Sprott Physical Uranium Trust (SRUUF) broke support at $19, warning that uranium is still in a bear market.
After a strong uptrend in the second half of 2023, uranium reversed in 2024. SRUUF breach of support at $17 would warn of another decline.
Mohamed El-Erian | The West should pay attention to rising gold prices
S&P 500 makes new high
Bond markets were closed Monday for Columbus Day, but financial market conditions show further signs of easing. Equities powered ahead, with the S&P 500 making a new high at 5859.
Stocks
The S&P 500 broke resistance at 5800, strengthening commitment to our target of 6000 by year-end. Rising Trend Index troughs signal long-term buying pressure.
The advance is broad, with the equal-weighted index ($IQX) breaking resistance at its previous high of 7300. This offers a target of 7500.
Financial Markets
Moody’s Baa corporate bonds spread narrowed to 1.54%, signaling ready availability in credit markets.
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Bitcoin also broke above its six-month trend channel, signaling strong liquidity in financial markets.
Dollar & Gold
The Dollar Index continues to strengthen as Treasury yields rise. This may seem counterintuitive, given the prospect of further rate cuts ahead, but the strong September jobs report has increased bond market concerns about an inflation recovery.
Gold found support at $2,600 per ounce but has hesitated at $2,650. A lower Trend Index peak would warn of another test of support at $2,600. The Shanghai Gold Exchange no longer trades at a premium, with the iAu99.99 contract quoted at 605.04 RMB/gram, equivalent to $2,643 per ounce at the current exchange rate of 7.12 CNY to the Dollar.
Silver is also hesitant, testing short-term support at $31 per ounce.
Crude Oil
Brent crude is retracing to test support at $76 per barrel after Israel confirmed they would not strike Iranian oil targets and OPEC cut their oil demand forecast for 2024 and 2025.
Brent [crude] fell 5%, or more than $4, in after-hours trading following a media report that Israeli Prime Minister Benjamin Netanyahu told the U.S. that Israel is willing to strike Iranian military targets and not nuclear or oil ones…..
OPEC on Monday cut its forecast for global oil demand growth in 2024 and also lowered its projection for next year, marking the producer group’s third consecutive downward revision. China, the world’s largest crude oil importer, accounted for the bulk of the 2024 downgrade as OPEC trimmed its growth forecast for the country to 580,000 barrels per day (bpd) from 650,000 bpd. China’s crude imports for the first nine months of the year fell nearly 3% from last year to 10.99 million bpd, data showed. Declining Chinese oil demand caused by the growing adoption of electric vehicles (EV), as well as slowing economic growth following the COVID-19 pandemic, has been a drag on global oil consumption and prices. (Reuters)
Base Metals
Copper is testing short-term support at $9,500 per tonne after it respected resistance at $9,900. Breach of support would offer a target of $9,250.
Aluminum similarly retreated from resistance at $2,650 per tonne and will likely test support at $2,500.
China’s deflationary pressures also worsened in September, according to official data released on Saturday. A press conference the same day left investors guessing about the overall size of a stimulus package to revive the fortunes of the world’s second-largest economy.
“The lack of a clear timeline and the absence of measures to address structural issues, such as weak consumption and reliance on infrastructure investments, have only increased ambiguity amongst market participants,” noted Mukesh Sahdev, the global head of commodity markets-oil at Rystad Energy. (Reuters)
Iron Ore
Iron ore is expected to retrace to test support at $100 per tonne following a sharp rise after China’s stimulus announcement.
Conclusion
Financial markets show signs of a promising rise in liquidity, with falling corporate bond spreads and Bitcoin breakout above its six-month trend channel. The S&P 500 responded with breakout above 5800, strengthening our commitment to a target of 6000.
Gold and silver display strong uptrends but hesitate in response to a rising Dollar. Increased fears of an inflation rebound are behind the recent rally in long-term Treasury yields and the Dollar. We expect the uptrend in gold and silver to continue, with low real interest rates, whether or not inflation fears fade.
