Fixed Income Archives - Page 3 of 16

February 24, 2017

Gold breaks through $1250

10-Year Treasury Yields are testing support at 2.30%. Expect this to hold. Breach of the rising trendline would warn of a correction but this seems unlikely with the Fed intent on normalizing interest rates. Breakout above 2.50% would offer a target of 3.0%.

10-Year Treasury Yields

The Dollar Index rally remains muted since finding support at 100. Rising long-term yields would fuel the advance, with bearish consequences for gold.

Dollar Index

China’s Yuan is consolidating. Resistance on USDCNY at 7 Yuan is likely to be tested soon.

USDCNY

The PBOC has been burning through its foreign reserves to slow the rate of depreciation against the Dollar, to create a soft landing. A sharp fall would destabilize global financial markets and fuel capital flight from China.

China Foreign Reserves

Spot Gold broke through resistance at $1250, signaling an advance to $1300.

Spot Gold

February 17, 2017

Interest rates bearish for gold

10-Year Treasury Yields are consolidating below resistance at 2.50%. Long tails suggest medium-term buying pressure. Breakout is likely and would offer a target of 3.0%.

10-Year Treasury Yields

The Dollar Index rally has so far been muted since finding support at 100. But rising long-term yields are likely to fuel the advance, with bearish consequences for gold.

Dollar Index

Spot Gold is consolidating below $1250/ounce. Reversal below $1200 would warn of another decline. Breach of primary support at $1130 would confirm. Arguments for a further advance appear weak, but breakout above $1250 would signal an advance to $1300.

Spot Gold

July 6, 2016

Gold surges as the Pound and Yuan fall

The Yuan is sliding against the Dollar, with USDCNY breaking through resistance at 6.60. Expect further capital flight, both from residents and offshore investors. Borrowers will also seek to repay Dollar-denominated loans and replace them with facilities in the local currency, adding further pressure on the Yuan.

USDCNY

The PBOC has been encouraged by fading prospects of further rate rises from the Fed, with 10-year Treasury Yields falling to a new all-time low of 1.37 percent, compared to 1.40 percent in 2012.

10-Year Treasury Yields

….And the Pound falling to a 30-year low.

GBPUSD

Falling currencies and lower long-term interest rates are both good news for gold bugs, with spot gold surging to $1370/ounce. Expect retracement to test the new support level at $1300/ounce. Respect of the band of support at $1280/$1300 is likely and would signal another advance, with a target of $1400/ounce*.

Spot Gold

* Target calculation: 1300 + ( 1300 – 1200 ) = 1400

June 28, 2016

Gold rises as the Yuan and interest rates fall

China seems to have given up on its policy of supporting the Yuan against the Dollar, with USDCNY breaking through resistance at 6.60. Depleting foreign reserves to support the Dollar-peg was always going to be a tough call for the PBOC. But the alternative of increased capital flight and rising counter-measures from trading partners may exact an even higher price.

USDCNY

Perhaps the PBOC was encouraged by fading prospects of further rate rises from the Fed this year, after BREXIT. 10-Year Treasury Yields are headed for a test of support at the all-time low of 1.40 percent in 2012.

10-Year Treasury Yields

Gold broke resistance at $1300/ounce and is now retracing to test the new support level. BREXIT, a weakening Yuan, and lower interest rates are all likely to fuel demand for gold. Respect of the band of support at $1280/$1300 is likely and would signal another advance, with a target of $1400/ounce*.

Spot Gold

* Target calculation: 1300 + ( 1300 – 1200 ) = 1400

May 26, 2016

Gold tanked? Not yet!

Gold broke below its recent flag formation, warning of a test of support at $1200/ounce.

Gold

Selling is driven by expectations of a Fed interest rate hike in June …..and recent Chinese stimulus which postponed Yuan devaluation against the Dollar. But expectations of a rate hike are causing a sell-off of the Chinese Yuan, with the USDCNY strengthening over the last few weeks.

USDCNY

…Which in turn will cause the Chinese to sell foreign reserves to support the Dollar peg (…..else devalue which would panic investors and cause a downward spiral). Sale of Dollar reserves by China would drive the Dollar lower.

Dollar Index

…and Gold higher. I remain bullish as long as support at $1200/ounce holds.

Disclosure: Our Australian managed portfolios are invested in gold stocks.

