Gold & Commodities Archives - Page 50 of 82

March 19, 2015

Gold rallies on Fed “dovish” statement

The Fed Open Market Committee (FOMC) dropped the word “patient”, but market bulls responded positively to its “dovish” post-meeting statement. Jeff Cox at CNBC writes:

… the mostly dovish statement made little fanfare over eliminating the word, and in fact stated specifically that “an increase in the target range for the federal funds rate remains unlikely at the April FOMC meeting,” a phrase missing from previous communiques……

“The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term,” the statement said.

Like I said: “…. Janet Yellen will move when the time is right. And not before.”

Ten-year Treasury Note yields broke through 2.00%, warning of another test of primary support at 1.65%. 13-Week Twiggs Momentum below zero continues to signal a down-trend. Recovery above 2.00% is unlikely, but would signal a rally to 2.50%.

10-Year Treasury Yields

The Dollar retreated from long-term resistance at 100. Rising 13-week Twiggs Momentum signals a strong (primary) up-trend. Respect of support at 95.5 would indicate continuation of the trend.

Dollar Index

* Target calculation: 100 + ( 100 – 90 ) = 110

Gold rallied on the back of a softer dollar and weaker interest rate outlook. Expect a rally to test $1200/ounce, but respect of this level would reinforce the primary down-trend. Breach of support at $1140/$1150 would confirm. 13-Week Twiggs Momentum below zero strengthens the bear signal.

Spot Gold

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

March 16, 2015

Crude breaks support

Nymex light crude (April 2015 contract) broke support at $45/barrel, warning of a decline to $35/barrel*.

Nymex WTI Crude

* Target calculation: 45 – ( 55 – 45 ) = 35

March 15, 2015

The Catch-22 of energy storage | On Line Opinion

John Morgan questions whether wind and solar are viable energy sources when one considers energy returned on energy invested (EROEI).

There is a minimum EROEI, greater than 1, that is required for an energy source to be able to run society. An energy system must produce a surplus large enough to sustain things like food production, hospitals, and universities to train the engineers to build the plant, transport, construction, and all the elements of the civilization in which it is embedded. For countries like the US and Germany, Weißbach et al. estimate this minimum viable EROEI to be about 7……

The fossil fuel power sources we’re most accustomed to have a high EROEI of about 30, well above the minimum requirement. Wind power at 16, and concentrating solar power (CSP, or solar thermal power) at 19, are lower, but the energy surplus is still sufficient, in principle, to sustain a developed industrial society. Biomass, and solar photovoltaic (at least in Germany), however, cannot. With an EROEI of only 3.9 and 3.5 respectively, these power sources cannot support with their energy alone both their own fabrication and the societal services we use energy for in a first world country.

Energy Returned on Invested, from Weißbach et al.,1 with and without energy storage (buffering). CCGT is closed-cycle gas turbine. PWR is a Pressurized Water (conventional nuclear) Reactor. Energy sources must exceed the “economic threshold”, of about 7, to yield the surplus energy required to support an OECD level society.

These EROEI values are for energy directly delivered (the “unbuffered” values in the figure). But things change if we need to store energy. If we were to store energy in, say, batteries, we must invest energy in mining the materials and manufacturing those batteries. So a larger energy investment is required, and the EROEI consequently drops…[to the buffered level].

March 12, 2015

Another downward leg for crude?

Nymex Light Crude is headed for another test of support at $45/barrel. Breach would signal a decline, with a medium-term target of $35/barrel*.

Nymex WTI Light Crude and Brent Sweet Crude

* Target calculation: 45 – ( 55 – 45 ) = 35

Saturation of available storage capacity (see Crude in Contango) is expected to force sellers into the market and drive prices lower.

March 11, 2015

Gold falls as Dollar soars

Ten-year Treasury Note yields are testing support at 2.00%. Recovery above 2.50% would indicate another test of 3.00%. But 13-week Twiggs Momentum below zero continues to signal a down-trend. Another peak below zero would warn of a decline to test the all-time low at 1.40%. Breakout above 3.00% appears remote at present, but would signal the end of the secular (20+ year) down-trend.

10-Year Treasury Yields

The Dollar is on a tear, testing long-term resistance at 100. Rising 13-week Twiggs Momentum signals a strong (primary) up-trend. Breakout would offer a new target of 110*, but first expect retracement to confirm the new support level.

Dollar Index

* Target calculation: 100 + ( 100 – 90 ) = 110

Gold

Gold fell through long-term support at $1200 and is testing the last line of support at the recent lows of $1140/$1150 per ounce. Reversal of 13-week Twiggs Momentum below zero warns of another (primary) decline, with a target of $1000*. Breach of support at $1140 would confirm.

Spot Gold

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

March 5, 2015

Crude in contango

Nymex WTI Light Crude is testing resistance at $54/barrel, while Brent Crude is at $62/barrel. WTI above $54/barrel would signal a bear market rally, but is likely to leave the primary trend unaltered. Breach of support at $45/barrel would signal another decline.

