An excellent report as usual. Ill leave specific comments for now until i have a little more time but here below the pdf.
My brief single comment here, if i may, is that over bough technical indicators can remain over bought for an extended period so whilst i agree I maintain that the next week or two could remain bullish for equities and commodities alike. Eyes to the Shanghai on Monday for my lead on this issue.
Have a great and productive weekend all.
Rich
The German team maintain the most likely out come of this rally is for gold to be capped at her resistance of 1803 and silver at 35.5. They have now entered a few words on what would occur if these go. In essence the 1900 would come into play quickly but they maintain this is an unlikely technical outcome. Their view of the high prob trade is for the 1803 level to hold and on failure to breakout for a mild retrace to occur as per their medium term neutral stance. (Their “stretch” on the gold level would be 1815 note). Also apologies for publishing today. They keep moving the issue day around which is annoying.
I continue to be less bearish and neutral than the German team. Today’s move doesn’t look meaningful to me. Working off short term overbought only, in my view. We have plenty of bid at present. Multiple asset classes are joining and the US$ is getting beaten up nicely. The pm over bought technicals have come down a little. Lets see how the next wave develops. I’m maintaining exposure, running instruments at the resistances. Im looking for the breakout but ill monitor price at the level and see how things develop. I’m particularly looking to see if participants significantly take profits here or if sellers emerge. The commercial long short positions will assist with this reading as will the price action. A big level approaches. Gold and silver miners pushing on. Key resistances approaching for the gdx at 56 and then 58. If these two go it bodes very well indeed but first things first, the levels.
BullionWeeklyTechnicals01102012
All the best
Rich
The Swiss team’s latest report is out. They continue their uber bullish call and expect 1470 to give way soon. There is much detail around instruments and levels to add but I’ll come back to all this later.
They are bullish AUD vs the USD but I’m playing the AUD not vs the USD buy vs the JPY. If Asia moves the jpy should fall a fair way vs the world basket particularly so if the Shanghai is to bounce and the metals are to make a new bull run.
Just to pick up on the GDX also HUI. She is pushing on and their continues to be a strong bid supporting any minor pull backs in gold silver. Its hard not to be bullish here i must say. We don’t have bullish sentiment extremes either and monetary conditions continue to be very accommodating. The only near term doubts in my mind are whether the Asian breakouts turn out to be false breakouts. If the Chinese fail to agree a policy move its easy to see how this could occur.
For I’m continuing to run a large balance sheet increasing weightings to commodities. I’m following the money and the trends but i’m keeping a careful eye on China and Spain.
Here the report Weekly02-10
All the best guys
Rich
SC’s weekly roundup and recommendations below. An excellent report as usual without any major changes to their stance from last week.
They sight “many clouds on the horizon” and a short term risk of a correction in asset markets. They would use the opportunity of a decent correction to buy more of their preferred assets namely high yield corporate debt and defensive equity issues with the theme remaining on value whilst managing volatility, protecting against inflation and getting paid to wait. I whole heatedly agree with their conclusions for the moment and this has been the theme of the last 12 months in fact since last April when the commodity train took a breather from its bull run. This week they sight IT and energy as their two preferred sectors due to current valuations. (This needs a closer look!)
The macro over view continues to be pretty dire with few bright spots other than onward escalation central bank monetizations of debt.
FX wise they continue to like the AUD and recommend using this near term US$ strength period on a correction to step up allocations to the AUD. (Without the Shanghai bouncing a risky strategy in my book. The Cad and Nok are alternative lower beta options but on a Shanghai bounce or on news of Chinese stimulus go AUD, in my view).
Without further delay, here the report:
Rich
p.s. WF quick comment & chart focus on US personal incomes. Consumer’s stepped up their spending a little again in Aug as their savings rate declined once again below the 4% mark. For speculators good news. For the people disastrous stuff but that’s tomorrow problem not today’s.
Report here:
Deutsche have released a very lucid and frank report on the global economy, precious metals and new global phenomena of ‘consumerism”.
Their findings are unsurprising to the contributors of this website. Of more surprise is the fact that these views are becoming wide spread. Even the most optimistic of investment bank analyst teams is now beginning to understand the severity of the situation. The importance of ensuring capital holders have a decent allocation to the precious metals should not be missed. To use a metaphor, the inflationary train appears to be leaving the station driven by the world’s central bank’s actions working in concert with the world’s political leaders.
