Signing of the US-China phase one trade deal did little to quell demand for Gold, with the precious metal continuing to test resistance at $1560/ounce. But a strengthening Dollar makes another test of primary support at $1450 likely.
Silver is similarly testing resistance at $18 to $18.50, but declining Trend Index peaks below zero warn of stronger selling pressure. Expect another test of support at $16.50.
The Dollar Index rallied off support at 96.50. Breakout above 98 would offer a medium-term target of 99.50.
China’s Yuan, on the other hand, is strengthening against the Greenback, with rising Trend Index troughs indicating buying pressure. Expect retracement to test support at 14.35 US cents, but the outlook for the Yuan against the Dollar is bullish and respect of support would offer a target of 15 US cents.
10-Year Treasury yields are ranging between support at 1.70% and resistance at 2.00%. A rising Yuan is bullish for yields and may cause another test of resistance at 2.0%. Breakout would offer a target of 2.50%. But increased use of mortgage-backed securities (MBS) as collateral in Fed repo operations may help to suppress long-term yields.
In summary:
- A rising US Dollar is bearish for Gold.
- Rising treasury yields increase the opportunity cost of holding precious metals and are bearish for Gold.
- Geo-political instability (e.g. ongoing US-China/US-Iran tensions) is bullish for Gold.
- Low oil prices and low inflation are bullish for the Dollar and bearish for Gold.
Australia
Australia’s All Ordinaries Gold Index is testing resistance at 7200 after a brief retracement to 6800. Breakout from the trend channel is bullish for Gold stocks. Follow-through above 7200 would strengthen the signal.
Patience
Gold is in a long-term up-trend and the current correction may offer an attractive entry point. We have a breakout from the downward trend channel but could still experience a re-test of support at 6000. Proceed with caution.