Tag: gold

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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

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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

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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

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Gold: Every cloud has a Silver lining

Long-term interest rates are declining after more dovish speeches from the Fed, with 10-year Treasury yields re-testing support at 2.0%. The opportunity cost of holding gold is low.

10-Year Treasury Yields

The Dollar Index is likely to weaken, testing primary support at 95. A weakening Dollar boosts demand for Gold.

Dollar Index

A big gain in Silver this week is likely to be followed by a similar move in Gold. The two precious metals tend to move in unison. Breakout above $16.00/ounce signals an advance to $17.50.

Spot Silver in USD

Gold is consolidating above short-term support at $1400 after a strong advance, indicating buying pressure. Another advance is likely, with a medium-term target of $1500/ounce.

Spot Gold in USD

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Silver leads Gold lower but safe haven demand rising

Silver has broken support at $15/ounce, warning of a test of primary support at $14. Declining Trend Index peaks indicate selling pressure.

Spot Silver in USD

Gold continues to test medium-term support at $1280/ounce. Precious metals tend to move together and Gold is expected to follow Silver in a test of primary support ($1180 for Gold).

Spot Gold in USD

The Dollar index, however, retreated below its new support level at 97.50. Penetration of the rising trendline would warn of a correction.

Dollar Index

China’s Yuan fell sharply against the Dollar as trade talks encountered major turbulence. The outlook for a trade deal now looks poor.

Chinese Yuan/US Dollar

10-Year Treasury yields are also falling as the prospect of further Fed rate hikes dims. Trend Index peaks below zero warn of strong demand for Treasuries (downward pressure on yields).

10-Year Treasury Yield

Failure to ink a trade deal is likely to boost demand for safe haven assets like the Dollar, Yen, Gold and US Treasuries. Capital flight from China may accelerate.

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Dollar retreats but Gold flat

The Dollar retreated from resistance at 97.50 and is likely to test support at 95.50.

Dollar Index

Spot Gold, however, continues to test short-term support at $1300/ounce. Breach is likely and would warn of another test of primary support at $1180.

Spot Gold in USD

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Support for the Yuan lifts Gold

China’s PBOC stepped in with belated support for the Yuan, holding the line at 14.5 US cents.

CNY/USD

The Dollar retreated, with the Dollar Index testing support at 95. Respect of support would confirm another advance, with a long-term target of 103 — if central banks like the Fed and PBOC don’t intervene.

Dollar Index

Gold rallied as the Dollar weakened, testing resistance at $1200/ounce. Respect of the descending trendline would warn of another decline with a long-term target of the 2015 low at $1050/ounce.

Spot Gold in USD

The Australian Dollar also rallied, reducing the benefit to local gold miners.

Australian Dollar/USD

The All Ordinaries Gold Index (XGD) continues its downward path, with a long-term target of 4000/4100.

All Ordinaries Gold Index

China is conserving its capital account as best it can, after losing $1 trillion in foreign reserves supporting the Yuan in 2015 – 2016.

China: Foreign Reserves excluding Gold

But failure to support its currency is sure to antagonize the Trump administration and elicit further trade tariffs.

….Trade is drying up and China is stuck with debt it can’t repay or rollover easily. This marks the end of China’s Cinderella growth story, and the beginning of a period of economic slowdown and potential social unrest.

~ Jim Rickards at Daily Reckoning

If that’s the case, expect the Dollar to strengthen and further gold weakness.

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How QE reversal will impact on financial markets

The Federal Reserve last year announced plans to shrink its balance sheet which had grown to $4.5 trillion under the quantitative easing (QE) program.

According to its June 2017 Normalization Plan, the Fed will scale back reinvestment at the rate of $10 billion per month and step this up every 3 months by a further $10 billion per month until it reaches a total of $50 billion per month in 2019. That means that $100 billion will be withheld in the first year and $200 billion each year thereafter.

How will this impact on financial markets? Here are a few clues.

First, from the Nikkei Asian Review on January 11:

The yield on the benchmark 10-year U.S. Treasury note shot to a 10-month high of 2.59% in London, before retreating later in the day and ending roughly unchanged in New York. Yields rise when bonds are sold.

