Tag: CRB Commodities Index

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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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Gold, TIPS and inflation

The Dollar Index rally to test resistance at 81.00/81.50 appears to be faltering. Respect of resistance would confirm the primary down-trend. Reversal of 63-day Twiggs Momentum below zero earlier indicated a trend change; a peak below zero would strengthen the signal.

US Dollar Index

* Target calculation: 81 – ( 84 – 81 ) = 78

Spot Gold continues to test resistance at $1800 per ounce*. A 63-day Twiggs Momentum trough above zero would signal a primary up-trend, while breakout above $1800 would confirm.

Spot Gold

* Target calculation: 1650 + ( 1650 – 1500 ) = 1800

Rising gold prices indicate increased inflation expectations. The spread between 10-year Treasury yields and the equivalent TIPS (Treasury Inflation Protected Securities) yield also spiked up after the latest QE announcement but then retreated. The inflation effect of quantitative easing by the Fed is likely to be muted by deflationary pressures from private debt contraction — and a slow-down in government debt expansion after November (no matter who wins the election) — working in the opposite direction. I believe the Fed goal is to manufacture a soft landing rather than to generate inflation, which would go against their mandate.

10-Year Treasury Yield v. 10-Year TIPS Yield

Commodities: The RJ/CRB Commodities index has been delisted by ICE Futures US (formerly NYBOT). For details click here.

The equivalent DJ-UBS Commodity Index is testing resistance at 150/155. Respect would warn of another test of primary support at 125, but also that inflation expectations remain muted.

DJ-UBS Commodity Index

Brent Crude is correcting despite the rise in inflation expectations, reflecting slowing economic activity rather than improved security. Follow-through below $108 per barrel would indicate a correction to $100, while reversal of 63-day Twiggs Momentum below zero would suggest a primary down-trend.

ICE Brent Crude Afternoon Markers

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RJ-CRB Commodities Index delisted

Intercontinental Exchange announced that ICE Futures US (formerly NYBOT) will cease listing any new expiration months in the RJ-CRB Index and Continuous Commodity Index (“CCI”) Futures Contracts, and is delisting all expiration months in RJ-CRB Index Futures Contracts as of the open of business on September 26, 2012.

Reasons given in their submission to the Commodity Futures Trading Commission were “…..the low volume transacted year to date, as well as historically, which evinced a lack of trader interest in the products.”

Available alternatives are:

  • US Commodity Index Fund which tracks the SummerHaven Dynamic Commodity Index Total Return℠;
  • S&P World Commodity Index ($SWSP); and
  • Dow Jones/UBS (formerly “DJ-AIG”) Commodity Index ($DUBS).

Of the three I prefer $DUBS, though $USCI is also a fairly close match.

Alternatives to CRB Commodities Index

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Dollar bounce, gold and copper retrace

The Dollar Index is retracing to test resistance at 81.00/81.50. Respect would confirm the primary down-trend, as indicated by 63-day Twiggs Momentum below zero.

US Dollar Index

* Target calculation: 81 – ( 84 – 81 ) = 78

Spot Gold is retracing below resistance at $1800 per ounce*. A 63-day Twiggs Momentum trough above zero would signal a primary up-trend. Breakout above $1800 would confirm, indicating rising inflation expectations in response to QE3.

Spot Gold

* Target calculation: 1650 + ( 1650 – 1500 ) = 1800

Copper is also retracing. Respect of 8000 would be a bullish sign. Again, a 63-day Twiggs Momentum trough above zero would indicate a primary up-trend. Breakout above 8600 would confirm, indicating that global economic activity is reviving. Failure of support at 8000 would suggest the opposite.

Copper

Brent Crude is falling after breaking support at $112 per barrel. 63-Day Twiggs Momentum below zero warns of a primary down-trend. The fall, despite increased inflation expectations, reflects slowing economic activity rather than increased security. Syria and Iran remain concerns in the Middle East. Test of support at $100 would warn of another down-turn.

ICE Brent Crude Afternoon Markers

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Dollar down, gold up but crude falls

The Dollar Index is in a primary down-trend, as indicated by 63-day Twiggs Momentum below zero. Expect a test of support at 78.00. An ensuing rally that respects resistance at 81.00/81.50 would reinforce the primary down-trend.

US Dollar Index

* Target calculation: 81 – ( 84 – 81 ) = 78

Spot Gold is headed for a test of $1800 per ounce*. Recovery of 63-day Twiggs Momentum above zero indicates a primary up-trend.

