Tag: Dollar Index

Posted on

Gold: The final nail

Gold respected its new resistance level after a brief retracement and is again testing short-term support at $1065/ounce. 13-Week Twiggs Momentum peaks below zero indicate a strong primary down-trend. Breach of support is likely and would provide further confirmation of a decline to $1000/ounce*.

Spot Gold

* Target calculation: 1100 – ( 1200 – 1100 ) = 1000

Spot silver has also broken long-term support, reinforcing the gold signal.

Spot Silver

The Gold Bugs Index, representing un-hedged gold stocks, is testing primary support at 105. Failure of support is likely and would be the final nail in the coffin (for gold).

Gold Bugs Index

The stronger Dollar is weakening demand for gold, with the Dollar Index testing resistance its 12-year high at 100. Rising 13-week Twiggs Momentum indicates a healthy (primary) up-trend. Breakout above 100 is very likely and would signal an advance to 107*.

Dollar Index

* Target calculation: 100 + ( 100 – 93 ) = 107

Posted on

Gold breaks support

Gold fell to $1070/ounce, breaching the band of primary support between $1080 and $1100 per ounce. 13-Week Twiggs Momentum peaks below zero indicate a strong primary down-trend. The next level of support is $1000/ounce*.

Spot Gold

* Target calculation: 1100 – ( 1200 – 1100 ) = 1000

Inflation

Core CPI is close to the Fed target of 2.0 percent but inflation expectations continue to fall, with the 5-year breakeven rate (5-year Treasury minus 5-year TIPS yield) as low as 1.2 percent.

5-Year Breakeven Rate

Interest Rates and the Dollar

Long-term interest rates are rising, anticipating a Fed rate hike. 10-Year Treasury yields retraced to test the new support level after breaking through 2.25 percent. Respect of support is likely and will signal an advance to 2.50 percent. Recovery of 13-week Twiggs Momentum above zero suggests an up-trend. Breakout above 2.50 percent would confirm.

10-Year Treasury Yields

Low inflation and a stronger Dollar are weakening demand for gold. The Dollar Index is testing resistance at 100. Respect of zero by 13-week Twiggs Momentum indicates long-term buying pressure. Breakout above 100 is likely and would signal an advance to 107*.

Dollar Index

* Target calculation: 100 + ( 100 – 93 ) = 107

Posted on

Gold testing $1100/ounce

Solid job numbers have boosted the prospects for an interest rate hike before the end of the year. Employment is growing steadily, having exceeded its 2008 high by more than 4.2 million new jobs.

Employment and Unemployment

Unemployment is falling as job growth holds above 2.0 percent a year.

Interest Rates and the Dollar

Long-term interest rates are rising, with 10-year Treasury yields headed for a test of resistance at 2.50 percent after breaking through 2.25 percent. Recovery of 13-week Twiggs Momentum above zero indicates an up-trend. Breakout above 2.50 percent would confirm.

10-Year Treasury Yields

The Dollar strengthened in response to rising yields, the Dollar Index breaking resistance at 98. Respect of zero by 13-week Twiggs Momentum indicates long-term buying pressure. Breakout above 100 would confirm another advance, with a target of 107*.

Dollar Index

* Target calculation: 100 + ( 100 – 93 ) = 107

Gold

Gold fell as the Dollar strengthened, testing primary support at $1100/ounce. 13-Week Twiggs Momentum peaks below zero indicate a strong (primary) down-trend. Follow-through below $1080 would signal another decline, with a target of $1000/ounce*.

Spot Gold

* Target calculation: 1100 – ( 1200 – 1100 ) = 1000

Posted on

Low inflation and a stronger dollar indicate weak gold

Growth in hourly manufacturing earnings has climbed above the Fed target of 2.0 percent, while core CPI continues to track near the target. But the 5-year breakeven rate (5-year Treasury minus TIPS yield) is close to 1.0 percent. The market expects inflation to fall over the next few years.

5-Year Breakeven Rate, Core CPI and Growth in Hourly Manufacturing Earnings

The reasoning is straight-forward: the end of the infrastructure boom in China and slowing economic growth means low energy and commodity prices for the foreseeable future. Slow credit growth in the West will also act as a brake on aggregate demand, maintaining downward pressure on CPI.

CPI:US and EU

Long-term interest rates are low, with 10-year Treasury yields testing support at 2.0 percent. Declining 13-week Twiggs Momentum, below zero, suggests further weakness.

10-Year Treasury Yields

The Dollar Index rallied off support at 93. A higher trough indicates buying pressure. Breakout above 98 would suggest another advance.

