Macro Economic Analysis 28.07

Some more clarity about the timing for the start of the tapering process will probably come only with the next meeting, in late September.

Despite this, investors are obviously waiting to read the minutes, trying to decode the wording used. Yes, it will probably be – once again – a matter of words.

It is extremely likely that the FOMC will not yet see the “substantial further progress” recently requested by Jerome Powell for starting the tapering. But any expressions which would lead investors to think that the Federal Reserve could anticipate the tapering can further strengthen the greenback, adding pressure on equities. Vice versa, if Powell and its team of economists confirm the relatively dovish view of the last few weeks, the party on stocks could continue further.

In this scenario we have seen in the last few hours a moderate decline of the US dollar, with the dollar index in area 92.45, while the EUR/USD is traded just above 1.18

Gold Analysis

The Gold price remains steady and it is continuing once again the movement in the trading range of the last few days between $1,790 and $1,820.

The slowdown of the greenback lifted up by a few dollars gold price, while the price is struggling to find a clear direction, in a scenario with little volatility.

Fomc meeting would probably be a market driver for bullion only if any surprise will arrive – with any dovish or hawkish announcement.

Vice versa bullion could continue the consolidation phase, which can be seen as relatively positive for further recoveries in the medium term.

Silver Price

The technical scenario for silver still appears fragile. The precious metal lost ground again on Tuesday, with a new fall below $25. The decline was even sharper than the previous one, with a bottom at $24,52 in the future. We will have a first positive signal with the recovery of the 25,5 zone, while only a clear surpass of $26 would show strength. Despite the weakness shown in the last few days, silver should find a significant support zone between $24 and $24,5, where buyers are expected to stop or at least curb the current bearish momentum.

Carlo Alberto De Casa

Carlo Alberto De Casa is Market Analyst for Kinesis.

He also writes as a technical analyst for the Italian newspaper La Stampa.

Carlo Alberto provides regular commentary for UK outlets including the BBC, Telegraph, the Independent, Bloomberg & Reuters. He is also a commentator for CNBC Italy. He worked for Bloomberg as their Equity Research Fundamental Analyst before joining brokerage ActivTrades in 2011 to specialize in currency markets and commodities. In 2014 he published a 250-pages book on gold and the gold market, followed in 2018 by a new updated edition.


About Kinesis

Kinesis is a global monetary system, based 1:1 on allocated physical gold and silver. Through digitalising physical gold and silver, Kinesis is introducing a new era of precious metals

Kinesis set out to bring back a stable, debt-free store of value to the global monetary system. A global fintech company specialising in payments technology, Kinesis has combined the timeless value of physical gold and silver with the latest technological advancements. Creating a digital currency with the everyday utility of a fiat currency; the borderless value and efficiency of a cryptocurrency, and none of the inherent volatility. Kinesis currencies enable allocated gold and silver bullion to be instantly purchased, traded, spent and sent anywhere in the world, bringing real-world access, value, and utility to physical precious metals. Kinesis operates our global platform from our offices in Australia, London and Liechtenstein, with vaulting facilities across all major trading hubs: Brisbane, Dubai, Hong Kong, Liechtenstein, London, New York, Singapore, Sydney and Zurich.

Disclaimer – This report is not an offer of or solicitation for a transaction in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. Any material provided does not have regard to the specific investment objective and financial situation of any person who may receive it. Past performance is not a reliable indicator of future performance.

Inflations Fears are Adding Pressure on The Fed and Stocks

Kinesis Market Analysis

The forth week of July started with markets in dark red. It seems that investors realized, suddenly, that variants could still be a serious issue for the post pandemic recovery. But the sell off seen yesterday should be related also to last week US inflation figures, which certified a 5.4% jump in prices.

The real matter – for stocks – is not the inflation, but the fact that the Fed can not ignore this forever and will be forced to start the tapering relatively soon.
The reaction on FX was, once again, a strengthening of the greenback, while equity sharply declined.

Today’s early trading is showing a rebound of stock’s, while the US Dollar remains strong confirming that investors would not change their mind on US inflation and expectation of some hawkish monetary policy from the Federal Reserve.

