Asian Metals Market Update for 5th August 2024

August 05, 2024

Interest rate cuts of 0.50% in September meeting followed by another 0.50% interest rate cut in November meeting of the Federal Reserve is slowly getting factored in by the traders.

Friday’s US July nonfarm payrolls at 114,000 with a rise in unemployment rate to 4.30% (from 4.10%) signalled emerging recession in USA. There are a lot of cyclical factors associated with July NFP number or overall US July job number. If August jobs number of USA is similar to July then a recession will come. If not then slowdown will be there.

Slowdown and Recession are different from interest rate cut perspective. Slowdown will imply 0.25% interest rate cut in upcoming federal reserve meetings. Pace of interest rate cut will depend on the longevity of slowdown. Recession implies aggressive interest rate cuts, a direction towards zero interest rate policy or ZIRP. Recession will be confirmed only if there is a falling trend in jobs creation in USA for a minimum three month to four consecutive months.

We need to wait and watch. It is too early to call a recession in USA and globally. Global growth is less dependent on USA. India, China, Indonesia and Asia and Eurozone growth is more important than USA for rising global growth.

Short term volatility will be very high as a result of lower Friday’s NFP number. Gold and silver will not fall significantly even if global stock markets move into a short-term bearish phase. Middle east risk and spillover effect of middle east risk all over the world is at a historical high. There will be buyers on significant dips in gold and silver.

Intraday volatility and short term volatility will be very high due to changes in global liquidity situation. Bank of Japan intends to raise interest rates till next year. The largest liquidity provider to the world for the past three decades has been the Bank of Japan. Interest rate cuts by the Federal Reserve and other key central banks will not be enough to replace the free money provided by the Bank of Japan. The end result will be a reduction in the pace of rise in fundamentally strong investment avenues. We just need to tone down our expectation of investment returns.

Volatility zooms as the world has more short term hot money traders than long term investors. Zero-Hero type of investing is just there not just in India but all over the globe. In India, the so-called influencers in social media promote quick get rich investment ideas without any proper fundamental research. Swing trading or trading in technical charts of less than four hours is very common among traders worldwide. Rising trend in swing trading will cause commotion in asset classes if and when there is significant news. Stock exchanges and commodity exchanges are partly to blame as they are constantly introducing very low value or low denomination trading avenues. A person with a risk appetite of around Rs.500 in India can easily indulge in zero-hero type of trades in stocks in India.

The best hedge against all the state induced volatility is to increase investment in physical gold. The world is moving towards T zero type to trading in stocks and other asset classes. T zero is instant delivery by the seller and full payment by the buyer in a trade where it involves actual delivery. I believe such a move will increase the frequency of boom-bust in selected stocks and selected asset classes. Once again gold is the best hedge in such a future development.

SPOT Silver – (Current market price $28.64)

14 DAY VIEW: Spot silver has to trade over $27.51 for the next two weeks on daily closing basis to rise to $29.52, $30.48 and $31.21. (i) Crash or sell off will be there if spot silver does not break $29.52 in the next weeks . (ii) A daily close below $28.00 for three consecutive trading sessions will also be very bearish for spot silver.
Volatility will be very high. Silver will crash or see another wave of sell off if global stock markets plunge.

Disclaimer

The investment ideas provided is purely independent view point and are solely for collective learning and for academic interests. There is no commercial benefit accruing or have deemed to accrue to me out of providing such investment ideas.
The investment ideas shared here cannot be construed as investment advice or so. If any reader is acting on these advices, they are requested to apply their prudence and consult their financial advisor before acting on any of the recommendations made here. I am not responsible to anybody in the event of profits and losses (if any) upon acting on such advice.
I hope that our reader is aware about this well aware of the risk involved in trading in commodity derivative trading.

Disclosure: I trade in India's MCX commodity exchange. I have open positions in India's MCX commodity future. I do not trade in CME future or OTC spot gold and spot silver.

NOTES TO THE ABOVE REPORT