Gold declined rapidly after the last report after the US dollar staged a recovery from near the 2018 lows and bond yields rallied to the highest since March 2020, hitting US$1804 before making a bullish / trend reversal candle and swinging back to US$1875.
 
Essentially gold was caught in a USD / yield move, with concerns over the potential impact of a strong fiscal boost smashing bond prices, and then a more sober re-assessment of the likely level of yields. The lower for longer picture largely remains in place and while the bond market will have nervous moments, the huge amount of debt is effectively crowding out consumption and investment, making the case for lower rates until a more fundamental change comes along.
 
Silver begins the month with the very interesting involvement of group of sub-Redditors who have turned their spotlight onto silver – and have attracted a lot of new followers in the process, after the wild ride in Gamestock and other equities that have been energised by the attention of wallstreetbets reddit community. This is fascinating, but putting that aside, the immediate effect has been to galvanise interest in silver, and we have seen a demonstrable impact in our own client base. More information on likely targets below in the silver section!



February experiences a sharp rise in the VIX, along with a notable rise in the CBOE Put/Call ratio, indicating a degree of anxiety over valuations and market direction.
 
Five year forward-forward inflation expectations continue to climb, as shown below.
 
Weak US data and the new strains of Covid are dampening signs of recovery through 2021. The Fed communicated that monthly bond purchases will continue as before and that talk of tapering was certainly premature. Looking at the recent data, that comes as little surprise, and bond prices didn’t react to the Fed statement.
 
Looking forward, the gold price should be well supported by the rising Weekly Cloud top. The progress of the Dollar is likely to be the single key variable. The rise in the Dollar Index does not appear to have triggered any reduction in shorts, which ‘might’ help the Dollar rally further.
 
One as yet unseen impact of the Gamestock story is that some risk asset markets may see some de-leveraging. That may increase volatility in the short term, but benefit the precious complex overall.   

        

   
Gold finds support in the vicinity of the Weekly Cloud top but struggles to do anything other than make a high above the Weekly Turning Line before closing below that level ever since mid-January. Still, the big picture is bullish, although ranging. A close above US$1956 looks liberating. A close below the December low (and the low of the Weekly Cloud) at US$1760 would be alarming for bulls.

Daily Ichimoku Cloud Chart                                                                 

Gold recovers to trade within the Daily Cloud. Resistance at US$1882 and US$1901. Indeterminate but above US$1865, turning bullish.  Support around US$1850.

 
Medium-term Chart: A mixed outlook: a move above US$1890 would help turn things more clearly bullish. Once again, note the huge downside targets created by the price activity since the August 2020 high. The Hourly box size reflects recent volatility using ‘Average True Range’ thinking on choosing an optimal box size for Point and Figure charts. Those big downside targets are a product of the price action between June 2020 and November 2020 – they will remain in place until gold makes a higher high.

  The price hitting short term resistance here. Recent sideways action has created a multitude of targets both above and below, so barring a strong resolution in one direction, look for a US$1839-1882 range to capture most of the movement short-term.

 
After ranging between the 70-80 level for the last 3 months, the targets to 65 were filled in. Will the Redditors be strong enough to bend the ratio to their collective will? 55 is a big number…and I would not expect the ratio to stay at that level for long, should it be touched…

 
The macro view of silver. After last month’s report, spot silver has managed to remain above the weekly Turning and Standard lines with the Standard line a good level to pick (so far) as a buy-dip level.

 
Targets for the XAGUUSD. The successively higher targets have been made, with silver hitting US$30.10 overnight. Support at US$27.27. The target to US$31.60 looks plausible.

An overview of silver prices against Managed Money gross longs and Swap Dealer gross shorts. You can easily see that a key driver of ‘Swap Dealer’ shorts is the development of Managed Money longs. The ‘Swap Dealer’ category, which includes banks and large commodity traders / metals merchants, will hedge their metal sales to the Managed Money longs and roll that long position into OTC longs that offset their futures shorts, enabling the Swap Dealers to earn yield pick-up as they roll their shorts along the futures curve. In plain English, don’t get swept up in all the ‘short squeeze’ hype.

 
Pushing down through the Weekly Turning Line support. Next major level lies at 3,540-3,550 as the Weekly Standard line draws close.


   
3,865-70 level KEY now.  3,630 & 3,540 the fresh targets, the latter being the intersection with the Weekly Standard Line. 

  The DXY rallied up to 90.951, keeping gold on the defensive through the latter part of January. The process of consolidation appears to be creating fresh upside targets
A break of the recent high targets 91.75-92.40. Shorts remain very short though, confident of their view.

The AUD softens since the January high, and opened the week lower on the Perth lock-down but finds support at the Weekly Turning Line. The next major level is the green Standard line, rising through 0.74. The trend is positive, slightly pushed back lately by some USD strength. Threats to the AUD relate to Coronavirus, Chinese growth/tensions and the direction and scope of the RBA bond-buying program, as summarised by AMP Chief Economist Shane Oliver.

 
The AUD rolling over in the short term. The predicted fade to 0.76 has played out – further weakness hinges on the recovery in the USD.





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