Gold – FX – Dow – 18 October 2019

GOLD: Gold vs US Dollar, Euro and GBP

Gold/USD live price, Weekly update risk analysis relative to Long Term Monthly(LT-M), Medium Term Weekly(MT-W), Short Term Daily(ST-D) and Hourly(not shown) data
(Previous week in brackets)

Close 18 October: 1487 (1488)

Gold/USD LT-M MT-W ST-D
Trend ↓ (↓) ↓ (↓) ↑ (↓)
% Risk
Weight
85 (86) 65 (73) 50 (52)
Allocation 100% (100%)
Market was flat in the week ending 18 October and virtually unchanged with daily risk weight turning up. Last week we explained the reason for defying technical gravity. No change in that respect and we stay fully invested expecting the weekly to turn up again following a stronger price move despite the monthly getting fairly overbought, but experience tells this could continue for quite some time. There is never absolute certainty that our risk analysis holds its own, but this is a situation where we could easily be wrong footed, especially after the strong and unbroken LT rally of the past 12 months.

Last week:

October 2019: Is Gold starting a fresh downtrend?

Do we have a Risk management dilemma having all Gold time frames in a downtrend? The exception is Hourly, which at the close last Friday is in a bullish divergence uptrend at around 40% and does not provide real additional input. This potential dilemma to 'take (some) profit or not' applies to all major Gold/currency relationships. Let's examine the best course of action:
Our fully invested average Long position is at 1220, That is a 22% cushion from entry point. As explained in recent weeks our maintaining the full allocation was based on a continuous uptrend which narrowly held at the end of September. Our second major argument to hold the position is that following a serious longer term price advance which almost blindly gives the expectation of a bearish divergence market setup in the MT-Weekly timeframe sometime in the future at least. That hasn't happened yet. The previous week's recovery from 1460 to 1520 only lasted 4 days before turning down again on Friday 4 Oct.
The pure risk weight scenario would call for limiting risk and preserving some profit. The broader risk, looking at the chart pattern, is a possible drop towards the previous price consolidation area between 1385 and 1400. Now look at the Monthly chart:

Trend lines become moving targets. As soon as a trendline is broken it creates a new trend line against the trend of the original one. I.e if a downtrend is broken and a temporary high is set afterwards, that new high becomes the pivot point for the new resistance line. In the above monthly Gold/USDollar chart one can see how often both the Long term support line as well as the long term resistance line since the 2011 high has moved. 6 times in total.
This brings us to a third element in our analysis based on a large price cushion. Up and down Trend lines cross somewhere in the future. Based on the resistance line that was broken last June the cross happens in Febr/March 2020. Typically such future date cross is one to watch as it often coincides with an intermediate price high or low.
Based on the fresh resistance line drawn between the 2011 high at 1920 and last month's high at 1557 shows a cross point for early 2023.
The same trend analysis should of course be applied to MT Weekly and Short Term Daily charts which can show a multitude of potential pivot points in the different time frames.
Our conclusion is that from a Long term risk-weight analysis perspective we DO NOT change our existing 100% allocation. The experience that we may expect a MT Weekly bedarisk divergence before anything else is critical. From a short term trading perspective one could follow Hourly and sell 30% or so on a very ST down turn and stay with it until the ST Daily shows a signal turning up again.
This is an unusual position as it only applies to older positions that show a fairly substantial profit. With younger positions, like we had with Brent Crude recently one simply has to be more aggressive. No Change


Gold/EUR live price, Weekly update risk analysis relative to Long Term Monthly(LT-M), Medium Term Weekly(MT-W), Short Term Daily(ST-D) and Hourly(not shown) data
(Previous week in brackets)

Close 18 October: 1334 (1349)

Gold/EUR LT-M MT-W ST-D
Trend ↓ (↓) ↓ (↓) ↓ (↓)
% Risk
Weight
88 (88) 65 (72) 18 (45)
Allocation 100% (100%)
A strong dollar pushed Gold down a bit further against Euro which was expected. We said that price could go weaker but a strong cushion is the main reason to allow this market to resume its uptrend in due course. Maybe MT-Weekly risk weight needs to drop further to diverge into a bullish scenario again. We are confident the leading trend is still up and that we can experience a series of risk weight highs over the next 12 months again. Just like the 2006 -2011 period. No Change.