Nymex WTI Light Crude and Brent Crude

The crude oil market is in contango, with spot prices lower than future prices, encouraging traders to store oil until prices rise. But Leslie Shaffer reports that oil storage is nearing full capacity:

“We’re going to see pretty fast inventory builds over the next few weeks,” Francisco Blanch, head of commodity research at Bank of America-Merrill Lynch, told CNBC Wednesday, noting that global supply is running around 1.4 million barrels a day above demand.

“If you run out of space, prices tend to react a lot more violently to adjust that supply and demand imbalance and that’s what we expect over the next few weeks,” he said, forecasting both WTI and Brent will fall toward $30 a barrel.

March 5, 2015

Dollar breaks out, Gold tests support

The 5-year breakeven rate for inflation — calculated by deducting the yield on 5-year TIPS from the 5-Year Treasury yield — rallied in recent weeks and is testing resistance at 1.60%. But the long-term trend is down and we should expect another test of support at 1.2%.

5-Year Treasury Yield minus 5-Year TIPS yield

Apart from Japan, deflationary pressures are rising in all major OECD countries. Given the global trend, the Fed is likely to raise interest rates at a leisurely pace. Expect low inflation and low interest rates for the next 2 to 3 years.

Can you spot the direction of the trend? pic.twitter.com/75Gq9cAENp

— David Schawel (@DavidSchawel) March 1, 2015

10-Year Treasury yields rallied along with the inflation breakeven and are now testing resistance at 2.15%. Breakout would test the descending trendline around 2.40%. But reversal below 2.0% remains as likely and would signal another test of 1.65%.

10-Year Treasury Yields

The Dollar

The Dollar Index broke through resistance at 95.50, offering a medium-term target of 100*.

Dollar Index

* Target calculation: 90 + ( 90 – 80 ) = 100

Gold

Low inflation undermines support for gold. Spot Gold is testing long-term support at $1200/ounce. Reversal of 13-week Twiggs Momentum below zero warns of another decline. Breach of support at $1200 would signal another decline, while follow-through below $1150 would confirm.

Spot Gold

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

February 26, 2015

Gold and the impact of Beijing on Fed monetary policy

The prospect of higher interest rates is fast approaching, but 10-Year Treasury yields retreated below 2.0%, warning of another test of the December low at 1.40%.

10-Year Treasury Yields

The weight of foreign purchases, for reasons other than yield (dollar peg/currency manipulation), may be overwhelming the market response. This has happened before, in 2004/2005, when the Fed was alarmed to find that long-term yields failed to respond to monetary tightening. The graphs below are from a 2012 report by DO Beltran (and others) at the Fed. The Fed Funds Rate was steadily increased between mid-2004 and the end of 2005, but 10-year yields declined slightly over the same period.

Fed Funds Rate and 10-Year Treasury Yields

The reason was fairly obvious: a massive surge in foreign purchases (mainly from China) had left the long-term market awash with liquidity. US monetary policy was effectively being controlled from Beijing.

Foreign Treasury Purchases

I cannot understand why this abuse has been tolerated.

The Dollar

The Dollar Index has been consolidating for the last 5 weeks, but the narrow range is a bullish sign and the Dollar is likely to strengthen further. Breakout would offer a medium-term target of 100*.

Dollar Index

* Target calculation: 90 + ( 90 – 80 ) = 100

Gold

Spot Gold is testing support at $1200/ounce. Reversal of 13-week Twiggs Momentum below zero warns of another decline. A trough below the zero line would strengthen the bear signal.

Spot Gold

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

The strong Dollar, low inflation and higher interest rates all point to another decline, but so far support has held firm. Completion of another trough at this level would strengthen the argument that gold is forming a long-term bottom. Possibly with help from Beijing.

February 25, 2015

China’s infrastructure boom is over

This might be the most mind-blowing fact I learned this year: http://t.co/jJB3cEoq7j pic.twitter.com/Dr34RLeJbU

— Bill Gates (@BillGates) December 12, 2014

China has been on a record-breaking infrastructure binge over the last decade, but that era is coming to an end. Fall of the Baltic Dry Index below its 2008 low illustrates the decline of bulk commodity imports like iron ore and coking and thermal coal, important inputs in the construction of new infrastructure and housing.

Baltic Dry Index

High-end commodities like copper held up far better since 2008, but they too are now on the decline.

Copper

With the end of the infrastructure boom, China’s economy may well prove to be a one-trick pony. Transition from a state-directed infrastructure ‘miracle’ to a broad-based consumer society will be a lot more difficult.

February 18, 2015

Gold and the bull-trend in bonds

10-Year Treasury Yields found support above the December low of 1.40%, recovering above medium-term resistance at 2.00%. The outlook is hardening around a Fed increase in short-term rates by mid-year. A higher trough would suggest that the long-term down-trend in yields, shown below on an annual chart, is coming to a close. But only breakout above resistance at 3.00% would confirm that the secular bull-trend in bonds has ended.

10-Year Treasury Yields