A couple of charts below to high light from the report below.
Firstly, the under allocation by global capital holders to the precious metals is surprising as well as a wonderful opportunity and a “gold bugs” dream.
There are many charts we will all have all seen before. The main stream has been totally under allocated to these assets. This is in the early stages of changing. If the 1970s are a good precedent the process will be significant and continuous over coming decade. It is likely that the precious metals and their miners will become a mania soon enough so check your allocations and weightings is a wise thing to do right now, in my humble opinion.
As second chart to consider is the real return on US$ savings.
Real interest rates remain negative just as more of the world’s central banks monetize their government’s debts and economic growth rates decline once again. Historically this is precisely the set of circumstances that is likely to drive capital to the precious metals. And on this occasion its a global event.
Here is the report:Deutsche-Gold-09-18-12
Their concluding comments should resonate loudly with anyone who is actively involved in asset markets and the real economy.
“While a gold standard could work, we remain skeptical that it will be considered (barring a serious financial crisis, perhaps associated with highly volatile inflation). In large part we blame the low probability on culture. The world economy has, over the past century, morphed into a highly integrated, government dominated system guided by conventional wisdom (group think). The self-reliant, individualism of the free market has been left behind in favor of a ‘new age’ of coddled consumerism”.
Eloquently put. A grand era of inflationary, as well as fiscal or government, expropriation of private capital awaits us all.
Rich
p.s. As if to re-affirm the above report here Wells providing a quick chart run through of the dire performance of the Q2 global economy.
(Remember, the real GDP nos are significantly over stated by the use of hedonics, substitution, etc adjusting our contemporary inflation measures downward).
The German team remain bearish the precious metals.With targets of 1690 or so for Gold and 32.5 or so for Silver.
I’m struggling to understand the detail of their call though as the only evidence provided is bearish price divergence to RSI. The RSI is one of the weakest price indicators and should be used with extreme caution.
The price evidence thus far continues to show much support at these price levels. I’m out of time here but will post on the precious metals and their miners on the forum pages.
Without more comment their report here..
All the best
Rich
The Swiss team’s latest report is out early this week. They are sticking to their call that this is a consolidation before a another push higher in major equity indexes. The S&P500 to target 1490 1520 and Europe to out perform.
The concern remains the material, cyclical sectors which rely on the China story. All eyes to the Shanghai, Chinese stimulus, etc. For now we have defensive themes bouncing back strongly and far from many breaking down as the team thought they have pushed still higher.(Remember the Shanghai will be closed for much of the next week due to Chinese holidays).
They don’t pick up on the fixed income and or precious metal themes this week but to be fair little has changed so refer on this matter to last week’s report.
To my mind the issue for traders is a sector allocation issue right now rather than a directional issue. We have seen in the report’s divergence between the Standard Chartered team and the Swiss team. For now its advantage Standard Chartered but the issues far from decided so we keep monitoring. Do you go for the beta or continue to hold and trade more defensive issues? Of course price, as always, should be the lead. Until China and the Shanghai provides some clear price evidence of a base I am sticking with more defensive themes and an under weight allocation to the cyclical sectors. Its always exciting to try and pre-empt price and jump in early to a sector rotation but its a dangerous practice so I would continue to nibble at value cyclical themes but i wouldn’t jump in with both feet until we get more meaningful technical confirmation.
Here the report:
All the best Rich
The weekly SC report wasn’t published last week due to holidays in the team. In stead I post up their monthly report.
SC remain bullish on the markets though under weight materials and cyclical stocks in general. They debate the low vix vs the bullish erp reading with the summary being for a short term pull back but this being a buy the dip opportunity in their view due to valuation and positive technicals.
“Investors with underweight equity allocations should use any weakness to increase equity holdings. Indeed, the risk for these investors is the hoped for pullback fails to materialise”.
FX wise they are neutral USD, EUR, GBP and JPY. Which is where i am as well incidentally. They are over weight commodity currencies and recommend the AUD, CAD. AUD vs what is a good question? AUDUSD is a high beta trade which cuts both ways of course. AUD vs GBP is a more interesting risk return profile perhaps. The GBPAUD pair may not offer as much as the AUDUSD but on risk off event the USD could surge. Therefore the GBP may offer a better risk reward profile in my opinion that the AUDUSD.
