Tag: Copper

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Gold losing its luster

Inflation pressures are easing and Elliot Clarke summarizes Westpac’s outlook for US inflation as follows:

This week we decompose the Personal Consumption Expenditure (PCE) deflator to assess what inflation pressures currently exist and how they are likely to develop. The conclusion is that the inflation picture argues for an extended period of extremely accommodative policy settings and it may even serve to delay the timing of the initial interest rate increase well beyond the timeframe currently envisaged by markets.

Soft treasury yields, a weak dollar and weaker gold price tend to support this view.

Interest Rates and the Dollar

The yield on ten-year Treasury Notes is ranging in a narrow band between 2.60 percent and 2.80 percent. Breakout above 2.80 would indicate an advance to 3.50 percent* — confirmed if there is follow-through above 3.00 percent — but declining 13-week Twiggs Momentum continues to warn of weakness. Breach of primary support at 2.50 percent is as likely and would signal a primary down-trend.

10-Year Treasury Yields

* Target calculation: 3.00 + ( 3.00 – 2.50 ) = 3.50

The Dollar Index is testing medium-term resistance at 80.50. Breakout would suggest that a bottom is forming, but only recovery above 81.50 would signal a trend change. 13-Week Twiggs Momentum oscillating below zero, however, is typical of a primary down-trend. Breach of primary support at 79.00 would signal a decline to 76.50*.

Dollar Index

* Target calculation: 79.0 – ( 81.5 – 79.0 ) = 76.5

Gold and Silver

Silver failed to imitate gold’s performance in the first quarter and is headed for a test of primary support at $19/ounce. 13-Week Twiggs Momentum likewise failed to cross to above zero, suggesting continuation of the primary down-trend. Breach of primary support would offer a target of $16, while respect of support would test resistance at $22/ounce.

Spot Silver

Spot gold is undergoing a strong correction, having breached the rising trendline and support at $1320/ounce. The outlook remains bullish, but breach of primary support by Silver or continued decline of 13-week Twiggs Momentum below zero would negate this. Failure of primary support at $1200 is unlikely, but would offer a target of $1000/ounce*.

Spot Gold

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

Copper

Copper is a commodity rather than a precious metal, but is also used as a store of value. At present, copper is testing long-term support at $6800/tonne. Follow-through below $6600 would signal continuation of the primary down-trend to $6000/tonne*. Recovery above the descending trendline (at $7000) is unlikely, but would suggest that a bottom is forming.

Copper

* Target calculation: 6750 – ( 7500 – 6750 ) = 6000

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Dr Copper: China weakening

Falling copper prices reflect a weakening Chinese economy. Follow-through below $6600/tonne, after breaching primary support at $6800, signals a primary down-trend.

Copper

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Crude and commodities signal recovery

The Dow Jones-UBS Commodity Index followed through above resistance at 128, after breaking its descending trendline, completing a double bottom reversal with a target of 134*. Breakout above 134 would confirm a primary up-trend.

Dow Jones UBS Commodities Index

* Target calculation: 128 + ( 128 – 122 ) = 134

Nymex Light Crude followed, completing a large double bottom reversal, with a target of $110/barrel*. Recovery of 13-week Momentum above zero indicates a primary up-trend. Brent crude continues to range between $106 and $112/barrel.

Brent Crude and Nymex Crude

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

Rising commodity prices suggest that the global economy is recovering, but copper (widely considered a bellwether for the global economy) has yet to follow. Bullish divergence on 13-week Twiggs Momentum favors an upward breakout. Breakout above $7500/tonne (and the descending trendline) would signal a primary up-trend.

Copper

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Commodities follow Shanghai Composite

Copper prices, bellwether for the global economy, have been consolidating in a narrow band for almost a year. Breakout above $7500/tonne (and the descending trendline) would indicate a primary up-trend. Reversal below support at $6800/tonne, however, would offer a target of $6000. Narrow oscillation of 13-week Twiggs Momentum around zero reflects the current indecision.

Copper

The monthly chart below illustrates how the Shanghai Composite Index tends to lead broad commodity prices by up to 12 months. The Dow Jones-UBS Commodity Index is testing its descending trendline, but another decline on the Shanghai Index would likely cause further weakness. Recovery above 135 is unlikely at present, but would suggest a primary up-trend.

