Gold is in a primary up-trend, after ranging sideways for several years, fueled by low interest rates and volatile currency markets.
The chart below highlights the inverse relationship between gold and 10-year Treasury yields. When LT interest rates fall, the gold price surges.
At present, 10-year Treasury yields are close to record lows, testing long-term support at 1.50%.
Yields in Germany and Japan are much lower, having crossed below zero, and the opportunity cost of holding physical assets such as Gold is at record lows.
Volatility in currency markets is another factor driving demand for Gold.
China’s Yuan is testing support at 13.95 US cents. Breach is likely, especially if US-China trade talks break down again, and would signal continuation of the primary down-trend. A weak Yuan fuels Chinese demand for Gold.
The Dollar Index continues to edge higher, boosted by the current trade turmoil. A strong Dollar is likely to weaken demand for Gold but Trend Index peaks below zero warn of selling pressure.
Gold is testing support at $1495/ounce. Breach would warn of a correction, while breakout above the descending trendline would indicate another advance.
Silver is similarly testing support. Breach of $17.50/ounce would warn of a correction.
The All Ordinaries Gold Index is trending lower. Breach of 7200 would warn of another decline, with a short-term target of 6500, while recovery above 8000 would suggest another advance.
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.
Colin Twiggs is a former investment banker with almost 40 years of experience in financial markets. He co-founded Incredible Charts and writes the popular Trading Diary and Patient Investor newsletters.
Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.
Focusing on interest rates and financial market liquidity as primary drivers of the economic cycle, he warned of the 2008/2009 and 2020 bear markets well ahead of actual events.
He founded PVT Capital (AFSL No. 546090) in May 2023, which offers investment strategy and advice to wholesale clients.
