The MACD reinforces XAU/USD’s uptrend on the daily chart. The bearish leg may continue toward $1,650 if the channel’s middle boundary support fails to hold.

The channel’s lower boundary played a key role in stopping the losses from reaching $1,650 earlier this week. A rebound from this support allowed bulls to reclaim the ground at $1,700 and closed the trading at $1,723.

If support at the channel’s middle boundary holds, XAU/USD will shift the focus upward toward the crucial resistance at $1,800. Moreover, trading above the channel may trigger massive buy orders as the risk appetite increases.

XAU/USD 4-hour chart

XAU/USD 4-hour chart

The imminent uptrend has been reinforced by the Moving Average Convergence Divergence (MACD). This indicator tracks the momentum of the asset and measures its momentum. Traders can also use the MACD as a strategy to sell the top and by the bottom.

Note that as the MACD line (blue) crosses above the signal line, it is advisable to buy or increase your position. Moreover, the indicator is deep under the mean line, which means rising into the positive region would be a bullish signal.

It is worth mentioning that the uptrend will fail to materialize if gold fails to hold at the channel’s middle boundary. Declines toward $1,650 will come into the picture, extending the bearish impulse in the coming week.

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During the COVID-19 pandemic, all the additional liquidity ended up going into the market, Bristow said during the Prospectors & Developers Association of Canada’s (PDAC) ‘Profits with a purpose’ conversation with BlackRock’s active equity group managing director Evy Hambro that Glencore’s Aline Cote hosted.

“It is similar to post-2008, where the market wished everything would go back to normal but didn’t know the full damage yet. The liquidity that was provided between 2009-11 was caught in the banks. This time around, it arrived at the market,” Bristow said.

One particular asset Bristow pointed to was cryptocurrencies and their quick ascent this year. “Everyone is so desperate. They are not sure how things are going to work. They are buying things that have no real inherent value in the market. We saw this over-exuberance been 2009-10 and then a major crash,” Bristow said.

These developments benefitted gold and will support the precious metal once again, he added. “We saw a first spike in the gold price; there is another one coming,” Bristow said.

When asked about the silver squeeze trending on social media back in February, BlackRock’s Hambro said that with lots of liquidity and great communication tools, people are searching for a better return.

“It is not surprising. When a crowd gets behind a theme, it tends to have an impact. We saw it play out in silver,” he said.

Bristow also commented, stating that: “There is some logic for the commodity movement but not all commodities. When you look at the messaging, it is very confusing.”

The rest of the conversation was largely focused on mining and the environmental, social, and governance (ESG).

Hambro pointed out that capital flows are changing dramatically towards more ESG-compliant companies. “It is not just a function of liquidity, but it’s a fundamental shift in capital markets. This is about investing from a more evolved perspective into companies that are compliant through the ESG lens.”

Being a good steward of the environment is core to the mining companies, Bristow said, noting that there needs to be a standardized format and investors could have access to. “One of the critical issues is trying to get equivalency. To get one version of the truth that is trusted. That is a challenge to the industry. We need to embrace our critics and work with our institutions,” he said. “What we haven’t done a good job of is make it uniform.”

The ESG standardization is like the early days of safety culture and reporting of incidents, Hambro said. “There were lots of metrics that people were using. It took a while to become standardized. But now that it is, the industry has become much safer.”

When it comes to mergers and acquisitions, Bristow said the asset’s quality is the number one thing he looks at, adding that any ESG shortcoming could be fixed with a good management team.

“For me, quality always overruled everything else, including jurisdiction,” he said. “If this market is genuine in its drive to lead responsible mining. Then people who disregard that should trade at a discount. Which will create opportunities for others who are committed to the new modern way of doing business.”

Hambro said an asset with historical liabilities could provide a fantastic investment opportunity, but it all depends on the new management team in charge of it.

“If we were able to find a company that has the fundamental base to it, but it is trading at a discount because of facts, events, or perception attached to ESG, that could be a fantastic investment opportunity. We’ll need to know what policies are being put in place and how the business will run better in the future,” he said.

Both Bristow and Hambro added that the pandemic had accelerated the demise of businesses that were already in decline.

“The pandemic fast-forwarded the things already in place. For example, the demise of the mall in terms of retail. That has been happening already. Industries and sectors that were already declining, declined faster and those growing, grew faster. Shift to online retailers accelerated,” Hambro pointed out.

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The macro-environment remains supportive of higher prices in light of the weaker U.S. dollar projections, negative real yields, more stimulus, dovish monetary policies, and rising inflation expectations, Cooper wrote on Friday.

