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Money Matters
- NZD/USD - No one's talking about it!
- Interesting Snippet on US Oil Production
- NZD/AUD - Sunk by back-to-back poor NZ data
- Stunning Gold Chart - Gold on the Cusp of a Strong Rally?
- Update - the Graveyard - USD/JPY
- Physical Gold - the major new trend
- The Graveyard - USD/JPY
- USD Pairs - All lined up?
- Pullbacks in the Gold market are healthy
- For those that haven't already, it's time to Buy Gold
- View archive...
Money Matters
Viewing entries tagged with 'US'
NZD/USD - No one's talking about it!
All
I’m amazed that there is so little chatter around the potential for a really stiff NZD/USD fall. Has the recent lack of relative volatility lulled the market into complacency?
Sharply falling global share markets, rotten local employment and retail sales data and our closest (and biggest) trading neighbour is in the midst of an interest rate cutting cycle and I’m not seeing terribly much interest to sell. Nor am I seeing much chatter on the wires regarding the possibility of a big fall. AMAZING!
Here’s an overlay chart of NZD/USD (in yellow) and the Dow Jones Index (in black). Since the GFC the two instruments have been highly correlated but look at the magnitude of the Dow fall comparative to that of the NZD in recent weeks.
The NZD/USD has been viewed by most as being somewhat overvalued for quite some time now, certainly departing RBNZ Governor Bollard fired a parting shot at the U.S. and the FED’s policies which keep the USD depressed (and as a result overvalue the likes of the NZD). I’m hearing the farmers have their cheque books firmly closed at present which doesn’t help. Is the Q3 in NZ just a soft blip or something more, is the USD ready to roar……..no one knows of course but the sum of what we do know right now suggests the kiwi may have quite a bit further to fall.
NZDUSD – click here to view chart
G.
Interesting Snippet on US Oil Production
All
I have been a fan of shorting U.S oil on just this theme of increased U.S production (refer ‘Time to sell Crude Oil?’ dated 29 Aug. Crude then US$96 – now US$85).
A somewhat less risky trade to capture this theme could be a ‘pairs’ trade selling U.S Crude buying Brent as the supply expectations widen.
G.
US is top dog in oil
Many of us can (vaguely) remember the oil crises of the mid-70s when the Middle East countries held the world to ransom over oil supply, causing petrol prices to skyrocket.
An everyday item that we all took for granted suddenly became an expensive luxury, particularly if your Dad drove a big Holden V8 gas guzzler to cart the kids around.
Now the worm has turned.
For so long, Saudi Arabia has been the world’s largest single country producer and together with all its OPEC mates has kept the western world on tenterhooks for the best part of three decades or more.
U.S. Energy Production – click here to view chart
But now with the shale gas revolution in the US (and elsewhere around the non-OPEC world), the International Energy Agency (IEA) thinks that the US will become a net oil exporter by 2030 and almost self-sufficient in oil by 2035. The US currently imports around 20% of its oil requirements and is by far the biggest consumer of petroleum products.
The IEA’s latest annual review of world energy supply says the US will overtake Russia as the biggest gas producer by 2015 and become the world’s largest oil producer by 2017.
U.S. Fossil Fuel Production – click here to view chart
The combination of producing its own energy and more frugal consumption through technology, education and basic economics will also dramatically shift the geopolitical balance of power around the world.
In short, the US may not have to be so friendly to the Saudis or anyone else in the Middle East any more.
The shale gas bonanza also has the fortuitous side effect of replacing coal as the main energy fuel stock in the US which would also go a long way to mitigating many greenhouse gas concerns.
This story has a very long way to play out, but has already become a major global issue.
NZD/AUD - Sunk by back-to-back poor NZ data
All
I have been a fan of NZ’s prospects over that of Australia in recent times given the Canterbury rebuild and a number of droughts around the world keeping NZ’s soft commodity prices elevated compared to that of Australia’s hard commodities. The strategy has given a couple of nice runs higher to trade on the NZD/AUD cross but recent data has abruptly turned that around.
Today’s very weak Retail Sales data, coming hot on the heels of the shocking 13 year high in NZ Unemployment, may see built up long NZD/AUD positions liquidated in coming sessions.
