Gold threatens four-year low

By Colin Twiggs
September 25th, 2014 5:00 a.m. EDT (7:00 p.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

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

Silver broke long-term support at $18.50 per ounce, offering a target of $15.50/ounce*. First, expect retracement to respect the new resistance level. Gold is likely to follow Silver to a new four-year low.

Spot Silver

* Target calculation: 18.5 - ( 21.5 - 18.5 ) = 15.5

Gold respected the new resistance level at $1240/ounce and is now testing $1200. Follow-through below $1180 would offer a long-term target of $1000*, while respect would suggest another rally to $1240. Declining 13-week Twiggs Momentum, below zero, further strengthens the bear signal.

Spot Gold

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

Gold Bugs Index (representing un-hedged gold stocks) is also testing long-term support. Breach of support at 200 would strengthen the bear signal for Gold.

Gold Bugs Index

Interest Rates and the Dollar

Rising Treasury yields and a stronger Dollar both add downward pressure to Gold. Higher interest rates increase the carrying cost of gold, while the Dollar competes with Gold both as a safe haven and as an appreciating asset (against other currencies).

The Dollar Index broke through resistance at the 2013 high of 84.75. Rising 13-week Twiggs Momentum, above zero, signals a primary up-trend. Expect retracement to test the new support level. Respect is likely and would offer a long-term target of 89*. Reversal below 84.50 is unlikely, but would warn of a correction.

Dollar Index

* Target calculation: 84 + ( 84 - 79 ) = 89.00

The yield on ten-year Treasury Notes respected resistance at 2.65 percent and is retracing to test support at 2.50. Follow-through above 2.70 would signal an advance to 3.00, but 13-week Twiggs Momentum below zero continues to suggest a primary down-trend. Failure of support at 2.50 would indicate another test of primary support at 2.30.

10-Year Treasury Yields

* Target calculation: 2.30 - ( 2.60 - 2.30 ) = 2.00

The habit of ubiquitous interventionism, combining pinprick strikes by precision weapons with pious invocations of high principle, would lead us into endless difficulties. Interventions must be limited in number and overwhelming in their impact.

~ Margaret Thatcher, Statecraft: Strategies for a Changing World (2002)


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