A good report with all the details here:
Rich
The German team are increasingly concerned the recent spike up in gold prices has been over done.
Technically the metals are over bought and approaching some key resistance zones. Gold short term could extend to 1791 and even to 1803 but this area should provoke profit taking and short sellers to emerge. Gold is over extended on a short and medium term basis so the team have down scaled their medium term outlook in view of this to neutral. They do acknowledge that should the 1803 level be passed the door would in theory be open to the 1900 area though they see this scenario as highly unlikely.
Price action wise we hit 1786 on Friday’s futures session coming very close to their resistance levels. This area was rejected immediately with a bearish hammer technical pattern produced on the day indicating the area will be defended. Having said this almost all asset markets suffered a similar fate on Friday so I wouldn’t read too much into this reversal day at this stage.
Silver is likely to be capped at 35.7. A pull back to the 31.9 area is the most likely event according to the team. And due to the over bought conditions they have shifted their medium term to neutral.
The gold and silver miners did not sell off on Friday and continue to look very strong accepting that near term they remain overbought.
Keeping track of the German team’s performance they missed this rally entirely. They have shifted again their medium term view to neutral having been bullish medium term for one week only. They have kept their short term bearish forecast. To date they are struggling so we see how price develops here to see if they can improve on their recent under performance.
Macro wise, the picture remains very positive for the precious metals. Let me keep briefly run through some of the news flow in the last few weeks as monetary and fiscal stimulus has continued in fact for a third week across the world.
This week saw the Bank of Japan provide fresh monetary stimulus to the tune of $120bn monetizing her debts. The Indian government provided a significant set of fiscal stimulus measures and the Bank of India also lowered reserve requirements for her banks encouraging credit growth.
Brazil joined the move on the 16th of Sept by lowering bank reserve ratios to encourage credit growth. Alongside the move by Brazil the president gave a speech criticizing the banks for over charging for new loans. Rousseff said, in a nationally televised address to commemorate Brazil’s Independence Day.
“Because banks, financial institutions and especially credit cards can reduce still further the interest rates they charge final consumers, lowering to civilized levels their earnings.”
Brazilian authorities strongly desire credit growth. They are using a carrot and stick approach. The carrot is the lowering of bank reserve ratios. The stick is an implicit threat that if the banks don’t lend the government will step in to legislate for more loans and monitoring of loan rates.
Also in the week, when the WTI futures got back over the $100, the Saudi’s (with Kuwait and the UAE) immediately provided their own global stimulus by pledging to increasing production by up to 2m bpd if their customer’s required. This news collapsed the WTI oil price by nearly 10% in a few days of the news. This is reflationary in terms of growth for the world economy though for the precious metals is possibly a bearish event short term.
Counter this global trend the Russian Central bank actually increased interest rates by 25 basis points in a surprise move. The Russian economy continues to perform very strongly and they are experiencing some inflation.
The Bank of England released her rate setting committee minutes which referred to more QE to be needed shortly.
The week before the FED announced her “unlimited”, MBS, QE3 program. And the week before this the ECB announced their own “unlimited” (though, in theory, sterilized) bond buying program. China is the large unknown in this sequence of events. Wen Jiabao announced new stimulus programs of $158bn on the 12th of Sept but half of this program was already committed to in prior announcements. Of the large players China is currently behind the curve in her stimulus programs but more is expected shortly.
The continued theme of trying to manage inflation with some inflation good and some inflation bad continues. Governments and their central banks continue to micro manage this nominal ‘recovery’. This ‘management’ continues to be very positive for the precious metals. The precious metal year long down trends have been broken. They are over bought but this appears a buy the dips scenario to me. I’m over weight the sector and would add tactically on a pull back. Macro and technical events point to a strong medium and long term view in my opinion.
Here the report:
Luck to all
Rich
The Swiss team are torn between near term mild over bought indicators suggesting some profit taking and the strong bullish internal technicals of increasing new 52 week highs and increasing volumes. Sector wise they are pro cyclical stocks advocating material themes.
“We see any near-term weakness only as a temporary pause, so that we would still use weakness to buy selectively. On the sector front our focus remains on cyclical/commodity themes”.
Fixed income wise they reaffirm their bearish stance toward the asset class.
“We reiterate our later August call and would use bounces to sell bonds”.
