Our forex data feed shows a current USDCNY exchange rate of 7.4775, which matches Barcharts.com and Google Finance, but Bloomberg and NetDania show a far lower rate of 6.8681. We have asked our data suppliers to investigate the disparity. Please do not act on the rates quoted without verifying with your bank/forex dealer.
Gold and Dollar pause
The Dollar Index paused in its advance and is likely to retrace to test the new support level at 100. Target for the advance is 107*.
* Target medium-term: 100 + ( 100 – 93 ) = 107
Gold paused in its primary decline, in response. The target is unchanged at the December 2015 low of $1050/ounce. Retracement that respects the resistance level at $1200 would strengthen the bear signal.
Gold falls as Dollar climbs
Interest rates are surging as the market anticipates rising inflation under a Trump presidency. 10-Year Treasury yields are testing resistance at 2.50. Breakout is likely and would signal a test of resistance at 3.0 percent. Penetration of 3.0 percent would warn that the 30-year secular down-trend in Treasury and bond yields is coming to an end.
The Dollar strengthened in response to rising interest rates, with the Dollar Index breaking resistance at 100 to signal a primary advance with a target of 107*.
* Target medium-term: 100 + ( 100 – 93 ) = 107
Gold breached primary support at $1200 in response, signaling a primary decline with a target of the December 2015 low of $1050/ounce.
In the long-term, higher inflation and a weakening Yuan could both fuel demand for gold as a store of value. But the medium-term outlook is bearish.
Gold weakens as interest rates rise
Interest rates are climbing steeply as the market anticipates more inflationary policies under a Trump presidency. 10-Year Treasury yields broke through 2.0 percent and are testing resistance at 2.50. Penetration of the descending trendline would warn that the long-term primary down-trend is weakening, signaling a test of 3.0 percent. Breakout above 3.0 is still some way off but would signal the end of the almost 30-year secular down-trend in Treasury and bond yields.
The Chinese Yuan has fallen sharply in response to rising interest rates, with the Dollar headed for a test of resistance at 7.0 Yuan (USDCNY).
Gold responded to rising interest rate expectations with a test of primary support at $1200. Narrow consolidation is a bearish sign, as is reversal of 13-week Momentum below zero. Breach of primary support would signal a primary down-trend with an immediate target of $1050/ounce.
In the long-term, higher inflation and a weakening Yuan could both fuel demand for gold as a store of value. But the medium-term outlook is bearish.
Gold: Further weakness likely
US Treasury yields are rising, with the 10-year yield breaking through 1.80 percent to signal a test of 2.0 percent. Further rises are likely on the back of stronger GDP figures for the last quarter.
The Chinese Yuan continues to depreciate against the Dollar in anticipation of another rate rise from the Fed.
Spot gold displays a weak retracement off support at $1250/ounce, with short candles indicating a lack of conviction. Another primary decline is likely and would test primary support at $1200.
The ASX All Ordinaries Gold Index respected the descending trendline, suggesting another decline. Reversal below 4300 would confirm, offering a target of 4000.
Footsie faces stubborn resistance
The FTSE 100 is testing long-term resistance at 7000/7100. Declining Twiggs Money warns of selling pressure. Retreat below 6950 would warn of a correction to test 6500.
The quarterly chart below shows the FTSE 100 first tested 7000 resistance in December 1999, reaching a high of 6950, and has struggled to break clear of this level ever since.
With the pound approaching record lows from 1985, and exports expected to rise, the Footsie finally has a decent chance of breaking clear.
Gold respects support
10-Year Treasury yields are retracing to test the recent support level at 1.60 percent but the trend remains upward.
The Chinese Yuan is easing against the US Dollar, with USDCNY in a gradual up-trend as the PBOC manages the decline in order to conserve foreign reserves. This is likely to alleviate immediate selling pressure on the Yuan, both from capital flight and borrowers covering on Dollar-denominated loans.
Spot gold respected support at $1300/ounce. Breakout above the falling wedge (and resistance at $1350) would signal another advance.
* Target calculation: 1375 + ( 1375 – 1300 ) = 1450
Rising interest rates and low inflation are bearish for gold but uncertainty over US elections, Europe/Brexit, and the path of the Chinese economy contribute to bullish sentiment.
Gold stocks serve as a useful counter-balance to growth stocks in a portfolio. If there are positive outcomes and a return to economic stability, growth stocks will do well and gold is likely to underperform. If there is instability and growth stocks do poorly, gold stocks are likely to outperform.
Gold, rising interest rates and the falling Yuan
Interest rates are rising. Upward breakout from an ascending triangle formation on 10-year Treasury yields indicates an up-trend.
A rate hike from the Fed would increase pressure on the Chinese Yuan, leaving the PBOC with a dilemma. Either allow the Yuan to slide, which could panic investors and borrowers into a rout, or sell off more of its $3.2 trillion foreign exchange reserves to slow Dollar appreciation against the Yuan.
Long tails on USDCNY indicate buying at the 6.60 support level. Breakout above 6.70 would warn of another advance (decline for the Yuan).
Rising interest rates increase downward pressure on gold but a falling Yuan would boost demand as a store of value. Spot Gold is above the rising trendline on a weekly chart but expect a test of support at $1300/ounce. Momentum holding above zero continues to indicate a healthy primary up-trend. Respect of support at $1300 would confirm. Breach of support remains unlikely but would signal trend weakness and a test of primary support at $1200.
* Target calculation: 1300 + ( 1300 – 1050 ) = 1550
Gold, the Yuan & Donald Trump
China’s Yuan continues its slide against the Dollar, with USDCNY testing resistance at 6.70. The current retracement is likely to respect support at 6.60, offering a target of 6.80*.
* Target calculation: 6.70 + ( 6.70 – 6.60 ) = 6.80
A depreciating Yuan is likely to drive demand for gold as well as hard currencies. Rising political uncertainty — in Europe, the Middle East and the US — is expected to add fuel to the fire. Strong polling by Donald Trump alone could drive gold to its long-term target of $1550/ounce*. Expect retracement to test the new support level at $1300/ounce. Respect is likely and would signal an advance to $1400/ounce.
* Target calculation: 1300 + ( 1300 – 1050 ) = 1550
Disclosure: Our managed portfolios are heavily overweight gold stocks.
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.
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.
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*.
* Target calculation: 1300 + ( 1300 – 1200 ) = 1400