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    Austrian Government Betrays Their People on Use of Cash

    Gold is getting a lot of love on the COMEX market in the US. According to the CFTC which regulates the precious metals markets, traders delivered over $3 billion in gold in two days to begin the month of June. We will discuss that next, along with why the charts are telling us that gold may be about to crash.

    Gold and Silver Analysis

    The chart on gold has developed a disturbing technical indicator. By that I mean we have a strong trading pattern most usually associated with a bear market. And I believe that indicator is causing some traders to go short, producing softness in the futures trading on COMEX which may be limiting gold’s near-term potential to rise. Let us examine the chart and see if this pattern is likely to hold and predict gold’s imminent fall.

    The gold chart is showing what is known as a triple-top pattern. This occurs when prices reach the same price point, within an acceptable range as the prices do not have to match up exactly, three times within a reasonable length of time. These patterns can form over the years but are most often associated with short-term price movements that traders focus on to determine their next price targets.

    When the third peak is reached, traders look for the confirmation signal that tells them the bear market trend is real. The confirmation signal is the price passing down through the support line for the last three tops, which I have graphed out in orange and red. There are two confirmation signal lines because this pattern has two potential bottoms that we could use as confirmation.

    But while the triple-top is a respected trading pattern, it is also not an exact science. The patterns do not always work. For example, sometimes the chart reverses and goes bullish or just continues to sideways trade within a predefined price range for a while. This often occurs when there is little impactful information in the market to convince traders to move one way or the other.

    We need to do a little more work to determine whether this trading pattern is real or not. The first point to note is that the confirmation signal has not been reached yet, so we do not have a confirmed bearish technical pattern in gold yet. The second indicator is trend signals like the MACD and RSI. I have talked about these before and will not revisit how they work, but I will explain their significance next.

    Both indicators signal trader momentum over different time periods. MACD is a shorter-term indicator, typically covering 12- and 26-unit periods, which are typically days. The RSI covers a longer-term period and is a better indicator of longer-term market trends. Both signals have crossed beneath their equilibrium lines, meaning both are indicating that the gold market has been oversold.

    What does this mean? Well, it means that according to the data, traders have sold too many gold paper futures positions given the overall trends in the price. These indicators are telling us that the recent move down in gold price is not going to reach the confirmation signal line, and therefore we are not going to have a bear market in gold.

    Prices must fall into the $1700 or below range per ounce before we could consider confirmation of a gold bear market. Recalling how much physical gold has been moving on the big exchanges lately, it is unlikely that physical demand for gold as a safe-haven asset is going to decline anytime soon.

    And the soft economic indicators in the economy, which we cover in the weekly market wrap-ups on the YouTube channel for JMB, tell us that more people are likely to choose gold in the future. There is not a lot of pessimism over the physical demand in the market now.

    The last indicator I graphed out was the declining volume of trade. Usually associated with a triple top formation we have been discussing, it is an indication of falling demand. Well, that is true, there is falling demand for future paper. After all, we are almost to summer which is the weakest time for the financial markets.

    Traders often say, “Sell in May and go away,” a slogan that indicates players will park their money on the sidelines while they enjoy the sun and time with their families. That is certainly true of all financial markets including gold. So declining seasonal volume is not concerning. We will have to see; however, how bad that decline is compared with the rising physical demand.

    Looking at the COT chart above, we see the producers, merchants, and bullion banks all reversing significant chunks of short positions and moving net long. Financial types such as hedge funds have taken the bait and given up an equal number of long futures positions. Those closest to the physical market are positioned for a gold rally, not a bear market. While only a week-long pattern, additional short dumping by those closest to the physical trade would indicate that physical demand has convinced traders to move net long.

    I suspect big sovereigns, central banks, hedge funds, and the like are going to continue to buy gold throughout the summer. But the fading technical patterns will keep gold a bit soft as we head into the warm season. What tells me we are still in the bull market are the weakening economic fundamentals, rising concerns with international trade, pressure on the US dollar value in trade, and robust physical demand by large and influential financial powers.

