-- Posted Tuesday, 1 September 2009 | Digg This Article
| | Source: GoldSeek.com
SEPTEMBER MONTHLY REVIEW AND OUTLOOK
SUMMER TRADING COMES TO AN END
August is a summer month in US and Europe. Manufacturing units generally turn to repair and maintenances in August so they can prepare for Thanksgiving, Christmas and New Year demand. Trading volumes in commodities, equities and other financials fall in August. It’s holiday time for Americans and Europeans. Summers will be over this week and it will be business time for everyone.
Consumer demand, consumer confidence, business confidences were all positive in August and also beat street expectations. This has resulted in equities, base metals and energies all trading with a positive bias.
% gain/loss in August |
| As on 28th August |
GOLD | 2.36% |
SILVER | 9.60% |
COPPER | 14.76% |
CRUDE OIL | 8.66% |
DOLLAR INDEX | -1.29% |
The chain was simple:
Positive economic numbers à higher equities à A Weaker US dollar à Increase in Risk Appetite à Higher commodity prices à And Vice – Versa.
(Apart from technical factors)
The other factors which supported the above chain are:
1) Interest Rate Stability: Investors know that interest rates will not be raised for the rest of 2009. Stable interest rates always result in greater investment in riskier asset classes. None of the central bankers are expected to raise interest rates or change interest rate outlook in September.
2) Increase in currency carry trade: After a gap of nearly two years currency carry trades have started to pick up and are on the rise. The only question which I have been asked over and over again is why is the yen (USD/JPY) rising whereas it should weaken. My answer is Japanese investors are still not certain whether global growth rates will be sustain itself in the medium term to long term. Once their fear is over, yen will weaken. This may not happen in September but will happen in October.
3) Stability in global liquidity: Central banks have not yet reduced global liquidity even after printing unlimited amounts over the past eighteen months. Higher liquidity always promotes investment in riskier assets.
WHAT TO LOOK OUT FOR IN SEPTEMBER
At the very beginning, I must caution that the one need not get carried away by the momentum and invest. Please check the fundamentals as well as technical before investing. The principles or correlations which worked in August may not work in September. Any bad move can erode your yearly trading/investment profits. Momentum trading is fine but use higher stop losses.
The so called “green shoots” theory has worked but still I have my doubts whether the global recovery will be sustained or just cyclical. I will to stay long on all commodities and short on the US dollar on every sharp decline as long as key medium term technical supports are holding. However at the same time I will be on the lookout for factors which can cause a bullish trend reversal so that I can exit my long commodities/short US dollar positions and trade reverse. In September we need to be more vigilant on our investments than August or July. I am serious and not joking.
1) Changes in interest rate outlook by central banks: At moment none of the central banks are expected to raise interest rates or interest rate outlook for rest of the year. Investors have hundred percent factored that on interest rate stability for the rest of the year. Now bets are being placed on interest rate hikes as early as March of 2010. If any of the major central banks say (in whichever form) that interest rates could be raised in the first quarter of 2010 then expect equities as well as commodities to fall.
2) Global growth rates: So far so good which if it continues will result further gains in equities as well as commodities. But even any hint of a global growth rates fall will result in a major pullback in commodities, equities and gains for the greenback. Base metals and energies will get the biggest knock down if it happens (while maintaining the long term bullish trend).
3) US dollar: US dollar gains may not result in commodities pain if fundamentals support. Only the pace of rise will be slowed and vice- versa.
4) Inflation: Higher commodity prices have a lagging effect. The April to August price rise in commodities by way higher inflation will be felt only in October to December quarter. Central banks are expected to ignore inflationary expectations in September.
