Q4 2012 turned out to be an unusual period amid global economic weakness. Those three months revealed the real state of affairs in the global economy that was hidden by G20’s stimulation campaigns.
The first 2 months of the quarter showed that the old-fashioned aggressive methods of the world’s major central banks are not able to resolve major economic problems.
Strange as it may seem, some central bankers still believe that the more aggressive those quantitative easing steps are, the more positive the reaction of the real economic sector should be. If the reaction fails to come up to their expectations, it is necessary to double or triple their efforts. Under such severe pressure, sooner or later the economy will give up and go back to the previous growth rate.
Early 2013 showed that the world’s top 3 economies are not in a hurry to respond to the mentioned aggressive easing the way those central bankers expect them to react.
What are the near-term prospects of major financial markets, including stocks, gold and the US Dollar?
Let’s try to ponder on this question together with a team of experts from .
USA Is Still Number One
The USA remains the world’s biggest economy. Obviously, anything that concerns the US economy has a major impact on the entire global economy as well as on financial markets in general.
In this aspect, when analyzing the situation seen in Q1 2013 in order to explain the Fed’s actions since August 2012 (QE3 etc.) it is necessary to pay attention to those tendencies that dominate the key long-term economic indicators instead of monitoring short-term volatile indicators.
These indicators include employment, lending volume, consumer sentiment, retail sales, GDP and some others.
As far as the Euro is concerned, the Italian elections may influence its exchange rate in the short run. At the same time, analysts say, it is clear that the eurozone economy won’t stop weakening in an instance and is likely to keep declining through 2013. At the same time, they expect the US economy to remain relatively stable.
If the economic situation in the USA improves, this may force the Fed to abandon stimulation in the future, which will increase the pressure on the common currency.
The chart below, courtesy of , reflects the current state of affairs in the market of EURUSD:
Currency Wars
More and more experts start talking about currency wars. These are wars against the US Dollar. At this point, they are carried mainly by Asian and Latin American countries. Apart from China, Japan is also involved in the process. The Bank of Japan has resumed currency interventions, trying to stop the strengthening of its national currency against the US Dollar. South Korea and Brazil have responded the same way, though more carefully. They may get new brothers in arms in the near future.
The Fed doesn’t conceal that the one of the major goals of the unlimited quantitative easing is to support asset prices apart from the devaluation of the US Dollar. Well, this is what they have actually been getting since Q3 2012. The appetite for risk has increased thanks to big and cheap money along with bond purchases.
The Future of Gold
Some experts say that it is time to worry for those who consider gold a safe-haven asset. The first signs of the Fed’s future monetary toughening have already resulted in:
· A sharp decline in the value of gold assets. This has led to the threatening sign called the “dead cross” in the market of gold futures.
· In 10 days gold depreciated by more than $100 per ounce down to $ 1556/oz.
· A couple of days ago the HUI index (gold-mining companies) collapsed. Goldman Sachs downgraded its gold forecast for 2013 down to $1200/oz. Credit Suisse and UBS feels pessimistic as well. Citigroup says the 12-year rally in the market of precious metals is over.
What are the real near-term prospects of the gold market?
Igor Vasev, a commodity expert working for Masterforex-V academy, says the following:
Sometimes you have to sift through a ton of useless information before you spot a “gold nugget”. It is the monitoring of market data that can help you to win big by seeing the overall market picture instead of just going long of short.
For example:
February 15th, 2013. There was a major increase in trading volume (according to the CME). I noticed that this resulted in testing the demand.
hen the market is in panic, everyone starts turning to gold as a safe-haven asset. Therefore, the stock market declines while gold rallies, and vice versa. However, gold has been appreciating since 2000.
It is after the “roller coaster” that gold starts appreciating. Ok, let’s go back the CME data. The trading volume increased while the open interest remained unchanged. This indicates that the market makers are changing their minds and restructuring their traders. This is always a good chance for making decent profits.
Therefore, we can see the first signs of a major price move. Move on: Now we have to define whether it is a genuine reversal.
For this purpose, we can use our own observations in combination with analytics and trading signals. However, I decided to go another way. I let our neuronet process the data. I made several tests with different parameters and data sets.
One of the tests was based on OHLC + volume + open interest since 1978. The chart below (courtesy of ) shows the test results for 2012-2013:
Nothing special happens. Then I decided to add the data used in the Option Sentiment Index developed by a colleague of mine (Polimer – a Masterforex-V academy member and an invest fund manager).
The input data were filtered to give us 3 data sets:
Now, even if you do not trust one of the systems, you can wait for confirmation signs form the other 2 systems.
This is how a CME momentum helped me to implement my idea: to make comprehensive analysis of the futures market, which is suitable for all the liquid assets. It helps us to see when the market is in euphoria, panic or when it is calm and relaxed.
It is better to have a certain set of assets at hand and take the bull by the horns when it is time to do it instead of spending days and nights waiting for a certain asset to trigger a major price move so that you could profit.
As for gold, at this point the market doesn’t look like it is making a global reversal. Now it looks like a mid-term reversal.