Last week: The same analysis arguments apply to Gold/Euro, although Between Febr 2019 and sept 2019 high there is a clear bearish divergence in the MT-Weekly timeframe and this was caused by the dollar continuing its shallow but steady uptrend against the Euro. Because the dollar still looks rather vulnerable we could see a bit more pressure on Gold vs Euro if indeed the dollar starts to finally loose some ground from very overbought risk-weight levels in MT and LT timeframes. Our net cushion is smaller at around 14% and this is technically becoming a short term trading play with a potential price objective of 1260. Potential only and nowhere certain as the Daily timeframe may show bullish divergence sooner rather than later. From an investment point of view the risk to stay with the full allocation is a very acceptable one which could prove very illuminating in 6 months time. No Change.


Gold/GBP live price, Weekly update risk analysis relative to Long Term Monthly(LT-M), Medium Term Weekly(MT-W), Short Term Daily(ST-D) and Hourly(not shown) data
(Previous week in brackets)

Close 18 October: 1146 (1175)

Gold/GBP LT-M MT-W ST-D
Trend ↓ (↓) ↓ (↓) ↓ (↓)
% Risk
Weight
82 (85) 47 (60) 12 (55)
Allocation 100% (100%)
Sterling has been particularly strong gaining another 3%. This strength will not last as we will explain in the currency section. Gold will resume its primary uptrend against GBP once this correction ends, and it looks like we are not that far off. No Change to stay with full allocation.

Last week: Strength of Sterling, which we anticipated for a long time in our Forex analysis, is of course having its effect on this Gold/GBP relationship. All time frames are now in downtrends except Hourly. The most recent price consolidation region is around 1100-1125 which was July this year. The 'risk to lose' cushion is sufficient to stay with full allocation in the strong expectation that last month's high is definitely not a Long Term high because LT highs are always preceded by a series of bearish risk weight divergences in MT and usually similar or close to it in the LT risk weight timeframe. From a trading perspective, the current talk of a potential Brexit deal this weekend may push the price down further on Monday, even though this has absolutely nothing to do with the true market conditions that are almost impossible to weigh and which determine the real price of Sterling in international trade. We stay with full Gold allocation, partly because there are so few real alternatives in other asset classes with low risk weight. No Change.


SILVER: Silver vs US Dollar, Euro, GBP and Gold/Silver ratio

Silver/USD live price, Weekly update risk analysis relative to Long Term Monthly(LT-M), Medium Term Weekly(MT-W), Short Term Daily(ST-D) and Hourly(not shown) data
(Previous week in brackets)

Close 18 October: 17.51 (17.52)

Silver/USD LT-M MT-W ST-D
Trend ↑ (↑) ↓ (↓) ↑ (↓)
% Risk
Weight
70 (70) 55 (55) 53 (40)
Allocation 100% (100%)
Daily risk weight trend turned up this week. Silver, being a semi, at least, manipulated commodity requires patience. The primary trend still looks firmly in place in spite of the relatively strong correction the past 6 weeks. No change.

Last week: Silver closed unchanged last week after a 1/2% range between top and bottom. Technically Silver/USD is leaning towards a similar picture as Gold/USD. Our full allocation cushion is 20% and the early September top is definitely NOT a new LT top. Experience learns that Silver has a lot more work to do to the upside if only that the Ratio (85) to Gold is so far away from equilibrium. We are confident to stay with the full allocation. No Change.


Silver/EUR live price, Weekly update risk analysis relative to Long Term Monthly(LT-M), Medium Term Weekly(MT-W), Short Term Daily(ST-D) and Hourly(not shown) data
(Previous week in brackets)

Close 18 October: 15.68 (15.86)

Silver/EUR LT-M MT-W ST-D
Trend ↓ (↓) ↓ (↓) ↓ (↓)
% Risk
Weight
75 (77) 56 (59) 25 (35)
Allocation 100% (100%)
The Silver/Euro correction following a week of more strength for Euro vs USD is shallowing. Otherwise the same reasoning as for Silver/USD applies. Keep full allocation Silver. No change

Last week: Different timeframes show risk weight levels that can continue or turn anytime. There is no clear direction of risk other than that the ST Daily may push a little lower first to under 15.50. All timeframes are down, but the cushion is again sufficient to ride out this little depression. No Change.


Silver/GBP live price, Weekly update risk analysis relative to Long Term Monthly(LT-M), Medium Term Weekly(MT-W), Short Term Daily(ST-D) and Hourly(not shown) data
(Previous week in brackets)

Close 18 October: 13.49 (13.84)

Silver/GBP LT-M MT-W ST-D
Trend ↓ (↓) ↓ (↓) ↑ (↓)
% Risk
Weight
72 (72) 47 (52) 15 (40)
Allocation 100% (100%)
Strength of Sterling against just about everything else financial has become speculative and we may expect a fairly strong correction fairly soon. From what level remains to be seen but risk against GBP is increasing. It means No Change in keeping full allocation Silver vs GBP.

