Australian gold stocks rally despite stronger Dollar

Interesting turn in the gold/dollar saga.

The US Dollar Index is strengthening, testing resistance at 91. Bullish divergence on the Trend Index indicates buying pressure.

The Dollar is strengthening despite rising crude prices which generally weaken the Dollar.

Spot Gold is retreating from resistance at $1350/ounce. Bearish divergence on the Trend Index warns of selling pressure. Expect a test of $1300.

But Australian gold stocks are strengthening. The All Ordinaries Gold Index is rallying to test resistance between 5000 and 5100.

That’s because the Australian Dollar is falling at a faster rate than the Dollar Index is strengthening.

So the price of gold in Australian Dollars is actually rising.

Leaving Australian gold stocks unperturbed by the strengthening US Dollar.

Rising crude bullish for Gold

Rising Crude prices continue to weaken the Dollar.

The Dollar Index is consolidating between 89 and 91. Bullish divergence on the Trend Index suggests solid support but continued rise in crude prices or threat of a trade war could undermine this.

Gold has been testing resistance at $1350/$1360 per ounce over the last 3 months, catching bulls several times with a false break followed by a hasty retreat. But follow-through above $1360 would indicate commitment from buyers. And retracement that respects a new support level at $1350 would confirm the breakout, signaling another primary advance. A weaker Dollar would fuel demand for Gold.

There are two wild cards that could cause an upward spike in gold: a trade war with China and rising geo-political tensions. The former would weaken the Dollar if Chinese purchases of foreign reserves are scaled back, while the latter would directly increase safe-haven demand for gold.

Gold, Crude, the Dollar and Donald Trump

Since the 1970s, gold and crude oil have tended to rise and fall together as illustrated by the chart below, with gold and crude prices adjusted for inflation.

The reason is not hard to find. When crude prices rise the Dollar weakens. The chart below compares crude, adjusted for inflation, against an inverted Dollar Index. Major rises in crude are normally accompanied by a similar rise in the inverted Dollar index (signaling Dollar weakness).

However, the inverse is not always true. The 1986 Plaza Accord — where Japan and Germany agreed to scale back Dollar purchases — caused a sharp fall in the Dollar without a corresponding rise in crude.

If Donald Trump successfully negotiates a new trade deal with China, cessation of Chinese purchases could spark a similar decline of the Dollar.

The Dollar Index is currently consolidating between 88.50 and 91. I suggested last week that it may be forming a base. But rising Crude prices add downward pressure on the Dollar.

And Gold is the likely beneficiary.

Breakout above $1375/ounce would signal a strong advance.

We can’t blame Donald Trump for the rise in geo-political tensions around the world. Those are more a legacy of the previous administration’s failure to enforce red lines. But Trump’s communication style does tend to inflame issues and tensions in Syria, North Korea, South China Sea, Ukraine, the Balkans and Baltic states — to name but a few — are also likely to fuel demand for gold as a safe haven.

East to West: Time to take the punch bowl away

Crude oil is retracing and a Nymex Light test of $60/barrel would take some of the heat out of the commodities market. A rising rig count in the US may help to increase supply and ease oil prices.

Political tensions remain high, with the Turks bombing Kurd-controlled territory in Syria, Iran proxies in Yemen firing missiles at Saudi Arabia, North Korea showing no signs of caving to sanctions pressure over its nuclear weapons program, and Russia fomenting tensions in the Balkans between Serbia and Kosovo.

Stock markets shrugged off the usual conga-line of autocrats behaving badly, instead focusing on signs of a reviving global economy. South Korea’s Seoul Composite Index is headed for a test of resistance at its November high of 2560. Respect of the rising trendline is bullish but the latest Trend Index rally is weak and a bearish divergence may be forming.

Japan’s Nikkei 225 Index remains bullish. A Trend Index trough high above zero indicates strong buying pressure.

China’s Shanghai Composite Index broke resistance at its November high of 3450 to signal another primary advance.

India’s NSE Nifty Index is advancing toward its target of 11000*. Trend Index troughs above zero signal long-term buying pressure.

Target 10500 + ( 10500 – 10000 ) = 11000

In Europe, the DJ Euro Stoxx 600 broke resistance at 396. Trend Index recovery above the declining trendline indicates buyers are back in control.

The Footsie met short-term resistance at 7800 and is likely to retrace to test its new support level at 7600. Trend Index recovery above the declining trendline again indicates buyers have taken control.

Moving to the US, the Dow chart says it all. Investors continue to shrug off concerns about high valuations as the up-trend accelerates. The few corrections over the last 12 months have been both mild and of short duration. A rising Trend Index, with troughs high above zero, indicates strong buying pressure. It is important to remain objective, focus on the long-term, and not to get caught up in the euphoria. Heady gains like this inevitably lead to a sharp blow-off. The question is: when?

