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Monthly Precious Metals Technical Analysis - May 2021

18 May 2021

Gold – In Brief

Apologies for the gap: Easter and a conference all combined to knock the April report off its metaphorical perch.
Since March, the price has tested the key supports (and reached the targets) outlined in the March report, forming a double bottom pattern with a measured target to about US$1840-1842, which has just completed, and poses the age-old question of ‘where next?’
The drivers of gold’s ascent since the major hold at the key Fibonacci levels in mid-March and very early April are the powerful decline in real interest rates as the 10-year US inflation-linked Treasury yield (USGGT10Y Index) slid from the February high of –0.5364 down to a low of -0.989 (so far) in mid-May, with a particularly powerful drop in the week ending on May the 7th as the US economic data reported a giant miss on jobs. April Non-Farm payrolls expectations were ‘plus 980,000’ and printed ‘266,000’. Weak US April Retails sales helped push gold higher still.
The Dollar Index (DXY) has been trending lower all through April and weakened notably on the jobs data as the perceptions of a strong rebound relative to other economies in 2021 took another knock.
On the negative side, Asian physical demand has clearly been impacted by the higher spot price.
As at the time of writing, gold has made the measured target arising from the double bottom and has touched the upper point of the large declining trend channel extending from the August 2020 high. The price is within the Weekly Ichimoku cloud, having entered from below, and that suggests that the gold’s reaction to recent data may have lost some momentum.
The progress of the Dollar is of great interest considering the Q1 rally, which re-tested the trendline and closed right at the monthly Ichimoku Turning Line in March, but which has since declined rapidly. The episode of significant short covering has taken net positioning in the DXY to overall ‘long’. Previous moves have been associated with DXY rallies that have risen by an average of 19 % and which have lasted on average 13 months on the 8 occasions where the net position has changed over the last two decades. Additionally, a look at simple cycles within the DXY price shows that the last cycle coincided closely with the January low. I am still positive about the Dollar, but the recent rejection of March swing higher was quite aggressive.
Inflationary signs are notable – with cars and lumber notable examples. Rising US incomes, additional income from stimulus cheques and a reserve of savings to enable more spending set the scene for rising prices. US Five year forward breakeven inflation has moved up to 2.34 %, which will probably reassure the Fed that they can have a chance of wrestling free of deflationary pressures and allow their ‘Flexible Average Inflation Targeting’ strategy to work through. A very richly valued bond market will feel pressure though, so volatility from that direction may continue to be a key risk in 2021.

Money and Interest Rates

The era of ‘Flexible Average Inflation Targeting’ which began with the Dallas Fed speech given at Jackson Hole by Jerome Powell last August will find 2021 and onwards testing times with reconciling pressure for higher rates with asset market stability. The proxy for the natural interest rate consistent with a stable price level in the US (right hand chart) contrasts with the continuance of easy monetary conditions by the Federal Reserve.

May 2021: US Five-year Forward Breakeven InflationMay 2021: Wicksellian rate & Fed policy rate

10-year US Yields


10- year nominal yields rose almost as high as the 50 % retracement of the October 2018 / March 2020 drop, before a narrow trading month in April and a drop in May.

10-year real yields had a much less dramatic rise, rallying above the 23.60 % Fibonacci retracement of the Nov 2018 high to the Sept 2020 / Jan 2021 move but clearly failing to close above that level.  

May 2021: 10-year US YieldsMay 2021: US 10 Yr TIPS yield

Quick Overview of Managed Money Positioning in Gold

CME Gold Managed Money futures up to May the 11th. Managed Money length increased slowly through April and the first half of May:

May 2021: Managed Money Positioning In Gold

Gold Positioning and Volume-Weighted Average Pricing

May 2021: Gold Positioning and Volume-Weighted Average Pricing

Weekly Ichimoku Cloud Chart

The double bottom made in mid-March and early April formed a rectangle bounded by the base of the Weekly Ichimoku cloud. (US$1760) When the price closed above that level in mid-April, it activated the measured move to US$1843-44. (see boxes in chart below.) That move has finished. The initial drop has met good bids around US$1808-1812.Support at US$1760, resistance at US$1845 and the cloud top, US$1871.

