Gold & Commodities Archives - Page 41 of 79

October 26, 2015

Low inflation and a stronger dollar indicate weak gold

Growth in hourly manufacturing earnings has climbed above the Fed target of 2.0 percent, while core CPI continues to track near the target. But the 5-year breakeven rate (5-year Treasury minus TIPS yield) is close to 1.0 percent. The market expects inflation to fall over the next few years.

5-Year Breakeven Rate, Core CPI and Growth in Hourly Manufacturing Earnings

The reasoning is straight-forward: the end of the infrastructure boom in China and slowing economic growth means low energy and commodity prices for the foreseeable future. Slow credit growth in the West will also act as a brake on aggregate demand, maintaining downward pressure on CPI.

CPI:US and EU

Long-term interest rates are low, with 10-year Treasury yields testing support at 2.0 percent. Declining 13-week Twiggs Momentum, below zero, suggests further weakness.

10-Year Treasury Yields

The Dollar Index rallied off support at 93. A higher trough indicates buying pressure. Breakout above 98 would suggest another advance.

Dollar Index

Gold

A strong dollar and low inflation would weaken demand for gold. Spot gold is testing medium-term support at $1150/ounce. Breach would warn of a test of the primary level at $1100. 13-Week Twiggs Momentum is rising, but a peak below zero would signal continuation of the primary down-trend.

Spot Gold

* Target calculation: 1200 – ( 1400 – 1200 ) = 1000

October 25, 2015

Crude testing support

Crude futures (Light Crude December 2015 – CLZ2015) are testing support at $44.50 per barrel. Follow-through below $44.00 would signal another test of primary support at $40. Supply continues to exceed demand with the Saudis and Russians cranking up production and cutting prices to secure key markets in the US and China. Breach of $40 would offer a (long-term) target of $30*. Recovery above $50 per barrel is most unlikely unless there is a serious disruption to supply.

WTI Light Crude December 2015 Futures

* Target calculation: 40 – ( 50 – 40 ) = 30

October 25, 2015

Oil market showdown: can Russia outlast the Saudis?

Dalan McEndree writing in Oilprice.com :

While the sharp decline in crude prices has saved crude consuming nations hundreds of billions of dollars, the loss in revenues has caused crude exporting countries intense economic and financial pain. Their suffering has led some to call for a change in strategy to “balance” the market and boost prices. Venezuela, an OPEC member, has even proposed an emergency summit meeting.

In practice, the call for a change is a call for Saudi Arabia and Russia, the two dominant global crude exporters, which each daily export over seven-plus mmbbls (including condensates and NGLs) and which each see the other as the key to any “balancing” moves, to bear the brunt of any production cuts…….

Despite the intense pain they are suffering in the low price Crudedome, both the Russian and Saudi governments profess for public consumption that they are committed to their volume and market share policies.

This observer believes the two countries cannot long withstand the pain they have brought upon themselves — and this article only scratches the surface of the negative impact of low crude prices on their economies. They have, in effect, turned no pain no gain into intense pain no gain and set in motion the possibility neither will exit the low price Crudedome under its own power.

October 15, 2015

Gold breaks trendline

Treasury yields remain weak, with the 10-year yield testing support at 2.0 percent. Declining interest rates improve demand for gold but a subdued inflation outlook has the opposite effect.

10-Year Treasury Yields

The Fed has stopped QE, with total assets leveling off around $4.5 Trillion. Expansion of excess bank reserves on deposit with the Fed, which softened the inflationary impact of QE, halted a little earlier.

Fed Total Assets compared to Excess Reserves

The latter is contracting at a slightly faster pace, so the net effect (change in Total Assets minus Excess Reserves) remains stimulatory. Reversal below zero on the chart below would warn of a contraction.

Fed Total Assets minus Excess Reserves

The Dollar is weakening in line with interest rates, with the Dollar Index headed for a test of support at 93. 13-Week Twiggs Momentum crossed below zero, warning of a primary down-trend. Breach of primary support at 93 would confirm.

Dollar Index

A weaker Dollar would drive up gold. Spot gold broke its long-term descending trendline and is headed for a test of resistance at $1200/ounce. Recovery of 13-week Twiggs Momentum above zero would suggest a primary up-trend, but it would be prudent to wait for confirmation from a trough above zero and breakout above $1200.

Spot Gold

* Target calculation: 1200 – ( 1400 – 1200 ) = 1000

October 8, 2015

Crude: Another bear rally

Crude futures (Light Crude November 2015 – CLX2015) are testing resistance at $50 per barrel. Respect is likely and would indicate another test of support at $40. Breach of medium-term support at $44 would confirm. Failure of $40 would offer a (long-term) target of $30*. Recovery above the descending trendline and resistance at $52 per barrel is unlikely, but would suggest that a bottom is forming.

WTI Light Crude November 2015 Futures

* Target calculation: 40 – ( 50 – 40 ) = 30

October 8, 2015

Gold down-trend continues

Treasury yields remain weak, with the 10-year yield continuing to test support at 2.0 percent. Declining interest rates improve demand for gold but the weak inflation outlook has the opposite effect.

