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By: Manan Somani, Insignia Consultants

 -- Published: Friday, 14 March 2014 | Print  | Disqus 

Our view on Ukraine crisis and its effect on gold prices

Obama warned that unless Russian President Vladimir Putin pulls back, the U.S. and its allies “will be forced to apply a cost to Russia’s violations of international law and its encroachments on Ukraine.” Our View on Ukraine: The US and its allies make sure that nations bow to their whims and fancies through the use of  trade sanctions. Most of the nations are friends of USA. So a sustained period of sanctions and global isolation implies a North Korea like situation which no one likes. But Russia is different. It has a strong leadership under comrade Putin and has friends in India, China, and Iran among other nations.  A sustained period of sanctions will negatively affect US based large "too big to fail" corporations.  The Russian economy may feel short term pressure but in the long term things will stabilize and will benefit Russia.  Europe could also be divided on Ukraine.  The USA and its allies have to understand that Russia is not Iraq, Afghanistan, Syria or an Egypt. Russia has adequate weapons as well as natural resources to defend its interest and also enough food grain reserves to feed its people. Russia has a huge land border with China as well. 

In our view if the Ukrainian crisis is not solved peacefully by the end of June then gold prices will rise to $1900. I am serious and not joking. Initial resistance is at $1530 and as long as gold does not break $1530 bears still have the upper hand for the time being.

Euro-US dollar - Highly over valued in our view

Euro - US dollar (euro/usd) is overvalued on economic fundamentals. There is no reason for the euro/usd to rise to the current price of 1.3867. If the upward momentum continues in the euro/usd then 1.4350-1.4450 should be the top. We believe that 1.30 is the fair value for the euro/usd which should be reached in the April to June quarter. Low risk traders buy far dated euro/usd put options. Naked selling in euro/usd futures or euro/usd spot is not advisable at the moment. One needs to wait and watch for some time before taking a decision to sell euro/usd.

The US economy is far better off than the eurozone as far as economic fundamentals are concerned. A prolonged tussle with Russia over Ukraine will affect European companies much more than US based companies. There can be political unrest in Eastern Europe in nations which were pro Russia but are now part of the NATO alliance. Everything can happen in Europe but nothing to the USA. The Eurozone has just started to grow and prolonging the tensions with Russia will be like hitting the axe on your own foot. Even the invincible German economy will be affected by prolonged tensions with Russia.

ECB draghi

  • Euro exchange rate becoming increasingly relevant in our assessment of price stability
  • Interest rate spreads between the eurozone and rest of the world will probably fall
  • Risks of deflation are quite limited. But the longer inflation stays low, the higher probability of such a risk emerging
  • Forward guidance to keep key rates at present or lower levels for a extended period of time

In our view neither interest rates nor forward guidance on interest rates in the eurozone will not be changed for the rest of the year.  A Russian tension with the Eurozone will harm the eurozone more.

There is lots of concern over Chinese economic growth. China will start to grow from the next quarter. These are just passing phases for the Chinese economy as well as global economics. The first two months has seen high energy prices and a start of a cold war between the USA and Russia. We expect energy prices to fall or stabilize in the second quarter of this year which should reduce inflation and give a clear indication of higher economic growth. Ukraine tensions will affect the Russian economy more than the global economy. Ukraine will not create any significant drag on the global economy but could create new political permutations and combinations away from the USA and NATO. Nations and central bankers will now start taking safeguard steps to reduce their reliance on the USA and its NATO alliance.

TECHNICAL VIEW

COMEX SILVER MAY 2014 – current price $2128.50

Bullish over $2104 with $2156 and $2226 as price target

Bearish below $2080 with $2062-$2036 as price target

Neutral Zone between: $2080-$2104

Break point: $2140

  • Silver need to trade over $2140 today to  target $2196-$2235
  • Better to remain on the sidelines.
  • There will be buyers on dips as long as silver trades over $2080

COMEX COPPER MAY 2014 – current price $292.10

Bullish over $292.50 with $299.10 -$305.60 as price target

Bearish below $288.30 with $285.40 and $279.30 as price target

Neutral Zone between: $288.30-$292.50

Break point: $292.50 and $298.10

  • Copper needs to trade over $292 on daily closing basis to prevent a long term technical break down
  • There will be sellers if and only if copper trades below $289 either in UK session of US session

NYMEX CRUDE OIL (1ST CONTRACT)  - current price $98.13

Bullish over $99.60 with $100.80 and $102.20 as price target

Bearish below $98.30 with $97.60 and $96.90 as price target

Break point: $98.40

  • Crude oil will see another wave of selling if it trades below $97.60 in US session
  • One needs to trade very carefully between $96.80 and $99.40. In case crude oil is able to trade over $96.80-$99.40 zone till Monday then it can still rise to $104.
  • We prefer to be on the long side as long as crude oil trades over $95.00 till Monday

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 Manan Somani

Disclosure: Insignia consultants or it employees do not have any trading positions on the trading strategies mentioned above. Our clients do have positions on the trading strategies mentioned in the above report.

Trade without emotions

"Print this report only if absolutely necessary. Save Paper. Save Trees."

NOTES TO THE ABOVE REPORT

UK session starts around 1:30 pm Indian Standard Time (+5:30 GMT) -- after the release of LME daily inventories

US session starts at 6pm pm Indian Standard Time (+5:30 GMT)

PLEASE NOTE: HOLDS MEANS HOLDS ON DAILY CLOSING BASIS

PLEASE USE APPROPRIATE STOP LOSSES ON INTRA DAY TRADES TO LIMIT LOSSES.

THE TIME GIVEN IN THE REPORT IS THE TIME OF COMPLETION OF REPORT

Customer care: 9311139549

You can also mail your queries at insigniacommodity@gmail.com

Chat Id: mcxsuretips@gmail.com (gtalk), insigniaconsultants@yahoo.com (yahoo)

              (10:30 am to 5:30 pm Indian time, Monday to Friday)

 


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