China’s Yuan found short-term support at 0.1395/0.1400 against the US Dollar but the ensuing rally is weak, suggesting continuation of the primary down-trend.
Our view is that the Yuan is in a long-term down-trend against the Dollar that shows no signs of easing. Resolution of trade tensions is unlikely, with trade merely the tip of the iceberg in a far wider clash, between two global powers with conflicting ideologies, that is likely to continue for decades.
The soft Yuan rally strengthened demand for Gold. A correction would present a good entry point in an expected long-term up-trend but patience is required.
Problems with continued use of the Dollar as a global reserve currency are driving central bank demand for Gold. According to Peter Schiff:
“Central bank gold purchases in April continue a trend we saw through 2018. In total, the world’s central banks accumulated 651.5 tons of gold last year. The World Gold Council noted that 2018 marked the highest level of annual net central bank gold purchases since the suspension of dollar convertibility into gold in 1971, and the second highest annual total on record.
A move to minimize dependence on the US dollar, especially by countries like Russia and China, is driving this central bank gold-buying spree.”
Our target for Gold is the 2012 high at $1800/ounce.
Silver found support at $17.50 after a stronger retracement. Breach of support on Silver would be a bearish medium-term signal for Gold.
The All Ordinaries Gold Index is trending lower. Breach of 7200 would warn of another decline, with a target of 6000/6500. The primary trend is expected to remain upward, so this could present a good entry point.
A long-term chart of the All Ordinaries Gold Index plotted against Gold (in AUD) shows valuations are relatively low compared to the boom of 2007 and 2011. A weaker Aussie Dollar and stronger gold price could both lift prices for local gold miners.
Colin Twiggs is a former investment banker with almost 40 years of experience in financial markets. He co-founded Incredible Charts and writes the popular Trading Diary and Patient Investor newsletters.
Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.
Focusing on interest rates and financial market liquidity as primary drivers of the economic cycle, he warned of the 2008/2009 and 2020 bear markets well ahead of actual events.
He founded PVT Capital (AFSL No. 546090) in May 2023, which offers investment strategy and advice to wholesale clients.