InvestMacro FX

By MoneyMorning.com.au

2011 was a long, painful year for nearly everyone in the market – with perhaps the exception of gold bulls.

Even the self-appointed kings of the financial sector, the hedge funds, were put out to dry.

The ‘hedge’ part of their name alludes to their investing methods which let them ‘hedge’ out their risks. It didn’t seem to work for them last year. Nearly all of them lost money.

The Paulson Advantage Plus Fund lost an epic 48%. And despite the name, the Paulson ‘Recovery’ fund wouldn’t have been much use with a loss of 27.7%. The Henderson European fund lost 42.8%. Senvest lost 36.9%.

The list goes on. In fact, out of the 300 hedge funds on HSBC’s score card, just fifteen of the 300 actually gained by more than 10% for the year.

Put another way, just 5% of the world’s hedge funds outperformed gold last year.

Gold put in a gain of 10.1% by the close of the year, despite falling $400 from its September peak of US$1925 / ounce. Aussie gold had a similar result of 10.2%.

You can start to see why the mainstream dislikes gold – when an inert block of metal sitting in a vault outperforms their best ideas.

What can we expect from gold in 2012?

A Good Year For Gold

To kick start gold’s year, the US government has reached the debt ceiling yet again. There hasn’t been much press about it yet, but a few days ago the debt level nuzzled up against the $15.2 trillion mark.

If the US government increases the debt ceiling again, it is a green light to borrow more. It took just 6 months to borrow the last trillion. Like a mortally obese person with the key for the cake cupboard, it’s hard to imagine them discovering self-control any time soon.

As the US debt level rises, the gold price will rise with it.

You can see the two accelerating together in the chart below. News about changes to the debt ceiling is due shortly.

If the limit is pushed up to $16.2 trillion as expected, the gold price should trend towards $1900 if the long-standing relationship holds true.

Click here to enlarge

The mood around gold at the moment is quite negative after a rough finish last year. It fell as low as US$1525 and has now spent nearly a month under the 200 day moving average. This is the red line in the chart below, which has been a clear support line for years.

Click here to enlarge

This fall has got the media calling the end of the bull market-which is frankly ridiculous. Most of them wouldn’t know a gold bar if they found one in their latte. Gold was still up 10% for the year. And there’s been no slowdown in any of the factors fuelling gold’s bull-run. And after forming a double bottom around $1525, the chart looks bullish.

Then consider the timing: in seven years out of this 11-year bull-run, gold has set its lowest price for the year by February the 8th. That’s a pretty amazing pattern. Put another way, 65% of the time gold is at its cheapest during the first five weeks of each year.

I suspect that we have already seen gold’s low point for 2012. The selling during December would have been driven by profit taking at the end of the calendar year. Gold was probably the only thing to rise in many portfolios last year: an easy target to sell to improve end-of-year results. The sell-off left gold looking very cheap and investors are now moving in.

So what are the main drivers of a higher gold price this year?

Firstly, the Chinese can’t get enough of it. They are the biggest producers of gold globally. They are also the biggest importers. The central bank has been buying not to mention the government telling 1.1 billion people to buy it as well. Shipments of gold from Hong Kong into China have gone parabolic in the last few years (see chart below). The Chinese are rapidly trying to diversify their assets away from US dollar denominated holdings, and won’t be stopping any time soon.

Click here to enlarge

In October alone, 85 tonnes of gold were shipped into China. To put this in context, this is about 40% of what the world’s gold mines produced during that month.

The second big reason I’ve been bullish on gold – and am probably more bullish now – is that central banks, as a whole, are big buyers – and they are buying more gold as time goes on.

The central banks are the biggest players in the market this year. What they do drives the direction of the gold price. A very clear trend has formed since 2005. As you’ll see in the next chart, the central banks buy more gold each year… and this year has been massive. The World Gold Council estimates that central bank buying will take the equivalent of 2 months-worth of the entire world’s gold-mine production this year.

The third and final big reason why I’m bullish for gold is because of the global debt crisis and the inevitability that the US Fed will print more money. The greater the money supply, the more it dilutes the value of that currency. So the price of real things, like gold, increases as a result.

They might deny money printing is on the cards for now. But the Fed will have no choice but to crank up the presses. There is $2.7 trillion of short-term debt they need to get someone to refinance in 2012 alone.

