Category: Forex

Coverage of all major currencies and the US Dollar Index.

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Gold testing resistance despite Dollar rise

Signing of the US-China phase one trade deal did little to quell demand for Gold, with the precious metal continuing to test resistance at $1560/ounce. But a strengthening Dollar makes another test of primary support at $1450 likely.

Gold (USD/ounce)

Silver is similarly testing resistance at $18 to $18.50, but declining Trend Index peaks below zero warn of stronger selling pressure. Expect another test of support at $16.50.

Silver (USD/ounce)

The Dollar Index rallied off support at 96.50. Breakout above 98 would offer a medium-term target of 99.50.

Dollar Index

China’s Yuan, on the other hand, is strengthening against the Greenback, with rising Trend Index troughs indicating buying pressure. Expect retracement to test support at 14.35 US cents, but the outlook for the Yuan against the Dollar is bullish and respect of support would offer a target of 15 US cents.

CNYUSD

10-Year Treasury yields are ranging between support at 1.70% and resistance at 2.00%. A rising Yuan is bullish for yields and may cause another test of resistance at 2.0%. Breakout would offer a target of 2.50%. But increased use of mortgage-backed securities (MBS) as collateral in Fed repo operations may help to suppress long-term yields.

10-Year Treasury Yields

In summary:

  • A rising US Dollar is bearish for Gold.
  • Rising treasury yields increase the opportunity cost of holding precious metals and are bearish for Gold.
  • Geo-political instability (e.g. ongoing US-China/US-Iran tensions) is bullish for Gold.
  • Low oil prices and low inflation are bullish for the Dollar and bearish for Gold.

Nymex Light Crude

Australia

Australia’s All Ordinaries Gold Index is testing resistance at 7200 after a brief retracement to 6800. Breakout from the trend channel is bullish for Gold stocks. Follow-through above 7200 would strengthen the signal.

All Ordinaries Gold Index

Patience

Gold is in a long-term up-trend and the current correction may offer an attractive entry point. We have a breakout from the downward trend channel but could still experience a re-test of support at 6000. Proceed with caution.

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ASX 200 breakout

The ASX 200 broke resistance at 6800, signaling a fresh advance. Expect retracement to test the new support level; respect would strengthen the bull signal.

ASX 200

Primary driver of the advance is resources. Talk of an imminent phase 1 US-China trade deal lifted iron ore, which is now testing resistance at 95. Expect retracement to test primary support at 80 but respect would confirm that a base has formed.

Iron Ore

The ASX 300 Metals & Mining index is advancing in step with iron ore prices, with a short-term target of 4800.

ASX 300 Metals & Mining

Financials remain weak, with the ASX 300 Banks index ranging in a bearish narrow band between 7200 and 7500. Respect of the descending trendline would warn of another decline, with a short-term target of 7000.

ASX 300 Banks

The ASX 200 REITs index recovered after a false break below 1580, with a short-term target of 1680.

ASX 200 REITs

We maintain a focus on defensive and contra-cyclical (gold) sectors because of our bearish outlook for the Australian and global economy.

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Gold bearish on imminent phase 1 deal

The U.S. and China are finalizing a bevy of long-running corporate deals ahead of a high-profile ceremony to sign a trade deal next week that the world’s largest economies seek to cast as a major breakthrough and a marked warming in the relationship. Along with a Chinese delegation led by top negotiator Vice Premier Liu He, executives from American and Chinese companies will also attend the White House event to sign the phase-one agreement on Jan. 15, said the people, who asked not be named discussing private plans. (Bloomberg)

Gold retreated on news that signing of the US-China phase 1 deal is imminent. A tall shadow on the weekly chart warns of selling pressure.  Another test of primary support at $1450 is likely.

Gold (USD/ounce)

Silver also retreated, while declining Trend Index peaks below zero warn of strong selling pressure. Expect another test of support at $16.50.

Silver (USD/ounce)

China’s Yuan broke resistance at 14.35 US cents, while rising Trend Index troughs indicate buying pressure. Expect retracement to test support, but the outlook for the Yuan against the Dollar is turning bullish.

