BI 160 x 600 Feb copy (2)
BI 160 x 600 Feb copy (2)

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Looming bond market crisis set to improve gold demand

 

Historically low bond yields across both the private and government sectors are reducing the margin for error when it comes to the ability of financial markets to withstand a bond market shock.

Global quantitative easing (QE) has seen bond yields driven to low and often sub-zero levels in many economies. The European Central Bank is currently undertaking a EUR60 billion a month eurozone bond buying programme, this is expected to last at least until September 2016. In the past Japan, U.K . and the U.S. have been very active when it comes to QE to stimulate their economies and create inflation with the bond market being a key asset.

Why would investors essentially pay good money to lend out their own money? Well, one reason an investor would do this is if they expect to see a decline in prices such, as in a deflationary environment when negative yields can in fact be higher than other variable yields offered. Another reason is an investor wants to store their wealth in what they believe to be a safe asset. Investors often like to park their money in German and U.S. government bonds in times of uncertainty, both are considered by many to be safe-have assets.

It is however risky for any investors to invest in long term fixed income with low or sub-zero returns. It certainly is not the safe bet that many investors think, nor should these low rates of returns be considered the new normal. At the other end of the scale and what is even more risky are junk bonds and bonds such as those offered by troubled governments such as Venezuela and Greece. In the current low yield environment too many investors are chasing higher yields without considering the significant consequences, the attraction of double digit yields blinds them to the risk. This is a similar thought process, or lack of thought process that in hindsight we saw before the GFC when the price of risk was often undersold or not properly priced in. It will only take one or two high profile defaults from these high yielding investments and we can expect to see investor expectations shift and potentially cause a run on bonds as investors head for the door.

While banks and financial firms in the U.S. have reduced their exposure to the more questionable grade bonds due to new regulations, what we have seen in the past 6 years is that insurance firms, mutual funds and other institutions are taking up the slack. This would see the reach of any crisis spread beyond ‘Wall Street’ and into other sectors of the economy. Restricting financial firms also has the unintended consequence of reducing liquidity, should we see investors move quickly out of bonds in search of higher returns (something entirely possible with the Fed set to lift rates soon), or we see general bond market jitters then do not be surprised to see investors scramble to be first to get to the exit door, no one wants to be last out. This scenario could see prices dive in a short period, not helped by the lack of support and buying from financial firms as they are restricted on what and how much they can purchase. A number of financial market experts such as JP Morgan Chase CEO Jamie Dimon and billionaire investor Jeffrey Gundlach have expressed concerns around the lack of liquidity in the bond market.

The big losers from a bond market crisis will be governments, corporations, pension holders and funds, money managers and other institutions. This would be significant as most, if not all investors would be touched in some way by a bond market crisis, just as all investors were when the GFC hit.

The big winners from a bond market crisis are those investors holding gold and other precious metals, just as we saw following the GFC.

Adding to the concerns around financial markets is the fact that equity markets in key markets such as the U.S. and Germany have reached fresh new highs, highs not even seen before the GFC. Investors need to be wary about investing in the bonds or equities as we are moving closer to a crisis, it is not going to take much for financial markets to tip over with bonds often of questionable grades potentially being the match that starts the fire. It was the subprime crisis that sparked the GFC and it could be a bond crisis that sparks the next global financial crisis.

The closer we move to a new financial crisis, the more funds investors should be allocating to precious metals. Investors should currently be looking to position their portfolios to withstand a crisis by re-weighting their portfolios to include approximately 20-25% of their funds in gold.

Courtesy of Bullion Index .

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Gold Trading Week Ahead 20th April 2015

 

Gold Trading Week Ahead – 20 April 2015

Gold treaded water last week with gold finishing the week almost identical to where it closed the previous week. Last week was all about CPI data while this week we have a number of economic, political and cultural factors that will drive sentiment.

European indices have seen sentiment begin to turn after the initial enthusiasm for Mario Dragi’s QE. Greece is also back in the spotlight, the Eurozone has a crucial meeting later this week regarding Greece. A Greek default is certainly figuring in traders’ minds, with this increased concerns I expect demand for gold to increase.

