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GOLD BINGO ! China is a Scapegoat

August 21, 2015

GOLD @ $ 1165

In my August 08 post I gave enough reasons that why gold will remain under pressure this year. I also warned my readers avoiding short gold, preferring profit taking and long gold sensing corrective occurring.

As per my write-up gold comfortable broke 1st resistance level of $ 1120-30 levels to make another $30 – $50 gains and is now close to major resistance level of $ 1180, as mentioned in my previous note.

Sensing global uneasiness caused by China’s devaluation move, pressure is also exerting on oil producing nations due to plummeting oil prices and uncertainty in Greece. Hence, short gold is not suggested in current circumstances.

China is under severe pressure due to sizable capital outflow that forced PBoC to take quite a few monetary measures. But there is a greater risk too that if sharp slowdown in China continues it would ultimately hit US economy.

I find it necessary to remind my readers that the decade old trend suggests that China has engaged USA in Vendor Financing, which means providing money that helps financing huge fiscal and trade US deficit, allowing Americans to buy more goods with the purported ability to make choices from free fiscal constraints.

Watching recent global moves of last 3-years, I would not blame China for manipulating currency. You just cannot push currency one-way to please your trading partners for their wrong doings.

It is the economics of demand and not the desire of other economies, trading partners, borrowers or lenders that should determine the monetary policy. Monetary measures are taken to support the economy and to avoid economic disaster.

FED, ECB, BOE, BOJ live in their own world, which is commonly known as G-7 and to please its major trading partners they have further extended the group, which is known as G-20 and they are not much concerned about remaining global economies though there are few expectations such as Nordic countries.

Since 2009, FED quantitative easing (QE) injection was nearly USD 4.5 Trillion that was created in shape of bond to keep its economy afloat.

Swiss National Bank acted in its National interest by introducing cap against EURO at currency value of 1.2 in 2011 to protect its economy. The currency cap was later reversed after 3-years.

ECB too is engaged in a purposeless QE program, which is doing temporary mending work that does not help the overall Euro-zone economy. In boarder sense it does not contribute to assist common man on the streets. This money is allocated for Capital injection to save bankrupt European banks.

Similarly, after over a decade of recessionary period, BOJ the pioneer/inventor of quantitative easing recipe about 2 years ago decided to expand its asset purchase program.

During this period from 2008 until now, why the so called world’s financial Wizard or Gurus did kept mum when Euro eased from 1.5750 to 1.05. Pound Sterling after hitting the highs of 2.08 in October 2007 tested lows of 1.46 in April 2015.

Yen after hitting all time high of 76 Yen per one US Dollar in January 2012, lost 65 pct of its value and is currently trading at 123.

My question to the world’s financial market is that why is China’s 4 pct devaluation or suppose another 10 pct weakening of Chinese currency so threatening to the world? Why there is so much of fear? Why there is so much debate? Why is China’s devaluation so threatening to the global economy.

This is absurd and sheer politics. The world financial market, which is entangled in Debt Web, is simply trying to wash their dirty linen in public, putting blame on others for their own wrong doings.

Getting back to Gold, we saw a perfect top around $ 1170 hitting my target comfortably, as protection remains around $ 1180, but with current global developments, there is increased risk of volatility in gold. It could surpass $ 1180 and reach $ 1250-80 zones, if China goes for more weakening of its currency.

However, profit taking is suggested and picking top to sell is the preferred strategy as it may not surpass beyond $ 1170-80 zones. My view remains unchanged on the downside. Quieter Chinese stance will see sharp slide of gold, which is still in a bear trend.


Gold – Central Bank’s & QE is the Game Changer

Aug 8, 2015

GOLD @ $ 1093

One must be wondering that why gold was a better buy on dip about 4-years ago and why it is now a risk to buy despite 43 pct fall from all time high of $ 1913 (August 2011).  Lower purchase of gold by the Global Central Bank and withdrawal of US Quantitative Easing (QE) is the real game changer.

Geo political condition, Global economic slowdown and debt crisis in the Euro zone region were also some of the causes that saw investors interest in gold. Investors are prone to uncertainty and in such a situation they rush to buy gold as investments considering it as a safe heaven.

But the sharp rise in price of gold was caused in haste due to Central Bank’s constant buying of gold, as part of portfolio to increase its proportion of Reserves due to currency risk.

For several years, printing of money by Federal Reserves to stimulate its ailing economy weakened US Dollar, which was also driving gold prices higher. The era of money printing (QE 1, QE 2 and QE 3) by FED lasted for nearly 5-years that were helped by near zero-interest rate policy.

Similar to US Quantitative easing strategy, European Central Bank and Bank of England followed FED’s footstep, probably fearing more financial disorder in its region. After difficult 5-years and various types of experiments, US economy is showing signs of growth and is now in a recovery path.

Despite opting for quantitative easing strategy, European economy is still struggling to grow at required pace and unable to counter higher unemployment rate, which is still alarmingly high rate. This is surely due to improper allocation of funds, which did not go towards corporate spending and instead assigned to fix weak balance sheets and meet debt requirements.

The main driving force behind gold’s one-sided up-move was helped by speculative factors, as investors/hedge funds firmly believed that unwinding would never be easy. The difference between US QE and European QE is that US QE money was freely flowing towards commodity market, as banks were the direct borrowers.

Whereas, European QE money has many hurdles before it is being credited. Unlike FED, ECB has a Governing Council Members that has 6-decission making members of the Executive Board plus Central Bank Governors of 19-Euro area counties that makes sure that QE does not go into wrong hands.

Therefore, after US taper announcement, the shift in gold trend clearly became visible. Threats of Euro zones break-up and risk to European currency (EURO) have faded, as Grexit may not have larger impact as earlier estimated.

China’s financial problem is constantly deteriorating due to weak controls and is surely beyond its stock market. Recent reports suggest that Chinese regulators in past 2-months have injected Yuan 900 billion ($ 147) to prevent meltdown. While, Chinese investors have already pocketed excess gold at very higher levels and may want to refrain from fresh buying when trend is still on the downside except for some occasional correction that may occur.

Whereas, Central Banks past buying of gold is a myth, as majority of them were the followers. I have my doubts about the genuineness of past strength of gold that we saw in last 5-years. Central Banks of advanced economies, holding large quantity of gold probably preferred stronger gold to support their balance sheets, which was taking hit on its EURO holdings due to Euro-zones crisis and uncertainty.

To assess the market sentiment, out of the total Global Central Bank’s Reserves holdings of USD 11.40 Trillion as of June 2015, Euro’s currency composition of its official Fx Reserves has fallen down down to around 22 pct ( USD 2.5 Trillion current ) from the highs of 28 pct in 2009 or ($ 2.1Trillion past). In 2009 total size of Global Reserves was USD 7.5 Trillion.

This means, since 2009 purchase of EURO by Global Central Banks increased by mere USD 400 Billion, despite rise in CB’s holding by USD 3.9 Trillion during this period, suggesting confidence in the strength of US Dollar.

Therefore, gold does not have enough reasons to laugh and should find buyers on corrective recovery. Trouble in Iran deal or Middle Eastern tension could see some small uptick, but sellers will be determined to cash the opportunity.

Gold is holding above $ 1040-60 levels for a while, which means there is a small risk for minor correction and if holds, a test and break of $ 1120-30 zones is required for a another 30-50 USD gains. But sellers would continue to dominate. Hence profit taking is suggested, as protection will remain around $ 1180-00 levels for my yearly target and test of USD 925-50 zones. Only upside break would risk for USD 1250-80 levels.

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