Social media and TV media are saying that a bear market is in place whenever any instrument falls by over twenty percent from the highs. I disagree with this theoretical view. The media has not taken the extreme historical liquidity created in a post covid world. Stimulus measures, stimulus cheques, and negative interest rates all created unthinkable high global liquidity. Central banks forced people to spend more with free money. The multiplier effect came in the form of logistical issues and reduced supplies. This created inflation and more so food inflation and energy inflation. Ukraine war acted as a double whammy to inflation. The net result central banks are on an interest rate hiking spree from the month of May this year.
I believe that a fourty percent fall from this year’s high in all asset classes (including precious metals and base metals) is a part and parcel of the long term bullish trend. I am ignoring the theoretical twenty percent bearish fall as over-night switch over to monetary tightening will cause a fall, which will be double of what books say.
I had commented (in one of my gold views on www.marketwatch.com) in December of last year that the Federal Reserve needs to do a Paul Volcker and raise interest rates aggressively. This was even before the Ukraine war. The asset bubble has now been pricked as all central banks are universally doing a Volcker. One or two quarters of a bearish trend in any asset class will be a part of the long term bullish trend. Except for energies all asset classes were in bearish trend in this quarter. (a) If a bullish trend is restarted from the fourth quarter in base metals, stocks, silver and gold and crypto currencies they will rise a minimum twenty five percent from this year high in 2024. (b) Bearish trend in all asset classes have to last minimum into the fourth quarter for a medium term bearish trend and a long term bearish trend. (c) Nations and central banks (in my view) are not be ready for a falling global financial market in the fourth quarter. Indirect stimulus will be in place in Q4, if there is slightest indication of sustained slowdown in Q4 of this year. Interest rates may even be cut before Christmas on indications that recession will be there in the first half of 2023.
Just one piece of investment advice. We have been just pawns at the hands of central banks and political masters over the past thirty months. Good profits can be made by being aggressive but in a way that we are one step ahead of the central banks. We all need good profit to atleast cover the real inflation.
Physical gold supplies will reduce in Comex, London and European exchanges after UK, USA, Japan, and Canada decided to ban news Russian gold imports. The move will also apply to newly mined or refined gold. Russian gold exports were worth 12.6 billion pounds ($15.45 billion) last year. US Secretary of State Blinken says refusal of the G7 countries to import gold from Russia will deprive it of about $19b/year.
Our View on the impact on gold price due to Russian gold imports ban
- There is evidence that UAE and Dubai are the transit hub for the export of all metals and energies that have been banned since the Ukraine War. Dubai/UAE is already a big gold hub in Asia. I expect Russian gold to be supplied through UAE to the world. Dubai/UAE’s clout will increase sharply as a transit hub for metals and energies to the world. Dubai/UAE will give Singapore a big competition for a business transit hub.
- Physical gold premiums will rise sharply all over the world.
- Spread will rise sharply between physical gold and gold futures.
- China, India, and other friends of Russia can get physical gold at a discount. (but way less than crude oil.)
- Gold price fall will be limited for now. Even if gold price crashes in US dollars, then it will be a great short-term investment opportunity as well as long as an investment opportunity.
- We will see gold price forming a lower price base of $2000 any time in the next three quarters.
COMEX SILVER SEPTEMBER 2022 (current market price $2146.80)
- 50 day MA: $2243.70
- Silver has to trade over $2011.50-$2042.50 zone in the next two weeks to rise to $2314.50 and $2494.50.
- The next big sell off will be there if silver trades below $2011.50-$2042.50 zone to $1972 and $1910.50 and $1820.00.
- A daily close over $2243.70 for two consecutive days will reverse the short term bearish trend.