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One Year On

12 March 2021

A Year on from the COVID Lockdowns

With a year milestone just being passed in the West of the start of COVID19 lockdowns we thought is worth looking back on that year.
In the US were the headlines:
  • 530,000 Deaths attributed to COVID19
  • 22M US jobs were lost from March to April, as unemployment hit 14.7%.
  • $5T: Stimulus spending from Congress, including the upcoming $1.9T bill.
  • $28T: The massive US national debt, which has been financing the stimulus(es).
In Australia the impact was marked less, but still dramatic for those directly affected:
  • 909 Deaths attributed to COVID19
  • Unemployment hit 7%
  • National debt expected to grow to $700 Billion this year

Precious Metals Commentary
Gold held the critical level mentioned in last week's note, despite the low close on March the 8th. The price is staging a recovery with resistance expected at US$1760-1766.
Clearly strong progress in vaccination along as the US expects to vaccinate every adult in the US by the end of May, and estimates that an extraordinary 14 billion vaccinations could be available by the end of 2021, enough to vaccinate every human on Earth.
Along with a particularly strong fiscal boost in the US is impacting risk assets, however gold's price action in the context of the bullish move since 2015 is a typical correction within the context of a major cycle.
We are seeing the consequences of a huge fiscal push – estimated at 6.90 trillion USD in America alone, reverberate through fixed income markets and indicators such as the ISM (Institute of Supply Managers) Prices Paid index, which is shooting higher. Unemployment has dropped since the April 2020 highs of 14.70%, to 6.2%, which is a good come-back but almost twice the pre-Covid rate, and the reason why Jerome Powell is saying that considerably more needs to be done before we return to some kind of ‘normal’.
To review some of the spending undergone by the US government: US$1.90 trillion has been spent out of Congressional ‘obligations’; those total US$2.20 trillion, and then there is the recently approved US$1.90 trillion, making an expected US$4.10 trillion outlay.

Gold saw light outflows in the CME Managed Money sector in the week ending the 23rd of February, offset by some short covering from Managed Money shorts. Gold ETFs saw an outflow of 585,000 Tozs. Overall, positioning hasn’t changed a great deal, and since those dates, CME Open Interest has decreased by about 1.60 million Tozs. Given the drop in prices during that period, its most likely that more longs have left the system, however the lower prices have probably encouraged recent shorts to take profit and buy back too.

Prices and key support
Gold traded through the 61.80 Retracement of the March – August 2020 move but closed above that level last week and has moved US$30 higher this week.
Short term targets from that basing activity extend to US$1750 and US$1774. The US$1670-1690 band remains a very supportive level.

Gold managed money futures reduced by 1.852 million, a 15% decline, shorts increased by 465,000 Tozs, an 8% increase. Since the lows on Monday the 8th, CME Open Interest has reduced by around 670,000 Tozs, which looks like recent short sellers buying their positions back.
Gold ETFs saw another week of reductions, with total ETF holdings now 101,848,862 Tozs.
Silver has staged a decent recovery from recent lows and targets US$27.30. The price is recovering to just above the trend line support that silver broke down through last week.
Open interest has increased since the end of last week, which in line with the increase in prices, suggests additional length as opposed to short covering.
The Australian Dollar
The AUD strengthens on appetite for risk assets as the Pandemic relief bill is signed into law. The RBA hiked the repo cost of borrowing bonds, making it more expensive to short bonds and buck the RBA YCC (‘Yield Curve Control’) policy. As mentioned previously, this is dividend payment season and that is also providing a decent uplift to the Aussie.

Gold Weekly 

Silver Weekly