10-Year Treasury Yields

The Dollar Index is ranging between 93 and 98. Flight to safety could drive the Dollar up (and yields downward) but a Chinese sell-off of foreign reserves — to support the Yuan and/or stimulate their economy — would drive the Dollar down (and yields up).

Dollar Index

Spot gold is testing resistance at $1150 per ounce. Breakout would indicate a bear rally to $1200. Reversal of the primary down-trend is unlikely, however, and breach of $1100 would offer a target of $1000/ounce*. Declining 13-week Twiggs Momentum, with peaks below zero, continues to signal a strong down-trend.

Spot Gold

* Target calculation: 1200 – ( 1400 – 1200 ) = 1000

October 1, 2015

Gold and Treasury yields decline as inflation weakens

US inflation. Core CPI is hovering below 2.0 percent but the 5-year inflation breakeven (5-year Treasury yield minus TIPS yield) suggests that inflation will fall. The recent slow-down in average hourly manufacturing earnings growth (production and non-supervisory employees) may just be statistical noise, but decline of either of these signals below 1.0% p.a. would be cause for concern.

5 Year Inflation Breakeven

Treasury yields remain weak, with the 10-year yield testing support between 1.85 and 2.0 percent.

10-Year Treasury Yields

The Dollar Index continues to range between 93 and 98. Falling inflation would favor an upward breakout. But flight to safety could drive the Dollar up (and yields downward). The biggest factor that may the Dollar down (and yields up), however, would be a Chinese sell-off of foreign reserves (largely Treasury investments) — to support the Yuan and/or stimulate their economy.

Dollar Index

Spot gold is likely to test primary support between $1080 and $1100 per ounce. Declining 13-week Twiggs Momentum, with peaks below zero, signals a strong down-trend. Breach of primary support would offer a target of $1000/ounce*.

Spot Gold

* Target calculation: 1200 – ( 1400 – 1200 ) = 1000

September 24, 2015

Gold: No flight to safety

US inflation remains subdued with core CPI hovering below 2.0 percent.

Core CPI

Treasury yields remain weak, with the 10-year yield testing support between 1.85 and 2.0 percent.

10-Year Treasury Yields

That gives a real yield, after deducting core CPI, of close to zero on a 10-year investment.

10-Year Treasury Yield minus Core CPI

Abraham Maslow wrote in the 1960s: “I suppose it is tempting, if the only tool you have is a hammer, to treat everything as if it were a nail.” His description certainly applies to the Fed who have used monetary policy extensively to fix a problem for which it was not intended. Interest rates were driven down to unsustainable levels, with questionable results. My concern is that maintaining rates close to zero for close to seven years could breed a host of unforeseen problems.

What is really needed is a Keynesian solution: government investment in productive infrastructure. But neither party is likely to succeed in winning approval for this.

The Dollar Index is ranging between 93 and 98. Increased interest rates or falling inflation would suggest an upward breakout. Flight to safety would drive yields downward. But the biggest factor that may drive up yields could be a Chinese sell-off of foreign reserves (largely Treasury investments) in order to support the Yuan or spend on infrastructure to revive their economy.

Dollar Index

There is no flight to the safety of gold as yet. The Gold Bugs Index, representing un-hedged gold miners, is testing primary support at 105. Twiggs Momentum (13 week) peaks below zero indicate a strong down-trend.

Gold Bugs Index

Spot gold fared a little better, but is likely to test primary support at $1080 per ounce. Again, declining 13-week Twiggs Momentum, with peaks below zero, signals a strong down-trend. Breach of support at $1080 would offer a target of $1000/ounce*.

Spot Gold

* Target calculation: 1200 – ( 1400 – 1200 ) = 1000

September 23, 2015

Crude at $30 per barrel?

Crude futures (Light Crude November 2015 – CLX2015) are testing short-term support at $44 per barrel. Breach is likely and would indicate another test of the recent low at $38.50. Failure of that level would offer a (long-term) target of $30*. Recovery above the descending trendline and resistance at $52 per barrel is unlikely, but would suggest that a bottom is forming.

WTI Light Crude November 2015 Futures

* Target calculation: 40 – ( 50 – 40 ) = 30

September 9, 2015

Gold: The next leg down

Spot Gold respected resistance at $1180/ounce and is headed for another test of support at $1080. Declining 13-week Twiggs Momentum with peaks below zero confirms a strong primary down-trend. Breach of support at $1080 would offer a target of $1000/ounce*.

Spot Gold

* Target calculation: 1200 – ( 1400 – 1200 ) = 1000

Barrick Gold, one of the largest global gold producers, has already broken support at $6.50, signaling another decline (with a target of $4.50).

Barrick Gold

The Gold-Oil ratio remains in overbought territory above 20, suggesting continuation of the bear market for gold.

Gold-Oil ratio

Long-term crude prices have resumed their fall, with June 2017 (CLM2017) futures headed for another test of support at $48/barrel after a bear rally respected the descending trendline. If long-term crude prices break support at $48, gold is not likely to hold above $1000/ounce.

WTI Light Crude June 2017 Futures