-- Posted Wednesday, 19 May 2010 | Digg This Article
| | Source: GoldSeek.com
GERMANY BANS NAKED SHORT-SELLING – EFFECT ON COMMODITIES AND FOREX MARKET
Germany prohibited naked short- selling and speculating on European government bonds with credit-default swaps in an effort to calm the region’s financial markets, sparking anxiety among investors about increasing government regulation. The ban, which took effect at midnight and lasts until March 31, 2011, also applies to the shares of 10 banks and insurers. In response to the global financial crisis and the euro zone's debt problems, the German government has been working on a bill to increase protection for investors and reduce wild swings in capital markets.
U.S. regulators are working on their own rules to curb stock trading when markets plunge uncontrollably, as happened on May 6 when the Dow Jones industrial average dropped some 700 points within minutes. The plan was hastily crafted by the Securities and Exchange Commission and major U.S. exchanges and will be implemented as soon as mid-June.
The big question is whether eurozone member will follow Germany. In our view other eurozone members will follow Germany. Most of the countries globally have followed Federal Reserve on any crisis. It remains to be seen whether the UK and the US will also follow Germany. In our view the UK may follow Germany but the Federal Reserve may not follow Germany.
Our View: Unilateral action by Germany will only result in further losses in the euro as the leads investors to believe that the problems in the eurozone are very severe and long lasting. Blaming electronic trading and speculation for the financial mess created by central banks is not right. Suppression of facts by the European central bank and other eurozone officials on Greece and other euro member nations does not last long. The investor is not an idiot. In the case of Greece early warning signals were there but there was not effort by the European central bank or eurozone members to prevent the crisis from spilling into the euro currency. The Suppression bubble had to burst sooner than later which is happening now.
Effect on gold and safe havens: European central banks have started printing more money and issuing more bonds which in turn has increased liquidity significantly in the eurozone area. Interest rates are expected to remain at the current low levels for the rest of the year and into the first quarter of 2011. This will only result in high investment demand for safe havens. There will be wild swings in gold, silver and platinum but they are expected to continue to rise to multi year highs and historical highs. For the rest of the year gold can rise to $1360 and $1525 and yet fall to $1130 and $980. Such will be the swings in gold prices.
Effect on base metals and energies: Lower interest rates and stable interest rates along with sustained global economic growth will result in a continued rise in demand for base metals and energies. A weaker euro will also result in higher exports from the euro zone which means higher growth in the eurozone. There will be greater demand from most of the countries across the globe. If Chinese growth falls then there will be a short term correction in base metals prices. We expect the current fall and further fall (if any) as an opportunity to invest in base metals and energies to invest for the long term (6 months to 12 months time). I do not expect LME copper (3 months) to fall below $4000-$4250 over the next twelve months (unless global stock markets crash) with every possibility of $8000 and $9600 being tested.
Effect on euro: I do not expect euro/usd to fall below parity this year. The long term support is at 1.1758 and 1.1210. I do not expect euro/usd to fall below these prices this year. However in case euro/usd falls below 1.1210 then there is a greater chance that it will fall below parity.
Euro/usd should fall a form a medium term bottom in the next three weeks and then rise to 1.3850 before the next wave of selling below parity in 2011.
Euro/Indian Rupee is trading around 56.00 and can fall to 53.30 and 50.80 before end June and thereafter a big rise to 59.50 and 61.50.
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
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-- Posted Wednesday, 19 May 2010 | Digg This Article | Source: GoldSeek.com
