Issue #45
Dear Member,
Larry here with this week’s big picture update.
GOLD
Fundamentals:
After the Federal Reserve surprisingly announced no tapering last week, gold shot up immediately but then met stiff resistance at the $1,365 – $1,375 levels.
Given the lack of follow through Thursday, gold sold off sharply in Friday’s session. Further negative factors helping to push gold back down was Fed president Bullard’s Thursday comments that the decision not to taper was a close call and that tapering could begin as early as the October meeting. I agree.
Technicals:
Gold pushed above its 50-day moving average on the Fed announcement, but then it quickly retraced and fell back below it by Friday. That’s bearish and one of the reasons we are seeing further selling this morning.
In addition, my cycle models show pressure heading into the October 3rd time frame, so further selling appears likely.
Look for prices to find support at the $1,305 – $1,315 levels — an area that has proven to be a pivot point for previous selloffs.
Gold could not push beyond the $1,360 – $1380 resistance levels I cited in last week’s report and this will still act as resistance on any rallies we see in gold. If gold cannot fall to new lows by October 3rd, then we will likely see a very choppy period into year-end, then a stab at new lows again in January — before the bull market returns.
SILVER
Fundamentals:
As with gold, silver saw a huge spike just after last week’s Fed announcement, with silver soaring nearly $2.00 from low to high. But also like gold, silver suddenly reversed back to the downside on Fed president Bullard’s comments.
The selloff from recent highs may be attributed to perceptions that the global economic slowdown is gathering steam, even in the emerging economies.
Traders will continue to look for any news from the Fed as to any possible tapering announcement.
Technicals:
As with gold, silver could not sustain its post-Fed announcement gains, and quickly reversed back to the downside.
The technical picture in silver looks weak with prices beginning to form a new downtrend. A close below the $21.00 level will likely lead to further selloffs.
The MACD indicator was looking to form a bullish upturn last week but has since turned back down. Prices are likely to consolidate within a range of $21.00 – $22.00 before heading lower. A weekly close below $20.40 will likely lead to new lows in silver. I remain bearish silver in the short- and intermediate-term.
THE U.S. DOLLAR
Fundamentals:
The dollar heavily sold off immediately following the release of last week’s Fed announcement of no tapering. As a consequence, major asset classes rallied including emerging market equities.
As I have mentioned previously, given the dire state of affairs in Europe and Japan’s active devaluation of the yen, the dollar will likely find support on any further selloffs.
Dollar bears will have to be cautious of the size of the short position in the dollar worldwide as even emerging market governments are now looking to borrow in dollars. Just recently, for instance, Thailand announced it will seek to finance its huge multi-billion dollar infrastructure projects largely by floating U.S. dollar denominated bonds.
Technicals:
The Dollar Index remained below its 200-day moving average through the week and has not managed to mount a challenge to those levels.
With the 50 day moving average looking to form a death cross and break below the 200-day moving average, traders will be looking to press their advantage next week and take the index lower. I doubt they will succeed. My intermediate-term posture is bullish the dollar.
Support for the dollar come in at the 80 level with resistance forming at the 81.20 level and the previous high at the 82.75 level. It will take a weekly close back above both these levels to see a sustained rally in the dollar.
THE
U.S. 30 YEAR BOND
Fundamentals:
Bond bulls got a boost from the Fed last week. But like the rallies last week in gold and silver I doubt the bond market will be able to sustain those gains.
First, bonds have massive overhead resistance the 133 level. That should repel any further rally.
Second, interest rates bottomed way back in June 2012. We are in a new long-term cycle of rising rates, and there is simply no way the Fed is going to be able to defeat that cycle.
Third, there’s the risk that Congress may not come to an agreement on the budget resolution and debt ceiling. Some consider that bullish for bonds, in that the supply of bonds would dry up, at least temporarily. I disagree. Any dings to the U.S. credit picture would be considered very negatively by Washington’s overseas creditors — and potentially lead to a massive bond selloff.
Technicals:
Bulls were able to press their advantage following the release of the Fed’s decision not to taper with bonds staging a strong rally on Wednesday.
Currently the U.S. Treasury 30-year bond is sitting right at its 50-day moving average. A close above 133.50 is required to see bonds have a shot at a sustainable rally. I doubt the bond market can pull that off.
Stay tuned!
Best wishes,
Larry
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