In the coming week, markets in the U.K. will be closed for a public
holiday on Monday, while U.S. markets will also be closed for the
Memorial Day holiday. Investors will be looking ahead to revised data on
U.S. first quarter growth, while the U.K. is not scheduled to release
any major data.
Gold has been one of the best performing commodity asset classes this year and
the victory of incoming prime minister Narendra Modi in India’s recent
elections is being tipped as a further signal for investors to stock up on
the precious metal.
One of the first economic policies that the new Bharatiya Janata Party (BJP)
government is thought to be considering would be to relax restrictions
aimed at curbing the volume of gold that the world’s most populous democracy
can import under the so called 80:20 rule.
Introduced last year, the legislation - which increased gold import duties to
10pc and set a 20pc quota on the quantity of imported gold for re-export -
has failed to ease inflation, or significantly cut the the country’s budget
deficit. It has also spurred a boom in illegal smuggling of the precious
metal through the “hawala” black market system.
But Modi’s new government is expected to act quickly on election promises by
cutting duties and reducing the amount of gold that jewelry companies are
obliged to sell for re-export. Some experts expect a full easing of the
unpopular 80:20 rule could be brought into force by the beginning of the
Hindu Diwali religious festival in October, when Indians traditionally
splurge on gold jewelry and gifts.
“It’s only a matter of time before these restrictions on gold are removed
completely by the new Indian government,” Marcus Grubb, managing director of
investment strategy at the World Gold Council (WGC) told the Telegraph.
Gradually, a number of things are now adding up to make investors more
positive about gold.”
India is the world’s second biggest importer of gold and a major driver for
the global market in the yellow metal. India imported around 825 tonnes of
gold last year down from 860 tonnes in 2012, partly due to the increase in
duties and restrictions. At the same time, illegal imports were thought to
account for 200 tonnes of supply.
According to the WGC restrictions have hit demand for gold in India as a
conventional financial investment with demand for gold coins and bars
falling 45pc to 45 tonnes in the first quarter. However, the drop in demand
was partly thought to be due to restrictions on the free movement of cash
and other assets, such as gold leading up to the elections this month.
Overall, gold is up almost 8pc year-to-date, trading at around $1,300 (£771)
per ounce. However, global demand for gold as a form of investment dipped
slightly in the first quarter to 282 tonnes, compared with 288 tonnes in the
same three-month period last year. Increases in demand for jewelry failed to
compensate for sharp falls in the market for investment bullion in the form
of bars and coins, according to the WGC.
Total global jewellery demand climbed 3pc to 571 tonnes in the first quarter
as consumers splashed out across Asia, said the WGC, which monitors the
“It is clear that the longer term underpinnings of the gold market – such as
jewellery demand in Asia – remain firmly in place demonstrating the
continuing resilience of the gold market and the unique nature of gold as an
asset class, rebalancing to reflect demand,” said Mr Grubb. He added that
consumers, especially in the jewelry segment in India, have “a lot of
confidence” to buy gold at the current level of around $1,300 per ounce.
While a change in government in Delhi is being viewed as broadly positive for
the market many analysts are surprised that geo-political events have not
played a bigger role in driving up the price of gold in the quarter.
Normally, the metal is viewed by investors as the ultimate hedge against
risk but prices have so far not reacted to Russia’s actions in Crimea, or
the military coup in Thailand.
“Overall I am quite surprised at how gold has not reacted to these political
situations such as Ukraine. However, depending on events this could still
change,” said Mr Grubb.
Audio - Weekend Edition with John Mauldin and John O'Donnell
New York Times best selling author and financial expert, John Mauldin joins Merlin and John
for a look at the current drivers of innovation and change in our
country. Topics range from Debt to Jobs, Technology to Energy.
Previously on the show, Mr. Mauldin has talked about the fact that Jobs
WILL come, just not sure where from. In this episode of Power Trading
Radio, he sheds some light onto where job growth may come from,
providing some trading and investing opportunities for listeners. John
also talks about his book "Code Red" which is available now at
ECB Alert To Low Inflation Risk, Ready To Take Action, Says Draghi
European Central Bank President Mario Draghi said on Monday that the
bank remains alert to the risks to a prolonged period of low inflation
and expressed readiness to take action if required.