KEY TECHNICAL LEVELS FOR SEPTEMBER |
GOLD DECEMBER 09 TECHNICAL LEVELS |
SUPPORT | | RESISTANCE |
S1 | S2 | S3 | S4 | S5 | R1 | R2 | R3 | R4 | R5 |
$878.40 | $908.40 | $925.10 | $933.20 | $947.80 | $973.50 | $990.50 | $1,008.10 | $1,035.40 | $1,084.10 |
SILVER DECEMBER 09 TECHNICAL LEVELS |
SUPPORT | | RESISTANCE |
S1 | S2 | S3 | S4 | | R1 | R2 | R3 | | R4 |
$1,185.00 | $1,252.00 | $1,320.00 | $1,386.00 | $1,455.00 | $1,527.00 | $1,686.00 | $1,786.00 | $1,975.00 | $2,128.00 |
COPPER DECEMBER 09 TECHNICAL LEVELS |
` | | RESISTANCE |
S1 | S2 | S3 | S4 | | R1 | R2 | R3 | | R4 |
$202.00 | $213.80 | $255.40 | $264.00 | $282.40 | $304.70 | $313.40 | $338.50 | $348.50 | $391.00 |
CRUDE OIL (1st Contract) |
SUPPORT | | RESISTANCE |
S1 | S2 | S3 | S4 | | R1 | R2 | R3 | | R4 |
$51.10 | $58.32 | $63.44 | $66.70 | $69.80 | $75.04 | $77.62 | $81.08 | $89.42 | $99.57 |
GOLD – PERIOD OF BULL RUN BETWEEN SEPTEMBER AND APRIL – WILL HISTORY REPEAT ITSELF.
For the past eight years gold has been rising between September and April every year. The table below confirms the same.
| SPOT GOLD | SPOT SILVER |
| % GAIN/LOSS |
SEPTEMBER 2000 TO APRIL 2001 | -3.55% | -11.84% |
SEPTEMBER 2001 TO APRIL 2002 | 17.31% | 10.82% |
SEPTEMBER 2002 TO APRIL 2003 | 9.75% | 0.22% |
SEPTEMBER 2003 TO APRIL 2004 | 4.80% | 14.48% |
SEPTEMBER 2004 TO APRIL 2005 | 5.83% | 3.59% |
SEPTEMBER 2005 TO APRIL 2006 | 51.70% | 103.27% |
SEPTEMBER 2006 TO APRIL 2007 | 10.25% | 8.18% |
SEPTEMBER 2007 TO APRIL 2008 | 30.80% | 40.70% |
SEPTEMBER 2008 TO APRIL 2009 | 8.27% | -6.20% |
The above table makes me believe that I should invest in gold in September for April, if history repeats itself. But the big question is will history repeat itself in 2009-2010? My answer is yes, history will repeat itself in 2009-2010 and returns will be positive. But at this point of time, I am not able to give the pace of rise. I expect gold to rise between $1150 and $1275 before April 2010. But before that there should be a healthy correction to $908 and $893. Its just investment demand that is driving gold prices.
(A) There is no jewelry demand in India and rest of the world at current prices. Gold prices have to fall first so that jewelry demand can pick up.
(B) Investment demand can change overnight as well if there are major changes in global financial system.
(C) The world gold says council says that Indian gold demand will pick up in a big way only if prices fall to INR 14000/- per ten grams. I expect huge demand between INR 14300-INR 14600 per ten grams.
(D) Changes in investors investment pattern will also affect gold prices in the short term albeit negatively.
In my view investors should invest in gold in any five percent correction in prices in small amounts and aggressively if prices fall ten percent. But be prepared for higher volatility in gold prices.
SILVER – WILL THE SILVER LINING CONTINUE
At the very outset I must say that I have been hyper bullish on silver since I started “insignia Consultants” in 2003. I was proved wrong in 2007. But I still maintain that silver is more bullish than gold for the rest of 2009 and 2010. Higher volatility than gold or copper has prevented investors from investing in silver in a big way. Silver will continue to move in this fashion only.
The risk to silver prices is the bear run in either precious metals or base metals as silver gets chopped in between them.
