Gold Shines In 2016!
Ladies and Gentlemen, Gold has rallied almost 17% this year and most analysts are looking at the Metals markets heading higher, spear headed by the Yellow Metal. So what has been the key driver of Gold this year? Well, Monetary Policy in US. If we look back at last year one of the reason Gold struggle to rally is because it was cautious about the rate hike. This year, the drivers have changed. Looking at the Financial Market & Global Economy as a whole. After last months FED meeting we saw Gold getting a lift, upon the cautious dovish notes. We also saw that China Gold imports were lower recently and heavy restocking, especially ahead of the New Year (Jan – heading into February). So what is the cap then on the upside? Well, as Gold prices rally quickly the downside range can also be greater. Hence why if we saw a huge spike up to $1300 it could be bad for the market. However, if we see prices correcting at these levels (as well as the physical market adjusting) and the market coming into the right support – this could provide for a much more sustained move higher. Another interesting market… Platinum. Platinum flirting with 1,000 per ounce, after a 5 year pressured market and that has not been enough to lift prices at all. The underlying stocks have also been quite high with supply growing also. However, 2016 looks like the year we will see XPTUSD start to base around the 1,000 per ounce mark and prices should be lifted from here. There is also a strong fundamental reasoning for this sustained move higher. Firstly, South Africa (accounting for 80% of the World’s Platinum) and their wage negotiations, which will be very significant. From this, we should see more producer discipline and cut backs in supply growth, this should lift in investor sentiment. Most of the Rand volatility should also support this wage case. Secondly, the Jewelry market – which was incredibly weak last year.. although the price elasticity has come back into play this year offering a greater floor for prices. As always. Trade Smarter Anish8FX@Atom8.com
CALLS FROM THE TRADING FLOOR – Hold Gold Longs in 2016!
CALLS FROM THE TRADING FLOOR – BUY GOLD! Ladies & Gentlemen After a four-year slide, the price of Gold has nowhere to go but higher and many investors are starting to agree. The case for the “safe-haven” was further assured today, as China’s manufacturing data showed a contraction. For the majority of the Commodity markets, January was another bad month in a long bear-market cycle – apart from Gold. Gold rallied 5% in Jan, the best monthly gain in a year. Turmoil in Chinese markets (with the view of a potential Global Sell-Off), Oil price uncertainties and a slowing US growth has tickled Investors demand for the traditional safe-haven asset. Again, their remains a high chance the FED will hold off on further interest rate rises this year adds to the attraction for the yellow metal. There is really no sign of a re-surge in inflation and this has also been a large factor to Golds rise and this relationship goes back to the 1980’s. However, what is interesting is that through the last 12 month Gold slide, we have had China, Russia and India continuing to purchase Gold (about 55% more in 2015) – but then why did not this affect the Price? It seems investors are more focused on Financial Assets & The state of the US Economy rather than Countries Gold holdings. James Cordier, CEO of a US based Options firm said “With stock markets looking to crash all over the worlds and the US economy growing slowly, nothing is pointing to rate hikes and that is why Gold will continue to rally” . However, as mentioned in posts prior – it is important to note that Gold does not pay a coupon like other competing assets, although the price elasticity (over the last 5 years) seems to have drawn Investors (especially Central Banks, like China, Russia and India) towards the Bullion. For the coming weeks, months / Central bankers like Kuroda and Draghi have key speeches scheduled (as well as NFP this week) which could further spur the rally in Gold as the consensus is for further tightening and talks of Negative interest rates and more uncertainty. As always, Trade Smarter Anish @Anish8Fx
Oil Crisis? Should We Now Buy Gold?