Spot Gold

* Target calculation: 1650 + ( 1650 – 1500 ) = 1800

The Gold Bugs Index, representing un-hedged gold stocks, reinforces the primary up-trend in the spot metal, with breakout above the double-bottom signaling an advance to 530*. Again, 63-day Twiggs Momentum above zero strengthens the signal.

Gold Bugs Index

* Target calculation: 460 + ( 460 – 390 ) = 530

The CRB Commodities Index fell sharply on the daily chart after last week’s run-up. Failure of initial support at 305 would indicate that momentum is slowing, but only a fall below 295 would warn of a reversal. A 63-day Twiggs Momentum trough above zero would indicate a primary up-trend.

CRB Non-Energy Commodities Index

Brent Crude fell sharply after breaking support at $112 per barrel. Upward breakout would test $126. 63-Day Twiggs Momentum reversal below zero warns of a primary down-trend. Expect a test of support at $100.

ICE Brent Crude Afternoon Markers

Nymex WTI light crude also broke medium-term support, closing at $92.12 on Wednesday (October delivery). Expect a test of  primary support at $76.00/$78.00.

Nymex WTI Light Crude

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Dollar down-trend, gold and commodities rally

The Dollar Index broke primary support at 81.00 and the rising trendline on the weekly chart, signaling reversal to a primary down-trend. Fall of 63-day Twiggs Momentum below zero strengthens the signal. Expect retracement to test the new resistance level at 81.00/82.00. Respect is likely and would confirm the primary down-trend.

US Dollar Index

* Target calculation: 81 – ( 84 – 81 ) = 78

Spot Gold continues its advance toward $1800 per ounce*. Recovery of 63-day Twiggs Momentum above zero indicates a primary up-trend.

Spot Gold

* Target calculation: 1650 + ( 1650 – 1500 ) = 1800

The 4-hour chart shows gold advancing in even steps of $30: from $1590 to $1630, $1660, $1690, and $1720. Each sharp jump is followed by several days consolidation, before another breakout. Occasional false starts — above $1700 — and reversals — below $1650 — keep traders on their toes, but this is a strong trend and should yield good results. False breaks at $1600, $1650 and $1700 remind us to be vigilant at $1750.

Spot Gold 4-Hour Chart

The Gold Bugs Index, representing un-hedged gold stocks, broke out of its double-bottom to signal a primary advance to 530*. Recovery of 63-day Twiggs Momentum above zero strengthens the signal.

Gold Bugs Index

* Target calculation: 460 + ( 460 – 390 ) = 530

The CRB Commodities Index is also rising in response to the weaker dollar. Recovery of 63-Day Twiggs Momentum above zero suggests a primary up-trend. Expect a test of the 2012 high at 325.

CRB Non-Energy Commodities Index

Brent Crude continues to consolidate between $112 and $116 per barrel. Upward breakout would test $126. 63-Day Twiggs Momentum recovery above zero strengthens the bull signal. Reversal below $112 is unlikely, but would signal another test of support at $100.

ICE Brent Crude Afternoon Markers

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Dollar weak, Gold Bugs double bottom

The Dollar Index is testing primary support at 81.00. Downward breakout would warn of reversal to a primary down-trend. Fall of 63-day Twiggs Momentum below zero would strengthen the warning, while respect of zero would continue the primary up-trend.

US Dollar Index

* Target calculation: 82 + ( 82 – 78 ) = 86

The Gold Bugs Index, representing un-hedged gold stocks, responded by forming a double-bottom. Breakout above 460 would signal primary advance to 530*. Recovery of 63-day Twiggs Momentum above zero would strengthen the signal.
Gold Bugs Index

* Target calculation: 460 + ( 460 – 390 ) = 530

Spot Gold respected its new support level at $1640 and is advancing toward $1800 per ounce*. Recovery of 63-day Twiggs Momentum above zero indicates a primary up-trend. Expect some resistance at $1700 but reversal below $1640 is unlikely.

Spot Gold

* Target calculation: 1650 + ( 1650 – 1500 ) = 1800

The CRB Non-Energy Commodities Index shows commodities responding to the weaker dollar. Short retracement followed by breakout above 296 indicates a test of primary resistance at 305. Recovery of 63-Day Twiggs Momentum above zero suggests a primary up-trend. Breakout from the trend channel indicates the primary down-trend is over, but no clear (primary) up-trend has yet formed.

CRB Non-Energy Commodities Index

Brent Crude is consolidating between $112 and $116 per barrel. Narrow consolidation suggests an upward breakout and test of $126. 63-Day Twiggs Momentum recovery above zero strengthens the bull signal. Reversal below $112 is unlikely, but would signal another test of support at $100.

