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October 10, 2019

Gold, low interest rates and volatile currencies

Gold is in a primary up-trend, after ranging sideways for several years, fueled by low interest rates and volatile currency markets.

The chart below highlights the inverse relationship between gold and 10-year Treasury yields. When LT interest rates fall, the gold price surges.

Spot Gold in USD compared to Real 10-Year Treasury Yields

At present, 10-year Treasury yields are close to record lows, testing long-term support at 1.50%.

10-Year Treasury Yields

Yields in Germany and Japan are much lower, having crossed below zero, and the opportunity cost of holding physical assets such as Gold is at record lows.

Negative Bond Yields in Germany & Japan

Volatility in currency markets is another factor driving demand for Gold.

China’s Yuan is testing support at 13.95 US cents. Breach is likely, especially if US-China trade talks break down again, and would signal continuation of the primary down-trend. A weak Yuan fuels Chinese demand for Gold.

CNYUSD

The Dollar Index continues to edge higher, boosted by the current trade turmoil. A strong Dollar is likely to weaken demand for Gold but Trend Index peaks below zero warn of selling pressure.

Dollar Index

Gold is testing support at $1495/ounce. Breach would warn of a correction, while breakout above the descending trendline would indicate another advance.

Spot Gold in USD

Silver is similarly testing support. Breach of $17.50/ounce would warn of a correction.

Spot Silver in USD

The All Ordinaries Gold Index is trending lower. Breach of 7200 would warn of another decline, with a short-term target of 6500, while recovery above 8000 would suggest another advance.

All Ordinaries Gold Index

Patience is required. Gold is in a long-term up-trend, with a target of the 2012 high at $1800/ounce. A correction would offer an attractive entry point.

Colin Twiggs

Colin Twiggs is a former investment banker with almost 40 years of experience in financial markets. He co-founded Incredible Charts and writes the popular Trading Diary and Patient Investor newsletters.

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.

Focusing on interest rates and financial market liquidity as primary drivers of the economic cycle, he warned of the 2008/2009 and 2020 bear markets well ahead of actual events.
He founded PVT Capital (AFSL No. 546090) in May 2023, which offers investment strategy and advice to wholesale clients.

September 28, 2019September 28, 2019

Gold: Reasons for the up-trend

Gold is in a medium- to long-term up-trend. Apart from record central bank purchases of bullion and a weakening Chinese Yuan, real long-term interest rates are declining.

The chart below highlights the inverse relationship between gold and real long-term interest rates (10-year Treasury yield minus CPI YoY%). When LT interest rates fall, gold prices surge.

Spot Gold in USD compared to Real 10-Year Treasury Yields

Treasury yields are falling because the Fed is cutting short-term interest rates but, more importantly, because QE has resumed. With the ECB driving bond yields into the negative, demand for Treasuries is surging.

The Fed has also reversed course, expanding their balance sheet after the recent liquidity squeeze forced them to resume overnight repos.

Fed Total Assets and Excess Reserves on Deposit

Our target for Gold is the 2012 high of $1800/ounce.

A weak rally strengthens the bearish argument for China’s Yuan, suggesting continuation of the primary down-trend.

CNYUSD

The Yuan is in a long-term down-trend against the Dollar that shows no signs of easing. Resolution of trade tensions is unlikely. Trade is merely the tip of the iceberg in a far wider clash between two global powers with conflicting ideologies which is likely to continue for decades.

Gold is testing support at $1495/ounce. Breach would warn of a correction.

Spot Gold in USD

Silver is similarly testing support. Breach of $17.50/ounce is likely and would warn of a correction, with Gold expected to follow.

Spot Silver in USD

The All Ordinaries Gold Index is trending lower. Breach of 7200 would warn of another decline, with a short-term target of 6500.

All Ordinaries Gold Index

Patience is required. Gold remains in a long-term up-trend and a correction may offer a sound entry point.

Colin Twiggs

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.

September 23, 2019September 23, 2019

Gold finds support

China’s Yuan found short-term support at 0.1395/0.1400 against the US Dollar but the ensuing rally is weak, suggesting continuation of the primary down-trend.

Our view is that the Yuan is in a long-term down-trend against the Dollar that shows no signs of easing. Resolution of trade tensions is unlikely, with trade merely the tip of the iceberg in a far wider clash, between two global powers with conflicting ideologies, that is likely to continue for decades.

CNYUSD

The soft Yuan rally strengthened demand for Gold. A correction would present a good entry point in an expected long-term up-trend but patience is required.