Very interestingly they are buyers of usd vs the jpy pair and predict an out performance for the Nikkie. This trade is dear to my heart which i entered again short the jpy yesterday via the Canadian dollar. If the Swiss team are right re the material themes i would expect the long cad to offer an out performance via the jpy.
Fundamentally these price technicals don’t gel so well with the ‘on the ground’ data coming through. But the history tells us price is always ahead of the news flow. The smart money is moving with is being demonstrated by the prices shown. 90% of the time its wrong to argue with price and so allocations need to reflect these strong market technicals. For those under allocated the Swiss team are still forecasting a deeper q4 set back so equities may well provide a better entry point than we see today.
For the first time in some time, I’m less bullish than the Swiss team. I see the price evidence but not the policy and data evidence for what the recent price moves. I’m maintaining more of a allocation stance somewhere between the SC team and the Swiss team but i am open to the strong cyclical call and as discussed last week will be playing it using cfds and futures on a tactical basis for the moment. I remain under weight material stocks for the moment though heavily over weight precious metal stocks and the underlying metals. My heart is struggling to join the materials trade strategically for as long as the Shanghai looks so weak.
http://www.stocktiming.com/Shanghai_Daily_Stock_Market_Updates/shanghai-index-update-monday.htm
Having acknowledged the above technicals the details of prior inflationary cycles should always be remembered. That is, rising prices can be purely a function on monetary expansion and the debasement of fiat money. Material prices can rise alongside demand destruction and indeed this is usually historically the case.
Before we become too wedded to the fundamental demand issues for materials we should remember our monetary history lessons so that we stay on the right side of this fiat debasement trade.
Here the report:Weekly18-09
All the best Rich
P.S. A fundamental chart run through via WF. The fundamentals are pretty dire but of course they are historic in nature.
Another excellent report, in my view, from the guys at SC.
Breakouts for the DOW, SP500 & Nas100 is positive US equities. Many emerging market indexes have also bounced up a long way and the Shanghai significantly stepping back from a continuation of breakdown through her support levels producing a possible failed breakdown which always produces a strong bounce. But keep watching that story as the Shanghai isn’t out of the woods yet.
http://www.stocktiming.com/Shanghai_Daily_Stock_Market_Updates/shanghai-index-update-thursday.htm
Many European index themes are also in breakout of recent ranges and have moved a long including strong systemic theme of the euro finance index – SXP7.
The DAX is close to breakout but is trailing her US cousins due to the over weight manufacturing and chemical themes of the DAX components. A bit of bearish divergence can been seen on the momentum indicators vs price across many instruments inc the two above. This is coming at a high over bought level so caution the watch word at the extreme near term.
SC remain over weight equities although seeing conditions as over bought at present. Forecast momentum still carrying the S&P500 to 1490. A near term pull back is becoming increasingly likely but is a buy the dip opportunity. China and Europe remain clouds over the market so they remain unconvinced on the cyclical sectors from a medium term perspective. (See Shanghai chart above). There allocations remain pretty defensive with telco and utility the major themes but with oil and precious metal allocations to gain exposure to the beta. Overall, they are over allocated to equities on the basis of relative yield advantage to bonds etc. They aren’t playing the material industrial themes yet due to wanting more evidence of demand turn around from China etc. The copper chart is technically less convincing that precious metals this is correct. The US$ is oversold and due a bounce in their view. From a medium term perspective they forecast a gradual weakening of the US$ but view the trade as more complicated as less of a ‘one way street’ than before. I agree with this. The US may out grow her rival economic zones in real terms soon and this will affect the fx pairs greatly. In addition ongoing geopolitics may provide a risk off support back drop to the US and lead to more allocations to the US$ even with the monetary action by the FED. We can also see this time around the FED wont be alone in monetary and fiscal easing given the deep issues in China and Europe.
I must say overall this fits very well with my own view and allocations, although, to be clear, i no longer hold any fixed income high yield bonds. (Note their comments above re US$ and their chart of the high yield bond yield compression, these two factors, coupled with monetary action we see, keep me out of the high yield bonds, for now).
I did step up industrial allocations prior to the recent moves a little which SC chose to not get involved in. To explore this issue of the “industrials”. Cyclical material and commodity stocks were mostly deeply over sold and pricing in a repeat of the 2008 collapse (autos and chemicals aside).
