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FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

China and Gold are Good but Crude has caught a [Cold] but otherwise it too is Good

Commodities / Commodities Trading Dec 31, 2010 - 03:08 AM GMT

By: Bari_Baig


Best Financial Markets Analysis ArticleTwo interest rate hikes to fight the inflation, Chinese commitment given before G-Meeting in Toronto to move to partial peg, everything seems to be falling in place nicely for Beijing and above all the nice gradual incremental rise in Yuan is getting all the right appreciation. We for one stood by Beijing even when U.S Treasury Secretary Mr. Geithner whom we wrote about enough that we felt the need to clarify that we held nothing against him.

But we to this day seem as disgusted by his comments as we were when Mr. Geithner said “He’d put his foot on the neck, to get Yuan stronger” that was that and then as we had stated many months before the U.S Congressional elections that Mr. Obama and Co would try to push dirt on Beijing to save their skin, well sorry Mr. President, it didn’t work very well for people wanted “Jobs” not spinsters of your campaign and we need not say much as everyone knows the outcome of the elections. Moving on then, So, Chinese Yuan is getting stronger, it is now internationally traded on the Russian market and Chinese goal of making Renminbi a reserve currency is getting ever closer with one achievement after another. It is slow one might say but there is one thing which China has plenty on its side and that is [TIME!].

In our newsletter dated October 20th when China increased the interest rates we had this to say “What China has done is optimism driven and from a long term perspective it has all the right “nods” on its side and therefore we agree with China. To us it isn’t just an optimistic move but all a very proper move, which shall serve her interest well and that is how it should be.” That is not all China has surpassed Germany, France and U.K on the board of IMF and is now the third most important slot on the board after Japan in 2nd and U.S at 1st place. All this couldn’t have been achieved without the right policies. We say all this because today Sheng Songcheng Chief of Statistics department of Central bank told Financial news that “We shall push forward the exchange mechanism reform in an orderly manner, to allow the businesses adequate adjustment period and relatively accurate expectations for the exchange rates changes."

Sheng Songchen also said that positives outweigh the negatives of China’s Yuan reforms, and if Yuan appreciates by 3% a year vs. the green back, it would improves exports by 0.3% and also cut down exports by 0.6% which would reduce the surplus by 6%.

It is a big statement and it sends out a very clear message to the rest of the world that China means business. To expect Renminbi to appreciate by 3% vs. the green back doesn’t seem such a tall claim and when Beijing announced partial peg we had stated back then that we can expect 2.5% to 4% annual increase in Renminbi vs. the green back.  What Sheng Songchen said today only validates us and puts that much more confidence in the correct path the Political big wigs in Beijing have in their mind. Perhaps one should start make their mind up to take Mandarin lessons, it surely would help a great deal in not too distant future.

Weather puts a bid in Crude and also puts an offer: Today midday we were asked whether Crude would trade upward through $120 per barrel of which we were somewhat taken aback as to us the recent hype regarding Crude WTI has been for $100 per barrel, $20 increase seemed overwhelming nevertheless our reply was of a very words, firstly “No” and secondly $100 per barrel should be enough. We further went on to say as Crude has been holding $91 per barrel for past few days that “The weather plays a very important role in Crude, Cold puts a bid because people burn more fuel to make energy but extreme cold shuts everything down and no one wants to leave their home. This reduces the drive miles, this reduces air travel and this pretty much brings everything not to a standstill but at a slow pace”. So, when you have such frigid conditions on the East Coast of North America travel would surely be affected. U.K got snow and Heathrow was quick to give way just before Christmas last week and we need not say much about it as the agony the passengers went through, only they know best nevertheless Heathrow is one of the most important transatlantic hub and when it was shut down it affected Crude directly and the uptrend shifted to sideways. And now we got this blizzard which turned nearly everything white on the East Coast of North America and that then was a knee jerk and hence Crude price tumbled today.

The DOE inventories which always come on Wednesday came today however, the drop came below streets guesstimates which further added as a fuel to the already weakening Crude. Street’s estimate was of a drop in inventories by 2.85 million whereas inventories decreased by only 1.26 million barrels. We remain bullish of crude as we have been for the past several weeks. As crude starts to go up it would certainly push up prices at the gas stations and at $4 per gallon the Americans drive much less and rightly they should but we are far from $4 per gallon at the moment but as Crude moves back up gasoline prices shall also move from lower left to upper right on the price scale. We remain bullish of Crude and take this drop as an opportunity to add to the position.

Has Gold Gone Parabolic? This is the question now on everyone’s mind much and this then seems very much in line with our last article [Crude is hyper bullish while Gold is trying to find a bottom] dated December 22nd and we wrote “IMF is out and Gold has not advanced on month on month basis and lastly the late longs now been squeezed out of the market, the raises pessimism and pessimism is one way of assessing the situation”.  We stated then, we were bullish of gold before and we remain bullish of gold now and today we saw Gold trading $1,415 as we had projected yesterday but that seemed slightly on the higher side and that too rather quickly therefore we gave a sell call for $1,405 and Gold is holding that territory well.

Tomorrow is the last trading session of this year therefore it doesn’t matter what “we” think if Gold is parabolic or not we know that for the longest time Gold has been trading from the lower left to upper right on the chart. We also remember the time when Y2K bug was a big thing and when Gold traded $10 jaws dropped and as gold started to move upwards the skepticism that entailed it in early 2000s qualified Gold to be parabolic. Then 2005 came and mid 2005 onwards gold has not turned back to wait for anyone. Parabolic? Not really!  It could have been parabolic had it been only been getting strong versus one currency but that is not how things are. Gold has gained across the board, be it Euro, Cable, Yen or the Green back and in our article [Could gold replace Euro] dated November 20th we wrote “Why then buy Euros which comes with a lot of excessive baggage of debt when you could buy Gold in Euro terms and be hedged against fall.” Gold has held itself better in euro and sterling terms than in U.S Dollar terms nonetheless as the precious metals or for that matter all commodities are prices in U.S Dollar therefore we have an inclination towards holding assets in U.S Dollar terms.

We have never been Gold bugs and nor shall we be one for we do not believe in conspiracies our objective is monetary in nature and above all we not have the time nor the intellect to decipher the conspiracies Gold Bugs tout for the increase in prices and we believe ignorance really is a bliss. Central banks are buying because they know of no other asset which could or would offer support to their depleting reserves as currencies come under attack. Gold was and will remain the precious metal of choice and ones who disagree shall disagree even when it heads higher therefore trade accordingly as we see new highs by Gold. We see $1,430 taken out by a new high of $1,475 as we mentioned before.

By Bari Baig

© 2010 Copyright Bari Baig - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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