GOLD : RALLYING IN ALL CURRENCIES

CURRENCY VOLATILITY

Well, after trending downwards for weeks, the USD seems to have stabilized for now, and a counter trend rally in the USD is underway.

Here are some charts that tell the whole story. No one seems to want a strong currency!

• The rally in the EUR, JPY and CHF will hurt exporters in Europe, Japan and Switzerland.

• A weak USD meanwhile, will boost US exports.

• The Chinese have thus far resisted any significant appreciation in the Chinese Yuan.

USD CHF : The CHF broke down below parity in its recent rally vs the USD

USD CAD : It came ever so close to testing parity vs the USD

USD JPY : Despite the efforts of the Bank of Japan to weaken the JPY, the JPY continues its relentless upward march.

EUR USD : A weak EUR helped boost Germany's GDP numbers last quarter. the recent rebound in the EUR will surely make life difficult for the Club Med nations

Conclusion:

The USD appears to be oversold in the near term and a counter trend rally is underway. The market is betting on some mega fire power solution from the US Fed at its meeting in November. If QE2 disappoints and the equity markets sell off, the USD could stage a much stronger rally!

The Equity markets have been getting far too complacent about the weak and worrying news data and unemployment numbers in the US.

Fund flows to emerging markets have boosted stock prices across the board and a correction is well overdue. These markets are ''not decoupled from the actions of the US Fed'' and when the tide starts to turn we can expect large fund outflows to have a drastically negative impact on stock prices in emerging economies

Lastly, the rally in Gold prices also appears ripe for correction and consolidation. Silver prices too, are clearly overstretched in the near term. expect lower prices if the USD stages a comback rally. It's not time to be buying the precious metals sector just yet!

Watch this space!

GOLD - THE LAST 10 YEARS

USDX : US DOLLAR REBOUND FOR REAL ??

It's been a good week so far for the USD.

After sliding against most currencies since the start of the year, there are now calls for a USD bottom. Over the last few weeks, I cautioned Gold bugs about taking fresh positions in Gold, given that the USD was considerably oversold at the time.

Reasons for the USD rebound?

The USD has been quite oversold for a while, as money was flowing out of the USD to riskier assets - and equity markets everywhere got their fair share of this fund flow. Is the party over and will we see fundflow reversing back to the USD?

US Consumer confidence continues to stumble: Clearly the guys on Main Street aren't having as good a time as the suits on Wall Street. Could it be that this recovery is built on a foundation of sand!

Almost ironic that poor economic news and data is causing a stampede back into the USD.

Sceptics, contrarians and some conspiracy theorists find the timing of the USD rally and bad economic data quite convenient, given the on going mega USD Bond auction.
Its great to have a USD rally when you're having a humongous debt sale!

USD Carry trade: It seems that the USD has recently become a favoured borrowing currency for carry trade. You can thank Bernanke for his almost zero interest rate policy!
It's always risky when the borrowed currency is oversold. (Look at the 3rd chart)
As the stock markets start to correct and carry trades are unwound, we could see the USD rally still further.

Lastly, could this all be a movie trailer of the 'strong USD ' policy of the USA, before the G 20 meets next month. I mean the Chinese and the Europeans aren't too happy with the performance of the 'strong USD' policy of the US Treasury so far.

CONCLUSION:
It's too early to say if the USD has turned the corner for now.
For the record, I continue to be a long term USD Bear. Bear market rallies in the USD should not be confused with any significant improvements in the fundamentals of the USD!

Stock markets globally have been searching for reasons to continue their upward rise, and did look rather overbought! A USD rally has almost become a reason to sell stocks!
Unwinding carry trade is USD positive.

GOLD: It too was looking for a reason to correct. I think that any consolidation in the PM space is good. Its better to see a stable and sustainable rise rather than an unsustainable short term spike. A rallying USD could see gold drift downwards, as punters and traders close speculative positions in gold.

EDIT: US Dollar Future and a World Currency - by Chris Laird of 'The Prudent Squirrel Newsletter'. He's one of the 'experts' I pay close attention to

GOLD : Rallying in all major currencies

Take a closer look at the red line representing USD gold.

