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Archive for Jun, 2016

Brexit ramifications

Jun 25th, 2016 No comments

The Brexit referendum has come and gone and the UK is to leave the EU. Market anxiety boiled over and there are now massive tectonic pressures involved in the UK, with:

  • Brexit;
  • new Prime Minister;
  • move toward Scottish independence;
  • potential merger of the two Irelands;
  • pressure for Northern Ireland to break away from the UK;
  • constraints from the EU (notably timing);

The beginning of the end for the EU as we know it is the real issue now as Brexit is a reality. Most of the damage on Friday was in the EU:

  • FTSE100 ended down 3.14%;
  • exceeded massively by other markets:
    • France down 8%;
    • Italy down 13.5%.

This was a protest vote by the masses against the elites which is happening worldwide as the establishment continues to erode the wealth of individuals: People are angry. There is much discontent in the EU and polls in countries such as Italy, Holland, Denmark, Spain, France, Sweden, Austria, etc. indicate a UK lookalike intention to leave the EU: It is now only a matter of time.

Where to from here?

The task now is to continue to identify threats and opportunities as we move into a new world with an increased risk of global contagion, as new norms evolve out of all this. The UK will probably move into recession with a new phase of QE together with many more countries in the EU doing likewise as the real risk of EU contagion flares up.

  • US$ set to strengthen;
  • International equity markets look threatened;
  • Gold set to move higher;

US$ exhibits a completed bullish ‘Morning Star’ pattern. Indicates more upside to come.

USDsmall

International equity markets ended lower:

  • Flirting with bearish ‘head and shoulders’ necklines;
  • Further drops can be expected if these are breached;
  • Massive top patterns continue to pre-empt further downside;
  • Brexit and EU uncertainty threatens;
  • Risk of global contagion threatens;

Gold broke up to an intraday high of $1358.54 but closed at a new high of only $1319.10. The trend continues up with all the attendant ratios equally bullish in lower Dow/Gold, and Gold/Silver ratios, but this was essentially panic buying and not investment buying. Probably more short term downside is expected, but within the overall bullish pattern.

Goldsmall

 

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Brexit, the Dollar, Gold, and all else

Jun 22nd, 2016 No comments

Brexit anxiety levels have accumulated into most financial market components, and with the referendum tomorrow (23 June), many of these stresses will unfold either way. Technical analysis of some components seems to indicate the ‘Stay’ vote will win and Brexit will retreat into history, for now.

Is the breakout in the US$ and Gold at the end of May a false or true breakout? Will the Brexit fall-out push the US$ higher and Gold lower, or vice versa. Whichever way prices break will decide which is true.

The US Dollar retreated up from short term support at 93.38 and made another bullish engulfing candle suggesting higher levels next.

US$small

Janet Yellen’s testimony to the US Congress yesterday in answering some tough questions indicates a lower Dollar: She seems to have shifted her stance from ‘when’ to ‘whether’ should rates be hiked which is more in keeping with global economic conditions. Lower Dollar values will support equities.

The Gold price closed below the 10-day moving average (MA) just short of 20/50-day MA support. The end of May low of $1,201.50 provides critical support with 200 day MA close at hand. If this support holds prices will respond upwards, but if it fails prices may retreat still much lower to $1,130-$1,110 before the next up cycle begins.

$Goldsmall

Gold miners are retreating in sympathy with metal prices.

The Oil price has broken down out of a rising wedge pattern and is consolidating around $50 a barrel. It may hold this level or be tested by the 200 day MA below $44.

BCrude$small

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Stocks slide as central banks fail to reassure

Jun 16th, 2016 No comments

Federal Reserve Chair Janet Yellen turned dovish again at yesterdays FOMC meeting indicating rates to be held steady, with the likelihood of interest rate increases tapering. This prompted Gold and Bonds to increase on haven demand as equities worldwide dropped. There is increased concern about the global economic outlook, while the Japanese Yen climbed to the highest level since 2014.

View the full Bloomberg report here.

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Gold update

Jun 13th, 2016 No comments

Gold Update

There is something big brewing in the gold market with the US$ in correction mode, Brexit looming, and the gold price at an inflection point.

Gold is on the cusp of breaking up through it’s previous high at $1307 and confirming the start a new multi-year bull market. But, if it fails to break up in June it could fall back to support at much lower levels between $1150 and $1100 or lower. Although any downside break will be fleeting with a bottom very soon (few months). Either option will lead to much higher gold and silver prices in the years to come. Gold is now poised to reach $10000.00-$15000.00 prices in the next bull market of 6 to 8 years duration.

All this and the equity markets are responding to the US$ correction together with an abundance of Brexit anxiety and the usual basket of international toxic background elements. The US$ could trigger something in the short term, either way, although the jury is still out on a US rate hike soon.

A very interesting phenomena is playing out at the moment in the relationship between the US$ and the gold price.  This is usually an inverse correlation in the short term but at the moment it is direct with both moving somewhat in the same direction. This may be because of additional Brexit anxiety fuelling both upwards.

Consider the US$ index graph:

USDsmall

Still in downtrend, correcting up with resistance at the 200 day moving average (red). The latest uptick to 94.53 is due to more hawkish US Fed commentary and building Brexit anxiety.

The gold price chart is rising in concert with the US$, and is way north of the 200 day moving average.