We expect that China will struggle to recover from its current economic slump. The announced stimulus program remains vague and does not address the underlying issue of weak domestic consumption. Deflationary pressures will likely keep a lid on crude oil and industrial metal prices for several years.
Low crude oil prices are also likely to keep inflation in check, leading to low long-term interest rates in the West.
Acknowledgments
-
- CoinDesk: Bitcoin Prices
- Shanghai Gold Exchange: International Gold Contract iAu99.99
- Reuters: Oil falls 2% as OPEC cuts oil demand growth view, China concerns
Stabilizing crude oil prices
Volatile crude oil prices damage production capacity and economic growth and cause volatile consumer price inflation.
At the height of the 2020 pandemic, Nymex WTI crude oil prices fell to an unprecedented low of -$13.10 per barrel as demand dried up and oil storage facilities reached capacity. Producers faced a dilemma: either shut down wells or sell at a loss, effectively paying end users to consume their oil.
The Department of Energy failed to capitalize on this opportunity to replenish the Strategic Petroleum Reserve (SPR), buying only 21 million barrels of crude over four months. US field production fell from 13 million to below 10 million barrels per day as shale producers shut wells rather than produce at below cost. The damage done to balance sheets meant that it took several years to restore production as prices recovered.
Russia’s invasion of Ukraine in February 2022 caused a spike in crude oil prices, with WTI crude peaking at close to $125 per barrel. In response, the Biden administration released 290 million barrels from the SPR. This tipped the oil market into surplus despite OPEC+ production cuts, with Nymex crude prices falling below $75 per barrel.
Shrinking demand from China and rising non-OPEC production, led by the US, has maintained prices at close to $75 per barrel. Now, hostilities between Israel and Iran threaten to escalate to the point that crude oil supplies from the Middle East could be affected.
Joseph Webster from the Atlantic Council argues that the DoE should not hesitate to make further releases from the SPR to stabilize prices in the event of a supply threat. Net crude imports to the US (blue below) have shrunk to 2 million barrels daily from 8 million in 2017, meaning the SPR provides more than 23 weeks of cover if all imports were to be terminated.
Further releases from the SPR would not only help to keep prices low but also stabilize them, which can be highly profitable for the US government. SPR releases under the Biden administration, at an average of close to $90 per barrel, will net about $20 per barrel if the SPR is replenished at current prices—a profit of nearly $600 million.
Conclusion
Releases from the Strategic Petroleum Reserve (SPR) should be used to stabilize crude oil prices in case of an interruption to crude oil imports. This would likely have four benefits:
First, SPR releases would ensure an interrupted supply to industry and minimize the impact on the economy.
Second, replenishing reserves when prices are low would help to maintain a floor under prices and support shale producers, avoiding the shut-down of wells when prices fall too low to cover operating costs.
Third, stabilizing energy prices can be achieved at no cost to the taxpayer. Selling when prices are high and buying when prices are low will likely show a profit.
Lastly, SPR releases would help to keep a lid on inflation. Energy prices impact the consumer price index directly through gasoline and heating prices to the consumer but more significantly through the energy cost component of goods and services. The chart below shows how energy CPI (orange) increased ahead of headline CPI in 2021 and similarly led the decrease in 2022-2023.
Acknowledgments
China sizzle turns to fizzle
China’s announcement of economic stimulus and hints at an even larger “bazooka” ahead caused a sizzling rally on the Shanghai exchange, with the CSI 300 leaping 20% in the last week of September.
Hong Kong’s Hang Seng Index displays an even steeper rally.
However, a failure to follow through this week with sufficient detail of the stimulus package caused the rally to fizzle, with a sharp correction on both indices. Today, the Hang Seng is testing support at 20500.
Crude Oil
Brent crude reversed sharply as prospects faded for a demand recovery in China.
Treasury Markets
Ten-year Treasury yields stalled and will likely re-test new support at 4.0%.
