What Next For Gold Prices?

Okay, very good morning to you. It is Wednesday the 12th of August. Hope you're doing well. And yeah, everyone talking about gold given the big sell-off that we had yesterday. And in fact, gold is already down in the futures market, at least. It briefly broke through $1,900 and has been down in excess of $50 again already today. It's reversed course reversed a little bit, still down about $40 on the session. So that's going to really dominate a lot of this morning briefing. Before I begin though, what I just wanted to say was check out the Amplified Trading YouTube channel. Please do subscribe if you have not already done so. Hit that bell icon to be notified of any new videos that we release. And on that note, immediately after, or amid the selling pressure from yesterday, I managed to speak to one of the traders and mentors, Alex, who had a really good take about why gold specifically was selling off yesterday. So if you go on the YouTube channel, if you scroll down, we have different categories of content. There's one there about gold, what just happened. Yeah, great. We've already had close to 9,000 views in the last couple of hours. So yeah, really great take from him, kind of live, him watching it. Day to day and minute by minute, and his take on why it's happening and his forecast for why he actually thinks markets are going to bounce, not specifically today but over the, the coming months. Still remaining a bull on gold, and that pretty much is echoed across Wall Street from much of the research I've been reading this morning. So again, don't forget to subscribe to the channel to get, get hold of those types of videos. Moving on though, let's have a look at the actual charts this morning and let's just get straight into gold. And I'm gonna make that chart bigger here, and I'm gonna remove my video camera for a second just so you can get the full chart perspective. So yeah, I've just got— looking at gold here over the course of really going back about 20 days or so, so we can encapsulate this kind of phenomenal rise that we've had, of course, with the breach and coming in late July of 2000, which saw, I guess, this kind of area here, which was the, the push above the breakout, um, as we were typically seeing these types of episodes of where we're in uncharted territories, such a big multiple test on a technical level. Then we, we bust out to the upside, and we've continued to claw it out up towards 2100. Then we had a bit of a breakdown towards the back end of last week. Obviously, we've had a couple of decent data points coming from jobless to payrolls, and that did bump prices a little lower with some of the technical breaches of some of these, these key levels. But yeah, yesterday it really all started to come together and we saw a complete breakdown of prices where we started the day really in the Asia Pacific session trading around the kind of 2030 type region, and actually this morning we've traded all the way back down to 1873. So in fact, from a gold perspective, this would be heading for the biggest 2-day loss in more than 7 years if this was to continue. And so if we're looking— firstly, a couple of things to be aware of I'm going to talk through. For one, just having a look here where we've bounced on the daily pivots around the S1, 1873.5. That does encapsulate— if you look down here on the far left— of where we were trading as an area of resistance turned support when we were grinding it out higher through mid-July. So some technical relevance, and that, that's an important first point, I guess, to make. When there is a fast-moving market like gold, and it really is seeing a lot of momentum-based trading like it was yesterday, then a lot of these short-term speculators like to then just target flushes in price to certain key levels derived from technical significance. So the really prudent thing to do, and one of the things I was talking about very early on yesterday to some of the junior traders was about this idea of marking out these levels as far out as they might seem at that point in time. Gold is the type of asset or product where it can really move when, uh, yeah, this kind of CTA selling, momentum-based, and it just gets ignitioned by then algorithmic trading, and, and we just— the market gets hit quite hard. Now, one of the things that is firstly just to cover off, you know, why exactly did it happen yesterday? Well, you know, timing. Um, there wasn't one specific singular headline, but there's been a combination of different things. For one, don't forget that as a product, we've, we've seen a massive push up to the, uh, on the upside more recently. So an idea of the market being overbought in the short term. Looking to book profits if we start to see a meaningful type of pullback. Then a lot of these short-focused type traders looking to bail on that trade just adds momentum, exacerbates the downside. Timings-wise, we've also had a couple of other things. I mentioned some of the data points in the US at the back end of last week have been actually pretty good, or