Ladies and Gentlemen, we got it! - All time high on gold

First quarter of 2024 brought long awaited and expected price breakout on gold, which is on nearly 2200 USD now. Levels which just few year ago would make sceptics to smile ironically. However, great gold price run may seem to be just starting, as economics and financials did build for us, ‘perfect’ combination of factors, which seems to fuel further positive price action.

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Recent price development on charts

We were used to gold reaching all time high prices in basically all currencies in the world recent times. However what we needed was needed a proper ascertainment on USD. And it was a story in development since 2020 by graphs, or even earlier if considered fundamental factors. Now, we can officially confirm – gold has unquestionably hit dollar all-time-heights, in both intraday and end of session terms. Ladies and Gentlemen, we got it! Nearly 2200 USD, 5% up last week, market cap of at above 16 trl USD. First time ever. And it seems what we experience is just a beginning.

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On 7th of August 2020, as an effect of pandemic and response-to-pandemic related factors, gold reached intraday height at 2075 USD. Day earlier it closed a day at 2070 USD. We provide both, as although intraday price bears meaning, it is session closure price, which bears more significance. Of these levels, gold retracted and lowest levels it achieved were just under 1700 USD in early 2021. Yellow metal then moved horizontally until March of 2022, when it reached 2070 USD price levels. This was an effect of ‘new cold war’ development, which culminated in Russia’s attack on Ukraine. On this occasion gold yet again had been pulled back, which culminated in reaching prices under 1650 USD during late 2022. Gold attempted to breach 2000 USD resistance levels yet again. Consolidation continued up until early May 2023, when gold nearly reached 2070 USD on intraday, only to be repelled yet again. This time, it was on occasion of US mini-banking crisis, which sent to the grave few small US banks and one big Swiss entity. We focused on this matter in our analysis titled ‘Lagging price action - On the occasion of falling banks and gold attacking 2k USD’. That time retracement was considerably shallower, bottom occurred in October, but never crossed below 1800 USD.

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Late 2023 on Monday 4th of December we experienced new all-time-high on intraday, although trend line breakout on hourly candles occurred couple days earlier. On the end of November – this is the moment our sneaky precious metal passed through 2000 USD resistance yet again, this time like it was nothing. And this is an important moment, which marks new reality, as 2000 USD has been finally breached. Gold will be seen yet again pushed to the wall between December and February. With price just above 2000 USD and twice even pushed back below magical psychological barrier. However this is the important moment marking change of perception. Strong resistance became strong price support, which in result fuelled further growths, which happened, although not immediately.

First hourly candle of 4th of December marks market fears over interest rates policies in USA and overall state of affairs. Lot of longs had been added on gold, which at preceding Friday since the opening of US markets, elevated gold to 2070 USD yet again. Comex opening on 4th of December was simply continuation of this momentum, additionally backed by all the pro-gold actions performed during the weekend. Just imagine releasing moment of tensioned spring… gold stopped at nearly 2150 USD, only to retrace back to 2000 USD levels within hours.

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KEnd of February / Beginning of March marked an important breakout from trend line, which resulted in new all-time heights achieved, both intraday and end of session. That is 8th of March, 2195 USD intraday and 2179 USD daily closing price. And although on daily RSI it looks that gold may be overbought at this moment, weekly leaves us more space or growths, and monthly even more. But apart of that, here are other factors to consider:

• First is eight continuous sessions in green (as on 8th of March). Gold tends to deliver positive price performance in continuous runs. It is nature of its movements. In 2020 this was nine weeks in green in a row. In 2011 it was seven weeks. After 2019 Basel III changes it delivered six weeks in green. Now we just experience three weeks in green.
• Second are fundamental factors, which we tried to describe in the past on Metal Market Europe Blog. Contrary to attack on all-time-high in 2022, which could be purely attributed to unexpected events of geopolitical nature, and contrary to 2023 price action, caused by ‘banking’ events, current price action seems to have more fundamental factors, although supported by certain current developments, which we’re going to discuss later on.
• Third is momentum with simple fact of price discovery. On charts it seems Friday brought little retracement on hourly candles, however gold remained on green territories, breaching November 2023 intraday heights. This means… we’re simply on uncharted territories.

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As everyone loves charts, let’s take a look on one more chart – it won’t be cup and handle long-term price chart. Although it shows decades long positive price action, length of human lives determine how and when we’d like to realise gains on investments. This will be however simple long term resistance line with 2011, 2020, 2022 and 2023 tops. Current gold price stalls exactly on that line, which may bring us short-term reversal or breaching last and final technical barrier. At the moment of writing these words (10th March 2024) this is yet unconfirmed.