Spot Gold in USD

Problems with continued use of the Dollar as a global reserve currency are driving central bank demand for Gold. According to Peter Schiff:

“Central bank gold purchases in April continue a trend we saw through 2018. In total, the world’s central banks accumulated 651.5 tons of gold last year. The World Gold Council noted that 2018 marked the highest level of annual net central bank gold purchases since the suspension of dollar convertibility into gold in 1971, and the second highest annual total on record.

A move to minimize dependence on the US dollar, especially by countries like Russia and China, is driving this central bank gold-buying spree.”

Our target for Gold is the 2012 high at $1800/ounce.

Silver found support at $17.50 after a stronger retracement. Breach of support on Silver would be a bearish medium-term signal for Gold.

Spot Silver in USD

The All Ordinaries Gold Index is trending lower. Breach of 7200 would warn of another decline, with a target of 6000/6500. The primary trend is expected to remain upward, so this could present a good entry point.

All Ordinaries Gold Index

A long-term chart of the All Ordinaries Gold Index plotted against Gold (in AUD) shows valuations are relatively low compared to the boom of 2007 and 2011. A weaker Aussie Dollar and stronger gold price could both lift prices for local gold miners.

All Ordinaries Gold Index Relative to Gold Price

Colin Twiggs

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.

September 10, 2019September 10, 2019

Gold: Correction likely as Yuan finds support

The Yuan found short-term support at 0.1395/0.1400 against the US Dollar. Expect a rally over the next month, with “talks about talks” between US and Chinese trade representatives.

The Yuan is in a long-term down-trend against the Dollar that shows no signs of easing. Our view is that resolution of trade tensions is unlikely. Trade is merely the tip of the iceberg in a far wider clash between two global powers with conflicting ideologies, likely to continue for decades, if not longer.

CNYUSD

The Yuan rally has softened demand for Gold and breach of support at $1500, or penetration of the rising trendline, would warn of a correction. A correction may present a good entry point in an expected long-term up-trend. Our target is the 2012 high at $1800/ounce.

Spot Gold in USD

Last week’s gravestone candlestick on Silver also warns of a correction. Gold and Silver tend to move in tandem.

Spot Silver in USD

The All Ordinaries Gold Index is testing support at 7500. Breach would warn of another decline, with a target of 6000/6500. The primary trend is expected to remain upward, so again, this may present a good entry point.

All Ordinaries Gold Index

A long-term chart of the Australian Dollar against the greenback illustrates our long-term target of 60 cents (subtract 10 cents (80-70) from 70 cents). A weaker Aussie Dollar would support stronger prices for local gold miners.

Australian Dollar

Colin Twiggs

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.

August 27, 2019August 27, 2019

Gold consolidates as the Yuan plunge continues

The Yuan’s plunge against the US Dollar is accelerating, with a short-term target of 0.1380. This is likely to elicit more tariff threats from the US — China has already been labeled a currency manipulator — as the trade war spirals out of control. There is no resolution in sight. Like a brush fire, trade wars are easy to start but difficult to extinguish as attitudes on both sides harden.

CNYUSD

A falling Yuan will increase capital flight, boosting demand for Gold. Spot Gold is consolidating above $1500/ounce. A Trend Index trough above zero indicates strong buying pressure. Respect of support at $1500 is likely and would signal another advance. Our target is the 2012 high at $1800/ounce.

Spot Gold in USD

The recent strong advance on Silver supports our bullish outlook for Gold. The two tend to move in tandem.

Spot Silver in USD

The All Ordinaries Gold Index is surprisingly weak, testing support at 7500 despite a falling Aussie Dollar. Breach of 7500 would warn of another decline, with a target of 6000/6500, but the primary trend is expected to remain upward. The dip is likely to present a good buy opportunity.

All Ordinaries Gold Index

The Australian Dollar decline is testing support at 0.68 against the greenback. Our long-term target is 60 cents (calculated by subtracting (80-70) from 70) which should support a stronger $XGD.

Australian Dollar

Colin Twiggs

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.

August 17, 2019

Gold pauses after recent surge

China’s Yuan has paused after breaking above 7.0 to the US Dollar. Expect further consolidation, but respect of support at 7.0 would signal a further advance (and Yuan weakness), fueling demand for Gold.

USDCNY

Spot Gold is consolidating above $1500/ounce. Respect of support at $1500 would likewise suggest further gains. The Trend Index trough above zero indicates strong buying pressure.

Spot Gold in USD

The trouble with an accelerating up-trend (or blowoff as they are often called) is that they seldom give you adequate warning of a reversal. The All Ordinaries Gold Index retreated this week and is testing its rising trendline at 8000. Breach of 8000 seems unlikely but would warn of a correction.

All Ordinaries Gold Index

We maintain our bullish outlook for Gold, with a target of the 2012 high at $1800/ounce.

Colin Twiggs

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.

