Tag Archives: Copper

Understanding Gold

Gold and silver are complicated assets to price, because prices depend on the valuation of other assets and on differences between U.S data and the rest of the world. Stocks and currencies depend on fundamental data, but for gold and silver it is more complicated. The gold and silver prices express the strength of the global economy vs the expectations of real interest rates in the U.S.

Gold

Understanding the gold and silver prices is the key to unlocking the mystery of fiat money. Do you remember the collapse in Russia in 1999, South East Asia in 1997, and Brazilian and other South American currency crises from 1992 to 1994? Many lost all their savings, because of the collapse of their governments currencies.

Gold cannot suffer such a collapse in value because gold cannot be created by any government at will. That`s why the governments would like to convince the populace that it should disregard gold as a monetary asset and embrace its fiat currencies.

All previous experiments with fiat currencies ended in disaster. Our history books are littered with examples of empires that were built on hard work and destroyed by a devaluation of their currency. But this time is different. Central banks are doing the same thing at the same time; printing money. So, you have to look at the dollar compared to other currencies.

Understanding the gold and silver prices is the key to unlocking the mystery of fiat money. Compared to the prices in the past, the gold price should be $2,500, $4,000, $7,000 or even $14,000, but it isn`t. It is declining.

Fed successor Janet Yellen said (November 2013); «I don`t think anybody has a very good model of what makes gold prices go up and down.» Fed Chairman Ben Bernanke told (July 2013) Congress he doesn`t pretend to understand gold prices. Nobody does.

Gold and Silver are correlated to copper, oil price, Chinese investments and to global money supply and inflation. Higher supply of U.S oil and slower growth weakened the oil price and also the gold and silver price. Copper and oil got under pressure by the slowing Chinese real estate investments.

Chinese law to disallows to buy a second home, helped to calm these investments along with high interest rates.

The main driver for high gold prices in the «gold bubble» during the end of 1970`s was driven by U.S inflation, but what now as the emerging markets achieve half of global GDP? It will be difficult to view the gold price related to U.S inflation now. Falling food and energy prices in Europe are an indicator of weak EM.

Central banks in EM reduced their dollar share and bought gold between 2010 and 2012. India holds 10% of reserves in gold, while China holds 1,7% and Brazil only 0,5%. Countries with current account deficit (India: 10% Central bank gold holdings), Belarus (30%) and Egypt (25%), prefer gold to stabilize their currency.

Western central banks still stick with the former IMF rule not to buy gold any more.

The gold share is very high for many European countries, while it is still low in EM central banks. Central banks of Germany, Italy and France are all three with 70% gold holdings, and they could all build up their reserves during the Bretton Woods era.

All other countries fixed their N currencies against 1 currency, the U.S dollar, in the Bretton Woods system. The Fed was obliged to exchange on ounce of gold into $35 U.S dollar. (N:1 currency system). President Nixon closed this cheap gold at $35 window in 1971.

Gold lost its status with flexible exchange rates, and the IMF demonization of gold policy even urged central banks to sell their gold. Central banks in Switzerland and the UK followed these calls, and the Fed is still the leasing central bank in an implicit N:1 system of central banks (Bretton Woods II).

Quantitative easing makes the gold rise and the dollar to weakens, because private investors and some central banks move out of the dollar and into gold. If the U.S employment falls, then the dollar appreciates which is about to happened now. EM will be more expensive and with lower oil prices the U.S trade deficits diminishes.

U.S funds will find treasuries more attractive relative to gold and silver and normally when the real interest rates is high, the gold price is weak and vice verse. When the U.S economy improves the gold price falls, and the chances of a Fed Funds rate hike increase, but that`s far in the future.

The gold price moved upward together with oil prices and wages during the 1970`s inflation expectations. Wages is playing a role as an underlying factor for interest rates and the gold price. At that time, Fed Chairman Volcker hiked interest rates so that unions stopped higher wage demands, new supply (North-sea oil) suppressed the oil price and the incomes of EM, while the global growth was sluggish.

Fed Chairman Volcker destroyed the gold price by keeping inflation (and company margins) under control and the stock price rose again. Now wages is declining (wage share of GDP) and the company margins are increasing. The gold price have dropped sharply in a few days and are trading below its 1,200 support level. It can go down to 1,000 and below.

A report published by the World Gold Council «China`s gold market: progress and prospects» suggests that the demand for gold will increase by 20%, from 1,132 tonnes per year to at least 1,350 tonnes by 2017. It was a record level of Chinese demand for gold in 2013, and 2014 is suggested to see consolidation, the succeeding years are likely to see sustained growth.

The market began liberalising in the late 1990s, and China is the number one producer and consumer of gold. It is expected to see the market to continue to expand, irrespective of short-term blips in the economy.

Mr. Greenspan said gold is a good place to put money these days given its value as a currency outside of the policies conducted by government. Gold is down 1/3 since it’s all time high of $1,921,50 in September 6, 2011. On October 29, he told the Council of Foreign Relations that the Fed`s $4 trillion balance sheet is a «pile of tinder, but hasn`t been lit.» Once the central banks stop «sitting on» their reserves, said tinder will ignite «inflation will eventually have to rise,» and in turn, «gold will move higher, measurably so.» (Fxsteet.com).