Investors are carefully monitoring stocks, trying to understand if yesterday’s sell-off could be seen as a single episode, or if markets are ready for further corrections. Today’s decent start is increasing chances that we are still in the first option, with the bullish trend of the last 15 months not yet over.

Kinesis Gold & Silver analysis

Let us focus on the gold scenario. Bullion tested the $1,800 support zone, before rebounding to $1,818. Despite the US Dollar remaining strong, investors are betting on gold, seen as a hedge against inflation risks. In this scenario, gold outperformed silver in the last few trading sessions, showing more solidity.

Bullion price quickly recovered to the resistance area of $1,820. A news surpass of this threshold will improve again the momentum for gold, opening space for new recoveries, with a potential target to $1,850 zone.

Analyzing the price per gram, gold remains above $58.

Gold price $/gram from Kinesis exchange

Moving to silver, it appears clear that the sell-off seen on Friday has weakened the short term technical scenario for silver, as the price has lost the support zone of $26. The main reason for this decline can be found in the strength of the greenback and the consequent weakness of the whole precious metal sector. For a quick come-back, it will be crucial seeing prices trying to recover the $26 mark, while the next resistance is placed at $26.5/26.6.

But the long term trend could still offer interesting chances. Indeed, any spike in inflation or any new rush on commodity price, would definitely also involve silver price, which is still traded almost 50% below its historical highest.

Carlo Alberto provides regular commentary for UK outlets including the BBC, Telegraph, the Independent, Bloomberg & Reuters. He is also a commentator for CNBC Italy. He worked for Bloomberg as their Equity Research Fundamental Analyst before joining brokerage ActivTrades in 2011 to specialize in currency markets and commodities. In 2014 he published a 250-pages book on gold and the gold market, followed in 2018 by a new updated edition. 

 

About Kinesis

Kinesis is a global monetary system, based 1:1 on allocated physical gold and silver. Through digitalising physical gold and silver, Kinesis is introducing a new era of precious metals

Kinesis set out to bring back a stable, debt-free store of value to the global monetary system. A global fintech company specialising in payments technology, Kinesis has combined the timeless value of physical gold and silver with the latest technological advancements. Creating a digital currency with the everyday utility of a fiat currency; the borderless value and efficiency of a cryptocurrency, and none of the inherent volatility. Kinesis currencies enable allocated gold and silver bullion to be instantly purchased, traded, spent and sent anywhere in the world, bringing real-world access, value, and utility to physical precious metals. Kinesis operates our global platform from our offices in Australia, London and Liechtenstein, with vaulting facilities across all major trading hubs: Brisbane, Dubai, Hong Kong, Liechtenstein, London, New York, Singapore, Sydney and Zurich.


This report is not an offer of or solicitation for a transaction in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. Any material provided does not have regard to the specific investment objective and financial situation of any person who may receive it. Past performance is not a reliable indicator of future performance.

Moving Silver is not like Moving a Single Stock

This was due to an alleged battle between an army of Davids (the retail traders of Reddit) and a few Goliaths (some large investment funds).

The reality is probably not as simple, as many of the large funds were actually among the biggest gainers from the GameStop rally for example.

Let’s rewind the tape.

A huge number of small traders, mostly on Reddit – coordinated themselves and decided to take the same trading position, almost at the same time, to make the value of a financial instrument soar.

Two weeks ago, they targeted a cryptocurrency called Dogecoin, which saw a sudden tenfold value increase. In just 24 hours it went from 0.007 to about 0.07 cents.

The move on GameStop was even more striking: shares in the Texan videogames company were worth less than $20 at the beginning of the year before jumping to about $77 on January 25, and to a whopping $325 last Friday, thanks to a major rally that boosted its market capitalization to over $22 billion.

The purchase orders sparked from the Reddit chats and spread at lightning speed. Unity was indeed strength in this case. The coordinated move of a wave of small investors overwhelmed numerous investment funds, some of which racked up multimillion-dollar losses. Among them was Melvin Capital, which lost 53% in January, due to its short exposure on GameStop.