Who in their right mind would, or even could, lend that much to the US? We’re in the middle of a banking crisis! And I’m pretty sure the US has had a credit downgrade. Over the next 4 years, this debt will blow out to $5.6 trillion.

But gold isn’t the only precious metal to watch…

I think silver will have a more explosive year than gold.

After a disappointing 2011 where the metal price closed down 10%, many of the short term speculators have now been flushed out of the market.

Click here to enlarge

The silver price is now in bargain territory, and what is happening in the market is very bullish. The silver price recently had its biggest jump in three years, and went on to jump 12% in three days. Tomorrow we’ll explain why something similar could happen again to silver in the next few months.

Dr. Alex Cowie
Editor, Diggers & Drillers

Will the Gold Bull Keep Running in 2012?

After touching 1.0378 resistance, AUDUSD pulled back from 1.0385, however, the fall from 1.0385 would possibly be consolidation of uptrend from 0.9861. Key support is now located at the lower line of the price channel on 4-hour chart, as long as the channel support holds, we’d expect uptrend to resume, and one more rise towards 1.0600 is still possible. One the downside, a clear break below the channel support will indicate that the rise from 0.9861 has completed at 1.0385 already, then the following downward movement could bring price back to 0.9500 area.

Daily Forex Analysis

The implosion of the USSR in December 1991 produced massive economic “collateral damage” in its East European allies, as they simultaneously sought both to assert their new-found independence and draw closer to their potential European allies on the western side of 1946’s “Iron Curtain.”

Following the euphoria amity quickly devolved down to practical issues, one of which was that the European Union was leery of welcoming new members after the collapse of Communism that relied on power from Soviet-era nuclear power facilities, especially in the wake of the April 1986 nuclear disaster at Chernobyl in Ukraine.

Accordingly, the last two decades have devolved into a series of unseemly squabbles between Brussels and new Eastern European members, with the EU demanding the prompt shutdown of Soviet-era nuclear power plants, while governments east of Berlin plead understanding and extended timelines to shut down the facilities that provide major electrical input as they search for alternatives.

The latest post Cold War post-Soviet space energy front line is Slovakia.

What to do in Bratislava on the way to becoming good, clean, green members of the European Union?

Shut down all the country’s nuclear power plants and win plaudits in Brussels while inflicting brownouts or blackouts on the locals?

Beg for more time?

Adopt a matrix of energy change which includes some nuclear power while appealing to Brussels?

Right now, the answer is about as clear as the river flowing through Bratislava, “the beautiful Blue Danube,” to quote Richard Strauss.

Slovakia currently has four operational nuclear reactors at complexes in Jaslovske Bohunice and Mochovce, commissioned between 1984 and 1999. The facilities’ three oldest reactors have been shut down in accordance with EU mandates. The Jaslovske Bohunice two online 505 reactors alongside Mochovces’ twin 505 megawatt currently produce a net output of 1,711 megawatt hours of electricity, with nuclear energy currently producing overall approximately 50 percent of Slovakia’s electricity.

Prior to its accession to the European Union in 2004 Slovakia had to shut down two of its older reactors because they did not meet European safety standards. Slovakia made significant efforts to achieve World Association of Nuclear Operators (WANO) standards, but the EU nevertheless insisted on the shutdowns. The first Bohunice reactor closed on 31 December 2006 and the second Bohunice facility two years later. The closure of these units, prior to the completion of two new reactors left Slovakia short on power, with the country briefly becoming an energy importer after the first plant was shut down.

The Slovak government nevertheless seemingly remains committed to nuclear power. Two more reactors have been under construction at Mochovce since 1985 and which should be finished in 2012-2013.

Further complicating the picture beyond the Slovak Republic’s EU membership, Slovenske Elektrarne, a unit of Italy’s Enel, is the operator of the two nuclear power plants (NPPs).

But amidst the country’s nuclear quandary, one state agency seems poised for growth.

Jadrova a vyradovacia spolocnost, a.s., Slovakia’s nuclear decommissioning company, better known by the acronym JAVYS, intends to increase its investments this year by $19.5 million, a $4.4 million increase over 2010 funding levels. JAVYS spokesman Dobroslav Dobak said,”Of the planned investments in 2012, we will continue with preparation and implementation of projects related to decommissioning of (Bohunice) nuclear power plants A1 and V1, and projects aimed at reconstruction and construction of technologies used for handling spent nuclear fuel and radioactive waste.”

