Spot Gold Archives - Page 4 of 37 - the patient investor

November 9, 2019

Gold plunges

Gold broke support at $1490/ounce, the base of a bearish descending triangle. A sharp drop on the Trend Index warns of strong selling pressure. Respect of secondary support at $1350 would signal that the primary up-trend is intact, while a test of primary support at $1270 would warn of trend weakness.

Gold (USD/ounce)

Silver similarly broke support at $17.50/ounce, with an even steeper fall on the Trend Index warning of a strong decline, confirming the Gold signal.

Silver (USD/ounce)

The cause of the sharp fall is clear: long-term Treasury yields are rising, increasing the opportunity cost of holding Gold. 10-Year Treasury yield breakout above 2.0% would warn of an up-trend, with an initial target of 2.50%.

10-Year Treasury Yields

The All Ordinaries Gold Index continues its downward trend channel, towards secondary support at 6000. Declining Trend Index peaks again warn of selling pressure. Respect of 6000 would signal that the primary up-trend is intact, while a test of primary support at 5400 would again warn of trend weakness.

All Ordinaries Gold Index

Patience is required

Gold is in a long-term up-trend and a correction may offer an attractive entry point. But we first need to confirm that the up-trend is intact before increasing exposure to gold stocks.

October 23, 2019October 23, 2019

Gold’s hidden correction

There is a lot going on in global financial markets, with a Dollar/Eurodollar shortage forcing the Fed to intervene in the repo market. The Fed will not, on pain of death, call this QE. But it is. The only difference is that the Fed is purchasing short-term Treasury bills rather than long-term notes and mortgage-backed securities (MBS). The effect on the Fed’s balance sheet (and on Dollar reserves held by primary dealers) is the same.

Fed Assets

The effect on the Dollar has been dramatic, with a sharp dip in the Dollar Index. Interesting that this was forewarned by a bearish divergence on the Trend Index since June this year. Financial markets knew this was coming; they just didn’t shout it from the rooftops.

Dollar Index

Gold and precious metals normally surge in price when the Dollar weakens, to be expected as they are priced in USD, but Gold was already weakening, testing support at $1500/ounce.

Spot Gold in USD compared to Real 10-Year Treasury Yields

Silver was similarly testing support at $17.50/ounce.

Spot Silver

The falling Dollar has supported Gold and Silver despite downward pressure from other sources. In effect we have a “hidden” correction, with falling precious metal values obscured by falling unit values. Just as surely as if we had reduced the number of grams in an ounce….

Support for the Dollar would likely result in Gold and Silver breaking support, signaling a correction.

Australia’s All Ordinaries Gold Index, where the effect of the weakening greenback is secondary, has already broken support at 7200 after a similar bearish triangle (to Gold and Silver). Breach warns of another decline. Expect support at 6000.

All Ordinaries Gold Index

Patience is required. Gold is in a long-term up-trend, with a target of the 2012 high at $1800/ounce. A correction would offer an attractive entry point.

September 28, 2019September 28, 2019

Gold: Reasons for the up-trend

Gold is in a medium- to long-term up-trend. Apart from record central bank purchases of bullion and a weakening Chinese Yuan, real long-term interest rates are declining.

The chart below highlights the inverse relationship between gold and real long-term interest rates (10-year Treasury yield minus CPI YoY%). When LT interest rates fall, gold prices surge.

Spot Gold in USD compared to Real 10-Year Treasury Yields

Treasury yields are falling because the Fed is cutting short-term interest rates but, more importantly, because QE has resumed. With the ECB driving bond yields into the negative, demand for Treasuries is surging.

The Fed has also reversed course, expanding their balance sheet after the recent liquidity squeeze forced them to resume overnight repos.

Fed Total Assets and Excess Reserves on Deposit

Our target for Gold is the 2012 high of $1800/ounce.

A weak rally strengthens the bearish argument for China’s Yuan, suggesting continuation of the primary down-trend.

CNYUSD

The Yuan is in a long-term down-trend against the Dollar that shows no signs of easing. 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 which is likely to continue for decades.

Gold is testing support at $1495/ounce. Breach would warn of a correction.

Spot Gold in USD

Silver is similarly testing support. Breach of $17.50/ounce is likely and would warn of a correction, with Gold expected to follow.

Spot Silver in USD

The All Ordinaries Gold Index is trending lower. Breach of 7200 would warn of another decline, with a short-term target of 6500.

All Ordinaries Gold Index

Patience is required. Gold remains in a long-term up-trend and a correction may offer a sound entry point.

August 24, 2019

Falling Yuan bullish for Gold

China’s Yuan continued its plunge against the US Dollar after the latest Trump tariff tantrum. The trade war is hotting up and we can expect further Yuan weakness, fueling demand for Gold.