At an ECB
forum in Sintra, Portugal, Draghi said a prolonged period of low
inflation would call for a more expansionary stance, which would also
include the asset purchase programme.
If a temporary shock turns
more persistent, any monetary policy response might arrive too late, he
said, suggesting more pre-emptive action from the central bank.
expect expansionary actions from the ECB as hinted by Draghi at the
post decision press conference in May. The central bank chief said the
bank would decide on further action after seeing the June macroeconomic
"What we need to be particularly watchful for at the
moment is the potential for a negative spiral to take hold between
between low inflation, falling inflation expectations and credit, in
particular in stressed countries," he said today.
There is a risk
that disinflationary expectations take hold and that may cause
households and firms to defer expenditure in a classic deflationary
cycle, Draghi warned.
Banks may respond to this situation with
stricter credit standards and worsens debt burden. "This is fertile
ground for a pernicious negative spiral, which then also affects
expectations," Draghi said.
of loans, be it on-balance sheet or off-balance sheet, it could help
reduce any drag on the recovery coming from temporary credit supply
constraints, the central banker added.
Further, he said, "We are not resigned to allowing inflation to remain too low for too long."
Inflation has remained below the ECB's target of 'below, but close to 2 percent' for the fifteenth consecutive month in April.
Global Insight's Chief European Economist Howard Archer said the ECB
seems highly likely to cut its refinancing rate from 0.25 percent to
0.15 percent or 0.10 percent and to take its deposit rate marginally
into negative territory.
It is also looks probable that the ECB
will take some liquidity measures in June, he added. However, Archer
said he is doubtful that the bank will undertake full blown quantitative
Euro Steady As Anti-EU Parties Rock Elections
The euro dipped before recovering losses against the U.S. dollar on
Monday following European Union (EU) parliamentary elections that saw
several anti-EU parties make significant gains.
Despite thin trading due to a holiday in the U.S. and England, anxious
investors also trained an eye on the outcome of the Ukrainian
presidential election and a European Central Bank (ECB) hosted gathering
in Portugal over the weekend for possible impacts.
Euro equity markets managed to push higher, dismissing the strong gains
antiausterity parties made in the EU parliamentary elections. Heading
into the event risk last Friday, the market had already priced in a
strong euro-skeptic showing. This morning’s push higher is mainly the
Antiausterity Movements Grow Across EU
In France, the National Front (+25% national vote) appeared to score a
historic victory. In Germany, Chancellor Angela Merkel’s Christian
Socialists looked to be in control, while the euro-skeptic Alternative
for Germany took +7% of the popular vote. Greece’s radical right Golden
Dawn party and the U.K.’s Independence Party also gained considerable
support. It remains unclear whether the results will have a lasting
effect on the markets beyond the beginning of this week. The
repercussions are to be felt more at domestic levels rather than at EU
or national levels. British Prime Minister David Cameron understands
clearly that the electorate in the U.K. is deeply disillusioned with the
EU, but he will not shorten the timescale for negotiating any new deal
with it. Despite the growing European antiausterity voice, it’s not
enough to impact the policy trend, as major political equilibrium
remains unchanged.‘Chocolate King’ Wins Ukrainian Presidency
In Ukraine, candy tycoon Petro Poroshenko declared victory in the first
round of that country’s presidential election. A result not unexpected –
the pro-European businessman took more than half of the vote. The
morning’s fading geopolitical uncertainty is supporting both the Russian
stock market (Micex +1%) and the RUB (USD 34.03 and EUR 46.37)
especially after Russia gave the nod to Kiev’s new government last
Friday. With many uncertainties out of the way, the RUB is expected to
restore its correlation with emerging market currencies.