My modelling analysis worked very well today capping the recent bounce in the cross at 0.7860 versus the model sitting at 0.7870/92. The model is splayed wide which is suggestive of a strong move underway and the readings are dropping very quickly. That means selling NZD/AUD around here may have its risk mitigated very quickly, say within 2/3 days.
NZDAUD – click here to view chart
The daily chart is suggestive of a forthcoming test of one year support at 0.7745. A break of that level could get very ugly indeed.
NZDAUD – click here to view chart two
No one expects that the RBNZ will need to cut because they think the boost from Canterbury will be ‘real’ in the RBNZ’s own words but if the world sinks a little again, we get another decent jolt delaying the rebuild.
Cheers G.
Stunning Gold Chart - Gold on the Cusp of a Strong Rally?
All
For a very long time Gold has been considered a commodity, however since the GFC and the massive money printing conducted by the world’s central banks, the modern view is to consider Gold as money i.e. that classic store of value when everything around it is being debased. To whit Gold has been rising steadily as Copper (the Dr with the PHD in Industrial Activity) has been declining just as steadily.
Given that Gold was one of the main beneficiaries of the first few rounds of QE and the world’s central banks have again, over the last few months, embarked on another easing frenzy one could expect that Gold will begin to rise again.
In that context this long term chart of Gold, as measured against its 55 week moving average, makes for very interesting reading.
Since the 2001 low of US$255.00 oz the 55 week moving average has done a simply amazing job of defining the major trend. Now the recent sharp drop to US$1.672 oz very much looks like the low made in April 2009 before Gold embarked on a massive 122% rise. (This was the same period that my Mr Silverballs rode NZ$1,500 to NZ$1,000,000 in Silver using the leveraging capabilities of the BBY Online system).
Further hardening my resolve that Gold may be on the cusp of another strong rise after a 13 month consolidation, the weekly bounce off the 55 week m.a. was a ‘bullish engulfing week’.
Chart 1 – The 55 week m.a. documented.
55 m.a. – Click here to view chart
Chart 2 – A closer look at the recent bounce.
A closer look – Click here to view chart
I think that this could be one of those very rare occasions where an truly stunning opportunity exists. I have multiple ideas on how to capture any ensuing move should you be interested.
Cheers G.
Update - the Graveyard - USD/JPY
All
This trade is progressing slowly but surely. To recap, the bones of this trade are;
# The 30 year run of trade surpluses has now turned to deficits as the Japanese turned off their nuclear power stations after the Tsunami inspired Fukushima disaster. As a result the Japanese now import the vast majority of their energy requirements.
# Japan’s demographics are poor with the population forecast to decline to 90 mio by 2055 from the 127 mio peak in 2004. Those citizens that are left will be much older too.
# The Bank of Japan has set forth on a new round of monetary policy easing. Top Japanese research house Nomura have been widely quoted recently regarding the new policy saying that the “JPY is likely to weaken due to the BoJ becoming more proactive as a result of likely changes in government leadership as well as changes at the Japanese central bank in coming months.
# …and the budding theme that we here at Edge Capital are watching with great interest is the vast supplies of cheap energy (shale gas) that the U.S is currently harnessing. We think this could be a major kicker for the U.S in coming years. Cheap currency and super low interest rates have been prevailing for 5 years now, add super lean business organisations and top it off with cheap energy. That should be one tasty cake when baked.
USDJPY – click here to view chart
P.S. Got to love NZD/JPY on this basis too !
Cheers G.
Physical Gold - the major new trend
Much has been written about Gold’s dramatic rise in price over the past decade or so and it certainly appears that this trend is set to continue for some time yet.
However within this trend of increasing demand for Gold a new trend, and probably the most important development yet, is starting to take hold and this is the demand for investors to hold actual physical gold.
The significance of this development is that in the early part of Gold’s rising trend the market was to a very large degree driven by the paper market with the introduction of Exchange Traded Funds which tracked and were backed by gold. Investors flocked to these funds and as a result more and more of these types of funds were brought to the market. Such has been the proliferation of these funds that many in the market are starting to wonder if indeed these funds actually hold the amount of gold they profess to hold. There may not be anything in this concern and perhaps these funds do indeed have the amount of gold they say they do but the very idea of being ‘pooled’ with other investors is certainly losing its attractiveness.