COMEX GOLD DECEMBER
o Momentum indicators suggest room for further gains in September but the rise will be dependent on the ability to break and hold $967.
o Weekly view: Bullish over $925 with $1004.50 and 1035.40 as price targets.
o Short term view: Bullish over $904.80 with $1084 and 1120 as price targets.
o Long term view (9 months to one year): Bullish over $793.50 with 1283.70 as price target.
o Only a daily close below $933.20 (100 day MA) for three consecutive days will negate the short term and weekly bullish direction. Long term bullish trend will remain intact.
o Trading strategy: Weekly traders buy gold only a consolidated break of $965 for $980 and $1004.50.
o Short term investors and well as long term investors should wait for some further correction to $936 and $915 and then invest.
o Fundamentals are still negative for gold and that’s its just investment demand which is perking up gold prices. As and when new alternate sources of investments are available gold prices may see a short term correction.
COMEX SILVER DECEMBER
o Momentum indicators suggest room for further gains. But upside will be dependent on the ability to hold key technical resistances.
o 100 day moving and 200 day moving averages of $1386 and $1272 are the key supports.
o $1527 is the key long term resistances (50% retracement from high of $2175 and low of $880) and a daily close over $1527 for three consecutive days will result in $1686 and $1941.
o In the medium term as long as $1252 and $1186 downside risk will be limited and there is every possibility of $2128 and $2281.
o Weekly Traders: Buy on a consolidated break of $1527 for $1625 and $1790.
o Short term traders: Buy on every $30-$40 dips with a stop loss below $1310 for $1690
o Long term traders (9 months to one year): Wait for a correction and start investing around $1370 and below.
o There has been a direct relationship between silver and copper since April 2009. The unendless rise in copper has been supporting silver prices from a major fall. If global economic growths sags in the fourth quarter of 2009 or global growth outlook reverses then silver and copper will be in a bear zone on fundamentals.
COMEX COPPER DECEMBER
o Momentum indicators suggest room for further gains. But the rise should be capped as overbrought conditions will be reached.
o Successive lower base getting higher which suggest that there is room for further gains in short term. But rise will be dependent on the ability to break $314.
o Failure to break $314 will result in a correction to $283 and $255 in short term.
o Fundamentally there should be a correction in copper before the next leg higher. The pace of rise of copper has defied fundamentals.
o Weekly View: Bullish over $269 and $279 with $304 and $338 as key resistances. Weekly traders buy only on a consolidated break of $304.
o Short term View: Bullish over $255.40 with $314 and $380 as key resistances. Wait for some correction and then invest around $280 and below.
o Long term View (9 months to one year): Bullish over $215.80 with $380 and $432 as price targets. Wait for another 10% to 15% correction and then only invest.
o As and when global liquidity falls OR global growth rates expectations reverse copper will be the first commodity to fall. One needs to be careful while investing at higher prices.
NYMEX CRUDE OIL (1ST CONTRACT)
o Momentum indicators suggest room for further gains. But upside will be dependent on the ability to hold key technical resistances.
o In the medium term as long as the 100 day moving average of $63.44 holds on daily closing basis, there is every possibility of $81 and $96.
o $79-$81 zone could be a tough nut to crack in the short term, unless fundamentals continue to remain strong. Any sign of weak fundamentals will result in crude oil falling back to $58.50 and $47 in medium term.
o Weekly View: As long as $69.80 holds, there is every possibility of $75 and $77. Sellers will be there below $69.80
o Short term View: Bullish over $63.40 with $81.04as key resistance.
In the long term (2010 and 2011) crude oil prices are expected to test 2008 high of $147.27 and may be even $200 if global growth rates rise show continued signs of improvement. But crude oil will always be vulnerable to (A) Reduction in global liquidity conditions (B) Regulation by states to prevent energy prices from ransoming growth rates. There should be an even fight between bulls and bears in the short term as well as long term.
DISCLOSURE: NO POSITIONS
Disclaimer: Any opinions as to the commentary, market information, and future direction of prices of specific currencies, metals and commodities reflect the views of the individual analyst, In no event shall Insignia Consultants or its employees have any liability for any losses incurred in connection with any decision made, action or inaction taken by any party in reliance upon the information provided in this material; or in any delays, inaccuracies, errors in, or omissions of Information. Nothing in this article is, or should be construed as, investment advice. Prepared By Chintan Karnani. Website www.insigniaconsultants.in
-- Posted Tuesday, 1 September 2009 | Digg This Article | Source: GoldSeek.com
