end of the Flag Tilt pattern, are where the current price action found additional support.

Despite the pullback since September, no serious technical damage has taken place and the 50 EMA remains well below Friday’s close and at the worst-case scenario of $1,400, but even then, the uptrend would remain intact. The DMI-ADX and StochRSI are in oversold territory and the Volumes continue to trend downwards as the Falling Wedge is well into its extension. The negative on the chart is that Momentum and Money Flow have not yet turned upward.

I remain bullish long-term but neutral near-term if the price continues to chop and buy Volume does not pick up significantly. This environment is ripe for scalping momo plays until a breach of $1,500 and $1,526 entices large position builders to finance a run up to the $1,586 Fibonacci.

Here are a few articles and interviews to peruse before closing up shop tonight:

• Gold Demand Trends Q3 2019 – World Gold Council
• China is building up ‘shadow reserves’ to counter reliance on the US dollar – CNBC, Nov. 17
• Venezuelan gold pilot pleads guilty, U.S. keeps $5 million haul – Miami Herald, Nov. 18
• Keep Buying Gold to Brace for Crisis, Serbian Leader Tells Bank – Bloomberg, Nov. 19
• A U.S.-China ‘phase one’ trade deal may not be inked this year – Reuters, Nov. 20
• Gold standard for gold in India – Financial Express, Nov. 20
• Trump’s Fed Pick Judy Shelton Cast Doubt on CB Independence – Bloomberg, Nov. 21
• Deal On, Deal Off: Futures Jump & Slide Amid Barrage Of Conflicting Headlines – ZH, Nov. 21
• Potential Trade War Escalation & Barbarian Handling of Hong Kong – TraderStef, Nov. 22
• The Biggest Winners In The Coming Gold Boom, Miners – Baystreet, Nov. 25
• The Gold Space Is Heating Up – The Outsiders Club, Nov. 25
• The Next Crisis – Michael Pento Featured in Executive Global Magazine, Nov. 25
• Fed warns of ‘economic ruin’ when governments print money to pay debt – CNBC, Nov. 25
• Ukraine’s IMF Gold and the Gold Carry Trade – The Duran, Nov. 26
• European central banks are slowly preparing for plan B: gold – Jan Nieuwenhuijs, Nov. 25
• Can the Fed Slowly Deflate the Credit Bubble? – Danielle DiMartino Booth, Nov. 27
• Goldman Says Germany Needs Large Fiscal Stimulus, China Bit More – Bloomberg, Nov. 27
• Furious, China summons S. ambassador over Hong Kong bill – AP, Nov. 28
• Prepare for an unusual kind of downturn – The Economist 2020 Edition

Ray Dalio and central banks turn to gold, prepare for crisis – RJO Futures w/Kitco, Nov. 25

 

Plan Your Trade, Trade Your Plan

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