ICE Brent Crude Afternoon Markers

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Gold and dollar test support

The Dollar Index is testing primary support at 81.00/81.50. Failure would signal reversal to a primary down-trend. Reversal of 63-day Twiggs Momentum below zero would also suggest a reversal, while respect of the zero line would indicate continuation of the primary up-trend.

US Dollar Index

* Target calculation: 82 + ( 82 – 78 ) = 86

Spot Gold is retracing to test its new support level after breaking resistance at $1650 per ounce. Respect of $1640 would confirm the primary up-trend. Respect of the zero line by 63-day Twiggs Momentum would strengthen the signal. Reversal below $1640 is unlikely but would indicate a false signal and re-test primary support at $1525.

Spot Gold

* Target calculation: 1650 + ( 1650 – 1500 ) = 1800

The CRB Commodities Index is retracing after breaking medium-term resistance at 305. Recovery of 63-Day Twiggs Momentum above zero suggests a trend reversal, but only a trough above zero would confirm.

CRB Commodities Index

Brent Crude retreated from resistance at $115 per barrel. Reversal below $108 is unlikely, but would signal another test of support at $100. Breakout would indicate a test of the March high at $126. 63-Day Twiggs Momentum recovery above zero would strengthen the bull signal.

ICE Brent Crude Afternoon Markers

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Gold breaks out on dollar weakness

Raised expectations of further quantitative easing by the Fed caused the Dollar to fall sharply. Penetration of the rising trendline by the US Dollar Index would warn that a top is forming. Reversal of 63-day Twiggs Momentum below zero would suggest a primary trend reversal. Respect of support, however, would indicate that the market overreacted and the primary trend will continue.

US Dollar Index

* Target calculation: 82 + ( 82 – 78 ) = 86

Spot Gold broke resistance at $1650 per ounce, indicating  a primary up-trend. Recovery of 63-day Twiggs Momentum above zero strengthens the signal. A trough above zero or retracement that respects the new support level would confirm the breakout, suggesting an advance to $1800.

Spot Gold

The CRB Commodities Index also benefited from the weaker dollar, breaking medium-term resistance at 305 to indicate a test of the February high at 325. Recovery of 63-Day Twiggs Momentum above zero suggests a trend reversal, but only a trough above zero would confirm.

CRB Commodities Index

Brent Crude continues to test resistance at $115 per barrel. Breakout would indicate a test of the March high at $126. Reversal below $108 is unlikely, but would signal another test of support at $90/$100. 63-Day Twiggs Momentum recovery above zero would strengthen the bull signal.

ICE Brent Crude Afternoon Markers

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Dollar up-trend continues, gold finds support, commodities range widely

The US Dollar Index is testing support at 81.50/82.00. Respect of support and the rising trendline would confirm the primary up-trend is intact, offering a target of 86.00*. Breakout above 83.50/84.00 would confirm the advance. In the longer term, expect a test of the 2010 high at 88.50. Oscillation of 63-day Twiggs Momentum above zero indicates a healthy up-trend. Failure of support at 81.50 is unlikely, but would warn of a trend reversal.

US Dollar Index

* Target calculation: 82 + ( 82 – 78 ) = 86

With the Dollar Index in a primary up-trend, Spot Gold would be expected to commence a primary down-trend. Declining 63-day Twiggs Momentum (below zero) indicates a primary down-trend but strong buying support at $1530/ounce has kept consolidation (on the weekly chart) between $1530 and $1650 per ounce. Breakout below primary support at $1530 would offer a target of $1300*. Recovery above $1650 is unlikely but would indicate an advance to $1800.

Spot Gold

* Target calculation: 1550 – ( 1800 – 1550 ) = 1300

Spot silver shows similar consolidation to gold, between $26 and $30 per ounce. Breakout will indicate future direction.

Spot Silver

 

CRB Commodities Index is testing its descending trendline; follow-through above $305 would warn that a bottom is forming — and test 325. Recovery of 63-Day Twiggs Momentum above zero would also suggest a trend change. However, reversal below 295 — and respect of zero by TMO — would indicate another test of 265.

CRB Commodities Index

Brent Crude is testing resistance at $115, having penetrated its descending trendline to suggest that a bottom is forming. Reversal below $108 would signal another test of support at $90/$100. 63-Day Twiggs Momentum below zero continues to indicate a primary down-trend; a peak below zero would strengthen the signal.

ICE Brent Crude Afternoon Markers

Nymex WTI Light Sweet Crude diverged from Brent Crude but is similarly testing resistance, at $93/barrel. Long-term oscillation of 63-day Twiggs Momentum around the zero line suggests a ranging market — between $75 and $110 — but a peak below zero would change that.

Nymex WTI Light Sweet Crude

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