According to the theory of interest developed by Swedish economist Knut Wicksell, the equilibrium or natural rate of interest—at which inflationary and deflationary pressures are in balance—is when the cost of borrowing is higher than the average return on new investment. This means that the 10-year Treasury yield–the risk-free rate–should be roughly equal to nominal GDP growth, approximating the return on new investment. The chart below shows that the 10-year Treasury yield, at 4.0%, is significantly lower than nominal GDP growth of 5.7% for the 12 months ended in Q2.
With the economy showing little sign of slowing, the likely outcome is either higher long-term interest rates or a build-up of long-term inflationary pressure.
Stocks
The S&P 500 gained almost 1.0% on Tuesday, with a shallow retracement and rising Trend Index troughs signaling buying pressure.
Nvidia led the advance of mega-cap stocks, breaking above its August high, while all seven advanced yesterday.
The equal-weighted index lagged as large caps failed to match mega-cap gains.
Financial Markets
Bitcoin continues to test the upper border of its trend channel. A breakout would be a bullish sign for financial market liquidity.
Dollar & Gold
The Dollar Index is expected to retrace to test new support at 102. Respect would confirm an advance to 104.
Gold is headed for a test of support at $2,600 per ounce, but respect will likely confirm a re-test of $2,700.
Silver is testing support at $30 per ounce, with respect again likely to signal a re-test of resistance at $32.
Metals
Copper retreated in response to China’s disappointing stimulus. Expect a correction to test support at $9,250 per tonne.
Iron ore also reflects disappointment, retreating to $106.30 per tonne.
Conclusion
A disappointing lack of detail on China’s newly announced stimulus led to a retreat in Chinese stocks and global crude oil, copper, and iron ore.
Ten-year Treasury yields are expected to retrace to test support at 4.0%. While yields are likely to remain low as the Fed cuts interest rates, the long-term equilibrium rate is expected to be higher—between 5% and 6%.
Respect of support at 5650 on the S&P 500 confirms our year-end target of 6000, but the advance is exceedingly narrow and precarious.
Gold is headed testing support at $2,600 per ounce, but respect is likely and would signal a re-test of $2,700.
Acknowledgments
- CoinDesk: Bitcoin Prices
ASX retraces
A tall shadow on the ASX 200 indicates short-term selling pressure and a likely retracement to test its new support level at 8100.
Financials continue their advance, but gradually, with lower Trend Index peaks warning that buying pressure is fading.
The ASX 300 Metals & Mining Index hesitated after its recent rally and will likely re-test short-term support at 5200. Penetration of the descending trendline indicates that the downtrend has weakened, and a correction that respects support at 5000 would confirm that a bottom has formed.
Iron ore continues its downtrend as Chinese industrial demand weakens. A breach of support at $90 per tonne would confirm our target of $80.
However, the All Ordinaries Gold Index broke resistance at 8500, signaling another advance with an expected target of 9000.
Conclusion
The ASX 200 is retracing to test support at 8100. Respect will likely confirm another advance with a target of 8500. Financials and gold miners are strong, but iron ore remains in a downtrend with a long-term target of $80 per tonne.
Narrow advance for stocks, bullish consolidation for gold
Falling CPI and plunging crude prices almost guarantee at least a 25-basis-point rate cut at next week’s FOMC meeting. Stocks rallied, led by mega-cap technology stocks, but the advance was narrow, with large caps failing to join the party.
Gold is bullish, boosted by falling long-term Treasury yields and a weak Dollar, but silver remains more bearish.
Stocks
Mega-cap technology stocks led the rally, with Nvidia (NVDA) posting solid gains.
The move lifted the S&P 500 above resistance at 5500, signaling another test of the all-time high at 5670.
Large caps lagged, with the equal-weighted index ($IQX) failing to show much progress.
Financial Markets
The Chicago Fed National Financial Conditions Index eased to -0.57, reflecting easy monetary policy.
Bitcoin respected support at $54K [red line], but the bearish declining triangle still warns of tighter financial market liquidity ahead.
