gold Archives - Page 3 of 7 - the patient investor

October 26, 2015

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

June 30, 2015

Gold, silver and the Dollar

A long-term chart of silver shows strong support at $15/ounce. Recovery above $18 and 13-week Twiggs Momentum above zero would suggest that the precious metal has bottomed. A bullish sign for gold.

Silver

The picture for gold is less clear, with further tests of primary support at $1140/ounce expected. 13-Week Twiggs Momentum is also rising and recovery above zero would be a bullish sign. But breakout above $1300 is unlikely at present. Breach of support at $1140 would offer a target of $1000*.

Spot Gold

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

Stocks of major gold producers like Barrick Gold remain bearish.

Barrick Gold

The Dollar Index respected its declining trendline, warning of another test of primary support at 93. Breach of support would signal a primary down-trend. A weaker Dollar would boost demand for gold and lift the US economy, enhancing the competitiveness of exporters and local manufacturers facing competition in domestic markets.

Dollar Index

Long-term interest rates are rising, however, and provide support for the Dollar. 10-Year Treasury yields respected their new support level at 2.25% and are likely to test long-term resistance at 3.0 percent. Rising 13-week Twiggs Momentum above zero, strengthens the signal.

10-Year Treasury Yields

October 8, 2014

It’s Time To Drive Russia Bankrupt — Again

Interesting view from Louis Woodhill on Forbes:

Over the past 64 years, real gold prices have averaged $544.91/oz in 4Q2013 dollars, and real crude oil prices have averaged $38.85 bbl. This means that an ounce of gold will typically buy about 14 barrels of oil.

If we fully stabilized the dollar today, we could expect gold prices to fall toward $550/oz, and oil prices to fall toward $40.00/bbl. The huge dollar premiums that gold and oil currently command reflect the value that these easy-to-store commodities have as hedges against dollar instability. If we reformed our monetary control system to guarantee the real value of the dollar, we would eliminate this risk. The risk premiums currently enjoyed by oil and gold would then decline toward zero, as the new monetary system gained credibility.

Are the current gold and oil premiums simply a hedge against an unstable dollar?

August 7, 2014

Gold finds support as Euro falls

Treasury yields warn of a decline
Euro trending lower
Dollar halts at resistance
Gold finds short-term support

Interest Rates and the Dollar

The yield on ten-year Treasury Notes retreated below 2.50 percent, warning of a decline to 2.00 percent*. Follow-through below 2.40 would confirm. 13-Week Twiggs Momentum below zero strengthens the signal. Reversal above 2.65 is unlikely, but indicate an advance to 3.00 percent.

10-Year Treasury Yields

* Target calculation: 2.50 – ( 3.00 – 2.50 ) = 2.00

The euro is in a primary down-trend, having broken primary support at $1.35. Target for the initial decline is $1.30*. Declining 13-week Twiggs Momentum below zero confirms the down-trend. Recovery above $1.35 is unlikely, but would warn of a bear trap.

EURUSD

* Target calculation: 1.35 – ( 1.40 – 1.35 ) = 1.30

The Dollar Index has run into resistance at 81.50, evidenced by tall wicks (“shadows”) on the last two weekly candles. Weakness in Europe is likely to drive the Dollar higher, while lower treasury yields would retard the advance. Recovery of 13-week Twiggs Momentum above zero suggests a primary up-trend. Breakout above 81.50 would signal a primary advance to 84*. Reversal below 81.00 is unlikely, but would warn of another test of primary support at 79.00.

Dollar Index

* Target calculation: 81.50 – ( 81.50 – 79.00 ) = 84.00

Gold

Gold found short-term support at $1280/$1300. Oscillation of 13-week Twiggs Momentum around zero continues to indicate hesitancy. Breach of support at $1240/$1250 would warn of a primary down-trend. Recovery above $1350 remains unlikely at present, but would indicate another test of $1400/$1420.

Spot Gold

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

July 17, 2014

Gold retreats as Dollar strengthens

Treasury yields remain weak
The Dollar strengthens
Inflation looks weak despite rising TIPS spread
Gold retreats

Interest Rates and the Dollar

The yield on ten-year Treasury Notes continues to test support at 2.50 percent. Failure would indicate a decline to 2.00 percent; follow-through below 2.40 would confirm. 13-Week Twiggs Momentum below zero continues to warn of a primary down-trend. Recovery above 2.65 is less likely, but would suggest the correction is over, with a medium-term target of 2.80 and long-term of 3.00 percent.

