The Dollar Index is finding support at 96.50/97; the latest long tail on the weekly chart signaling buying pressure. But the primary trend is down and breach of support would signal a decline to test the 2016 low at 92/93.
Spot Gold is testing support at $1250. Fundamentals, like a weaker Dollar and rising political uncertainty, still favor an up-trend. Respect of support at $1250 would confirm. Breach of $1200 is unlikely but would warn of another decline.
The Dollar Index continues to test support at 96.50. The primary trend is down and breach of support is likely, signaling a decline to test the 2016 low at 92/93.
Spot Gold found support at $1250. A weaker Dollar and rising political uncertainty both favor an up-trend but rising interest rates are expected to weaken demand. Respect of support at $1250 would confirm the up-trend, while breach of $1200 would warn of another decline.
I don’t attach much significance to the Gold-Oil ratio on its own but it’s back in overbought territory, above 25.
The chart below — plotting inflation-adjusted prices (over CPI) — far better depicts the relationship between gold and crude oil. Each major spike in crude prices over the last 50 years has been followed by a rising gold price.
Falling crude prices are likely to weaken demand for gold over the next few years, both through lower inflation and declining foreign reserves of major oil producing nations.
Spot Gold broke support at $1250. Follow-through below $1240 would signal another test of primary support at $1200.
But the Dollar Index is also falling. Breach of 96.50 warns of a decline to the 2016 low at 92/93.
Dollar weakness is even reflected by a test of long-term support at 6.80 against the Yuan. Breach of the rising trendline on the monthly chart would warn of a primary down-trend.
Let me put it this way: recovery of gold above $1250 would not be a surprise. And would test resistance at $1300.
The Dollar Index is in a primary down-trend. Short-term support is unlikely to hold. The long-term target is the 2016 low between 92 and 93.
Silver often acts as a lead indicator gold. Testing primary support at $15.50/15.60 per ounce, breach would warn of a primary down-trend.
I have been bullish on gold since the election of Donald Trump as president. My comment last week was:
“Let me put it this way: recovery of gold above $1250 would not be a surprise. And would test resistance at $1300….”
Gold is trending lower, breach of $1215 warning of a test of primary support at $1200.
From a fundamental viewpoint, I can find no strong argument to support a lower gold price:
So I remain bullish on the long-term outlook for gold. But a peak below zero on Twiggs Trend Index warns of weakness. Breach of primary support at $1200 would mean that all bets are off.
The Dollar Index is in a primary down-trend. Breach of support at 95.50 signals another decline. The long-term target is the 2016 low between 92 and 93.
A weakening Dollar and geo-political uncertainty should fuel demand for gold, but gold and silver have both been testing support in recent weeks rather than advancing strongly as expected.
The best explanation I have for this is falling crude oil prices. The long-term chart below shows gold and crude oil prices adjusted for inflation (CPI). Whenever there is a strong surge in crude oil prices, gold tends to follow. Rising crude prices and higher consequent inflation reduce confidence in the Dollar and major oil producers tend to buy more gold with their newfound surplus, as a store of value.
The opposite occurs if oil prices fall and those same oil producers are forced to sell gold reserves in order to fund an unexpected deficit.
At present crude prices are undergoing a bear market rally, having recovered above resistance at $45/barrel, but the primary trend is down. Gold has followed suit, recovering above support at $1215/ounce. Penetration of the declining trendline suggests a test of resistance at $1250.
But crude prices remain weak and (gold) respect of $1250 would indicate another test of primary support at $1200.
The Dollar Index is in a primary down-trend. Its decline accelerated in the last week, headed for the next level of primary support between 92 and 93, which is bullish for gold.
Falling crude prices, however, have a bearish influence on gold. Nymex light crude recently staged a rally but ran into resistance at $47.50/barrel. Expect another decline to test the lower trend channel at $42, continuing the primary down-trend.
Gold broke resistance at $1250/ounce. Follow-through above $1260 would signal another test of resistance at $1300. Reversal below $1250, on the other hand, would be a bearish sign.
Silver rallied off primary support at $15.50/ounce but only a break above the descending trendline (at $17/ounce) would flag a reversal in the primary down-trend.
The Dollar Index is testing primary support between 92 and 93; bullish for gold. Breach of support would offer a long-term target between 83 and 84*.
*Target: 93 – ( 103 – 93 ) = 83
Crude rallied strongly this week, with Nymex light crude testing its upper trend channel at $50/barrel. Respect would indicate another test of the lower trend channel, around $40/barrel, continuing the primary down-trend. Follow-through above $50 would suggest that a bottom has formed and the next correction is unlikely to reach the last low of $42.
Gold followed through above $1260 after a brief retracement, indicating another test of $1300. Reversal below $1250 is unlikely but would be a bearish sign, warning of another test of primary support.