Treasury Markets
Ten-year Treasury yields plunged to almost 3.6% before retracing to test new resistance at 3.7%. The steep fall from the 5.0% peak in October last year indicates market expectations of significant rate cuts ahead.
Dollar & Gold
Falling long-term interest rates are driving long-term Dollar weakness. Respect of resistance at 102 on the Dollar Index would confirm another decline, while breach of support at 100 would offer a long-term target of 93.
A stronger Japanese Yen warns of a more hawkish monetary policy from the Bank of Japan. Rising Japanese interest rates will likely withdraw liquidity from US financial markets and weaken the Dollar.
Gold is expected to benefit from falling long-term interest rates and a weaker Dollar. The narrow bullish consolidation below $2,525 per ounce suggests another advance. Breakout above resistance would offer a target of $2,600.
Silver lags behind gold, struggling to break resistance at $30 per ounce. Breach of support at $28 would warn of another test of long-term support at $26.50.
CPI Inflation
Headline CPI fell sharply to 2.6% for the 12 months to August, but core CPI lifted to 3.3%.
Monthly CPI shows that the sharp drop in the headline rate is caused by the base effects of a spike in July of last year [red circle]. Rising core CPI over the past two months, with August growing at an annualized rate of 3.7%, warns of underlying inflationary pressures.
Sticky prices inflation also increased, to an annualized rate of 3.5% in August, warning that underlying inflationary pressures persist.
Shelter
Shelter CPI also increased to an annual rate of 5.2% in August, reflecting a trough in home prices in mid-2023. The Case-Shiller 20-City Composite Index [gray below] tends to lead Shelter by roughly 12 months.
Energy
However, the recent sharp fall in crude oil prices warns that inflationary pressures will likely ease in the months ahead.
Energy CPI grew by -4.0% over the 12 months to August and is likely to fall further in September. The chart below shows how energy CPI [ocher below] plunged from a peak of 41.5% in June ’22, leading to a fall in headline CPI.
Food
Food CPI also declined to an annual rate of 2.1% in August, close to the Fed’s target of 2.0%.
Conclusion
Mega-cap technology stocks lifted the S&P 500 above resistance at 5500, indicating another test of the previous high at 5670. Breakout would offer a target of 6000, but the advance is narrow. Large caps in the index show little in the way of net gains, with the equal-weighted index ($IQX) failing to make much progress.
The Chicago Fed National Financial Conditions Index continues to reflect easy monetary policy, but a bearish triangle on Bitcoin and a stronger Japanese Yen warn of tighter liquidity ahead.
The decline in headline CPI is primarily due to base effects from August last year, while core CPI and the sticky price index warn of persistent underlying inflationary pressures. However, a sharp fall in crude oil prices will likely drag overall CPI lower in September.
Falling 10-year Treasury yields reflect market expectations of significant rate cuts commencing on September 18. The Dollar rallied over the week, but the long-term downtrend is likely to persist as rates decline.
Low long-term interest rates and a weak Dollar are expected to be bullish for gold. A Dollar Index breach of support at 100 would confirm our $3,000 per ounce target for gold.
Acknowledgments
- CoinDesk: Bitcoin Prices
Nvidia leads the plunge
Stocks plunged after Nvidia (NVDA) fell by 9.5% on reports that the US Department of Justice subpoenaed the chipmaker over complaints that it is violating antitrust laws. (Quartz)
Weak US and China manufacturing activity has also been cited as a cause for market bearishness, but that seems unlikely.
Stocks
Selling in Nvidia [cerise] soon spread to other big-name stocks, with all seven mega-caps closing lower on Tuesday.
The fall breached short-term support on the S&P 500 at 5550, signaling a correction to test 5400.
The equal-weighted index ($IQX) retraced to test support at 7000. Trend Index troughs above zero indicate longer-term buying pressure. Breach of support would offer a target of 6800, but respect is as likely to confirm our target of 7400.
Small caps also weakened, with the Russell 2000 iShares ETF (IWM) breaching support at 215 to indicate another test of long-term support at 200. A Trend Index peak at zero warns of selling pressure.
