Gold breached support at $1200/ounce, confirming the primary down-trend. Target for the decline is the December 2015 low at $1050/ounce.
Recovery above $1200 is unlikely at present, but would warn of a bear trap.
Gold weakens as interest rates rise
Interest rates are climbing steeply as the market anticipates more inflationary policies under a Trump presidency. 10-Year Treasury yields broke through 2.0 percent and are testing resistance at 2.50. Penetration of the descending trendline would warn that the long-term primary down-trend is weakening, signaling a test of 3.0 percent. Breakout above 3.0 is still some way off but would signal the end of the almost 30-year secular down-trend in Treasury and bond yields.
The Chinese Yuan has fallen sharply in response to rising interest rates, with the Dollar headed for a test of resistance at 7.0 Yuan (USDCNY).
Gold responded to rising interest rate expectations with a test of primary support at $1200. Narrow consolidation is a bearish sign, as is reversal of 13-week Momentum below zero. Breach of primary support would signal a primary down-trend with an immediate target of $1050/ounce.
In the long-term, higher inflation and a weakening Yuan could both fuel demand for gold as a store of value. But the medium-term outlook is bearish.
Gold: Right for the wrong reasons
Last week I said that the Trump rally in gold was unlikely to last. That proved correct, but not for the reasons I envisaged.
Donald Trump surprised pollsters and the establishment, including many conservatives who were doubtful of his ability to hold office, with his ability to channel the anger of average Americans towards the entrenched establishment. And towards Hillary Clinton who represented the status quo.
Trump’s statesman-like, conciliatory acceptance speech also surprised many and has restored confidence in financial markets.
Gold retreated from resistance at $1300/ounce and is headed for a test of primary support at $1200. Breach of primary support would signal a primary down-trend with an immediate target of $1050/ounce. But expect volatility to remain high until Trump has announced his appointees and has set a clear direction for his presidency. There may still be further surprises in store.
Gold: “Trump rally” unlikely to last
Gold reacted with urgency to the news that Donald Trump was closing on Hillary Clinton in the polls. After a lackluster start the rally gained new energy in the last week, with the yellow metal climbing to test resistance at $1300/ounce.
Experienced pollsters seem to think that Trump’s gains are too little and too late. According to GOP pollster Whit Ayres, in this PBS Newshour interview, Trump has about the same chance of winning as drawing an inside straight in poker. “He has spent his entire campaign preaching to the converted rather than reaching out to undecided voters….”
Unless there is an upset in next week’s election, I expect gold to respect resistance at $1300/ounce, followed by a test of primary support at $1200.
Crude stalls
December Light Crude retreated below support at $50/barrel, suggesting another test of primary support at $42/barrel.
Respect of primary support would suggest further ranging between $42 and $52/barrel. Breach of support, which seemed so unlikely only two weeks ago, is now a possibility and would warn of another test of the January trough at $35/barrel.
Gold: Further weakness likely
US Treasury yields are rising, with the 10-year yield breaking through 1.80 percent to signal a test of 2.0 percent. Further rises are likely on the back of stronger GDP figures for the last quarter.
The Chinese Yuan continues to depreciate against the Dollar in anticipation of another rate rise from the Fed.
Spot gold displays a weak retracement off support at $1250/ounce, with short candles indicating a lack of conviction. Another primary decline is likely and would test primary support at $1200.
The ASX All Ordinaries Gold Index respected the descending trendline, suggesting another decline. Reversal below 4300 would confirm, offering a target of 4000.
Crude: Another advance likely
Nymex December Light Crude is consolidating above the new support level at $50/barrel. Respect is likely and would confirm the primary up-trend. Target for an advance is $56/barrel*.
* Target: 50 + ( 50 – 44 ) = 56
Gold selling pressure continues
Selling pressure on gold continues, with the SPDR Gold [GLD] ETF consolidating in a bearish narrow band above support at 119. Twiggs Money Flow below zero warns of long-term selling pressure. Continuation of the down-trend is likely and breach of 119 would signal another decline.
Spot gold displays a similar narrow consolidation at $1250/ounce. Continuation is likely and would test primary support at $1200.
The ASX All Ordinaries Gold Index recovered above resistance at 4500 but has so far respected the descending trendline. Respect is likely and reversal below 4300 would signal a decline to 4000.
Gold: The importance of $1200/ounce
Interest rates are rising, driving gold lower. Long-term Treasury yields are heading for a test of resistance at 2.0 percent but a lot depends on continued stability in financial markets.
The Chinese Yuan continues its devaluation against the Dollar. Any sharp movements would spur global instability and increase demand for gold. But at present Dollar appreciation proceeds at a measured pace.
Selling pressure on gold has increased, reflected by the steep fall of Twiggs Money Flow on the SPDR Gold [GLD] ETF. A larger (TMF) peak near zero would warn of a long-term sell-off.
Spot gold has paused in its descent, with a short candle on the weekly chart reflecting short-term support at $1250/ounce, but expect a test of primary support at $1200.
A long-term monthly chart of gold reflects the importance of support at $1200. The high of 2009, the lows of 2013, and the recent lows in April and June, all reinforce strength at $1200. Breach of this level would signal a long-term down-trend.
The ASX All Ordinaries Gold Index retraced to test resistance at 4500 after the recent breakout. Respect is likely and would signal decline to 4000.
Crude tests key level at $50
December Light Crude is retracing to test new support at $50/barrel after the recent breakout.
If we look at the longer term weekly chart we can see how important this level is. Respect of $50 would confirm the primary up-trend. There is still doubt that support will hold — and that OPEC will be able to craft an agreement that will satisfy members while restricting supply. Failure would suggest that crude will revert to ranging between $40 and $50.