Right now it seems the rocket has plenty of fuel, with tax cuts expected to stimulate both buybacks and new capital investment, while a falling US Dollar should boost US manufacturer’s competitiveness both at home and abroad. A sharp reversal could be many months away.

It’s time that the Fed took the punch bowl away, to calm things down before the party really gets out of hand.

Crude consolidates

Crude is consolidating below long-term resistance. Nymex crude is consolidating between $55 and $60/barrel, the 2015 high.

Brent crude is consolidating between $60 and $65, some way below its 2015 high of $70/barrel.

The primary trend in both cases is up, with no signs of an imminent change.

Crude resistance

Crude is running into resistance at $60/barrel after a strong advance over the last three months. Two retracements in quick succession suggest that the commodity is running into resistance as it approaches its 2015 high.

Rising crude lifts all commodities?

Crude is rising, with Nymex Light Crude respecting its new support level at its former two-year high of $54/barrel, indicating a primary advance.

The general rule is that rising crude prices lift all commodities. Crude prices are a major factor in commodity prices due to the high energy costs of extraction (hard commodities), cultivation (soft commodities) and transport (both hard and soft).

The broad DJ-UBS Commodity Index is retracing but likely to respect the rising trendline, with a rally testing resistance at 90.

Copper also shows some weakness at present but respect of primary support at 6400 would confirm the up-trend.

Iron ore is headed in the opposite direction, however, as the Chinese real estate market slows. But expect strong support between $48 and $54/tonne, especially if the rise in crude prices continues.

Even gold prices tend to rise and fall in unison with crude over the long-term.

Crude retraces

Nymex Light Crude is retracing to test its new support level at the former two-year high of $54.50/barrel. Respect would confirm the primary advance.

Brent crude is similarly retracing, to test support around $60/barrel.

Broad commodity prices are likely to follow crude, with the DJ-UBS Commodity Index heading for resistance at 90.

Iron ore is more susceptible to cycles in the Chinese real estate market but is likely to respect primary support at $52.50/tonne.

Even gold is likely to benefit in the long-term if crude prices rise.

Crude breakout warns of commodity rise

Most significant news of the week was Nymex Light Crude breaking resistance at its two-year high of $54.50/barrel, signaling a primary advance. Retracement that respects the new support level would confirm the up-trend.

The next major resistance level is at $60/barrel, shown on the 5-year chart below.

The breakout follows Brent crude’s earlier breakout above $55, signaling a primary up-trend.

Crude prices are a major factor in commodity prices due to the high energy costs of extraction (hard commodities), cultivation (soft commodities) and transport (both hard and soft). Rising crude prices are likely to cause a broad rise in commodity prices, with the DJ-UBS Commodity Index testing resistance at 90.

Iron ore is more susceptible to cycles in the Chinese real estate market but is likely to find support above $50/tonne if crude prices rise.

Even gold would be likely to benefit as gold and crude prices tend to rise and fall in unison over the long-term.

Crude oil tests 2-year high

Nymex Light Crude is rising steeply, testing resistance at its two-year high of $54.50/barrel.

Breakout would signal a primary up-trend but I would wait for confirmation from a retracement that respects the new support level.

Rising crude prices would be a bullish signal for gold; the two tend to rise and fall together over the long-term.

Crude oil rising

Nymex Light Crude broke resistance at $52/barrel, signaling an advance to $54. Expect stronger resistance at $54 to $54.50, a 2-year high.

A primary up-trend in crude prices would be a bullish signal for gold. The two tend to rise and fall together over the long-term.

Gold hurt by Euro fall

From FXWire:

The euro dipped against [the] dollar on Thursday as the European Central Bank’s decision to extend its bond purchases into 2018 at a reduced rate spurred selling of the single currency.

The Dollar spiked upward on the Euro fall, with the Dollar Index breaking resistance at 94 to signal another (bear) rally. Target for the extended rally is 97.

Spot Gold fell in response to the Dollar, testing support at $1260/ounce. Penetration of support and the rising trendline would warn that the up-trend is losing momentum.

But the Euro price of gold hasn’t budged.

Nor has the price of gold in Australian Dollars.

Which is why the All Ords Gold Index ($XGD) remains bullish, building a solid base for further gains. A higher low suggests buying support and breakout above 5000 would signal a new primary advance.

Gold and Crude Oil

Nymex Light Crude continues to test resistance at $52/barrel. A rising Trend Index signals buying pressure. Breakout above $52 would offer a target of $54. There is a broad band of resistance between $50 and $54 as illustrated on the chart below. Breakout above $54/barrel would signal another long-term advance. But long-term consolidation below $54 is as likely.

High gold prices historically tend to coincide with high crude prices. The chart below shows crude oil and gold prices over the last 50 years, after adjusting for inflation.

Present low crude prices suggest that gold will weaken.