Dow Jones UBS Commodities Index

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Rising interest rates drive gold through support

The yield on ten-year Treasury Notes followed through above 2.75, indicating a fresh primary advance, with a target of 3.50 percent*. Breakout above 3.00 percent would confirm. Completion of a 13-week Twiggs Momentum trough above zero (recovery above say 30%) would strengthen the signal. Reversal below the rising trendline is unlikely, but would warn of another test of 2.50.

10-Year Treasury Yields

* Target calculation: 3.00 + ( 3.00 – 2.50 ) = 3.50

Dollar Index

Rising interest rates would strengthen the dollar. The Dollar Index rallied off support at 79 on the monthly chart, suggesting a test of 84. Breach of the rising trendline, however, still warns of trend weakness, and 13-week Twiggs Momentum respect of the zero line (from below) would strengthen the signal.

Dollar Index

* Target calculation: 79 – ( 84 – 79 ) = 74 or 84 + ( 84 – 79 ) = 89

Gold

Rising interest rates and a stronger dollar weaken gold. Spot gold broke support at $1250/ounce, signaling a primary down-trend. A 63-day Twiggs Momentum peak below zero strengthens the signal. Follow-through below the next support level, the June low of $1200, would confirm. Recovery above $1260 is unlikely, but would warn of a bear trap.

Spot Gold

* Target calculation: 1250 – ( 1350 – 1250 ) = 1150

Crude Oil

Nymex crude is undergoing a strong correction. 13-Week Twiggs Momentum crossing to below zero warns of reversal to a primary down-trend; a peak below the zero line would strengthen the signal. Expect strong support at $85/$86 per barrel. Respect of support would mean that Nymex remains in a primary (albeit weak) up-trend. Diverging Brent crude reflects both a strengthening European recovery and continued supply threats in the Middle East.

Brent Crude and Nymex Crude

Commodity Prices

Copper prices, bellwether for the global economy, respected resistance at $7400/$7500 per tonne and are heading for another test of the 2011 lows at $6800/tonne. Downward breakout would signal a primary down-trend, as would completion of a 13-week Twiggs Momentum peak below zero. Recovery above the descending trendline would be a bullish sign for the global economy, while breach of support at $6800 would be bearish.

Copper

China is a primary driver of commodity prices and a strengthening Shanghai Composite Index has slowed the fall in commodity prices. Dow Jones-UBS Commodity Index broke primary support at 124, but is consolidating in a narrow range below the former support level. Recovery above 124 would be a bullish sign, while follow-through below 122 would indicate a decline to 114*. Completion of a 13-week Twiggs Momentum peak below zero would also suggest a continuing down-trend.

Dow Jones UBS Commodities Index

* Target calculation: 124 – ( 134 – 124 ) = 114

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Will dollar support stem gold & silver rise?

The Dollar Index found support at the 2012 low of 79 and is likely to test resistance at 80.50. Respect would confirm the primary down-trend, with a medium-term target of 77.50*. Breakout above 80.50 is unlikely, but would indicate strong support. The falling dollar is expected to boost gold and commodity prices.

Dollar Index

* Target calculation: 79 – ( 80.5 – 79 ) = 77.5

The yield on ten-year Treasury Notes found support at 2.50 percent and is expected to rally to test the descending trendline at 2.60 percent. Respect would signal a decline to 2.40 percent. Falling yields depress the dollar while lowering the opportunity cost of holding precious metals; both increasing upward pressure on gold. Respect of primary support at 2.40, however, would warn of an advance to 3.60 percent.

10-Year Treasury Yields

* Target calculation: 3.00 + ( 3.00 – 2.40 ) = 3.60

Gold

Spot gold is testing resistance at $1350/ounce. Breakout would indicate a primary advance to $1600*, while follow-through above $1425 would confirm. Respect of resistance is less likely, but would warn of another test of primary support at $1250.