The selling was sparked by reports that China may halt or slow down its purchases of U.S. Treasury holdings. China has the world’s largest foreign exchange reserves — holding $3.1 trillion, about 40% of which is in U.S. government notes, according to Brad Setser, senior fellow at the Council on Foreign Relations.

Chinese officials, as expected, denied the reports. But they would have to be pondering what to do with more than a trillion dollars of US Treasuries during a bond bear market.

Treasury yields are rising, with the 10-year yield breaking through resistance at 2.60%, signaling a primary up-trend.

On the quarterly chart, 10-year yields have broken clear of the long-term trend channel drawn at 2 standard deviations, warning of reversal of the three-decade-long secular trend. But final confirmation will only come from a breakout above 3.0%, completing a large double-bottom.

Withdrawal or a slow-down of US Treasury purchases by foreign buyers (let’s not call them investors – they have other motives) would cause the Dollar to weaken. The Dollar Index recently broke support at 91, signaling another primary decline.

The falling Dollar has created a bull market for gold which is likely to continue while interest rates are low.

US equities are likely to benefit from the falling Dollar. Domestic manufacturers can compete more effectively in both local and export markets, while the weaker Dollar will boost offshore earnings of multinationals.

The S&P 500 is headed for a test of its long-term target at 3000*.

Target: 1500 x 2 = 3000

Emerging market borrowers may also benefit from lower domestic servicing costs on Dollar-denominated loans.

Bridgewater CEO Ray Dalio at Davos:

We are in this Goldilocks period right now. Inflation isn’t a problem. Growth is good, everything is pretty good with a big jolt of stimulation coming from changes in tax laws…

If there is a downside, it is likely to be higher US inflation as employment surges and commodity prices rise. Which would force the Fed to raise interest rates faster than the market expects.

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Gold as ‘Trump insurance’

Yesterday’s solid blue candle on the gold chart [XAUUSD] confirms my view of the precious metal as a form of “Trump insurance”. After Trump and North Korea exchanged threats suggesting nuclear retaliation, gold gained 1.32%, breaking resistance at $1275/ounce. Follow-through above $1300 would signal a primary advance, with a target of $1400*.

Spot Gold

* Target calculation: 1300 + ( 1300 – 1200 ) = 1400

From the BBC:

US President Donald Trump says North Korea “will be met with fire and fury” if it threatens the US.

His comments came after a Washington Post report, citing US intelligence officials, said Pyongyang had produced a nuclear warhead small enough to fit inside its missiles.

This would mean the North is developing nuclear weapons capable of striking the US at a much faster rate than expected.

The UN recently approved further economic sanctions against the country.

The Security Council unanimously agreed to ban North Korean exports and limit investments, prompting fury from North Korea and a vow to make the “US pay a price”.

The heated rhetoric between the two leaders intensified after Pyongyang tested two intercontinental ballistic missiles (ICBM) in July, claiming it now had the ability to hit the US.

Mr Trump told reporters on Tuesday: “North Korea best not make any more threats to the US. They will be met with fire and fury like the world has never seen.”

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China goes all-in on the Yuan

China is betting that it can use its more than $3 Trillion of foreign reserves to stare down hedge funds betting on a collapse of the Yuan. Any sign of weakness in the Yuan would fuel further speculation and flight to safety. The caterpillar on the right of the daily chart reflects PBOC efforts to support the Yuan (prevent further appreciation of USDCNY).

USDCNY

But you need plenty of bikkies (chips) to stand firm against the market and China is depleting its foreign reserves to buy up Yuan. IMF figures to September last year show a substantial fall in foreign reserves (excluding gold) but the pace has accelerated and I suspect China must now be close to the $3 Trillion mark (from a high of $4.0T in June 2014).

China Foreign Reserves ex-Gold

China’s sell-off of foreign reserves has had an unusual impact: in the midst of a flight to safety, the Dollar is falling. Sell-off by the PBOC is driving the Dollar Index lower. Good news for US exporters (and manufacturers competing against imports) who would have been crucified by a rising Dollar.

Dollar Index

Flight to safety not only led to a sell-off in the Yuan but has spiked demand for Gold. If you can’t get your capital out of China to buy real estate in Vancouver or Sydney then the next best alternative is to buy gold. Spot metal prices brushed aside expected long-term resistance at $1200/ounce, reaching highs of $1250. Expect some retracement, but gold should find support at $1200. Completion of a higher trough would confirm a primary trend reversal.

