2025.02.24 GOLD WEEKLY OUTLOOKHello traders,
Gold is currently in a very extreme market situation. One can imagine the development process of a black swan event as follows:
- **Liquidity Tightening** → Institutions sell paper gold
- **Physical Hoarding Wave** → Bank vaults are overflowing
- **Futures Delivery Obstacles** → COMEX premiums rise
- **Increased Risk Aversion** → Physical gold bars are out of stock
- **Final Outcome**: Paper gold prices drop + physical gold premiums continue to rise!
Currently, there are three major challenges looming over gold prices, facing a critical decision.
**1. Dual Impact of Global Liquidity Tightening**
The tsunami of U.S. debt is coming: Starting last Thursday, the U.S. is issuing $183 billion in ten-year treasuries all at once, equivalent to draining a large reservoir from the market. Banks and institutions must free up huge cash amounts to buy bonds, directly leading to less liquidity in the market. It's worth noting that at this time last year, the weekly bond issuance was around $50 billion; now it has tripled, and bond yields are likely to be pushed above 4.4%.
On the other hand, there's a massive withdrawal of Japanese funds: After the USD/JPY fell below the psychological barrier of 150, it triggered a chain reaction. Over the past three months, arbitrage trades borrowing yen to buy U.S. treasuries now need to close positions worth 1.2 trillion yen (approximately $8 billion) daily. This capital is flowing back to Japan, which is equivalent to the global market losing the liquidity support of a medium-sized central bank every day.
**2. Historical Lessons: Insights from the Oil Futures Incident**
Event Recap: On April 20, 2020, U.S. WTI crude oil futures unprecedentedly fell to -$37 per barrel. The Bank of China's "Crude Oil Treasure" product faced a loss of 9 billion yuan for 60,000 investors due to the inability to complete physical delivery. This disaster exposed the core contradiction: when paper trading encounters bottlenecks in physical delivery, futures prices may completely detach from reality.
Current Reflections on the Gold Market:
1. **Underlying Rush for Physical Gold**: The U.S. imported 2,000 tons of gold in two months (40% of global annual production), but exchange inventories only increased by 674 tons, indicating a significant amount of gold is being hoarded directly.
2. **Paper Gold Bubble Risk**: Gold ETF holdings dropped by 5%, while open futures contracts increased by 23%, showing speculative funds are trying to profit in the derivatives market without actual holdings.
3. **Rehearsal of Delivery Crisis**: If a sudden large-scale delivery demand arises, COMEX might repeat the "negative oil price" moment—paper gold plummets, while physical gold premiums soar.
**3. The Ghost of Inflation Returns**
Two dangerous warning signals have lit up: The raw material payment price indices from the Philadelphia and New York Federal Reserves suddenly jumped to a two-year high. This leading indicator suggests that this month's PCE price index may remain stubbornly high. It's crucial to note that the data that Fed Chair Powell cares about most is this one; if it exceeds a month-over-month increase of 0.4% for three consecutive months, the hope for a rate cut in June will essentially vanish.
The Fed's awkward position: Current interest rates are nearly 2 percentage points lower than the theoretical values calculated by traditional formulas. The market is beginning to bet that if inflation data continues to soar, the Fed may not only hesitate to cut rates but could even be forced to reconsider rate hikes before the end of the year.
Wait for a 4-hour confirmation signal, and look for shorting opportunities in gold on the 1-hour chart.
The shorting targets currently only consider the support levels at the bottom of the top consolidation, namely:
TP1: 2906
TP2: 2880
GOOD LUCK!
LESS IS MORE!
