Record movement in gold and silver is coming soon--By Shan Saeed

Yes, that is true. Gold and silver are about to hit new highs in 2012. Gold will touch $2000/oz and Silver will touch $57 or more in 2012. Getting insurance of your wealth is a good strategy and by buying gold and silver you will achieve that along with your peace of mind of not losing your precious wealth. So, where Gold and Silver are heading in 2012. Lets analyse this strategically.

With gold nearly $1,780/oz and silver at $36/oz, the fact that silver is not pulling back is an indication of how strong that market is right now. This is a great start to the week for the precious metals. This is the kind of strength to make sure both gold and silver follow through in the next few trading days to confirm the big gains from last week where gold climbed 2.9%, while silver soared 6.4%. It is remarkable to see both metals hold their gains with no profit taking. Clearly, traders see something big is about to happen, and so do I.

In this regard, I have mentioned several times my expectation that once resistance at $35 is taken out, silver will climb to $57-$70 in 3 to 6 months. I still expect that outcome, but of course, only time will tell. I thought it might be tough going for silver in the $35-$36 area, but maybe not based on the strength we are witnessing today.

I expect the silver price will begin to accelerate to the upside once $36 is hurdled. In many ways silver is positioned today like it was back in the summer of 2010. I have informed my valued investors for the last 2-years why I am bullish on Silver and its industrial utilization. Investors will remember the events from back then and my bullish views about silver. I feel the same way today.

I have written in my blog many times about the relationship between oil and gold, which was up 2.9% last week. Oil jumped a remarkable 6.3%. With all the money printing going on in central banks around the world, not to even mention the growing tensions in the Middle East, oil looks ready to test its record highs some time this year....Governments are broke, banks are insolvent, investors are looking for real assets to take position to have sustainable profits going forward. This is why it is so important to be outside of the banking system by having a portion of your assets in physical gold and silver.

It is also quite possible that gold will outperform oil by the end of the year. But the bottom line is the wind is at the back of the bulls in both the gold and oil markets. I follow this like on a daily basis, but I look at it differently. I look at the price of crude oil in terms of gold and since the beginning of 2012 gold has been outperforming crude oil. This relationship between oil and gold goes back decades. Today an ounce of gold buys basically the same amount of crude oil it did 60 years ago.

But you do get some fluctuations in this relationship and right now I expect the purchasing power of gold to increase. What I am saying is that an ounce of gold at the end of the year will buy more oil than it does today.

You always want to be in harmony with the major trend in prices. As they say time and again, never fight the market. So here's the point I am making, Events so far this year have been extraordinary. The markets are signalling it. In reality, events are spinning out of control. Financial markets will be very messy and turbulent in 2012. There will be lot of headwinds to confront by the policy makers in the noisy market.

Despite this new bailout scheme being foisted on Greece, the situation there continues to spiral out of control, which is one of the factors causing confidence in the safety of European banks to continue eroding.

Surprisingly, over the weekend, the Telegraph in London reported comments by George Osborne, the British Chancellor, who said, ‘The British Government has run out of money because all the money was spent in the good years.’ Finally, a political leader came out and said what everyone has been ignoring. While I applaud Osborne for telling the truth, the frightening reality and what everyone has been ignoring is governments around the world are broke. UK budget deficit will rise and economy might go into recession by Q2-2012. QE has already hit the British economy. Ben Bernanke is the pioneer of Quantitative Easing

Disclaimer: This is just a research piece and not an investment advice. All financial transactions carry a RISK

How to reduce budget deficit in Pakistan? By Shan Saeed

Please read my latest article published in Halal Tamweel

http://halaltamweel.com/2012/02/03/News/How-to-reduce-budget-deficit-in-Pakistan--Any-strategic-game-plan-/3652/Story.aspx

JP Morgan is manipulating the commodity's market---By Shan Saeed

I shared this news with my readers last year when Wall Street Journal reported on 5th July 2011 that 2 american banks JP Morgan and Goldman Sachs were taking massive positions in industrial commodities. These banks were piling up future reserves of the base metals in USA and Europe. This story and my insight have proved correct. JP Morgan is showing its muscle to metal warehousing money. It is bulking up its metal warehousing facilities in Rotterdam and Chicago in a business that consumers complain deliberately delays delivery of metals to boost revenues from rent. Quite smart approach. I have shared this insight on Business Plus TV with the host Ali Nasir who asked a very good question on this topic. I said that globally we would witness financialization of commodities with big financial investors moving into this market to make sustainable revenues going forward. Ali Nasir, thank you for asking me this important question.

London Metal Exchange rules allow warehouse companies to release only a fraction of their inventories per day, much less than is regularly taken in for storage, creating long queues to get metal out and guaranteeing rental income.

JP Morgan's aim is to fill its Henry Bath warehousing arm with inventory in the two port cities large enough to rival trading house Glencore's Pacorini and U.S. bank Goldman Sachs. The Pacorini and Metro facilities in Vlissingen, Netherlands and Detroit combined are estimated to hold around half of the global London Metal Exchange (LME) aluminium stocks which stand at just under 5 million tonnes.

