{"id":57444,"date":"2024-09-12T07:43:19","date_gmt":"2024-09-12T07:43:19","guid":{"rendered":"https:\/\/thepatientinvestor.com\/?p=57444"},"modified":"2024-09-12T07:47:13","modified_gmt":"2024-09-12T07:47:13","slug":"narrow-advance-for-stocks-bullish-consolidation-for-gold","status":"publish","type":"post","link":"https:\/\/thepatientinvestor.com\/index.php\/2024\/09\/12\/narrow-advance-for-stocks-bullish-consolidation-for-gold\/","title":{"rendered":"Narrow advance for stocks, bullish consolidation for gold"},"content":{"rendered":"

Falling CPI and plunging crude prices almost guarantee at least a 25-basis-point rate cut at next week’s FOMC meeting. Stocks rallied, led by mega-cap technology stocks, but the advance was narrow, with large caps failing to join the party.<\/p>\n

Gold is bullish, boosted by falling long-term Treasury yields and a weak Dollar, but silver remains more bearish.<\/p>\n

Stocks<\/h2>\n

Mega-cap technology stocks led the rally, with Nvidia (NVDA)<\/span> posting solid gains.<\/p>\n

\"Top<\/p>\n

The move lifted the S&P 500 above resistance at 5500, signaling another test of the all-time high at 5670.<\/p>\n

\"S&P<\/p>\n

Large caps lagged, with the equal-weighted index ($IQX) failing to show much progress.<\/p>\n

\"S&P<\/p>\n

Financial Markets<\/h2>\n

The Chicago Fed National Financial Conditions Index eased to -0.57, reflecting easy monetary policy.<\/p>\n

\"Chicago<\/p>\n

Bitcoin respected support at $54K [red line]<\/span>, but the bearish declining triangle still warns of tighter financial market liquidity ahead.<\/p>\n

\"Bitcoin<\/p>\n

Treasury Markets<\/h2>\n

Ten-year Treasury yields plunged to almost 3.6% before retracing to test new resistance at 3.7%. The steep fall from the 5.0% peak in October last year indicates market expectations of significant rate cuts ahead.<\/p>\n

\"10-Year<\/p>\n

Dollar & Gold<\/h2>\n

Falling long-term interest rates are driving long-term Dollar weakness. Respect of resistance at 102 on the Dollar Index would confirm another decline, while breach of support at 100 would offer a long-term target of 93.<\/p>\n

\"Dollar<\/p>\n

A stronger Japanese Yen warns of a more hawkish monetary policy from the Bank of Japan. Rising Japanese interest rates will likely withdraw liquidity from US financial markets and weaken the Dollar.<\/p>\n

\"Japanese<\/p>\n

Gold is expected to benefit from falling long-term interest rates and a weaker Dollar. The narrow bullish consolidation below $2,525 per ounce suggests another advance. Breakout above resistance would offer a target of $2,600.<\/p>\n

\"Spot<\/p>\n

Silver lags behind gold, struggling to break resistance at $30 per ounce. Breach of support at $28 would warn of another test of long-term support at $26.50.<\/p>\n

\"Spot<\/p>\n

CPI Inflation<\/h2>\n

Headline CPI fell sharply to 2.6% for the 12 months to August, but core CPI lifted to 3.3%.<\/p>\n

\"CPI<\/p>\n

Monthly CPI shows that the sharp drop in the headline rate is caused by the base effects of a spike in July of last year [red circle]<\/span>. Rising core CPI over the past two months, with August growing at an annualized rate of 3.7%, warns of underlying inflationary pressures.<\/p>\n

\"CPI<\/p>\n

Sticky prices inflation also increased, to an annualized rate of 3.5% in August, warning that underlying inflationary pressures persist.<\/p>\n

\"Sticky<\/p>\n

Shelter<\/h3>\n

Shelter CPI also increased to an annual rate of 5.2% in August, reflecting a trough in home prices in mid-2023. The Case-Shiller 20-City Composite Index [gray below]<\/span> tends to lead Shelter by roughly 12 months.<\/p>\n

\"CPI<\/p>\n

Energy<\/h3>\n

However, the recent sharp fall in crude oil prices warns that inflationary pressures will likely ease in the months ahead.<\/p>\n

\"Brent<\/p>\n

Energy CPI grew by -4.0% over the 12 months to August and is likely to fall further in September. The chart below shows how energy CPI [ocher below]<\/span> plunged from a peak of 41.5% in June ’22, leading to a fall in headline CPI.<\/p>\n

\"CPI<\/p>\n

Food<\/h3>\n

Food CPI also declined to an annual rate of 2.1% in August, close to the Fed’s target of 2.0%.<\/p>\n

\"CPI<\/p>\n

Conclusion<\/h2>\n

Mega-cap technology stocks lifted the S&P 500 above resistance at 5500, indicating another test of the previous high at 5670. Breakout would offer a target of 6000, but the advance is narrow. Large caps in the index show little in the way of net gains, with the equal-weighted index ($IQX) failing to make much progress.<\/p>\n

The Chicago Fed National Financial Conditions Index continues to reflect easy monetary policy, but a bearish triangle on Bitcoin and a stronger Japanese Yen warn of tighter liquidity ahead.<\/p>\n

The decline in headline CPI is primarily due to base effects from August last year, while core CPI and the sticky price index warn of persistent underlying inflationary pressures. However, a sharp fall in crude oil prices will likely drag overall CPI lower in September.<\/p>\n

Falling 10-year Treasury yields reflect market expectations of significant rate cuts commencing on September 18. The Dollar rallied over the week, but the long-term downtrend is likely to persist as rates decline.<\/p>\n

Low long-term interest rates and a weak Dollar are expected to be bullish for gold. A Dollar Index breach of support at 100 would confirm our $3,000 per ounce target for gold.<\/p>\n

Acknowledgments<\/h4>\n