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Gold unlikely to benefit as China loosens Dollar peg

By Colin Twiggs
December 15th, 2015 9:30 p.m. EST (1:30 p.m. AEDT)

Advice herein is provided for the general information of readers and does not have regard to any particular person's investment objectives, financial situation or needs. Accordingly, no reader should act on the basis of any information contained herein without first having consulted a suitably qualified financial advisor.



Long-term interest rates remain soft despite the anticipated Fed rate hike. 10-Year Treasury yields respected support at 2.0 percent and breakout above 2.50 percent would indicate a test of primary resistance at 3.00 percent.

10-Year Treasury Yields

Two factors have been driving US interest rates lower over the last decade: Fed monetary policy and PBOC purchases of US Treasuries. China built up $4 trillion of foreign reserves, a substantial amount in US Treasuries, to suppress appreciation of the Yuan against the Dollar and maintain a trade advantage.

China Foreign Reserves

China's foreign reserves declined over the last year as the country struggled to maintain its peg against the strengthening Dollar, with large capital outflows. The shift from a strict peg to the Dollar to a basket of currencies may take immediate pressure off the PBOC. But a weakening Yuan is likely to encourage further capital outflows. And borrowers with USD-denominated loans are likely to suffer losses, increasing capital outflows through hedging or early repayment. So relief may be temporary.

USDCNY

Retreat of the greenback is unlikely to continue now that the PBOC has announced it will loosen its peg against the Dollar. Dollar Index breakout above 100 and recovery of 13-week Twiggs Momentum above its descending trendline would both signal a fresh advance. Target for the advance is 107*.

Dollar Index

* Target calculation: 100 + ( 100 - 93 ) = 107

Gold

Gold's down-trend continues. Breach of (short-term) support at $1050 per ounce would confirm a test of (long-term) support at $1000/ounce*. 13-Week Twiggs Momentum peaks below zero indicate a strong primary down-trend. A stronger Dollar is likely to further weaken demand for gold.

Spot Gold

* Target calculation: 1100 - ( 1200 - 1100 ) = 1000



The unavoidable conclusion is that the unprecedented meekness of the majority is responsible for the increase in violence. Social stability is the product of an equilibrium between a vigorous majority and violent minorities. Disorder does not come from an increased inner pressure or from the interaction of explosive ingredients. There is no reason to believe that the nature of the violent minorities is now greatly different from what it was in the past. What has changed is the will and ability of the majority to react.

It is hard to tell what causes the pervasive timidity. One thinks of video-induced stupor, intake of tranquilizers, fear of not living to enjoy the many new possessions and toys, the example of our betters in cities and on campuses who high-mindedly surrender to threats of violence and make cowardice fashionable.

~ Eric Hoffer: First Things, Last Things

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