But the downside for Slovak environmentalists is that the global recession has impacted JAVYS funding as well, as last year JAVYS shed nearly 12 percent of its workforce, which now numbers 885 people. Dobak commented, “The decline is mainly related to the change of the status of V1 NPP which is no longer operating but is being decommissioned. Thus it is not necessary to operate several technological systems. At the same time, we optimize and improve effectiveness of our activities.”

So, where does Slovakia go from here? EU-friendly green or transitional post-Soviet nuclear?

The answer is anything but clear.

Source: http://oilprice.com/Alternative-Energy/Nuclear-Power/Slovakia-s-Nuclear-Schizophrenia-Shut-Down-Continue-As-Usual-or-Boldly-Go-Where.html

By. John C.K. Daly of Oilprice.com

Silver Technical Analysis Update

Guest post from www.forex-fx-4x.com; free trading analysis

• The price action on Silver has yet again formed support around the 26.00 area on an attempt to move lower.
• The monthly gain to date is 3.16%.
• 61.8% Fib ret of 8.48 – 49.77 is located at the 24.35 and may come into focus on a sustained break of the key 26.00 support level.
• Upside targets include the previous price pivot around 30.80 and the pronounced 32.30 swing low from 8/5/11.
• The highlighted series of lower highs is someyimes indicative of lack of sustained selling interest on each bounce from support and could potentially be hinting towards a break of key support.  A sustained move above the 25.66 (23/10/11) daily high would invalidate this lower high analysis.

Silver Daily Chart

Any information or views found in this post are provided for educational reasons and do not in any way represent investment advice. The article author doesn’t guarantee the accuracy or completeness of this or any other information provided. Forex-FX-4X or the post authors will not accept liability for any losses arising directly, indirectly or because of reliance on any of the trading setups or associated analysis in any way.

Chart: 2012′s Fastest Growing Nations Will Be…

by Mike Kapsch, Investment U Research
Sunday, January 8, 2011

If you were to ask me to predict the two fastest-growing economies in 2012, two nations I probably wouldn’t mention are Libya and Mongolia.

Yet that’s exactly what The Economist’s Intelligence Unit forecasts will happen…

Libya is set to be the world’s fastest-rising economy in 2012 with a GDP growth rate of 22%. And Mongolia is set to place second with a growth rate of 15%.

Have The Economist experts gone crazy?

It was just October of last year that Colonel Muammar Qaddafi was killed. And I haven’t seen many headlines about Mongolia’s booming economic growth outside of Investment U.

A Closer Look At Libya and Mongolia’s Rapid Growth

The Economist claims, “Libya’s economy will grow faster than any other in 2012 boosted by reconstruction following the fall of Muammar Qaddafi’s regime. The surge is a bounce-back from an even more precipitous slump while war raged.”

Last year, Libya’s civil war cost the country tens of billions of dollars and thousands of lives. Yet Qaddafi’s falling out signifies a new chapter. Libya has $60 billion in sovereign funds to invest in infrastructure, housing and other constructive avenues starting this year. Not to mention, high oil revenue and a population of just 6.3 million give Libya one of the highest GDPs per capita in Africa.

Mongolia, on the other hand, is benefiting from a massive coal and copper mining boom. According to the International Monetary Fund, the country’s economy could expand at almost 23% in 2013. But the IMF also warns investors need to be weary of Mongolia’s inflation rate, currently up around 12.6 percent.

Good Investing,

Mike Kapsch

Article by Investment U

This article reviews the monetary policy interest rate activity of the world’s central banks during 2011.  The major theme of the year was monetary policy tightening, but the second half of the year featured many banks opting to reverse course or switch to outright net loosening.  Indeed of the 87 central banks that Central Bank News monitors, 34 made net increases to their interest rates, while 32 held their rates net unchanged, and 21 made net reductions to their policy interest rates, many of these in the second half of the year (see: Global Interest Rate Movements: Half-Year Review).