The start of 2021 also saw retail demand pick up, with January U.S. coin sales on track to match the 1999 high.

“Retail demand has had a staggering start to the year. The U.S. Mint has reported sales of 220.5koz, already the strongest month since April 2013 (246.5koz) and the strongest January since 2013 (222.5koz), on track to be the strongest January since 1999,” Cooper noted.

Another trend to keep in mind during Biden’s administration is that coin sales tend to be stronger during Democratic administrations rather than Republican, she added.

Physical demand for gold still remains weak after falling to 11-year lows in 2020. For example, jewelry demand fell to a record low since the start of the database in 1995.

“The physical market started to recover in Q4-2020, led by growth in China and India, but demand from these regions have started to soften, suggesting that investor demand still has to do most of the work to drive gold prices higher,” said Cooper.

Central banks are expected to remain net buyers in 2021 despite official reserve demand tumbling to 10-year lows in 2020.

“Net buying fell to 272.9 tonnes [in 2020] from the 52-year high of 668.5t in 2019, and while a number of the large 2019 buyers were absent or scaled back buying, seven central banks became net sellers, including some notable gold producers,” Cooper noted. “We expect central banks to remain net buyers in 2021 with volumes closer to those in 2020 rather than 2019, given the continued desire for diversification, but the need for liquidity may prompt selling and cap net buying.”

Going forward, gold will continue to take price direction from the U.S. dollar and real yields as the Federal Reserve remains dovish, Cooper noted.

“Fed Chair Powell mentioned that any tapering would be gradual and that there are no imminent concerns over inflationary shocks,” she said.

Earlier this year, investors expressed a cautious stance when it comes to gold based on the concern that the Fed might start tapering earlier-than-expected.

“In line with tactical data and ETF flows, short interest in GLD rose by 13% over the first two weeks of the year, as investors maintained a cautious stance amid premature QE tapering concerns,” Cooper said. “One-month implied volatility has edged lower in January, and one-month risk reversals have edged higher over the past week, remaining in favor of calls.”

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Spot gold prices (XAU/USD) have for the most part gone sideways on Tuesday, as markets digested what turned out to be a large as expected testimony from US Treasury Secretary nominee (and former Fed Chair) Janet Yellen. Per troy ounce spot prices have for the most part stuck within a few dollars of the $1840 mark and the precious metal is shaping up to finish the day with modest gains of about 0.1%.

Gold markets are looking ahead to US President-elect Joe Biden’s inauguration to Presidency on Wednesday, which will be eyed for more information from the President-elect as to his plans and agenda. Markets will also be on the lookout for any further political violence.

The US dollar was softer (the DXY fell back to 90.50 from earlier weekly highs closer to 91.00), real yields fell (the 10-year TIPS dropped 1.3bps to -1.028% and the 30-year TIPS dropped 1.2bps to -0.285%) and inflation expectations rose (5-year break-evens rose about 3bps to nearly 2.14%, 10-year break-evens rose about 2bps to just under 2.09% and 30-year break-evens rose just over 1bps to just over 2.11%) on Tuesday, a typically bullish combination for gold. Given the above, it is perhaps surprising that the precious metal only gained 0.1% on the day.

The above-noted shifts higher in break-even inflation expectations combined with the drop in real yields implies that markets read Yellen’s broadly dovish sounding testimony as boding well for the Treasury’s ability to deliver inflation boosting stimulus while the Fed maintains accommodative monetary policy. If this is the case, this ought to support the likes of spot gold, given their status as hedges against inflation. Stock markets certainly seemed to take it that way, with all four major US bourses rallying in wake of Yellen’s remarks.

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“The one thing I would say to investors that are into gold is stick with it. This to me is a classic retrace, it’s had a great move up, it’s seeing a sell-off,” Soloway said. “The shorter-term investors are saying, why am I in gold when bitcoin is going up 5% every single day, or 10% in a day, and they’re selling their gold assets.”

Soloway’s comments come as Friday’s nonfarm payroll report showed a loss of 140,000 jobs in December, the most since the start of the pandemic.

Inflation expectations were down as a result, with the TIP ETF falling on the weak jobs report. Inflation expectations are positively correlated with gold.

Today gold tumbled around 4% as investors sold off the precious metal. February Comex gold futures were last trading at $1,839.40, down 3.88% on the day after breaching a key $1,850 an ounce level.

The fall is being blamed on a rise in bond yields and worries about the economy, resulting in liquidation and a flight to cash.

However, analysts are still holding onto a long-term bullish trend for gold. Writes that the year ahead is shaping up to be a ‘steady-as-she-goes’ year for Fed policy, which is expected to be generally supportive of precious metals for the next two to three years.

