Gold rally falters, while bond yields rise

Gold’s bear rally has run out of steam, with continued tests of support at $1440/$1450. Breach would penetrate the rising trendline, indicating another test of primary support at $1320. Target for the decline would be $1200*. Breakout above $1500 is unlikely, but would test $1550.

Spot Gold

* Target calculation: 1350 – ( 1500 – 1350 ) = 1200

The Gold Bugs Index, representing un-hedged gold stocks, behaves like a leveraged gold instrument. So far there is no sign of a bounce. Breach of support at 260 would warn of another decline.
Gold Bugs Index
My bullish outlook for gold is fading in the face of stubborn deflationary pressures faced by central banks.

Treasury Yields

Ten-year treasury yields rallied sharply at the end of last week and are now testing resistance at 1.80%. Respect of resistance remains likely — after all this is a down-trend — and would suggest another test of the all-time low at 1.40%. Breakout above 1.80% would signal a test of resistance at 2.00/2.05%, while breach of that level would signal a primary up-trend. The thirty year secular bear trend (in yields) remains downward and would only be reversed by a rise above 4.00%.

Dollar Index

Crude Oil

Brent Crude is testing its former support level at $106/barrel. Respect is likely and would offer a target of $92*. Nymex WTI broke out of its trend channel, but the trend remains downward until resistance at $98 is broken. A classic pair trade, the spread between the two is likely to narrow as the European economy under-performs.

Brent Crude and Nymex Crude


Commodity prices continue to diverge from stocks, with the S&P 500 advancing while Dow Jones – UBS Commodity Index is headed for primary support at 125.

Dow Jones UBS Commodities Index

Reason for the disconnect is evident on the next chart. Demand from China has been driving commodities for most of the last decade. A slowing Chinese economy more than offset rising demand from the USA.

Dow Jones UBS Commodities Index