Is there gold at the end of the rainbow?

Is there gold at the end of the rainbow?

10. maj 2021 fra CarlsquareLæsetid: 6 minutter

Now that economies are opening up and a huge rainbow is shining over the markets, there are the perfect conditions for gold to rise in value. But will it happen? Can gold be the only commodity that goes against the general trend for commodities to rise in value now that demand is increasing, and inflation seems to be picking up?

The US job report on Friday 7 May came as a cold shower for the market. Expectations were for an increase of 1 million jobs now that everyone sees that the economy is opening. But the outcome was only 266,000 new jobs. A hail of comments followed this number, which even forced President Joe Biden to comment on the outcome. His conclusion was that the weak job figures show that US economic support measures were necessary. Others, such as the often-readable Mish Talk, commented sourly that it may be the extensive financial support that keeps employment growth from picking up. Why work when there are financial support for those who stay at home?

The graphs above show that there is a rapidly rising trend of jobs being offered in the United States, but people are not looking for them. Why work hard at a McDonalds restaurant for a minimum wage when the person can get financial support to stay at home?

The Wall Street Journal has an article on this topic:

Link to WSJ article

The Wall Street Journal lists three reasons for not applying for a job: Fear of getting a Covid 19, lack of daycare and extensive unemployment benefits.

We will see what effects this will have. The current fashion word is transitory. Maybe this is also just transient side effects that will diminish over time?

In any case, the New York Stock Exchange took a deep breath and discounted that the weak job figures in the US will provide new financial support from the Fed. All expectations of an interest rate increase in 2021 quickly disappeared from the forecasts in the fixed income market.

The 10-year US government bond yield plummeted on Friday 7 May but recovered.

Seen from a longer perspective, one sees how the 10-year US government bond yield has completed a journey to a nice arc. If this is the beginning of a cup-and-handle, then it is only the basis we see for a continued rise in interest rates.

Above is an example of a Cup-and handle formation.

Fundamentally, everything pointing to rising interest rates. The only reasonable explanation for the interest rates not sticking out is that the Fed buy bonds.

It was worse for the USD, which continues its declining trend. It almost looks like it will fall to the old bottoms.

The Euro spiked against the USD directly on the US job numbers. A level can be found around 1,218:

 

A declining USD is positive for both commodity markets and stock exchanges.

The stock market rise has already lasted much longer and been stronger than we have ever seen before. Clearly, this is due to all financial support. We are not yet seeing the end of this trend. Sometime in 2021, the Fed will start releasing test balloons to see if it can cut back on financial aid. The market´s reactions to this are likely to be telling. But given the last US job figures, all talk of test balloons is dead at least for the coming month.

China seems to be going its own way. The Shanghai Stock Exchange does not appear to want to trend upwards, which is a sign that the local authorities seem to be holding back liquidity.

The Shanghai Stock Exchange Index makes a slippery landing down to the MA200. Probably the Chinese are doing the right thing and other central banks are wrong, but it is also very difficult to understand what is happening in China nowadays.

The S&P500 index is trotting further upwards. Note that the index is trading at a resistance now. This means that at least a short breathing break can be in the cards. Today’s trading will be an indication whether the trend will continue.

Stock trading on Nasdaq can provide a key to understanding the market. During Friday’s trading on 7 May, a doji was created that both filled the gap and signaled uncertainty among investors.

But there is a market that is celebrating new triumphs, and that is the commodity market. The copper price got another boost from the falling USD. There is a shortage of inputs globally. Since state support largely goes to community buildings, the shortage of copper, timber and other important inputs is particularly severe.

The Copper price below is testing a previous local high. A continued weakness in the USD is favorable for copper:

Prices of agricultural products such as maize, wheat, etc. are also rising rapidly. All this creates inflationary trends in the economy. These are the ones that the Fed claims are transient. We will see how it goes. However, there are good times for all commodity speculators.

There is a group that does not keep up and that is gold and the gold companies. Even the super-positive site World Gold Council is sticking its lip and noting that falling demand for industrial gold is keeping prices down.

The picture above shows the value of some of the world´s largest assets. Gold is placed in the list in first place. Note that Bitcoin has about 10 percent value compared to gold. From what we can see, it is about the same type of investors in gold and Bitcoin, so this ratio is interesting. Bitcoin should not be able to rise in value too much without affecting the price of gold.

This is a theme that is described in this article, among other things:

https://cointelegraph.com/news/why-s-bitcoin-stuck-under-60-000-the-gold-market-cap-may-hold-the-answer

We will see if the gap is filled or not.

The correlation between the value of gold and gold companies is also high. Gold companies in the blue line, tend to be ahead of the gold all the time. Note that gold companies fell faster and are now rising more rapidly.

The price of gold has risen from a double bottom, which we have pointed out several times. Next in line, the MA200 looks to be.

Bitcoin, on the other hand, is traded in a wedge formation that technically has great potential to break up at the top. Note MACD that has generated a buy signal.

The Q1 2021 reporting season                                                                             

After that last week, 444 of 504 or 88 percent of all companies in the S&P500 index have reported their Q1 2021 figures. What is close to an outcome is that 87 percent of these reports have been better than anticipated in terms of profits, while 77 percent have been so in terms of revenue. The distribution of positive outcomes per S&P500 corporate sector is shown in the graph below. As can be seen, IT/Technology and Financials are the sectors that have delivered the largest share of positive profit surprises with 93 percent.

Source: Refinitiv Reuters and Carlsquare

The Tesla stock is consolidating in a wedge-formation. It is currently trading at a support made up by the wedge’s rising trend line as well as Fibonacci 50. In case of a break to the downside, the first level on the downside is made up by the psychologically important 600 USD-level followed by MA200:

As for the Swedish OMX30 companies, the result (all 28 have reported) was that 89 percent of the results for Q1 2021 were better than anticipated, while the revenues only managed to exceed expectations in 64 percent of the cases.

OMXS30 is trading above the rising trendline trying to approach a previous top from April. However, MACD is positive but falling. From a technical point of view, a phase of consolidation is likely unless a trigger can give energy for the index to break up.

The H&M share is currently trading above a rising MA20. Keep an eye on the previous top and MA20 – it is an interesting trade from a risk reward perspective.

Legal notice

This information is in the sole responsibility of the guest author and does not necessarily represent the opinion of Bank Vontobel Europe AG or any other company of the Vontobel Group. The further development of the index or a company as well as its share price depends on a large number of company-, group- and sector-specific as well as economic factors. When forming his investment decision, each investor must take into account the risk of price losses. Please note that investing in these products will not generate ongoing income.

The products are not capitalprotected, in the worst case a total loss of the invested capital is possible. In the event of insolvency of the issuer and the guarantor, the investor bears the risk of a total loss of his investment. In any case, investors should note that past performance and / or analysts' opinions are no adequate indicator of future performance. The performance of the underlyings depends on a variety of economic, entrepreneurial and political factors that should be taken into account in the formation of a market expectation.

08-12-2021 16:52:49

 

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