Spot Gold

Global stocks

Dow Jones Global Index respected resistance at the former primary support level of 290. Breach of 270 would confirm another decline. 13-Week Twiggs Momentum peaks below zero flag a strong primary down-trend.

Dow Jones Global Index

* Target calculation: 290 – ( 320 – 290 ) = 260

Dow Jones Industrial Average is hammering primary support at 16000 but long tails on weekly candles (and rising 13-week Twiggs Money Flow) highlight committed buying. Expect another bear rally next week, but the weight of the market is on the sell side and is unlikely to change course. Breach of 16000 offers a target of 14000*.

Dow Jones Industrial Average

* Target calculation: 16000 – ( 18000 – 16000 ) = 14000

The S&P 500 also rallied Friday and recovery above 1850 suggests another test of 1900/1950. Rising 21-day Twiggs Money Flow reflects medium-term buying pressure. Reversal of the primary trend is unlikely and breach of support at 1850 would confirm a decline to 1700*.

S&P 500 Index

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

CBOE Volatility Index (VIX) continues to range between 20 and 30, reflecting elevated risk.

S&P 500 VIX

U.S. equity and options markets will be closed on Monday, February 15, 2016, in observance of Presidents’ Day.

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Canada’s TSX 60 also retraced to test resistance at 750. Respect is likely and breach of 700 would offer a target of 650*. Declining 13-week Twiggs Momentum peaks below zero indicate a strong primary down-trend.

TSX 60 Index

* Target calculation: 700 – ( 750 – 700 ) = 650

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Europe

Dow Jones Europe index continues its primary down-trend. Breach of support at 260 would signal another decline. Declining 13-week Twiggs Momentum below zero confirms a strong down-trend.

Dow Jones Europe

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Germany’s DAX is testing primary support at 9500. Peaks below zero on 13-week Twiggs Momentum warn of a primary down-trend. Follow-through below 9300 would confirm.

DAX

* Target calculation: 9500 – ( 11500 – 9500 ) = 7500

The Footsie retreated below 6000, signaling a primary down-trend. 13-Week Twiggs Momentum peaks below zero further strengthen the signal. Long-term target for a decline is 5000*.

FTSE 100

* Target calculation: 6000 – ( 7000 – 6000 ) = 5000

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Asia

Dow Jones Asia breached support at 2400 confirming another decline. Declining 13-week Twiggs Momentum below zero confirms a strong down-trend.

Dow Jones Asia

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Support has given way on the Shanghai Composite Index, strengthening the primary down-trend signaled last August when 13-week Twiggs Momentum crossed below zero. Target for the decline is 2400*.

Shanghai Composite Index

* Target calculation: 3000 – ( 3600 – 3000 ) = 2400

Japan’s Nikkei 225 Index is testing primary support at 17000. Breach is likely and would confirm the primary down-trend signaled by 13-week Twiggs Momentum below zero.

Nikkei 225 Index

* Target calculation: 94 – ( 106 – 94 ) = 82

Two failed swings on India’s Sensex (failing to reach the upper trend channel) warn of increasing selling pressure. Declining 13-week Twiggs Momentum peaks below zero confirm this. Follow-through below 24000 would offer a target of 22500*.

SENSEX

* Target calculation: 25000 – ( 27500 – 25000 ) = 22500

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Australia

The ASX 200 broke support at 4900 this week, confirming a (primary) decline. There are still buyers hoping for a reversal — illustrated by bullish divergence on 21-day Twiggs Money Flow (indicates medium-term buying pressure) — but the weight of the bear market is against them. Expect a test of support at 4600 in the next few weeks but the long-term target is 4000*.

ASX 200

* Target calculation: 4850 – ( 5050 – 4850 ) = 4650; 5000 – ( 6000 – 5000 ) = 4000

Banks are taking a hammering, breach of 75.00/76.00 signaling a decline to 66.00*. Now is not the time to go bargain-hunting. What looks cheap today may be even cheaper tomorrow.

ASX 300 Banks

* Target calculation: 7600 – ( 8600 – 7600 ) = 6600

The only sound reason for buying a stock is that it is rising in price. If that is happening, no other reason is required. If that is not happening, no other reason is worth considering.

~ Nicholas Darvas

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