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, 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.
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.
Gold Positioning and Volume-Weighted Average Pricing
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.
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.
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.
Price Targets via Point and Figure – 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…
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 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.
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.
The Dollar – DXY
A break of the recent high targets 91.75-92.40. Shorts remain very short though, confident of their view.
AUD Weekly Ichimoku Cloud
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.
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