Goldsmall

The gold risk / reward balance in the extreme short term seems to revolve around exceeding the previous price highpoint at $1306 and whether much of the recent price rise is due to Brexit anxiety. If the price increases above $1307 this will be extremely bullish, and if the British elect to ‘stay in’ and evade Brexit this might be bearish. Hence the gold inflection point is pregnant with potential either way. Any downside risk is however likely to be of short duration.

The gold / silver ratio is trending in the correct direction: Downwards.

Goldsilver ratosmall

The Dow / Gold ratio is trending down as it works through a consolidation phase with the appearance of potentially breaking downwards from a short term flat rising wedge.

DowGoldratiosmall

So, all the elements are in position for what appears to be a period of much greater gold strength as it completes confirmation of the start of a new multi-year bull market which will see much higher prices.

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US Jobs Report impacts Market

Jun 5th, 2016 No comments

US Jobs Report impacts Market

We experienced a watershed in the financial markets yesterday Friday 3 June 2016, which as usual still needs to be confirmed. A clear sign illustrated the trouble the US economy is in with their jobs report yesterday: Indicating only 38 000 new jobs in May, which is the lowest May in the last 6 years. This resulted in market turmoil with the US$ jerking down against all currencies and Gold jerking up. The US stock market jerked down but recovered most of the drop by the close, as has been happening in the past weeks: The Dow has been dropping daily and by 3pm each day ‘forces’ come in to buy the market back up. There is something ‘artificial’ acting on their markets to keep them aloft – cannot continue much longer.

The US 10 Year Treasury yield plummeted as well, and it is this bond market which is the real risk to the world’s financial system. Here we have a $100 trillion market which has grown exponentially in the last 25 years and which has virtually gone vertical since the 2006-9 crisis.

$ust10y0716small

The yield closed the week at 1.74% and is now again moving towards it’s post 2006-9 low at 1.5%.

Governments cannot afford interest rates above zero because of the debt levels, and it is all this which is preventing economic growth. As governments around the world compete in lowering interest rates, the Fed in the US continues to threaten with rate increases which many still think cannot happen anymore: Raising rates at this stage goes totally against the trend of the real economy.

The dilemma for the world is that with $230 trillion in debt, higher interest rates are guaranteed to lead to defaults and helicopter money. This in turn will accelerate the currency race to the bottom, leading to hyperinflation and much higher interest rates. 100 year bonds will mature worthless. Long rates will have to turn up later in 2016: 10 Year US Treasury bond yield was 16% in 1980 (Gold peak) to 2% today (similar to record low at the end of WWII). In the next 12-18 months Governments and central banks will continue to keep short rates at zero or negative whilst bond holders (like Japan, China, and Russia) will realise increasingly that bonds will not be repaid and there will be competition to get rid of the rapidly deteriorating value of their paper.

The end game may lead to the biggest financial implosion in history.

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The Gold market update

Jun 2nd, 2016 No comments

The gold price in US$ bottomed mid-Dec 2015 in it’s decline since the top of the market in Sep 2011. Since then it increased 24% to the recent peak at $1306 at the end of April. A consolidation correction indicating a bearish head and shoulders pattern breached at the end of May, and the price dithered further to touch $1200 before recovering to it’s current $1213.

Technically, a ‘dead cross’ occurred mid-Feb 2013 followed by a ‘Gold cross’ mid Feb 2016. Where to from here?

The daily data indicates a short term buy signal; looking at indicators such as RSI, MACD and StochMACD, and the ‘Gold cross’ – Blue square.

Gold price daily small

But the longer-term weekly data indicates a sell signal. Red rectangle.

$ Gold price weekly small

The current gold price is hovering and could move up or down, much like all the influencing factors: US$, Gold/Silver ratio, and the Dow/Gold ratio.

US$ index has broken up through it’s short term trendline but is lethargic and seemingly resisting any attempt to break through it’s 200 day moving average. This is all largely dependent on US Fed ‘noise’ and the belief in imminent rate hikes, or not. The US stock market seems to be mimicking this sentiment in similar lethargy. The primary US$ trend remains down which is bullish for gold, but is enjoying a current upwards correction.

$USDsmall

Two of the prominent long term indicators of potential movement in the gold price is the Gold/Silver ratio and the Dow Jones/Gold price ratio.

The Gold/Silver ratio has an extreme trading range of 90-40 which turns down during a strengthening gold bull market and up during a gold bear market. It is now at 76 correcting up in a primarily downward trend: Much like the US$ trend. Observe the graph below.

Gold Silver ratio small

The Dow / Gold ratio was as high as 45 in 2000 but reduced markedly to 9 as the gold market hit it’s peak in Sep 2011. Since then, in accordance with the gold bear market, it increased to 13.8 when gold reached it’s recent peak of $1306. During the period of correction since the end of April the ratio increased to 14.6 currently.

Dow Gold ratio small

The ratio has broken down through its confining trendlines of the last 3 years and would appear to soon resume the it’s downward trajectory once the present period of consolidation is over in all the indicators.

The position in the status of COTs seems to have moderated slightly with a reduction in the balance of massive gold trading short positions. The activity of central banks and the eroding of confidence in the international monetary system, plus the deteriorating state of global economies, Brexit, Greece, etc., continues to support the gold market.

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