Monetary events have moved significantly in the last few weeks so the bounce had to come through. The material stocks along with the Shanghai had broken or were about to break key price supports so a price abyss seemed ready for Chinese and material themes alike. Monetary moves intercepted the collapse perfectly. ‘From failed moves come fast moves” and so it is that material cyclical themes have bounced back a long way. Some of the 40bn a month and the ESM rescue funds will make their way China and EM economies in general but my view would be its not quite enough yet to really sustain these cyclical stocks to press on. SC seem to be concurring with this view otherwise they would step up their material allocations.
I’m maintaining an under weight to materials allocation on this basis.. Ie the industrial metals, manufacturing stocks, etc. Like the SC team i’m playing the monetary debasement theme, for the moment, via precious metals and oil and a bounce in the industrials albeit underweight. Tactical trades rather than a strategic allocation. I have an open mind on the industrials but i’d like to see significant Chinese stimulus before moving to an equal and even over weight allocation to this sector. The US$ is oversold for the moment. The problems of de-leveraging have not changed in euro land. A strong euro is the last thing they need as exports will be squeezed.
Geopolitical events are heating up. Markets have not priced this in as yet. Gold, the US$ and oil are all positive correlated to bad geopolitical events. Equities would fall particularly manufacturing stocks but the negative effect might not be too damaging on a war in the middle east etc. It clearly remains a concern though.
On the economic front demand destruction is still underway in the Euro zone with no balance sheet expansion as yet. Neither consumer nor commercial loans are seeing any growth. Indeed they are still contracting across the euro zone. (German consumer aside). Nothing seems to have changed on these issues. The ESM and ECB can only act on certain conditions. One being the country formally requesting help. Neither Spain nor Italy have done this yet. We have no new money supply until this occurs. There is no self sustaining recovery in the euro zone so expect plenty of negative news flow until euro starts to peruse an expansionary monetary policy again. Expect GDP to lag in the Euro zone. Defensive themes only therefore in Euro land.
Lastly in terms of economic history. We have mad men at the helms of the world’s central banks. Printing money has become the solution to the system’s and individual economy’s structural ills. Throughout history these sorts of policies have always lead to inflationary pressures to build. One day soon we will see significant inflation across the world. When this occurs it will be interesting to see what happens to all those government and consumer debts? How do you stop inflation if you don’t raise interest rates? And if you raise interest rates how will the consumer and governments pay the interest due? These are serious structural issues that will play out in the coming years. The first wave of inflation is always the most pleasant so lets enjoy this coming wave as the next ones will become increasingly unpleasant.
All to play for in the run up to year end just a few months away now.
Here the report:
Rich
I’m very glad to report the German team have radically shifted their models. They stood very firmly for a continuation of the bear trend from last year to sustain through q3 and q4 of this year. They were short term bearish, medium term bearish and long term bullish. But the price action has increasingly pressured their technical view. They have shifted their medium term model to a neutral stance two weeks ago. Today they have taken a short term and medium term and long term bullish stance towards the precious metal complex.
Personally, I’m happy to report I significantly increased allocations towards the precious metal complex from early July. These recent moves follow the down scaling my allocation to the asset class early last year.
This is all history so lets not dwell on this. Which ever side of the bargain you were on matters not now. Lets focus on where next.
I maintain a super bullish stance toward the precious metals and their miners. Price has formed a wonderful base over an extended period and on smart money moving into the asset class significant inflows have subsequently occurred. This is hugely bullish. I fully expect a Nasdaq 1999 type market to develop for these assets in the medium and longer term. Short term they are over bought and anything can occur therefore at the short term end. We should fully expect to see very super extreme levels of over bought and over sold to occur. Take a look at a Nasdaq chart from 1999 through 2000 to see what is likely to occur in terms of volatility of swings. What is crucial in such markets is not to lose your position. The shake outs will be immense and volatile but short lived, if the Nasdaq is a guide.
On a technical comment i’m glad to see the Germans were able to swallow their pride and amend their model. Price, volume and momentum is clearly showing across the asset class. On a trading comment the best markets are those with momentum and deep participation. The more capital that flows to the precious metals the more we should like and focus trading time on the asset class.
As a wider comment across instruments gold is seen as a lead indicator of monetary inflation. On this basis she is sending us a clear signal of what will soon follow. This has significant fund allocation implications that it would be very wrong to ignore.
Over and out for now. All eyes to Ben and the FED tomorrow.
The report here:
Rich