Demand from both India and China has been weak in recent trading sessions, not entirely surprising given the recent strength of the U.S. dollar and the fact that many Indian buyers have been awaiting Akshaya Tritiya which is Tuesday 21st April. I expect Indian demand will increase this week as Akshaya Tritiya is considered auspicious for starting new businesses, investments and the like.

This week is packed with economic data that could set the direction for precious metals.

Monday the Chicago Federal Reserve National Activity Index data for March is released.

Tuesday sees the Reserve Bank of Australia (RBA) meeting minutes released, if the RBA signals that is moving closer to a rate cut then we may see gold in AUD edge higher.

Wednesday will see the release of the Bank of England (BoE) minutes, Australian CPI, US Existing Home Sales and Crude Oil Inventories.

Thursday is full of economic data with Manufacturing PMI data out for Japan and China, UK Retail Sales, US New Home Sales and importantly US Jobless Claims. Westpac is forecasting a drop in Jobless Claims to 286,000, down from 294,000 as at the last reading.

Friday the Eurozone will meet to discuss Greece and its further reforms that it needs to provide by Friday. The odds of a Greek default are certainly shortening with Friday being the next critical hurdle for Greece and the Eurozone. US Durable Goods Order data is also out later on Friday, the market is expecting a rise of 0.6%.

This week also sees the release of a number of key US company announcements which will give investors a better understanding of the strength of these key companies. The companies with announcements include Wal-Mart, Yahoo, IBM, Morgan Stanley, AT&T, Boeing, Coca-Cola, Facebook, Microsoft, 3M, Procter & Gamble, Costco and Starbucks.

It could be a volatile week across all markets this week, with gold set to benefit, I expect to see gold test the US$1,220/oz resistance level, a level gold needs to consolidate above this level before moving higher.

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Courtesy of:  www.bullionindex.com.au

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Markets advance as China announces new stimulus measures

 

US stocks advanced on Monday as investors’ confidence was boosted by announcements of new merger deals and dovish remarks by the head of China’s central bank and new policy measures to stimulate China’s housing market. UnitedHealth Group Inc. agreed to buy pharmacy benefit manager Catamaran Corp for $12.78 billion in cash. Teva Pharmaceutical Ltd. said it would buy Auspex Pharmaceuticals Inc for $3.5 billion. China reduced required down payment for second homes to 40 percent from 60 percent and broadened a sales-tax exemption on Monday for homeowners if they sell after holding a property for two years or more. The S&P 500and Dow Jones Industrial Average advanced 1.2% and 1.5% respectively. They had lost more than 2 % last week. Economic data indicated that US consumers barely increased spending, which rose a less-than-expected 0.1% in February. This is another sign that US economy slowed in the first quarter. Personal incomes, meanwhile, rose 0.4% in February for the fourth time in five months and the saving rate climbed for the third straight month. Pending home sales for February reached their highest level since June 2013. The ICE US dollar index, a measure of the dollar’s strength against a basket of six major currencies, ended up about 0.6% at 97.98. Today at 13:50 CET Fed’s Lockhart gives welcome at Georgia conference on Monetary Policy and Financial Stability. At 14:00 CET January Case-Shiller Home Price Index will be released. At 14:45 CET Chicago PMI for March will be released. The tentative outlook is positive for the dollar. At 16:00 CET March Consumer Confidence will be released by the Conference Board. The tentative outlook is neutral.

 

European stocks rose on Monday as investor optimism was bolstered by encouraging economic data, the prospect of more easing in China and sliding euro. The Stoxx Europe 600 index climbed 1.1%. Germany’s DAX 30 index rallied 1.8%, helped by weakening euro. Inflation data showed consumer prices in Germany grew 0.3% year-over-year in March, up from 0.1% in February. Economic confidence in the euro-zone rose markedly in March to the highest level since the summer of 2011. At 07:00 CET retail sales were released in Germany, showing a decline on a monthly basis for the first time since September. At 08:55 CET labor market data for March will be released in Germany. At 10:00 CET March consumer price index for euro-zone will be released by Eurostat. The tentative outlook is positive.

Nikkei fell today as investors took profits on the last trading day of the quarter and the last day of the fiscal year. Notwithstanding a sharp drop last week, the benchmark has gained 2.2 percent for the month and posted its three straight monthly gains. Yen continued the slide against the US dollar, which gained 0.8 percent vs yen on Monday for its biggest one-day rise in more than a month. Tomorrow at 00:50 CET in the morning the Bank of Japan’s Tankan survey results will be published. The tentative outlook is positive.