Spot Gold rallied off support at $1260/ounce on the daily chart but encountered resistance at $1300. Consolidation between $1290 and $1275 now indicates uncertainty, while a declining Trend Index warns of selling pressure.

Target 1300 + ( 1300 – 1200 ) = 1400

Dollar strength is another key influence on gold prices. After a lengthy sell-off, the Dollar Index found support at 91. Breakout above resistance at 94 would indicate this is more than just a typical bear market rally. Until then, another test of primary support at 91 remains likely; breach would warn of another major decline.

Dollar rally stalls, Gold bounces

Nymex Light Crude is still testing support at $50/barrel. Follow-through above $52 would signal another advance, with a target of $54/barrel. Reversal below $49 and the rising trendline, however, would warn of trend weakness. A primary up-trend would be bearish for the Dollar and bullish for gold.

The Dollar Index bear market rally found resistance at 94 and is now retracing to find support. Breach of primary support at 91 would signal another major decline. Respect, on the other hand, would suggest that a base is forming.

Spot Gold underwent a deep correction but is now rallying as the Dollar stalls. Political tensions remain high, both within the White House and without, and the Dollar remains in a bear market. Breakout above $1300 would reflect strong upward pressure, suggesting another test of $1350. Retreat from $1300 is not necessarily bearish. Respect of support at $1250 would suggest that a base is forming. Breach of $1250, on the other hand, would warn that the primary up-trend that started in early 2017 is weakening.

Target 1300 + ( 1300 – 1200 ) = 1400

Gold hurts as Dollar rallies

Nymex Light Crude respected its new support level at $50/barrel. Follow-through above $52 would signal another advance, with a target of $54/barrel. A primary up-trend would be bearish for the Dollar and bullish for gold.

At present the Dollar Index continues its bear market rally, testing resistance at 94. Breakout is fairly likely but expect another correction to test primary support at 91. After all, this is a bear market.

Spot Gold is undergoing a deep correction in response to the Dollar rally. But political tensions are high and the Dollar is in a bear market. Respect of the rising trendline (around $1250) would signal another primary advance. Follow-through above $1350 would confirm.

Target 1300 + ( 1300 – 1200 ) = 1400

Gold corrects as Dollar rallies

The Dollar Index continues to test resistance at its former primary support level of 93. This is a bear market rally. Rising crude prices are bearish for the Dollar and respect of resistance would confirm another decline.

*Target: 93 – ( 103 – 93 ) = 83

Nymex Light Crude has advanced since breaking resistance at $50/barrel. Target for the primary advance is $54/barrel. Retracement to test the new support level remains likely but respect would confirm the up-trend.

Spot Gold continues in a primary up-trend. Political tensions are high and a weaker Dollar would drive another gold advance. A correction that respects the rising trendline would signal a primary advance. Follow-through above $1350 would confirm. A Trend Index trough above zero, indicating buying pressure, would strengthen the bull signal.

Target 1300 + ( 1300 – 1200 ) = 1400

Gold finds support as crude oil advances

Nymex Light Crude broke through resistance at $50/barrel, signaling a primary advance with a target of $54/barrel. Expect retracement to test the new support level but respect is likely and would confirm the up-trend.

The Dollar Index is retracing to test its new resistance level at 93. Rising crude prices are bearish for the Dollar and respect of resistance is likely, which would confirm another decline. Twiggs Trend Index has started to rise, however, and recovery above 93, while less likely, would warn of a bear market rally.

*Target: 93 – ( 103 – 93 ) = 83

Spot Gold found short-term support at $1290/ounce, overshooting the $1300 target. Political tensions are high and a weaker Dollar would drive another gold advance. Recovery of gold above its descending trendline and Twiggs Trend Index above zero would strengthen the signal. But breach of $1290 is as likely and would warn of a test of $1250.

Target 1300 + ( 1300 – 1200 ) = 1400

Gold looks for support as Dollar retraces

Spot Gold is retracing to test support after a strong advance to $1350/ounce. Respect of the rising trendline would signal another strong advance but a stronger correction, respecting support at $1300 is more likely. The immediate target for another advance is the 2016 high of $1375. Rising Twiggs Trend Index indicates buying pressure. Breach of support at $1300 is unlikely at present.

Target 1300 + ( 1300 – 1200 ) = 1400

Gold is supported by a weakening Dollar, with the Dollar Index retracing to test its new resistance level after breaking primary support at 92. Respect of resistance is likely and would confirm the long-term target of 83*.

*Target: 93 – ( 103 – 93 ) = 83

Rising crude oil prices would also be bullish for gold, increasing inflationary pressure and also easing pressure on oil-producing states to sell off gold reserves accumulated when oil prices were high. Nymex Light Crude is testing resistance at $50/barrel. Upward breakout would suggest that the recent down-trend has ended — a bullish sign for gold.