May 2021: Weekly Ichimoku Cloud Chart

Daily Ichimoku Cloud Chart

Pushed up through cloud resistance at the end of April, breaking above trend line resistance and the blue lagging span broke free of the cloud in early May in an unambiguously bullish set-up. Resistance at US$1897, US$1944, support at US$1825, US$1797 and US$1766.

May 2021: Daily Ichimoku Cloud Chart

Gold Hourly Point and Figure – Medium Term

‘The targets to US$1694 and US$1676 look high confidence’ Now that this important confluence of Fibonacci supports has held and gold has bounced back, gold has the targets below. The price has reached the US$1872.93 target, which lies more or less at the Weekly Cloud top. Considering the large gap between this target and the two remaining targets shown below, it would seem probable that gold may weaken towards the key US$1843 break out level delineated by the row of ‘X’s below. Trend-line support at US$1818:

May 2021: Gold Hourly Point and Figure - Medium Term

Price Targets via Point and Figure – Short Term

This is so short term that it might be forgotten by the time you read it, but the move to US$1870 plus may have played out enough to allow for some weakness to take hold and allow for a move to ‘slightly lower’.

May 2021: Price Targets via Point and Figure - Short Term

Gold-Silver Ratio

63 is very hard to get past…The ratio appears to remain in a 62-71 range for the near term, with a strengthening bias towards 63 again.

May 2021: Gold-Silver Ratio

Silver in USD (Weekly)

The macro view of silver. The cloud top support held very well, and the weekly silver candlestick formed a great ‘hammer’, confirmed the following week, which presaged a good rally to current levels. Possible weak resistance around US$28.80 from the former trend-line support turned resistance. The Long-term Daily Point and Figure targets US$41.

May 2021: Silver in USD

Silver in USD – Hourly Point and Figure

Targets for the XAGUUSD medium term. Looks like revisiting the February high.

May 2021: Hourly Point and Figure

Silver Positioning

Substantial new arrivals on the long side, with 97.33 million Tozs of fresh buying since mid-April. Shorts have reduced by about 13 million Tozs over the same period for a net reduction of 110 million Tozs, or 3,430 mt. Managed Money length reached this level in January and in July 21 before reducing.

May 2021: Silver Positioning

Equities - the SPX

Initial support at 4,045, then 3,890, 3,756 & 3,458. Last weeks candle was a ‘Hanging Man’ and is a weak reversal signal. Look for further confirmation (or not…) in this week’s price action.

May 2021: Equities - the SPX

SPX Hourly Chart with Targets

Still trending higher but last weeks action from the high targets the Weekly Standard Line support line.

May 2021: SPX Hourly Chart with Targets

The Dollar – DXY

Hourly Point and Figure: the move to 89 and more or less achieving the intermediate downside targets set the stage for a positive cycle back higher to the 94.186 target, which the DXY drew close to of course with the 93.41 high. Below the recent low the 85.374 level is in sight, and 83.477. My bullishness earlier in the year being tested somewhat.

May 2021: The Dollar DXY

AUD Weekly Ichimoku Cloud

The AUD really should have done better out of a powerful surge in commodity prices but had the worst weekly decline in over two months as Iron ore prices stalled and the suspension of ministerial economic dialogue with China and signs of China curbing demand in Australian LNG. Expecting little in terms of range. The RBA QE program appears to be keeping the AUD in check.

May 2021: AUD Weekly Ichimoku Cloud

The AUD Hourly Point and Figure

Short to medium term the 0.77-0.78 range dominates May. Targets to 0.80 but…getting stale.

May 2021: The AUD Hourly Point and Figure
May 2021: Where to from here?
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