Last week: Same analysis as Gold/GBP and Silver/Euro. Even though we currently experience downward risk weight in all timeframes we haven't yet see a serious technical top. It looks like we need to do a tyre exchange in a relatively dark tunnel, but we have the tyre and we take our time. Given the comfortable cushion and lack of serious investment alternatives in what can be considered 'real money' we stay with the full allocation.


Gold/Silver Ratio live price, Weekly update risk analysis relative to Long Term Monthly(LT-M), Medium Term Weekly(MT-W), Short Term Daily(ST-D) and Hourly(not shown) data
(Previous week in brackets)

Close 18 October: 84.73 (84.64)

GOLD/SILVER Ratio LT-M MT-W ST-D
Trend ↓ (↓) ↑ (↑) ↓ (↓)
% Risk
Weight
45 (46) 41 (41) 42 (68)
Allocation 50/50 AU/AG (50/50 AU/AG)
Technically the risk weight down trend is still in play with a great opportunity to participate in the correction towards equilibrium. This may become a long term position with many ups and downs. No Change for now.

Last week: A function of being 50/50 allocated between Gold and Silver shows in remaining fully committed to the individual Gold and Silver pairs. The downtrend that started in July and was expected already for some time is in force and even though another attempt to crush Silver cannot be excluded it doesn't look like key players are willing to take that risk which has to do with the noticeable interest shown by Central banks around the globe in at least maintaining a strong allocation to Gold which already had a big positive effect on Silver in the alternative media where speculators tend to lean more towards Silver following the many well known precious metals analysts.


FX: EUR/USD, USD/CHF, GBP/USD, USD Index, GBP/EUR, Bitcoin

EUR/USD FX live price, Weekly update risk analysis relative to Long Term Monthly(LT-M), Medium Term Weekly(MT-W), Short Term Daily(ST-D) and Hourly(not shown) data
(Previous week in brackets)

Close 18 October: 1.1115 (1.1035)

EUR/USD LT-M MT-W ST-D
Trend ↑ (↑) ↑ (↑) ↑ (↑)
% Risk
Weight
8 (6) 30 (18) 89 (68)
Allocation 100% (100%)
Some bearish divergence between Daily and Weekly may push the dollar up a little this coming week, but the MT and LT picture looks like the primary dollar downtrend that started in March 2017 has been re-established after a long, slow and frustrating 2018/19 rally. No change in keeping long dollar risk fully covered.

Last week: The dollar definitely looks potentially weaker now that it has for a very long time. The only caveat is a potential bearish divergence between ST-Daily and MT-Weekly which could push the dollar up again temporarily. The deeply oversold position of Weekly and Monthly in 2016 risk weight will not hold. The Monthly risk weight in fact shows very Bullish price to weight divergence. A much higher risk weight (25%) in 2016 at 1.0600 versus a 6% risk weight at 1.10. That is a very bullish picture for Euro. No Change.


USD/CHF FX live price, Weekly update risk analysis relative to Long Term Monthly(LT-M), Medium Term Weekly(MT-W), Short Term Daily(ST-D) and Hourly(not shown) data
(Previous week in brackets)

Close 18 October: 0.9820 (0.9962)

USD/CHF LT-M MT-W ST-D
Trend ↓ (↑) ↓ (↑) ↓ (↑)
% Risk
Weight
51 (55) 70 (75) 25 (55)
Allocation 100% (100%)
Dollar weakness accellerated against CHF on Wednesday into Friday close and it may well be due to GBP strength where speculative positions are likely to be very high increasing GBP risk rapidly. Nevertheless, the dollar is weakening across the board and out technical instruments have been expecting this for quite some time. No Change either for $/CHF. Stay with full hedge on long dollar exposure.

Last week: The Swiss Franc does not look as strong against the USD and shows a flavor of intervention, the scale of which is hard to determine from SNB figures. CHF may not be the same Safehaven currency that it used to be, because of the very opportunistic investment criteria at the Swiss National Bank. Assuming that potential dollar weakness will also show vs CHF, the better risk averse approach is to remain fully hedged on long dollar transaction exposure. No Change.


Cable GBP/USD FX live price, Weekly update risk analysis relative to Long Term Monthly(LT-M), Medium Term Weekly(MT-W), Short Term Daily(ST-D) and Hourly(not shown) data
(Previous week in brackets)

Close 18 October: 1.2920 (1.2635)

GBP/USD (Cable) LT-M MT-W ST-D
Trend ↑ (↑) ↑ (↑) ↓ (↑)
% Risk
Weight
25 (22) 70 (56) 89 (42)
Allocation 100% (100%)
Sterling added another 2% to the strong performance of the week ending October 11. Thew tempo of this Cable rally is a bit stretched although the LT technical picture is the same for GBP vs USD. The dollar looks weak LT but may run our of steam vs GBP a bit earlier for a temporary correction. For now there is a protective hedge cushion and we see room for a bit further strength short term, albeit a bit speculative. No Change.