Draghi Warns of Deflation
Meanwhile, ECB President Mario Draghi delivered nothing new in his
closing remarks at the ECB’s central banker conference this morning. His
comments left the EUR little changed (€1.3840). Not surprisingly, he
sees a risk that expectations for ultralow inflations may delay consumer
and business purchases. Consider it the latest sign that euro
policymakers are prepared to take further easing measures when the ECB’s
Governing Council meets on June 5. Again, he signaled that the ECB is
weighing a “wide variety of steps from interest rate cuts to new bank
loans or broad-based asset purchases” to prevent low inflation from
undermining the region’s promising economic recovery. Euro policymakers
fear that disinflation expectations could take hold.
The real event risk for next week’s ECB meeting is in the outcome: what
if ECB policymakers choose to stand pat yet again? The central bank
cannot afford to do so at this well telegraphed meeting, otherwise the
ECB’s policy-setting team will lose what’s left of its market
credibility. The real fear is that the cuts, or whatever, do not go deep
enough. If that’s the case, the dollar’s strength that the market has
been pricing in since the last ECB meeting will be given up. In addition
to using conventional interest rate tools, options include long-term
loans to banks, and purchases of asset-backed securities.The EUR initially lost ground early Monday on the back of strong gains
for the antiausterity parties; however, equities rallied to heights not
seen since 2008. Obviously, thin holiday conditions played a part, but
so too do limited volumes. The 18-member single currency remains
precariously perched ahead of the presumed option barriers and
psychological support at €1.3600 (€300M), 15, 20. More are seen above
€1.3650 (€350M). Stop-losses are supposedly large sub-€1.3600 and
€1.3550. On the crosses, the EUR has been underperforming and this
vulnerability could garner further support for the currency. With both
London and New York out today, the market may not have the will to
entertain much interest. Expect forex market action to pick up tomorrow.
Modi's To-Do List: Priorities For A New India
Tonight, Narendra Modi will be sworn in as India’s new Prime
Minister. And there is no shortage of advice on what he should do once
he takes power.
Today, India’s daily newspapers and the world’s financial press have
been publishing articles telling the new man in charge just what he
needs to do to help India reach its potential, and there are some common
themes. As context, it’s worth noting what the stock market tells us
about expectations: Mumbai’s benchmark Sensex index rose 15% between the
announcement of the elections in early March, and the declaration of
Modi’s victory on May 16. The rupee gained 4% too. “This,” writes Sanjoy
Narayan in the Hindustan Times, “on account of nothing else but a
heightened sense of exuberance about what the markets think the new
government can do.”
So what can it do? And where should it start?
The Hindustan Times asserts, in common with most other press, that
the economy will be a priority, and suggests that there are “some
low-hanging fruit that Mr Modi and his government can pluck right away.”
An example is to start projects that are easily begun, such as
road-building, which will generate jobs and have a multiplier effect on
iron and steel, construction materials and transport. It is believed
that he will set a target of building about 25 kilometres a day of new
highways, the paper says. The HT also recommends tackling inflation –
part of the reason the predecessor UPA-II ruling party is perceived to
have lost the election – and suggests he use a price stabilisation fund
to subsidise prices of six to 10 essential items.
The New Indian Express
believes the first priority should be infrastructure, and in particular
power. “Far too many industries have suffered or shut down because of
low availability of power” in states like Tamil Nadu, the paper says.
“If Modi delivers on his promise of cutting the bureaucratic red tape –
remember his catchphrase of less government, more governance – he would
make life easier for foreign investors.”
Moneycontrol.com, an Indian web site, lists 10 economic reform
challenges for the new prime minister. One is the proposed goods and
services tax which would replace existing state and federal levies with a
uniform tax, “boosting revenue collection while cutting business
transaction costs.” The site reckons this could boost India’s economy by
up to two percentage points, but notes that the reform requires broad
backing because it would involve a change in the constitution. Other
challenges include a proposed change to the act that governs the Reserve
Bank of India ,
which would, among other things, remove the debt management functions
from the RBI; the privatisation of holdings in state-run firms in order
to trim India’s fiscal deficit; reforming subsidies on basic
commodities, which cost an estimated 3.3% of India’s GDP in 2013-14;
reformed labour laws, so as to boost job-intensive manufacturing and
create up to 10 million jobs a year for young Indians; welcoming foreign
investment in defence; raising the cap on foreign investment in Indian
insurance; helping state-run banks with rising bad loans; implementing a
new model for power distribution; and changing the national gas pricing
The Hindu reckons that bullet trains are on top of Modi’s to-do list.