As a result of the recent slide in the USD, gold priced in USD has risen to new highs!

Also note that the GBP is one of the weaker major currencies in this non USD currency rally.(which has resulted in the massive rally in gold priced in GBP)

Good Reading:

Time to Hire Bernard Madoff to Run U.S. Treasury: William Pesek ...

THE GURU OUTLOOK

Financial Coup D'Etat and the Reaction of Gold

CURRENCY MOVES : GREEN SHOOTS OF RECOVERY HURTING THE USD

The equity markets have been rallying since early March 2009.

At the same time, the USD has lost considerable ground, as can be seen on the USDX.

The 'flight to safety' buying seemes to have ended, and as market players back away from US Treasuries, seeking better returns from 'risky assets' - emerging market equities and foreign currencies; the USD has witnessed a selloff.

While a strong USD was affecting the profitability of large US MNCs, the current USD weakness has also resulted in a rally in commodities : read - Crude Oil, Precious Metals, Copper, Aluminium etc.

.

EUR/USD

Despite worrying economic issues in certain EU nations, the Euro is well off its recent lows. Challenging times lie ahead as countries like Portugal, Ireland, Spain, Italy and Greece face rising unemployment issues and GDP growth problems. With a policy mandate that is quite different from the US Fed, the ECB is going to have to walk a tightrope by helping out weaker EU members, without annoying the larger and relatively 'economically stable' countries.

Unstable + collapsing economies in eastern europe are also a major worry!

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GBP/USD

The Pound Sterling had a horrid 2008, struggling against most currencies. While interest rate cuts may have helped so far, the UK is faced with record consumer debt levels, a weak housing market, and unemployment problems - just like its larger ally the USA. As the slowdown batters the financial centre in London, the Bank of England is going to have to get more creative with its monetary policy, especially if job losses acclerate in the second half of the year.

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USD/CHF

Swiss economy exports to the EU were struggling due to a strong Swiss Franc. The Swiss National Bank intervened in the currency markets, in order to stem the upward rise in the Swiss Franc. While it seems to have worked for a while, the Swiss Franc is rallying again!! Watch out for comments from the SNB if this trend continues.

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Points to note:

• Expect more quantitative easing and competitive currency devaluations if the second half of 2009 turns out to be 'more challenging' than first expected.
• Unemployment could prove to be a major speed bump to any recovery. As I've said before, there are going to be a lot of angry people - whose homes and retirement funds and investments are falling in value. Many have debt to be repaid and a job loss will compound their problems.
• Policy makers may breathe easy for now, as the renewed optimism of a 'quick recovery' seems to have kept 'the mob' at bay for now. Fact is : They haven't found any viable long term fixes just yet and the crowds continue to grow impatient, albeit distracted for now by the rapid rally in the equity markets.

CURRENCY VOLATILITY !!-----CHARTS

This is a vertical drop on the USDX chart; which seems to have accelerated after the FED rate cut announcement.

The currency charts below are 3month and 1year charts of the respective currencies, with the 1 year chart commencing mid December 2007

The charts are from the CNBC Currency webpage: http://www.cnbc.com/id/15839178/

The Japanese Yen strengthened consistently through 2008, as carry trade unwinding and the sell off across asset classes intensified.

The EURO and the Swiss Franc (CHF) have rebounded strongly this past fortnight. Is the ECB going to be next in line with aggressive rate cuts? Also now that the Fed is ready to buy anything and everything, (by doing whatever it takes to sort things out) is the ECB too going to get into the act?

The British Pound (GBP) has struggled this year, and as the UK housing market continues to deteriorate; 2009 is going to be particularly difficult for the British economy.

USDX - WHAT'S GOING ON NOW!

In recent posts, I noted that the USD had started to lose ground against a basket of currencies.
Here's the background on the USDX.
http://thebullishbear.blogspot.com/2007/10/understanding-us-dollar-index-usdx.html
Since the USD bottomed out in mid July 2008, it has been in quite a steep uptrend, that is quite visible on the 3 year USDX chart.