Despite gold’s wobbles, miners announced big moves this week. Agnico Eagle bought TMAC Resources for $286 million Canadian. Of course Shandong announced its takeover offer last May after TMAC but was prevented by federal government with Canadian and China relations souring. Agnico Eagle paid about 26% higher than Shandong’s bid.

SilverCrest Metals announced this week that it secured a project financing facility of US$120 million with RK Mining to build its Las Chispas project in Mexico. SilverCrest already has a contract with Ausenco for construction. Commissioning of the process plant is targeted for Q2 2022 and production ramp-up is slated to begin in Q3 2022.

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SILVER DAILY

Silver is also confirming a cycle breakout. The bullish divergence in late November (prices remained above the September high) suggests robust momentum behind silver moving into this advance. Consequently, I think prices could surge sharply higher over the next 3 to 4-months. I have a minimum target of $35.00, but $42.00 or higher is a real possibility by April or May.

 

 

PLATINUM DAILY

Platinum diverged even more bullishly than silver, building the potential for a powerful advance. In late November, when gold dropped to new lows, platinum hit fresh highs. Once above $1200, we could see $1500+ easily by April or May. Historically, the price of platinum trades well-above that of gold, so we have a lot of catching up to do.

 

 

Georgia Senate Update

The Georgia Senate race has tightened to nearly a coinflip compared to the 68% to 35% reported last Tuesday. If the Dems win both seats (currently 49% odds), that will change things from a divided government to one that is united. The Dems, if in control, would increase spending and stimulus, but with that comes the potential for higher taxes, which corporations hate. If they win, I suspect the likelihood of higher taxes could be enough to trigger a correction in stocks.

Also, several Senators said they would dispute President Trump’s election loss when Congress reconvenes on Wednesday. That opens the door for an investigation into claims of election fraud. It is unclear how this will play out, but if there is a genuine investigation, then that too could cause market uncertainty and a possible correction.

Silver and Platinum are leading gold and should outperform gold in 2021. Our educational metals portfolio is long GDXJ, SILJ, GDX.

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On Thursday, February Comex gold futures are trading $1882.60, up to $4.50 or +0.24%.

President Trump is generating a buzz in the market with his demand to increase the size of the stimulus package passed earlier in the week, but gold traders seem to be shrugging off the news. Investors largely brushed off reports that U.S. lawmakers blocked attempts to alter a $2.3 trillion coronavirus aid and government spending package.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. A trade through $1912.00 will signal a resumption of the uptrend. The main trend changes to down on a move through $1820.00.

The minor trend is also up, but momentum may be getting ready to shift to the downside with the formation of a potentially bearish closing price reversal top on December 21.

A trade through $1859.00 will confirm the closing price reversal top. This could trigger the start of a 2 to 3-day correction or even a change in trend if $1820.00 is violated.

Besides the below-average volume, this week’s choppy price action has been fueled by a series of retracement levels.

The short-term range is $1973.30 to $1767.20. The market has been straddling its retracement zone at $1870.30 to $1894.60. This zone is controlling the near-term direction of the market.

The minor range is $1820.00 to $1912.00. Its retracement zone at $1866.00 to $1855.10 is additional support. This zone stopped the selling on Monday.

Another short-term range is $1767.20 to $1912.00. Its retracement zone at $1839.60 to $1822.50 is the last retracement zone support before the main bottom at $1820.00.

Near-Term Outlook

The recent analysis of price action suggests the near-term direction of the February Comex gold market will be determined by trader reaction to the retracement zone at $1870.30 to $1894.60.

Look for an upside bias to develop on a sustained move over $1894.60 and a downside bias to develop on a sustained move under $1870.30.

The way of least resistance is to the upside with $1912.00 a potential trigger point for an acceleration. A move under $1870.30 could be a little labored with potential support levels lined up at $1855.10, $1839.60, and $1822.50.

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“Based on the optimism that the House and Senate had reached an agreement in regards to the revised bipartisan fiscal stimulus bill on Sunday, gold futures traded to an intraday high of $1912 overseas last night in London.”

However, at roughly 3:30 AM EST gold futures had already sold off from the intraday highs of $1912 and was trading just below $1900 before trading sharply lower. Over the next hour of trading, between 4:30 and 5:30, AM EST gold pricing dropped from $1897 to $1859 as news surfaced about concerns that the Covid-19 virus had mutated creating a new variant of the novel strain of coronavirus.