Of the central banks that net increased their interest rates, the average increase was 281 basis points (skewed up by Belarus; the average would be 185 excluding Belarus).  There were 18 central banks tightening by 100 or more basis points.  The outliers were Belarus 3450bps, Kenya 1200bps, and Uganda 1000bps.  Of those tightening rates, it was largely emerging and frontier markets, with inflation pressures running high on the back of rising food commodity prices and relatively buoyant economic conditions, particularly in the early part of the year.

There were relatively few central banks cutting interest rates, but of those that did, most made the move in the second half of the year as signs of slowing global growth started to show.  However the European sovereign debt crisis was perhaps the most poignant reason for loosening policy settings; with a few central banks opting to take a precautionary or preemptive move e.g. Australia.  The average interest rate cut among those to net-loosen monetary policy was 96 basis points.

So while the second half of the year saw increasing loosening of monetary policy, the major theme of the year in monetary policy was tightening.  Much of the policy tightening went on in emerging markets where inflation has been pushed above inflation targets due to rising global commodity prices and strong economic growth and activity levels (i.e. both demand pull and cost push).  The year also saw some non-conventional monetary policy moves (as noted in: Top 10 Most Extreme Monetary Policy Moves of 2011).

The course of monetary policy in 2012 will be highly dependent on the course of global growth, but especially the resolution or otherwise of the European sovereign debt crisis.  Though with signs that inflation is peaking in some of the key emerging markets, and slowing global trade, it is likely that the first half of 2012 will be dominated by monetary policy loosening.  At the same time, this could well turn to tightening in the second half; particularly as economies begin stabilize, policy stimulus flows through, and inflationary pressures begin to re-emerge.

Whatever the course of interest rates in 2012, keep checking the website for regular and comprehensive global monetary policy updates.

Source: www.CentralBankNews.info

Article source: http://www.centralbanknews.info/2012/01/global-interest-rate-movements-in-2011.html

The National Bank of Ethiopia cut the minimum deposit reserve ratio by 500 basis points to 10% from 15% previously, the Bank also cut the liquid assets to deposits ratio by the same margin to 20 percent from 25 percent previously.  The move is aimed to encourage banks to lend money, particularly to the export sector.  Ethiopia reported annual consumer price inflation of 39.2% in November. According to IMF statistics Ethiopia saw inflation of 10.5% in 2010, and economic growth of 6.96%, the IMF forecasts growth to average about 8% out to 2015, and inflation 6%.  Ethiopia’s currency, the Ethiopian Birr (ETB), weakened about 2% against the US dollar last year, while the USDETB exchange rate last traded around 17.29.

This first trading week of 2012 comes to a close with investors struggling to find a direction in a turbulent market. Hi.

2012 Tech Preview: Connected Cars

by Mike Kapsch, Investment U Research
Saturday, January 7, 2011

It all starts January 10…

That’s when over 140,000 tech industry professionals will swarm the Hilton in Las Vegas, NV showing off their latest innovations at the 2012 International Consumer Electronics Show (CES).

Although closed to the general public, for four full days, tech companies from all over the world will gather to talk about the hottest trends in the smartphone, tablet, laptop, PC, netbook, TV and video game markets.

But this year these tech firms will also hear from a surprising guest… the automotive industry. And 2012 is set to create some good opportunities to profit for switched-on investors…

The Next Era of the Standard Automobile Has Arrived

According to MIT’s Technology Review, “The automotive and transportation industries are entering a phase of the most significant innovation since the popularization of personal automobiles a hundred years ago.”

At this year’s CES conference, Ford and Mercedes will each take the floor to talk about their latest advancements. And they’ll certainly have a lot to say about introducing “connected cars” into the marketplace.

What is a connected car? Take a look here:

But this is just the beginning… Pretty soon, many of the cars we drive will also have the ability to read our vital signs and report emergencies to 9-1-1 when we can’t.

Looking Ahead Through 2016

By the end of 2011, 45 million connected cars were introduced to the public. By 2016, ABI Research claims, this market will grow 366% to 210 million.

With over one billion cars currently on the road around the globe, it’s safe to say the connected car market will have plenty of room to grow for the foreseeable future. And companies like Gartner (NYSE: IT) and Freescale Semiconductor Holdings (NYSE: FSL) are set to take advantage of this technological boost…

Good Investing,

Mike Kapsch

Article by Investment U

By MoneyMorning.com.au

[Ed note: the following article first appeared in the December 2011 issue of Australian Small-Cap Investigator. You can check out Murray’s latest free stock market update video and the archives of previous updates on YouTube.]

