Category: Gold & Commodities

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The S&P 500 and Plan B

The S&P 500 penetrated its rising trendline, warning of a re-test of support at 3000. But selling pressure on the Trend Index appears to be secondary.

S&P 500

Transport bellwether Fedex retreated below long-term support at 150 on the monthly chart — on fears of a slow-down in international trade. Follow-through below 140 would strengthen the bear signal, offering a target of 100. The bear-trend warns that economic activity is contracting.

Fedex

Brent crude dropped below $60/barrel on fears of a global slow-down. Expect a test of primary support at 50.

Brent Crude

Dow Jones – UBS Commodity Index broke primary support at 76 on the monthly chart, also anticipating a global slow-down.

DJ-UBS Commodity Index

South Korea’s KOSPI Index is a good barometer for global trade. Expect a re-test of primary support at 250.

KOSPI

While Dr Copper, another useful barometer, warns that the patient (the global economy) is in need of medical assistance.

Copper (S1)

The Fed can keep pumping Dollars into financial markets but at some point, the patient is going to stop responding. In which case you had better have a Plan B.

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Gold and the Coronavirus

China’s Yuan plunged on scares of a coronavirus epidemic spreading from its Wuhan epicenter.

CNYUSD

The flight to safety took 10-Year US Treasury yields with it. Breach of support at 1.75% warns of another test of primary support at 1.50%.

10-Year Treasury Yields

Flight to safety is also likely to directly strengthen demand for Gold, while lower long-term yields provide a secondary boost by lowering the opportunity cost of holding precious metals. Respect of support at $1540-$1560 would signal another advance.

Gold (USD/ounce)

Silver is weaker but continues to test resistance at $18 to $18.50. Breakout would confirm a bull market for precious metals.

Silver (USD/ounce)

A stronger Dollar, also benefiting from the flight to safety, should only partially offset the rising demand for Gold and Silver.

Dollar Index

Australia

Australia’s All Ordinaries Gold Index continues to test resistance at 7200. Breakout above 7200 would strengthen the bull signal from 13-week Trend Index and Momentum recovering above zero.

All Ordinaries Gold Index

Patience

Prospects of retracement to re-test support at 6000 are diminishing. Accumulate on breakout above 7200.

Model Portfolios

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ASX 200 retracement likely

A short candle with a tall shadow on the ASX 200 weekly chart warns of short-term selling pressure. Expect retracement to test the new support level at 6800.

ASX 200

Weakness has been driven by the Resources sector, with a gravestone candle on the ASX 300 Metals & Mining index warning of selling pressure at resistance at 4800 and a likely reversal to test support at 4450.

ASX 300 Metals & Mining

A short candle on the ASX 300 Banks index warns of increased short-term selling pressure. Respect of the descending trendline would signal another decline; breach of support at 7250 would confirm. Penetration of the trendline is less likely but would suggest that a bottom is forming.

ASX 300 Banks

We continue to hold a bearish view on the domestic economy but recognize that the temporary tailwind from resources (iron ore) may partly alleviate this. IT and Healthcare sectors are, in our view, over-priced and we maintain our focus on defensive and contra-cyclical (gold) stocks.

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Commodities & Global Growth

Commodity prices warn that the global economy is still in a slump.

The Dow Jones – UBS Commodity Index remains at one-third of its 2007 peak, with no sign of recovery.

DJ-UBS Commodity Index

The fall in crude prices hasn’t been as severe, but Brent Crude is again weakening and looks set for another test of $50/barrel.

Brent Crude

Shipping rates for dry bulk goods, such as iron ore and coal, have fallen, with the Baltic Dry Index close to long-term support at 500.

Baltic Dry Index

Supply interruptions to iron ore production in Brazil have cushioned Australian producers from a sharp down-turn in iron ore prices. But coal exporters are feeling the pinch.

RBA Chart Pack: Bulk Commodity Prices

Recovery of Brazilian production over the next two years is expected to add downward pressure to iron ore prices.

The only positive appears to be container shipping rates. The Harpex Index rose steeply in 2019, reflecting increased demand for container shipping of finished goods.

Harpex Index

Somewhat surprising, since this coincided with US-China trade tensions and tariff increases. The answer may lie with importers on both sides of the Pacific attempting to front-run the imposition of tariffs and build inventories in case of supply interruptions and to allow time to adapt their supply chain. Expect the index to retreat in the early part of 2020.

It looks like low global growth will continue.

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ASX 200 lifted by resources

The ASX 200 is advancing towards its medium-term target of 7200 after breaking resistance at 6800. A high trend index trough signals buying pressure.

ASX 200

Primary driver of the advance is Resources. Signing of phase one of the US-China trade deal lifted iron ore, which is  testing resistance at 95. Consolidation at/below 95 is likely, however, given that the mid-2019 peak was caused by supply disruption in Brazil.

Iron Ore

The ASX 300 Metals & Mining index is headed for a test of resistance at 4800.

ASX 300 Metals & Mining

Financials are weak, but the ASX 300 Banks index found support at 7250. Respect of the descending trendline would warn of another decline, with a short-term target of 7000. Penetration of the trendline is less likely but would warn that a bottom is forming.

ASX 300 Banks

The ASX 200 REITs index is testing resistance at 1680, reflecting the investor demand for yield.

ASX 200 REITs

A weakening Australian Dollar may lift exports slightly but reflects concerns over the phase one US-China trade deal and the impact substantive purchase commitments made by China will have on other energy and commodity suppliers. Breach of 68.50 would offer a short-term target of 67 US cents.

AUDUSD

We continue to hold a bearish view on the domestic economy but recognize that the tailwind from resources may partly alleviate this. IT and Healthcare sectors are, in our view, over-priced and we maintain our focus on defensive and contra-cyclical (gold) stocks.

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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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Gold remains bearish

10-Year Treasury yields are headed for another test of 2.0%. Rising Trend Index peaks indicate buying pressure. Breakout would offer a target of 2.50% and further weaken demand for Gold (higher yields increase the opportunity cost of holding precious metals).

10-Year Treasury Yields

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 the overall pattern, with declining Trend Index peaks, remains bearish.

Silver (USD/ounce)

Australia

Australia’s All Ordinaries Gold Index continues in a downward trend channel. Declining Trend Index peaks warn of continued selling pressure but seem to be leveling off. Respect of support at 6000, accompanied by higher Trend Index troughs, would suggest 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 breakout from the trend channel to confirm that the up-trend is intact.

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