surprising to the upside, I should say. Then we've had the improving US COVID situation, which was really something I talked about in yesterday's briefing. So continued improvements, albeit the death toll level is still uncomfortably high. The new case rate and hospitalizations has been declining. Then you've got this, a couple of other things, the imminent flood of debt issuance. Obviously, you know, this phenomenal fiscal spending that the US Treasury are doing, trillions of dollars, has got to be financed through the issuance of debt. And so what typically happens then when new debt comes to market, then issuance adds to the supply, and that can put downside pressure on prices. You've then got as well, and the main kind of emphasis here is the yield movement. One of the underlying supportive factors here has been the, the movement of negative real rates, which has been moving ever further south as the kind of prospects about the economic recovery start to deteriorate. The Fed obviously is in ultra-accommodative mode and that's been an underlying support for, um, just generally supporting precious metals. But yields have been picking up, and yesterday as well, coinciding with the gold move, we actually saw a really interesting development where technically, if I look at it on a daily continuation, we did see, you know, part of this gold movement. And this is something that Alex was talking about in his video yesterday, was how let me just put my video back on here— was how the 10-year has actually been leading, if you like, a lot of the, the gold movement in terms of timing. And as you can see here, we broke out of a significant technical upside range that had been restricting a lot of the price action post the initial March pandemic volatility, back in towards middle of— middle to late July. And then that preceded then the push on the break above $2,000 that we had in gold. Now we, we petered out and, and found a degree of resistance on 3 multiple— 3 consecutive days really at around $1,4013. We've been backing down since. Throw in that COVID improvement, a couple of those data points, and then the idea then if there's more fiscal stimulus coming by the way of— although it's looking still apprehensive getting a deal done soon, the ultimate understanding is that, that there is going to be a deal at some point. And so then if you look at it, we've just bumped down, uh, the price as yields have started to pick up. And then we, we was— we were very hesitant around this trend line in particular. That broke, it's gone down, and you can see how technically then you got that extremity on the wick on the bounce as the market came back down and tested that 28th of July low as a near-term target. And that coincided then with some of that pressure that continued to mount on gold. So definitely it's a, it's kind of a re-emphasis of a yield, uh, story. Maybe expectations changing then about what does the second half of the year look like, and that's just how prices down. Inevitably though, if you think about it, there are a couple of things here as a mechanism of what we've had yesterday. The dollar is a little bit firmer. So if we talk about that first, and then we'll talk about the kind of more medium-term picture for gold. If you look at actually the euro, then obviously as yields move up, the dollar will appreciate. And the DXY is off a little bit in the last hour or so, but is up about 0.2%. And that's going to keep that long-term trend line we've been watching, the euro, probably in play as a strong level of resistance. It's going to— if we do see then this continue, this, this idea and in the yields recovery, at least in the short term, that's going to put a big cap on the ability of euro to break that level. Equally so then, it's a similar story for, for cable. Much of the dynamic here has been driven by the US narrative rather than stuff specifically for the UK. And I will get around to the UK growth data that came out a short while ago. But again, we've seen cable just drift down as the dollar staged a bit of a recovery, uh, which commenced yesterday coinciding with some of the moves that we had. And so just keeping an eye on the bottom end of that range which we were looking at from back on Monday, which is around that 130 lower bound from what we've been trading and has been holding price through August thus far. So back to gold, and one of the things here then is You know, I guess a couple of things. For, for a lot of inexperienced traders, what could have been a very appetizing thing to do here is like, right, the market's come off very sharply, I'm just going to buy the dip, let's just buy the dip. And, and that in itself is particularly problematic because as you saw yesterday with the way and the violent nature of how quickly gold was moving The ability to get accurate execution and to manage those trades in that environment, if you're inexperienced, is incredibly difficult. It's kind of like trying to catch a falling knife. Can you catch a falling knife? Sure you can. If you've tossed it and it's rotating and you've