The accompanying rally in Silver is testing the descending trendline at $17/ounce. Penetration would suggest that a bottom is forming and the primary down-trend is near an end; a bullish sign for gold.
The Dollar Index is testing primary support between 92 and 93. Breach of support would offer a long-term target between 83 and 84* — a bullish sign for gold.
*Target: 93 – ( 103 – 93 ) = 83
Crude continues to test resistance at $50/barrel. Respect would indicate another test of the lower trend channel, around $40/barrel, continuing the primary down-trend. Follow-through above $50 would suggest that a bottom has formed and the next correction is likely to be higher than the last low at $42.
Gold retraced to test support at $1250/ounce — in line with crude strength and Dollar support. Respect of support is more likely and would indicate another test of $1300. Reversal below $1250 is unlikely but would warn of another test of primary support at $1200.
Silver also retraced and is likely to test primary support at $15.50. Rising Twiggs Trend Index suggests that another test of resistance at $17 remains likely. Breakout above $17 would be bullish for gold.
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*.
* 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.”
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.
The Dollar rally continues, with the Dollar Index headed for a test of resistance at 95. Penetration of the descending trendline suggests that a bottom is forming. Bullish divergence on the Trend Index indicates buying pressure.
But rising crude prices weaken Dollar demand.
Despite the Dollar rally, Spot Gold found support at $1300, with a long tail indicating buying pressure. Recovery of the Trend Index above zero would confirm.
But Australian gold stocks are running ahead. Breakout of the All Ordinaries Gold Index above resistance at 5000/5100 signals a fresh advance with a long-term target of 6000.
Helped by a weakening Aussie Dollar, testing support at 75 US cents. Breach of support would offer a long-term target of $0.69/$0.70.
The Dollar rally is slowing, with the Dollar Index running into resistance at 93, ahead of the anticipated 95. Penetration of the descending trendline suggests that a bottom is forming. Bullish divergence on the Trend Index indicates buying pressure. Retracement that respects the new support level at 91 would be a bullish sign. Breach of 88.50 is unlikely but would warn of another primary decline.
Rising crude prices weaken Dollar demand.
Spot Gold continues to test support at $1300. The declining Trend Index indicates selling pressure and a peak below zero would warn of another test of primary support at $1250/ounce.
Australian gold stocks continue their strong run. Retracement of the All Ordinaries Gold Index that respects the new support level at 5000/5100 would confirm a fresh advance and long-term target of 6000.
A weakening Aussie Dollar, testing support at 75 US cents, is driving local gold prices. Breach of support would offer a long-term target of 69/70 US cents.
The Dollar rally continues, with the Dollar Index heading for a test of resistance at 95. Penetration of the long-term descending trendline suggests that a bottom is forming. Bullish divergence on the Trend Index indicates buying pressure.
But rising crude prices still threaten to weaken the Dollar.
Spot Gold broke support at $1300, warning of a test of primary support at $1250/ounce as the Dollar strengthens. The declining Trend Index indicates selling pressure.
A weakening Australian Dollar continues to test support at 75 US cents as the greenback rallies. Breach would offer a long-term target of 69/70 US cents.
The weaker Aussie Dollar offered some respite for local gold stocks but the All Ordinaries Gold Index is retracing to test its new support level at 4950/5000. Respect of the rising trendline would confirm a fresh advance and long-term target of 6000.
10-Year Treasury yields retreated below 3.0 percent after threatening a bond bear market for the past week.
Breakout above 3.0 percent would complete a large double bottom reversal in the secular down-trend.
Rising bond yields would be expected to weaken demand for gold as the opportunity cost of holding precious metals increases.
The other major influence on gold prices, the Dollar, continues to strengthen. A strong Dollar would weaken the Dollar-price of gold.
The Dollar Index is rallying to test resistance at 95. Penetration of the long-term descending trendline in April suggests that a bottom is forming. Bullish divergence on the Trend Index indicates buying pressure.
Spot Gold retraced to test the new resistance level at $1300/ounce — the former support level. The declining Trend Index indicates selling pressure and respect of the descending trendline would warn of a test of primary support at $1250/ounce.
Australian gold stocks fared better, with the All Ordinaries Gold Index finding support at 4950 and the rising Trend Index signaling buying pressure. Respect of the long-term trendline would confirm another primary advance.
The reason is not hard to find. The Australian Dollar is at a watershed, testing primary support at 75 US cents as the greenback rallies. A Trend Index peak below zero would warn of strong selling pressure. And breach of primary support would signal a decline to 69/70 US cents.
Offering a potential bull market for Aussie gold stocks.
The Dollar Index encountered resistance at 95 and is now retracing to find support. Support above 91 would be bullish, while breach of 91 would see another test of primary support at 88.50.