Oil Crisis? Should We Now Buy Gold? Ladies and Gentlemen With a 17% fall in Oil since the start of 2016, the possibility of $20 oil becomes a real target for Investors, as we see major Hedge Funds exit the commodity. Gold since August has been swung around in a tug of war, with Chinese equities on one side and a strong USD on the other. This pendulum has been relentless in the recent months, however with new lows in Oil prices, Gold continues to hold well in retaining it’s safe haven status.Gold has climbed 3.4% already in 2016 and investors risk aversion does not seem to be letting up. Geopolitical tensions persist in the Middle East and North Korea, as well as concerns about China’s growth forecasts. However, with a persistent strength in the USD forecasted for 2016, some analysts still call for sub $1,000 (per oz) Gold… as a “Competition for Gold” increases. With Oil prices reeling from oversupply and Gold getting a small boost, Brent crude is now at the cheapest relative price in almost a generation. But what is a “Safe-Haven”? By Economic definition (as pointed out by James Steel, of HSBC) The Safe-haven inspired demand for Gold (and other precious metals) rests on the interconnection between the state of the Gold Market and the Financial Markets of countries with long-term structural arguments for Gold accumulation (i.e. China and India) – and with this being said, HSBC forecast average Gold prices of $1,205 this year. Mr Steel is looking more with a long-term view, as accumulations continue to rise. We always tend to think about Gold being a hedge on safety, however recently Gold has been more about uncertainty and a reflection of anxiety. Gold in a deflationary environment, may actually be likely to continue it’s slide down. 2016 could well be the story of Central Bank delivery, especially as we are now risk-off as we strength in the Yen for example… but we hear nothing about the BOJ pushing back.So Is Gold still a mark of uncertainty? Well the recent shocks coming from China did Send Gold immediately higher, which is reassuring to see. I personally am long Gold, as I think it’s safe-haven status will be the trend for 2016 but in the short-term we may remain bearish. I wish you all the best of luck with your Metals trading and as we all stay tuned to this theater of events in the World markets, I wish you safer trading. Anish8Fx @ Atom8.com
The Commodity Bloodbath
The Commodity Bloodbath Ladies & Gentlemen, As we begin to make sense of the shocking lows in Commodities across the board, we must turn our eyes onto the Macro picture to find reasoning for the short-term and also look to consider the worst-cases for the coming years. The “Demand-Destruction” story begins in China. The Chinese Economy is slowing down and the demand for commodities forming from the Chinese manufacturing sector is also on it’s way down south – with the fall led by Material/Energy companies in the Asia Pacific (falling this year circa 13%). This Market slump has shown the World how strong the in-elasticity of demand on price from China actually is. Key Chart 1 Copper is trading at 6-year lows (chart below) & Nickel (the biggest loser on the LME) is at 12-year lows. Key Chart 2 $BHP & $RIO all fell yesterday to 10-year lows as producers continued to slump across the global equities amid the bloodbath. $BHP is now looking at the prospect of having its credit rating downgraded in the next 12 months in response to further possible falls in Iron Ore & Oil prices. Another major reason behind the Commodity-glut is due to the Market concerns about further USD strength, starting with the first hike in December. Countries who do not use the USD as their primary currency will feel further heat as their currency begins to weaken amid prospective USD rallies. This will then make is cheaper to produce and create further over-supplies!Will OPEC do anything about the Over-Supply in Oil? Well, further to comments made by the Saudi’s yesterday – they are keen to work with other OPEC countries in stabilizing the market – however the facts remain & there is no quick fix! We will find out more on Dec 4th, when the OPEC heads all get together…. Meanwhile, the Glut continues as people talk about the biggest decline since the fall of the Soviet Union.Can we really find a bottom?.. Let’s take it back a notch. If we look at some charts, we can see stability over the last few weeks. and it is important to remember that the Commodity business is extremely cash intensive and producers will not be looking to cut supply but rather costs. Major Commodity producers still need the revenue. I personally think, the actual effect of this fall will truly depend on how fast the US Economy can accelerate & how long the FED Rate Hike cycle will last for. Take out your 3D Glasses and watch the rest of 2015 unfold. Best of luck Anish8FX @Atom8.com www.atom8.com
How To Make A Camel Vomit Gold
How To Make A Camel Vomit Gold Ladies and Gentlemen, Has Gold lost it’s shine? Gold traded near a 5-year low as investors continued to short bullion-backed equities pricing in expectations for the US to increase interest rates this year, further Rusting the Metals Market. Gold is heading for a thirds year on year decline as investors now brace themselves for a first interest rate increase since 2006 and according to the “theory” – Higher Rates = Less competitive metals. But Why? It is simple, as the Metals offer no dividend, hence investors naturally flock to other assets that pay interest or offer dividends. Can we head below $1000? What is now known as the “Vomiting Camel” (from the formation of the two humps [yearly highs]) – we now have the camel resting on a rhombus, indicating that a break below current levels = free-fall! The Splat Zone indicated on the char signals towards the $700-$800 for possible areas that Gold could fall into post December hikes. But what about Central Banks, The Russians & Chinese – are they still buying? – Yes!Gold purchasing (And Demand) is at record highs, as both Russia and China still maintain a policy to hedge against their currency & they will probably remain net buyers. China for example, added an extra 14 tons in October. So what happened to Economics? Well, we have to remember that XAU is backed by the USD and experts point to a “Bear-Market” cycle driven by the FED. But in my view, if we do see a hit of $700-$800 we could see a spark in the bulls. Absolutely a fascinating time to be watching the markets. Trade Smarter, Anish8FX@Atom8.com
Will 2016 Mark The Fall Of The #EmergingMarkets?
