Gold has had a spectacular week as the financial sector spooked markets. Silicon Valley Bank, Standard Bank, and First Republic problems saw the Fed, the Treasury and US regulators act to provide depositor protection. Credit Suisse shares fell to all-time record lows indicating the banking problems are going global.
At time of writing, we have seen Swiss bank UBS acquire Credit Suisse, and the Federal Reserve has opened US Dollar swap lines essentially providing unlimited liquidity. The markets like this action, but of course anything can happen in the next few days. The markets will be having the Fed meeting on Wednesday March 22nd on their minds, where the Fed is STILL expected to raise interest rates. But if we see any headlines of another bank failure, then we know this crisis in the financial sector isn’t over.
With these bank headlines, we have seen money move into bonds for safety, bringing down bond yields. But the biggest move has been in gold. When there is real fear, money runs into this precious metal. Some call it the safe haven for the safe haven that is the US Dollar.
With so much uncertainty considering inflation, interest rates, banks, and geopolitics, you can see why gold looks attractive even though it provides no yield in an environment where rates are rising. Many of the retail guys are confused by the market’s movements on a daily basis. Institutional investors are likely playing it safe.
From a classical economics perspective, the recent move in gold has me slightly concerned. When I see gold breaking out into new all-time record highs against some fiat currencies, it usually means some unfavorable things are coming to that country and its currency. From a classical perspective, gold is a currency, and when it is making new highs, it means the fiat is devaluing thus inflation will rise. Classical economics looks at inflation as a decrease in purchasing power meaning it now takes more of that weaker currency to buy the same amount of goods and services.
Gold versus the US Dollar had an epic 6.50% week last week. From a technical perspective, this is the first higher low which will eventually take us to new all time record highs. As long as gold holds above $1810 on a weekly chart basis, we will eventually print new all time record highs.
But let’s talk about a few gold charts which I recently covered in my latest Chart Attack video:
Gold versus the Australian Dollar took out 2020 highs and has printed new all time record highs. A very strong weekly candle breakout. I expect momentum to continue from such strength, but I have drawn out the possible retest trajectory.
Gold against the British Pound actually printed all time record highs earlier this year at the end of January 2023. However, it wasn’t strong enough and the sellers jumped in at resistance. Gold/GBP then bounced at 1520 and confirmed a very strong weekly close breakout cementing the breakout. Similar analysis as XAU/AUD, momentum should continue but we could first see a pullback to confirm a retest.
Following the similar path to new record highs like the XAU/GBP is Gold against the Indian Rupee. This pair saw record highs printed at the end of January 2023, then saw a pullback before cementing a strong breakout.
Another Antipodean currency, the New Zealand Dollar, also saw weakness against gold. Gold against the New Zealand Dollar has been in a tight range but last week saw a breakout and a move into new all time record highs.
Speaking about ranges, gold against the Japanese Yen has finally broken a recent range seeing us print new all time record highs. In 2022, we saw a breakout into all time record highs with the Japanese Yen seeing a major fall due to interest rate differentials and the Bank of Japan not raising interest rates like other central banks.
Here are a few gold charts I am watching for a potential breakout into new record highs:
Both Gold against the Canadian Dollar and against the Euro are testing previous record high levels. These zones are currently acting as resistance. Perhaps we see both of these charts decline further as the bank issues fade into memory. Fear dissipates and gold prices retrace. However, just like the other gold charts which tested previous record highs before the breakout, perhaps we pullback and then form a higher low taking us into new highs.
Some very strong movements in both of these charts so I would expect to see some sort of break in the next few weeks.
Gold bulls are celebrating as gold runs rampant and is already printing new all time record highs against fiat. Fear? Uncertainty? Inflation? Things are wild out there and gold provides a protection against this choppiness.
Just some food for thought before I end this post. Technical analysis is spooky as it can predict events before they happen. As I mentioned earlier, seeing these moves into record highs has me slightly worried for those countries and fiat. If all the other gold charts follow along, then I would definitely be more worried. Perhaps something is coming… and perhaps the problems with the big banks are not over.