Category: Gold & Commodities

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Gold respects support

10-Year Treasury yields are retracing to test the recent support level at 1.60 percent but the trend remains upward.

10-Year Treasury Yields

The Chinese Yuan is easing against the US Dollar, with USDCNY in a gradual up-trend as the PBOC manages the decline in order to conserve foreign reserves. This is likely to alleviate immediate selling pressure on the Yuan, both from capital flight and borrowers covering on Dollar-denominated loans.

USDCNY

Spot gold respected support at $1300/ounce. Breakout above the falling wedge (and resistance at $1350) would signal another advance.

Spot Gold

* Target calculation: 1375 + ( 1375 – 1300 ) = 1450

Rising interest rates and low inflation are bearish for gold but uncertainty over US elections, Europe/Brexit, and the path of the Chinese economy contribute to bullish sentiment.

Gold stocks serve as a useful counter-balance to growth stocks in a portfolio. If there are positive outcomes and a return to economic stability, growth stocks will do well and gold is likely to underperform. If there is instability and growth stocks do poorly, gold stocks are likely to outperform.

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Gold approaches a watershed

Expectations of interest rate rises are growing, with 10-year Treasury yields advancing towards 2.0 percent after breaking out above 1.60.

10-Year Treasury Yields

The Chinese Yuan is easing against the US Dollar, in a managed process from the PBOC which will use up foreign reserves more slowly than a direct peg. It is also likely to minimize selling pressure on the Yuan, both from capital flight and from Chinese borrowers covering on Dollar-denominated loans.

USDCNY

Spot gold is easing, in a falling wedge formation, towards a test of medium-term support at $1300/ounce. This is a watershed moment. Breach of $1300 would warn of a test of primary support at $1200. But respect of support would suggest another test of the July high at $1375.

Spot Gold

* Target calculation: 1375 + ( 1375 – 1300 ) = 1450

Rising interest rates and low inflation increase downward pressure on gold but uncertainty over US elections, Europe/Brexit, and the path of the Chinese economy contribute to buying support. Gold stocks serve as a useful counter-balance to growth stocks in a portfolio. If there are positive outcomes and a return to economic stability, then growth stocks will do well and gold is likely to underperform. If things goes wrong and growth stocks do poorly, gold stocks are likely to outperform.

In Australia the All Ordinaries Gold Index ($XGD) continues to test support at 4500. Respect (recovery above 5000) would signal another test of the recent highs at 5600. A weakening Australian Dollar/US Dollar would tend to mitigate the impact of a fed rate hike. Breach of 4500 is less likely but would confirm a primary down-trend.

All Ordinaries Gold Index $XGD

* Target calculation: 4500 – ( 5000 – 4500 ) = 4000

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Gold finds support

Spot Gold found support at $1325/ounce after retracing from resistance at $1350. Short candles suggest weak selling pressure. Respect of support at $1325 would signal another test of the July high at $1375. Follow-through above $1350 would confirm. Breakout above $1375 would offer a target of $1450* but expect strong resistance if the Fed appears intent on raising interest rates. Breach of support at $1300 is unlikely but would warn of a test of primary support at $1200/ounce.

Spot Gold

* Target calculation: 1375 + ( 1375 – 1300 ) = 1450

In Australia the All Ordinaries Gold Index ($XGD) is testing support at 4500. Respect is likely and would signal a test of the recent highs around 5600. A weakening Australian Dollar/US Dollar would tend to mitigate the impact of a fed rate hike. Breach of 4500 is unlikely but would warn of trend reversal.

All Ordinaries Gold Index $XGD

* Target calculation: 5500 + ( 5500 – 4500 ) = 6500

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Gold rallies

Spot Gold rallied to test resistance at $1350/ounce. Momentum above zero continues to indicate a primary up-trend. Short retracement (short candles and short duration) would signal a test of the July 2016 high at $1375. Breakout above $1375 would offer a target of $1450*. Breach of support at $1300 is unlikely but would warn of a test of primary support at $1200/ounce.

Spot Gold

* Target calculation: 1375 + ( 1375 – 1300 ) = 1450

In Australia the All Ordinaries Gold Index ($XGD) found support at 4500. Expect a test of the recent highs around 5500. The Index is likely to follow the spot gold price, provided the Australian Dollar/US Dollar remains fairly stable. Breakout above 5500 would signal a fresh advance, with a target of 6500*. Breach of 4500 is unlikely but would warn of trend reversal.

All Ordinaries Gold Index $XGD

* Target calculation: 5500 + ( 5500 – 4500 ) = 6500

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Gold steady as rates fall

Interest rates retreated this week, with 10-year Treasury yields falling below support at 1.60 percent.

10-year Treasury Yield

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.

Spot Gold

* Target calculation: 1300 + ( 1300 – 1050 ) = 1550

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Gold, rising interest rates and the falling Yuan

Interest rates are rising. Upward breakout from an ascending triangle formation on 10-year Treasury yields indicates an up-trend.

10-year Treasury Yield

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.

USDCNY

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.

Spot Gold

* Target calculation: 1300 + ( 1300 – 1050 ) = 1550

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Gold trend continues

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.

10-year Treasury Yield

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.

Spot Gold

* Target calculation: 1300 + ( 1300 – 1050 ) = 1550

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Gold: Tall shadows suggest weakness

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.

Spot Gold

* 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

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.

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Gold shudders on strong jobs numbers

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.

10-Year Treasury Yields

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.

Spot Gold

* 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.

USDCNY

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Crude testing $40

Light Crude (September contract) is testing medium-term support at $40/barrel. Breach of support would signal a test of primary support at $33 to $34. Respect of support, on the other hand, would indicate another test of resistance at $50. And breakout above $50 would signal a primary up-trend.

WTI Light Crude September Contract

The long tail and strong volume at $40 suggest that support may hold. But I wouldn’t bet the house on it. Especially when gasoline inventories have surged, the US rig count is rising …..and demand is set to fall.

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