China "Offers Sturdy Floor" in Gold, But US Fed Meeting "Risks Downside"

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PRECIOUS METALS held in a tight range in London on Tuesday morning, moving sideways as world stock markets rose and commodities slipped ahead of the US Federal Reserve meeting, which begins today.

"No outstanding features, volumes fairly light and very little to report,"says broker Marex Spectron.

After telegraphing its intention to start reducing the $85 billion in monthly quantitative easing as soon as September, the Fed will announce its latest policy on Wednesday, soon after the release of official US data for second-quarter GDP.

Gold moved on Tuesday morning barely $4 per ounce above $1322 – the "crash"low of mid-April.

Silver moved just 0.7% around $19.70 per ounce.

"We could see some downside open up," says Standard Bank's commodities team, "if the Fed announces tomorrow that it will stay the tapering course."

Looking at recent bullion price action, "Gold is pushing hard" says technical analysis from Commerzbank "into the 2-month downtrend and the 55-day moving average at $1333/40."

Gold bullion and futures prices "reacted violently in June" Federal Reserve comments on policy, says a note from Bank of America-Merrill Lynch. But now "near-dated gold volatility has been falling in recent weeks.

"After the initial Fed fears lifted 10-year US Treasury rates from 1.6% to 2.7% in just a few weeks, rates seem to have stabilized in a 2.5% to 2.6% range, contributing to a drop in gold vols."

This "normalization" says BAML is now being reflected in gold futures prices. August futures settled Monday below further-dated contracts, confirming what the bank calls gold's "typically contango structure" – whereby prices are higher for delivery further into the future.

But "we are moving closer and closer to tapering,"reckons Tom Tucci, head of Treasury trading at CIBC World Markets, currently with $12bn in assets under management, speaking to Bloomberg.

"With no new news, the risk right now is for higher rates, not lower,"says Tucci, saying 10-year Treasuries should yield around 2.75% "given the state of the economy and the Fed's stance."

The quantity of gold bullion held to back investors' shares in exchange-traded trusts funds was unchanged Monday, remaining 25% lower from the start of 2013 at four-year lows.

Emerging-market central banks "disappointed gold bulls" with their bullion purchases in June, says a note from Swiss investment bank and London market-maker Credit Suisse.

"Reserve asset managers are as unwilling to 'catch a falling knife' as any other fund manager we think," says the note, "and in general are wary of spikes in volatility."

But in China – now the world's second-largest economy, and likely to overtake India as world No.1 gold consumer in 2013 – private household demand for gold bullion"does hold the promise of a sturdy price floor" says a note from fellow Swiss investment bank and London market-maker UBS.

Moreover, "In China banks are setting up and/or growing gold accumulation plans offered to the public. Better and easier access to gold via banks' growing networks combined with strong appetite from retail customers have driven the tremendous appetite from China this year."

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News Source: www.bloomberg.com 

Gold futures jump with physical demand on the rise...

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Gold futures rose more than 1% on Wednesday as bargain hunters waded into the beaten-down market, lifting physical demand for the metal on the back of fresh data pointing to difficulties for the U.S. economy.

 Gold for June delivery GCM3 +0.89%  climbed $15.10, or 1.1%, to $1,423.90 an ounce on the Comex division of the New York Mercantile Exchange. Prices were poised to recover the loss of $12.40, or 0.9%, they saw a day earlier.

The fall on Tuesday was gold’s first in four sessions, with prices for the precious metal hurt after disappointing data on manufacturing data in China,a rally in equities and a stronger U.S. dollar.

Orders for U.S. durable goods fell by a seasonally adjusted 5.7% in March, more than the 3.2% decline expected by economists polled by Market Watch.

If the economic data releases covering April are similar to the month prior, then the Federal Reserve isn’t likely to give any signs of an early withdrawal of quantitative easing, said Chintan Karnani, independent bullion analyst based in New Delhi. QE has been a supportive factor for gold, as it can lead to inflation and gold is often seen as a hedge against inflation.

Bargain buys

Traders and investors are stepping in to buy the recent big dip in prices, said Jim Wyckoff, senior analyst at wsj.com in a daily market note. “Demand for physical gold world-wide remains strong after last week’s price plunge.” Read about why investors should be bullish on gold price as long as chaos reigns.

Gold prices are on track for a roughly 11% drop this month, and analysts have been pointing to declines in the metal’s holdings among exchange-traded funds and lower gold-price forecasts as factors behind the recent selloff.          