Oil prices are falling today on expectations that a possible deal over Iran’s nuclear program could result in easing of sanctions and increased exports, exacerbating global oversupply.

 

Gold prices are falling after dropping for two consecutive days on Monday as stronger dollar and rising equities are dulling investor demand for the safe haven asset.

http://www.ifcmarkets.com

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Gold bulls are thanking the Fed

 

Bullion Index report that, leading into the Federal Reserve March monetary policy meeting last week investors dumped gold sending it to a 4 month low, while at the same time trades went long dollars on expectation the Fed would suggest it will move as early as June on raising interest rates. While the Fed dropped the highly anticipated word ‘patient’ from their statement following the meeting, the statement however contained a number of surprises which have sent gold higher and the US dollar lower since its release. The Fed statement saw it lower the GDP growth forecast and importantly also lower its forecast for inflation. This is important to financial markets as the Fed has said it will look to tighten rates when it is “reasonably confident” that inflation will hit its 2% objective over the medium term. With the lowering of its inflation forecast this will see it take even longer to get back to its 2% inflation objective. The Fed now sees inflation running at between 0.6-0.7% for 2015 and between 1.6-1.7% in 2016, still materially lower than the 2% figure the Fed has said it needs to be confident of hitting before it pulls the trigger on rates.

 

 

Export growth in the U.S. is also weakening according to the Fed which is an acknowledgement by the Fed of the recent strength of the US dollar. Even taking into account the dollars biggest weekly fall since 2011 the dollar is still strong by any standard. According to the Bloomberg Dollar Index, a measure against a basket of 10 currencies, the US dollar is trading near its highest level in at least 10 years. The dollar strength is something that is coming into consideration by the Fed, traditionally it steers clear of commenting on the dollar. Any rate increase by the Fed is expected to send the dollar even higher. The strong dollar is making imports cheaper, reducing inflationary pressures, something the Fed is trying to lift, while at the same time making exports more expensive which puts pressure on GDP growth. A high dollar should be of a concern to the Fed.

 

The consensus in financial markets suggests the Fed is on track to raise rates in 2015, however it now seems the market is expecting rates to move later (e.g. September instead of June) and possible not hit the high levels previously expected.  Leading Banks such as Bank of America Merrill Lynch and Deutsche Bank suggest the Fed will increase rates in September, while a recent Reuters poll of top Wall Street banks also favour a September rate increase. I still believe we will not see a US rate increase in 2015 and even more so after the Fed statement and continuing weak data that seems to be coming out of the US such as the recent worse than expected durable goods data. The Fed noted in its statement that “economic growth has moderated somewhat” since its January meeting, that is not a foundation for a near term rate increase. Federal Reserve Bank of Chicago President and a voting member of the Federal Open Market Committee Charles Evans said in a speech this week that he thinks “economic conditions are likely to evolve in a way such that it will be appropriate to hold off on raising short-term rates until 2016”. He suggests that inflation will not hit the 2% target until 2018 and that inflation is currently “uncomfortably low”.

 

The Fed’s monetary policy is very much driven by data flow and what is expected and what is actually delivered and at the moment most of the data coming out is not setting the markets alight. The longer the Fed holds off moving on rates the better it will be for gold demand given it reduces the opportunity cost between holding non-interest bearing gold and investing in interest bearing assets or term deposits. Gold also performs well in times of uncertainty so with the increased confusion as to when and by how much the Fed will increase rates, it is only going to add support to the price of gold.

 

With weak data coming out of the US along with exceptionally low inflation rates, well below the Fed’s target of 2%, the Fed would be reckless to move on rates until they see solid evidence of underlying economic growth, positive wage growth and inflation heading to 2%. I do see that happening in 2015. The risks on moving too soon on rate hikes are too significant while the benefits remain relatively low which leads me to believe the Fed will be very conservative and hold off on raising rates until 2016. In the meantime while interest rates remain low and uncertainty is at the forefront of investors’ minds gold demand is going to increase.

 

Now that gold has broken through US$1,200/oz, the next upside target to watch is US$1,208/oz which is the 100 day simple moving average followed by US$1,22o/oz the 50 day simple moving average.