ISM Manufacturing
The ISM Manufacturing PMI edged up to 47.2% in August. Although the cyclical sector is a relatively small percentage of the overall economy, it has a disproportionate impact during recessions as it sheds a large number of jobs. This is the sixth consecutive month of contraction (below 50), but the uptick indicates the contraction is slowing.
New Orders are also contracting, indicating further headwinds ahead.
Also, the Prices sub-index continues to expand, warning of persistent inflationary pressure.
However, the bearish outlook for manufacturing is offset by solid growth in other cyclical sectors, with combined employment in manufacturing, construction, and transport & warehousing reaching 27.85 million.
Non-residential construction spending continues to strengthen even when adjusted for inflation, benefiting from government programs to re-shore critical supply chains.
China Manufacturing Activity
The official National Bureau of Statistics manufacturing PMI for China fell to 49.1 in August, indicating contraction. However, the downturn is contradicted by a rise in the private sector Caixin PMI to 50.4%:
Financial Markets
Credit markets still reflect easy financial conditions, with Moody’s Baa corporate bond spread at a low 1.69%. Spreads above 2.5% indicate tight credit.
However, Bitcoin has respected resistance at $60K [red line], warning of shrinking liquidity.
Treasury Markets
Ten-year Treasury yields are again testing support at 3.8%. Trend Index peaks below zero warn of long-term selling pressure. Breach of support would indicate another attempt at 3.7%.
Low LT yields are bearish for the Dollar and bullish for gold.
Dollar & Gold
The recent rally in the Dollar Index is losing steam. Tuesday’s weak close suggests another test of support between 100 and 101.
Gold is retracing to test support at $2,475 per ounce. Trend Index troughs high above zero indicate long-term buying pressure. Respect would indicate another advance to test $2,600. Breach is less likely but would warn of a correction.
Silver is more bearish, and a breach of support at $27.50 per ounce would test the August low at $26.50.
Energy
Brent crude broke support at $76 per barrel and is headed for a test of long-term support at $73.
Nymex WTI crude similarly broke support at $72 per barrel, offering a target of $68. We expect the DOE to increase purchases to re-stock the Strategic Petroleum Reserve below $70, providing support for shale drillers whose margins are squeezed at these levels.
Uranium
Uranium continues its downtrend, with the Sprott Physical Uranium Trust (SRUUF) headed for another test of support at 17.
However, we are bullish on the long-term prospects as resistance to the expansion of nuclear energy fades.
Base Metals
After its recent rally, copper is testing short-term support at $9,000 per tonne. Breach is likely and would warn of another decline as China’s economy slows.
Aluminum leads the way, breaking short-term support to warn of another test of the band of long-term support between $2,100 and $2,150 per tonne.
Iron & Steel
Iron ore recovered above $100 per tonne, but respect of the descending trend line would warn of another decline. Reversal below $100 would confirm our target of $80.
Conclusion
Investors are jumpy as mega-cap stocks trade at inflated prices, boosted by passive investment inflows from index ETFs. We expect the S&P 500 to find support at 5400 and maintain our target of 6000 before the end of the year.
One factor that could upset the apple cart is tightening liquidity. However, the Fed and Treasury will likely support liquidity in financial markets, at least until after the November elections. If they withdraw support, then all bets are off.
Falling crude oil prices will likely ease inflationary pressure, while a slowing Chinese economy is expected to add deflationary pressure. Long-term interest rates are expected to remain low, weakening the Dollar. Gold will likely benefit, with another attempt at our target of $2,600 per ounce.
Acknowledgments
Another S&P 500 advance likely
Stocks are poised for a breakout, signaling a fresh advance on the S&P 500. All eyes are focused on the September 17-18 FOMC meeting, with an expected rate cut of at least 25 basis points.
Stocks
The S&P 500 is testing resistance at its previous high of 5670, while Trend Index troughs above zero indicate buying pressure. Breakout would offer a target of 6000.
The equal-weighted index ($IQX) has already broken resistance. Retracement respected support at 7000, confirming our target of 7400.
