IG - Morning thoughts and opening calls

IG - Morning thoughts and opening calls

Gold bears maul precious metals

US stocks suffered their biggest losses for the year overnight, with the S&P 500 dropping 2.3% - its biggest fall since November. China GDP data spooked investors into thinking that the world’s second largest economy is slowing at a faster rate than anticipated.

However, today is all about precious metals again. Yesterday saw the gold bears coming out of hibernation, today they went hunting.

Gold had its biggest plunge since 1980 over the last 36 hours. Yesterday, gold fell all the way to our expected support level of $1430 (a drop of 6.8% from the overnight level). The precious metal managed to catch this handle and traded sideways for the remainder of the Asian session, even moving slightly higher to $1440. However, once Europe opened all bets where off, and gold fell straight through this support level, dropping another 6.27% to $1357.

We revealed yesterday that gold bulls, most of which are hedge funds, were adding to their bullish bets last week (upping positions by 19%). What we saw overnight were stops being triggered as the bears went short with everything they had, and triggered massive falls as gold investors scrambled to get out - including the bulls.

Silver, a main leading indicator for gold, fell 13% over the day to be at US$22.67, a level not witnessed since May last year, and will see gold under even more pressure today when China and Japan come online. Brace yourselves for one of the biggest falls in percentage terms today on gold.

The mauling of precious metals caused investors to head back to safe-haven currencies, with the yen being the unit of choice. USD/JPY plummeted 2.24% into ¥96.00, AUD/JPY fell through parity dropping 2.45% to ¥99.58, and NZD/JPY lost 3.35% to ¥80.60. The ironclad inverse correlation between the yen/Nikkei will see regional markets off even harder on these currency moves, as the Nikkei will drop like a stone today.

All these gyrations on commodity and currency markets were compounded further by the dreadful events in Boston. The bombings occurred just before the close of the markets and pushed the S&P and Dow to their lows. The VIX volatility gauge was already moving up, but the attacks caused it to accelerate into the close to be up 43.25% (See below). Increasing volatility will lead to trading spikes in both directions; be prepared for positions to move rapidly.

Ahead of the open, we are calling the ASX 200 down 60 points to 4905 (-1.21%). I have been highlighting NCM several times over the last few weeks, and there is no doubt it will be savaged today and here is why.

The ADR is suggesting an open at $16.83, down a further 6% on yesterday’s 9% lost. What we will be keeping an eye on is the October 2008 low of $16.45. This pivot saw NCM go on to rally 164% over the next couple of years, which was largely helped by a monster move higher in the gold price (gold at the time was $700). However, this was before the Lehir takeover, numerous production blow outs and the mountainous cash cost. Can it hold the 2008 pivot? I doubt it.

BHP’s ADR is also looking like it will shed another 2.89% to $31.41 today, putting it back within striking distance of the July 2012 low. The old adage of ‘don’t catch a falling knife’ is staring us right in the face with materials plays. The question is, what floor will it stick to? If it breaks through the $31.41 low, the retracement is calling BHP back to $27.10 - a level not seen since 2008.

Brace yourselves today, the sell-off will be sharp and indiscriminate, loss will be across the board, not even the defensives will escape the flight to safety today.

Market Price at 6:00am AEST Change Since Australian Market Close Percentage Change
AUD/USD 1.0312 -0.0128 -1.23%
ASX (cash) 4905 -60 -1.21%
US DOW (cash) 14605 -201 -1.35%
US S&P (cash) 1550.3 -29.0 -1.84%
UK FTSE (cash) 6292 -81 -1.26%
German DAX (cash) 7650 -85 -1.10%
Japan 225 (cash) 13028 -248 -1.87%
Rio Tinto Plc (London) 29.73 -1.08 -3.50%
BHP Billiton Plc (London) 18.25 -0.68 -3.59%
BHP Billiton Ltd. ADR (US) (AUD) 31.41 -0.93 -2.89%
US Light Crude Oil (May) 88.31 -0.64 -0.72%
Gold (spot) 1357.35 -92.3 -6.37%
Aluminium (London) 1875 28 1.52%
Copper (London) 7279 -39 -0.53%
Nickel (London) 15720 197 1.27%
Zinc (London) 2043 31 1.52%
Iron Ore 140.90 -0.1 -0.07%

IG Markets provides round-the-clock CFD trading on currencies, indices and commodities. The levels quoted in this email are the latest tradeable price for each market. The net change for each market is referenced from the corresponding tradeable level at yesterday’s close of the ASX. These levels are specifically tailored for the Australian trader and take into account the 24hr nature of global markets.

Please contact IG Markets if you require market commentary or the latest dealing price.

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