It looks like there will be no trade deal any time soon.
“Trade talks between China and the United States ended on Friday without a deal as President Trump raised tariffs on $200 billion worth of Chinese imports and signaled he was prepared for a prolonged economic fight….. Trump is now moving ahead with plans to impose 25 percent tariffs on all remaining Chinese imports. Those new tariffs could go into effect in a matter of weeks.” (New York Times)
Signature of a document was always going to be more theater than substance. Earlier in Bloomberg:
“U.S. President Donald Trump has good reason to be skeptical about China’s willingness to live up to its commitments in any trade deal. Seasoned foreign business executives on the mainland know that any agreement there represents the start of a bargaining process, not the end….”
Response of stock markets, to signs that negotiations had reached an impasse, were muted. The pull-back on the S&P 500 is modest.
The Nasdaq 100 retreated below its new support level at 7700 but the Trend Index remains strong.
China’s Shanghai Composite is undergoing a correction but this week’s long tail suggests selling pressure is moderate.
The yuan fell sharply, acting as a shock-absorber.
Stocks like Boeing and Apple may be re-rated but the broad view of the market seems largely unchanged.
Silver has broken support at $15/ounce, warning of a test of primary support at $14. Declining Trend Index peaks indicate selling pressure.
Gold continues to test medium-term support at $1280/ounce. Precious metals tend to move together and Gold is expected to follow Silver in a test of primary support ($1180 for Gold).
The Dollar index, however, retreated below its new support level at 97.50. Penetration of the rising trendline would warn of a correction.
China’s Yuan fell sharply against the Dollar as trade talks encountered major turbulence. The outlook for a trade deal now looks poor.
10-Year Treasury yields are also falling as the prospect of further Fed rate hikes dims. Trend Index peaks below zero warn of strong demand for Treasuries (downward pressure on yields).
Failure to ink a trade deal is likely to boost demand for safe haven assets like the Dollar, Yen, Gold and US Treasuries. Capital flight from China may accelerate.
Nymex crude broke support at $65, warning of a primary down-trend with a medium-term target of $56/barrel.
Crude and gold tend to rise and fall together, over the long-term, and falling crude prices warn of gold weakness.
The bear rally in Gold is likely to meet stubborn resistance at $1250. Reversal below support at $1180 would offer a long-term target of the 2015 low at $1050/ounce.
Another major influence on Gold prices is Dollar strength. A strong Dollar is synonymous with lower gold prices. The Dollar Index is trending upwards but ran into resistance at 96.50/97.00.
The reason is not hard to find as China’s central bank (PBOC) stepped in to support the Yuan at 14.5 US cents (6.9 to $1), selling Dollar reserves.
The Aussie Dollar also strengthened as a result.
Australian Gold stocks continue to find support because of the weak currency (AUD) but a declining Trend Index warns of long-term weakness. Breach of support at 4500 would signal a primary down-trend.
Gold continues to find resistance at $1210/ounce. Trend Index peaks below zero warn of selling pressure. Respect of resistance would indicate another decline and a long-term target of the 2015 low at $1050/ounce.
The PBOC is supporting the Yuan at 14.5 US cents.
Support for the Yuan is driving down the Dollar. Dollar Index breach of support at 95 warns of a correction to test 91. Bearish divergence on the Trend Index warns of selling pressure. A falling Dollar is likely to boost demand for gold.
The Australian Dollar benefited from the weaker greenback, rallying to test resistance at 73/73.5 US cents. Trend Index peaks below zero continue to warn of long-term selling pressure. Respect of resistance is likely and would signal a test of the 2015/2016 low at 70 US cents.
Australian gold stocks rallied despite the strengthening Aussie Dollar. The All Ordinaries Gold Index (XGD) is likely to encounter stiff resistance between 4900 and 5100. A Trend Index peak below zero would warn of further selling pressure and continuation of the down-trend.
The Yuan continues to find support at 14.5 US cents.
The Dollar Index is testing support at 95. Respect of support would confirm another advance, with a long-term target of 103, but declining Trend index peaks warn of selling pressure.
Gold rallied to $1200/ounce but failed to make further progress. Respect of the descending trendline would warn of another decline with a long-term target of the 2015 low at $1050/ounce.
