Spot Gold continues to test support at $1240/$1250 an ounce. Respect, indicated by recovery above $1260, is likely and would signal an advance to $1300.
Is the Donald long gold?
Don’t know if he is long, but Donald Trump is doing his best to drive up demand for gold.
From the FT overnight:
Donald Trump has warned that the US will take unilateral action to eliminate the nuclear threat from North Korea unless China increases pressure on the regime in Pyongyang.
In an interview with the Financial Times, the US president said he would discuss the growing threat from Kim Jong Un’s nuclear programme with Xi Jinping when he hosts the Chinese president at his Florida resort this week, in their first meeting. “China has great influence over North Korea. And China will either decide to help us with North Korea, or they won’t,” Mr Trump said in the Oval Office.
“If they do, that will be very good for China, and if they don’t, it won’t be good for anyone.”
But he made clear that he would deal with North Korea with or without China’s help. Asked if he would consider a “grand bargain” — where China pressures Pyongyang in exchange for a guarantee that the US would later remove troops from the Korean peninsula — Mr Trump said:
“Well if China is not going to solve North Korea, we will. That is all I am telling you.”
Nothing like the threat of nuclear war to drive up the price of portable assets. Not that it would do much good if you are on the receiving end.
Spot Gold broke resistance at $1250 an ounce. Follow-through above $1260 is likely and would signal an advance to $1300.
Theresa May had a calmer, less belligerent approach: “….encourage China to look at this issue of North Korea and play a more significant role in terms of North Korea … I think that’s where our attention should focus.”
3 Headwinds facing the ASX 200
The ASX 200 broke through stubborn resistance at 5800 but is struggling to reach 6000.
There are three headwinds that make me believe that the index will struggle to break 6000:
Shuttering of the motor industry
The last vehicles will roll off production lines in October this year. A 2016 study by Valadkhani & Smyth estimates the number of direct and indirect job losses at more than 20,000.
But this does not take into account the vacuum left by the loss of scientific, technology and engineering skills and the impact this will have on other industries.
…R&D-intensive manufacturing industries, such as the motor vehicle industry, play an important role in the process of technology diffusion. These findings are consistent with the argument in the Bracks report that R&D is a linchpin of the Australian automotive sector and that there are important knowledge spillovers to other industries.
Collapse of the housing bubble
An oversupply of apartments will lead to falling prices, with heavy discounting already evident in Melbourne as developers attempt to clear units. Bank lending will slow as prices fall and spillover into the broader housing market seems inevitable. Especially when:
- Current prices are supported by strong immigration flows which are bound to lead to a political backlash if not curtailed;
- The RBA is low on ammunition; and
- Australian households are leveraged to the eyeballs — the highest level of Debt to Disposable Income of any OECD nation.
Falling demand for iron ore & coal
China is headed for a contraction, with a sharp down-turn in growth of M1 money supply warning of tighter liquidity. Falling housing prices and record iron ore inventory levels are both likely to drive iron ore and coal prices lower.
Australia has survived the last decade on Mr Micawber style economic management, with something always turning up at just the right moment — like the massive 2009-2010 stimulus on the chart above — to rescue the economy from disaster. But sooner or later our luck will run out. As any trader will tell you: Hope isn’t a strategy.
“I have no doubt I shall, please Heaven, begin to be more beforehand with the world, and to live in a perfectly new manner, if — if, in short, anything turns up.”
~ Wilkins Micawber from David Copperfield by Charles Dickens
Gold bullish as Dollar finds support
10-year Treasury Yields are consolidating around the 2.5% level. Upward breakout is likely and would signal an advance to 3.0%.
The Dollar Index has found support, with a large engulfing candle at 100. Recovery above the descending trendline would suggest a fresh advance, with a target of 108*. Reversal below 99 is unlikely but would warn of a test of primary support at 93.
* Target calculation: 104 + ( 104 – 100 ) = 108
China’s Yuan continues to weaken, with USDCNY in a strong up-trend. Shallow corrections flag buying pressure. 13-week Twiggs Momentum oscillating above zero indicates a strong up-trend.