Gold is a hedge against inflation, and not against times of crises. Right now, the problem is not inflation, but the opposite; something worse called; deflation. Gold can go down while inflation increases, as they did from 1980 to 2000. It`s difficult to understand the setting of the gold price, so I will continue to look at the technical analysis. Gold is still  in a bearish market.

 

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Shiny bull. The author has made every effort to ensure accuracy of information provided; however, neither Shiny bull nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Shiny bull and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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Market update

The bullish sentiment is extreme at the moment. Take a look at S&P 500, which is above 2,000, trading at 2,007,71. Up +0,50%. Nasdaq is up +0,45%, trading at 4,582,90. DJIA is up +0,40%, trading at 17,137,36.

nasdaq logo

Europe is in a red territory today. Dax is down -0,17%, trading at 9,730,38. CAC 40 is down -0,38%, trading at 4,469,61. FTSE 100 is down -0,97%, trading at 6,788,70, and Stoxx 50 is down -0,46%, trading at 3,260,30.

Many are bullish on gold, but keep in mind that gold is still in a bearish territory, despite the higher lows in the chart since the end of last year. I watch gold every day, and I`m looking for 1,250 – 1,270 area. In the same time, I`m looking for 1,000. It can drop down below 1,000 too.

Crude oil (brent) is trading at 100,25, down -0,57%. Silver is down below 20,00, trading at 19,23, but this precious metal is trading up today +0,39%. Another precious metal that is following silver is the copper, which is up 0,88%, trading at 319,75.

It`s interesting to watch the dollar right now. The U.S dollar index which hit another 13-month high overnight are making big moves. I follow the U.S dollar daily, because the dollar can threat the gold. Maybe the dollar is the safe heaven, and not the gold? That`s why it is important to follow those two combined.

One of the main reasons why the dollar is moving so fast now, is all the action in the EU. What happens in EU will affect the pair EUR/USD. I think that Mario Draghi will be very important for the daytraders in the future.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Shiny bull. The author has made every effort to ensure accuracy of information provided; however, neither Shiny bull nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Shiny bull and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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Sell off on friday

A big drop for U.S tech stocks on friday. Nasdaq was down -2,60% on friday. S&P 500 -1,25% and the Dow -0,96%. Nikkei is also down today, together with the other Asian markets. Nikkei is down -1,69%.

Europe is also down today. Stoxx 50 is down -0,89%. FTSE 100 -0,71%. CAC 40 -0,72% and DAX -1,24%. At the same time, you can see the commodities trading down too. Gold is down -0,16%. Silver is down -0,33%. Crude oil (Brent) -0,95%, and Copper -0,13%.

Nadaq

(Nasdaq: Apris 4, 2014)

Many investors have talked about the valuations in the tech stocks for a while now, and many predicted a tech bubble was on the way. I wrote about it for some weeks ago, and I said Twitter was the most expensive stock in this universe.

52 Week high for Twitter is 74,73, and the stock traded down -2,07% on friday. Twitter is down about 50% from the top very soon. Marketers are embracing Facebook over Twitter, and they will rather go for Youtube and LinkedIn before Twitter.

Sometimes investors need to take some profit and friday was a great day for that. It seems like the U.S markets will open down today. I`m excited about the trading sessions, not only today, but for the rest of this week. Take a look at the dollar. It`s up!

Tech and biotech is so far the most popular sectors in 2014, but both of them slide now. Many tech stocks are trading down in Europe too. This is a great time for daytraders. I will follow the charts this week before I start my vacation on friday. Easter bunny is waiting.

 

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Shiny bull. The author has made every effort to ensure accuracy of information provided; however, neither Shiny bull nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Shiny bull and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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Earning seasons

Earning seasons are upon us, and as you know; stock prices follow earnings. So, whats driving the markets is corporate profits, but that`s also the key to a dropdown. To make the S&P 500 go up 1 percent, you need to have a profit of $1 billion.

That is not what happend during the dot-com bubble. That`s why the markets plummeted. Now, it is a match of the index/stock prices and the profits (after tax). Normally, it goes up and down within a trendline. When we hit the roof, we will often see a correction. Looking at the correlation between the index and the profits right now, it isn`t something wrong with the bull market.

October means earnings begins to roll out and gives the traders a huge trading opportunities. Concur technologies Inc (CNQR) took the Wall Street by storm with the earnings and revenues last time. The volume skyrocket, and so did the stockprice.

We are at the all time high and it will be interesting to see the earnings comming in now. I think the picture will be mixed, but if the shutdown continue in the long run, it may affect the GDP and the earnings, which means you know how Q4 will be?

I often look at the commodity prices and I follow copper very closely. Copper are trading up and I often see the copper price together with the 10 day moving average. The price is on target of the 10 MA and tells me a lot about the demand for this commodity. The gold price is also on target for  the 10 MA.

News to have a look at today is Crude Oil Inventories at 10:30am, 10 Year Note Auction 1:01pm, FOMC Meeting Minutes at 2:00pm. I look forward to hear from the FOMC meeting. I have added two charts today. Copper and Gold compared to the 10 day MA.

Copper 10MA

Gold 10 MA

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Shiny bull. The author has made every effort to ensure accuracy of information provided; however, neither Shiny bull nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Shiny bull and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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