According to MarketWatch, “Worries about increased lockdown procedures in London and other parts of the world drove investors to the perceived safety of dollars and compelled some traders to momentarily sell some of their bullion holdings… Bullion has tended to slide, at least momentarily, as worries about the virus have caused broader selling in risk assets and prompted some flight to cash and out of precious metals.”

The article cited a research note on Monday written by Edward Moya, Senior market analyst at Oanda who said, “Today’s price action for gold reminded traders of the panic selling that occurred in March.”

The news of a new coronavirus mutation dampened the optimism that the House and Senate had finally reached an agreement. The $900 billion bipartisan aid bill was voted upon today and passed in both legislative branches. This took gold prices off of their intraday low, with the most active February 2020 Comex contract currently fixed at $1881.70, after factoring in today’s decline of $7.20. However, the current price is $30 below the highs achieved overseas.

This indicates that there is major technical resistance at $1911. The inability for gold to hold pricing above $1900 also suggests that there could be more selling pressure as market participants await more clarity on the new variation of the coronavirus and its implications on whether or not the current vaccine will also protect individuals against this new variation.

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In 2020, gold rose more than 20%, with the highest peak reached in August when it hit a new record high of $2,075 an ounce. Since then, gold has been consolidating below the $1,900 an ounce level.

The majority of analysts Kitco News spoke to for this outlook is bullish on gold, projecting to see new all-time highs next year. The main drivers cited include inflation, weaker U.S. dollar, economic concerns, currency debasement fears, and low-interest rates.

“If you take the optimistic side and imagine that many people do get vaccinated and the vaccine works, then the economy should take off in a serious way in the second half of next year. The inflationary scenario becomes a real possibility, which is positive for metals,” Kitco Metals global trading director Peter Hug said.

As COVID-19 is maintained and controlled, consumer demand will increase and drive the economy higher, creating a supply shortage, which will trigger higher prices and inflation.

“People will return to the real world at a time when the supply of real goods will be constrained. Inventory levels are already very low because of COVID restrictions. On top of that, you had the professional class make more money during the lockdown. And most people in the low-income category also have some extra income due to stimulus. We could see more demand and drastically reduced supply,” said StoneX director of global macro strategy Vincent Deluard.

Inflation seems to be the main risk to watch out for next year, with Capital Economics U.S. economist Andrew Hunter pointing to the very likely rise in goods prices as well as costs of services.

“Expect inflation to pick up relatively quickly. It is this potential upward pressure when you consider demand coming back strong and supply still being constrained. The goods inventories are unusually low. We’ll see a pick up in prices for goods and services. Various industries will still be subject to various restrictions, and that will push up costs,” Hunter explained.

On top of that, the Federal Reserve is willing to let inflation run hot without raising rates, he added. “It is pretty clear that the Fed won’t be rushing to raise interest rates and will allow inflation to modestly reach their target. Easy to see that becoming an issue they’ll have to address.”

Economic recovery aside, the positive vaccine news does not solve the issue of global debt, added Guardian Vaults Business Development Manager John Feeney. “Vaccine is not going to cure the amount of global debt. Even if a vaccine is successful, I still think central bank policy will remain accommodative,” Feeney said.

Gold price levels for 2021

For gold, this means new all-time highs with more investors choosing to diversify into the precious metal in order to protect themselves from rising prices and currency debasement.

“The 2020 gold high will be taken out. If we get an inflationary surge again, gold north of $2,500-$3,000 is a real possibility until the central banks start to re-tighten. But tighter monetary policies are at least a year away, if not longer,” Hug pointed out.

Next year will see central banks holding their foot down on the stimulus pedal with no chance of rates going higher. “In that context, you have to be bullish on the metal,” noted Hug.

A big attraction of gold in 2021 will be its role as a protection against inflation amid massive quantitative easing and money printing, said Goehring & Rozencwajg Associates managing partner Leigh Goehring.

“2021 will be the year that investors believe that there is going to be a return of inflation. We haven’t experienced anything like that for 40 years. At some point in 2021, it will happen. This is when the next leg of the bull market will take off,” Goehring said. “With all this money printing we’ve gone through in 2020, next year will be the year we are all disabused of the notion that we can print money without consequences. Gold can go through $2,100, and we could possibly challenge $3,000.”

The concept of gold being at the beginning stages of its bull run has resonated with a lot of the analysts.

“I am a big believer that in this bull market, gold is going to be significantly higher than the $10,000 an ounce level,” said Goehring. “The first leg of the bull market was when gold went from $1,500 to almost $2,100. And after this corrective phase, gold will begin another huge bull move. Next leg could take gold above $5,000 an ounce.”