 

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Courtesy of: http://www.bullionindex.com.au/

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EURUSD long-term risks should still be on the downside

 

Credit Agricole report “some downside risks for EUR could linger as well. In particular, uncertainty about Greece should continue to haunt the single currency, with concerns about the country’s debt-sustainability likely to escalate as the bailout extension draws to an end in June.

Long-term risks should still be on the downside, however, and we expect EUR/USD to hit parity in Q3 with the USD-rally resuming as we get closer to the Fed’s first hike”.

Source: Credit Agricole

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Gold Trading Week Ahead

 

Bullion Index report: Late last week gold managed to stem the recent losses as the dollar rally paused. An 8 day run of consecutive losses on gold came to an end on Thursday, not before posting a new 4 month low.

Last week we saw solid buying from our clients at the low US$1,150’s/oz levels.

This week is going to be a key week for gold with the Federal Reserve’s two day policy meeting Tuesday and Wednesday. The main focus will be Fed Chair Janet Yellen’s press conference following the FOMC announcement at 2pm Wednesday New York time. The price of gold is being driven almost solely by US dollar movements at the moment (dollar up, gold down or dollar down, gold up), so if any wording coming out of the Fed next week hints at a June rate rise, look to see further US dollar strength and gold soften. If the Fed notes that it still remains ‘patient’, the market is going to take that as a post June rate rise which should give gold a boost. Gold investors should also look out for any commentary from Yellen surrounding the US dollar. Traditionally the Fed would not mention the US dollar however given its stunning run it may play a factor in the Fed’s monetary policy. If it does come into play then the Fed may look to hold off tightening until later on in the year or even possibly next year.

The Fed is facing one of its biggest decisions since the GFC, they do not want to go too early or too late when it comes to raising interest rates.

The other events of the week that gold traders should be aware of include; ECB President Mario Draghi’s speech on Monday, US Building Permits and Housing Starts on Tuesday, Swiss National Bank Monetary Policy Decision and Philadelphia Fed Manufacturing Index both on Thursday.

I do not expect to see any further big moves on gold until after Yellen’s press conference on Wednesday. Between the open on Monday and her press conference I expect to see investors adding to long gold trades on any dips.

Investors have been showing more interest in platinum in the past week as they look for value, platinum has recently hit lows not seen since mid-2009.

Gold closed at US$1,158.60oz in New York on Friday, down US$10oz on the week.

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Courtesy of:  www.bullionindex.com.au

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Credit Suisse revise EUR/USD forecast lower

 

Credit Suisse report “we are now of the view that the market is increasingly willing to hold short EUR positions on crosses in G10 space. If EUR really does replace JPY as the funding currency of choice due to negative rates, this trend can have a lot further to run, to EUR’s overall detriment.

We are revising our EURUSD forecast set to 1.05 in 3m (1.09 prior) and 0.98 in 12m (1.02 prior)”.

Source: Credit Suisse

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Credit Agricole remain short EUR/USD

 

In a note to clients, Credit Agricole report that “in order to push EUR/USD considerably lower from current levels Fed rate expectations may need to rise further. As there seems to be scope for the Fed to consider higher rates as soon as mid-year, we anticipate further diverging monetary policy expectations to the detriment of the pair.

We remain short EUR/USD targeting a move towards 1.06″.

Source: Credit Agricole

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Gold trading week ahead – Bullion Index

 

Bullion Index report “gold starts the new trading week at a 3 month low after a strong reaction to data out of the U.S. on Friday. News of better than expected jobs data in the U.S. saw gold shed 3% in the session as investors saw the improving employment outlook in the U.S. as a signal that the Fed will move on rates sooner rather than later.

Following on from a busy week last week from an economic data standpoint, this week sees a bit of a lull in key data as traders await the Federal Reserve meeting next week (17-18 March).

The big event of the week will be happening later today when the ECB kicking off its massive QE/ money printing program. Gold has been tracking the ECB balance sheet up and down in recent times so with the ECB today effectively printing more money will we see gold track back higher. At the moment gold is being driving by both the ECB and the Federal Reserve but the battle for gold is which way will it break especially now we are about to see an even more significant divergence in policies between the ECB and the Fed.

