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Monthly Precious Metals Technical Analysis - February 2021

03 February 2021

Gold – In Brief

 
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 Index

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.   

 

Money and Interest Rates

 

Inflation-linked yields drive lower. Five-year break-evens track higher. Both positive for gold. Short term borrowing requirements lower owing to the late passage of the fiscal stimulus bill.

Yield on the April 2028 Inflation-linked bondUS five year forward breakeven inflation

Quick Overview of Managed Money Positioning in Gold

CME Gold Managed Money futures up to the January the 26th. Gold longs declined before recovering near the end of the month, possibly seeking other assets to join. Short remain limited, suggesting that there is no increased in bearishness despite the overall decline in long positioning.

  Managed Money Positioning Gold

Gold Positioning and Volume-Weighted Average Pricing

 
Volume-weighted Average Price in Gold Managed Money Positioning: 03 February 2021
 

Weekly Ichimoku Cloud Chart

 
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.

Weekly Ichimoku Cloud Chart

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.

Daily Ichimoku Cloud Chart

Gold Hourly Point and Figure – Medium Term

 
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.



Gold Hourly Point and Figure Medium Term Chart
 

Price Targets via Point and Figure – Short Term

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.

Price Targets via Point and Figure Short Term Chart

Gold-Silver Ratio

 
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…

Gold Silver Ratio

Silver in USD (Weekly)

 
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.

Silver in US Dollars Weekly Chart

Silver in USD – Hourly Point and Figure

 
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.

Silver in US Dollars Hourly Point and Figure Chart

Silver Positioning

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.

Silver Managed Money Positioning

Equities - the SPX

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


 

SPX Hourly Chart with Targets

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

The Dollar – DXY

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 Dollar Index

AUD Weekly Ichimoku Cloud

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.

AUD Weekly Ichimoku Cloud Chart

The AUD Hourly Point and Figure

 
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.

The AUD Hourly Point and Figure Chart

February 2021 Technical Analysis Summary

Disclaimer
 
This article has been prepared by Australian Bullion Company (NSW) Pty Limited (ABN 82 002 858 602) (ABC). The information contained in this article or internet related link (collectively, Document) is of a general nature and is provided for information purposes only. It is not intended to constitute advice, nor to influence any person in making a decision in relation to any precious metal or related product. To the extent that any advice is provided in this Document, it is general advice only and has been prepared without taking into account your objectives, financial situation or needs (your Personal Circumstances). Before acting on any such general advice, we recommend that you obtain professional advice and consider the appropriateness of the advice having regard to your Personal Circumstances. If the advice relates to the acquisition, or possible acquisition of any precious metal or related product, you should obtain independent professional advice before making any decision about whether to acquire it.
 
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