I have got the inside information from a very close source that the bank is pursuing a strategy to consolidate warehousing in the two locations to create the next Detroit or Vlissingen. JPMorgan is rebuilding stocks again.
There are complaints from clients about long queues, particularly in Detroit, prompted the LME to raise minimum delivery rates - 3,000 tonnes a day for operators with stocks of over 900,000 tonnes in one city - but traders and analysts say the new rules will make little difference when they come into effect in April-2012

The JPM strategy is likely to inflame consumers and traders already angry about the influence of warehousing companies on the flow of metal.J.P. Morgan is already preparing to store aluminium in Europe's largest port, Rotterdam, where it has over 30 sheds. Nobody would even imagine about it.

JP Morgan, the largest bank by asset side in the United States, was behind the cancellation of 500,000 tonnes of LME aluminium warrants in Vlissingen, just 50 miles away from Rotterdam, on December 21, traders and warehousing sources told Reuters. Cancelled warrants show metal is earmarked for delivery.
They are taking material from producers or traders, or trying to get it out of the market place - they were lucky to get 500,000 tonnes out of Vlissingen and moving it to Rotterdam. I was talking to some senior people at Citigroup who shared further inside that there had been a large number of copper cancelled warrants in St Louis and New Orleans, many carried out by JP Morgan. It wouldn't be a surprise if they wanted to move metal into their own warehouses in Europe or USA. The cancellations don't fit in with the underlying demand picture."

It is unclear how much metal JPM wants to eventually hold in the two locations, but to compete with its two closest rivals, it will require millions of tonnes, most likely aluminium which has the most ideal characteristics for long-term storage deals. Even few traders shared that most of Detroit's 1.4 million tonnes of aluminium stocks, and is ideally located to attract surplus aluminium in North America. There were other signs in recent weeks that the bank's focus has shifted after traders reported JPM sold a large number of warrants, or ownership titles to metal, to release funds. JPM have dumped a large amount of warrants or sold very cheaply. They've let go of a lot of warrants they were holding onto. JP Morgan is manoeuvring into the new commodities business very quickly. Financialization of commodities is in full swing. Happy investing in the industrial metal market

Disclaimer: This is just a research piece and not an investment advice. All financial transactions carry a RISK.

Growth will be sub-par in Europe----By Shan Saeed

Europe is on the road to recession. Austerity is contractionary in nature. Governments need to use cut tax and stimulus in order to avoid the economy going into recession or might be zero growth in Europe. Tax hike and stimulus cuts may not be able to revive the economic growth.

Austerity measures such as tax hikes and public-sector layoffs imposed in debt-ridden southern European countries may be going overboard. Countries such as Greece have agreed to undertake tough austerity measures in exchange for aid or investor turnout at bond auctions, although layoffs and tax hikes designed to streamline the public sector and ease debt burdens mean less tax revenues down the road.

Less people working means less money coming back in for the government. Plus, a small government means less economic output as well meaning lower GDP growth, less income, lower purchasing power and decrease in living standards of people. Every government in Europe with the exception of Germany is bending over backwards to prove to the market that they won’t hesitate to do what it takes. They are going straight into a wall with this kind of policy. It’s sheer madness. Europe is heading for recession. "Europe is likely to have a meaningful recession in 2012.
While U.S. businesses may not be directly exposed to problems in Europe, protests stemming from austerity measures could spark worries in U.S. capital markets. US might be hit as well.

Powerful street protests could bring it back to the front pages. I have seen episodic crises in Europe over the past two years. It's a recurring event. Greece, Spain, Italy must prepare for another tough year that includes sticking with austerity measures. A very difficult year is ahead of Europe. It must continue the efforts with decisiveness, to stay in the euro, to make sure some countries do not waste the sacrifices and do not turn the crisis into an uncontrolled and disastrous bankruptcy

Disclaimer: This is just a research piece and not an investment advice. All financial transactions carry a RISK.

Gold prices to set record highs in 2012 by Shan Saeed

Gold prices may be off from highs seen earlier in 2011 but get ready for a rebound because gold is set to soar again and may break records in 2012. Gold prices broke records in 2011, shooting to over $1,923/oz on 6th September although they have fallen by about 16 percent more recently. Gold appreciated 12% in 2011. As the prognosis for U.S. recovery looks better, the outlook for Europe looks even worse. That scenario allowed the dollar to resume its status as a safe haven asset that it lost amid economic uncertainty, which sent investors running to the yellow metal on fears the dollar was getting too weak. Dollar is a bubble which might bust going forward. Chinese yuan is the next global currency. All big investors are placing bets on Chinese yuan since its appreciation is on the rise for the last 5-years

While Europe [ esp PIIGS] debt crisis looks increasingly worse, investors will still run to dollars early in 2012, but watch out for gold bugs jumping back in later in the year, when inflationary pressures rise in the U.S. as a side effect of loose monetary policies over the last couple of years. Although investors are currently not focused on an inflationary environment, longer term I believe with the amount of stimulus injected globally and higher inflation expectations will continue to support investment demand in gold. Others agree that as long as bad news seeps in from Europe and while the U.S. recovers amid a sea of inflation-fueling liquidity, gold will rise again even if at a more modest pace. The gold price is primarily supported by investment demand. Investors look to gold as a safe haven and the limited supply of the metal could push prices to very high levels in 2012, potentially exceeding $2,000 in the next six months

Disclaimer: This is just a research piece and not an investment advice. All financial transactions carry a RISK.