February 9, 2016

Batten down the hatches

Batten down the hatches, the storm is here.

Nymex WTI Light Crude futures (March 2016) are testing support at $30 per barrel. There is no indication that this is the bottom and breach of $30 would be likely to test $20 per barrel.

* Target calculation: 30 – ( 40 – 30 ) = 20

Long-term interest rates are falling, with 10-year Treasury yields headed for another test of primary support at 1.5 percent. Breach of 1.7 percent would confirm. The flight from stocks is driving up Treasuries (and yields lower).

Flight to safety is (normally) synonymous with a strong Dollar, so the weakening Dollar Index is a surprise.

China must be selling off Dollar reserves to support the Yuan and restore confidence.

Too late, I’m afraid. That horse has bolted. Loss of confidence in the Yuan is driving demand for gold, with the spot metal rallying to $1200 per ounce. Resistance at the former support level makes retracement likely, but a trough that respects $1100 or narrow consolidation below $1200 would suggest reversal (to an up-trend). Breach of $1200 would offer a target of $1300*.

* Target calculation: 1200 + ( 1200 – 1100 ) = 1300

After forming a lower peak at 18000, Dow Jones Industrial Average is testing primary support at 16000. 13-Week Twiggs Momentum peak at zero warns of a primary down-trend. Breach of support would offer a target of 14000*.

* Target calculation: 16000 – ( 18000 – 16000 ) = 14000

The S&P 500 displays a similar pattern, testing primary support at 1850, with a 13-week Twiggs Momentum peak at zero. Breach of support would offer a target of 1500*.

* Target calculation: 1850 – ( 2150 – 1850 ) = 1550

A monthly chart shows VIX rising for another test of 30. Oscillation between 20 and 30 flags elevated market risk.

Australia’s ASX 200 retreated below primary support at 5000, signaling a primary down-trend. A 13-week Twiggs peak below zero already warns of a decline. Today’s close at 4832 confirms, offering a short-term target of 4600* and a long-term target of 4000*.

* Target calculation: 4850 – ( 5050 – 4850 ) = 4650; 5000 – ( 6000 – 5000 ) = 4000

Investors who plan to hold stocks through a possible down-turn should stop watching daily prices and listening to news reports. It will only weaken your resolve. I am comfortable with holding stocks with strong dividend streams, but wary of holding growth stocks as they normally suffer the biggest losses.

For traders this is a time of dangerous opportunity. Either shorting sectors likely to be worst hit or waiting for opportunities to buy gold stocks.

Only when the tide goes out do you discover who’s been swimming naked.

~ Warren Buffett

February 4, 2016

Gold rallies but how long?

We are witnessing a flight to safety as money flows out of stocks and into bonds, driving 10-year Treasury yields as low as 1.88 percent. Breach of support at 2.0 percent suggests that another test of primary support at 1.5 percent lies ahead.

10-Year Treasury Yields

What makes this even more significant is that it occurred while China is depleting foreign reserves — quite likely selling Treasuries — to support the Yuan. Heavy intervention in the past few weeks to prevent further CNY depreciation against the Dollar may well show recent estimates of a further $0.5 Trillion outflow in 2016 to be on the light side.

USDCNY

China is caught in a cleft stick: either deplete foreign reserves to support the Yuan, or allow the Yuan to weaken which would fuel further selling and risk a downward spiral. Regulations to restrict capital outflows may ease pressure but are unlikely to stem the flow.

Chinese sales of Dollar reserves have slowed appreciation of the Dollar Index. Cessation of support for the Yuan would cause breakout above 100 and an advance to at least 107*.

Dollar Index

* Target calculation: 100 + ( 100 – 93 ) = 107

Gold

Gold has also benefited from the flight to safety, rallying to $1150/ounce. The rally may well test $1200 but resistance is expected to hold. Respect would suggest a decline to $1000/ounce*; confirmed if support at $1050 is broken. Continued oscillation of 13-Week Twiggs Momentum below zero flags a strong primary down-trend.

Spot Gold

* Target calculation: 1100 – ( 1200 – 1100 ) = 1000

January 20, 2016

Dow breaks support

My newsletters on December 10th and January 14th warned of the approaching storm across global markets. The Dow Jones Industrial Average has now broken primary support at 16000, signaling a primary down-trend. Reversal of 13-week Twiggs Money Flow below zero, indicating selling pressure, strengthens the warning. Target for the decline is 14000*.

