Metals – FX- Indices – update – close 31 May 2019

Precious Metals: Gold & Silver vs US Dollar, Euro, GBP and Ratio

Gold/USD Month Week Day
Close 31 May: 1305 (1285)
Trend Direction Down (Down) Up (Up) Up (Up)
Risk Weight 60-70 (60-65) 20-35 (15-25) 45-65 (25-40)
Allocation 100% (75%)

We are moving to 100% allocation and would even propose to increase the precious metals asset allocation to a higher and still comfortable level to individual investor's preference. ST and MT trend and risk favor pre-empting the LT monthly turning up during June based on much higher prices. Of course this market can again experience attempts to control a price increase or even stop it, but the picture is much more favorable following Fridays clear break of lower highs.

(Gold traded in a narrow range around 1275 last week breaking to upside on Thursday. With ST and MT trends turning up again with low risk weight we feel comfortable with the present allocation. No change. A break at daily close of 1300+ is a call to increase back to 100%)

Silver/USD Month Week Day
Close 31 May: 14.54 (14.53)
Trend Direction Down (Down) Down (Down) Up (Up)
Risk Weight 25-40 (25-40) 5-10 (5-10) 25-35 (20-25)
Allocation 100% (75%)

Silver also looks to break the lower lows downtrend but still feels pressure from the LT and MT downtrends both with a low risk weighting. We consider Silver a low risk buy and hold at this level and propose a full allocation. If the uptrend is confirmed with a strong MT trend change, the total Silver allocation in a Precious metals portfolio can even be slightly higher than 50%. We move back to 100% allocation on Silver.

(Since February we have seen a steady price erosion with lower highs and lower lows. This trend may not yet have finished but risk weight levels and for reasons mentioned last week holding once breath and position is the best risk position in our view. Once the turn is in it may follow through quickly. No change)

Gold/EUR Month Week Day
Close 31 May: 1167 (1145)
Trend Direction Down (Down) Up (Up) Up (Up)
Risk Weight 75-80 (70-80) 25-45 (20-25) 55-75 (30-35)
Allocation 100% (75%)

Gold/EUR broke the lower lows downtrend already on May 15 and closed above 1163 putting this pair in a positive technical mode and we raise to 100% allocation again.

(An early close above 1163 would drive risk weight and trend in a stronger positive mode and reason to increase the allocation back to 100%. The bullish flag pattern in ST and MT time frames may eventually drive towards a higher basic allocation of Gold within the total portfolio, which is now primarily in cash. No change for now)

Silver/EUR Month Week Day
Close 31 May: 13.00 (12.98)
Trend Direction Down (Down) Up (Down) Up (Up)
Risk Weight 40-55 (45-50) 5-10 (05-10) 35-45 (25-30)
Allocation 100% (75%)

Technically a close call, but an attempt for price to break up is in the making. We propose to a full silver allocation. Widening monthly risk weight with MT weekly turning up at low risk weight is positive. A close above 13.15 will confirm. We pre-empt this will happen as the general metals space looks firm.

(Narrowing risk weight percentages and very low MT risk in downtrend may draw or has already drawn this pair into a fresh bottom at the beginning of the week. Holding Silver is therefore a low risk proposition. A month-end break above 13.40 calls for full allocation again. No change for now)

Gold/GBP Month Week Day
Close 31 May: 1033 (1009)
Trend Direction Up (Up) Up (Up) Up (Up)
Risk Weight 70-80 (65-75) 50-70 (30-50) 90-95 (80-90)
Allocation 100% (75%)

We closed above 1030 and move to 100% allocation. It is a bit of a close call on timing because the Daily and hourly are both in high risk weight territory. Hourly did turn down on Friday night thus an additional allocation could be monitored on Monday going into lunch.

(The drop early in the week towards 994 found support along with the general uptick for gold. Brexit jitters and political events in the UK should have no bearing. The trend and risk weight picture remains bullish enough to remain with this allocation. A MT close above 1030 calls for full allocation)

Silver/GBP Month Week Day
Close 31 May: 11.50 (11.43)
Trend Direction Down (Down) Up (Up) Up (Up)
Risk Weight 35-45 (30-45) 15-20 (10-20) 60-70 (60-70)
Allocation 100% (75%)

We saw an hourly close above 11.60 but closed lower thus not yet confirmed in Daily time frame. The technical picture however looks firm and relatively low risk and we expect this pair to turn higher again on Monday morning European time. We increase to 100% allocation.

