Strong Dollar weakens gold

• Treasury yields decline
• Dollar strengthens
• Crude oil weakens
• Gold hesitates

Interest Rates and the Dollar

The yield on ten-year Treasury Notes is testing support at 2.40 percent. Breach would confirm a primary decline with a target of 2.00 percent*. 13-Week Twiggs Momentum holding below zero strengthens the bear signal. Recovery above 2.50 is unlikely, but would suggest a rally to 2.65/2.70 percent.

* Target calculation: 2.50 – ( 3.00 – 2.50 ) = 2.00

The Dollar Index broke resistance at 81.50, signaling a long-term advance to 84*. Expect retracement to test the new support level. Recovery of 13-week Twiggs Momentum above zero also suggests a primary up-trend. Reversal below 81.00 is unlikely, but would warn of another test of support at 80.00.

* Target calculation: 81.50 – ( 81.50 – 79.00 ) = 84.00

A rising dollar and falling treasury yields both suggest that inflation expectations are falling.

Gold

Gold found medium-term support at $1280/$1300, but oscillation of 13-week Twiggs Momentum around zero indicates hesitancy. Recovery above $1350 would indicate a primary up-trend, while breach of support at $1240/$1250 would signal a down-trend.

* Target calculation: 1200 – ( 1400 – 1200 ) = 1000

Declining crude prices may also be contributing to lower inflation expectations and weaker gold demand as an inflation hedge. Brent Crude breach of $104/barrel would signal a primary down-trend, reducing the possibility of a sustained rise in the gold price.