got to grip it really hard and you've got a chance of gripping the actual knife side or the handle side, can you do it? Sure you can do it. Well, if you're new, if and you're not used to spinning knives, the likelihood is you might just squeeze the knife and then cut your hand off. So the idea here then is like, for any new traders, is just understand now the risk associated with trading this market. Today's a difficult one, and I would imagine that given what we had last night, I wouldn't be surprised that a lot of retail traders might have loaded up last night as as gold fell down through to $1,927, which is a decent $100 move on the day. A lot of people might have just got long at that point and come in this morning, check their account, and they've taken an almighty hit because they've just been hit by $50 and another shift to the downside this morning. The point being here is that, look, as much as appetizing as these moves may seem in retrospect, the reality is trading them is very difficult. And so, you know, the art of execution comes with repetition, screen time, and experience. So if you are in that camp and you're relatively new to this, what I would convey is just stay clear. You know, look at it, use it as perhaps a barometer of general sentiment, because when gold and an asset, any asset, moves sharply in one singular day, it does tend to absorb a lot of the market focus and therefore can dictate sentiment generally on an intraday basis. But just use it then as a signal or an indicator rather than then a tradable asset per se, because the likelihood is it's going to see more violent moves today as well. So you take it with, with that, that kind of risk protocol in that, in that sense. What I thought I would do though is, is break it down firstly, and let's look at a little bit more of a zoomed in. I'm looking at a 30-minute candlestick here. So this is the dip here that was seen overnight in the Asia Pacific session. So we broke down through that late, um, let me just get an ellipse here and I can talk you through, give you a bit of a timeline of what exactly has been going on. So here you had the Asia low or excuse me, the US late session low. We broke that, shot down, came back up to test at around a similar level before we pushed down to that daily pivot level on the S1 and a bit of a bounce on that longer term level which is over here on the left-hand side, which takes us back to the 21st, 22nd of July. So which is just off your— off the screen here on the left that we were just talking about. So a good support level now, which would be a key level on the downside if we were to move back, back lower. On the upside now here, just been looking from the decline that we had from the 24, which was really capturing the bulk of the downward move from yesterday. So a pretty steep trend line, and you can see we're just trading around there at the moment, and that does coincide with those previous support and resistance points. So quite an interesting level here. You can see the reason why the market's seeing a bit of a, a hesitation here to make up its mind where does it want to go next. We are now though above that trend line, so here if we are to push higher, looking on the upside, then probably be looking up at around some of these areas where price has reacted to before. So if we were putting ellipses here, if we push back on up, then these kind of areas capsulating here As you can see, there was a good area of response to this level at around, uh, $1,947 on the decline. So anything that saw good reaction on the way down, you just need to flip it and look at it on the way up if the market were to continue on the upside. Are we going to see a $100 recovery today? I think personally no. And so it could well even be the case that we come up a little higher and then the downward short-term short-term direction may continue. But I would say once we start getting to the extremity of $100, $150 type loss, then inevitably a degree of recovery as people bail on those short-term shorts starts to materialize. So a bounce is probably at some point more likely than not. Now over the medium term, back to this picture which encapsulates then a little bit of the bigger story. And I'll remove my chart. The idea here, as per Alex's video— I do strongly suggest you go back and watch it because he goes into it in a bit more detail— but if you think about it, you know, the Fed aren't going to change anytime soon what they're gonna— what they're doing with policy. And so with that point of view, then, you know, they're going to continue to offer quantitative easing, if anything offering even more, because their commitment at the moment is unlimited amounts of quantitative easing. You've then got a US election on the horizon, less than 100 days away. And the idea here then is that, you know, if we look out in terms of some of the VIX structure further out encapsulating the period of, say, going into the election and the weeks beyond, it's already started to move and become elevated on the idea that we're going to have a particularly