Dear Member,
Here is this week’s big picture update.
GOLD
Fundamentals:
The gold market had a few days to digest last week’s comments by the Fed as well as recent economic reports. And the general sentiment is beginning to doubt that a tapering of Fed bond purchases will occur in October.
Another factor keeping a bid under gold was the outcome of elections in Germany with a rare majority victory for Angela Merkel that put to bed any uncertain outcome which may have destabilized markets.
Technicals:
Gold has held the support region coming in at the $1,305 area. Gold rose steadily during the week and is now retesting the initial resistance zone at the 50-ay moving average around $1,345.
This area at $1,345 – $1,350 is a confluence of the 50- and 100-day moving averages and gold will need a strong push to get through it. I am very skeptical as cycles still point lower for the next several days.
Additional resistance lies at the $1,370 – $1,380 area. It would take a close above at least $1,375 to indicate a continued rally.
SILVER
Fundamentals:
Comments coming from Chicago Fed president Charles Evans helped somewhat to keep a bid under silver last week, as suggestions of a taper coming in October were played down.
But like gold, silver also took a cue from the slew of rather soft economic data coming out during the week giving hope to the bullish camp that indeed a taper may be pushed off for the time being.
Traders were also looking at the weak U.S. dollar performance of late and the uptick in open interest in silver as cues for prices to keep a bullish posture heading into next week. Overall however, silver remains weak.
Technicals:
Silver managed to hold strong support right at the confluence of 50- and 100-day moving averages.
As with gold, the Moving Average Convergence-Divergence (MACD) indicator is starting to form an upturn to potentially signal a bullish crossover — but prices will have to rise further from these levels next week for that to be generated. Like gold, I doubt silver can stage more than a very brief rally. All other indicators point lower.
THE U.S. DOLLAR
Fundamentals:
Comments coming from Chicago Fed president Charles Evans late last week were enough for traders to send the dollar down to retest the previous week’s low. Given the short-term weak posture in this market, traders did not need much excuse to keep pressure on the dollar.
With elections in Germany out of the way, Merkel’s resounding victory has temporarily given the euro a boost, weakening the dollar in the short-term.
Open interest in the dollar is coming down to dangerously low levels, indicating a possible change in trend and potentially a bullish revival that may cause some pain in the various markets such as equities and some commodities including gold and silver. My intermediate-term models remain bullish the dollar and I expect a renewed rally soon.
Technicals:
The big bearish candle from last week’s no-taper announcement is keeping any dollar rally in check and will continue to provide resistance to any near term rallies. With the death cross now confirmed (50-day simple moving average (SMA) below 200-day SMA), I expect more bearish action in the dollar — but only in the very short-term.
A close below last week’s low at 80.15 should see the dollar head down to retest the 79 level.
THE U.S. 30 YEAR BOND
Fundamentals:
Bulls have extended their gains from last week and were given more ammunition in the form of dovish comments from Fed president
Charles Evans indicating that tapering may not come in October.
Also, budgetary fights have lent further support to bonds as the outcome is still less than certain as traders take a step back to reassess any repercussions. A government shut down may not be bearish for bond prices as many investors will anticipate a temporary reduction in supply.
Also, as we head into October — which is typically a poor month for equities — we can expect sentiment to potentially shift into a risk-off mode which may mean higher prices for bonds, short-term.
Technicals:
Bond prices have now firmly closed above previous highs and the 50-day moving average and look set to head up to retest the 100-day moving average coming in at the 135 area in the nearby futures contract, provided the contract can close above previous resistance at the 133.50 level.
Indicators are forming bullish postures at this stage with the MACD in a solid uptrend on the daily level. Stochastics — another type of momentum indicator — is looking oversold on the weekly level which should indicate more upside in prices, downside in yields, in the near term.
Additionally, I expect a lot of new trading opportunities this week.
Stay tuned to your inbox.
Best wishes,
Larry
