RedFxTrade

Another Bullish Argument for Metals?

'Taking a step back, the monetary policy arguments for gold and against the USD remain the following:

i) FOMCs consistently dovish remarks regarding muted inflation;

ii) Fed's downgrading of growth and;

iii) Fed's planning to reinvest mortgage securities payments, which is a form of passive easing as the balance sheet is prevented from shrinking. Externally, the USD remains challenged by the contrasting monetary policy picture involving a tighter ECB/BoE/RBA relative to the Feds continued quantitative easing. This remains the yield differential driver to USD weakness. Any periodic reverberations regarding peripheral Eurozone debt concerns, equity market pullbacks disappointing earnings have proven -- and will likely to continue proving an opportunity for buying the dips in EURUSD, AUDUSD, gold and silver.

It will take the removal of the aforementioned fundamental dynamics in order for the USD to mount any credible rebound of more than 5% ie above 75 for at least 3-4 weeks. Such a strict requirement is necessary in order to avoid the several short-lived rebounds in the US currency, such as those seen in June 2009, August 2010 and February 2011.'

http://www.ashraflai...-for-metals.asp

This is certainly one side of the coin. I was calling for a USD rally in a post made on here last week. While I agree with the above reasons that Ashraf puts forward for a weaker USD, I believe that there is also the other side of the coin. I think the monetary policy of the FED is structural in nature, ie, it will be persistent and it is not going to change over the coming months. It will be in place for years. Yet the whole world knows this. Anyone who takes the markets seriously, knows the FED are going to continue the current policy. This has led to every at the moment being on the one side of the trade. While I hold my medium and longer term view that the USD will under go a "persistent" erosion in value, and will drop below the 71 area on the USD Index, I think we are now in and entering a USD positive period of time.

As I said monetary policy expectations for the FED are already priced in. Everyone is short the USD. Even the retail traders have flipped to net short the USD, right at the USD Index recent bottom. They had been long USD for 6 months, while the large futures traders were short. Now the large traders have eased off in their USD short positions, and the retailers are now net short, as they probably burnt all their capital looking for a bottom in the USD. An important shift in sentiment in my view.

On the other side of the coin I mentioned above is other countries. Interest rate expectations are mis-priced. The next move from the RBA is down. The employment report from Australia this week was dire, mortgage defaults are on the rise, mortgage approvals are falling, private sector debt is enormous. Mortgage debt as a percent of GDP in Oz is higher than it was at the peak of the US bubble. Oz banks are reliant on over seas funding. The next move is down in OZ rates. This mis-pricing in interest rate expectations for the AUD, once it is realised that rates will not go up, but down, will lead to a large unwind in the carry trade. At the moment it is a game of "known expectations" with US monetary policy versus "mis-priced expectations" regarding AUD and other central banks. Add to that the weakening Chinese economy and the rampant credit expansions there. Once property prices come down in China, and the contruction mal-investment is exposed, that credit expansion will go into a sharp reversal. As China is customer to about 28% of Oz exports, this is a double whammy for the Australian economy.

The same goes for the BoE and the ECB. Trichet much more dovish at last meeting. BoE continually talking how inflation will reach 5%, in other words they are telling the market expect higher inflation without higher rates. See Kings speeches, especially the one at the end of February. Recent data from the UK has been dire too. I don't believe central banks should be in charge of money, how can they possibly know the quantity of money for 60 million people. Nine people to know this for everyone. However, I m looking at it from the mindset of Keynesian central bankers.

Thats not to say the AUD will not make another new high in the very short term, but above 1.1000-1.1200 will be met with powerful selling. Perhaps the USD will spike lower again. However, it looks like a bottom for the next few months is in place. The mood has changed. Markets were continually rising on good news and bad news for 8 months straight, more or less. The market is selling of hard now on bad news and struggling on good news to gather momentum. I think this is due to QE ending. The markets will correct here, are correcting and the economy will weaken. Then expectations will increase for the FED to do something. I would not be surprised if QE 3 muttering begin by the end of the summer.

I said this a few posts ago but now I'm saying it again - I think something's up.

I feel like we are on the verge of:

1. Fierce Dollar rally

2. Commodity take-down (crude, and yes, GOLD)

DXY? Above 80?

Gold @ 13xx by the end of summer, and like I mentioned above Silver <20 (18)?

Crude, who knows. 80?

USD/JPY I have no idea but we're below 80 again. What would happen to this pair in a huge USD rally?

EUR, AUD taken-down by end of year.

(I see now that's a lot of "80"s...)