After causing GameStop to climb spectacularly, this ‘army of traders’ switched their attention to silver, which is a much bigger whale. It’s still debated who really was behind this move but the attempt proved successful to begin with: silver hit its highest level in 8 years earlier this week, climbing above $30 an ounce.

How did it happen?

As with stocks, the silver price rises when demand outstrips supply. If the disproportion between supply and demand is high, the rise becomes a rally, often uncontrolled. At times like this, the mechanism can become a self-feeding circle, and not necessarily a virtuous one. Investors who bet on a fall in the price of the underlying commodity found themselves trapped as closing their short positions became more and more costly. As panic set in, many ran for cover, buying at a higher price, recording big losses and boosting prices even further.

But it didn’t stop there: almost 50% of the total demand for silver comes from the industrial sector. Some of the companies that use it, worried about the sudden jump in price, might have decided to buy, to avoid having to pay even higher prices in future, contributing – involuntarily – in feeding this bullish spiral that saw silver top $30/oz.

However, the charge swiftly ran out of steam with silver proving much harder to shift then their previous targets. Indeed, the silver market has a huge number of players involved. More specifically, silver is the sum of an array of markets: physical (jewellery, industrial, investment, central banks’ reserves) and financial (ETFs, futures, options and many other derivatives as certificates, CFDs etc.).

After skyrocketing to $30/oz, silver has lost the majority of these gains, with the price dropping back to $27. The resistance level of $30 touched on Monday and last summer proved to be a significant barrier. At least for the time being, the fundamental drivers fought back against the irrationality of markets.

Italy: Politics & Markets

What is happening in Italy?

The reasons behind this choice likely lie in the polls, which currently give Lega a consensus above 35%, a share that would likely give the party the option to offload 5Stars to form a majority government with right-wing party Fratelli d’Italia and including, if necessary, Silvio’s Berlusconi party.

Salvini though might have overlooked the possibility of a coalition between 5Stars and the left-wing Democratic Party.

This might have been a major mistake.

When a decision was due to be taken to schedule a day for a debate in Parliament, an unusual yellow-red color seemed to emerge in Parliament, as left-wing parties Democratic Party and LeU voted in the same way as 5stars, postponing the parliamentary debate to the 20th of August.

In his speech, PM Giuseppe Conte accused Salvini of following his personal and his party interests, rather than working for the benefit of the country, putting an end to the Government.

His decision has opened different scenarios: from a general election in October, to the appointment of a temporary technical government to govern the country until an early election in early 2020, or even a longer term, unelected technical government which could lead the country for up to 3 ½ years, until the election that was originally scheduled for March 2023.

How is this impacting the market?

It seems clear that the initial reaction of financial markets was positive, Milan’s stock market jumped by almost 2% in the first few hours after the news. Investors are seeing the risk of a right and Eurosceptic government declining, while a coalition M5S+Democratic Party should fall more in line with Brussels, on themes including the Italian deficit. FCA, the Italian car’s giant but also Enel and Eni are gaining ground, while the whole banking sector seems to be receiving a positive boost.

The Italian index is trying to rebound and recovered from 20,000 to 20,800 points.

FTSE Mib daily chart, Source; ActivTrades Platform

But with Italian politics, it’s always unwise to assume smooth sailing.

Indeed, inside both the 5Stars movement and the Democratic Party, there are various, colliding currents and new surprises could be just behind the corner.

Carlo Alberto De Casa – Chief Analyst, ActivTrades

Is Gold Finally Emerging from the Shadows?

But the bullion run-up has also been held back by the risk-on sentiment dominating markets and a greater investor appetite for risk, which has led to greater inflows of capital into the stock market and towards assets perceived as riskier, such as crude oil, which scored a substantial rally in the first quarter of 2019.

So let’s examine gold in detail.

After the decline of last summer, due to expectations of hawkish moves by the Federal Reserve, the market has gradually begun to price in a more accommodating American central bank. These expectations were confirmed at the beginning of the year, when Jerome Powell said that the Fed would assume a “wait-and-see” approach in 2019, effectively crossing expectations of any further interest rate hikes after the 4 adjustments to the cost of money made by the Fed in 2018.

