IG Markets - Morning Thoughts

IG Markets - Morning Thoughts

At the start of last week, we were talking about hedge funds being the largest gold bulls of the last nine years, and how they had been adding to their bullish bets even before the crash in price- increasing their bullish positions by 19%.

The hedge funds haven’t waivered in their thinking one little bit, upping net-longs further again, this time by 9.8% to 61,579 (an historic high) in futures and option contracts. The 13% plunge in the price of gold has seen the physical pick-up in gold explode. As explained on Friday, China and India are cashing in on the ‘low’ prices having some of their biggest uptake in two years.

Silver has broken a three-week bear move, shifting higher as investors snapped up the precious metal on Tuesday night before trending sideways - a good lead for gold traders.

The biggest gold bull around is John Paulson, he made a rousing speech last week to a like-minded bull that the precious metal will rebound in the medium. His infamous quote of ‘if you can sleep at night, you haven’t got a big enough position’ must be painful right now, he would be absolutely shattered after ten days of no sleep considering his biggest bull call has been smashed. It is rumoured his fund may have lost over $3 billion in value in the last 21 days alone.

He does have a point on a medium-term view; all three major central banks are looking to inflate their respective economies, which will ‘eventually lead to inflation’. His bullish call on gold remains, and he expects the price plunge to reverse in the near term as markets weaken from their all-time highs in the case of the US and on talk the FOMC may even change its language once more to extend its asset purchase and even expand further.

The other reason we may see a correction in the precious metal price is because gold bears have cut their short positions by 8.2% to 59,742 future and option contracts, after reaching an all-time volume high of 70,126 in March. Profit taking and the expectations of a short-term bounce will have led the bears to cash in. However, the current short contract volumes are three times higher than the average of the last seven years - it is the highest shorts position since Commodity Future Trading Commission (CFTC) data started in 2006.

So, the battle between the gold bulls and bears will continue over the coming weeks.

The G-20 meeting was (as expected) a complete non-event. There was no mention of Japan’s current stimulus measures, which basically gave the BoJ the green light to continue with its current programme. This has given investors that positioned themselves short on Friday a massive leg-up today. We did suggest this would be the ideal strategy heading into the meeting and that has paid off. The yen dropped against the USD, EUR and the AUD, with USD/JPY now back at the highs seen on April 14, at ¥99.95, and looks like testing the ¥100 mark once more this week. The Nikkei is again the place to be for equity traders with the inverse correlation playing catch-up today. The Nikkei looks like opening up 293 points to 13609 on the back of USD/JPY’s move.

Ahead of the open, we are calling the ASX 200 up nine points to 4940 (0.18%). The stabilisation in commodities over the weekend should see some order restored to the materials sector today, however, after last week’s gyrations, holding any momentum may be short lived. Gold stocks should see some recovery considering the free-fall in the gold price has stopped, but copper stocks and pure iron ore plays will fluctuate. BHP’s ADR is suggesting the stock should shed 23 cents today and be down 0.5% to $31.24 on the back of iron ore dropping 60 cents to $138.00, and profit taking from Friday’s uptake.

We are heading in to bank reporting season, with ANZ kicking it off next Tuesday. All eyes will be on dividend growth here, with investors backing the prospects of 15% to 20% growth; watch these stocks to rise over the next 15 days on these bullish bets.
Market Price at 8:00am AEST Change Since Australian Market Close Percentage Change
AUD/USD 1.0273 -0.0073 -0.71%
ASX (cash) 4948 16 0.32%
US DOW (cash) 14557 17 0.11%
US S&P (cash) 1554.7 8.1 0.53%
UK FTSE (cash) 6302 28 0.45%
German DAX (cash) 7467 -48 -0.63%
Japan 225 (cash) 13608 291 2.19%
Rio Tinto Plc (London) 29.21 0.42 1.48%
BHP Billiton Plc (London) 17.83 0.11 0.64%
BHP Billiton Ltd. ADR (US) (AUD) 31.24 -0.23 -0.50%
US Light Crude Oil (May) 88.24 -0.53 -0.60%
Gold (spot) 1408.33 -12.0 -0.84%
Aluminium (London) 1887 -25 -1.28%
Copper (London) 6990 -44 -0.62%
Nickel (London) 15170 -304 -1.96%
Zinc (London) 1886 -2 -0.11%
Iron Ore 138.00 -0.6 -0.43%

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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