10-Year US Treasury yields are likely to face stubborn resistance at 3.0 percent until threats to the European Union emanating from Italy’s new populist government are resolved. Breakout above 3.0 percent would signal the end of the 3 decades-long secular bull market in bonds — and increase selling pressure on gold.
Spot Gold, benefiting from the weaker Dollar, respected its rising trendline. Recovery above $1300/ounce would suggest another rally, while crossover of the Trend Index above zero would strengthen the signal.
Australia’s All Ordinaries Gold Index continues its struggle with resistance at 5100, while the Aussie Dollar holds above support at 75 US cents. Penetration of the rising trendline at 4950 would warn of a correction to test primary support at 4600. Breakout above 5100 remains more likely, with a rising trend Index indicating moderate buying pressure.
The Australian Dollar met resistance at its descending trendline, around 76.75 US cents. Expect another test of primary support at 75. If a Trend Index peak forms below zero, that would warn of strong selling pressure. Breach of primary support at 75 would signal a decline to 69/70 US cents — and strong demand for Australian gold stocks.
The Dollar Index encountered resistance at 95 and is now retracing to find support. Support above 91 would be bullish, while breach of 91 would see another test of primary support at 88.50.
10-Year US Treasury yields are likely to face stubborn resistance at 3.0 percent until threats to the European Union emanating from Italy’s new populist government are resolved. Breakout above 3.0 percent would signal the end of the 3 decades-long secular bull market in bonds — and increase selling pressure on gold.
Spot Gold, benefiting from the weaker Dollar, respected its rising trendline. Recovery above $1300/ounce would suggest another rally, while crossover of the Trend Index above zero would strengthen the signal.
Australia’s All Ordinaries Gold Index continues its struggle with resistance at 5100, while the Aussie Dollar holds above support at 75 US cents. Penetration of the rising trendline at 4950 would warn of a correction to test primary support at 4600. Breakout above 5100 remains more likely, with a rising trend Index indicating moderate buying pressure.
The Australian Dollar met resistance at its descending trendline, around 76.75 US cents. Expect another test of primary support at 75. If a Trend Index peak forms below zero, that would warn of strong selling pressure. Breach of primary support at 75 would signal a decline to 69/70 US cents — and strong demand for Australian gold stocks.
The Dollar Index rallied to test resistance at 95 in response to the latest Fed rate hike. Short retracement is a bullish sign.
Spot Gold retreated to $1280/ounce. Penetration of the rising trendline warns of a correction to test primary support at $1250. A Trend Index peak below zero warns of strong selling pressure.
Fortunately for Australian gold stocks, the Aussie Dollar broke primary support at 75, warning of a decline to 69/70 US cents. The Trend Index peak below zero warns of strong selling pressure.
The weaker Aussie Dollar boosted local gold stocks, with the All Ordinaries Gold Index breaking through resistance at 5100. Follow-through above 5250 would confirm another advance but expect retracement to first test the new support level.
The Dollar Index continues to test resistance at 95.
Mohammed El-Erian believes the Dollar is underpriced:
“…the dollar index is now at a 2018 high and, IMO, markets as a whole are yet to price fully the growth and policy differentials that favor the US over many other countries.”
Expect another test of short-term support at 93.20 but respect is likely and breakout above 95 would signal another advance.
A strong Dollar would suggest weaker gold prices (in Dollars). Spot gold breached support at $1280/ounce, warning of a test of primary support between $1240 and $1250. Trend Index peaks below zero flag selling pressure.
Australian gold stocks face a different set of drivers. The strong greenback weakened the Aussie Dollar, breach of primary support at 75 warning of a decline to 70 US cents. A long tail on the latest candle suggests a continuing arm-wrestle between buyers and sellers. But the Trend Index peak below zero indicates, in the medium-term, that sellers outweigh buyers.
Buoyed by a weaker Aussie Dollar, the All Ordinaries Gold Index is rallying to test resistance at 5250. Breakout would signal another advance but retracement is likely to first test support at the rising trendline.
The All Ordinaries Gold Index broke through resistance at 5250, signaling a primary advance with a target of 6000. I remain cautious while the Dollar-price of Gold is falling; respect of Gold support at $1250/ounce would strengthen the bull signal.
The Aussie Dollar continues to fall, boosting local gold stocks.
Despite the Dollar-price of gold heading for a test of primary support between $1240 and $1250. Trend Index peaks below zero flag selling pressure.
Largely because the Dollar is strengthening, with the Dollar Index breaking through resistance at 95 to signal continuation of the recent advance.
A sharp fall in China’s Yuan is unsettling global financial markets.
The normal response to uncertainty is a flight to safety which boosts the Dollar, Yen and Gold. But this looks like a straight arm-wrestle between the Yuan and the Dollar, with strong demand for the greenback weakening the Dollar-price of Gold.
