Gold Declines as the Dollar rises

By Colin Twiggs
September 3rd, 2014 9:00 p.m. EDT (11:00 a.m. AEST)

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.

Research & Investment: Performance update

ASX200 Prime Momentum strategy returned +22.64%* for the 12 months ended 31st August 2014 compared to +14.41% for the benchmark ASX200 Accumulation Index.

ASX200 Prime Momentum

The S&P 500 Prime Momentum strategy had a good month, gaining 5.98% in August. The strategy has been running live for ten months, since November 2013, and returned 15.46%* for the period, compared to 15.96% for the S&P 500 Total Return Index. A sell-off of momentum stocks affected performance since April, but macroeconomic and volatility filters indicate low risk typical of a bull market and we maintain full exposure to equities.

* Results are unaudited and subject to revision.

Gold & Silver

A rising dollar, falling crude prices and low inflation all favor a down-trend for gold, while falling long-term interest rates are the only alleviating factor at present.

Gold broke support at $1280, indicating another test of primary support at $1200/ounce. Declining 13-week Twiggs Momentum below zero suggests a primary down-trend. Failure of medium-term support at $1240 would strengthen the bear signal. Breach of primary support would confirm.

Spot Gold

* Target calculation: 1200 - ( 1400 - 1200 ) = 1000

Gold Bugs Index, representing un-hedged gold stocks, has not yet followed. Breach of support at 235 would confirm another test of primary support at 205. Reversal of 13-week Twiggs Momentum below zero would strengthen the signal.

Gold Bugs Index

Silver, on the other hand is already testing primary support at $18.50/$19.00 per ounce. Breach of support would strengthen the bear signal for gold, while respect would suggest further consolidation.

Spot Silver

Interest Rates and the Dollar

The Dollar Index continues its advance towards resistance at the 2013 highs of 84.50. Recovery of 13-week Twiggs Momentum above zero strengthens the (bull) signal. Reversal below 81.50 is most unlikely.

Dollar Index

* Target calculation: 81.50 - ( 81.50 - 79.00 ) = 84.00

The yield on ten-year Treasury Notes rallied but is unlikely to break resistance at 2.50 percent. Respect would signal a decline to 2.00 percent*. 13-Week Twiggs Momentum holding below zero reflects a primary down-trend.

10-Year Treasury Yields

* Target calculation: 2.50 - ( 3.00 - 2.50 ) = 2.00

Why is the Dollar rising when yields are falling?

One major factor that drives this is foreign purchases of US Treasuries.

Federal Debt Held by Foreign and International Investors

Why invest $4 Trillion in Treasuries when the yields are so low? Simply because the primary objective of China and other major investors is to drive the Dollar higher — and drive their own currency lower — in order to maintain a trade advantage.

We contend that for a nation to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.

~ Winston Churchill


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