(Without much price change the market has turned more bullish ST and MT. It looks like the sideways to down range found bottom early May. A MT close above 11.55 calls for an increase to 100% allocation subject to solid trend and risk weight position. No change for now)

GOLD/SILVER Ratio Month Week Day
Close 31 May: 89.34 (87.97)
Trend Direction Up (Up) Up (Up) Up (Down)
Risk Weight 85-95 (85-90) 90-95 (85-95) 75-85 (70-75)
Allocation 50/50 AU/AG (50/50 AU/AG)

The Daily risk weight on Friday's close shows bearish divergence. In spite of persistent silver weakness vs gold, patience eventually will prove itself. The technical picture actually shows this is a matter of time and not that much longer probably. No change in staying with 50% silver. A close below 85.50 would call for a more opportunistic ratio of 70% silver 30% gold. History learn that the Gold/Silver ration will return to the 50 level at least, the timing of which is impossible to predict but typically a few years. If shit hits the fan it could be much quicker.

(The LT risk weight is narrowing to 85-90 with MT 5 points higher. A top is getting closer on this basis. A close below 85.50 and trend reversal of MT and LT calls for an increase to 70% Silver)


EUR/USD Month Week Day
Close 31 May: 1.1157 (1.1200)
Trend Direction Down (Down) Down (Up) Down (Up)
Risk Weight 0-10 (5-10) 15-25 (20-25) 20-30 (30-40)
Allocation 100% (100% hedge)

All time frames are in down trend and we remain extremely cautious as regards the value of the USD. This pair again bounced off the 1.11+ lows on Friday and with risk weight in oversold territory a full long dollar exposure hedge is the correct approach to remove a` potentially larger transaction risk. No change.

(USD topping action is clearly visible and technicals show evidence of significant market manipulation. Low risk weight with narrowing LT to 5-10 is potentially bearish for the USD. The USD should be weaker already but appears to find support on every drop. We stay with a full long dollar exposure hedge)

USD/CHF Month Week Day
Close 31 May: 1.0005 (1.0010)
Trend Direction Down (Up) Down (Down) Down (Down)
Risk Weight 80-85 (80-85) 40-55 (50-65) 35-45 (10-20)
Allocation 100% (100%)

With Monthly actually closing in a down trend we stay with a 100% hedge on long dollar exposures vs CHF. This market may continue to bounce around but we must not take the risk of a dollar turn at these generally higher dollar levels above par.

(A minor uptick early last week was follow by a 1% drop since Wednesday. As MT weekly is now strongly down, the ST daily low risk weight may only show temporary support for the dollar. We remain on full hedge on long USD exposures)

GBP/USD (Cable) Month Week Day
Close 31 May: 1.2620 (1.2700)
Trend Direction Down (Down) Down (Down) Down (Up)
Risk Weight 25-35 (25-35) 5-20 (15-30) 5-10 (5-10)
Allocation 70% (70%)

We have remained cautious regarding dollar strength although less so against GBP as the other majors. A new intra week or intra month low can easily be recorded but we would consider that a cable low is in the making. Very low risk weight on daily and weekly time frames means a 100% hedge is on the cards. For now no change.

(The downtrend in MT and LT risk still in play. This is a concern even though risk weight levels are low. It is more a difficult to predict GBP issue than a USD issue and therefore the correct risk assumption is to stay with a 70% long dollar hedge)

GBP/EUR Month Week Day
Close 31 May: 1.1305 (1.1340)
Trend Direction Down (Down) Down (Down) Up (Up)
Risk Weight 65-75 (65-75) 10-30 (25-50) 10-15 (0-10)
Allocation 50% (50%)

No change for now. Here too, a GBP low is in the making at which time the question is increaser to around 75% or 100% hedge on short GBP exposures and the opposite for EUR.