Spot Gold

* Target calculation: 1425 + ( 1425 – 1250 ) = 1600

Silver is similarly testing resistance at $22.50/ounce. Follow-through above $23 would indicate a primary advance — confirmed if resistance at $25 is broken — while a fall below $22 would re-test primary support.

Spot Silver

Crude Oil

Nymex crude below medium-term support at $98/barrel and 13-week Twiggs Momentum crossing to below zero both warn of reversal to a primary down-trend. But recovery above resistance at $103 would negate this. Divergence of Brent crude reflects both a strengthening European recovery and continued supply threats in the Middle East.

Brent Crude and Nymex Crude

Commodity Prices

China, a primary driver of commodity prices, continues to offer mixed signals. The Shanghai Composite Index recovered above medium-term support at 2150, suggesting another test of the upper trend channel. A failed swing, or downward breakout from the trend channel, would warn of correction to test primary support at $1950; a bearish sign for commodity prices.

Shanghai Composite Index

Dow Jones-UBS Commodity Index continues to test medium-term support at 126. Breach would indicate a test of the primary level at 124. Recovery above 130 still seems more likely — and would signal a primary up-trend. A 13-week Twiggs Momentum peak below zero, however, would warn of a continuing down-trend.

Dow Jones UBS Commodities Index

* Target calculation: 130 + ( 130 – 125 ) = 135

Copper prices, bellwether for the global economy, tested 2011 lows at $6800/tonne over the last few months. Prices are now rallying to test resistance — and the descending trendline — at $7500/tonne. Breakout would signal a primary up-trend, as would recovery of 13-week Twiggs Momentum above zero; a bullish sign for the global economy.

Copper

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Commodities rise as the Dollar falls

Dollar Index

The Dollar Index is testing primary support at 80.50. Bearish divergence on weekly Twiggs Momentum warns of a primary down-trend and breach of support at 80.50 would confirm. Respect of support and recovery above 82, however, would indicate an up-swing to 84.50.
Dollar Index

Crude Oil

Nymex WTI light crude broke resistance at $108/barrel, as the Syrian conflict threatens to escalate. Expect an advance to $118/barrel*. Reversal below $108 is most unlikely, but would signal another test of the rising trendline. Brent crude similarly broke through $110, offering a target of $120.

Brent Crude and Nymex Crude

* Target calculation: 108 + ( 108 – 98 ) = 118

Commodities

Copper is headed for a test of $7500/tonne. Respect of resistance would indicate another test of long-term support at $6600/$6800. Upward breakout and penetration of the descending trendline would suggest the primary down-trend is ending, while breach of support at $6600 would signal continuation. Momentum oscillating mainly below zero still favors a down-trend.
Dow Jones UBS Commodities Index
The Shanghai Composite Index bear rally continues, causing a lift in commodity prices. Dow Jones-UBS Commodity Index completed a double-bottom reversal, with breakout above 130, offering a target of 135*. Penetration of the descending trendline also suggests the primary down-trend has ended.

Dow Jones UBS Commodities Index

* Target calculation: 130 + ( 130 – 125 ) = 135

Be cautious, however, as the Shanghai Composite faces resistance at 2150. Reversal below the rising trendline would warn of another primary down-swing; confirmed if support at 1950 is breached.
Dow Jones UBS Commodities Index

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Gold tests $1350, Crude bullish

Gold found support at $1270/ounce before rallying to test $1350. Breakout would offer a target of $1430*, but reversal below $1270 is as likely and would signal a re-test of primary support at $1200.

Spot Gold

* Target calculation: 1350 + ( 1350 – 1270 ) = 1430

We have switched to a new data supplier for Forex & Precious Metals after recent problems with data reliability. Data is now 10-minute delayed and time-stamped US Central Time (Chicago).

Dollar Index

The Dollar Index remains in a downward trend channel, headed for a test of primary support at 80.50. Bearish divergence on weekly Twiggs Momentum warns of selling pressure. Respect of the upper channel would warn of a down-swing to 80.50. Upward breakout is less likely, but would suggest the correction is ending. Follow-through above 82.50 would strengthen the signal.
Dollar Index

Crude Oil

Nymex WTI light crude is consolidating below resistance at $108/barrel, while Brent crude consolidates below $110. Upward breakout is likely and would signal an advance to $118* and $120 respectively.