messy outcome, no immediate result in a traditional sense, and we could see a protracted period of 3 to 4 weeks because of this mail-in ballot system. And therefore, that's going to create a heightened degree of uncertainty and volatility, most likely. And so as a net result, with all the geopolitical risks still ongoing with China and the US— of course they're going to meet, but beyond that, we tend to go through this trade cycle of positives and negatives. And so there's big risks here. And if you talk about China, obviously the, the sharpness of that rhetoric is probably going to increase because it's a campaign situation, and Trump's really going to up the rhetoric if anything. So plenty of risks there and plenty of reasons why over the coming months going into Q3, Q4, plenty of reasons that gold should continue this bid tone that it's had. So exiting out yesterday, which did occur of course, I would still say that our view on the desk, um, is still that over that period, in the second half of the year in particular, as we get in toward then September, October time, going into November, that gold should have an underlying support tone. And if we push back up to all-time highs, it would not be surprising at all, um, at this point. Elsewhere then, silver, um, similarly getting hit badly yesterday, dropped as much as 15%, was heading for its biggest decline since October of 2008. A couple of things just looking at here, again, same thing as we were looking on the ascent, looking at the descent, which is then key technical levels to be aware of on the downside. Now, taking into account then the low that we had on the 16th of March up to the run-up just shy at the beginning of August of $30, the, uh, 382 fib retracement would come in at around that key technical area actually of what was an area we're watching from a high back in October 2013. That was an area which the market did respond to when we were pushing higher just a few weeks ago. So downside level, that's a really key one if it remains heavy. But already, as per gold, you can see silver's having a bit of a bounce this morning as well. So yeah, that's really the precious metal story, um, and hopefully that encapsulates some of the, the questions as to why it's happening, a view of where it might go and how to handle it going forward. But any questions, just, just let me know. Okay, I'm gonna have a quick run-through of all the other headlines. There are some other things to be aware of, but I'll be quite quick just going through. I'm gonna start then. Well, I've got a sequence of tabs. Let me just transition. Tesla shares after market— not sure if you caught it or not, but they were up quite sharply after market. They announced a stock split. So they're splitting its Elevated shares in a 5-for-1 exchange in a time move to make less expensive for individual investors. So obviously they're getting to a point where their market cap, of course, has been increasing incredible amount. The shares has gotten— have moved almost astronomically higher over a very short period of time. And so it's seen as a positive move in order to allow then the more kind of retail type trader to be able to, or investor, to be able to get into the share price, which is a key component of course to keep it elevated over the, over the longer term. Otherwise elsewhere, the RBNZ, we've had the interest rate decision overnight and the Kiwi dollar did get hit after the central bank said it would boost its QE program basically to as much as 100 billion Kiwi dollars or 65 billion US and that's from a previous $60 billion. So they've gone up to $100 from $60. They also said that they would extend that out until June of 2022, and they said that their negative rates are in active preparation. So that was from the RBNZ. Um, otherwise elsewhere, Kamala Harris brings prosecutor's legacy to Biden's ticket, for better or worse. Um, so this was very much as expected. She was the bookie's favorite. So Joe Biden has chosen Kamala Harris as his running mate, betting that her ties then for the African-American community and self-branding as a progressive prosecutor will help him in his bid for the White House. An interesting take, if you like, a one-liner I saw from a political strategist this morning that was commented in the FT. They said that if you look at the key swing states, which is always obviously incredibly important for the deciding factor of an outcome of an election, all of them except for Arizona have noteworthy and important Black voting blocs. And if Harris can help just a little bit in that regard, she will have been pretty electorally helpful to Biden in that respect. That bloc really didn't show up in the ballot box. Incredibly small numbers for Hillary Clinton back in 2016 comparative to what had been seen before for Barack Obama. There's a little bit of, uh, I guess apprehension on the side of Biden in regard to, uh, Harris is seen as particularly ambitious. She's quite a fiery character in that sense. She's particularly good on political live debating, so if that ever did— we go back to a