In the wake of this news, the gold rally continued above $1,300 but clashed with the strength of the resistance placed at $1,360, an area that has repeatedly stopped bullion’s attempts to move higher in recent years. This level was an obstacle to the precious metal’s run-up in 2016, immediately after the Brexit vote, but also in 2017 and 2018, when it touched highs precisely at this value.

From a technical point of view, we, therefore, find a first key level at $1,300, but markets are also looking at $1,360 as a possible new test. The breach of these levels would be interpreted as a further signal of strength, and it would make space for a further rise, with another potential test at $1,400, an area indicated by many analysts as a target for 2019.

Looking at fundamentals, it must be remembered that in 2018 demand had a real boom, boosted by central banks around the world purchasing over 650 tonnes of gold, a jump of 74% y / y. This was the highest level in 50 years.

Demand from the jewelry sector (+ 1%) and the industrial sector (+ 0.7%) also increased slightly. On the production front, the amount of new gold extracted from the mines grew by about 2 percentage points according to Metal Focus, contradicting forecasts which saw new gold production growth stop from 2018. On the other hand, recycled gold, the so-called “scrap gold” (i.e. the gold already placed on the market), grew by 1%.

By Carlo Alberto De Casa, Chief analyst at ActivTrades

Is the Italian Government Thinking to Touch Gold Reserves?

The coalition formed by Lega and 5 Stelle is swiftly pushing through hugely costly reforms such a ‘citizenship income’ and a new pension scheme which will see many retiring much earlier than previously allowed.

And with Italy already one of the most heavily indebted countries in the world the key questions is: where are the funds coming from?

While a tax hike could seem the obvious answer, this is likely to prove an unpopular option in a country that already boasts one of the most punishing tax regimes.

So the populist government seems to be mulling an assault on the conspicuous Bankitalia booty. Italy has the 3rd biggest gold reserves in the world, after only the US and Germany.

Italian newspaper La Stampa reported that the government would be considering the option to sell part of its $100 billion dollars worth of gold, which is mostly stored in ingots and coins. These reserves, which amount to 2,451.8 metric tonnes of gold, have been untouched for the last 20 years.

If the government does decide to sell its bullion though it is likely to find multiple barriers.

Rules outlined in the Central Bank Gold Agreement would only allow any potential sales from the last quarter this year, just in time for the next Italian government budget, due in October 2019.

But the government would need to design a legal framework to do so, which requires them to establish who is the legal owner of that gold: is it Bankitalia or the Italian people? This is a grey area within the Italian legal system, which could prove to be the first hiccup.

The government would also need some support from the Bankitalia management and possibly from the ECB, which could, under the ECB statute and various European treaties, oppose such sale.

On top of that, a sale would almost certainly spook financial markets.

Traders would likely interpret this as a distressed signal, clearly marking the controversial direction that this government intends to follow. We would also likely to see some negative reaction in the bond market, with the Italian 10-year-BTP likely to come under pressure.

Italy’s gold is a strong safe haven for the country in Bankitalia’s hand, preventing the country (and marginally the EU) from speculative attacks.

But its sale would be seen by many as an illicit political interference with the independence of the central bank, which, as cited by former Bankitalia governor Salvatore Rossi in 2013, should have the ‘ability to (act) as the ultimate bearer of domestic financial stability.’

By Carlo Alberto De Casa, Chief analyst at ActivTrades

Is Gold Starting to Shine Again?

Every time stock markets are in trouble, gold price climb. In the first week of December gold hit its highest since July at $ 1.250, as equities fell hard on the heels of the arrest of Huawei’s number two. Investors feared that the high-level arrest would revive tensions between superpowers US and China and flocked in the safe haven. The trend for bullion remains positive, with prices consolidating above the former resistance (now support area) placed at $1,235 and still trying to recover strength for further rallies.

From a technical point of view, the first target is $1,260, with space for further rallies to $1,300 if the Fed tightens more slowly. This seems more likely after the more dovish comments from Jerome Powell lately, but also after the latest nonfarm payrolls report, which showed 155,000 jobs were added, well below the expected 200,000.