CNYUSD

10-Year Treasury yields found support at 1.70% and a rising Yuan is likely to cause another test of resistance at 2.0%. Breakout would offer a target of 2.50%.

10-Year Treasury Yields

Rising treasury yields increase the opportunity cost of holding precious metals and are bearish for Gold.

Australia

Australia’s All Ordinaries Gold Index penetrated the upper border of its downward trend channel but this week’s tall shadow warns of selling pressure and another test of support at 6000.

All Ordinaries Gold Index

Respect of support at 6000, with follow-through above 7000, would signal that a base has formed.

Patience

Gold is in a long-term up-trend and the current correction may offer an attractive entry point. But we first need a clear breakout from the downward trend channel to confirm that the up-trend is intact.

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Gold rallies as the Dollar weakens but rising yields may counteract

Gold rallied off support at $1450, testing resistance at $1500/$1520. Lower Trend Index peaks continue to warn of long-term selling pressure and another test of support at $1450 is likely.

Gold (USD/ounce)

Silver is similarly  testing resistance at $18.00/ounce, while declining Trend Index peaks warn of LT selling pressure.  Expect another test of support at $16.50.

Silver (USD/ounce)

China’s Yuan is testing resistance at 14.35 US cents, while rising Trend Index troughs suggest buying pressure. Expect retracement to test support but the LT outlook is more bullish.

CNYUSD

The Dollar Index, which should behave inversely to the Yuan (CNYUSD) above, is headed for a test of primary support at 96. Breach would be a strong bear signal.

Dollar Index

A weakening Dollar is a bull signal for Gold but it is driving up Treasury yields — raising the opportunity cost of holding precious metals — which is likely to offset rising demand.

10-Year Treasury yields are testing resistance at 2.0%. Breakout would offer a target of 2.50%.

10-Year Treasury Yields

Australia

Australia’s All Ordinaries Gold Index is testing the upper border of its downward trend channel. Declining Trend Index peaks have leveled off, suggesting that selling pressure is easing. Expect another test of support at 6000; respect would signal that a base is forming. Breakout from the trend channel would strengthen the signal.

All Ordinaries Gold Index

Patience

Gold is in a long-term up-trend and the current correction may offer an attractive entry point. But we first need a clear breakout from the trend channel to confirm that the up-trend is intact.

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Trade deal bearish for Gold

Donald Trump is talking up the prospects of a trade deal, while China remains non-commital, but experience has taught us to judge the two parties more by their actions than the rhetoric.

The Chinese Yuan is strengthening against the US Dollar, testing resistance at 14.35 US cents. A strengthening Yuan means lower USD reserves, driving US Treasury yields higher.

Chinese Yuan CNY/USD

10-Year Treasury yields are likely to again test 2.0%, weakening demand for Gold (higher yields increase the opportunity cost of holding precious metals).

10-Year Treasury Yields

The one counter to this scenario is if the Fed takes up the slack — left by low PBOC purchases — through its repo activity which is expected to reach $500 billion by the end of the year. The Fed is not buying Treasuries but instead may finance purchases by primary dealers and hedge funds at very low rates.

Gold continues to test support at $1450, while lower Trend Index peaks warn of selling pressure. Breach of support would offer a target of $1350/ounce.

Gold (USD/ounce)

Silver made a false break through support at $16.80/ounce but declining Trend Index peaks similarly warn of continued selling pressure.

Silver (USD/ounce)

Australia

Australia’s All Ordinaries Gold Index broke support at 6500, signaling continuation of the downward trend channel. Declining Trend Index peaks again warn of continued selling pressure

All Ordinaries Gold Index

Patience

Gold is in a long-term up-trend and the current correction may offer an attractive entry point. But we first need a breakout from the trend channel to confirm that the up-trend is intact.

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Silver bearish for Gold

Silver broke support at $16.80/ounce, warning of another decline. Declining Trend Index peaks indicate selling pressure.

Silver (USD/ounce)

Gold has yet to break support at $1450 but is likely to follow Silver if Treasury yields rise.