Kris asked me to write a quick note to you about my predictions for the stock market for next year. That’s a problem. Because as a stock market trader, my job is to focus on the forces in the market that are affecting the price right now.

I look to take advantage of my understanding of those forces to find good risk/reward opportunities for entering stocks.

In fact, my ability to predict where the stock market will be in a years’ time is next to zero when using charts. That means anything I told you about the future direction of the stock market would be meaningless twaddle… that wouldn’t be worth the paper it’s written on (even though it’s not written on paper!).

So, if Kris doesn’t mind, I’d prefer to discuss where the pressure points are in the market, and the impact it will have on investors and traders. But first I’ll cover my long term macro-economic view…

You’d have to be living under a log not to know there are some serious headwinds facing the world economy right now. Europe is in recession. America is plodding along at very slow speed, in danger of being sucked back into the “debt vortex” by Europe. And China’s economy is fast losing steam on the back of a weak Europe and a slow America.

The European debt monster is slowly consuming all in its path and the central bankers and politicians are throwing as much of our money at the problem as possible. Money printing can never be far away under these circumstances. Next year will be a story of to-ing and fro-ing. On side will be the forces of deflation. And on the other, central banks printing money to avoid it.

Great Opportunities for Traders

Therefore the road forward for stocks will be gut-wrenching sell-offs followed by super spikes on the back of money printing. But each episode of money printing will have less effect on the market than the previous one. The outcome from money printing will be higher commodity and food prices… and little else.

This scenario involves periods of very high market volatility that will provide great opportunities for traders who are nimble. But for buy-and-hold investors, this scenario won’t look good for the next year. If you’re an investor (not a trader) looking to time the market I’d say that the first half of next year is a no-go zone until you get confirmation of the next round of money printing from Bernanke.

Even then I would only hold for three to six months at most while the market rallies under the false hope that money printing solves everything.

Click here to enlarge

Technically the ASX 200 is currently oscillating around a very important low. Decision time on which way the stock market will break is fast approaching.

Have a look at the thick blue lines in the chart. They outline the long sideways distribution that our market has been tracing out for the last two years. What is very interesting about the way prices behave is that when it’s obvious to market players that a price level is technically important, a distribution often forms around that price level.

This leads to the “whipping out” of the inexperienced traders who thought they could trade the market around that important level.

Have another look at the chart. The low of the long-term distribution is very close to the point of control (POC 2) of a smaller distribution.

This smaller distribution has formed over the past three months. The way the market breaks out of this distribution is very important.

If the index falls through this smaller distribution, that will confirm the failure of the large two-year distribution. And if that happens, this will lead to huge selling pressure. Think of it like dominoes…

The Unknown Could Send Stocks 30% Lower

The very short-term failure will set off a chain reaction that could see two years of buying looking for an exit at the same time. This is when the stock market could fall many hundreds of points back to the lows in 2008-09.

Therefore watching the evolution of this smaller distribution is very important.

As I write, the market is selling off below the smaller point of control near 4200 [Ed note: Murray wrote this article on 15 December, 2011 when the S&P/ASX 200 was trading at 4,137]. When the market sells off below its point of control that’s when the momentum shift occurs. People who are “long and wrong” (buyers who bought at high prices) from the top half of the distribution will start to dump positions, giving the bears the upper hand to begin selling aggressively.

The market could fall sharply and quickly to the bottom of the distribution once this occurs.

Therefore I would get out of the way of the stock market for the immediate future. The current set up points to a retest of 3800-3900. If that level gives way then that is where you will see the long-term liquidation of the positions I was talking about.

After that, who knows where it could fall? The market could even retest 3,100 points next year – 30% below today’s level.

Of course, the big unknown is central bank money printing. This has the potential to throw a spanner in the works. So you’ll have to keep on your toes.

Murray Dawes
Slipstream Trader

[Ed note: Each week Murray Dawes produces a free weekly video. You can access Murray’s latest video and access the archive of previous updates by clicking this stock market update link]

A Story of Sell-Offs & Super Spikes by a Stock Market Trader