CNYUSD

Spot Gold consolidation above $1500/ounce is a bullish sign, while a Trend Index trough above zero indicates strong buying pressure.

Spot Gold in USD

We maintain our bullish outlook for Gold, with a target of the 2012 high at $1800/ounce.

The All Ordinaries Gold Index surprised with a fall despite the weakening Aussie Dollar. Penetration of the rising trendline warns of a correction but the primary trend remains upward. A Trend Index trough that respects the zero line would confirm this.

All Ordinaries Gold Index

August 17, 2019

Gold pauses after recent surge

China’s Yuan has paused after breaking above 7.0 to the US Dollar. Expect further consolidation, but respect of support at 7.0 would signal a further advance (and Yuan weakness), fueling demand for Gold.

USDCNY

Spot Gold is consolidating above $1500/ounce. Respect of support at $1500 would likewise suggest further gains. The Trend Index trough above zero indicates strong buying pressure.

Spot Gold in USD

The trouble with an accelerating up-trend (or blowoff as they are often called) is that they seldom give you adequate warning of a reversal. The All Ordinaries Gold Index retreated this week and is testing its rising trendline at 8000. Breach of 8000 seems unlikely but would warn of a correction.

All Ordinaries Gold Index

We maintain our bullish outlook for Gold, with a target of the 2012 high at $1800/ounce.

August 13, 2019August 13, 2019

Recession ahead

There are clear signs of trouble on the horizon.

10-Year Treasury yields plunged to near record lows this month as investors fled stocks for the safety of bonds.

10-Year Treasury Yield

The Federal deficit is widening — unusual for this late in the cycle as Liz Ann Sonders points out. We are being prepared for the impact of a trade war: pressure the Fed to cut rates and raise the deficit to goose stocks.

Federal Deficit

Gold surges as Chinese flee the falling Yuan.

Spot Gold

Commodity prices fall in anticipation of a global recession.

DJ-UBS Commodity Index

Are we there yet? Not quite. The Philadelphia Fed Leading Index is still above 1% (June 2019). A fall below 1% normally precedes a US recession.

Leading Index

Volatility (Twiggs 21-day) for the S&P 500 is rising, as it usually does ahead of a market down-turn, but has not yet formed a trough above 1% — normally a red flag ahead of a market top.

S&P 500 Volatility

And annual payroll growth is still at 1.5%. This is the canary in the coal mine. A fall below 1% (from its 2015 peak) would warn that the US is close to recession.

Payroll Growth and FFR

What to watch out for:

Falling commodity prices below primary support (DJ-UBS at 75) will warn that the trade war is starting to bite;
Falling employment growth, below 1%, would signal that the US economy is affected; and
September is a particularly volatile time of the year, when fund managers clean up their balance sheets for the quarter-end, with a history of heavy market falls in October as cash holdings rise.

I tell my clients to sell into the rallies. Don’t wait for the market to fall. Rather get out too early than too late.

Of course I cannot guarantee that there will be a recession this year, but there are plenty of warning signs that we are in for a big one soon.

August 10, 2019August 10, 2019

Gold spikes as Yuan falls

China has broken its unwritten guarantee that the PBOC will maintain the Yuan below 7 to the US Dollar. Official fixings for USDCNY crept above 7.0 this week, indicating the PBOC is no longer prepared to support its currency.

USDCNY

This is a two-edged sword. While it makes exports cheaper, counteracting the effect of US tariffs, it makes imports more expensive, spiking inflation. It is also likely to spark capital flight, as evidenced by the sharp spike in Gold.

Spot Gold broke resistance at $1450, surging to $1500/ounce. A narrow consolidation at $1500 is likely, signaling further gains. The Trend Index trough above zero indicates strong buying pressure.

Spot Gold in USD

The next major resistance level is the 2012 high of $1800/ounce.

August 3, 2019

Gold rallies as the Dollar retreats

A tall shadow on the Dollar Index warns of selling pressure. Breach of the new support level at 98 would indicate a test of the rising trendline at 96. A Trend Index peak below zero warns of selling pressure. A weakening Dollar will increase demand for Gold.

Dollar Index

Spot Gold is testing resistance at $1440/1450 after consolidating above short-term support at $1400. A Trend Index trough above zero indicates buying pressure. Breakout above $1450 is likely and would offer a short-term target of $1500/ounce.

Spot Gold in USD

July 27, 2019

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

July 13, 2019July 13, 2019

Gold buying pressure

Long-term interest rates close to zero after inflation, with 10-year Treasury yields testing support at 2.0%, means that the opportunity cost of holding gold is minimal.

10-Year Treasury Yields

A weakening Dollar Index is expected to test primary support at 95, further boosting demand for Gold.

Dollar Index

Gold found short-term support at $1400 after a strong advance, indicating buying pressure. Respect of support at $1350/$1400 would offer a medium-term target of $1500/ounce.

Spot Gold in USD