(GBP, having shown weakness throughout May, now shows an oversold risk condition in the ST timeframe. The weekly MT timeframe risk has dropped by some 15% and widened giving room for narrowing risk spread on a slightly higher price. As as the primary trend is down, although losing momentum short term, we stay with a 50% hedge on long GBP or long EUR exposures)

Close 31 May: 8555 (7973)
Trend Direction Up (Up) Up (Down) Up (Down)
Risk Weight 35-65 (15-35) 90-100 (85-90) 70-80 (60-70)
Allocation 0% (0%)

Long specs are on a roll. Good luck to them. Our call is for 'old longs' to exit at 9000+. This is a major opportunity in our analysis, but since we do not participate in this market our wisdom is relative. An outside daily range with lower close than previous day would be a signal to close longs. This market looks to become more volatile.

(Last week's vollatility decreased somewhat with a 'mere' 8% price range. With ST and MT risk becoming high with potential bearish divergence outcome, old longs must consider a 9000+ price to be an excellent exit until this market comes to peace with itself. Very tricky 'controlled by few' market. 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, Dollar Index, Brent crude oil
US30 Month Week Day
Close 31 May: 24815 (25585)
Trend Direction Down (Up) Down (Down) Down (Down)
Risk Weight 75-85 (80-85) 20-50 (40-65) 10-20 (30-40)
Allocation 0% (0%)

May close meant a trend reversal in Monthly time frame with divergence. With all time frames in downtrend we remain at zero INDU asset allocation. There could be some ST bounce due to divergence between ST and LT, but the general risk eyes weak. No change.

(The ST daily turned down following weakness end of the week with minor recovery on Friday 24.There is a ST and MT downtrend in force with LT monthly looking to possibly turn down at month-end close and in a bearish divergence position. That is technically weak, hence we do not change our risk outlook. No position)

Standard & Poor 500 Month Week Day
Close 31 May: 2752 (2826)
Trend Direction Up (Up) Down (Down) Down (Down)
Risk Weight 80-85 (80-90) 40-60 (75-90) 5-15 (30-40)
Allocation 0% (0%)

the 7% drop from the recent highs equals that of the Dow. S&P looks to show some exhaustion on downward pressure but the risk of a sharp fall is equally high. Risk is what matters and we must not bottom pick at this stage. No change.

(Again a similar analysis applies to the S&P500, although Apple stock weakness gave this index a bit more pressure in the ST. Clear bearish divergence developing on LT Monthly, for which we need another weeek to get confirmation. NO change)

USD Index Month Week Day
Close 31 May: 97.60 (97.60)
Trend Direction Up (Up) Up (Down) Down (Down)
Risk Weight 85-95 (85-95) 70-80 (70-75) 65-70 (65-80)
Allocation 100% (100%)

The Index was strong all week and lost the entire advance at Fridays close. Possibly a result of foreign equity based sales. We could see a little bounce again on Monday as hourly is rather oversold, but this must not influence transaction risk management. The MT weekly just turned 'trend up'. Both Monthly and weekly look technically heavy, hence no change to 100% long dollar exposure hedge.

(A fairly strong rally of the $index on Thursday followed by a strong reversal into Friday caused the ST trend to turn down again. Market players are clearly still very divided, but the near overbought LT picture indocates a higher vulnerability for the Greenback. We recommend a fully hedged dollar long exposure)

Brent Month Week Day
Close 31 May: 61.76 (72.17)
Trend Direction Up (Up) Down (Down) Down (Down)
Risk Weight 40-50 (45-55) 40-55 (60-70) 10-25 (30-45)
Allocation 0% (0%)

We have been out of this market since the 80+ highs last October considering the 4 months rally high risk. That is still the case and we anticipate further pressure and Monthly LT trend to turn down in June. Trying to seek a price entry point is considered poor risk taking since the MT and ST trends are strongly down still. Interesting market.

(The mid April low was broken with price hovering around that 69.25 level.We could see a bullish divergence reaction, however the hourly now indicates possible further price pressure. We see no reason to change our No Investment, NO risk stance)

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Posted in A - All Financial Blogs | 2021 Forecast.

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