I'm sure there are those who disagree (and probably strongly), but that's what I feel and I'm going with my gut on this one. Other opinions welcome. I like to finish (minimize) all of my trades before I go home for the summer, but right now I feel like putting something on. Ideas?

I m long USD. I have been calling for a big rally for a while. See my post above. Timing has been elusive, but the final sign for me is the retail traders threw in the towel on a long Dollar positions, and the hedge funds have reduced their shorts. Three to Six month rally. The fundamentals in Oz are terrible. I m fading the AUD interest rate expectations. The market in my view is mis pricing interest rate expectations across the board. Look at what happened to the Euro today. The next move from the AUD central bank in my view is down. Huge housing bubble, banks over reliant on overseas funding, Oz banks asset side of balance sheet is vulnerable. I m short AUDUSD, built a position over time. Add to that the Chinese economy is an incipient bubble, at least in construction and commercial real estate.

As for ideas, basically long the USD. And when the correction is over, Sugar, Japanese equities, Silver, Gold. I m sure the FED will step in when the market is down. Its been down about 4 days now,,, so QE 3 will be discussed now,Lol. Good luck

Gold: Panicking or Buying?

http://sharecrazy.co...cking-or-buying

I think personally the mid to late summer will be the time to get into precious metals again. Although silver has fell a lot quickly. I still think we could get down to the $26-$33 range. Why such a wide estimate? Well as we have seen silver can cover this ground in a matter of hours.

This might be slightly off topic, but the focus seems to be on silver and gold at the moment. Has anyone considered the next parabolic move in the commodity spectrum could be sugar. I have been studying the supply/demand and price action in sugar lately. It is really the only commodity left that has not reached its last nominal high since the 1970s of $0.66. It is now around $0.21. I think we are going to get a big USD rally for the next 3-6 months. The retail traders have been heavily net long the USD for months now. This latest plunge in the USD seems to have caused most of the retails USD longs to throw in the towel. They have reduced their longs by 15-20% in the last week. On the other side of the coin, the non-commercials, large traders have been short the USD, but net short positions although still extremely net short, have reduced somewhat. Classic bottoming sign. This could hurt precious metals more than most think.

Anyway the sugar trade might be an alternative, or one to do in conjunction with silver. Here are a couple of posts I have done on it Sugar The Next Great Buy and Silver/Sugar technicals Revisited. I have been a poster on here in the past, just signed in with my twitter account, just in case you think I m shamelessly plugging my website. On another note Sugar measured in Gold is down 50% over the last year. The way I look at it is gold is the only stable money left, and so acts as a measure of value. Interesting that Marc Faber said of late that in a world where central banks are printing money, you cannot value anything. If gold is stable and acting as a true money, then I think it makes since to value other items in gold as it will give a better relative value of that said asset. If you look at commodities priced in gold, sugar is cheap. Natural gas is cheap also. Some food for thought.

Must go an get my pallet truck, and get to Tesco for a couple of pallets of sugar, haha.

Some interesting ideas though sounding a bit far fetched to me. I love the way Thaksin speaks with the assurance and confidence of an economic guru that seems contemptuous of the world's best (are other countries really struggling because of high taxes - Sweden, Denmark, Norway for example, with the highest standard's of living in the world).

You forgot to mention Ireland with its low company tax etc....maybe Khun Thaksin does not read the same press/media as you and I do

Yes, both points about the taxes I have to agree with. Ireland really is up the creek.

I have to question his motive for making visa applications easier. Is he trying to soften the stance of all the expats? I believe that Western opinion of Thaksin has to extent influenced some Thai people's opinion of him, especially those (Thais) who have daily exposure to Farangs. He hates us, he knows we see past his nonstop barrage of lies, and he knows we share our opinions with the electorate ....

Have to totally disagree with the sentiment that low tax is what has devastated the Irish economy. What went wrong in Ireland. The problem was a run up in money supply and credit by central bankers who think they can know the correct quantity of money. So they price fixed interest rates artificially low for far too long. Those conditions of easy credit were interpreted as real savings, however, it wasn't real savings, it was an artificial growth in money supply. Money from thin air, back by nothing. That was the boom which inflated the credit bubble the world over, and was the major factor in the real estate bust in Ireland.

The part of the economy that benefits from low tax has been the best performer. IT and Pharma. Ireland is running a large trade surplus due to the huge amount of exports from these industries and is a world leader. It is all explained in the above lin,,, what went wrong in Ireland.

As for Sweden, they had their own banking crisis, and have devalued the currency a few times. There has been no private sector growth in jobs since 1957. The demographics are no favourable. What happens when the baby boomers retire and the tax base shrinks? Can the state support this demographic change?