Spot Gold is testing support at $1240/$1250 an ounce. Recovery above $1260 is likely and would signal an advance to $1300.
Gold benefits from Dollar fall
The Dollar Index continues its downward path, having breached support at 100. Follow-through below the rising trendline at 99 would warn of a test of primary support at 93.
Spot Gold has benefited. Currently testing resistance at $1250/ounce, narrow consolidation is a bullish sign. Follow-through above $1260 would confirm a target of $1300. Crossover of 13-week Momentum to above zero is also bullish, suggesting a primary up-trend.
Gold rallies as Dollar falls
The Dollar Index rally is falling despite rising interest rates. Chinese sell-off of foreign reserves to support the Yuan may be a factor.
Spot Gold rallied off support at $1200/ounce. Recovery above $1250 would confirm an up-trend, with the next target at $1300.
Australia: Don’t expect a repeat of the last boom
Gerard Minack, courtesy of Macrobusiness, explains why the recent rise in commodity prices will not result in a repeat of the last boom.
There are two main ways the last commodity boom boosted domestic activity. Neither seems likely to be repeated now. The first is that the mining sector lifted its investment spending as commodity prices increased (Exhibit 5). Now, however, mining investment is likely to continue to fall (although most of the declines have been seen).
The second way the mining boom filtered through to domestic activity was via fiscal policy. The boom provided a windfall for governments. For the Federal Government the windfall was several percent of GDP….Almost all the revenue windfall was used to fund a discretionary loosening of fiscal policy….. With the budget now in deficit I expect the Federal Government to trouser the latest windfall. (Yes, there will be political pressure on a behind-in-the-polls-government to spend more, but the countervailing political fear is that to spend the windfall now would lead to a politically damaging downgrade to Australia’s sovereign rating.)
The unforeseen consequence of this government profligacy was a spectacular rise in the Aussie Dollar and subsequent decimation of the manufacturing sector.
Source: Minack Special Report: Forget rate hikes – MacroBusiness
Crude falls below $50
June Light Crude fell sharply last week, ending below $50/barrel in response to rising US inventories.
Respect of the lower trend channel would suggest that this is a secondary movement and the primary up-trend is intact. Breach of the lower channel would warn that the primary trend is weakening.
Gold bears grow as Fed hints at rate hike
The Fed is expected to hike interest rates next week. 10-year Treasury yields broke resistance at 2.5 percent, signaling an advance to the 2013/2014 high of 3.0 percent. Breakout above 3.0 percent is still a way off but would complete a large double bottom signaling the end of the 30-year secular bull market in bonds. Rising interest rates are bearish for gold.
The Dollar Index rally continues to meet resistance, with tall shadows on the last four weekly candles signaling selling pressure. Rising interest rates could strengthen the advance, with bearish consequences for gold, but Chinese sell-off of foreign reserves (to support the Yuan) is working against this.
Spot Gold is testing support at $1200/ounce. Recovery above $1250 would indicate that the recent down-trend has ended. But breach of support is more likely and would warn of another test of long-term support at $1050/ounce.
Gold hesitates as Fed hints at rate hike
From WSJ:
Federal Reserve Chairwoman Janet Yellen signaled the central bank is likely to raise short-term interest rates at its March meeting and suggested more increases are likely this year if the economy performs as expected.
“At our meeting later this month, the [Federal Open Market] Committee will evaluate whether employment and inflation are continuing to evolve in line with our expectations, in which case a further adjustment of the federal funds rate would likely be appropriate,” Ms. Yellen said in remarks prepared for delivery at the Executives’ Club of Chicago.
The Dollar Index rally continues to meet resistance, with tall shadows on the last three weekly candles signaling selling pressure. Rising interest rates would strengthen the advance, with bearish consequences for gold.
Spot Gold hesitated at $1250/ounce. Rising interest rates also increase the opportunity cost of holding precious metals. Reversal below $1200 would warn of another decline but recovery above $1250 remains more likely and would signal an advance to $1300.