Brace yourself for a complete change in dynamics for 2016 and of course, the FED hiking cycle will become the catalyst. So should I still stay long the USD in 2016? Well in theory – Yes! In practice however, as the FED raises interest rates the USD will strengthen but these persistent increases (during the proposed cycle) will worry investors – especially for companies with Overseas Investment & for Industrial corporates (with the continued decline of commodities). It could be very expensive! A stronger USD now becomes a touchy situation. Mainly because the majority of Emerging Market Countries hold USD debt and this puts a stranglehold on the USD rallies. The probabilities of larger outflows from Countries like China, India is likely and will be the epicentre of pressure. It will be interesting to see how these Push/Pull Economic factors react next year.. Will it help their continued debt? The stage for 2016 has been set. China is an almost perfect author to this story. With recent trade numbers declining (6.9% yoy) and a staggering 18.8% decline in imports – Other Asian nations who once so heavily relied on China could now look elsewhere. As the commodity boom slows, the GDP growth required for China to maintain its growth pattern could also fall off the charts! Instead we see a Global Deflationary Threat. How will the USD react to each FED Rate Hike? – Looking at the past 11 Rate Cycles and in particular more recently when the FED moved from neutral to tightening, the USD fell 7% and to tell the way the USD could react now – one would have to look at the yield curves. Whenever it has been steep (and right now it is steep) it falls over double digits! But again, that would also depend on the forecasted tightening cycle… but really how long could it be? What about the Equity Markets? You want to be really focusing on Industrial, Tech & Energy stocks, because they will benefit from the inflationary cycle of the US Economy. But really does the public trust equities anymore? There are currently huge disparities in the major US indexes as during the past 5 years the Public have not really put any money into the equities, it has all been primarily driven by the FED & a lot of these position builders could effectively price in the first hike. Next stop… December 17. Trade Smarter! Read more: http://www.marketstoday.net/analysis/Analysis-Commentary/will-2016-mark-the-fall-of-the-emerging-markets/12906/en/#ixzz3r6u5toh4Follow us: @marketstodayme on Twitter | marketstoday on Facebook
How Do I Trade The FED Rate Hikes?
