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Gold $ 1491 Intact – Feb 18-22

February 18, 2013


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At the end of week market focus shifted towards the meeting of the G7 and later to the G20. The draft statement did not offer too much to the market to read, especially with regard to the current talks of global currency war. Whatever, has been discussed amongst the 20 nations, it increasingly appears there must have been a serious talk about new Japan government’s policy of forceful currency depreciation.
A weak yen policy provides a good comforting space to China, which is a toy in the hands of developed countries. These countries always blame China for their all economic woes.
However, a weak Chinese yuan and a Japanese yen are the biggest threat to the region’s competing, developed and semi-developed Asian economies. Some of them have already voiced their concern that an intentionally weak currency policy makes their product less competitive. I think developed Western nations may soon become more vocal when their businesses begin to bite them.
In my view, this friendly approach of not singling out Japan publicly is an eyewash, as G20 members may have voiced their concern. Japan, like China, is likely to turn a deaf ear to their cries. I am wondering that if someone can tell me that if Japan was not singled out for artificially weakening its currency, then which other country was blamed for currency manipulation. China ! No way, Pal! China has taken its turn and it’s now every country’s right to have an economic policy that suits its interests.
All Western nations have done this exercise in the past and are repeating this futile currency experiment without any success because of failed policies. The biggest question or worry for the European policymakers should be that when Europe is still struggling for economic stability then how can it afford a strong euro and a weak yen?
The real problem is that stereotyped decades-old versions and the statements need to be formatted and revised according to the market needs. Authorities have to realize that the financial market condition is not the same that was about 25 or 30 years ago. Then emphasis was on credible lending, which is not practised today. Then money printing was a cardinal sin, which is now considered a heavenly financial rescue tool. Then the menace of derivatives trading was not introduced. Today they all are the major cause of financial disequilibrium.
Normal practice is that policy statements on currency are not made public. But I do not believe that no protest was registered against the Japanese government’s aggressive behaviour to weaken yen. I would suggest the need for keeping a close watch on the language used by the Japanese official that may give some idea about Japans stance on its currency after the 20-nation gathering that ended in Russia. Who would believe in Finance Ministers and Central Bankers’ pledge that they are avoiding competitive devaluation/depreciation. This could be a point taken from the wish list.
Furthermore, recently it has been noted that the UK too is struggling for growth has joined the weak currency bandwagon following in the footsteps of the US, China, Switzerland and Japan. Pound Sterling faced with a threat of triple dipped recession extended its losses after the Bank of England governor Mervin King’s statement that inflation would pick up while growth would decline. This caused nervousness amongst investors that saw a sharp GBP sell-off.
However, a positive Confederation of British Industry (CBI) report could ease a bearish sentiment. With risks still looming large on economy, more stimulus package cannot be overruled, which means that liquidity injection looks a strong possibility. But minutes of the BOE meeting could also help bring about a shift in sentiment.
This week market could take a couple of days to digest the statement before getting back to business as usual and once again economic data will be driving the market. LTRO payment schedule could be one of the driving factors, as it will provide a further clue about the progress in the Eurozone region.

GOLD $ 1609.80 = On January 07, I posted a comment in “Business Recorder” that I am not a $ 1900 gold fan and expecting an over 10 percent drop in medium-term. Recently I have been getting queries that if I am still looking for another over $ 100 drop. My answer is yes, I do see more fall in the making as I have a list of factors.
Why a dead asset that offers no return should be bought as a safe asset when according to world financial managers the global economy is in a recovery path. Gold that always was in a good demand due to European uncertainty becomes less attractive when markets believe that European economic conditions are getting better. If the flight of capital from the suffering European economies is flowing back, this also makes gold less attractive. When European banks are paying back Long Term Refinance Operation (LTRO) money earlier than schedule it is a sign of confidence in the region, which is again bad news for gold.
Indian and Chinese aggression for gold buying eased. Central Banks’ after stability in Europe and the US should be less worried about their composition of foreign exchange portfolio as USD consist of 61.8 percent and euro 24.1 percent, which is almost 86 percent of the global foreign exchange.
US economic recovery is a positive USD news, as it decreases the chances of continuation of Fed’s quantitative easing policy, due to inflation risk. US 10-bond surging beyond 2 percent and Spanish yield close to 5 percent is another good indicator that does not support gold buying.
More importantly, liquidation by billionaire Soros and few others gives a better clue about the future trend, which means the yellow metal is less attractive. But any flip towards worsening in global economic condition could possibly reverse the views. Analysing all the factors from a trading perspective, gold will find a regular selling interest on the rise.
Immediate levels to watch is $ 1625-30 and only a break will encourage for a test of $ 1645-50 zones. I would prefer selling as key for upside is 4 1690. I am looking for a break of $ 1590 that will pave way for a test of $ 1565. My next short term target is $ 1542.

EURO @ 1.3360 = Initially Euro may have an upward bias and is required to hit a break of 1.3480 for a move towards 1.3590-00 zones. However, a failure to move above could entail a risk of a fall below 1.3240 levels that may threaten to challenge 1.3150. Range for the week: 1.3150-1.3620;

GBP @ 1.5515 = Although, a seller may show aggression on up move that needs to push beyond 1.5580-00 for a move towards 1.5680. But this week I would prefer buying cautiously on dips, as cable will put a strong challenge around 1.5420-40 if tested. Only a break here could extend a fall towards 1.5340-50 zones before up again. Range for the week: 1.5540-1.5780;

JPY @ 93.45 = This could be a volatile currency of the week, as it could be prone to statements that could be confusing at times. A break of 93.90 could open gates for a test I n 94.75-80 zones. But a fall below 92.20 is required for a bigger correction, probably 90.50. Range for the week: 90.20-94.80;

AUD @ 1.3009 = Aussie is once again likely to trade in a narrow band like previous week. Unless there is a break above 1.0450-75 band. See risk for a drop as a break of 1.0250 will encourage for a test of 1.0210. Range for the week: 1.0170-1.0475.


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