The Australian Dollar respected resistance at 73.50 US cents, warning of another decline. Trend Index peaks below zero reflect selling pressure.
The All Ordinaries Gold Index (XGD) continues its downward path, tall shadows on the last two candles reflecting selling pressure. Breach of short-term support at 4550 is likely and would offer a long-term target of 4000/4100.
The threat of a US-China trade war has rattled investors, with the Shanghai Composite Index breaking primary support at 2700 to signal another decline. Trend Index peaks below zero warn of strong selling pressure. Long-term target is the 2012 to 2014 lows at 2000.
Hong Kong’s Hang Seng Index is also under the pump, breaking support at 28,000 to warn of another decline.
Copper prices, a good barometer of the Chinese economy, are also falling. Breach of $6,000 offers a target of $5,500/tonne.
The Yuan has fallen almost 10 percent, testing support at 14.5 US cents. Failure of the PBOC to support the Yuan (by selling some of their $3 trillion of foreign reserves) may cushion the economic impact in the short-term but only invites further escalation from the Trump administration.
There is no easy way out. Trump clearly has the upper hand in trade negotiations.
China’s Yuan continues its steep descent against the US Dollar.
The weakening Yuan strengthened demand for Dollars, with the Dollar Index breaking through strong resistance at 95. Expect retracement to test the new support level. Respect would confirm the long-term target at the 2016/2017 highs of 103.
The strong Dollar weakened demand for Gold, with the spot price heading for $1200/ounce after breaching short-term support at $1220.
A long-term gold chart shows likely support levels at $1150 and $1050/ounce.
The Australian Dollar continues to range between 73.50 and 75.00 US cents, leaving local gold miners exposed to the falling Dollar price.
The All Ordinaries Gold Index (XGD) is testing support at 4900. Breach is likely and penetration of the rising trendline warns of a strong decline, with a LT target of 4100.
A sharp fall in the Aussie Dollar would soften the blow. But hope isn’t a strategy.
China failed to intervene in the past few weeks, allowing the Yuan to fall to offset the impact of tariffs instead of selling foreign reserves to support the currency. Their actions risk further retaliation by the Trump administration and could spark a full-blown trade war.
A weakening Yuan is likely to increase demand for US Dollars, both as investors in the Middle Kingdom seek to withdraw and as borrowers with USD-denominated loans seek to hedge or repay.
The Dollar Index continues to test strong resistance at 95. Breakout is likely and would offer a target of 2016/2017 highs at 103.
Spot Gold is in a primary down-trend, consolidating in a narrow band above short-term support at $1220/ounce. Breach of support is likely and would offer a short-term target of $1200.
The Australian Dollar is also in a primary down-trend, consolidating above 73.50 US cents. So far, the weaker currency has cushioned local gold miners from the impact of falling spot prices.
The All Ordinaries Gold Index (XGD) recovered above support at 4950. Follow-through above 5100 would indicate another test of 5400.
But downside risk to Australian gold stocks is rising as the USD spot price falls. Gold is more volatile than the Aussie Dollar.
The Dollar price of gold breached support at $1240/ounce, signaling a primary down-trend. A long tail indicates active buyers and we can expect retracement to test the new resistance level at $1250.
The Dollar Index continues to test strong resistance at 95.
But Chinese selling to support the Yuan has not materialized in sufficient magnitude to reverse Dollar strength. Dollar Index breakout above 95 is likely to spur selling of gold.
The Australian Dollar has not weakened sufficiently to protect local gold miners, with the price of Gold in Australian Dollars falling sharply.
The All Ordinaries Gold Index (XGD) broke support at 4950. Expect a test of 4600.
Downside risk to Australian gold stocks is rising.
Spot Gold broke support at $1250. Follow-through below $1240 would signal another test of primary support at $1200.
But the Dollar Index is also falling. Breach of 96.50 warns of a decline to the 2016 low at 92/93.
Dollar weakness is even reflected by a test of long-term support at 6.80 against the Yuan. Breach of the rising trendline on the monthly chart would warn of a primary down-trend.
Let me put it this way: recovery of gold above $1250 would not be a surprise. And would test resistance at $1300.