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Education Series: Single-Stock ETPs

Gold Breaks Important Resistance

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Websim is the retail division of Intermonte, the primary intermediary of the Italian stock exchange for institutional investors. Leverage Shares often features in its speculative analysis based on macros/fundamentals. However, the information is published in Italian. To provide better information for our non-Italian investors, we bring to you a quick translation of the analysis they present to Italian retail investors. To ensure rapid delivery, text in the charts will not be translated. The views expressed here are of Websim. Leverage Shares in no way endorses these views. If you are unsure about the suitability of an investment, please seek financial advice. View the original at

Central banks bought a record amount of gold last quarter as they diversified foreign currency reserves. Almost 400 tons were bought by central banks in the third quarter of 2022, more than four times the amount the prior year, according to the World Gold Council. That takes the total so far this year to the highest since 1967, when the U.S. dollar was still backed by gold. However, the heavy buying did not help much the price and the medium-term trend for gold is still bearish.

After peaking at $2,070 in March 2022 the precious metal lost its positive momentum and reversed its prior up trend. From its March high to its recent low the price lost 22% and we cannot rule out the possibility of gold declining slightly further in the coming month(s).

After the release of the latest U.S. Nonfarm Payroll report last Friday, gold staged an impressive $50 bounce. The current rally came amid speculation that China will ease its restrictive zero-Covid policies, short squeezing and weakening of the U.S. dollar index. On Tuesday the price posted another $50 move higher as Americans cast their final ballots in the U.S. midterm elections. The best election outcome for gold is a Republican win and a slower inflation pace in the U.S.

However, inflation data will be the major driver for gold this week. It is quite likely that gold would closely track the U.S. dollar index, which means Thursday’s CPI report will be crucial. Market expectations are for October CPI to come at 8.0% YoY, compared to 8.2% in September. The reason investors are so fixated with this week’s inflation data instead of the midterm election is that it seems highly likely the Republicans will win at least one of the chambers this week. Even if the Republicans win both the House and Senate, the positive reaction might be short-lived. Historically, midterms have been quite positive for equities, but only mildly supportive for gold.

The current upswing broke above its medium-term down trend line (marked with orange in the chart below) which is a significant development and shows that downside momentum is slowing down. The recent pull back of the U.S. dollar index has been a bullish factor for the yellow metal and has helped the current run. Further unwinding of long U.S. dollar positions should be beneficial for gold. Despite the latest strong run, both the price and the daily RSI indicator remain below their respective static resistance levels. To brighten the outlook for the precious metal, these levels of resistance need to be cleared. At this juncture in time the gold is trading sideways, fluctuating between $1,614 and $1,735 showing some indecision among market participants, reflecting the lingering uncertainty in global markets. A subsequent breakout from the current range is likely to determine the near-term direction of the metal.

Source: Tradingview

Gold might struggle to move significantly higher from here just yet, as the Fed is not done with its rate hikes. The ongoing ETF outflows are likely to cap gold’s rally, therefore we are not convinced that the overall downtrend is about to change direction on a permanent basis yet.

Once a solid bottom is established, gold could be on its way higher as the U.S. dollar retreats. Gold’s bearish sentiment will most probably end when the Federal Reserve eases its most aggressive tightening cycle in 40 years.

Overall, it has been a volatile year with much uncertainty, and as we approach the end of 2022 investors are looking ahead and what to expect for the yellow metal in 2023. As a picture says a thousand words, in the chart below we overlay some of gold’s major driving factors such as the U.S. dollar, inflation and interest rates.

Source: Koyfin

The U.S. dollar experienced a monstrous run in 2022 significantly impacting the price of gold. As gold is priced in U.S. dollars, the strength of the dollar resulted in a lower price. Interest rates in the U.S. have risen substantially this year and investors are expecting that the pace of rate hikes could slow soon, which could bring the dollar down, and boost the gold price. In our view we are approaching this point, but we are not quite there yet.

Nimble traders looking to gain exposure to gold may use our 3x Long Gold ETP to take advantage of short-term rebounds, and our -3x Short Gold ETP to capture short-term declines.

Your capital is at risk if you invest. You could lose all your investment. Please see the full risk warning here.

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Sandeep Rao

Research

Sandeep joined Leverage Shares in September 2020. He leads research on existing and new product lines, asset classes, and strategies, with special emphasis on analysis of recent events and developments.

Sandeep has longstanding experience with financial markets. Starting with a Chicago-based hedge fund as a financial engineer, his career has spanned a variety of domains and organizations over a course of 8 years – from Barclays Capital’s Prime Services Division to (most recently) Nasdaq’s Index Research Team.

Sandeep holds an M.S. in Finance as well as an MBA from Illinois Institute of Technology Chicago.

Violeta Todorova

Senior Research

Violeta joined Leverage Shares in September 2022. She is responsible for conducting technical analysis, macro and equity research, providing valuable insights to help shape investment strategies for clients.

Prior to joining LS, Violeta worked at several high-profile investment firms in Australia, such as Tollhurst and Morgans Financial where she spent the past 12 years of her career.

Violeta is a certified market technician from the Australian Technical Analysts Association and holds a Post Graduate Diploma of Applied Finance and Investment from Kaplan Professional (FINSIA), Australia, where she was a lecturer for a number of years.

Julian Manoilov

Senior Analyst

Julian joined Leverage Shares in 2018 as part of the company’s premier expansion in Eastern Europe. He is responsible for web content and raising brand awareness.

Julian has been academically involved with economics, psychology, sociology, European politics & linguistics. He has experience in business development and marketing through business ventures of his own.

For Julian, Leverage Shares is an innovator in the field of finance & fintech, and he always looks forward with excitement to share the next big news with investors in the UK & Europe.

Oktay Kavrak

Director

Oktay joined Leverage Shares in late 2019. He is responsible for driving business growth by maintaining key relationships and developing sales activity across English-speaking markets.

He joined LS from UniCredit, where he was a corporate relationship manager for multinationals. His previous experience is in corporate finance and fund administration at firms like IBM Bulgaria and DeGiro / FundShare.

Oktay holds a BA in Finance & Accounting and a post-graduate certificate in Entrepreneurship from Babson College. He is also a CFA charterholder.

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