Issue #131
Dear Member,
Here is this week’s big picture update:
GOLD
Fundamentals:
Despite bearish weekly and monthly closings for gold, the yellow metal has managed to hold onto support at the $1,241 level, rallying after last week’s European Central Bank (ECB) announcement of a further cut in its refinancing rate, and of an historic negative interest rate for bank deposits.
If gold can remain above support at the $1,240-$1,250 area and we get a closing above the daily bullish reversal coming in at the $1,262 level, then we should see gold likely test the next target zone in the $1,290 area.
Right now, we are at a critical time for gold, with June being a turning point. So if it can maintain support above $1,240, then we are likely to see higher prices in the weeks and months ahead. It is possible that we could get one final low with a sharp selloff this week, retesting the $1,240 area perhaps going into mid-June before a big rally ensues into the next turning point in September.
We will need to keep a close eye on the situation in Ukraine to see if the metals can find some extra lift from renewed tensions there.
Technicals:
After relieving some of the technical damage sustained in the previous week’s selloff, gold managed to lift itself out of oversold levels with the Relative Strength Index (RSI) back at the 35 level. If gold holds support this week, it’s looking primed to retest resistance at the $1,270-$1,275 level where we currently have the Center Bollinger Band. Above that, gold has resistance at the $1,288 level and the 200-day Moving Average (MA) at the $1,295 level.
On the weekly level, the Lower Bollinger Line has continued to provide nice support for gold, and there is clear air above the market all the way to the $1,295 level, where we have the Center Bollinger Line and the 50-week MA. This should provide some short-term resistance to gold if tested, but a closing above this area will be bullish for the medium-term outlook.
SILVER
Fundamentals:
Despite further weakness seen in copper and commodities in general last week, silver has managed to hold onto critical support, likely lifted by gold’s positive performance.
News out of Ukraine over the weekend of a plane being shot down looks to revive tensions in that region as the new president was inaugurated and in his address to the nation vowed to defend its own territory.
Technicals:
Last Thursday’s rally pushed silver up to the Center Bollinger Band. Once silver traded back within the bands it subsequently held, and with the news from the ECB of rate cuts, silver managed to rally to resistance at the $19.20 level.
There are now some critical resistance zones coming in for silver between the $19.25 area and the $19.50 area in the form of medium- and long-term down trend lines that have and will continue to keep a lid on silver, temporarily.
Coinciding with this we have the 50-day MA sitting right at the $19.48 level; confirming the significance of this level — but a daily close above $19.52 could indicate a retest of the $19.93 level. If silver manages a weekly closing above $19.93, then a full blown breakout could be underway.
On the downside, silver must not close below $18.60 on the daily level.
Indicators have improved with the big late week rally as RSI (daily) comes off oversold levels to 42, with both the Directional Movement Index (DMI) and the Moving Average Convergence Divergence (MACD) looking for bullish cross-overs.
THE U.S. DOLLAR
Fundamentals:
In an unprecedented move by the ECB to cut interest rates to negative on deposits for banks that it holds, the dollar did initially rally to fresh three-month highs.
Also keep an eye on events in Ukraine as I foresee the war cycles continuing to ramp up into November and that may coincide with another leg up for the dollar perhaps beginning late summer.
Technicals:
The huge wide-range day in the dollar last Thursday after the ECB announcement resulted in the Upper Bollinger Band (daily) being penetrated as well as the 81 level bested for a brief moment. Overall, it’s very positive action in the dollar.
The Center Bollinger Line (daily) is currently providing interim support with Friday’s retest, but should that level fail, we will see the 80 level tested again — where the 50-day MA is located.
THE U.S. 30 YEAR BOND
Fundamentals:
Bonds did succumb to some selling pressure during the week; settling back down to support levels at the 135 level.
With interest rates at record lows in the euro zone, it is unlikely that we’re going to see a sustained selloff in bonds, at least in the near term.
Technicals:
The selloff last week resulted in bonds heading back down into the support region in the 135 area, slightly above the 50-day MA and Upper Bollinger Line. This support for bonds should hold in the near term but should bonds manage to close below, we could see a retest of the 200-day MA at the 132 area.
The key support areas for bonds going forward will be the mid-132 area where we have the 50-week MA and then further down at slightly above 130.
On the weekly levels, bonds failed to hold onto the 200-day MA that it successfully surmounted the previous week. However, with RSI at the 55 level currently, it should find some support on further weakness at the 50 level.
Lastly, keep an eye on the U.S. equity markets. I strongly believe we are now, finally, at an important interim top.
Best wishes,
Larry
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