Key Points
- The weekly Bull/Bear market indicator for the US declined to 40% on a further drop in heavy truck sales
- The US decline also affected the ASX indicator, which fell to 56%
- Long-term Treasury yields and the dollar are weakening, boosting support for gold
US Bull/Bear Market
The Bull/Bear indicator declined to 40% from 60% on Friday, with heavy truck sales signaling risk-off:
Heavy truck sales declined to 37.1K units in July, with the 12-month moving average falling to 38.6K. Heavy truck sales are a reliable indicator of transport activity and confidence in the economic outlook. Decline of the 12-month MA by more than 10% from its October 2023 peak at 43K signals risk-off.
The fall also affected the Australian indicator, which slipped to 56% from 64% last Friday, indicating a mild bear market.
The decline is due to the US index’s 40% weighting in the ASX Bull/Bear indicator.
Stocks
The S&P 500 recovered from Tuesday’s fall, but the declining Trend Index warns of weak sentiment.
The Dow Jones Industrial Average stalled at 44K and has not yet confirmed the S&P 500 bull market signal with a breakout above 45K. Again, declining Trend Index peaks warn of bearish sentiment.
Financial Markets
Strong liquidity in financial markets supports stocks. The Chicago Fed National Financial Conditions Index remains in a strong downtrend, indicating loose monetary conditions, despite an upturn to -0.535 from -0.565 last week.
Bitcoin remains in an uptrend, indicating bullish sentiment, closely correlating with financial market liquidity.
Treasury Markets
Long-term Treasury yields remain weak, testing support at 4.2%, but this is a bear signal, anticipating Fed rate cuts in response to a slowing economy.
Dollar & Gold
The Dollar Index also weakened, with the Fed expected to cut rates. The decline is headed for a test of support at 97.
However, a narrowing trade deficit would reduce the supply of dollars in international markets as international borrowers and importers need to meet dollar-denominated commitments. The Fed would normally alleviate the shortfall by issuing swap lines to foreign central banks, but we live in an uncertain world. The US Treasury could object to the Fed’s accommodation if the mood takes them.
Gold benefited from dollar weakness in the last few days. Narrow consolidation above support at $3,360 per ounce is a bullish sign, and a breakout would signal a fresh test of recent highs.
Gold Revaluation
The Bitcoin Reserve Act Bill is currently circulating in Congress. Its stated aims:
To establish a Strategic Bitcoin Reserve and other programs to ensure the transparent management of Bitcoin holdings of the Federal Government, to offset costs utilizing certain resources of the Federal Reserve System, and for other purposes.
Section 9 includes a provision to revalue US gold reserves. Treasury owns the gold and issues gold certificates to the Fed, currently at a book value of $42.222 per troy ounce.
The Bill proposes that the Treasury revalue its gold holdings and issue new certificates in exchange for the existing ones held by the Fed. The Fed will credit the difference in value between the new and old certificates to the Treasury General Account (TGA) on its balance sheet. The result is inflationary as the Treasury can use the credit to buy Bitcoin, repay debt, or otherwise spend as Congress directs.
According to Fiscal Data, the US Mint holds 7,628 metric tons of gold in deep storage at Fort Knox, Denver, and West Point. Revaluing by $1,000 per ounce would enable a credit of $245 billion to the TGA. While not exactly earth-moving, the Bill provision highlights how Treasury could benefit from a higher gold price.
Conclusion
Heavy truck sales are the latest sign that US economic growth is slowing.
Long-term Treasury yields are weakening, and so is the dollar. Demand for gold has strengthened, and a follow-through above the last few days’ consolidation would signal a re-test of recent highs above $3,400 per ounce.
Acknowledgments
- CoinDesk: Bitcoin
- Federal Reserve of St Louis: FRED Data
- TF Metals Report: The Bitcoin Reserve Bill
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.