Dollar Index

Gold

A strong dollar and low inflation would weaken demand for gold. Spot gold is testing medium-term support at $1150/ounce. Breach would warn of a test of the primary level at $1100. 13-Week Twiggs Momentum is rising, but a peak below zero would signal continuation of the primary down-trend.

Spot Gold

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

Posted on

Low inflation and a stronger dollar indicate weak gold

Growth in hourly manufacturing earnings has climbed above the Fed target of 2.0 percent, while core CPI continues to track near the target. But the 5-year breakeven rate (5-year Treasury minus TIPS yield) is close to 1.0 percent. The market expects inflation to fall over the next few years.

5-Year Breakeven Rate, Core CPI and Growth in Hourly Manufacturing Earnings

The reasoning is straight-forward: the end of the infrastructure boom in China and slowing economic growth means low energy and commodity prices for the foreseeable future. Slow credit growth in the West will also act as a brake on aggregate demand, maintaining downward pressure on CPI.

CPI:US and EU

Long-term interest rates are low, with 10-year Treasury yields testing support at 2.0 percent. Declining 13-week Twiggs Momentum, below zero, suggests further weakness.

10-Year Treasury Yields

The Dollar Index rallied off support at 93. A higher trough indicates buying pressure. Breakout above 98 would suggest another advance.

Dollar Index

Gold

A strong dollar and low inflation would weaken demand for gold. Spot gold is testing medium-term support at $1150/ounce. Breach would warn of a test of the primary level at $1100. 13-Week Twiggs Momentum is rising, but a peak below zero would signal continuation of the primary down-trend.

Spot Gold

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

Fanaticism consists in redoubling your efforts when you have forgotten your aim.

~ George Santayana

Posted on

Gold breaks trendline

Treasury yields remain weak, with the 10-year yield testing support at 2.0 percent. Declining interest rates improve demand for gold but a subdued inflation outlook has the opposite effect.

10-Year Treasury Yields

The Fed has stopped QE, with total assets leveling off around $4.5 Trillion. Expansion of excess bank reserves on deposit with the Fed, which softened the inflationary impact of QE, halted a little earlier.

Fed Total Assets compared to Excess Reserves

The latter is contracting at a slightly faster pace, so the net effect (change in Total Assets minus Excess Reserves) remains stimulatory. Reversal below zero on the chart below would warn of a contraction.

Fed Total Assets minus Excess Reserves

The Dollar is weakening in line with interest rates, with the Dollar Index headed for a test of support at 93. 13-Week Twiggs Momentum crossed below zero, warning of a primary down-trend. Breach of primary support at 93 would confirm.

Dollar Index

A weaker Dollar would drive up gold. Spot gold broke its long-term descending trendline and is headed for a test of resistance at $1200/ounce. Recovery of 13-week Twiggs Momentum above zero would suggest a primary up-trend, but it would be prudent to wait for confirmation from a trough above zero and breakout above $1200.

Spot Gold

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

Posted on

Gold down-trend continues

Treasury yields remain weak, with the 10-year yield continuing to test support at 2.0 percent. Declining interest rates improve demand for gold but the weak inflation outlook has the opposite effect.

10-Year Treasury Yields

The Dollar Index is ranging between 93 and 98. Flight to safety could drive the Dollar up (and yields downward) but a Chinese sell-off of foreign reserves — to support the Yuan and/or stimulate their economy — would drive the Dollar down (and yields up).

Dollar Index

Spot gold is testing resistance at $1150 per ounce. Breakout would indicate a bear rally to $1200. Reversal of the primary down-trend is unlikely, however, and breach of $1100 would offer a target of $1000/ounce*. Declining 13-week Twiggs Momentum, with peaks below zero, continues to signal a strong down-trend.

Spot Gold

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

Posted on

Gold and Treasury yields decline as inflation weakens

US inflation. Core CPI is hovering below 2.0 percent but the 5-year inflation breakeven (5-year Treasury yield minus TIPS yield) suggests that inflation will fall. The recent slow-down in average hourly manufacturing earnings growth (production and non-supervisory employees) may just be statistical noise, but decline of either of these signals below 1.0% p.a. would be cause for concern.

5 Year Inflation Breakeven

Treasury yields remain weak, with the 10-year yield testing support between 1.85 and 2.0 percent.

10-Year Treasury Yields

The Dollar Index continues to range between 93 and 98. Falling inflation would favor an upward breakout. But flight to safety could drive the Dollar up (and yields downward). The biggest factor that may the Dollar down (and yields up), however, would be a Chinese sell-off of foreign reserves (largely Treasury investments) — to support the Yuan and/or stimulate their economy.