According to some technical analysts, the USDX index has formed a head and shoulders trading pattern, and thus the next move will be DOWN ! Is this going to be a decisive move, or just a minor pull back after the recent USD rally? Gold meanwhile has been trading in the mid $830s.









Stockmarkets globally have recovered from recent lows, but are trading nervously ahead of the FED meet later today.
The '''Madoff scandal & ponzi scheme''' is yet another sign of the irrational excesses, lax regulation and manipulation of recent years.
Here's a an interesting take on the Madoff scandal by James West of the 'Midas Letter',
http://www.gold-eagle.com/editorials_08/west121508.html

GOLD – WHAT HAPPENED?

Well I’m back to posting again after a 2 week gap! There’s a lot to catch up on so its going to take a few posts.

Gold has been slam-dunked, Oil is on its way down, the USD rebounds and the rally in Commodities is over!!!
So what happened?
Lets begin with an interesting article I came across on ‘ Central bank Intervention in currency markets’
http://www.goldmoney.com/en/commentary.php#current Mystery Solved 7 Aug 2008.

The Triggers:

The slowdown in Europe will result in the ECB cutting rates.
The USA lead things on the way down, and so will be the first to recover.
The global slowdown has lead to a fall in oil consumption.

Weakening trends in the EURO and Oil and a strong USD

If there’s one thing that’s clear now, it’s that the ECB is in an equally tight spot as the FED. The FED has company!!! Does the ECB cut rates to avert a recession or does it fight inflation?

Are falling Oil prices a good sign, if they are due to contraction in demand?
Clearly speculators are bailing out too, but global demand is slowly!

The USD has pulled back sharply as the ‘Short USD/Long commodities’ trade unwound and the current uptrend is almost as severe as the breakdown in Gold. It should meet some resistance near the 78 level on the USDX.(Remember that the USDX index is EURO dominated)
So is the worst really over? (AGAIN)
While gold looks really beaten up at the moment, and Gold stocks have fared even worse, not a lot has changed in the last 2 weeks.
Central Banks are still dead scared of deflation!! And will use every means possible to get another bubble going. So that’s going to mean more intervention,bailouts and handouts to the clowns that got us into this mess in the first place.
Its also important to remember that Gold has historically never been strong in the May – August period, (usually bottoming out by August end.), so the USD rebound has added to the severity of the sell off.

I have been buying gold on declines, as it has smashed through one support after another ( $ 878.5, $ 850, $ 790), by staggering my purchases on the way down. The selloff has been so sharp that I expect a pullback especially as the Euro/USD has strong support at the 1.45 level.

So is this the return of Goldilocks? I think not!

----The US Housing market is still in a mess
----Freddie Mac and Fannie Mae need a bailout – or let’s just change the rules of the game for them!
----Are the write downs in the financials over? Or is the best yet to come? ( Like the recent settlements in the Auction rate Securities Lawsuits) More Capital raising / financial firms cutting Dividends?
----I ask again? What is the current market value of the ‘Toxic Bear Stearns securities held by the FED’ – No write downs there I hope?
----Is the strength in the USD due to any inherent fundamental change in the USD, or just due to the slowdown elsewhere?
----Can the Fed really hike rates to support the USD?—risking a meltdown in the US housing market and a collapse in US Consumer sentiment and consumption. On the other hand, how would the USD react, if the FED cut rates late into 2008?

----How long are the Central Bank Currency market interventions going to keep things afloat? Are they tackling the crux of this crisis( overleveraging and cheap credit) or just delaying an impending meltdown?
----Will the Volatile USD, (now strengthening), cause large USD holders to try to diversify out of the USD?
----Who’s going to blink first and do a bailout of a major Financial Institution- The Fed or the ECB?
----Even if the strength in the USD holds for a while yet, would you put money into stocks in an environment of inflation and slowing growth, where defaults across many sectors( not just financials) are likely to increase? I would be extremely wary of any analysts trying to call a bottom in stocks (especially the financials)!!!
----What impact is the Stronger USD going to have on the financial results of large US multinational companies whose results until recently have been ‘bolstered’ by the sliding USD. Extraordinary Forex losses in the second half maybe?

