joss'  Instablog

 Gold has traded in wide range of 905 dollar to 955 dollar in last few weeks.  The yellow metal did not show any lustrous move in the same period rather it followed the moves of currency market. It tracked the Euro and US dollar. The lack of risk apatite and gains in equity indices led the aversion of US greenback. US Dollar index, the gauge for US dollar against six major currencies, has been falling for last few sessions and it is likely to continue the fall in coming days, meanwhile the other major currencies like euro and pound posted significant gains vis-à-vis dollar.

The physical demand of precious metal has lost its way amid rising prices. India, the largest consumer of the metal, is facing the weak demand in domestic market due to higher prices and recently rise in import duty also affected the sentiment of physical traders. Therefore investment demand has to be improved for the next upward movement. The demand of yellow metal will suffer a further setback in the near term, since the inflation is far enough from current scenario.

The Euro has crossed six week high recently and looking good for further gains and same time dollar index has broken the six week low and trading below 79 levels. The British sterling has also performed well against the US greenback and trading above 1.64 levels. The US dollar index is paused for further decline and technically it may break the critical levels of 78 and next it can test the psychologically important level of 75 and meantime euro may touch the levels of 1.48.

 Hence aforementioned move of currencies can bring the upward movement in the gold and other commodities. As mentioned in earlier article that gold may jump from 892 dollar bounced from the psychologically important levels of around 900 dollar. At present technically gold is trading above critical 100 day moving average comfortably and likely to continue upward movement to the 990 dollars. And Fibonacci retracement (form 864dollar to 990 dollars) is also showing that gold has taken good support as shown in the figure. 

Even though yellow metal do not have favorable ambience especially looking at slackened physical demand and low level inflation but investment demand may pick up because of long term inflation fear and upcoming marriage and festival season may also develop the positive sentiment in physical market of the India therefore the prices of the metal may touch the 990 dollar levels in coming weeks.

The US greenback remained range bound in last few weeks against the world’s major currencies. The benchmark dollar index has shown narrow range movement between 79 and 81 (on closing basis) in last few trading sessions. The commodities prices also track the dollar movement because they are denominated in dollar. Since the recovery process of global economies may slow down in coming quarters, the dollars` safe haven demand may spur the benchmark index, same time it may invite the fall in the commodities prices because in general the first is inversely proportional to the later.

Worldwide geopolitical issues are incessantly tempering the currency market and making the same very volatile. The talks for the alternatives currency for the reserves, poor economic data of United States and Euro zone, tension in North East Asia (North Korea nuisance), Nigerian crude oil pipeline blasts and upcoming G-8 meeting are the few international issues, those affecting the currency as well as commodity market.

The talks of an alternative for the USD as reserve currency has accounted significantly in market volatility for last few months. First it was raised by the China and Russia and later India also joined to boost up the talks for other options but the talks only may not serve the purpose. Chinese leader already expressed the reluctance over the discussion in G-8 meeting, which is going to be held on July 8-10, 2009 but even mere few words will be enough to add volatility in the market. The talks of imposing restriction on commodity price speculators by Commodity Futures Trading Commission (CFTC) may add further pressure on the commodity market especially energy group commodities and agricultural commodities.

Recently commodity market was very volatile and took cues from the currency market all over the world but energy group commodities like crude oil, natural gas, heating oil and gasoline were tracking the weak fundamentals viz. rising inventories and slowing demand all over the world especially in developed nations. The Nigerian crude oil pipeline blast by MEND (The Movement for the Emancipation of the Niger Delta) and tension within the Iran has also provided boost for sudden price hike in crude oil.

Gold movement remained purely based on dollar movement but silver fell significantly on weak industrial and jewelry demand. Gold traded in a wide range of $910/oz -$945/oz in last few trading sessions. Base metals including copper, zinc, aluminum etc. also traded in narrow range. Copper inventories already started rising in LME (London Mercantile Exchange) and Shanghai. China, the largest consumer of the metal, has piled copper stock to the maximum levels (about 325,000 metric tons) and it is assumed that there will not be any immediate buying in coming quarters. Agricultural commodities like soybean, coffee bean etc. remained weak on exchanges worldwide due to weak demand.