The recovery of gold, however, is not coming out of the blue: investor interest has grown progressively over the last few weeks and even months. In October, we saw the first real signs of a significant recovery when the precious metal jumped by over $30 in a single trading session while US stock markets showed the first signs of weakness, after almost a decade of the bull market.

Moreover, the recent speech by Jerome Powell revealed a more cautious Fed, more accommodating than what thought after previous meetings, which is certainly a function of shifting expectations over economic growth. The likely slowdown in global growth could push the Fed to decrease the pace of its interest rates hike, reducing the forecast for 2019/2020. In the first three-quarters of 2018 markets priced a hawkish Fed, now things could change. This could prove to be a shot in the veins for gold, traditionally inversely correlated with the trend of US rates.

So – despite the strength of US Dollar on Forex market – in just a few weeks the sentiment has drastically improved, with prices moving far from the bottom reached in the summer at $1,160 and climbing well above $1,200. Moreover, after four months of outflows, ETF gold inflows in October and November swung back to positive territory, confirming growing investor interest in bullion, while the number of analysts upgrading their outlook for gold in 2019 has grown.

In other words, some of the ingredients needed for recovery seem to be already in the mix. Of course, a lot still hinges on the final decisions of the Fed, growth in the US and elsewhere but also on stock markets moves and the geopolitical scenario.

Juventus – The Bold Lady

It was the beginning of July, at a time the World Cup was keeping millions of football fans worldwide glued to their TV screens, that the first rumors started to swirl about the most famous football player worldwide, Cristiano Ronaldo, making a surprise move from Real Madrid to Italian club Juventus.

It was a bold move on the part of ‘the old lady’, how Juventus is affectionately called by its supporters. But it was one that so far paid off.

At that time, Juventus shares were trading at around €0.65. In less than a week since the rumor first started, the price jumped to €0.92, before correcting to €0.80 after the official announcement of the transfer, as traders ‘bought the rumor and sold the news’.

The sudden move of the best footballer of his generation (and arguably of many others), from Galacticos to the Italian club, was big news for football aficionados around the world. It was a major business transaction too.

And one with wider repercussions than first thought.

Those who thought the rally would run out with the announcement were wrong. The decline of ‘Juve’ shares only lasted for just a couple of days; the price quickly recovered to €0.90 and went on to embark a major rally that few could expect.

The first psychological target of 1 euro was reached in August, but that wasn’t the end of it. Another impressive sprint at the end of August propelled the price to €1.20, well above the peak reached in May 2017 at €1.04.

This added further bullish pressure, with shares jumping to a fresh 15-year-high at 1.63 on September 11.

Juventus’ market capitalization has jumped from €650 million to €1.5 billion in just 8 weeks, a massive +130% growth.

The Gold Lady

The rally is even more impressive when considering that the share price was heavily depressed only a couple of years ago when Juve shares were trading below €0.30.

Obviously, the price is not purely reflective of Ronaldo’s arrival.

The market is taking into account the growth of the brand too, with the team, led by coach Massimiliano Allegri, firmly back in the European football Olympus, as proved by its two Champions League finals in the last four editions of the major tournament.

In this year’s Champions League, Juventus will play against Manchester United, another listed team. Its market capitalization is above £4 billion, or 3 times that of the Italian team.

A more careful analysis would suggest that Juventus’ share price has risen more than the added value Cristiano Ronaldo can provide, especially once you take into account the huge costs of his move and his salary.

As an investor, you could look at it from two points of views.

You could consider the entire football world as inflated and vulnerable to a burst if TVrights and other types of income decline in the next few years.

Or you can think Juventus shares are still a bargain when compared with much more expensive teams such as Arsenal, with a market cap of just below £2 billion, or Manchester United, worth some £4.2 billion.

For now, at least, the Portuguese talent is certainly giving the old Lady a fresh lease of life. And what a life that is.

This article was written by Carlo Alberto De Casa, Chief Analyst at ActivTrades