The Dollar price of gold has broken support at $1240/ounce, signaling a primary down-trend.
The Dollar Index continues to test resistance, consolidating in a narrow band below 95, a bullish sign. Chinese selling of the Dollar, to support the Yuan, has not materialized in sufficient magnitude to reverse Dollar strength. Breakout above 95 would spur selling of gold.
The Australian Dollar has not weakened sufficiently to protect local gold miners. The All Ordinaries Gold Index (XGD) is heading for a test of support at 4900/4950. Given the circumstances, support is unlikely to hold. Expect a test of 4600.
The yuan is falling as threat of a tariff war rises.
The Shanghai Composite Index is testing its 2016 low at 2700. Breach would warn of a decline to the 2014 low at 2000.
Commodity prices are plunging in anticipation of falling demand from China.
Chinese monthly iron ore imports are down at 83.24 mt, compared to earlier peaks of 100 mt earlier in 2017. Iron ore spot price is testing primary support $63/tonne. A Trend Index peak below zero warns of selling pressure. Breach of support is likely and would warn of a decline to $58/tonne.
A falling Aussie Dollar may cushion local resources stocks from some of the impact.
But ASX 300 Metals & Mining index continues to test medium-term support at 3800. Breach of support is likely and would warn of a correction to test the rising trendline.
Resources stocks remain in a primary up-trend but I am bearish on the medium-term outlook.
China continues to support the Yuan and we can expect consolidation around 15 US cents. Threat of trade tariffs is weakening the Yuan, forcing the PBOC to sell off foreign reserves to prevent a downward spiral as investors flee and borrowers hedge against the stronger Dollar.
PBOC sale of foreign reserves, mainly held in US Treasuries and mortgage-backed securities, would drive up yields and weaken the Dollar. The Dollar Index continues to test resistance at 95. Respect is likely and would warn of another correction. While unlikely, breakout above 95 would signal that the PBOC is sitting on its hands while the Dollar advances to an initial target of 100.
Gold is testing primary support at $1240/ounce. A stronger Dollar would breach support, warning of a decline to $1150. Respect of primary support is more likely and would signal another rally.
The price of gold in Australian Dollars has been edging up over the past few years as the Aussie Dollar weakens. But the monthly chart below shows that Gold (USD) has fallen faster than the Aussie Dollar over the last 3 months. Large bearish divergence on the Trend Index indicates selling pressure. Breach of support at $1650 (AUD) and the rising trendline would warn of a reversal.
The All Ordinaries Gold Index is a bit stronger, having broken through resistance at 5000. A correction that respects the rising trendline and new support level at 5000 would confirm the primary advance, with a target of 6000.
China’s Yuan fell sharply over the last 3 weeks, with the threat of US trade tariffs.
Risk of capital flight will force the PBOC to sell foreign reserves to support the Yuan. It took $1 trillion to stem the last fall, so expect a sizable sell-off in Chinese holdings of US Dollar assets, mainly Treasuries and mortgage-backed securities. The outflow is likely to weaken the Dollar, which is likely to strengthen Gold.
The Dollar Index encountered stubborn resistance at 95. Respect would warn of another correction.
Gold found support at $1250/ounce. Respect of the primary support level would suggest another rally.
The Aussie Dollar is likely to strengthen if the US Dollar falls.
A stronger US Dollar is expected to be mildly bullish for Australian gold stocks, with a stronger Aussie Dollar offsetting some of the gains.
The All Ordinaries Gold Index broke through resistance at 5250, signaling a primary advance with a target of 6000. Follow-through above 5300, after the recent retracement, would strengthen the signal.
A rapidly falling Chinese Yuan highlights the threat of trade tariffs to the Chinese economy.
Expect another sell-off of foreign reserves by China, as in 2015 to 2016, in attempt to stabilize the Yuan and head-off a major capital exodus. The sell-off would weaken the Dollar and Chinese exports.
Significant monetary easing by the PBOC is also likely, to stimulate domestic demand. Driving the Debt-to-GDP ratio into the stratosphere.
The Aussie Dollar would act as a shock-absorber, following the path of the Yuan.
Cushioning the blow to Australian exporters.
So far, Resources stocks are unfazed. The ASX 300 Metals & Mining index is consolidating below 4000.
The ASX 300 Banks index ran into stiff resistance at 8000. Expect another test of primary support at 7300 but this is not related to trade tariffs.
The ASX 200 appears unperturbed by the international turmoil, retracing calmly to test its new support level at 6150. Respect would signal another primary advance, with a target of the October 2007 high at 6750.
The All Ordinaries Gold Index broke through resistance at 5250, signaling a primary advance with a target of 6000. I remain cautious while the Dollar-price of Gold is falling; respect of Gold support at $1250/ounce would strengthen the bull signal.