10-Year Treasury Yields

* Target calculation: 2.50 – ( 3.00 – 2.50 ) = 2.00

The Dollar Index found short-term support at 80.00. Follow-through above 80.50 indicates another test of 81.00. Recovery of 13-week Twiggs Momentum suggests a primary up-trend. Breakout above 81.00 would strengthen the signal; above 81.50 would confirm. Breach of 80.00 is unlikely at present, but would warn of another test of primary support at 79.00.

Dollar Index

Low interest rates and a stronger dollar suggest inflation expectations are falling, but this is not yet evident on the TIPS spread (10-Year Treasury Yields minus 10-Year Inflation-Indexed Yields).

10-Year Treasury Yields minus 10-Year Inflation Indexed (TIPS) Yields

Gold

Gold is nonetheless falling, in line with weaker inflation expectations. Follow-through below $1300 would test support at $1240. And breach of $1240 would threaten another primary decline, with a target of $1000*. Oscillation of 13-week Twiggs Momentum around zero, however, suggests hesitancy, with no strong trend. Recovery above $1350 is unlikely at present, but would indicate another test of $1400/$1420.

Spot Gold

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

April 1, 2014

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

March 10, 2014

Dollar falls: Outflow to safe haven?

Rising gold prices would normally signal increased inflation expectations and higher Treasury yields, but the present situation is distorted by tensions in Ukraine and increased demand for gold as a safe haven. The yield on ten-year Treasury Notes found support at 2.60 percent and is now testing medium-term resistance at 2.80 percent. Breakout would indicate an advance to 3.50 percent*; confirmed if there is follow-through above 3.00 percent. Bearish divergence on 13-week Twiggs Momentum continues to warn of weakness and reversal below 2.60 remains as likely, testing primary support at 2.50 percent.

10-Year Treasury Yields

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

Rising Treasury yields and a weakening dollar may reflect international outflows from the Dollar in search of a safe haven. The Dollar Index is testing primary support at 79.50/79.60. Breach would signal a primary down-trend; confirmed if support at 79.00 is broken. The 13-week Twiggs Momentum peak below zero suggests further weakness.

Dollar Index

* Target calculation: 79.5 – ( 81.5 – 79.5 ) = 77.5

June 2, 2013

Scott Sumner: “It’s Complicated: The Great Depression in the US” | The Market Monetarist

Lars Christensen writes of a 2010 lecture by Scott Sumner did at Oxford Hayek Society on the causes of the Great Depression.

Scott does a great job showing that policy failure – both in the terms of monetary policy and labour market regulation – caused and prolonged the Great Depression. Hence, the Great Depression was not a result of an inherent instability of the capitalist system.

Unfortunately policy makers today seems to have learned little from history and as a result they are repeating many of the mistakes of the 1930s. Luckily we have not seen the same kind of mistakes on the supply side of the economy as in the 1930s, but in terms of monetary policy many policy makers seems to have learned very little.

Click to open video on separate page 1:06:12

April 23, 2013

Gold Bulls Hit

Grant Williams at Mauldin Economics quotes a friend in Hong Kong in his latest article on gold:

I’ve been taking this opportunity to stock up on some yellow metal. Went to Hang Seng bullion counter yesterday. The line was out the door. It took an hour wait to see a teller. When I asked if people were buying in the dip or selling in panic, she told me that they haven’t had one ounce of gold sold back to them all day. She told me they have sold more gold in 24 hrs than they normally do in 3 months.

While the price in futures market has fallen sharply, physical sales of gold have surged.

Read more at Things That Make You Go Hmmmm..

April 16, 2013

Dramatic fall on S&P 500 – April 16th

Apologies. I deleted this April 16th post by accident.

The S&P 500 fell 220 basis points (2.2%) on Monday, blamed variously on disappointing growth figures from China, the fall in gold, and the Boston Marathon tragedy. I still suspect that the primary cause is the tectonic shift last week by the Bank of Japan.

“Where is the fall?” you may ask, when viewing the chart below. That is what I enjoy about monthly charts: they place daily moves in perspective. Breach of support at 1540 would indicate a small secondary correction, while breakout below 1490 would signal a correction back to the primary trendline. But the primary trend remains up. Only a fall through 1350 would suggest a reversal.

S&P 500 Index