Brent Crude and Nymex Crude

* Target calculation: 108 + ( 108 – 98 ) = 118

Commodities

Copper respected support at $6600/ton and is rallying to test $7500 and the descending trendline. Upward breakout would suggest that a bottom is forming, while respect would warn of another test of $6600. Momentum oscillating below zero suggests continuation of the primary down-trend. Failure of support at $6600 would confirm.
Dow Jones UBS Commodities Index
A bear rally on Shanghai Composite Index [lime green] caused a lift in commodity prices. Dow Jones-UBS Commodity Index recovered above long-term support at 126, suggesting a rally to 130. Breakout is unlikely, but would offer a target of 136*. The primary trend is down and reversal below 124 would suggest a long-term decline to the 2009 low at 100*.

Dow Jones UBS Commodities Index

* Target calculation: 125 – ( 150 – 125 ) = 100; 130 + ( 130 – 124 ) = 136

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Gold consolidates as dollar and commodities fall

Gold is consolidating in a narrow range between $1300 and $1350/ounce. Penetration of the descending trendline indicates that a bottom is forming. Reversal below $1300 would suggest another test of primary support at $1200, but breakout above $1350 is as likely and would target $1400.

Spot Gold

A rally to $1400 would test the long-term descending trendline as shown on the monthly chart.

Spot Gold

Spot silver has made a weaker rally over the last month and breakout below the rising flag would warn of another decline, with a target of $16.50*. Declining silver would be a bearish sign for gold.

Spot Gold

* Target calculation: 19.5 – ( 21.5 – 18.5 ) = 16.5

Dollar Index

The Dollar Index found short-term support at 81.50. Penetration would indicate a test of primary support at 80.50. Recovery above 82.50 is unlikely, but would suggest the correction is over. Another 13-week Twiggs Momentum trough above zero would indicate the primary up-trend is intact. Breakout above 84.50 is some way off, but would signal an advance to the 2009/2010 highs around 90.00.
Dollar Index

* Target calculation: 84 + ( 84 – 79 ) = 89

Crude Oil

Nymex WTI light crude is retracing after a sharp rally and is likely to find support between $98 and $100/barrel. Expect the spread with Brent crude to narrow as the US recovery outstrips Europe.

Brent Crude and Nymex Crude

* Target calculation: 98 + ( 98 – 86 ) = 110

Commodities

Copper is testing long-term support at $6800/ton. Follow-through below $6700 would confirm another primary decline.
Dow Jones UBS Commodities Index
Commodity prices are primarily driven by Chinese demand. With the Shanghai Composite Index testing its 2012 low (1950), breakout would signal a decline to its 2008 low (1660) and drag commodity prices lower. Dow Jones-UBS Commodity Index breach of long-term support at 125/126 would confirm, targeting its 2009 low at 100*. Not good news for Australian resources stocks, even if the impact is cushioned by a falling Aussie Dollar.

Dow Jones UBS Commodities Index

* Target calculation: 125 – ( 150 – 125 ) = 100

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Is gold really undervalued?

I agree with James Turk that gold is a currency. It does not generate income and is simply a store of value. Demand for gold will rise in times of uncertainty and when fiat currencies, against which it is traded, are being debased by central bank balance sheet expansion. Now central banks have been printing money since the global financial crisis in 2008, so why is gold not soaring into the stratosphere as Turk predicts?

Spot Gold

The answer lies with global deleveraging. Central banks are attempting to counter the strong deflationary effect of private sector debt repayment. The inflationary effect of their activities is largely offset by deflationary forces emanating from the GFC. If we compare the performance of gold to the CRB and DJ-UBS Commodity Indices it is clear that most commodities have not risen in tandem with gold and there is little evidence of inflation.

US Dollar Index

Copper recovered after the GFC but also seems to have hit a ceiling.

US Dollar Index

Only Brent Crude shows similar price escalation to gold. Nymex WTI Crude is far more subdued.

US Dollar Index

Without strong inflation, gold is unlikely to continue its meteoric rise. More so if there is a down-turn in crude oil and copper. Watch closely.

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