Tag: Gold Bugs Index

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Gold: The rally continues

The Dollar Index is testing resistance at 98; breakout would offer a target of 100. The stronger Dollar has softened demand for Gold.

Dollar Index

Silver is retracing to test its new support level after breakout above $16. Respect of support at $16 would signal an advance to $17.50. Gold and silver tend to move in unison.

Spot Silver in USD

The Gold Bugs Index, representing un-hedged gold stocks, is retracing after a strong rally. A correction of short duration would be a bullish sign, suggesting another advance.

Gold Bugs Index

Spot Gold continues to consolidate above short-term support at $1400, indicating buying pressure. Upward breakout is likely and would offer a medium-term target of $1500/ounce.

Spot Gold in USD

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Gold: Told you so

Gold broke short-term support at $1065/ounce, confirming another (primary) decline. 13-Week Twiggs Momentum peaks below zero indicate a strong primary down-trend. Target for the decline is $1000/ounce*.

Spot Gold

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

The Gold Bugs Index, representing un-hedged gold stocks, still has to break primary support at 105. But this now appears inevitable.

Gold Bugs Index

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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

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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

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Gold-Oil ratio warns of further selling

The Gold-Oil ratio, comparing the price of bullion ($/ounce) to Brent crude ($/barrel), has long been used as an indication of whether gold is in a bull or bear market. When the oil price is high, demand for gold, anticipating rising inflation, is normally strong. The current plunge in oil prices indicates the opposite: weak inflation and low demand for gold. Bullion prices are falling but not fast enough to keep pace with crude, driving the Gold-Oil ratio to an overbought position above 20. Expect a long-term bear market for gold.

Gold-Oil ratio

Spot Gold is consolidating in a narrow rectangle below $1100/ounce. This is a bearish sign, with buyers unable to break the first level of resistance. Breach of support at $1080 is likely and would signal a decline to $1000/ounce*. Declining 13-week Twiggs Momentum below zero confirms a strong primary down-trend.

Spot Gold

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

The Gold Bugs Index, representing un-hedged gold stocks, has fallen close to 30 percent since breaking support five weeks ago.

Gold Bugs Index

Barrick Gold, one of the largest global gold producers, is falling even faster.

Barrick Gold

If long-term crude prices continue to fall, like the June 2017 (CLM2017) futures depicted below, gold is likely to follow and support at $1000/ounce will not hold.

WTI Light Crude June 2017 Futures

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Gold: Is Barrick next?

The Gold Bugs Index — representing un-hedged gold stocks — broke primary support at 150, warning of a bear market for gold.

Gold Bugs Index

Major producer Barrick Gold is testing primary support at $10. Peaks below zero on 13-week Twiggs Momentum already indicate a primary down-trend. Breach of support would confirm, offering a target of $6.50*. More importantly, it would strengthen the bear signal for gold.

Barrick Gold

* Target calculation: 10 – ( 13.50 – 10.00 ) = 6.50

Gold is headed for another test of primary support at $1140/ounce, while 13-week Twiggs Momentum peaks below zero suggest continuation of the down-trend. Breach of primary support would offer a target of $1000*.

Spot Gold

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

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Gold Bugs warn of a bear market

Silver is testing long-term support at $15/ounce. Breach is likely, with 13-week Twiggs Momentum peaking below zero, indicating continuation of the down-trend.

Silver

Gold is similarly testing primary support at $1140/ounce. 13-Week Twiggs Momentum also peaked below zero, suggesting continuation of the down-trend. Breach of support would offer a target of $1000*.

Spot Gold

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

Stocks of major producers like Barrick Gold are also testing primary support. 13-week Twiggs Money Flow below zero indicates a primary down-trend.

Barrick Gold

The Gold Bugs Index, representing un-hedged gold stocks, has already departed. Breach of the band of primary support between 150 and 155 warns of a bear market for gold.

Gold Bugs Index

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Interest rates and inflation hurt gold prices

Where is inflation headed? The five-year breakeven rate (5-Year Treasury Yield minus 5-year TIPS) is hovering around 1.80 percent, close to the latest readings for core CPI. The market is anticipating low inflation for the next few years.

Five-year Breakeven Rate and Core CPI

Long-term interest rates are rising in anticipation of Fed tightening. 10-Year Treasury yields, in a primary up-trend, are retracing to test their new support level at 2.25%. Respect is likely and would signal an advance to long-term resistance at 3.0 percent. Rising 13-week Twiggs Momentum crossed above zero, strengthening the signal.

10-Year Treasury Yields

Gold

Low inflation reduces demand for gold as an inflation-hedge, while rising interest rates increase its carrying cost for speculators and the opportunity cost for investors. These factors are exerting downward pressure on gold prices. The spot price recovered above medium-term support at $1180/ounce, but the breach continues to warn of a test of the primary level at $1140. 13-Week Twiggs Momentum peaking below zero also suggests continuation of the primary down-trend. Failure of $1140 would offer a long-term target of $1000*.

Spot Gold

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

The Gold Bugs Index, representing un-hedged gold stocks, is testing primary support at 155. Breach of support would strengthen the warning.

Gold Bugs Index

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Gold resurgent despite stronger Dollar

The Fed has signaled a “patient approach” to raising interest rates, causing long-term yields to fall. Ten-year Treasury Note yields broke primary support at 2.00%, signaling another test of the 2012 low at 1.40%. Declining 13-week Twiggs Momentum below zero confirms continuation of the down-trend. Recovery above 2.00% is unlikely, but would warn that the down-trend of the last 12 months is ending.

10-Year Treasury Yields

The Dollar Index is headed for a test of long-term resistance at 100. Rising 13-week Twiggs Momentum signals a strong (primary) up-trend. Retracement to test support at 90 remains a possibility, but the likelihood of reversal below this level is remote.

Dollar Index

* Target calculation: 90 + ( 90 – 80 ) = 100

Gold

Despite the rising Dollar, Gold continues to test resistance at $1300/ounce. Breakout would signal a rally to $1400/ounce, but trend reversal is unlikely. Retreat below $1200 would confirm a long-term target of $1000*.

Spot Gold

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

The Gold Bugs Index, representing un-hedged gold stocks, displays a similar picture. Breakout above 200 would signal a rally to test the declining trendline around 250, but reversal of the primary down-trend is unlikely.

Gold Bugs Index

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Gold – further falls likely

Low interest rates increase demand for gold by lowering the carrying cost. A rising dollar, however, has the opposite effect.

Gold respected resistance at $1250/ounce, confirming the primary down-trend. Another 13-week Twiggs Momentum peak below zero strengthens the signal. Breach of primary support at $1180 would offer a long-term target of $1000*. Recovery above 1250 is unlikely, but would test the descending trendline around $1300.

Spot Gold

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

Gold Bugs Index, representing un-hedged gold stocks, fell sharply since breaching long-term support at 190. Declining 13-week Twiggs Momentum (below zero) signals a strong primary decline. Bearish for gold.

Gold Bugs Index

The price of gold adjusted for inflation (gold/CPI) remains relatively high and further falls are likely.

Gold adjusted for CPI

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