The Russell 2000 Small Caps ETF (IWM) lags, with the Trend Index struggling to recover above zero. A breakout above 225 would offer a target of 250.
Financial Markets
Liquidity in financial markets is gradually tightening, which could act as a handbrake on any advances. A contracting Fed balance sheet, net of TGA and reverse repo (RRP) liabilities, shows the effect of regular monthly QT reductions.
Commercial bank reserves are shrinking as a result.
Bitcoin struggles to hold above support at $60K, highlighting the effects of tightening liquidity.
Treasury Markets
Ten-year Treasury yields are rallying to test resistance at 4.0%, but long-term buying pressure—signaled by Trend Index peaks below zero—is expected to keep yields low for the next quarter.
Bank of Japan
A wild card that could disrupt the system is BOJ monetary policy. The last rate hike, to 0.25%, caused the Dollar to fall sharply against the Yen and a sell-off in US financial markets as carry trade positions were unwound.
Further rate hikes are on the cards, with the next BOJ meeting scheduled in October. Jim Grant from Grant’s Interest Rate Observer:
CPI excluding fresh food in Japan’s capital grew at a 2.4% annual pace in August, data released yesterday show, topping the 2.2% consensus expectation and marking its fourth consecutive sequential increase. That data series typically serves as a leading indicator for broader price pressures in the world’s fourth-largest economy; nationwide CPI data is due on Sept. 19.
Pointing to transitory factors including expiring government subsidies for utility bills and rice shortages, Norinchukin Research Institute chief economist Takeshi Minami predicted to Reuters that “the underlying inflation trend will continue to moderate in coming months.”
However, percolating wage growth – with average pay rising 5.2% this year per data compiled by Japanese Trade Union Confederation, the highest in more than three decades – could bolster the Bank of Japan’s appetite for further tightening following the July 31 rate increase to 0.25% from a 0% to 0.1% range, as BoJ chief Kazuo Ueda suggested to parliament last week.
Considering the acute financial spasm which followed that rate adjustment and accompanying unwind of yen-funded carry trade positions, the prospect of a sequel would presumably be front of mind for Mr. Market. Investors remain confident that such an outcome is in fact far-fetched, with interest rate futures assigning only 9% odds of further tightening at the BoJ’s Oct. 18 meeting.
Some observers aren’t so sure. “My money is on another rate hike in October,” Moody’s senior economist Stefan Angrick told CNBC Friday, further predicting at least one further uptick early next year. Bloomberg economist Taro Kimura likewise anticipates an October shift to 0.5%, writing that Thursday’s data illustrate “a broad upswing in service prices,” and “increases the risk that the BoJ can’t afford to wait to pare stimulus.”
The destabilizing effect of further BOJ rate hikes should not be underestimated.
Inflation
US inflation, on the other hand, remains subdued. Core PCE inflation ticked to 2.6% for the 12 months to July, but the Trimmed Mean PCE rate declined to 2.7%.
Monthly core PCE and the headline rate for July are more encouraging, with both growing at an annualized rate below 2.0%.
Dollar & Gold
The Dollar Index remains in a strong downtrend, with Trends Index peaks below zero, warning of long-term selling pressure. We expect the latest rally to encounter resistance at 102.50.
Gold retraced to $2,500 per ounce, with a likely test of support at $2,475 as long-term Treasury yields rally and the Dollar strengthens. However, the precious metal is in a strong up-trend, and respect of support would confirm our target of $2,600.
Silver is weaker than gold because of weak industrial demand from China’s solar industry. A breach of its current support level near $29 per ounce would warn of a decline to test long-term support at $26.50.
Crude Oil
Brent crude continues to build a base between $76 and $82 per barrel. Low crude prices ease inflationary pressures in the global economy and improve the prospect of lower interest rates.
Base Metals
Copper penetrated its descending trendline, suggesting that a base is forming. A correction that respects support at $8,600 per tonne would strengthen the signal.