Dollar Index

Spot gold is likely to test primary support between $1080 and $1100 per ounce. Declining 13-week Twiggs Momentum, with peaks below zero, signals a strong down-trend. Breach of primary support would offer a target of $1000/ounce*.

Spot Gold

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

Posted on

Gold: No flight to safety

US inflation remains subdued with core CPI hovering below 2.0 percent.

Core CPI

Treasury yields remain weak, with the 10-year yield testing support between 1.85 and 2.0 percent.

10-Year Treasury Yields

That gives a real yield, after deducting core CPI, of close to zero on a 10-year investment.

10-Year Treasury Yield minus Core CPI

Abraham Maslow wrote in the 1960s: “I suppose it is tempting, if the only tool you have is a hammer, to treat everything as if it were a nail.” His description certainly applies to the Fed who have used monetary policy extensively to fix a problem for which it was not intended. Interest rates were driven down to unsustainable levels, with questionable results. My concern is that maintaining rates close to zero for close to seven years could breed a host of unforeseen problems.

What is really needed is a Keynesian solution: government investment in productive infrastructure. But neither party is likely to succeed in winning approval for this.

The Dollar Index is ranging between 93 and 98. Increased interest rates or falling inflation would suggest an upward breakout. Flight to safety would drive yields downward. But the biggest factor that may drive up yields could be a Chinese sell-off of foreign reserves (largely Treasury investments) in order to support the Yuan or spend on infrastructure to revive their economy.

Dollar Index

There is no flight to the safety of gold as yet. The Gold Bugs Index, representing un-hedged gold miners, is testing primary support at 105. Twiggs Momentum (13 week) peaks below zero indicate a strong down-trend.

Gold Bugs Index

Spot gold fared a little better, but is likely to test primary support at $1080 per ounce. Again, declining 13-week Twiggs Momentum, with peaks below zero, signals a strong down-trend. Breach of support at $1080 would offer a target of $1000/ounce*.

Spot Gold

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

Posted on

A currency war has begun….


Spot Gold

The Federal Reserve, Bank of England, European Central Bank and Bank of Japan all expanded their balance sheets (commonly referred to as quantitative easing or QE for short) post-2008 to counteract a contracting money supply and prevent a deflationary spiral. These actions also have the beneficial effect of weakening the currency and improving international competitiveness.

China was considered immune because of its persistent current account surplus and $4 Trillion in foreign reserves. But the recent sharp contraction in Chinese exports to the EU suggest otherwise.

The People’s Bank of China (PBOC) responded by effectively devaluing the Yuan. So far the “one-off adjustment” has been repeated on three consecutive days.

USDCNY

The Euro appreciated considerably against the US dollar as CNY carry trades are unwound.

EURUSD

Gold broke out of its narrow rectangle between $1080 and $1100 per ounce as investors scuttled to the safety of bullion.

Spot Gold

* Target calculation: 1100 – ( 1200 – 1100 ) = 1000

The Yen displays little net gain or loss.

USDJPY

The Dollar Index does not include China’s Yuan and is falling primarily because of the Euro. The Broad Trade-Weighted Index which includes the Yuan is calculated weekly; so it will take a few days before we can assess the impact.

Dollar Index

Competing devaluations are likely to continue as each state (or trading block) attempts to maintain an export surplus. This is a zero sum game, so each action will inevitably elicit an equivalent response from major trading partners. Currency markets are awash with vast sums of liquid capital and an estimated $9 Trillion in carry trades (where hedge funds borrow in a low-interest-rate currency and invest in another at higher rates). Any beggar-thy-neighbor escalation is likely to destabilize financial markets and the precarious balance may prove difficult to restore.

During the 1997 Asian Financial Crisis George Soros called for international regulation of financial markets to prevent a reoccurrence.

It is time to recognize that financial markets are inherently unstable. Imposing market discipline means imposing instability, and how much instability can society take? …. To put it bluntly, the choice confronting us is whether we will regulate global financial markets internationally or leave it to each individual state to protect its interests as best it can. The latter course will surely lead to the breakdown of the gigantic circulatory system, which goes under the name of global capitalism.

~ George Soros: The Crisis of Global Capitalism (1998)


More….

IEA: At Least Another Year Before Oil Markets Rebalance | OilPrice.com

Desperate times, desperate acts

Crude fall continues

Let the Global Race to the Bottom Begin | Foreign Policy

Window on Eurasia: Kyiv Must Work to Isolate Moscow Rather than Negotiate with It

Goldman Sachs Doubles Down On Lower-For-Longer Scenario | OilPrice.com

Philip Glass: 100,000 People

Powered by WordPress / WordPress Maintenance Service By Website Helper