Gold , Oil & the Dollar
By Colin Twiggs
October 3, 2006 2:30 a.m. ET (4:30 p.m. AET)
October 3, 2006 2:30 a.m. ET (4:30 p.m. AET)
These extracts from my daily trading diary are for educational
purposes and should not be interpreted as investment advice.
Full terms and conditions can be found at
Terms of Use.
Gold
Spot gold is testing resistance at $600/$610. Narrow consolidation below the resistance level (or a breakout) would be a bullish sign.
Medium Term: The large symmetrical triangle (May - September) is approaching its apex. The target of $190, calculated from the high of $730 to the low of $540, would be projected from the breakout point, whether up or down.
Long Term: The dollar appears likely to weaken, which should help strengthen gold.
Spot gold is testing resistance at $600/$610. Narrow consolidation below the resistance level (or a breakout) would be a bullish sign.
Medium Term: The large symmetrical triangle (May - September) is approaching its apex. The target of $190, calculated from the high of $730 to the low of $540, would be projected from the breakout point, whether up or down.
Long Term: The dollar appears likely to weaken, which should help strengthen gold.
Source: Netdania
Crude Oil
Light Crude is testing support at $60/barrel. Expect strong support between $60 and $55.
Falling crude prices have eased inflationary expectations, resulting in lower gold prices. Recovery would have the opposite effect.
Light Crude is testing support at $60/barrel. Expect strong support between $60 and $55.
Falling crude prices have eased inflationary expectations, resulting in lower gold prices. Recovery would have the opposite effect.
Currencies
The euro is consolidating below resistance at $1.30. Consolidations are continuation signals, normally resolving in the direction of the trend -- in this case up. If the euro breaks out above $1.30, expect gold to strengthen.
A fall below support at $1.245, though unlikely at present, would mean a test support at 1.16/1.17 -- and a possible head and shoulders reversal (2004 - 2006).
The euro is consolidating below resistance at $1.30. Consolidations are continuation signals, normally resolving in the direction of the trend -- in this case up. If the euro breaks out above $1.30, expect gold to strengthen.
A fall below support at $1.245, though unlikely at present, would mean a test support at 1.16/1.17 -- and a possible head and shoulders reversal (2004 - 2006).
Source: Netdania
Treasury yields
Falling long-term rates tend to weaken the dollar. Ten-year Treasury note yields are testing the first line of long-term support at 4.60%. A break below this level would test primary support at 4.00%. On the other hand, respect of support at 4.60%, though less likely, would signal that the up-trend is intact.
Medium Term: The yield differential (10-year T-notes minus 13-week T-bills) is well below zero, warning of further weakness in the economy. The Fed cannot afford to raise interest rates much further without harming the economy (short-term yields peaked at 6.20% before the last recession -- compared to current levels of just below 5.0%). A gentle easing of economic activity will probably suit them, while signs of an up-turn may force them to use more of their meager remaining ammunition.
Falling long-term rates tend to weaken the dollar. Ten-year Treasury note yields are testing the first line of long-term support at 4.60%. A break below this level would test primary support at 4.00%. On the other hand, respect of support at 4.60%, though less likely, would signal that the up-trend is intact.
Medium Term: The yield differential (10-year T-notes minus 13-week T-bills) is well below zero, warning of further weakness in the economy. The Fed cannot afford to raise interest rates much further without harming the economy (short-term yields peaked at 6.20% before the last recession -- compared to current levels of just below 5.0%). A gentle easing of economic activity will probably suit them, while signs of an up-turn may force them to use more of their meager remaining ammunition.
Long Term: Probability of recession in the next
four quarters climbed to 37 per cent according to the
Wright
Model, as the
yield differential weakens and short-term rates remain
high.
Never make forecasts, especially about the
future.
~ Samuel Goldwyn
~ Samuel Goldwyn
For more background information, read About
the Trading Diary.
Author: Colin Twiggs is a former investment banker with almost 40 years of experience in financial markets. He co-founded Incredible Charts and writes the popular Trading Diary and Patient Investor newsletters.
Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.
Focusing on interest rates and financial market liquidity as primary drivers of the economic cycle, he warned of the 2008/2009 and 2020 bear markets well ahead of actual events.
He founded PVT Capital (AFSL No. 546090) in May 2023, which offers investment strategy and advice to wholesale clients.