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Gold and silver prices are no longer determined by supply/demand factors as it’s not part of the monetary system in any way. Although considered among most trustworthy assets among central banks. Supply/demand factors may change overall prices locally or wider, affect trade deficits, trigger certain actions by local financial authorities, but on general everyday basis it is ‘paper gold’ which remains market maker. Institutionalized gold trade in higher volumes, performed on daily basis on specialised markets, using spot, futures, options, overall contracts without necessity to physically move or remove volumes off the market, and which only requires change of system logs. And so let’s have a peak on recent price developments on Comex.

Comex futures on gold – April contracts (GCJ24) are on 2185 USD, while May (GCK24) on 2195 USD. March is simply what we currently see as spot. Above dollar figures are current prices of contracts realisation upon date of maturity. March contracts have last trading day on 26th March, April’s on 26th April and May’s end on 29th May. These are being traded six days a week Sunday to Friday. Since 1st of March we’re observing increased volume of contracts, strongly surpassing 255k volume which could be assumed as this year’s average, and with Open Interests at 535k. Open Interests are simply number of futures contracts, each worthy 100 oz of gold. It doesn’t mean so much gold would be subject of withdrawal, it simply means that market participants experienced high interest in gold, adding 95k contracts (each worthy 100 oz) totalling at 535k contracts. That is 3rd highest ‘weekly’ result on Comex since 1975, right after first half of November 2021. And that means increased interest in gold.

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Currently registered volumes had dropped by 10.1k of gold ounces to 7.9 mln. That is lowest since May 2020 by the way which yet again, shows increased interest in gold. In Comex language, refers to metals in stock, stored currently in approved vaults. Let’s assume that we’re large bank and decided to sell some of our volumes. We let know Comex on our intentions so volumes we want to dispose of is being.turned from eligible to registered. Now in theory Comex owes us money for said volume, but effectively as it acts as intermediary, with real counterpart is different entity trading on Comex, that had opened longs or simply had opened contracts and upon maturity it opted for physical delivery.

Eligible volumes went up by 136.5k oz reaching 10.8 mln oz. Open interests is now equal to 271% of all vaulted volumes and 639% of Registered volumes. Available (eligible) is type of volume not tied to COMEX futures and could be owned by anyone, including mints, refiners, jewellers, investment funds, banks or individuals. In example – they may belong to gold ETF and act as back up on issued shares purchased by investors. This metal may be potentially acceptable for delivery or simply transferred to market would owner decide to sell it, but for now, only owner has rights to said volume. Comes only charges for storage and acts via its approved agents as a guardian of said volume in Comex approved warehouse, and meet Comex specifications as listed in delivery guidelines, to improve swift transaction.

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Speaking of, let’s take a look on other indicators. Commitment of traders – knowing that the commercials in the last week were at nearly 207k net short contracts won’t tell us much. Commercials trade counter-cyclically and are predominantly always net short, as they act as intermediaries for other commercials and non-commercials who want to predominantly long gold. It’s very simple by nature – if you want to play growths, you need someone willing to play on falls. Buyer needs seller, and they both need safe market of established rules, which will be acting as intermediary. Otherwise we’d be discussing Dark Pools. And because market as such acts as intermediator – place to trade – they sign contracts with couple of very interested commercials to act as guardians, product providers etc. That’s basic explanation – rest are just added legal complexities.

But let’s check this value in relation to over longer period of time. So let’s check COT in longer time spread in attempt to have some comparisons. So what we could see is that net commercials still have some space, would we like to sustain positive price action. In February 2020 they were at 349k net shorts. Currently our Commercials have much less net shorts than during Covid (350k) or beginning of war In Ukraine (280k). Commercial net shorts (red) are actually on average. And of course net longs of commercials and not-commercials add up balancing shorts and do not look overbought or oversold.

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It also seems, market participants are interested in price exposure, but do not perceive current state of affairs as threatening to stability yet. However managed money may simply lag in action, as in the past there was a simple correlation in between price of physical metal and holdings. Discussing physical gold backed ETFs, let’s take a look on latest report from World Gold Council, up to 23rd February. 204.7 bln in assets under management over 3.1k t. of yellow metal. North America sold 10 t., Europe sold 3.8 t. Asia added 0.9 t. in total. And by Asia, on this particular occasion, we mean China.

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Usually with growth in price we should see growth of assets under management. At this moment they remain below record levels established by events of 2020 and 2022. It is very likely that inflow of investors interested in hedging themselves upon deterioration of market conditions, will bring more money to this class of assets, however as for now, we have to wait.

Another important chart to consider on this occasion is USD. And speaking of USD, it appears recently we have just bottomed ‘slightly’. That is to be observed on DXY dollar index – or should we rather say, ‘relative strength perception of US dollar against basket of other main tradeable currencies in the world’ index. It simply is being considered as measuring strength of US dollar. In short – DXY low = weak dollar, DXY high = strong dollar. Strong dollar = bad for gold prices, weak dollar = good for gold prices. That is simple reverse correlation in between these two assets.

