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Asian Metals Market Update: May-9-2016

By: Chintan Karnani, Insignia Consultants

 -- Published: Monday, 9 May 2016 | Print  | Disqus 

Last week everyone went long in all metals and crude oil. There was range trade for most of the week with a bearish bias for metals and bullish bias for crude oil. However long term retail investor optimism in metals prevented them from going short. They were excited and nervous. Nervousness came in when gold and silver by more than $10 and $30. Excitement persisted as they both managed to hold on to key short term supports.


Copper traders were forced to convert their longs into shorts. The fall in copper prices reflects the grip Chinese have on industrial metals. Chinese markets were closed last week. Base metals traded with a softer bias. Chinese are investing massively in precious metals as well as industrial metals. Chinese gold imports should overtake India by a big margin in 2016 if monsoon rains are not evenly distributed in India. Chinese investment demand in the metals sector is only expected to rise in the coming months. To me, Chinese economy is moving towards a domestic demand led growth model. The results will be felt in the final quarter of the year.  Chinese in and out in the metals sector as a whole will be the key in the next two months.


Traders went long in gold and silver after the release of U April private ADP numbers last Wednesday. Hence the reaction to NFP was muted. Neither the US dollar weakened substantially nor gold and silver zoomed despite both the US monthly employment numbers being on the lower side of the expectation curve. This caused some hiccups among retail traders.


The whole world now a days prepares for the two US employment monthly numbers. Broking houses have special trading plans for retail traders for these two numbers for currency trading and metals trading. Three years back, the reaction to these two numbers was quick and instant. Hedge funds are not idiots to let you make a quick buck. The reaction (after the release of these two numbers) generally on these two numbers has been muted due to over excitement. It is easier to make a quick buck on the build up to US employment numbers. In other words, it is easier to make a quick profit on the last week of every month instead of the first week of every month. However these numbers give a direction to global financial markets.


A better way to trade the employment numbers (after the release) is to know the direction, have the key support/resistances in hand. Thereafter depending on the direction buy/sell as long as technical levels are holding or not broken. For example, on Friday after the release of US April nonfarm payrolls, it was known that that gold prices will rise, however gold prices did not rise. Some of the traders went long in gold at $1291 and got scared as gold prices fell to $1282 after the release of NFP. Key technical support on Friday was at $1267. A better way to trade (instead of getting nervous) was to wait as gold managed to trade over $1267. We need to use larger stop losses on big data days. $23 is by no mean a small stop losses. My experience is that if one wants to use small stop losses on big data days and big event days, then he/she should trade atleast one hour after the data/event.


This week, overall trend for gold and silver is bullish. However for another big wave of rise, gold needs to break and trade over $1319, and silver needs to break and trade over $1860. Upside will be capped/short sellers will emerge if gold and silver do not break $1319 and $1860 respectively. Energy traders should remain on the sidelines. Crude oil needs to fall below $39 or break and trade over $49.10 for another quick and big one way move. Copper needs to trade over $207 for the rest of the month to prevent a technical breakdown.


Failure of MCX gold June to break Rs.30717 will result in a fall to Rs.28853 first and then a rise. Day traders and jobbers should remain on the sidelines. Investors should use any five percent fall (if any) this week or next week to invest for the short term.



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

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.

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