Dow Jones Industrial Average

* Target calculation: 16000 – ( 18000 – 16000 ) = 14000

S&P 500 breach of primary support at 1870 confirms the Dow signal. The long tail on the latest candle indicates the continued presence of buyers (highlighted by rising 21-day Twiggs Money Flow). Expect retracement to test the new resistance level but respect is likely and follow-through below 1850 would be the final nail in the coffin. The medium-term target is 1700* but long-term, expect a test of 1500.

S&P 500 Index

* Target calculation: 1900 – ( 2100 – 1900 ) = 1700

CBOE Volatility Index (VIX) testing 30 suggests elevated risk.

S&P 500 VIX

Gold and Treasury Yields

Bonds have benefited from the flight to safety, with 10-year Treasury Yields closing below 2.0%. Follow-through below 1.90% would suggest a test of the 2015 low at 1.65%.

10-Year Treasury Yields

Gold likewise rallied to $1100 per ounce. But falling oil prices and low inflation are likely to undermine any long-term demand for gold as a store of value.

S&P 500 VIX

December 15, 2015

Gold unlikely to benefit as China loosens Dollar peg

Long-term interest rates remain soft despite the anticipated Fed rate hike. 10-Year Treasury yields respected support at 2.0 percent and breakout above 2.50 percent would indicate a test of primary resistance at 3.00 percent.

10-Year Treasury Yields

Two factors have been driving US interest rates lower over the last decade: Fed monetary policy and PBOC purchases of US Treasuries. China built up $4 trillion of foreign reserves, a substantial amount in US Treasuries, to suppress appreciation of the Yuan against the Dollar and maintain a trade advantage.

China Foreign Reserves

China’s foreign reserves declined over the last year as the country struggled to maintain its peg against the strengthening Dollar, with large capital outflows. The shift from a strict peg to the Dollar to a basket of currencies may take immediate pressure off the PBOC. But a weakening Yuan is likely to encourage further capital outflows. And borrowers with USD-denominated loans are likely to suffer losses, increasing capital outflows through hedging or early repayment. So relief may be temporary.

USDCNY

Retreat of the greenback is unlikely to continue now that the PBOC has announced it will loosen its peg against the Dollar. Dollar Index breakout above 100 and recovery of 13-week Twiggs Momentum above its descending trendline would both signal a fresh advance. Target for the advance is 107*.

Dollar Index

* Target calculation: 100 + ( 100 – 93 ) = 107

Gold

Gold’s down-trend continues. Breach of (short-term) support at $1050 per ounce would confirm a test of (long-term) support at $1000/ounce*. 13-Week Twiggs Momentum peaks below zero indicate a strong primary down-trend. A stronger Dollar is likely to further weaken demand for gold.

Spot Gold

* Target calculation: 1100 – ( 1200 – 1100 ) = 1000

December 9, 2015

Gold muted as Dollar slides

I would have expected a gold rally in response to the falling Dollar but the response is so far muted.

The Euro leapt 3.08% last Thursday, December 3rd, in response to a weaker-than-expected stimulus package from the European Central Bank.

EURUSD

The Dollar Index, with a 57.6% weighting against the Euro, fell 2.26%.

Dollar Index

Other factors also weaken the Dollar. The Peoples Bank of China is selling off reserves to support the falling Yuan. This is likely to continue as capital outflows from China maintain pressure on the currency.

USDCNY

A weaker Dollar would boost US exports and accelerate domestic growth. Strong bearish divergence between 13-week Twiggs Momentum and the Dollar Index warns of a reversal. Breach of support at 98 would indicate a test of primary support at 93. Failure of primary support remains unlikely, but reversal of 13-week Twiggs Momentum below zero would strengthen the warning.

Dollar Index

Interest Rates

Long-term interest rates remain soft despite the anticipated Fed rate hike. 10-Year Treasury yields respected support at 2.0 percent. Breakout above 2.50 percent would indicate a test of 3.00 percent.

10-Year Treasury Yields

Gold

Gold is headed for a test of support at $1000/ounce* after breaching $1100. 13-Week Twiggs Momentum peaks below zero confirm a strong primary down-trend. A weaker Dollar would increase support for gold but there is no sign of this yet.

Spot Gold

* Target calculation: 1100 – ( 1200 – 1100 ) = 1000