UK REAL ESTATE

Real Estate prices in the U.K are headed down. The FTSE 350 Real Estate Index has also corrected sharply, returning to levels last seen in 2004-2005.
Tightening credit conditions and looming job cuts at London banks are contributing to negative sentiment in the housing market.

Consumer Debt levels in the UK remain high and as prominent homebuilders struggle to raise capital, property prices are declining to new lows.

http://www.cnbc.com/id/25488999

http://www.bloomberg.com/apps/news?pid=20601068&sid=aFs.PFqy8CEk&refer=home

CONSOLIDATION IN GOLD

PATIENCE >>>>>>>Gold prices are consolidating.
After hitting new highs in 2008, gold prices appear to be rangebound in the $890-$950 range.
Gold is still a buy on declines!!!!!
The US Dollar continues to remain under pressure and Inflation concerns are growing.

Oil prices meanwhile are at new highs, even as the EURO/DOLLAR nears the 1.60 mark.

Carry trade currencies such as the Swiss Franc and the Japanese Yen, have risen sharply over the same period, for reasons of carry trade unwinding, and also flight to safety.

Emerging markets shrugged off concerns of a slowing US economy through 2007, but rapidly rising inflation appears to have put the brakes on such outperformance.
Rising fuel and food prices are forcing Central Bankers in the region to resort to tightening liquidity, maybe even allowing local currency appreciation or raising interest rates.
As a result, equities of emerging markets have corrected sharply in 2008, despite their outperformace vis a vis developed markets through 2007.

BEWARE THE BOUNCE ! !

Its not over yet ! ! !

• The Credit Crisis is far from over.
• More banks to go under.
• Counterparty Risk continues to be a greater threat than ever, as no one is willing to lend.
• Losses to Employee Stock Options & Pension Fund Investments, in cases such as the Bear Stearns collapse.
• The Fed is down to his last few rate cuts, and he has no solutions yet!!
• USD pegged currencies, can no longer sustain falling interest rates, as local inflation soars.
• The impact of Middle East Oil producers dropping the USD peg, and pricing oil in ' a basket of currencies', as against the USD.

Lastly, heres an interesting article on 'The Credit Crisis', from the Interfluidity Blog

http://interfluidity.powerblogs.com/posts/1205997488.shtml

Best Explanation to the Credit Crisis yet.

CURRENCY ANALYSIS.

The US Dollar has continued to lose value against major currencies since the credit crunch began last year, and rate cuts by the US Fed continue to hurt the USD

Aug 20, 2007- Jan 14, 2008: The Euro is up 10.46 % against the USD. Economic growth in Europe is slowing even as inflation concerns continue to grow; the ECB may have to cut rates, as the strong Euro is hurting European exports.

CHF/USD: Sept 4, 2007 - Jan 31, 2007: The Swiss Franc is up 11.66% vs the USD. In times of crisis, it is viewed as a safe currency, and it will be a key beneficiary of any carry trade unwinding.

GBP/USD: Aug 2007- Jan 2007, and the GBP has been unable to hold onto its gains vs the USD. After hitting a high of 2.1104 , the GBP has weakened considerably, on concerns of upcoming rate cuts, a slowing economy, and a weakening housing market

Interesting trends:

Meanwhile, the Euro has gained 10.35% vs the GBP (Sept 5, 2007- Jan 31, 2007)

The Euro has been flat against the Swiss Franc(CHF). Since December 2007 the Euro has weakened against the Swiss Franc, only to regain part of its losses on concerns of a rate cut in the CHF

The Key questions now are :

• Are we going to see rate cuts from Central Banks around the world, in an effort to reflate slowing growth in developed economies ?
• How long can the BOE and the ECB hold their rates, if the Fed continues to cut interest rates ?
• How are the USD pegged currencies of the Middle East going to continue to cut rates, when local inflation rates are rising ? eg: Saudi Arabia inflation = 6.5%
• Will the US Bond market see slowing inflows, or even outflows, as the interest rate differential of a low yielding USD, and high yielding Asian Currencies continues to widen ?