Spot silver followed gold, falling through support at $42/ounce. Respect of support at $37/$38 would indicate that the up-trend is intact; failure is unlikely but would test primary support at $33/ounce.
* Target calculation: 42 + ( 42 – 38 ) = 46
Brent Crude ignores good news
Brent crude is stubbornly holding above support at $104/$105 per barrel despite the promise of an early resolution to the conflict in Libya. Even WTI Light crude [lime] recovered slightly after improved manufacturing orders in the US. But the primary trend is down and failure of support at $104 would offer a target of $90 per barrel.
* Target calculation: 105 – ( 120 – 105 ) = 90
Will Bernanke pull the trigger?
Rising stocks and a sharp fall on spot gold reflect uncertainty as to whether Ben Bernanke will announce further quantitative easing by the Fed, at Jackson Hole, Wyo. on Friday. Further purchases of Treasurys by the Fed would lift inflation and send investors scrambling for inflation-hedges like gold and blue-chip stocks. Stocks are rising, but gold is falling. Could it be that promise of an end to the conflict in Libya makes the world a safer place — or that a resulting fall in oil prices would reduce inflationary pressures? Brent crude and the CRB Commodities Index are both rising, suggesting that the precious metals blow-off is driven by profit-taking — after the sharp surge over the last few weeks and ahead of an uncertain announcement on Friday.
Spot gold is testing its secondary [green] rising trendline at $1700/$1720. Support is likely to hold — especially if there is any hint of QE3 on Friday — but failure would warn of a fall to the long-term trendline around $1500/ounce.
* Target calculation: 1900 + ( 1900 – 1700 ) = 2100
The monthly gold chart shows spot gold testing the upper trend channel of the long-term bull-trend. Correction to the lower channel would result in a substantial fall. A lot depends on what happens Friday.
$1.1B Comes Back into Mutual Funds Investing in U.S. Stocks
Equity funds had estimated inflows of $1.48 billion for the week, compared to estimated outflows of $30.01 billion in the previous week.
via $1.1B Comes Back into Mutual Funds Investing in U.S. Stocks.
$40B Flows Out of Mutual Funds. In One Week.
In the week ending August 10, $40.3 billion was pulled out of long-term mutual funds of all types, the Investment Company Institute reported.
Treasury Prices Sink As Investors Pause Ahead Of Jackson Hole – WSJ.com
The fact that buying tapered off after Wednesday’s and Tuesday’s [Treasury auction] sales underscores the attention that traders are placing on the Jackson Hole, Wyo., summit at which Bernanke will speak, betting against the prospect of some form of new bond-buying initiative…..
Troves of tepid economic data in the past few weeks had worked up hopes that the Fed would step in with some sort of disclosure at this weekend’s conference. But those expectations have died down since the start of the week as new data show the global economic recovery might not have slowed down as much as some investors thought.
What we need and what we actually get may be vastly different
This is in response to a question raised by Thomas Franklin:
Hi Colin,
….. My question is not just about the bond market although it is part of it but a reflection of the bigger picture globally with what is unfolding. With many governments facing rising debt levels and the Feds policy of financial stimulus, surely this is just delaying the inevitable of “Global Financial Meltdown” The USA and the dollar is a sinking ship, with the Fed losing the battle of bailing the ship out. So what do you think will replace the system we currently have?
Hi Thomas,
What we need and what we actually get may be vastly different.
Firstly, what we need:
- A consensus Swiss-style democracy instead of the winner-takes-all system we have at present, where incumbent politicians run up fiscal debt in order to boost their chances of re-election.
- Restrict the Fed to a single mandate, to protect the currency, rather than targeting inflation to help the politicians.
- Restrict capital flows between countries, like China/Japan’s purchase of >$2 trillion of US Treasurys, used to manipulate exchange rates and create a massive advantage for their export industries.
- Austerity to cut unnecessary spending and public works programs to improve national infrastructure and create employment — but the programs must deliver real returns on investment so they can later be sold off to repay debt.
- Europe needs a eurobond system, with central borrowing and restrictions on individual member deficits.
What we will probably get is:
- More of the same: government controlled by special interests and dominated by fear of the next election.
- The Fed going nuclear and buying more Treasurys — creating inflation to bail out the banks and save Treasury from default.
- Inflation as a soft form of default to give bondholders (read China/Japan) a haircut and deter them from buying more Treasurys.
- More profligate spending and ill-chosen, bridge-to-nowhere infrastructure projects.
- A breakup of the Euro?
Hope that doesn’t sound to optimistic 🙂
Regards, Colin
NZ bucks trend
New Zealand is one of the few markets that is bucking the trend — its agriculture-based economy fairly insulated from the global down-turn. ENZL, the MSCI New Zealand ETF, recovered above its former primary support level at 31.50 after strong bullish divergence on 13-week Twiggs Money Flow. While technically still a bear market, retracement that respects the new support level of 31.50 would confirm a test of 34.
It’s a bear market
The Dow Jones Industrial Average rallied Tuesday on fairly light volume. Expect resistance at 11500. This is a bear market, with reactions to good news likely to be short — and declines from bad news severe. Target for the next decline is 10000*.
* Target calculation: 11000 – ( 12000 – 11000 ) = 10000