Gold (USD/ounce)

Higher Treasury yields weaken demand for Gold; it increases the opportunity cost of holding precious metals with no yield. Rising Trend Index troughs warn of upward pressure on yields. Expect another test of resistance at 2.0%.

10-Year Treasury Yields

A weakening Yuan (in USD) signals higher USD reserves held by the PBOC — and increased Treasury holdings (driving yields lower). Expect another test of primary support at 14 US cents.

Chinese Yuan CNY/USD

China opted for a largely symbolic response to President Trump’s signing of the Hong Kong Human Rights and Democracy Act. Increased sanctions against foreign NGOs are lame, according to Trivium China:

Foreign NGOs, especially those dedicated to democracy and human rights, have virtually no latitude to operate in China as it is. Additional “sanctions” are basically meaningless.

The weak response elicited a further push from Trump:

“In some ways, I like the idea of waiting until after the election for the China deal, but they want to make a deal now and we will see whether or not the deal is going to be right,” Trump told reporters in London. [CNBC]

The US is set to impose further tariffs if the December 15 deadline is not met. Commerce Secretary Wilbur Ross suggested that waiting until after the 2020 election to reach a trade deal with China would take away some of Beijing’s leverage, adding that “no high-level discussions are scheduled before the Dec. 15 deadline.”

We can’t see the US caving in to Beijing’s demands to roll back existing tariffs, nor the CCP kow-towing to Trump. Expect further delays.

Australia

Australia’s All Ordinaries Gold Index is testing support at 6500. Breach would signal continuation of the downward trend channel. Breakout from the trend channel is unlikely but would warn that a bottom is forming.

All Ordinaries Gold Index

Patience

Gold remains in a long-term up-trend. The current correction may offer an attractive entry point but we need confirmation that the up-trend is intact.

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Gold: Kill the chicken to scare the monkey

10-Year Treasury yields retreated from resistance at 2.0%, helped by increased Chinese purchases.

10-Year Treasury Yields

Evidenced by the Yuan falling against the US Dollar. Breach of recent support 14.15 would warn of another test of primary support at 14 cents.

Chinese Yuan CNY/USD

Further Yuan weakness and lower Treasury yields are likely after President Trump signed the Hong Kong Human Rights & Democracy Act into law. This puts China in a difficult position. China’s foreign ministry:

“We urge the United States not to continue going down the wrong path, or China will take countermeasures and the U.S. must bear all the consequences.”

Their economy is hemorrhaging and they badly want an interim trade deal but failure to respond to the latest US action would reveal a weak hand. Expect an indirect response as in the popular idiom – kill the chicken to scare the monkey – making an example of someone in the hope that it will deter others.

Gold continues to test support at $1450 but lower Treasury yields (from a weaker Yuan) would strengthen demand as it lowers the opportunity cost of holding Gold. Breach of support is unlikely unless Treasury yields again test resistance at 2.0%.

Gold (USD/ounce)

Silver is similarly testing support at $16.80/ounce but we are unlikely to see a follow-through unless Treasury yields strengthen.

Silver (USD/ounce)

Australia’s All Ordinaries Gold Index continues in a downward trend channel. An up-tick in the Trend index and short-term support at 6500 suggest a rally to test the upper trend channel, around 7000. Breakout from the trend channel, while still unlikely, would warn that a bottom is forming. Breach of support at 6500 is more likely and would offer a short-term target of 6000.

All Ordinaries Gold Index

Patience

Gold remains in a long-term up-trend. The current correction may offer an attractive entry point but we first need to confirm that the up-trend is intact.

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Gold, Treasuries and China’s Yuan

China’s Yuan retreated against the Dollar, encountering resistance at 14.35 US cents as the seemingly endless trade talks hit another rough patch. Breach of recent support 14.15 would warn of another test of primary support at 14 cents.

Chinese Yuan CNY/USD

Chinese purchases have weakened 10-Year Treasury yields in the last two weeks. A Yuan at 14 cents is likely to result in 10-year yields testing support at 1.50%. The disconnect between long-term and short-term rates in the US is growing, with long-term rates increasingly dictated by actions at the PBOC.