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Current levels on DXY are being supported by previous lows, 50% Fibonacci retracement levels. We’re expecting certain developments on interest rates to occur, but this should happen not only in USA but also EU and UK. One could say ‘no-rate-cut-yet-but-sometime-in-the-future narrative’, other would use ‘higher-for-longer’ phrase.

But, as we already mentioned in our few-parts analysis ‘Merry Crisis and a Happy New Fear’ – now we’ll observe how USD acts relatively against other currencies. And had we experience bad situation for USA but even worse for others (with simultaneously coordinated rate cuts and relative strength of one economy over other), USD Index would be likely to rally as USD dollar and US markets would be better choice. In the land of blind, one-eyed remains king. And so, we can’t entirely exclude possibility, that what we see on DXY is local bottom

In the weird times of all-time-heights on ‘everything’ and BTFP

Truly, we live in the times of all time heights. SP500 index attacked 5200 points, being pushed by Nvidia and Microsoft. Nvidia’s yearly earnings, even managed to save the market, as other members of Magnificent Eight disappointed. Nasdaq bounced back from 18500 points. Another important thing that happened last week was a move to new highs made by Bitcoin and then subsequent invalidation of this breakout. At times, Bitcoin (followed by rest of the pack) and precious metals sector moved together. The 2022 tops were aligned, so it could be case for gold to reach its long-term resistance line and Bitcoin invalidating its breakout are connected on an emotional level as both are and were anti-dollar assets.

Problem is, that growths of pro-USD-assets do not go in line with actual economy being in good shape, and also monetary and especially US fiscal policies We covered these fundamental factors regards to gold in our analysis regards to yields on bonds, recession possibilities or simply very recent outlooks on 2024. There is no point to repeat ourselves. However since 11th of March we’ll receive another important fundamental factor to consider, which in our opinion might’ve contribute to recent price developments on gold. Ladies and Gentleman, we give you Bank Term Funding Program (BTFP).

Bank Term Funding Program (BTFP) was an emergency lending program created by Federal Reserve in March 2023 to provide emergency liquidity to U.S. depository institutions. It was established in response to the sudden bank failures of Signature Bank and Silicon Valley Bank. We covered this subject extensively in our ‘Lagging price action - On the occasion of falling banks and gold attacking 2k USD’ analysis. BTFP offered loans of up to one year in length to U.S. banks, savings associations, credit unions, and other eligible depository institutions in form of collateral for US Treasuries, agency debt, mortgage-backed securities (MBS), and other qualifying assets. In other words – FED offered liquid assets for illiquid assets, with possibility of re-purchase. But BTFP was intended as a temporary emergency measure and will cease making new loans on March 11, 2024.

In its statement from 24th January 2024, FED states::

‘During a period of stress last spring, the Bank Term Funding Program helped assure the stability of the banking system and provide support for the economy. After March 11, banks and other depository institutions will continue to have ready access to the discount window to meet liquidity needs.

As the program ends, the interest rate applicable to new BTFP loans has been adjusted such that the rate on new loans extended from now through program expiration will be no lower than the interest rate on reserve balances in effect on the day the loan is made. This rate adjustment ensures that the BTFP continues to support the goals of the program in the current interest rate environment. This change is effective immediately. All other terms of the program are unchanged.’

Had it helped US banks, especially small, local, and state banks? Yes, in short-term helped to relieve stress. But in some cases it was more of execution postponement, which we’ll going to observe unfolding in the next few months. Of course only handful of banks will fall, as it will be perfect opportunity for giants to takeover local competitors and consolidate sector even more.

Had BTFP solve banking problems? Not really, as US bonds (and predominantly other as well) lost in value even more since then. Let’s just look on US10Y yield. Current lows we see mid-March 2024 are on tops of March 2023, when ‘mini banking crisis’ had unfold. That means, market valuation of bonds held, in the best, most optimistic case, remained the same as year ago. And so, list of ‘volunteers’ to default had grown. One potential position is New York Community Bancorp, .

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Since 2021 value basically all treasury papers was declining, breaking long term trend on strength. And it seems in years to come with few corrections, this trend will prevail, as i.e. US fiscal policy support watering down value of treasuries. In other words USA fiscal policy is crooked, imbalanced, and there are no chances to fix it, especially in election year. That, and many more was a subject of our analysis ‘Merry Crisis and a Happy New Fear’ published in 2024.

‘Abandon Hope All Ye Who Enter Here’?

There are no adequate words in the languages of civilised men of culture, to truly describe how we feel on financial aberrations unfolding during recent years - or should we rather since last financial crisis. And they grew in size exponentially due to developments occurring in recent years. And we only start to experience these results.

However in the times of sorrow and despair, there is simply an assets which would help to preserve value in time. That is gold. Yes, it is as simple as that. Six thousand years of perception as proper asset, trustworthy inflationary hedge, value saver against political, financial and economical idiotisms, finally unfolds its potential.

So do you have yours?