non-virtual and more I guess normal environment should be particularly useful, I guess, in this exercise. But she herself was running for the Democratic ticket as the main candidate to run in the presidential race. So yeah, be interested to see how this plays out, but certainly a strong, strong character and personality. Other things, you've had the FT reporting that Rishi Sunak is weighing options to shelve his autumn budget. This is obviously a really important one because it's going to talk about defining then what's going to be the government strategy to help support the economic recovery going forward for Britain. But we're in this, the mid of a second potential COVID wave, hence the reason why there's talks about a potential postponement. If that were to materialize, it would probably be until the spring of 2021. Now that does not mean that we get complete silence from the Treasury Sunak would be expected to produce a mini spending review in the autumn, allocating spending for departments for just a single year would, would be how it would work. Now, one of the things here is around timing, of course, is that fears over a surge in unemployment when Sunak's existing furlough scheme ends in October is going to be a particularly challenging time as well for the government to manage. And that, of course, could lead to quite a large number job losses, which then could render a budget pretty much invalid at that point thereafter. So perhaps a better strategy just to wait at this point, politically offsetting that, saying it's COVID which has delayed it. From a UK perspective, we've just had the UK GDP preliminary numbers come out for Q2, -20.4%, in line with expectations. The manufacturing output, 1% higher, 11% against 10% expected. UK construction output volume 23.5%, that was quite a bit stronger than expected, 15.5%. We have had a little moderate bounce up in, in cable, but I'd say so has the euro-dollar currency pair as the, as the dollar bid from yesterday just dissipates a touch. So yeah, I wouldn't read too much into the UK data overall. Looking at the calendar, what have we got for today? Well, the UK data is already out, so moving further forward into the US session, uh, obviously what will be interesting of course will be the, the US CPI numbers, given some of the new yield emphasis coming out of the US at the moment has been a key component as to explaining why some of the gold movement has been occurring in the last 24 hours. So that would be a key metric, and then you've got the uh, regular Department of Energy inventory numbers. Just as a quick recap, you did have the APIs last night, so here they are. Let me just remove that. You had a drawdown of 4.4 million, just a touch deeper than expected, cushioning a build just around 1 million. Uh, gasoline draw 1.31, distillate draw just around 3 million. So look out for those later. And then other than that, you do have Fed's Rosengren speaking later on the US economy and current economic conditions, but is a non-voting member. You've then got Fed's Kaplan, who is a voter, taking part in a Q&A session. That'll be at 4 PM London. And then Fed's Daly later on this evening, a non-voting member. Supply-wise, if you are trading fixed income, you've got a UK gilt 2028 auction, and you've also got a Bund auction for €4 billion as well coming out of Germany this morning. And then, as per what we were discussing with the issuance being specifically this week, uh, you've got 38 billion in 10-year note auction as well coming this evening. Earnings-wise, you've already had E.ON, probably one of the larger German caps, to report this morning. What did they say? Well, they cut their 2020 outlook as coronavirus basically bites. And looking at the scoreboard here, you've in pre-market activity. Let me just give it a quick refresh so we've got the latest numbers. Uh, E.ON— well, it doesn't even register on the board of tops and flops now in terms of the DAX. So pretty, uh, lackluster movement on the back of that. Initially dipped, but looks like it's recovered in pre-market. All right, that is it. So yeah, good luck for the rest of the day. If you're going to be looking at gold, as tempting as it is just try and keep it tight. If you're going to trade any type of recovery story on a bounce, just be mindful that the asset's still going to be incredibly volatile. You know, if you are trading the type of product like a CFD, for example, obviously if you're dealing with any product where it's not, say, the full future and you're trading a spread, that spread is going to be big that the brokers are going to be offering today if you're in a retail environment. And so your, your, your ability to execute will be impeded by that factor. So just be particularly cautious with trying to trade it in very short bursts. Um, look, there's going to be opportunities with a much more smoother, orderly price activity, probably once the dust settles by the end of the week, I would say. So, you know, take it at your own risk. Okay guys, have a good day and I'll catch you all tomorrow. Thanks very much.