According to the World Gold Council purchases of gold bars and coins have increased nearly 100% since 2009, whereas additions to Exchange Traded Funds are down by nearly three quarters in the same time period.
Investors are becoming increasingly concerned about developments in the financial markets and they know that throughout history gold has been a safe haven for their wealth, the more the value of paper currencies are eroded by such things as QE the more valuable their Gold becomes. Now accompanying this increasing fear is the increasing desire to hold their gold in a secure vault in their own name or for some burying it under the floorboards at home is the way to go (not something I would particularly recommend but everyone to their own).
The matter of secure vaulting has also been much highlighted recently as many holders of physical gold have their gold stored in Bank vaults and Banks are notorious for leasing out the gold that they have in their vaults. There have been many cases recently of significant gold investors requesting delivery of their gold, that is supposedly being held in a Bank’s vault, only to be presented with delay tactics from the Bank while the Bank struggles to obtain the Gold to deliver back to its client.
In recognition of this increasing trend in the desire to actually own physical gold in your own name and in a secure commercial Non- Bank vault (no leasing to worry about or pooling of ownership) we at Edge Capital Markets have obtained access for our clients to a Gold purchasing service that was previously only available to wholesale clients, with the accompanying very attractive precious metal prices, of course actual delivery of the metals is available for those who want to provide their own storage at home (spade and extra floorboards not included).
The Graveyard - USD/JPY
All
The traders’ graveyard that is USD/JPY is tempting me again.
You’ll recall this year we broke the 5 year downtrend which has promised, but failed, to deliver much to date.
We know the ugly Japan demographics, their newfound reliance on imported energy since the Tsunami (and the subsequent trade deficits – first series in 30 years) and the recent series of monetary policy easing’s which should all weaken the JPY, propelling USD/JPY higher.
To whit the charts look promising right now.
USDJPY – click here to view chart
Cheers G.
USD Pairs - All lined up?
Hi All
I note a number of currency pairs against the USD are all poised neatly below short term resistances. After a long period of (boring) consolidation I wonder will these levels hold once again, confining us to familiar ranges, or are we on the cusp of a break out and a decent trend?
I still expect a resumption of USD weakness on the basis of, all other things being equal, that QE3 will weaken the USD just as the prior installations did. Also I expect Chinese PMI’s out tomorrow to confirm that the worst is behind for the Chinese economy.
I will be buying these pairs (on strength) on a 1 hour hold above the seemingly co-ordinated trend lines.
G.
Fig 1 – NZD/USD
NZDUSD – Click here to view chart
Fig 2 – AUD/USD
AUDUSD – Click here to view chart
Fig 3 – EUR/USD
EURUSD – Click here to view chart
Fig 4 – GBP/USD
Pullbacks in the Gold market are healthy
Since the recent and short lived breach of USD1800 on Oct 5 the price of gold has taken quite a tumble, closing today just above USD1700 mark. Once again any precipitous move downwards in the price of the precious metal has produced a myriad of claims from many in the finance community of its imminent demise. I noted that even in the NZ Herald last weekend a well known NZ market commentator had added in his article on a possible property crash that Gold was also showing signs of a bubble (nothing else was included to back up his claim in relation to Gold, he obviously believes that no context information was required). These Market commentators are probably the same people who were claiming that Gold’s run was over when the price fell below USD1550 as recently as May of this year, and other similar calls throughout the past decade whenever Gold has suffered a significant pullback.
I am not saying that this current pullback is necessarily over, after all both the 100 and 200 day moving averages are still quite a way down from here sitting around the USD1650 level thus it is quite possible that this current pullback could target that level, what I am saying is that throughout Gold’s bull run of the last 12 years significant price pullbacks have been necessary (and therefore healthy) for the run to continue over the long term.
With regard the movement in the price of Gold over the past 3 months, it should be noted that the expectation of QE3, followed by the actual announcement of it, caused quite a huge run up in the price. Now of course the market is waiting for the enaction of QE3 to start taking effect, so this latest pullback was not entirely unexpected, even though the severity of it was probably not so expected.
