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Monthly Precious Metals Technical Analysis - March 2021

04 March 2021

Gold – In Brief

Gold made another significant decline in February as US yields rose sharply, with 10-year yields rising about 54 bp from open to high through the month. After initial support from the top of the Weekly cloud, the price descended to test the Cloud base by the middle of the month. A brief rebound faded, and the second test of the cloud base failed to hold, with gold making a low so far of US$1707 this week. The major support lies in the US$1670-1690 band, with support coming from the 61.80 % Fibonacci retracement and the June 2020 low.
 
At these levels, it is likely that most gold-valuation models are showing gold as undervalued.
 
The principal driver - bond yields - were driven higher for several reasons. Markets appraised higher levels of issuance in 2021 and with poor auction results last week, notably in the 7-year US issue. Primary Dealers left with excess holdings post-auction offloaded in a market with a sudden reduction in appetite – bearing in mind March issuance is expected to reach US$414 billion alone, twice as high as the previous record.
 
As inflation expectations moved to the highest levels in over a decade, with five-year break-evens sailing past 2.40 %, the shorter end of the curve started to tighten. This hurt participants positioned for curve steepening and possibly added to the selling of bonds in the shorter end of the curve. The result was a notable and rapid tightening. Considering the tremendous fiscal boost to the US economy, yields are likely to rise through the year.
 
US ISM Prices paid suggests CPI will take off
US ISM Prices paid suggests CPI will take off?

 
Can gold benefit from this evolving environment?
 
An outcome of rapidly weakening correlations between bond yields and the S & P 500, a change that may be driven by evolving inflation expectations (https://www.cfm.fr/assets/Uploads/Bond-Equity-Correlations.pdf)  may result in both bond and equity markets underperforming together, an outcome which would favour gold as a risk-diversification play and inflation hedge.
 
Additionally, if inflation does ramp up, bonds will face further pressure, heightening gold (and silver) appeal as hard assets.
 

Money and Interest Rates

 

The take-away about yields is that there is no talk of a Fed-managed ‘taper’: this is about changing expectations over growth and inflation. The Fed's verbal intervention may be supplemented by another ‘Operation Twist’ as the Fed buys longer-dated and sells shorter-dated paper. That (hopefully) controls the rise in the cost of longer-term debt whilst addressing the issue that short-term liquidity might be too plentiful and hard for the Fed to manage.

The chart on the right suggests US banks don’t have a huge appetite for holding, even more, US govt. debt as holdings have grown from 2.20 billion to just over 3.80 billion in the last half-decade, meaning more upwards pressure on yields?

US Five Year Forward Breakeven InflationUS Government Debt Holdings

10-year US Yields

Two things: the rally in yields has reached the 23. 6 % retracement of the 2007-2020 decline and stopped at the Monthly Standard Line. It has closed above the 38.20 % retracement of the 2009-2020 down-move. Long term point and figure targets to 1.5038 and 1.5648 have been reached. The move has been powerful, but the foregoing suggests a pause in the cycle.

Gold Monthly Standard Line March 2021Long-Term Gold Pont and Figure Target March 2021

Quick Overview of Managed Money Positioning in Gold

CME Gold Managed Money futures up to February 23rd. Gold longs declined again, with a 1.77 million Tozs outflow between January the 26th and February the 23rd. Shorts have increased by around 1 million Tozs over the same time frame, a 20 % increase overall.
 
Managed Money Positioning In Gold

Gold Positioning and Volume-Weighted Average Pricing

 
Gold Positioning and Volume Weighted-Average Pricing

Weekly Ichimoku Cloud Chart

 
Breaking down through the Weekly cloud takes gold out of the medium-term uptrend. The price has retested the weekly cloud (now resistance). Support at the 61.80 % retracement (US$1691) and the June 2020 low (US$1670). Resistance at US$1761, US$1789 (Weekly Turning Line) and US$1834 (Weekly Standard Line) and US$1908 (Cloud top in mid-March).
 

 

Daily Ichimoku Cloud Chart

Band of support running below the current price. Resistance at US$1760 and US$1789.

Daily Ichimoku Cloud Chart March 2021

Gold Hourly Point and Figure – Medium Term

 
Medium-term Chart: many of the downside targets shown in the Feb report have been reached. The targets to US$1694 and US$1676 look high in confidence.

Gold Hourly Point and Figure Chart Medium Term

Price Targets via Point and Figure – Short Term

 
Above the recent low, look for a recovery – perhaps one that extends right to the Weekly Ichimoku cloud top resistance?
 Price Targets via Point and Figure – Short Term 

Gold-Silver Ratio

 
The ratio suggests consolidation around 63-65, ranging to 70. The deeper targets to 60 remain in place. Short term, it is hard for silver to move beyond 60. However, given a relatively bullish outlook for silver, that target of 55 is worth looking at.
 
 Gold-Silver Ratio

Silver in USD (Weekly)

 
The macro view of silver. The price is compressed between the Weekly Standard and Weekly Turning lines, and a test of Weekly cloud top support at US$23.91 could be playing out. A break above US$30 opens the way to US$40.
 
 Silver in USD (Weekly)
 

Silver in USD – Hourly Point and Figure

 
Targets for the XAGUUSD medium term. The trend flips to bearish with moderate downside targets to US$23.22 and US$21.64. Above US$22, the target of US$30.55 remains in place.
 
 Silver in USD – Hourly Point and Figure

Silver Positioning

A slight net reduction, but longs remain positive with short increasing but still muted.
 
Silver Positioning
 

Equities - the SPX

 
Despite the moves in the fixed income environment, the S & P remains supported at 3,806 by the Weekly Turning Line. Also, significant option strikes around the 3,900 level may help keep the price stuck near that level in the short term, barring another significant shock.
 
Equities - The SPX
 

SPX Hourly Chart with Targets

 
Reflecting confidence of a rebound, irrespective of earnings metrics et cetera... Sub 3,700 important.

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 - DXY 

The DXY making a slow-motion re-test of the break-down in December. Look for 92.40-60, aided by rising Dollar yields impacting EM currencies.

The DXY making a slow motion re-test

AUD Weekly Ichimoku Cloud

 
The push higher in the AUD received a knock from Chinese PMI data. Support at 0.75 from the Weekly Standard Line. The key resistance is 0.8136, the January 2018 high.
Research from ANZ suggests AUD strength helped in March from strong FX inflows from the conversion of substantial USD dividends from commodity producers.
 
 AUD Weekly Ichimoku Cloud

The AUD Hourly Point and Figure

 
The AUD rolling over in the short term – again. Limited scope on the downside – 0.725 looks a long way away unless there is some horrible data out of China.

The AUD Hourly Point and Figure
March 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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