10-Year Treasury Yields

Declining yields strengthen demand for Gold as it lowers the opportunity cost. Expect continued support at $1450/ounce and a possible test of the descending trendline at $1500. Breach of support is unlikely unless Treasury yields again test resistance at 2.0%.

Gold (USD/ounce)

Silver is similarly testing support at $17.00/ounce but we are unlikely to see a follow-through unless Treasury yields strengthen.

Silver (USD/ounce)

Australia’s All Ordinaries Gold Index continues in a downward trend channel, headed for secondary support at 6000. Declining Trend Index peaks warn of strong selling pressure. Respect of 6000 would signal that the primary up-trend is intact, while breach and a test of primary support at 5400 would warn of trend weakness.

All Ordinaries Gold Index

Patience

Gold remains in a long-term up-trend. A correction may offer an attractive entry point but we first need to confirm that the up-trend is intact before increasing exposure to gold stocks.

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Gold, Silver and Treasury yields

10-Year Treasury yields retraced from resistance at 2.0% this week but rising Trend Index troughs indicate upward pressure on yields. Breakout above 2.0% would strengthen the signal. Higher long-term rates would increase the opportunity cost of holding Gold, reducing demand.

10-Year Treasury Yields

China’s Yuan penetrated its descending trendline against the Dollar. Similarities between the two patterns (above and below) suggest that China is reducing purchases of Treasuries, increasing upward pressure on yields.

Chinese Yuan CNY/USD

Rising yields would normally strengthen demand for the Dollar. Instead, declining Trend Index peaks warn of long-term selling pressure.

Dollar Index

Gold found short-term support at $1450/ounce but further rises in Treasury yields would increase the selling pressure highlighted by declining peaks on the Trend Index.

Gold (USD/ounce)

Silver broke support at $17.00/ounce, with an even steeper fall on the Trend Index warning of a further decline on Silver and Gold.

Silver (USD/ounce)

Australia’s All Ordinaries Gold Index continues its downward trend channel, headed for secondary support at 6000. Declining Trend Index peaks again warn of strong selling pressure. Respect of 6000 would signal that the primary up-trend is intact, while breach and a test of primary support at 5400 would again warn of trend weakness.

All Ordinaries Gold Index

Patience

Gold is in a long-term up-trend. A correction may offer an attractive entry point but we first need to confirm that the up-trend is intact before increasing exposure to gold stocks.

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Gold’s hidden correction

There is a lot going on in global financial markets, with a Dollar/Eurodollar shortage forcing the Fed to intervene in the repo market. The Fed will not, on pain of death, call this QE. But it is. The only difference is that the Fed is purchasing short-term Treasury bills rather than long-term notes and mortgage-backed securities (MBS). The effect on the Fed’s balance sheet (and on Dollar reserves held by primary dealers) is the same.

Fed Assets

The effect on the Dollar has been dramatic, with a sharp dip in the Dollar Index. Interesting that this was forewarned by a bearish divergence on the Trend Index since June this year. Financial markets knew this was coming; they just didn’t shout it from the rooftops.

Dollar Index

Gold and precious metals normally surge in price when the Dollar weakens, to be expected as they are priced in USD, but Gold was already weakening, testing support at $1500/ounce.

Spot Gold in USD compared to Real 10-Year Treasury Yields

Silver was similarly testing support at $17.50/ounce.

Spot Silver

The falling Dollar has supported Gold and Silver despite downward pressure from other sources. In effect we have a “hidden” correction, with falling precious metal values obscured by falling unit values. Just as surely as if we had reduced the number of grams in an ounce….

Support for the Dollar would likely result in Gold and Silver breaking support, signaling a correction.

Australia’s All Ordinaries Gold Index, where the effect of the weakening greenback is secondary, has already broken support at 7200 after a similar bearish triangle (to Gold and Silver). Breach warns of another decline. Expect support at 6000.

All Ordinaries Gold Index

Patience is required. Gold is in a long-term up-trend, with a target of the 2012 high at $1800/ounce. A correction would offer an attractive entry point.

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