Category: Gold & Commodities

The Gold Bugs Index ($HUI) representing un-hedged gold stocks has under-performed spot gold since the GFC in 2008, with a safe-haven premium priced into the metal. But $HUI diverged strongly in mid-2012, commencing a strong primary down-trend while spot gold continues to range above support (at $1500/ounce).

On the weekly chart spot gold continues to test resistance at 1620 — and the upper trend channel. Failure to break out would threaten primary support at $1500 to $1550. Reversal of 13-week Twiggs Momentum below zero already warns of a primary down-trend and failure of support at $1500 would confirm; a TMO peak below zero would strengthen the signal.

Conclusion:

I am not yet convinced that gold is headed for a primary down-trend, but substantial outflows from gold  ETFs in recent months highlight investors returning to the stock market. Inflation is muted, with central bank expansionary policies merely counteracting deflationary pressures from credit contraction. Opportunities for another bull run on gold appear distant — unless a major catastrophe sparks more QE — but respect of primary support would signal further ranging between $1500 and $1800.

Dollar Index

A stronger dollar contributes to weaker gold prices. Breakout of the Dollar Index above 84.00 would signal an advance to 89.00/90.00. Rising momentum suggests continuation of the up-trend.

Crude Oil

Brent Crude is falling in response to the contraction in Europe, while Nymex Crude breakout above $98/barrel would signal a primary up-trend in response to a reviving US economy. Reversal of  Brent Crude below $106/barrel would signal a primary down-trend, narrowing the price gap between the two continents.

Commodities

Dow Jones-UBS Commodity Index is in a primary down-trend, headed for another test of the 2012 low at 126. Divergence between the index and S&P 500 suggests that the rise in equities does not reflect a recovery in the US manufacturing base — and may be prone to failure if manufacturing does not respond.

Spot gold is testing primary support at $1500 to $1550. Reversal of 13-week Twiggs Momentum warns of a reversal and failure of support at $1500 would confirm. A Twiggs Momentum peak below zero would strengthen the signal.

On the weekly chart we can see respect of support at $1550 is likely to be followed by a rally to test the February 26 high at $1620. That is likely to be followed by a re-test of support at $1550 but breakout above $1620 and the trend channel would indicate an advance to $1800.

My conclusion is similar to last week:

I am not yet convinced that gold is headed for a primary down-trend. We may be in a low-inflation/deflationary environment right now but central bank expansionary policies will counteract this. Watch out for bear traps. Respect of primary support around $1500 could present a buying opportunity.

Dollar Index

A stronger dollar contributes to weaker gold prices. Breakout of the Dollar Index above 84.00 would signal an advance to 89.00/90.00. Rising momentum suggests continuation of the up-trend.

Crude Oil

A long-term view shows Brent and Nymex Crude ranging at far higher prices than in the lead up to the GFC. High crude prices continue to inhibit the global recovery. Breakout of Nymex above $100/barrel and Brent Crude above $120 would signal a primary up-trend — and more bad news for the recovery — while failure of primary support at $84 and $106/barrel, respectively, would signal a primary down-trend.

Commodities

Dow Jones-UBS Commodity Index found support at 126, but……

The Continuous Commodity Index has already broken its equivalent support level.  Respect of resistance at 29 would confirm another down-swing to test the June 2012 lows. The Dow Jones-UBS Index would most likely follow.