May 17, 2019

Gold retreats as the Dollar strengthens

China’s Yuan fell sharply against the Dollar on imposition of tariffs by the US. Expect a test of primary support.

Chinese Yuan/US Dollar

The Dollar index strengthened. Follow-through above 98 would signal a fresh advance. The long-term target is 100.

Dollar Index

10-Year Treasury yields are testing support at 2.40%. Breach would offer a target of 2.20%. Rate hikes are a distant memory.

10-Year Treasury Yield

Gold continues to test medium-term support at $1280/ounce. The tall shadow on this week’s candle warns of selling pressure; as does the Trend Index peak at zero. Breach of support would signal a test of primary support.

Spot Gold in USD

Silver continues to fall, heading for a test of primary support at $14. Declining Trend Index peaks indicate selling pressure.

Spot Silver in USD

Gold is likely to follow.

Colin Twiggs

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.

January 29, 2019

Gold and the Dollar direction

Crude Oil (WTI Light Crude) respected support at $45/barrel, with turmoil in Venezuela raising concerns over supply. Breakout above $55 would signal another rally but declining peaks on the Trend Index warn of selling pressure. Expect another test of $45. Breach of support would signal a decline to test the 2016 low at $26/barrel.

Crude Oil

The Dollar index is weakening. If China continues to support the Yuan, we may see a correction to test support at 92. A lot will depend on trade talks in the next two weeks but I expect continued Dollar strength and Yuan weakness.

Dollar Index

The PBOC increased support for the Yuan over the last month, leading up to the US-China trade talks, causing the Dollar to weaken.

Chinese Yuan/USD

Gold has ranged below resistance at $1350/ounce for the past five years. Expect another test of $1350 if the Dollar weakens. Breakout would signal a primary up-trend but LT Dollar strength is likely ….and a correction to test support at $1200.

Spot Gold in USD

A weakening Australian Dollar has helped Aussie gold stocks. The All Ordinaries Gold Index broke resistance at 5400, signaling a primary advance with a target of 7000. But that depends on further weakness in the Aussie Dollar (< 70 US cents?) and/or a stronger gold price (> $1350?)

All Ordinaries Gold Index

Conclusion: We are witnessing a rally in Gold due to global uncertainty but the LT outlook, with declining crude and a stronger Dollar, is bearish.

Colin Twiggs

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.

October 20, 2018October 20, 2018

Gold bear rally boosts Aussie miners

China’s Yuan broke support at 14.50, warning of another decline.

Chinese Yuan

A weaker Yuan is likely to lead to Dollar strength. The Dollar Index respected support at 94 and follow-through above 96 would confirm another advance.

Dollar Index

A strengthening Dollar would weaken demand for Gold. Gold broke resistance at $1210/ounce, commencing a bear market rally. Expect resistance at $1250. Reversal below support at $1180 is unlikely at present but would warn of a decline to the 2015 low at $1050/ounce.

Spot Gold in USD

The Aussie Dollar is in a primary down-trend with descending Trend Index peaks below zero warning of strong selling pressure.

Australian Dollar

The combination of a gold bear rally and a weak Aussie Dollar prompted a rally among Australian gold miners. The All Ordinaries Gold Index (XGD) broke resistance at 4900 and is testing 5100. Ascending troughs on the Trend Index indicate buying pressure and a test of 5400 is likely.

All Ordinaries Gold Index

Colin Twiggs

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.

September 15, 2018

Silver warns of further Gold weakness

Precious metals tend to trend or consolidate together, driven by similar investor motives. Spot silver is testing primary support at $14 per ounce, while a Trend Index peak at zero warns of selling pressure. Breach of support would signal a primary down-trend.

Spot Gold in USD

Gold is still testing support at $1200/ounce but Trend Index peaks below zero warn of selling pressure. Respect of the descending trendline indicates another decline with a long-term target of the 2015 low at $1050/ounce, similar to silver.

Spot Gold in USD

Currencies

The Yuan continues to test support at 14.5 US cents.

CNY/USD

The Dollar Index continues to test support at 95, despite the weak Yuan. Bearish divergence on the Trend Index warns of selling pressure but long tails indicate support. Breach of support at 95 is uncertain but would signal a correction to test 91 — boosting demand for gold.

Dollar Index

The Australian Dollar continues a strong down-trend, with Trend Index peaks below zero warning of selling pressure. Expect a test of the 2015/2016 low at 70 US cents.

Australian Dollar/USD

Gold Stocks

The falling Aussie Dollar has partially cushioned local gold stocks from weaker gold prices but gold is more volatile than the Dollar. The All Ordinaries Gold Index (XGD) is expected to break support at 4550, offering a long-term target of 4000/4100.

All Ordinaries Gold Index

Colin Twiggs

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.