Other major events and data flows this week include, Greece’s Finance Minster presenting 6 reform proposals to Eurogroup members on Monday. On Tuesday the UK Manufacturing Productions numbers are out, this will give traders an indication as to the health of the UK economy, it has been improving fast so we will see if it is still on track. On Thursday  we see the U.S. Retail Sales data, if sales come in above expectation then we may see a rally in the US dollar an in turn a dip in the price of gold. If however it comes in below forecast then we may see gold bounce higher. The forecast is for retail sales in February to be +0.5%.

We expect to see investors adding to long gold trades at the current market levels.

Source: Bullion Index

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Buy GBP/CHF on dips – Capital Trust Markets

 

Capital Trust Markets reports the “recent price action in the GBPCHF pair suggests that it has more upside in the near term as buyers are here to stay.

Technical Analysis

The GBPCHF pair recently climbed towards the 1.4760 resistance area where the British pound sellers defended the upside. However, there is a major bullish trend line on the 4 hour chart of the GBPCHF pair, which might act as a catalyst in the near term if the pair moves lower from the current levels. The most important point is the fact that the 50 simple moving average on the 4 hour chart is also around the highlighted trend line. In short, there is a major support around the 1.4640 area where the British pound buyers might appear in the near term. The 4H RSI is above the 50 level, which is one more bullish sign moving ahead.

GBPCHF 03.03.2015

If the GBPCHF pair moves higher from the current levels, then the last high of 1.4760 level where buyers might continue to struggle in the near term. A break above the same might call for more gains.

The next area of interest can be seen around the 1.4800 area.

Swiss GDP

Later during the London session, the Swiss Gross Domestic Product will be released by the State Secretariat for Economic Affairs SECO. The forecast is slated for an increase of 1.7% in the fourth quarter of 2014, compared to the last gain of 1.9%.

Trade Idea

One might consider buying dips around the highlighted trend line in the GBPCHF pair.

Source: Capital Trust Markets

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Gold price forms a base at US$1,194

 

Gold prices have been range bound in recent trading session as traders await the nonfarm payroll data. Bullion Index report to its clients that while  the ADP Employment numbers for February are out later today in the U.S. that they do not expect to see any surprises and expect Friday’s nonfarms to be the key to driving gold in the short term. Bullion Index notes that spot gold is range bounce between US$1,194 and US$1,224. They maintain a buy limit at US$1,188oz.

Source: http://www.bullionindex.com.au

 

 

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Sell NZD/USD at 0.7600 limit – UBS

 

Swiss Bank UBS has suggested to clients to go short NZD. They report “NZD/USD should head lower. Sell rallies to 0.7600 with stops above 0.7720, targeting an eventual retest of 0.7300/0.7175″. Selling NZD against the USD is popular among brokers at the moment with BNZ also suggesting a short trade on NZD/USD.

Sell on limit at 0.7600, stop above 0.7720 with a limit at 0.7300 or lower.

Source: UBS

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UBS – Sell USD/CAD rallies to 1.2570

 

While other brokers such as SEB and SwissQuote recommend clients to look short USD/CAD, UBS has taken a different view noting USD/CAD “remains stuck right in the middle of the recent trading range. We expect the range play to continue. Sell rallies to 1.2570 with stops above 1.2670 and buy on dips to 1.24 with stops below 1.23″.

Source: UBS

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NZD/USD Look To Re-Enter Strategic Short – BNZ

 

BNZ look To re-enter a strategic short position on NZD/USD. In a note to clients they report “NZD has bounced back admirably from cyclical lows hit after the RBNZ dropped its tightening bias. But the medium-term outlook is still negative, even with recent strong gains in dairy prices at auctions. We would consider rallies toward 0.76 as
opportunities to enter strategic short positions, targeting 0.70″.

They also note “we feel that levels above 0.7550 offer attractive risk-reward for a strategic NZD/USD short, on the premise that the mega-rally in the USD continues to grind higher. We would set a wide stop, 0.77 or higher, as is prudent in volatile markets such as these”.

Sell NZD/USD at 0.7550, stop >0.7700 with a profit target of 0.7000.