At times like these it is sensible to not panic and to continue to maintain a core holding in Gold, if your expectation (as is mine) that the precious metal has still considerable upside in its future price.
Just remind yourself why you purchased Gold in the first place and reflect on whether any of those fundamental reasons have indeed altered in any way, if they haven’t (and I would suggest that this is the case) then continue to hold Gold and wait to be rewarded for doing so.
For those that haven't already, it's time to Buy Gold
Despite the fact that many of today’s financiers treat the subject of gold with nothing short of disdain, whatever your level of wealth gold should be a part of your strategy to increase or protect your wealth over the long term future.
Consequently, the following information is with regard to buying and holding gold for the long term (a number of years) and is not a short term trading recommendation as buyers need to be aware that gold is susceptible to significant price moves both up and down especially over the short term.
The four basic reasons to hold gold are:
- Gold has proven to be a reliable preserver of wealth.
- As well as protecting wealth its been performing extremely well as an investment for the past decade.
- Gold being treated as real money has been normal practice throughout history and likely to be normal practice in the future.
- And very importantly in the current environment it is insurance against financial crises.
So let’s explore more fully the above reasons to hold gold in your investment portfolio:
- Storage of wealth – a common example given is that in the 1920’s a Wall St executive could buy a high quality men’s business suit for USD35.00 which was also the cost of an ounce of gold at that time. Today a high quality men’s suit for a Wall St executive would cost around USD1700-1800 which is the cost of an ounce of gold in today’s prices.
I have also read reports that an ounce of gold bought a Roman senator his toga and sandals 2000 years ago but I am not quite sure how to substantiate this claim.
Despite years of inflation gold has maintained its purchasing power, but the same can certainly not be said for the money in your pocket or saved in the bank. Over those same years inflation has massively eroded the value of cash – it now takes nearly $1000 to purchase what you got for $100 forty years ago. - Gold= Money – in many past civilizations gold has been used as money. However, gold is totally suitable for this purpose as it is rare, standardized in purity and weight , divisible, and indestructible. The reserve currency of the world the US dollar was taken off the gold standard by President Nixon in 1971 (note that the time since is the same forty year period mentioned above with regard erosion of the value of money) and consequently since 1971 the world’s currencies have been what are known as fiat currencies i.e. paper currencies not based on a relative value to gold. Prior to 1971 the US dollars convertibility into gold had kept the worlds currencies on a sound footing due to the fact that all currencies were convertible into US dollars and therefore convertible into gold.
Throughout history countries and empires have attempted to create a monetary system that is not based on gold and yet all of these fiat monetary systems eventually failed and the paper currency in use went out of existence. There is no reason to believe that this will not be the eventual fate of today’s fiat paper currencies. Therefore it is highly probable that at some point in the not too distant future the world will return to some sort of gold standard i.e. return to normal. If this occurs it is likely that holders of gold would see a significant appreciation of the value of their gold. - Gold’s stellar performance as an investment over the past decade. At the turn of the new millennium gold was priced at approx USD $400. Since then it has risen steadily and the average annual return over the past 12 years has been approximately 15%. Gold’s current price is ranging between USD1750-USD1800 and the expectation from many of the large financial institutions is for gold to rise to above USD 2000 during or even prior to 2013.
Central banks are playing a huge role in this outperformance, according to the World Gold Council central bank purchasing of gold has soared, with the 157.5 metric tons of gold bought by central banks in the second quarter 2012 being an increase of 62.9% from the 1st quarter 2012 and a 137.9% increase on second quarter 2011. And when you consider that prior to this last decade central banks were net sellers of gold they have certainly realised which way the wind is blowing. With central banks, and in particular the Chinese central bank who has become the largest importer of gold, likely to continue this hoarding of gold there is no reason to suspect that this upward trend will not continue for a number of years to come eventually rising above USD5000. - Insurance – in times of financial crises assets that are held electronically or on paper can quickly have their value eroded or even disappear in the worst types of crises. Gold being acknowledged as a safe haven makes it an asset to jump into when you are wanting to take your funds out of the financial system and seek the protection of something that is real and everlasting ie Gold.
