Gold Futures are trading higher backed by a stronger Euro but traders remain cautious ahead of the US Non-farm payrolls report and the imminent US Presidential election. The Euro rallied on speculation that Europe’s debt woes will be contained. The US Dollar is weaker against most major currencies, with the exception of the Japanese yen, yet no new ground breaking is seen and most currency pairs remain trapped in familiar ranges. Gold supportive influences include a softer US Dollar and the potential for more US Government spending to help rebuild in the eastern part of the US in the aftermath of the hurricane Sandy, which would come on top of the various stimulus measures already in place. Event risk is too high with the aforementioned issues including a change of power in China and multiple policy meetings at various central banks. Gold is likely to remain stuck in a tight band in the coming days with Investors choosing to remain on the sidelines awaiting a breakthrough.
The increase in trading volume in Gold Futures on the Shanghai Gold Exchange in recent days has also helped Gold Prices. Gold Demand has picked up in India and also China, as a result of lower prices. Support for Gold also came from Bank of Japan’s further unconventional monetary policy easing. The Chicago Purchasing Managers Index, which rose to 49.9 in October from 49.7 last month, suggests a continued slow economic recovery. The US monthly non-farm payrolls report scheduled for release on Friday and the U.S. Presidential Elections that’s too close to call, have all the requisite potential for triggering huge market volatility in the coming days. Economists expect U.S. job growth to have picked up slightly in October, but not enough to prevent the unemployment rate from rising off a four-year low.
Gold Prices will soon rise on a number of counts:
November is generally a seasonally positive month for Gold Prices & also the most active period for physical markets, particularly in India. Despite this year’s general disappointment with India’s Gold Demand, a further continuation of the seasonal demand added by the wedding season’s Gold buying, markets can expect stronger Gold Prices in November, especially once the US election gets out of the way as market uncertainty will be removed. The Markets concerns about “potential” currency debasement and the US government’s indebtedness may lead Romney win way above Obama, also added the Republican Party’s rhetoric of deficit reduction. But a win by Republican Mitt Romney against Obama could lead to very short-term weakness in Gold Prices, but the scale of the fiscal and monetary challenges facing the White House and the US Federal Reserve mean that the downside risk is short term and limited, and investors should continue to fade the noise and focus on the long-term diversification benefits of Gold Investment. If President Obama gets re-elected, markets can expect the Fed to announce that Operation Twist will be replaced with a fourth round of Quantitative Easing- the QE4 or an expansion to the recently announced QE3 & the Gold Bulls would get a Green Flag.
The looming US fiscal cliff involving steep government spending cuts and tax hikes looms in January and is likely to support Gold at lower levels and lead to higher Gold Prices in the coming weeks. The devastation of Hurricane Sandy will be a further blow to the already fragile U.S. economy as destruction of property and vital infrastructure – two of the vital components in the wealth of a nation, has been massive. The last thing the over indebted families and close to default U.S. government needs are more very expensive reconstruction works. Reconstruction and ‘stimulus’ has to be paid for either by the tax payer in the form of taxes or a further increase in the money supply and inflation. Therefore even if the Republican Party wins, I doubt if Mr Romney can succeed in bringing down the massive deficit. A failure to reduce deficit soon could lead to a much weaker US Dollar and therefore stronger gold prices. People wonder if Mitt Romney is going to be in power and what kind of monetary policy we will have. He is clearly not in favor of what the Fed is doing. I don’t think they will come to an easy agreement on how to handle the Fiscal Cliff issue as a first among a lot many other things, which could be negative for the dollar and reasonably supportive of gold.
My take on Gold, Silver, Crude Oil & US Elections:
I would prefer to buy some Gold on declines to $1657 to $1666 & more Silver on a dip to $30. I strongly feel that any dips now on may see vertical recoveries. Crude Oil may find a strong support around the $82 region and could be one of the first to recover. I also favor Copper buying at dips as usual. Copper & Lead could lead the Base Metals pack.
