Hat tip to Andy Semple at Andika.
Gold’s next entry point
Looking at the monthly chart of gold, we can see a strong rally that stalled at $1300/ounce. Consolidation below $1300 would be a bullish sign, suggesting a long-term advance to $1550*. Breakout above resistance would confirm.
* Target calculation: 1300 + ( 1300 – 1050 ) = 1550
But correction to test support at $1200 remains a possibility. Again, recovery above $1300 would confirm another advance.
The weekly chart adds more nuance. We have already seen two successful tests of support at $1200, making a third test less likely. Respect of medium-term support at $1250 would suggest another advance.
The daily chart adds further detail, revealing a broad saucer pattern (similar to a shallow cup and handle) through March-April, indicating strong buyer interest. This was followed by a flag, now in its third week, which suggests continuation of the up-trend. Breakout above the flag (at $1280) would signal another advance. Follow-through above $1300, as mentioned earlier, would confirm the signal.
The question is: If the flag successfully completes, do we take the signal at $1280 or wait for confirmation at $1300? If there is a breakout above $1300, the floor may get pretty crowded, making it difficult to fill your order. If we take the earlier signal, probabilities will be in your favor but there is no guarantee that the breakout (at $1300) will occur. There are no hard rules for this and I prefer a pragmatic approach. If your capital is sufficient, why not take a three-way bet? Fill a third of your position at $1280, a third at $1300, and the other third on retracement that respects the new support level (at $1300).
Disclosure: Our Australian managed portfolios are invested in gold stocks.
Treasuries fall and Dollar strengthens on latest Fed minutes
Treasury yields rose and prices fell sharply after release of minutes from the Fed’s latest monetary policy meeting. The April minutes reveal that policy makers see a June interest-rate hike as appropriate if labor markets and economic growth continue to strengthen. The 10-year Treasury yield jumped 12 basis points, suggesting a rally to test resistance at 2.0 percent.
The Dollar strengthened against China’s Yuan, testing medium-term resistance at CNY 6.55. Breakout would force the PBOC to further deplete foreign reserves in support of the Yuan. The alternative of an uncontrolled descent would instill panic and encourage capital flight to gold and the USD.
Wage growth hits fresh lows | ABC News
From Michael Janda:
Wage growth has hit a fresh record low, with workers’ pay rising just 0.4 per cent last quarter and 2.1 per cent over the past year. The latest seasonally adjusted Bureau of Statistics Wage Price Index is growing at the lowest level since the data began in the September quarter of 1998. The weakness in pay rises is particularly evident in the private sector, where wages edged just 1.9 per cent higher over the year to the end of March….
Says a lot for the state of the economy when compared to US wage growth which has recovered to close to 2.5pc a year:
Source: Wage growth hits fresh lows, ABS index shows – ABC News (Australian Broadcasting Corporation)
Oil turns lower as greenback rallies on Fed minutes
From Mark Shenk:
Oil dropped from a seven-month high as the US dollar surged after the Federal Reserve published minutes of its latest monetary policy meeting suggesting a June hike is possible. Commodities fell as the Bloomberg Dollar Spot Index, which tracks the US currency against 10 others, surged. The April minutes showed that policy makers saw an interest-rate hike appropriate in June if labour markets and economic growth continued to strengthen…..
Rising inflation, Dollar weakens
The consumer price index (CPI) ticked up 1.14% (year-on-year) for April 2016, on the back of higher oil prices. Core CPI (excluding energy and food) eased slightly to 2.15%.
Inflation is muted, but a sharp rise in hourly manufacturing (production and nonsupervisory employees) earnings growth (2.98% for 12 months to April 2016) points to further increases.
Despite this, long-term interest rates remain weak, with 10-year Treasury yields testing support at 1.65 percent. Breach would signal another test of the record low at 1.50% in 2012. The dovish Fed is a contributing factor, but so could safe-haven demand from investors wary of stocks….
The Dollar
The US Dollar Index rallied off long-term support at 93 but this looks more a pause in the primary down-trend (signaled by decline of 13-week Momentum below zero) than a reversal.
Explanation for the Dollar rally is evident on the chart of China’s foreign reserves: a pause in the sharp decline of the last 2 years. China has embarked on another massive stimulus program in an attempt to shock their economy out of its present slump.
But this hair of the dog remedy is unlikely to solve their problems, merely postpone the inevitable reckoning. The Yuan is once again weakening against the Dollar. Decline in China’s reserves — and the US Dollar as a consequence — is likely to continue.
Goldman Cuts 2017 Oil Price Forecast Due To Slower Market Rebalancing | Zero Hedge
Goldman Sachs has cut its long-term crude oil forecasts:
The inflection phase of the oil market continues to deliver its share of surprises, with low prices driving disruptions in Nigeria, higher output in Iran and better demand. With each of these shifts significant in magnitude, the oil market has gone from nearing storage saturation to being in deficit much earlier than we expected and we are pulling forward our price forecast, with 2Q/2H16 WTI now $45/bbl and $50/bbl. However, we expect that the return of some of these outages as well as higher Iran and Iraq production will more than offset lingering issues in Nigeria and our higher demand forecast. As a result, we now forecast a more gradual decline in inventories in 2H than previously and a return into surplus in 1Q17, with low-cost production continuing to grow in the New Oil Order. This leads us to lower our 2017 forecast with prices in 1Q17 at $45/bbl and only reaching $60/bbl by 4Q2017.