The Aussie Dollar continues to fall, boosting local gold stocks.
Despite the Dollar-price of gold heading for a test of primary support between $1240 and $1250. Trend Index peaks below zero flag selling pressure.
Largely because the Dollar is strengthening, with the Dollar Index breaking through resistance at 95 to signal continuation of the recent advance.
A sharp fall in China’s Yuan is unsettling global financial markets.
The normal response to uncertainty is a flight to safety which boosts the Dollar, Yen and Gold. But this looks like a straight arm-wrestle between the Yuan and the Dollar, with strong demand for the greenback weakening the Dollar-price of Gold.
The ASX 300 Banks Index jumped sharply this week as investors made a bold move into the big four banks. Banks have been under the pump for months, with plenty of negative publicity from the Royal Commission accompanied by media coverage of falling house prices. The Aussie Dollar also rallied, suggesting the buyers were offshore.
Have they got it right? Only time will tell. Trying to catch a falling knife is a hazardous endeavor. What looks cheap at the time often ends up being very expensive with the benefit of hindsight.
Bulls would say that the banks are a dominant oligopoly, generating strong cash-flows and un-threatened by international competition. Bears would say they are under-capitalized, poorly managed and sitting atop the mother of all housing bubbles. Technical analysts would say that the Banks index remains in a primary down-trend and this is most likely nothing more than a secondary bear market rally.
But there are broader implications. The bank rally lifted the ASX 200 through resistance at 6150, signaling another primary advance. A Trend Index trough at the zero line flags buying pressure. Target for the advance is the October 2007 high at 6750.
This looks like a bold play by a long-term value investor, taking advantage of the weak Aussie Dollar and strong bearish sentiment towards banks. Where one leads, others are likely to follow.
The Dollar Index continues to test resistance at 95.
Mohammed El-Erian believes the Dollar is underpriced:
“…the dollar index is now at a 2018 high and, IMO, markets as a whole are yet to price fully the growth and policy differentials that favor the US over many other countries.”
Expect another test of short-term support at 93.20 but respect is likely and breakout above 95 would signal another advance.
A strong Dollar would suggest weaker gold prices (in Dollars). Spot gold breached support at $1280/ounce, warning of a test of primary support between $1240 and $1250. Trend Index peaks below zero flag selling pressure.
Australian gold stocks face a different set of drivers. The strong greenback weakened the Aussie Dollar, breach of primary support at 75 warning of a decline to 70 US cents. A long tail on the latest candle suggests a continuing arm-wrestle between buyers and sellers. But the Trend Index peak below zero indicates, in the medium-term, that sellers outweigh buyers.
Buoyed by a weaker Aussie Dollar, the All Ordinaries Gold Index is rallying to test resistance at 5250. Breakout would signal another advance but retracement is likely to first test support at the rising trendline.
The Dollar Index rallied to test resistance at 95 in response to the latest Fed rate hike. Short retracement is a bullish sign.
Spot Gold retreated to $1280/ounce. Penetration of the rising trendline warns of a correction to test primary support at $1250. A Trend Index peak below zero warns of strong selling pressure.
Fortunately for Australian gold stocks, the Aussie Dollar broke primary support at 75, warning of a decline to 69/70 US cents. The Trend Index peak below zero warns of strong selling pressure.
The weaker Aussie Dollar boosted local gold stocks, with the All Ordinaries Gold Index breaking through resistance at 5100. Follow-through above 5250 would confirm another advance but expect retracement to first test the new support level.
The Dollar Index encountered resistance at 95 and is now retracing to find support. Support above 91 would be bullish, while breach of 91 would see another test of primary support at 88.50.
10-Year US Treasury yields are likely to face stubborn resistance at 3.0 percent until threats to the European Union emanating from Italy’s new populist government are resolved. Breakout above 3.0 percent would signal the end of the 3 decades-long secular bull market in bonds — and increase selling pressure on gold.
Spot Gold, benefiting from the weaker Dollar, respected its rising trendline. Recovery above $1300/ounce would suggest another rally, while crossover of the Trend Index above zero would strengthen the signal.
Australia’s All Ordinaries Gold Index continues its struggle with resistance at 5100, while the Aussie Dollar holds above support at 75 US cents. Penetration of the rising trendline at 4950 would warn of a correction to test primary support at 4600. Breakout above 5100 remains more likely, with a rising trend Index indicating moderate buying pressure.
The Australian Dollar met resistance at its descending trendline, around 76.75 US cents. Expect another test of primary support at 75. If a Trend Index peak forms below zero, that would warn of strong selling pressure. Breach of primary support at 75 would signal a decline to 69/70 US cents — and strong demand for Australian gold stocks.