US citizens are aware of the fact that Mr. Romney is not in favor of what the Fed is doing & Bernanke would soon be evicted if the Republican win materializes, which I am sure of. Bernanke would be replaced after his term ends in Jan 2014. I don’t think they will come to an easy agreement on how to handle the Fiscal Cliff issue as a first among a lot many other things, which could be negative for the dollar and reasonably supportive of gold. The Fiscal Cliff package which consists of steep tax hikes & benefit cuts may eventually get implemented as an after effect of the disagreements. The start of 2013 would most probably be painful & the effects would be longer lasting. Given the sudden tightness in liquidity, I wonder where the inflows into Gold Markets may come from then. Gold may eventually yet rise & break the $1800 psychological barrier on other global factors but, as often alerted in previous posts, I doubt if Gold may be able to break the $1855 resistance & rise any further until & unless some mega moves by other sources outside the US come into play. Gold movements may remain restricted to a tight range for an extended period after some upside moves. An Obama win will also mean more rapid increases in Debt burdens which will prove costlier in the longer run as all doors towards an exit close faster.
There needs to be no bigger clarity about the state of the U.S. economy after the Federal Reserve’s announcement in September of an “Open Ended” QE. The QE3 is nothing more than unlimited money printing that is being done by the Fed until further notice. This limitless initiative says tons about the sorry state of the US Economy. If the economy was actually recovering, would the Fed be creating $85 billion each and every month to “stimulate” the economy or would it be raising interest rates? The Fed knows he cannot keep announcing new QE programs each year & also maintain a stand that the economy is recovering, so conveniently has opted for the “Limitless QE”. This constant QE addition, it seems has made the US a QE addict. Like a drug the more you take, the more you need. So now finally it has reached a stage of QE to Infinity.
The Dollar is bound to Collapse:
Countries around the world are shunning the dollar in trade. The biggest blow to the buck came earlier this year with a trade agreement between China and Japan, said Greg Hunter. These are the second and third biggest economies in the world behind the U.S. Other countries such as Russia, India and Brazil are just a few more countries moving away from the dollar in trade. As the dollar loses world reserve currency status, it will decline in value. Its buying power will be reduced. The only question is how much will it fall?
Equity Markets Optimistic but Directionless for now:
The S&P 500 failed to gain any traction yesterday, running into resistance at its 9 day MA. A break down under 1387 would make way to a slump target of 1306. It will take a close under that level to confirm more downside. The next catalyst will be the Non Farm jobs number. An upside remains limited to 1450, which if breached could open the gates towards a massive 1495. The damage from Sandy certainly could be an influencing factor. The 9 day MA acted as resistance in the Dow as well but 13000 did support. A break under 13000 will lead to a crash towards 12565. An upside remains limited to 13420, which if breached could open the gates towards a 2012 peak of 13645.
For Equity Markets in India, the short term the Nifty has gathered support around 5608 but upside remains limited to 5743, which if breached could open the gates towards a 2012 peak of 5905. A break down under 5590 would make way to a lower support range of 5500 to 5446. A weekly close under this level will confirm more downside.
The BSE Sensex had previously posted its biggest monthly fall since May, reversing the gains seen last month after the impact from the government’s slew of fiscal and economic reforms waned. Investors had hoped the Reserve Bank of India would help stem losses by cutting interest rates on Tuesday, but the central bank opted instead to tackle liquidity via a cut in the cash reserve ratio, sending shares lower. Shares of Indian drug firms extended gains after reporting strong quarterly earnings. The BSE Sensex recovered on Wednesday from steep falls in the previous session. Reversing early losses, the benchmark BSE Sensex today bounced back to close over 56 points up helped by 5% rise in Tata Motors shares on hopes of robust October sales and over 4% rise in Bharti Airtel ahead of a key meeting to consider spectrum reforming issue. Indian consumers’ confidence level rose in October owing to slight up-tick in spending sentiment on account of festive season. Shares in Reliance Industries Ltd recover after falling as much as 2.1% on Thursday, a day after anti-corruption activist Arvind Kejriwal accused the energy conglomerate of hoarding natural gas and exerting pressure on the government to flavor it. Reliance and its partner BP Plc have blamed technical problems for falling gas production, and have sought permission to charge higher prices to cover spending, but the government has so far refused to approve higher gas fees. Shares in Reliance ended up 0.2%.