Category: Gold & Commodities

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Gold falls hard — not my best call

Spot gold broke support at $1700/ounce, falling hard to $1650. The calculated target is $1600* or $1500 depending on whether you take the base of the double top as $1750 or $1700.

Spot Gold

* Target calculation: 1750 – ( 1900 – 1750 ) = 1600

When you look at the trend channel on the weekly chart, however, it is likely that the sharp correction will overshoot the trend channel on the lower side. Possibly as low as $1300*.

Spot Gold Weekly

* Target calculation: 1500 – ( 1900 – 1700 ) = 1300

I have to eat my words from September 11: “With Europe awash with stories of the imminent default of Greece, and German banks told to prepare for a 50% haircut on Greek bonds, this would be a good time to buy gold.” Sure I qualified by warning that below $1800 all bets were off, but should have placed more emphasis on the overbought situation on the weekly chart and less on the approaching European tsunami.

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Gold tests key support level at $1750/ounce

Buyers appear to be losing interest and spot gold is headed for a test of the key $1750 support level. Failure would complete a double top, warning of a correction to $1500/$1600* (depending on whether you take the base as $1700 or $1750). Respect would indicate another test of $1900.

Spot Gold

* Target calculation: 1900 + (1900 – 1750 ) = 2050 and 1750 – (1900 – 1750 ) = 1600

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Brent Nymex WTI Crude

Brent crude respected its declining trendline and is likely to re-test support at $104. Failure would warn of a correction to the long-term, rising trendline at 95*.

Brent and Nymex WTI Crude Oil

* Target calculation: 105 – ( 115 – 105 ) = 95

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Aussie Dollar heads south as commodities weaken

The CRB Commodities Index is trending downwards in a broad trend channel after a failed rally to test resistance at 350. Expect a test of the long-term rising trendline at 300. The 63-day Twiggs Momentum peak below zero confirms a primary down-trend.

CRB Commodities Index

The Australian Dollar broke support at $1.02, signaling a primary down-trend, before testing medium-term support at parity. Failure of support — and breach of the rising trendline — would confirm the down-trend and offer a target of $0.94*.

AUDUSD

* Target calculation: 1.02 – ( 1.10 – 1.02 ) = 0.94

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Gold finds safe haven support

Softening of gold prices from the “stronger” dollar is being offset by demand for gold as a safe haven from the looming euro-zone crisis. Respect of support at 1750 would indicate another test of $1900; confirmed if spot recovers above $1830.  The pattern remains bullish at present, but breakout below $1750 would warn of a double top and correction to $1500/$1600* (depending on whether you take the base as $1700 or $1750).

Spot Gold

* Target calculation: 1900 + (1900 – 1750 ) = 2050 and 1750 – (1900 – 1750 ) = 1600

Gold miners such as AMEX Gold Bugs Index ($HUI) continue to test support after their recent breakout. Failure of support at 600 would warn of a bull trap and weaker spot prices.

Amex Gold Bugs Index

* Target calculation: 600 + ( 600 – 500 ) = 700

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Gold finds support

Spot gold penetrated short-term support at $1800/ounce and is testing the medium-term level at $1750. Compare the two declines in the current triangle/consolidation, however, and buying pressure (accumulation) is evident. It took two days for price to fall to $1750 during August, with two strong red candles one below the other. On the second downward leg, candle bodies often overlap and it has taken more than two weeks to reach the same target. Recovery above $1830 would signal another test of $1900 and confirm the bullish ascending triangle. Failure of support at $1750, however, would complete a double top, warning of a correction to $1600*.

Spot Gold

* Target calculation: 1900 + ( 1900 – 1700 ) = 2100 and 1750 – ( 1900 – 1750 ) = 1600

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Gold finds support

A false break below $1800/ounce indicates buying support at the rising trendline. Breakout above $1900 would complete an ascending triangle with a target of $2100*. Reversal below Friday’s low would warn that the pattern has failed and correction to the long-term trendline (around $1500) is likely.

Spot Gold

* Target calculation: 1900 + ( 1900 – 1700 ) = 2100

The long-term chart below gives a clearer picture of the current bull-trend. Spot prices spiked up 20% in a matter of days after the collapse of Lehman (LEH), but declined back to $700/ounce within a few weeks. The up-trend only started in November 2008, when the Fed announced that it would purchase mortgage-backed securities and Treasurys in an attempt to lower long-term interest rates (QE).  The trend accelerated in 2011, several months after commencement of QE2. While collapse of Lehman was the underlying cause, the bull-trend is a reaction to the Fed response of quantitative easing. Further purchases of Treasurys or MBS would lift demand for gold. Hopefully Wednesday’s FOMC announcement will provide more clarity as to the Fed’s intentions.

Spot Gold 4 Year View

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Crude

The strengthening dollar caused crude prices to soften, with Brent crude headed for another test of support at $104/$105 per barrel. Failure of support would warn of a down-swing to $90, but breakout above the descending trendline is equally likely and would suggest a new primary advance.

Brent Crude Afternoon Markers (2nd nearest future contract)

* Target calculation: 105 – ( 120 – 105 ) = 90

The spread between Brent and Nymex WTI crude narrowed to $20. An increase in supply from Libya or Nigeria would help to lower Brent prices further.

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