Bloomberg Intelligence analyst Mike McGlone also pointed out that he doesn’t see this gold market ending until we get to the bottom of the next bear market in stocks, which is still far away. “At some point, the fear of missing out on stocks will end, and gold will take off,” he said.

McGlone pointed to rising debt-to-GDP ratio, quantitative easing, and the narrative in Modern Monetary Theory (MMT) as the reasons behind gold’s move to new record highs next year.

“Last year, the key level we were looking up to was $1,700 resistance, now we are looking up at $2,000 resistance, next year it will be even higher,” he said.

Another key trigger that will boost gold towards $2,100 next year will be stock market volatility, Feeney added.

“The U.S. share market is trading at historical extremes because investors are optimistic about the vaccine curing it all. In 2021, we are likely going to have equity market volatility throughout the year, and that should be supportive of precious metals prices,” he said.

Potential problems to watch

One area to keep an eye on next year is the effectiveness of the vaccine as well as the number of people lining up to vaccinate.

“If the vaccine is not as effective or less than 50% of the population takes the vaccine, then the economy is going to struggle, and both the government and the Fed is not going to have any option but to increase stimulus,” said Hug. “This will also be constructive for gold … There is a macro bull market in the metals, assuming the economy doesn’t implode.”

Another issue has been a weak physical demand in light of higher gold prices. On top of that, central banks around the world have paused their gold purchases, with the 2020 gold rally being primarily driven by the Western investor, Goehring pointed out.

“The Western investor will continue to play a huge role in the gold market. Central bank buying and Eastern gold buying will be pushed aside to make room for the Western investor. We saw the first stages of that shift already take place when gold was trading above $2,000,” he said.

The investors in the West have been driving the gold-backed ETF inflows, which, despite slowing at the end of the year, saw record levels in 2020, according to the World Gold Council. “Net inflows of 916t (US$50.3bn) in 2020 remain well above the highest yearly amount on record,” the WGC said in December.

Goehring sees new people embracing the gold market next year as money is pulled out of weaker bonds and flows into gold.

Feeney added that increased gold-backed ETF demand will continue into 2021, stating that gold is getting a lot of positive coverage and many investors still don’t have exposure to the precious metal. “As we move into 2021, gold will rise on the realization that the vaccine will not cure all of our economic problems. It’s at that point you’ll see quite a bit of market volatility,” he said.

Bitcoin competition

Gold could also see some significant pressure from its digital rival bitcoin, which has surged past $20,000 for the first time ever in December. Some analysts are warning that the allure of bitcoin will steal some of the attention away from gold.

“A new nuance for gold this year is bitcoin’s competition and demand. It is a fact that a lot of flows are going towards bitcoin. This might suppress the gold rally next year,” McGlone said.

This is a unique and never-seen-before development, he added, noting that bitcoin is likely to continue to outperform gold. “To me, it is very clear that the price of gold would be higher if bitcoin didn’t exist,” McGlone said. “We’ve seen outflows in gold ETFs, yet the opposite in bitcoin.”

JPMorgan Chase said in December that bitcoin’s wider adoption will have a direct impact on gold, which could trigger a major shift in institutional allocation between the two assets.

“The adoption of bitcoin by institutional investors has only begun … If this proves right, the price of gold would suffer from a structural headwind over the coming years,” JPMorgan strategists said.

Not all analysts agree with this premise. Walsh Trading co-director Sean Lusk said bitcoin could not hurt gold in the short-term. “Maybe 20-30 years down the line,” he said.

Digix co-founder and COO Shaun Djie added that he does not see gold and bitcoin being in direct competition with one another.

“Bitcoin appeals more towards the digital audience, which wants to get into a store of value. Gold appeals to traditional investors and central banks. I think when central banks start to invest into bitcoin as they do in gold, that’s when the crypto would become a real competition,” Djie said.

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The sellers returned after the metal-faced rejection at the 50-daily moving average (DMA), now at $1875.

On Wednesday, gold fell as much as 1% to near the $1825 region and spent the rest of the week meandering near the latter, with the upside attempts capped by the 21-DMA of $1841.

Gold Price Analysis: XAU/USD’s daily chart clearly shows that the price continues to oscillate in a defined range. Acceptance above the 50-DMA is critical to reviving the recovery momentum from four-month troughs of $1765.

Meanwhile, the 200-DMA support at $1809 is the level to beat for the bears. The 14-day Relative Strength Index (RSI) settled the week at 47.01, keeping the odds for additional downside alive.

However, the Fed’s final monetary policy decision of this year and a likely US fiscal stimulus deal could have a significant impact on the gold price action in the week ahead.

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