What Can I Trade When The FED Hike Rates? Ladies and Gentlemen, After a surge in Bitcoin prices, more doubts grow about the stability & long-term value of the USD. Many Economists & Analysts believe the USD to be heavily over-valued & have been calling a reversal in the USD for over 2 years now, but the brute force that is QE has only but stood in the way of purists. Figure : DXY over last 2 years Let’s first turn our eyes to the Euro and as it currently hovers around the 1.10 mark, as the FED breathes more clarity over the coming months (heading into early 2016) – many Traders are calling for 1.15-1.16 as the “Fair-Value Equilibrium”. However, until then we could still stay on the weaker side of 1.10, as Draghi continues to seemingly over-deliver on expectations… But could we really go to parity or lower? – To be honest, there is nothing magic here! When you throw in lots of numbers, taking into account coherent Econometric studies (interest rate differentials, relative to the size of the Eurozone’s balance sheets) – you can’t really go near numbers close to parity. What about the FED? The FED has a mandate which is not related to the FX Marketwhatsoever, and this is one of the main arguments from more sophisticated FX watchers (in the short-run at least). Since the first Quarter of this year, the rates market has remained completely flat but the USD has only but rocketed (more so since April)… The main question beckons.. Will the FED pull the trigger in December or not? If yes, it would only be by 25 basis points & would that really cause a huge impact?.. I don’t think so. Reality Check again! The USD is overvalued and what the FX Trader should be wary of is the Hiking Cycle that the FED will signal. In order to really justify the USD at current levels, they would need to plot an aggressive hiking path. We could actually see another 150-175 basis points over the next few years…. & that would really hurt! Again, this depends on a variety of Domestic/External factors.. (as well as the price of Oil).. A difficult one to predict now. So what do I trade? Well I would look at Cable. The Market expectations are that the BOE are maybe 9-12 months away for changing pricing, and if you compare this to the FED/ECB outlook, the“time-gap” is extremely stretched. If you look back in time, since the inception of the Bank Of England as n independent Central Bank, there has never been such a significantly wide time gap between movements in the FED to a change in the BOE. Two things to look at here, the Fundamentals & what the Market has already priced in. I do believe (as per the graph above) 1.70 to be fair value for £/$. Looking at the Markets Carney has a responsibility for bringing the market back in and delivering on his mandate. He sees risk moving way too much against him and the Market seems to remain complacent.End of the day! USD is over-valued and has been for many months. Look at Cable & it should be grinding higher and the main view on USD is that the over-evaluation will also slowly cause other Central Banks to ease of. Best of luck Anish8FX @ Atom8.Com
The Saudi Spending Phenomenon – Will It Ever Stop?
The Saudi Spending Phenomenon – Will It Ever Stop? Ladies & Gentlemen, All Market eyes have been eyeing up Oil Prices, some are calling a further slump in 2016 and others are a bit more optimistic (seeking the $50 mark). However, with these lower prices, how has the World’s biggest Oil player reacted & will it really hurt the Saudi Economy? You would of actually never of guessed there to be an Oil slump from the shine of the Saudi economy and that is no accident, it is Saudi (well-planned) policies in action. The wealth from the Oil revenues has been shared and the public have firmly supported the Al Saud family, even as turmoil beckons on the horizon. The IMF predicts that within 5 years, the Kingdom will run out of Financial Assets… But is that really true (raised eyebrow)? In theory, if they continue to spend at the rate they are & Oil prices remain low, then yes! However, they currently stand at a (Positive) 100% net cash : GDP ratio & if you look at a Country like Japan, who’s net:GDP is -200%, I begin to differ with the IMF. Saudi literally are operating with no debt. figure : Bloomberg source Can this be protected for the Future? What if Oil prices continue to fall? I think you will start to see Saudi Arabia slowly decrease their heavy military contracts & begin opening their Economy up to foreign investment, by way of issuing Government debt or opening investment into Saudi stocks. More recently, the Saudi government to pull in about $70bn from Equity markets to begin adding more liquidity within their own markets – “Welcome world to the Tadawul”. We could also see (like Qatar) a higher increase in Western Property purchases… Again another indication for potentially more spending. Saudi issuing Debt? Really? How friendly would that be? Honestly speaking (ok – be careful here Anish #whips…) The country has been caged about opening it’s Markets to the World and if done, would be extremely gradual, as they drift away from traditions. Most Governments generally support their Economy, by way of tax receipts.However, over the past 3-4 decades, Saudi has been funded with Oil receipts Reality Check.. Oil still costs $3 to get out of the ground and with current production levels, Saudi are still generating $300-400bn from Oil revenues alone (at least)! It looks like the Saudi powerhouse is only going to get stronger, especially as Investors from around Asia flock in. The next 5-10 years will be critical for the Kingdom, to really impose its strength as the World’s largest Economy, alongside China. Trade Smarter & Best of Luck for the week ahead. Best wishesAnish @ Atom8FX
