China has cut their interest rate today. This was on expected lines. I do not see any significant impact on gold and silver and copper.
The weekly closing of gold and silver suggests a bullish trend this week. This is a pre FOMC week. Everything has been said (this week) by various Federal Reserve officials. As of date interest rates will be hiked in the March meeting. To me, the larger question is the quantum of an interest rate hike in March. (X) Will it be a token 0.10% interest rate hike or (XI) Will it be a significant 0.25% and more interest rate hike in March?
US dollar Index will crash if there is any indication of 0.10% interest rate hike in March. Inflation in USA will not fall significantly with a 10bps rate hike in March. Stocks, base metals and bullion will simultaneously rise.
The prime motive to raise the interest rate by Federal Reserve and other central banks is to reign in inflation. A 25bps interest rate hike is a minimum to cool inflation in the USA. One needs to look for signs of quantum of an interest rate hike over the coming weeks.
There are no significant US economic data releases this week. Bank of Japan meeting on 18th January will cause volatility if they also indicate of an interest rate hike over the coming months.
Consumer sentiment is not very positive in USA and almost in every nation. Ever rising cost of survival expenses is the reason. There will be political fallout.
The plight of commodity traders in India – a small view
India’s largest commodity trading exchange MCX has been fighting a lone battle to prevent “Cotton Futures” from being stopped abruptly. MCX had started in 2003 in India. Agro commodities starting and abrupt ending has been dictated by whims and fancies of regulators. MCX and NCDEX both continuously see sudden and knee-jerk closure of agro commodities in India anytime. Urad, sugarcane, potatoes and a lot of agro commodities have been closed in a knee-jerk fashion since 2005. The justification is that if we close the future trading of any commodity in India, local prices will fall. Common man and industries will benefit. Here in our case, “Cotton” is a cash crop. Higher future prices will only benefit farmers. The real purpose of any commodity exchange is for industrial users to hedge in commodity exchanges when prices rise or fall. If “Cotton” prices rise sharply in India in line with global prices, then industries should hedge in MCX and other commodity exchanges in India. Industry associations India are making MCX and commodity exchanges a scapegoat due their failure to hedge cotton futures. This is a pathetic situation with Indian commodity exchanges. SEBI, finance ministry is just blinded by extreme lobbying by large and politically powerful industry associations. The very purpose of commodity exchange has been defeated when there is an abrupt stopping of any commodity. Hedging is the main purpose of commodity exchange and not trading. Indian commodity exchanges will never attract participation by global firms as a result of such useless and unnecessary policy action. NDA’s slogan of “Aatma Nirbhar Bharat” or a self sufficient India has been thrown into recycle bin. (I am not lobbying for MCX. I do own a few shares of MCX).
Spot Gold:
- Failure to break $1833.10 by Thursday will result in a crash to $1778.70 and more.
- Gold will try to break past $1833.10 till Thursday for $1857.20 and $1883.10.
- There will be a hyper bearish sentiment in case gold fails to break $1833.10 by Thursday.
Spot Silver:
- Silver has to trade over $22.71 to rise to $23.56 and $24.00.
- Silver will crash if it trades below $22.71 in London to $21.83.
Comex gold February will expire at the end of the month. There will be position squaring and rebuilding in futures and options. The interest rate hike will be there by Federal Reserve in March. There has to be a higher chance of breaking past $1950 before end of March for an increase in long positions in futures and call options. Buyers in futures and options will not roll over unless there is an indication that gold price will break past $1950 before end of March. I expect the gold price to break past $1950 before end of March but it could be a touch and go case. Watch $1830 all the time till the first week of February.
BASE METALS PRICES -- A very bad precedent is being set this winter’s w.r.t European electricity prices
French and other European industrial metal producers have reduced their output of aluminum and other industrial metals this winter season. The reason is record-high electricity prices all over Europe. In my view record, high electricity price in Europe this year is just a trailer of things to come over the years. European politicians have reduced their purchase of Russian natural gas just to placate the USA. This trend will continue every year. The sum of the energy war between USA-Russia will be ever-rising electricity prices in Europe every winter season. The industrial metal output will be drastically reduced by European producers every winter season. Industrial metal prices will rise sharply between December and February every year on reduced European output.
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