Aluminum rallied strongly, indicating improving industrial demand. A breakout above $2,500 per tonne would be a bullish sign for copper.
Conclusion
Financial markets warn of gradual tightening, but low long-term interest rates, subdued inflation, and the prospect of a Fed rate cut at the FOMC meeting on September 17-18 are all bullish for stocks. We expect the S&P 500 to break through resistance at its previous high of 5670, confirming our target of 6000.
However, investors need to be aware of the risks ahead in 2025.
After the November elections, Treasury is expected to shift its quarterly funding towards longer-term coupons to take advantage of lower yields. The resulting increase in supply could drive up long-term yields while reducing liquidity in financial markets. On the other side of the Pacific, further rate rises by the Bank of Japan could spark a sell-off in US financial markets as more Yen-financed carry trades are unwound.
Either of the above actions could contract liquidity in financial markets, causing another stock sell-off.
We remain bullish on gold as long as long-term interest rates remain low, weakening the Dollar. Silver is likely to underperform due to weak industrial demand.
Acknowledgments
- CoinDesk: Bitcoin Prices
- Grant’s Interest Rate Observer: Tokyo Drift
Short, medium and long-term outlook
We conclude with a summary of our short-, medium-, and long-term outlook. But first, let’s examine today’s market activity.
Stocks
The S&P 500 is edging higher, gaining 0.3% yesterday, while the strengthening Trend Index indicates that more buyers are returning to the market.
The advance is also broadening, with the S&P 500 equal-weighed index ($IQX) testing resistance at the recent high of 7000. Breakout would offer a target of 7400.
Financial Markets
The Chicago Fed National Financial Conditions Index declined to -0.52 on August 16, signaling that monetary conditions are again easing.
However, Bitcoin continues to consolidate around $60K, warning that financial market conditions are still unsettled.
Treasury Markets
Ten-year Treasury yields are headed for a test of support at 3.7% while declining Trend Index peaks below zero warn of growing long-term buying pressure, driving down yields.
Expectations of Fed rate cuts are driving yields lower and weakening the Dollar, which is bullish for gold.
Dollar & Gold
The Dollar Index is testing the band of long-term support between 100 and 101. Declining Trend Index peaks below zero warn of growing long-term selling pressure. A breach of 100 would signal a bear market, with a long-term target of 94.
Gold is retracing to test support between $2,475 and $2,500 per ounce. Rising Trend Index troughs above zero indicate growing long-term buying pressure. Respect of support is likely to confirm our target of $2,600.
Silver is expected to test support at $29 per ounce. Respect is likely and would confirm our target of $31.50.
Crude Oil
Brent crude is testing support between $76 and $77 per barrel. A breach would offer a target of $72 to $73 per barrel, the lows from 2023.
Conclusion
Our short-, medium-, and long-term outlook:
Short-term
Easy monetary conditions will likely continue until after the November election, with a September Fed rate cut of 0.25% almost certain. The S&P 500 is expected to test resistance at its recent high of 5670. Breakout is likely to offer a target of 6000.
Falling interest rates and a weakening Dollar are expected to boost demand for gold and silver, with short-term targets of $2,600 and $31.50 per ounce, respectively.
Medium-term
Our 2025 outlook is for weak industrial demand from China and increased push-back against their dumping of excess production in international markets. Resulting low crude oil and base metal prices are expected to ease global inflationary pressures. Central banks are likely to reduce interest rates to cushion the impact of a contraction in economic activity.
Low long-term yields and a Dollar bear market are expected to be bullish for gold and silver. We expect the S&P 500 to peak at 6000, with stocks growing increasingly bearish as earnings contract and activity declines despite low interest rates.
Long-term
China is expected to suffer from a decade of low growth as it struggles to deal with excessive debt levels and overinvestment in real estate, infrastructure, and industrial capacity. The US and most developed nations also struggle with high debt levels and will endeavor to keep real interest rates near zero. High asset inflation will likely result, causing strong demand for precious metals, real estate, and stocks.
Acknowledgments
- CoinDesk: Bitcoin Prices