Gold Oversold! Here's what it means

Gold remained heavily oversold this week with a favourite long-term indicator well and truly in the buy zone with gold in the $1630 range.
 
The longer-term chart in AUD is above, and there are only a few times each calendar year where the Williams% oscillator will hit an oversold level -80 or less, on a weekly chart (circled at very bottom of above chart). About as simple as technical analysis gets, but if you look back on previous years where this oscillator was in the oversold zone, it is quite reliable for providing good price points to buy, or top up ones portfolio.
 
Not a crystal ball for predicting the future in any way, but what it does highlight are times of excessive price weakness, which usually provide short to medium term lows for the calendar year and the best price points to average in.

Signals occur only when the price rapidly deviates from a recent trading range, and the last time we were in this zone was back in July 2017 at $1,550AUD per ounce, and the best buying spot of the year.

Senior Trader Technical Outlook

Gold in USD has survived another week regularly probing and bouncing out of critical technical support in the region between the psychological ‘big figure’ at 1200.00 & USD 1204.50.

Whilst this price action is encouraging in terms of shoring up a technical support base, upside hurdles remain in place at the 21 Day moving average (USD 1222.00) and previous support at USD 1236.50, from a technical perspective, it is far too early to sound a clarion call signaling the end to downside price action and to identify potential Fibonacci retracements of the USD 1365.50 (11th April) to USD 1203.75 (6th August) downside move, until XAU/USD can surmount those topside levels.

A break and close beneath the 10th July 2017 low at USD 1204.50 opens the way to the 10th March 2017 low at USD 1195.00. Gold chart in USD below:
                                                   

ASX 200 Relatively Strong

To domestic equity markets this week, and the ASX 200 has been trickling along, but not quite matching the performance of US markets for the month of July. We started August at around 6250 on the index with YTD performance of around 3.3% excluding dividends.
 
CBA reported a cash profit of $9.41 billion for the year to June 30, down 4.7% from last financial year. Some key takeaways from the presentation included a chart on rising credit risk, where there seems to be a developing trend of a rising percentage of home loans in arrears, and they rose further in June to 0.70%.

The debt pile built up over the past decade makes our economy incredibly sensitive to any rate increases, regardless of how small they may be, with reports of up to 1 million households already on the edge of mortgage default, despite interest rates hovering around record lows. Australia’s household savings ratio (chart below) has all but evaporated in recent years, and although everything looks quite rosy for the banks when you look at their current NPAT and dividends, the major banks have never been more exposed to even the tiniest shock in our housing market.
 
If indeed this credit expansion cycle has come to an end, it may be an opportune time to consider reallocating some capital away from the major banks whilst the going is still good.
 
 
                                                     

This week saw AMP reporting a drop in underlying interim profit to $495million as it vowed to defend the five class actions against the company. It’s first half profit plunged 74 per cent to $115 million after the company set aside a whopping $290 million to refund and compensate customers it overcharged for financial advice. Quite ironic, when you consider the sheer number of Australians who were literally robbed during the process of seeking advice to better their financial situation. AMP shares are currently sitting around 35% lower than the start of 2018 as they move to rebuild trust in the brand.

RBA in a ‘Happy Place’

We had the RBA unsurprisingly keeping rates on hold again this week, with Philip Lowe claiming the RBA is in a ‘very happy place’ with our population growth of around 1.5% providing confidence and stability. Having to point to population growth as the sole driver of future economic prosperity is somewhat of a concern, especially when it is sitting around the average of the last 30 years.
 
Central Banks do not have the best track record of identifying asset bubbles and I’m sure Ben Bernanke was also in a very ‘happy place’ in early 2007 when he made the following statement less than a year before the US housing crisis:
 
                                                              

 
Interested to see how Lowe’s quote will age over time.
 
Rate hike expectations of course keep getting pushed further and further into the future as everyone now must surely realise the corner that the RBA has backed itself into. A quote from Capital Economics below hints that the next rate hike may not happen until 2020, whereas we at ABC Bullion have commented for quite some time that there is a very decent chance that the next move will actually be a cut, contrary to most financial pundits.
 
                                                                          

 
If rates here locally indeed remain unchanged until 2020 (or worse if we see another cut), our interest rate differential with the US should surely weigh on the Australian dollar.
 
The latest RBA chart pack came out August 8th and you can find it here. A few highlights below paint the picture, with falling business investment, low wage growth and household debt to disposable income ratios all combining to complement the narrative above of evaporating household savings and excessive household debt.
 
 

I fail to see how the same population growth of the last 30 years is going to provide some sort of support or tailwind for the economy, but time will tell.

Until Next Time,
 
 
John Feeney & Andre Lewis
ABC Bullion