In election, he emphasised infrastructure development, and the
newspaper believes he plans a blueprint for high-speed trains similar to
those in Japan and China. “The government would work towards evolving
the public-private partnership model into a people-public-private
partnership, or the 4P model, that will involve citizen groups,
professionals and retired experts in designing, implementing and
monitoring public service projects,” the paper says.
Outside India, the FT says the first item on Modi’s agenda should be
“restarting hundreds of stalled investment projects across the country –
a task Mr Modi says he will relish, having earned a formidable
administrative reputation during his tenure as chief minister of the
state of Gujarat.” The FT points out that the same target confounded
previous Prime Minister Manmohan Singh,
“who spent more than a year trying – and largely failing – to get a
range of derailed industrial development projects back on track.”
Investment in India’s economy has slumped to almost nothing over the
past two years, the paper says, while the number of troubled investment
projects has increased dramatically – more than 300 under the last
government, worth $356 million, according to Goldman Sachs.
Beyond all of these challenges are two, so immense as to be hardly
worth stating in the press: the inequalities of Indian society that
leave about 150 million people in poverty, and the difficulty of
bringing any kind of government to the world’s largest democracy within
which so much power resides not at the federal but at the state or local
level. As always, the potential in India is just as immense as the
Learning To Make The Trade
New traders often get confused when deciding what tools to use in order
to analyze the markets and select trading opportunities. Looking at the
selections available as well as the tools offered in today’s advanced
trading software, it is easy for one to become overwhelmed. Fortunately,
there is a simple and logistical way to sort through the market ebbs
and flows and identify the highest probability, lowest risk trading
When we are planning to trade, we need to start from the top. It does
not matter if you are holding for 10 minutes, 10 days, or 10 weeks. The
broad markets always have influence over the stocks making up their
components. I have seen this hold true for markets in the U.S., India,
London, Dubai, and Singapore. We need to establish the trend and
potential turning points (supply & demand), of the broad market
before we look to our individual stocks. Most stocks will move further
and faster with the market’s trend than when they are fighting it.
Of course, there are always exceptions. However, even when the stock is
trending opposite of the market, they will often reach supply and/or
demand at nearly the same time.
Once we know what the market is likely to do during the timeframe we are
trading, it is important to look at the stock to find the current
trend. We want to know the direction of the trend, the strength of the
trend, and the possible turning points in that trend (again supply and
demand). By looking at the price and volume, a trader gains most of the
knowledge they need to trade without the added use of any indicators.
You can ascertain the trend direction and strength by observing the
color, size, and shape of the candles themselves with volume as a
supporting indicator. Looking at the past price action, a trader can
also see the most probable turning points or entry and exit targets from
supply and demand.
For those of you who are not familiar or comfortable with reading price
and volume, I suggest you visit your local Online Trading Academy center
and take one of our courses that will give you this knowledge. For
added information regarding strength of the trend and confirming
weakness at turning points, you can use a momentum indicator such as ADX
or MACD. Even multiple moving averages offer a clue to a trader looking
to determine trend strength. Just remember that you need to rely on
price itself to make your entries and exits. Relying on the indicators
makes you late as they are all lagging in their movement and signals.
When looking at the possible turning points of price, we can also look
at the condition of oscillators like Stochastics, RCI, CCI and others.
You have to use them in the correct manner however. Trying to take all
buy and sell signals given by them will not only make your crazy, it
will also drain your account. They are to be used to confirm decisions
made on price action. Stocks will remain overbought or oversold for a
long time in a strong trend. What you need to look for are clues that
there is a change in sentiment and price action at a previously
identified supply or demand zone.Overall, your trading decisions need to be centered on identifying
trends and supply and demand zones of the broad market and your stock.
The technical indicators are decision support tools and may not even be
necessary once you become adept at reading price.