Recession in developed countries otherwise slow down in the emerging economies has rattled the financial markets across the world last year. All major market Indices fell to the multi year lows in the second half of last year but since then markets have recovered some losses in the first half of this year.  Even though markets are in good shape of recovery, I doubt any ‘v’ formulation in the near term rather it may be an inclined saw toothed. No doubt you can even discover a fresh low in the developed markets in coming months and hefty corrections in the gains of emerging markets. Subsequently may give the clear sign of stability, till then we may not feel comfortable in stocks markets.

Most of the stock market indices recovered only 25% - 40% losses (exception –SENSEX) from their all time high levels. The effect of stimuli (billions of dollars) is likely to fade away in coming half of this year.  Already the British leaders are giving skeptical remarks about faster recovery.  Weaker job markets, resumption of poor economic data arrivals, low confidence in recovery and global tension over nuclear activities may not allow the sharp and comprehensive revival of growth all over the world.

Worldwide stimulus packages distinctly about $800 billion by United States, € 200 billion by European Union, £20 billion ($29 billion) by England, 400 trillion Yuan ($585 billion) by Chinese government, ¥15.4 trillion ($158 billion) by Japanese government and many more additional stimuli, perks and tax exemptions by aforementioned countries and other countries like Australia, Russia, India, Brazil etc. have helped the world some extent to come out of disastrous situation. But this artificial recovery may not be sustainable in coming couple of quarters and as good as previous two quarters. Thanks to Obama administration for bringing up confidence of the people across the globe but the Obama mania alone may not be enough to earn the confidence on Wall Street for longer period. Bearish but may be realistic statements of the several global leaders also harming the confidence of the people.

The deepening crisis in job markets has become serious matter of concern in last few months. Jobless claims already approached to multiyear high in several developed countries.  Jobless rate in United States has reached to a 25 - year high and approaching towards double digit (now 9.4%). Similarly in United Kingdom jobless rate soared up to 7.2% a 12 year high i.e. highest since 1997. Countries like Japan and BRIC nations (Brazil, Russia, India and China) also feeling the pressure of creating the jobs especially China and India because of huge population. Rising jobless rates will also curtail the consumer spending and money circulation in the system.

Economic data again started their poor show after some positive signals of improvement. The negative side revision of previous data also snatching the confidence of the people for example last quarter united states’ current account deficit was announced at  $134 billion (4^th quarter)  but later revised to $155 billion and trade balance data of European Union data was revised to€ -1.8 billion from €-2.2 billion. Similarly downward revision in the figures of leading indicators of Canada, net borrowings of United Kingdom and in jobless claims of US in last fortnight have damaged the positive sentiment. The ABC/Washington Post Consumer Confidence released by ABC News and the Washington Post fell to -49 from previous -47 last week. Consumer price index (US) still remains indecisive and it was reported at 1.8% year on year. Money supply figures in United Kingdom has posted significant fall at 16.6 % compare to previous figure17.4% year on year.

Even though I am not completely bearish on the recovery, at this juncture I doubt on the sustainable growth and recovery. The recovery process may get further blow from the external factors which are still unpredictable but not deniable. The tension over nuclear warheads, terrorist attacks, and North Korea, Israel, Iran, and Taliban weapon developments can spoil the recovery party anytime in imminent months. The threatening activities (launching long range missiles) of North Korea already created lot of tension in the several neighboring countries and international organizations.

Therefore in conclusion I would like to say that the recovery will not be an easy process especially when exports are down and deficits are high, the citizens are unemployed, consumer confidence and investors’ confidence are at low levels. The currency market is still in indecisive phase because the size money which governments have printed may bring dire upshots in coming quarter and I recommend the readers and investors that please have an eye over the forex markets along with your portfolio. We also do not know that what are all the measures governments will adopt to solve the inflation problem? That will be gifted with improved growth.  This is why it looks like healing process of wounds of hemophilic patient.