Gold and Precious Metals
Interest rates retreated this week, with 10-year Treasury yields falling below support at 1.60 percent.
Falling interest rates reduce downward pressure on gold. Spot Gold steadied above support at $1300/ounce. Momentum above zero continues to indicate a primary up-trend. Respect of support at $1300 would confirm. Breach of support is unlikely but would signal trend weakness and a test of primary support at $1200/ounce.
* Target calculation: 1300 + ( 1300 – 1050 ) = 1550
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
Interest rates have stabilised with an ascending triangle formation on 10-year Treasury yields suggesting reversal to an up-trend. Recovery above 1.60% would confirm.
Rising interest rates increase downward pressure on gold. Tall shadows for the last three weeks indicate selling pressure and a test of support at $1300 is likely. But the metal remains well above the rising trendline on a weekly chart and Momentum holding above zero indicates a healthy primary up-trend. Respect of support at $1300 would confirm. Breach of support is unlikely but would signal weakness.
* Target calculation: 1300 + ( 1300 – 1050 ) = 1550
Tall shadows for the last three days on the spot gold chart suggest selling pressure. Penetration of the rising trendline indicates that the up-trend is slowing. Breach of short-term support at $1330/ounce would signal a test of medium-term support at $1300. Respect of support would confirm a healthy primary up-trend, while breach would indicate weakness.
* Target calculation: 1300 + ( 1300 – 1050 ) = 1550
At present I don’t see much threat to support between $1300 and $1310. Safe-haven demand for gold is boosted by uncertainty in Europe, the US election dilemma (a choice between two equally undesirable alternatives), and the declining Yuan.
USDCNY retraced to test support at 6.60. Sell-off of USD currency reserves by the PBOC — to support the Yuan or at least slow its decline — helps to suppress US Dollar appreciation. This is a win-win for gold bulls. A weak dollar enhances the price of gold while a falling Yuan encourages capital flight and — you guessed it — demand for gold.
Long-term interest rates surged on strong jobs numbers, well above the estimate of 180,000. From the WSJ:
Nonfarm payrolls rose by a seasonally adjusted 255,000 last month, the Labor Department said Friday. Revisions showed U.S. employers added 18,000 more jobs in May and June than previously estimated.
10-Year Treasury yields strengthened to 1.58 percent in response, from a record low of 1.33 percent four weeks ago. Expect a test of the descending trendline at 1.66 percent.
Gold fell to $1335/ounce on expectations of higher interest rates. Penetration of the rising trendline would suggest a correction to test primary support at $1200/ounce. Follow-through below $1300 would confirm.
* Target calculation: 1300 + ( 1300 – 1050 ) = 1550
At present I don’t see much threat to support between $1300 and $1310. Especially with safe-haven demand for gold enhanced by European uncertainty over Brexit, the dilemma of US November elections (a choice between two equally undesirable alternatives), and a declining Yuan encouraging capital flight from China.
The daily chart of Gold shows consolidation forming between $1310 and $1335 per ounce. Respect of the $1300 support level would signal a healthy up-trend. Reversal without touching the support level would reveal buyers’ eagerness.
* Target calculation: 1300 + ( 1300 – 1050 ) = 1550
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.
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.
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.
….And the Pound falling to a 30-year low.
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*.
* Target calculation: 1300 + ( 1300 – 1200 ) = 1400
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
It looks like the LEAVE vote has it, with a lead of more than 900,000 so far.
Gold bugs seem to think so, with the spot price blasting through resistance at $1300/ounce. Retracement that respects the new support level would confirm a target of $1550*.
* Target calculation: 1300 + ( 1300 – 1050 ) = 1550