    I suspect gold flirts with a new all-time high during the summer, but we need a big issue in the banking system or a new major geopolitical risk to cause it to go on another run and sustain new highs. We may not get that over the summer, but that does not mean it cannot happen. In recent years, the summer trading patterns in gold have changed largely because gold is being recognized as the asset of last resort again. So, this time is indeed different. We will see how that plays out over this summer.

    The Macro View

    That transitions us nicely into the macro view. As mentioned, we have to weaken economic fundamentals. This past week we saw crash downs in various manufacturing and service indexes that clearly shows we are in economic deflation. It is this economic deflation that has reduced price inflation, though prices of household goods and energy are still elevated.

    The Case-Schiller home price index fell 1.1% after having risen over the last few months. The bearish real estate market has returned after a brief respite. Capacity and production measure are also off, the most prominent indicators of a deflating output and therefore shrinking economy.

    The government jobs print came out and signaled the addition of 339,000 new jobs. But I have covered that report long enough to know it is completely inaccurate in the first publication. We will wait for the revised numbers which will get us closer to the truth. But I simply do not believe the employment numbers from the government anymore due to their challenges in sampling and data collection which get amplified over time.

    Story of the Week

    The story of the week comes from Austria, where over 5% of the population signed a referendum to the government to guarantee the right to use cash to be added to the constitution. Apparently, Austrians are concerned over the development of state digital currencies, known as central bank digital currencies (CBDCs). According to the news source Remix, Austrians use lots of cash to transact daily. The article explains the cash dynamic in Europe.

    “In Austria, 50 percent of all transactions are still conducted in cash, far above the European average of approximately 30 percent. Germans are also against digital transactions, with just 9 percent saying they would use mobile payments.”

    The two leading parties in the Austrian government have refused to listen to the people’s voices; however, it is expected measures will be introduced that limit people’s access to cash outside the established system. This could affect the local business markets as well as cause concern over how stable the economy will be as it transitions away from cash despite the protestations of its citizens.

    This will be an interesting story to watch as I believe it will become more common as more governments move to embrace state editions of centralized digital currencies. The US has time to develop its own because it is likely, as the world reserve currency and the largest share of held foreign currency reserves, will be the last fiat currency to fall. I will have more on the timelines for the digital dollar CBDC in future articles.

    Executive Summary

    Gold and silver typically fade during the summer when financial markets go on a partial hibernation. Traders are still active, but the volume of transactions softens considerably as people go on vacation and enjoy the warm weather and travel.

    Combined with a bearish pattern forming on the gold chart, one might think it is a good time to sell. That has been the typical pattern which has been broken in recent years. This year, booming physical demand owing to repositioning in the market from wealthy funds will continue unabated. Eventually, the physical demand will force traders’ hands on the futures markets, and prices will rise.

    The additional demand from overseas ‘love’ trade during Q3 and 4, along with the resumption of full market trading, likely causes gold to rise much more strongly in the fall. But any major economic event could spike gold and cause it to rally much sooner than would be typically expected.

    Economic fundamentals continue to soften after a decent couple of quarters to start 2023. Discounted for inflation, the economy is not growing in real terms. It is shrinking by the amount of CPI minus GDP growth, which right now is over a 3.5% difference. We are technically shrinking but you will not see the government declare it yet until it is so obvious that most schoolchildren could make the call.

    Austrians feel as though they have been betrayed by their government in making cash legal, as the constitution already demands. The government obviously has other ideas. Being the highest cash-use population in Europe, it appears the central bankers are trying to tackle the hardest-to-adopt populations first. I will explain this dynamic and have much more coverage in a future article.

    Coin of the Week

    Let us help the Austrians and support their physical precious metals market. It may be the last one they can turn to after cash is abolished, which appears to be the trend coming to a country near you. The Philharmonic has been my favorite sovereign coin design for a while. While still one of my favorites, I have made room for some other sovereign and private mint designs at the top. Still, I will never turn one of these down in trade simply for how elegant they are.

    Disclaimer: All Market Updates are provided as a third party analysis and do not necessarily reflect the explicit views of JM Bullion Inc. and should not be construed as financial advice.

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