Source: BNZ

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SwissQuote buy USD/CAD recommendation

 

SwissQuote report to clients that the “USD/CAD has seen a pickup in buying interest near the key support area between 1.2352 and 1.2314. However, the succession of lower highs remains thus far intact. Hourly resistances can
now be found at 1.2566 (02/03/2015 high) and 1.2664. An hourly support lies at 1.2449 (27/02/2015 low).

In the longer term, the technical structure looks like a rounding bottom whose maximum upside potential is given by the strong resistance at 1.3065 (09/03/2009 high). The recent weakness is seen as a medium-term corrective phase. Key supports stand at 1.2314 (22/01/2015 low) and 1.2047 (intraday low)”.

Buy limit 2 units at 1.2363, Obj: Close unit 1 at 1.2646, remaining at 1.2950, Stop: 1.2290

Source: SwissQuote

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BOC is likely to remain on hold this week buy USD/CAD – SEB

 

SEB is recommending to clients to buy USD/CAD on dips. They report “the Loonie is vulnerable to additional Bank of Canada (BOC) rate cuts and continued weak oil prices in H1 2015. We expect unchanged rates at tomorrow’s central bank meeting. We would look to buy on a dip in USD/CAD. An April rate reduction looks increasingly likely. We forecast USD/CAD at 1.30 in Q2 2015″.

Buy USD/CAD on dips below 1.24 as BOC is likely to remain on hold this week.

Source: SEB

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SEB sell order on AUD/USD

 

Trading company SEB have suggest to clients to get short AUD/USD. They report “the RBA left its cash rate unchanged at today’s meeting. However, the statement gives a clear signal more rate cuts should come. The AUD appreciated following the decision as a rate cut was widely expected. Use this uptick as an opportunity to short the AUD/USD”.

Sell AUD/USD at 0.7810 targeting 0.73, stop loss on daily close above 0.7930.

Source: SEB

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Platinum prices to hit US$1,500 – Bullion Index

 

With Platinum prices trading around US$1,182oz Bullion Index reports that platinum prices will hit US$1,500 by the end of 2015. They note “given an improving U.S. economy we are likely to see an increase demand from the U.S. for platinum, Thomson Reuters has noted that in 2014 platinum jewellery increased by over 60% in that year alone. We expect that trend to continue as sentiment improves in the U.S.  The interest rate cut in China this week will also provide a stimulus for Chinese demand. We expect with the increasing demand and the elimination of the oversupply we have seen in recent years that the price of platinum will reach US$1,500 by the end of 2015″.

Source: Bullion Index

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ANZ buy spot gold on dips to US$1180

 

ANZ, the Australian Bank saying while they see no clear impetus to push gold significantly higher or lower in the near-term they suggest to clients to ‘buy spot gold on dips to USD1,1180/oz’. They expect gold to trade over the next 12 months in the USD1,150/oz to USD1,300/oz noting that gold has a tendency to trough well before the USD peaks suggesting we may have seen the bottom of the gold price in this current cycle.

Source: ANZ

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Euro Issues Will Underpin Gold Prices

 

Bullion Index report that Euro issues will continue to prop up the price of gold. They note the Greek Eurozone creditors that have been keeping Greece afloat since 2010 have extended the country’s bailout by four months however it is only the beginning from what we see as a number of key flash points facing the Eurozone which will in turn support the price of gold over the next 12 months.

The ‘extend and pretend’ charade Greece and the Eurozone have been playing can only go on for so long. Greeks have shown that they want to remain within the European Monetary Union (EMU) and want to stay with the euro currency, however they are strongly opposed to the anti-austerity measures in place which is going to come to a head at some point. What Greeks also haven’t taken too kindly to in the past two weeks is what they see is a lack of respect or understanding from key Eurozone creditors and personal. The veteran German Finance Minster Wolfgang Schauble patronizingly said after the extension agreement that ‘the Greeks certainly will have a difficult time explaining the deal to their voters’, while also noting of the Greek Syriza party that ‘being in government is a date with reality, and reality is often not as nice as a dream’. The hostility between Greece and its creditors, in particularly Germany, is palpable and it really is only just the beginning of what will be tense negotiations throughout this year.

Many economic experts are suggesting that Germany is managing Greece out of the EMU, having decided that as far back as 2012 when they reduced their banks exposure to Greek debt.