But these forecasts are premised on a Chinese recovery:
Stronger vehicle sales, activity and a bigger harvest are leading us to raise our Indian and Russia demand forecasts for the year. And while we are reducing our US and EU forecasts on the combination of weaker activity and higher prices than previously assumed, we are raising our China demand forecasts to reflect the expected support from the recent transient stimulus. Net, our 2016 oil demand growth forecast is now 1.4 mb/d, up from 1.2 mb/d previously. Our bias for strong demand growth since October 2014 leaves us seeing risks to this forecast as skewed to the upside although lesser fuel and crude burn for power generation in Brazil, Japan and likely Saudi are large headwinds this year.
While production growth continues to surprise:
…..This expectation for a return into surplus in 1Q17 is not dependent on a sharp price recovery beyond the $45-$55/bbl trading range that we now expect in 2016. First, it reflects our view that low-cost producers will continue to drive production growth in the New Oil Order – with growth driven by Saudi Arabia, Kuwait, Iran, the UAE and Russia. Second, non-OPEC producers had mostly budgeted such price levels and there remains a pipeline of already sanctioned non-OPEC projects. In fact, we see risks to our production forecasts as skewed to the upside as we remain conservative on Saudi’s ineluctable ramp up and Iran’s recovery.
We expect continued growth in low-cost producer output
Saudi Arabia, Kuwait, UAE, Iraq, Iran (crude) and Russia (oil) production (kb/d)
Tyler Durden has a more bearish view:
While there is much more in the full note, the bottom line is simple: near-term disruptions have led to a premature bounce in the price of oil, however as millions more in oil barrels come online (and as Chinese demand fades contrary to what Goldman believes), the next leg in oil will not be higher, but flat or lower, in what increasingly is shaping up to be a rerun of the summer of 2015.
Source: Goldman Cuts 2017 Oil Price Forecast Due To Slower Market Rebalancing | Zero Hedge
Iran Hits Saudis Where It Hurts…. | OilPrice.com
From Irina Slav:
Iran has introduced a discount on the June contract for its heavy crude going to Asia, just a few days after Saudi Arabia announced a price increase for its own June contract for the continent. With the discount, Iranian oil will be noticeably cheaper for Asian clients than both Saudi and Iraqi crude.
The motivation behind Iran’s move is easy to see. The country is starving for oil revenues. It has a lot of work to do on its oil production and transport infrastructure to boost production, and it has just begun to recover from years of harsh sanctions.
Asia is a priority destination for its crude, so Iran has been lowering prices in parallel with pumping more oil. In March, for example, its exports to Asia marked a 50 percent increase on the year. Even factoring in the sanctions that were in effect last March, a 50 percent increase is a substantial achievement.
Competition between Iran and the Saudis for Asian orders is likely to increase downward pressure on crude prices.
Light crude shows no signs of easing, with June futures at $47/barrel. Expect resistance between $48 and $52/barrel. Penetration of the rising trendline would warn of a correction to test primary support at $32 but earlier penetration of the long-term descending trendline suggests that a bottom is forming and primary support is likely to hold.
Source: Iran Hits Saudis Where It Hurts, Offers Discounts On Asian Crude | OilPrice.com
Old-school American retail is getting crushed by capitalism | Yahoo
From Seana Smith:
Earnings season is sending a massive warning for the retail sector: Big players are getting crushed, and if companies fail to change their strategies, things may go from bad to worse. A slew of weak results sent traditional retailers into a tailspin this week. Gap (GPS) and Ralph Lauren (RL), along with department stores Macy’s (M), Kohl’s (KSS), Nordstrom (JWN) and J.C. Penney (JCP), all disappointed Wall Street with their latest numbers.
Gap and Ralph Lauren both reported a drop in comparable sales, falling 7% and 5% respectively. And the results weren’t any better for department stores. Macy’s recorded its worst quarterly results since the recession, Kohl’s posted an 87% decline in its profit, Nordstrom slashed its guidance and J.C. Penney reversed five straight quarters of sales growth.
But there’s one massive retailer that’s bucking the trend — Amazon.
The e-commerce giant is gaining market share while wreaking havoc on its brick-and-mortar competitors.“Amazon is already the second largest U.S. apparel retailer (trailing only WMT), as the company has grown to ~7% of the overall U.S. apparel market. We estimate Amazon will reach 19% share of the U.S. apparel market by 2020,” Morgan Stanley wrote in a note to clients on Thursday.
Amazon (AMZN) broke through resistance at 700, offering a target of 900. Rising troughs on long-term (12-month) Money Flow reflect strong buying pressure. Retracement that respects the band of support at 680 to 700 would confirm the breakout.
Source: Old-school American retail is getting crushed by capitalism – Yahoo Finance
Retail sales lift
Retail sales (excluding motor vehicles and fuel) jumped to a 2.96% year-on-year increase for April 2016, climbing back above Core CPI to reflect a real increase.
We are still waiting on light vehicle sales for April. An upturn would indicate reviving consumer confidence in the economy.
An upturn in business sales is also needed, to spur new investment.