Last week: A 3% move up of Cable since last week is the result of a strong market reaction to political events in the United Kingdom and probably helped by an unwinding of short positions that stand to lose seriously if this market continues its current trend. Risk weight level development favours a continuation of the current trend and we see no reason to change a fully hedged long dollar transaction exposure.


USdollar Index Weekly update risk analysis relative to Long Term Monthly(LT-M), Medium Term Weekly(MT-W), Short Term Daily(ST-D) and Hourly(not shown) data
(Previous week in brackets)

Close 18 October: 97.14 (98.33)

USD Index LT-M MT-W ST-D
Trend ↓ (↓) ↓ (↓) ↓ (↓)
% Risk
Weight
86 (91) 60 (75) 5 (42)
Allocation 100% (100%)
The Index turned down sharply from the beginning of last week and reached the lows we saw in August. Even though Daily risk weight is in oversold territory below 10%, the dollar looks weak across the board. MT and LT risk weight is leading and long dollar exposures must be kept fully covered.

Last week: The Dollar index is in as firm downtrend. The ST Daily may develop mild bullish divergence in the coming fortnight which can pause or temporarily reverse this trend. Only massive Central Bank intervention could stop what we see is a strong technical potential for dollar weakness. This has of course been our position for some time. Especially the LT-Monthly time frame looks very heavy indeed. To avoid logical misunderstanding, a full allocation in this analysis is meant as a fully hedged Long dollar exposure. No Change.


GBP/EUR FX live price, Weekly update risk analysis relative to Long Term Monthly(LT-M), Medium Term Weekly(MT-W), Short Term Daily(ST-D) and Hourly(not shown) data
(Previous week in brackets)

Close 18 October: 1.1579 (1.1438)

GBP/EUR LT-M MT-W ST-D
Trend ↑ (↑) ↑ (↓) ↓ (↑)
% Risk
Weight
45 (40) 84 (82) 87 (42)
Allocation 80% (100%)

This image feels like Sterling has paused a longer term downtrend against the EURO within a 10% range. This is part of the risk that now also influences positioning and if GBP is to weaken again and to continue the trend that started in 2015,the UK Treasury will happily let this happen to eleviate a fundamentally weak financial status.
The resistance line between the highs of early 2017 and early 2018 maybe a bridge too far for GBP. It could penetrate at 1.1725 and even follow through to the 1.20 level but risk weight is telling the story of a possible ending of a 3 year correction ag Euro that started in October 2016. The ST and MT risk weight is already in overbought territory and we would feel happy to unwind 20% of the position on Monday, leaving an 80% short GBP cover. With ST-D and MT-W at these levels a further sprint and crossing of 1,1700 could be reason to unwind further but we need to see more evidence of that MT risk becoming overweight and turning down. The change is to unwind to 80% cover on short GBP exposure.

Last week: An unusual move where GBP first showed weakness and then finished the week by unwinding the previous 2 weeks erosion of 3.5% plus add another 1% on top. We follow the same position we took last week ands await further technical proof that the GBP long position needs to be re-addressed. No Change.


BTC Bitcoin Price, Weekly update risk analysis relative to Long Term Monthly(LT-M), Medium Term Weekly(MT-W), Short Term Daily(ST-D) and Hourly(not shown) data
(Previous week in brackets)

Close 18 October: 7947 (8257)

BITCOIN BTC/USD LT-M MT-W ST-D
Trend ↓ (↓) ↓ (↓) ↓ (↑)
% Risk
Weight
54 (55) 7 (10) 28 (70)
Allocation 0% (0%)
Since the June high at 14,000 the MT time frame can be expected to show bullish divergence before this market can be expected to restart an uptrend. Strong fundamentalists tend to also get influenced by market forces that they haven't foreseen and cannot explain. Nouriel Roubini is such person who seems to embrace the possibility of Bitcoin becoming a store of value. But at what level? Traditionally such change in opinion is more likely than not to confirm the original thesis. We are more aligned with his original view until this market becomes more transparent and probably at much lower levels including a much depreciated USDollar. No Change.