In getting an extension, Greece had to stick with the basic terms of their original bailout package, something the Greek prime minster Alexis Tsipras has said he would ditch altogether. This has put him at odds with his own election promises, already he has been forced to abandon or water down his commitments to the Greek people in order to win an extension. It will not be long before Tsipras feels the heat from both those inside the Syriza party and voters. Tsipras has begun the near impossible task of selling the extension to voters, noting in a speech that “we won the battle but not the war as the difficulties, the real difficulties, not only those related to the discussions and the relationships with our partners, are ahead of us’. We do not see how Tsipras is going to get any significant austerity measures required by creditors through the parliament, which may lead to a snap election causing more uncertainty and instability in Europe.

The extension agreement must be understood for what it is, just an extension. Greece still needs to play its high stakes poker game with the Eurozone and so far it really has just kicked the can down the road by extending the bailout. Greece will need more cash to save itself from default when the bailout extension expires in June. Greece also faces €6.7 billion of bond redemptions in July and August this year which will require more cash and more negotiations no doubt. This has not been a focus however it needs to be on the radar of investors.

At what point will we see the Greek creditors turn-off the credit lines to Greece? We do not see extension after extension being given to Greece as the Eurozone cannot continue on the same path it is currently on. They will not continue to provide billions of euros in loans to Greece given it really needs significant structural reforms to boost growth, not tighter German-led austerity measures which are not working in reducing the levels of debt.

It is not just Greece who will be keeping the Eurozone in the headlines, we are bound to hear more and more rumblings out of other Euro countries over the next 24 months with key elections in both Spain and France. Spain is holding elections later this year with the focus on the anti-austerity Podemos party which runs on a similar platform to the Syriza party in Greece. While the Podemos party in Spain is less than a year old it is increasing its prominence. Podemos leader Pablo Iglesias campaigned for the Syriza party in before the Greek elections last month saying “a wind of change is blowing in Europe”. In France the far-right anti-euro National Front party is gaining traction with mainstream voters, the party advocates France exiting the euro and going back to the franc. France has general elections in 2017. Populist parties from all sides of government are growing in voice across Europe and this is expected to continue.

The chances of a ‘Grexit’ are in our view still very high, if a ‘Grexit’ happens this would create damaging volatility and turmoil for global financial markets. We see significant instability and headwinds for the Eurozone over the next 12 to 24 months and expect this to provide a solid foundation for the price of gold. We are suggesting to clients to add to their gold holdings on price dips such as the one we are experiencing right now.

For more information please visit Bullion Index .

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Gold downside support at $1,260

 

A strong US jobless claims number on Friday has seen the market factor in a quicker than expected tightening in US monetary policy. This has put a dampener on safe haven assets prices such as gold and silver.

Bullion Index notes “we see the downside support on gold sitting at $1,260. If this level can hold then we look for gold to climb back to $1,275. If $1,260 however is broken we could see the $1,250 level tested in the short term”.

(Source: Bullion Index)

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RBA still on its way to cut rates

 

SwissQuote report that “given the potential headwinds on the Australian economy, we suspect that the RBA will downgrade its inflation outlook and remove its neutral rate bias during its February meeting. Such revisions would strongly hint for a rate cut in March in order to protect the economic recovery and further weigh on the Australian dollar. However, the RBA could be less patient as mentioned by a close RBA watcher, which had some reliable
sources from RBA’s senior staff in the past. Even if the RBA has to respect a media “black-out” in the week before policy meeting, AUD/USD made new lows on the news”.

(Source: SwissQuote)

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US dollar far from overvalued – SwissQuote

 

SwissQuote report that “although the recent rise in the value of the greenback has been impressive, valuation are far from overvalued. Indeed, looking at some fundamental measures like PPP, long-term valuations do not suggest any
significant exaggeration in the value of the US dollar. However, given that the ECB’s QE and part of the Greek uncertainties are behind us, most of these Euro negative factors are now discounted. As a remaining big driver
for Euro weakness is the timing of the Fed’s tightening cycle, which remains very uncertain, the appreciation of the US dollar is likely to slow in the near-term. However, if our June scenario is correct and given the more dovish stance from the markets, we continue to favour a mediumterm bullish view on the US dollar index. Any decline near 91.0 should be seen as a very attractive entry point”.

(Source: SwissQuote)

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