Kuroda’s Economic Armageddon
Kuroda’s Economic Armageddon Ladies & Gentlemen All market eyes will be focused on Japan tomorrow, as they release updated inflation forecasts. Essentially, this is an indicator of when, or if, the bank;s board members see Japan reaching their inflation target of 2% and markets are expecting the BOJ to become even more engaged in search of the 2%. The Markets over the past few weeks have priced in more stimulus, especially with the recent Nikkei gains. Kuroda has done an excellent job in albeit trying circumstances, elevating inflation expectations in an economy that has had actually 0 inflation in the last 20 years. Just cast your mind back to 2 years ago when the USDJPY was trading around 80 and now trading around 120 & Nikkei at 8,000 & now nearly 20,000 – really putting QE into Economic action – essentially reflating the risk/assets base. But still have a lot more positive inflation to go up to 2%. However, could we really see the BOJ wanting to weaken the Yen further? At the moment Japan is still very cheap & the major corporates have been rubbing their hands in Green for the past few years now – on the flip/side the small/medium companies have been feeling the pinch with greater import costs. In addition, policy markers are also adjusting for (and looking forward to) lower a base of lower oil prices, but again adding more stimulus could be more problematic in the longer term. In my view, the decision tomorrow is more likely to be felt within the Equity Markets as Kuroda focuses on building a significant amount of more wealth into the Nikkei and their is a high conviction level from traders that something will happen – Especially as Japan owns more than half of the nations ETFs (An important Abenomics Battleground) – But really where does true Economic Theory come into play here? Central Banks buying up ETFs to promote more “risk-taking activity in the Economy”… Overall, Japan has a very important lesson that they have probably been mislearning and it’s underlying issues could be 1 of 2 things… either Deflation or is it because they failed to act like the US did in the 90s. As Buffet once said“We are all Market Vigilantes” So what is the end game for the BOJ? Does AbeNomics fail trying to approach a 2% target that they may not ever hit. We face an absolute Economic Armageddon. In my view, a lot of Japanese pride on the line. Keep your eyes peeled & fingers on the right side of the trigger! Best of luckAnish @ Atom8.com
Could Monetary Policy Divergence cause EURUSD to hit parity by December?
Could Monetary Policy Divergence cause EURUSD to hit parity by December? Ladies & Gentlemen, We have heard it over and over again & now it is crunch time, where Economic theories come into practice and the Markets click to the tune of the Central Bank Announcements. Here is what ING predicted at the start of 2015 and low & behold how the year has turned out to map the below Over the last 12 months the Markets have remained bearish and the EURUSD has fallen from 1.40 to 1.05.. but why? And the concept is pretty simple to understand, as the FED stop QE at the same time of the ECB continuing their QE policies. This is known in the Markets as a “Divergence in Monetary Policy” and as the Markets price in their expectations of a FED non-hike, the divergence is set to continue… Implicating parity and if not parity, then sub 1.00. Vamvakidis, head of G10 Strategy at Bank Of America calls for EURUSD to hit parity by December 15 and also the USDJPY to hit 125. What needs to happen for EUR parity? Well, in order for this prediction to hold – the divergence needs to move further. If we get more QE by the ECB in December and the FED does not hike (which is very ikely) we could easily see parity. But the FED hike is a matter of time and could be as early as Jan 2016. The equilibrium of the EURUSD cross is around 1.15, however, the Euro zone still has a significantly large Output Gap compared to the US & if the ECB announces an “open ended” (or Infinity based QE) – that could stir up a recipe for disaster – as the Bears would then look to push down to 0.75. How do I trade these markets? Volatility remains high and it is mainly the bears driving the markets, supported by the facts pushed from Central Bank data this month. Looking at the bigger picture, the FED will eventually look to hike rates but more than likely, it will not be until next year – even though Domestic data has improved in the US, I would not expect anything significant this week. Keep your eyes on the data A balance between Domestic Developments & External Developments is key for the FEDs decision & once we do see the hike… the bad news will hit hard & remain bad news! Can I Jump on The Karoda Vs Draghi Trade?The international expectation is for more BOJ easing and if you look at the currently inflation rate in Japan, the BOJ should actually be doing more. The USDJPY currently is not that strong, either not that weak. However, it would be ideal to remain long the volatility as no matter what happens USDJPY will move! I wish you the best of luck with your Trades & hope you keep your fingers on the right side of your mouse triggers! Anish @ Atom8.com