Last week: The ST Daily turned down from a mild bearish divergence vis a vis the Weekly risk weight level at 10%. This may cause price to drop. BTC was helped by the news that LIBRA is looking to delay or suspend a serious introduction. This markety need to mature before we can begin to seriously consider investment risk. Market soundings appear to indicate that there is Institutional interest but we have to be very suspicious how real this is. No change.

Remaining 'opening up' gap still to fill at 2828. We exclude weekend action to determine opening gaps as major players are not participating in size.
If this market is poised to turn from extremely overbought (Dec 2017) to completely oversold, it doesn't appear to be finished.


INDEX: US30, S&P500, Brent crude oil

Dow Jones Weekly update risk analysis relative to Long Term Monthly(LT-M), Medium Term Weekly(MT-W), Short Term Daily(ST-D) and Hourly(not shown) data
(Previous week in brackets)

Close 18 October: 26770 (26816)

US30 (Dow Jones) LT-M MT-W ST-D
Trend ↓ (↓) ↓ (↓) ↓ (↑)
% Risk
Weight
85 (85) 71 (72) 87 (55)
Allocation 0% (0%)
The Dow Jones index remains high risk and potentially carries a value that incorporates a massive future weakening of the USDollar. Major corporations in the financial industry have no choice but to continue to protect shareholder value with assistance from Central banks and further quantitative easing. It is a completely manipulated market and it may well be naive not to embrace and particpate in full. This index of 30 stocks may well remain very firm for another few years but it does not change the image of high risk-weight looking at a variety of commonly used technical tools. We watch Stochastic, MACD and RSI and all show more downside risk. The latter is the only reason to stay away from this asset class. No Change.

Last week: Clearly the INDU is the biggest opportunity loss, but unfortunately risk awareness does have to take over if markets show very overbought conditions. ST time frames keep pushing this market up and up. We are now at the level where we decided to firmly stay out which was in Sept/Oct 2018. During the past 12 months we have seen a massive drop confirming our risk position, followed by a hefty struggle to find direction between March and October this year. Every indicator in our book says to 'be very careful'. We still cannot participate in this asset class until the Index takes a more serious breather from its 9 year advance. No Change.


S&P 500 Weekly update risk analysis relative to Long Term Monthly(LT-M), Medium Term Weekly(MT-W), Short Term Daily(ST-D) and Hourly(not shown) data
(Previous week in brackets)

Close 18 October: 2986 (2970)

Standard & Poor 500 LT-M MT-W ST-D
Trend ↑ (↓) ↑ (↓) ↓ (↑)
% Risk
Weight
89 (88) 76 (75) 91 (52)
Allocation 0% (0%)
In essence the S&P 500 shows the exact same picture as INDU and most international stock market indices. Sheer financial power has kept this index in a stronger position than most indices whilst the S&P continues pushing for another new high. No Participation, No Change.

Last week: Bearish divergence in the Monthly timeframe which repeated itself again following another down and up year is the key reason for not investing in this index. The unprecedented and insatiable appetite for this market just doesn't sink in. Of course we understand that cheap money has driven these markets for the past 10 years, but where technical risk becomes a very serious issue, the opportunity of following traders who believe these are the right fundamentals sometimes can be relatively costly. If money earning capacity is equal to adopting massive position risk than so be it. The Risk-weight picture simply remains too high in this asset class. No Change, no position.


Brent Crude oil Weekly update risk analysis relative to Long Term Monthly(LT-M), Medium Term Weekly(MT-W), Short Term Daily(ST-D) and Hourly(not shown) data
(Previous week in brackets)

Close 18 October: 59.25 (60.68)

Brent LT-M MT-W ST-D
Trend ↓ (↓) ↓ (↓) ↑ (↑)
% Risk
Weight
25 (28) 28 (30) 54 (32)
Allocation 0% (50%)
On Oct 16 we closed out as ST risk-weight trend turned down at the close of Oct 15. ST risk is relatively hard to predict as long as MT risk-weight remains in a downtrend, unless there is substantial bullish or bearish divergence between different time frames. Nominal risk levels do not offer clear direction so we must stand aside again. It could literally go either way in the next few weeks, hence no investment until a fresh opportunity presents itself.

Last week: Our 50% entry last was based on a ST low risk-weight picture after a very bouncy few weeks. That picture appears to become somewhat blurred because the MT and LT could turn either way even though the longer timeframes are at relatively low risk-weight levels. As long as we do not actually see a risk-weight uptrend in MT and LT it could continue downward. As a result we will put a stop loss on the position at any level where the daily turns down the coming week. There is a bit of a Gap at 63.00 on 25 Sept. This might be an objective to release the position for another quick 10% opportunity result.

Posted in A - All Financial Blogs | 2020 Forecast.