Goldman Sachs on Tuesday closed its recommendation for clients to “short” gold, telling them to exit out of those bets on lower gold prices. The investment bank on April 10 cut its short- and long-term gold forecasts as prices approached bear-market territory.“Strong demand for physical gold world-wide, and especially from Asia, continues to underpin the gold market,” said Wyckoff.

The U.S. Mint this week stopped sales of its smallest-denomination gold bullion coins as demand reduced government inventories.

Year to date, demand for the one-tenth ounce coins are up more than 118% compared with the same time a year ago, the U.S. Mint said in a memo to authorized purchasers, according to The Wall Street Journal.

Other reports this week have said there are shortages of gold bars and coins in some countries, with gold retailers jacking up their charged premiums over the spot price of gold, Wyckoff said.      

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News Source: www.wsj.com

                      

5 - 10% Stock Market Correction is Coming (Between March and June 2013

Created by Stock Analysis Desk (New York) on 3/11/2013 9:25 PM

As of last week Friday, The DJIA continued to breach new highs while the Nasdaq and S&P 500 continued their upward trend as they inched ever closer to their highest levels ever. The longest winning streak since 2004 has taken U.S. markets to uncharted territory.

“We're certainly off to a great start in 2013”, said Jack Ablin, chief investment officer at BMO Private Bank. "But we may have gotten a little ahead of ourselves."

There are many factors contributing to this run up in stock prices. The biggest factor being Ben Bernanke and the Federal Reserve Board (FRB). The various quantitative easing (QE), especially the most recent QE “Infinity”, have in combination enabled a continual increase in asset (stock) prices. Improvements in hiring by employers (stronger-than-expected nonfarm jobs number) and other expanding economic indicators have also contributed to this long-run rally.

However, as a follow up to our previous “stock correction is coming” article, we would like to reiterate our 2013 stock market correction call and caution investors that a stock market correction is coming in the next 1 to 3 months (between March and June of 2013).

Major Indexes Surge Past their One Year Peak

As seen on the chart below, all three major indexes have surged above their One Year Peak line. In the past one year (in March and again in September), whenever stocks have climbed above this horizontal line, they have been met with a stock market correction, averaging 5-10%.  

March 2012                                             to                                                     March 2013

 

 Stocks in Overbought Territory

In January 2013, investors scrambled to accumulate stocks after Washington reached a Fiscal Cliff deal. As reported by CNN Money: “The rally, which pushed stocks near all-time highs, coincided with record inflows into stock-based mutual funds, as individual investors regained some appetite for risk after shunning stocks for years. But the bullish tone has already started to fade.”

Bespoke Investment Group reports that a majority of stocks in the S&P are strongly in overbought territory with “90% of the stocks currently trading above their 50-day moving averages”. The highest reading they’ve seen over the last year.

The picture we are beginning to see is one in which investors are throwing caution to the wind and jumping in as those who felt they’ve missed the boat are beginning to chase the market higher. As stated by Art Hogan of Lazard Capital Markets, "If you look at sentiment coming out the week, you have much more of a shift, whether it's kicking or screaming or capitulation. The 'wait for a pullback buyer' has turned into 'the train is leaving the station buyer.'"

S&P 500 (^VIX): Extreme Market Complacency

The VIX index currently trades around $12.59, its lowest level since 2007. The VIX, which is considered the investing fear gauge, rises when stocks are on a decline and falls when stocks are rising. Levels below 13 normally signify extreme market complacency and they are a well-tested indication that the market may be reaching a short term peak.

 

 CNBC recently reported that the run up in the stock market will result in either a 20 percent correction or a more severe sell off at some point this year. Marc Faber, Managing Director of Marc Faber Ltd., sees two possible scenarios: “either a 20% correction and then a move higher, or a scenario that is similar to 1987 or 2000 when stocks rose strongly early in the year only to drop sharply.”

Thomas Lee, chief U.S. equity strategist at JPMorgan, commented that he sees a worst-case scenario for stocks. He argued that various factors could come in to trip up this rally: “it would be that we've got a bigger hit to consumer spending than expected or there's some adverse developments in Europe; or China doesn't sort of stabilize. I think that would set us up for a larger correction."

Bottom Line

Accommodative monetary policy will underpin the market for some time to come, but a correction between 5% and 10% is a very real risk over the coming one to three months.

A 5-10% market correction, however, may be a healthy adjustment that keeps stocks from becoming inflated and reaching bubble status, which could in turn trigger a much bigger crash.

In fact, as reported by US News, “Bank of America and many other market watchers think any dips over the next few weeks could be a terrific buying opportunity. The economy will get back on track sooner or later, it may just have a few more detours to make before that happens.”

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on the markets...  http://cfbllc.blogspot.ae/

News Source: www.reuters.com