Marc Waldon

Where Next For Gold & Oil?

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Where Next For Gold & Oil?

Where Next For Gold & Oil?

In a previous article our resident ex hedge fund trader and professional analyst Fotis Paptheofanous showed in great detail how he studies the global macroeconomic climate and then uses that information and data to trade for clients and his own money. In this way he is able to use a “top down” approach to his trading. He first studies what is currently happening in the financial world and how that will affect currencies, gold, oil etf’s, stocks etc

1-kilo-gold-bar-250x250From this detailed study he then plots which indices and commodity pairs to concentrate on in the coming weeks and months.

In this article Fotis takes the previously mentioned data and this is how he intends to trade gold, crude oil & equities in the coming weeks and months.

This information was first made available as a gift a couple of weeks ago to members of my forex mentor program and Fotis has kindly agreed to share it here. Usually this information and the previous report would cost you many $100′s per month.

If you missed the report here is the link: Global Macroeconomic Outlook

Equities

Looking at the SPX we are anticipating a pullback of 5-10% in the next several weeks. With the seasonal’s against us we are not in a huge hurry to get short. Instead we are looking to buy some puts sometime next week. As you can see the index is extended from its 200-day moving average which usually coincides with at least a pullback if not a large one.

equitiesimage-7

Looking at the reversion to the mean chart we can see that it is at the one standard deviation line showing that while it has been farther above its 200-Day it is definitely stretched.

sp500 rtm

Add to this our more negative long term views on US markets and we are looking to pick up to positions. One for the next 1-3 months and one for the next 3-12 months as we expect a correction sometime in the first half of next year as valuations have become absurd.

Crude Oil

We have major news in this instrument. US and Iran have reached an agreement on Iran’s nuclear program.

We will be looking below 93.00’s for a test of the 87.00’s area.

crude

Gold

The combination of a +125-basis points (bps) increase in the US Treasury’s 10-year note yield, to as high as 2.85% this week, which in turn has lifted 10-year yields higher in Canada, England, Hong Kong, and elsewhere around the world, along with the persistence of weak commodity prices, has been a toxic cocktail for Gold Bugs this year. Gold’s meltdown began on signals that the Fed might scale back QE, and knocking its price to under $1,250 /oz this week, or -35% below its 2011 peak.

When the Fed actually starts tapering its bond purchases, investors will keep fleeing. Investor demand for gold plunged -56% year-on-year in the third quarter, according to the World Gold Council. Net outflows from Gold exchange-traded funds amounted to $5.1-billion in Q’3, after $18.3-billion was withdrawn in Q’2. In the first nine months of 2013, central bank demand was down by -25% compared with the same period a year earlier. Russia, previously a buyer, sold a small amount in September.

Output from the world’s gold mines is set to hit record highs of 2,920-oz’s this year, this year, and up from 2,861 tons produced in 2012, according to GFMS, disappointing bulls who are impatiently waiting for production cuts following this year’s -24% plunge in Gold prices. In fact, as prices fall, the big miners are actually increasing output to maintain revenue and profit levels, because of the decade-long stretch of fairly heavy capital investment into the mining industry that preceded it. The world’s top three gold miners – Barrick Gold ABX.TO, Newmont Mining NEM.N and AngloGold Ashanti ANGJ.J – all reported higher production in the most recent quarter.

The average cost of producing an ounce of gold is already showing signs of retreating, according to metals consultancy GFMS. All-in costs are expected to ease back to around $1,200 an ounce in 2013 from $1,228 last year, after total cash costs fell to $769 an ounce in the second quarter from $796 in the first three months of the year.

That is still perilously close to the spot gold price of $1,245 /oz, and there is only so far miners can cut back to keep tough operations afloat. Goldman Sachs and Morgan Stanley predict Gold can fall further towards $1,100 once the Fed begins to taper QE-3. If correct, gold prices would fall below the average break-even point for the industry.

gold

In a previous article Fotis showed you how he uses this same global macroeconomic outlook to trade forex, if you missed the post you can find it here: Potential Forex Trade Set Ups

I hope all this information will help you make some good profits for a nice Christmas gift!

Take care!

Fotis

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