Monthly Precious Metals Technical Analysis Report - November 2020
08 December 2020
Gold – In Brief
Gold started well in November: it held key supports after closing the previous month above the Weekly Standard Line at US$1873 and rallied. Positive news about vaccination then drove the price sharply lower to the 50 % retracement of the March-August move, followed by a rebound in early December.
Gold is expected to encounter resistance at the Daily Ichimoku cloud in December at the US$1890-1920 level.
The US continues to see a huge rise in cases, leading to a severe lock-down in California, the world’s 10th largest economy, and this is likely to impact on US recovery prospects in the first half of the coming year.
Real rates remain low.
This report comes with a brief addition with a few ‘bullet points’ covering platinum, positioning on NYMEX, and two long-term charts. Platinum has a decent investment case and looks somewhat undervalued. Look below for targets but also current resistance levels as the price interacts with the top of the monthly cloud for the first time in several years.
Money and Interest Rates
Inflation-linked yields (April 2028) increased in early November before declining to around -1.06 % by December. Interestingly, the proxy calculation for the natural or ‘Wicksellian’ interest rate is a good macro guide to gold performance, it rose through November, from 1.21 to 1.39 %, as the gold price dropped US$113 from the open to the low.
Click here: Minsky Meets Wicksell: Using the Wicksellian Model to Understand the Twenty-First Century Business Cycle to look at the proxy calculations for ‘natural interest rates’ on pages 13 & 14.
Quick Overview of Managed Money Positioning in Gold
CME Gold Managed Money futures up to the 1st of December: a steady reduction in managed money longs. Shorts remain more or less the same, oscillating around the 5 million mark. Open interest grew very slightly after the 1st of December, implying a limited change overall since last Tuesday and giving less credence to the strength of the bounce off the recent low.
Gold Positioning and Volume-Weighted Average Pricing
ETFs ended November about 107.67 million FTozs long. Managed money longs were 13.44 million Tozs long on the 1st of December, with a 4.89 million Tozs short position. (The change mentioned in the week ending Tuesday the 3rd reflect the flow in the period 27th October-3rd November.)
Weekly Ichimoku Cloud Chart
News-wise, the vaccine was the principal driver for lower gold in November. Gold found support at the 50 % retracement of the March-August move (I had thought the 38.20 % level would hold.) So far, the bounce has been energetic, getting back up to the 50 % retracement of the move from the November high to the November low and the Weekly Turning line (red) Resistance at US$1865 and US$1887, from Fib retracements above and the Weekly Standard line.
Daily Ichimoku Cloud Chart
Resistance at US$1865 and US$1894 as the Daily Cloud is likely to cap gold’s movement higher.
Gold Hourly Point and Figure – Medium Term
Medium-term Chart: After rolling back post-the US$1766 target, gold’s recovery has a target resistance level at US$1865, initially, where gold could pause.
Price Targets via Point and Figure – Short Term
Short-term Gold: below US$1865, look for a move back to US$1843-44.
Uncontroversial moves in the mid-to-high 70s with weakness in mid-November resolving now into out-performance for silver. The low 70s should see silver fade relative to gold.
Silver in USD
The macro view of silver. Silver rallied back above the Weekly Turning line in red, helping to confirm the ongoing bullish technical outlook.
Silver in AUD – Hourly Point and Figure
Targets for the XAGAUD. Although recent price action has turned bearish, there are targets back to A$36/37 plus for Aussie silver.
Investors are increasing their exposure to platinum as analysts expect a strong deficit (c 1.20 million Tozs) in 2020 to be followed by a 225 k deficit in 2021. The demand case for platinum maintains its central role in emission reductions, particularly for Diesel engine cars and light trucks. Demand for cars and light trucks is expected to rebound sharply in 2021, and tougher environmental rules will lead to heavier coatings in catalyst wash-coats, especially with lean-burn engines, where more extensive after treatment of exhaust gases is necessary.
Global automotive demand is expected to increase by a quarter in 2021, and global jewellery demand for platinum is also expected to rise, especially in China.
There is a further element where investors see platinum as relatively undervalued compared with palladium and gold. The graph below shows the change in net positioning from a small negative to small positive over the past few months, and how investors have scope to ramp up positions should sentiment turn very positive.
The monthly chart shows platinum at a pivotal level. After just over seven and a half years trading below the monthly Ichimoku Cloud, the metal is trying to break out, although price action so far shows that the initial break out was quickly taken back to the Daily Cloud top. A close in December above US$1040 will be technically positive. A caveat is the proximity of the blue lagging span to the cloud base.
Platinum Daily Point and Figure
Positive with substantial upside targets, support sub US$1,000.
Equities - the SPX
Support at 3464 and 3329 from the Turning and Standard Lines. The price is drawing close to a major target at 3,785.
SPX Daily Chart with Targets
Climbing a wall of worry? So far so good… however there are signs of slowing momentum, shift work is down for the first time since April, the ISM Manufacturing employment index down for the first time in seven months and California (the world’s fifth biggest economic area) faces lockdown, or “shelter at home” for 80 % of the state’s regions. The SPX is quite close to the 3,785 target. Possibility of a reversal if / when that target is achieved?
The Dollar – DXY
After a good hold for the last three candles, the Dollar Index breaks down below the monthly cloud and the important trend line support running back to 2011 and ultimately part of the DXY recovery post-GFC. Key support at 88.25, long term (1-2-year horizon?) look for the DXY to weaken by another 17-18 % to 72-73.
AUD Daily Point & Figure
The AUD Hourly Point and Figure
The AUD targeting higher. The picture is unchanged – expect upward momentum to dissipate around 0.75/0.755 after the undermentioned targets are reached?
Where to From Here?
The drop in the price of gold found support at expected levels, although did what markets do and inflicted a bit of pain on those who expected support to materialise earlier.
The AUD continues to remain firm but will be interesting to observe anywhere above 0.75.
The powerful drop has yet to shake the longer-term view on gold given the uncertain growth environment, despite the aggressive risk on approach to equities and energy. The weak drumbeat for inflation is still a risk given the huge push made by monetary authorities in 2020 and expectations are for nominal rates to remain low as central banks accept inflation as the lesser of two sins compared with deflation.
The caveat to all the above in gold’s performance is the notable doji candle formed in the monthly gold chart with a pronounced drop in the price in subsequent monthly candles. Is that trend reversal one that will persist or has the down move seen at the end of November fulfil that warning candle?
Until next time,
Global General Manager, ABC Bullion
|US$2172||Next as-yet unachieved target on the Daily 2 % Point and Figure|
|US$1920||Daily Cloud top|
|US$1763||50 pct retracement of March-Aug 2020|
|US$1690||61.80 pct retracement of March 2020-Aug 2020|
|US$1620||50 % retracement of August 2018-August 2020|
|US$2172||Daily 2 % Point and Figure||8 %|
|US$1961||Hourly 0.29 % Point and Figure||26 %|
|US$1894||Hourly 0.29 % Point and Figure||40 %|
|US$1724||Daily 1 % Point and Figure||22 %|
|US$1700||Daily US$20 Point and Figure||17 %|
All target probabilities basis spot US$1840 for 3 months.
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