Currencies can leave monetary union-----By Shan Saee

Currencies can leave monetary union and no harm can be done. It could be devastating in the short run but in the long run, its perfectly normal for the financial markets as they factor in the risk of that particular monetary union.

I have analysed least 87 examples of countries leaving currency unions and establishing their own money since 1940. Establishing an independent currency allowed the country concerned to set more sensible interest rates and exchange rate to help them grow. In every case it gave them more independence, strengthening their ability to make their own decisions free of foreign interference. They can have internal devaluation ---lower price and wages to boost their competitiveness in order to remain float in the global economy. The biggest advantage to the countries leaving Euro zone is they can print money in their own currencies and have control of monetary inflation or deflation i.e. money supply in the financial market

The Euro remains under pressure severe pressure. Its down from 1.43 to 1.32 [ lost 7.5% value against US Dollar] . Leaders in Euro zone are waiting for Mrs Merkel to relent. They just want her to say the ECB can buy up many more EU country bonds, and QE/print the money to do so. The Governor of the Bank of England this week in his press conference explained her reasons very well. He pointed out that a Central Bank has a role as the lender of last resort. That means it acts as the lender who supplies cash to commercial banks in its jurisdiction if they are solvent but in need of temporary loans. They are lent money at a penalty rate to see them through. It is not the job of a Central Bank to act as lender of last resort to countries that have run out of credit and whose solvency is in doubt.

Within Western Europe the latin currency union led by France and the Scandinavian currency union both broke up without great calamity at the time of the First World War. Between 1945 and 2007 according to the Monetary Authority of Singapore 69 countries have left currency unions. This figure leaves out a good number, including the break up of the rouble currency in the early 1990s. It also excludes the split of Czech and Slovak currencies in 1993. It includes the ones which left the sterling area, like New Zealand in 1967 and Ireland in 1979. It happened by agreement with a relatively smooth transition. Some like Bangladesh left the Pakistan union. Others left former colonial unions: Mozambique for example left the Portuguese area in 1977 and Algeria left the French franc area in 1969. Eritrea left Ethiopia. Again these changes caused so little disruption that most have forgotten they ever happened.

The uncertainty about the end game for the Euro continues to damage the markets. The battering of the bonds does make things far worse. It means banks will lose yet more money on what were meant to be safe holdings. This in turn means they will lend less, slowing growth still further. It is surprisingly common for countries to leave common currencies. So, if Greece, Italy , Portugal or Spain leaves the Euro zone, its perfectly normal and will continue to compete globally with their own independent currencies.

Disclaimer: This is just a research piece and not an investment advice. All financial transactions carry a RISK.

Why money is flowing into Dollar--By Shan Saeed

In late October, I started noticing a tug-of-war going on in the stock market. It shows up on the charts by forming a symmetrical triangle turned sideways on the chart. Triangles typically have five major pushes to each side of the triangle before breaking out. Last week, it was nearing the completion of the fifth pass, so I told my valued clients that a stock market breakout was likely coming within the coming week or two maximum.

Well, sure enough just a few short days later, the stock market broke out of the triangle pattern on the daily chart of the S&P 500 and started heading south. This was a huge tip for currency traders.

You see, when stock market breakouts happen like that, it illustrates currency traders which currencies will likely benefit and which ones will likely suffer from the breakout. In the industry, we call it the “risk on” or “risk off” trade.

When stocks breakout southward the risk-off trade is in play and when stocks breakout northward on the chart, the risk-on trade is in play. Now as investors, you just need to know who’s in the risk-on and risk-off camps.

RISK ON

The risk-on currencies are the ones that tend to track stocks and commodities closely and often carry higher interest rates.

So some of the risk-on currencies are the Australian dollar, New Zealand dollar, Canadian dollar and even sometimes the euro and the pound.

Emerging market currencies like the Mexican peso, South African rand, etc. are also risk-on currencies since they are influenced by commodities and have higher interest rates.

RISK OFF
The risk-off currencies are the defensive currencies like the U.S. dollar, Swiss franc and yen. The dollar is really taking the lead right now as the “defensive currency of choice” because the central banks of Switzerland and Japan have made the other ones essentially bad defensive choices because of these central banks intervening in their currencies to weaken them.

So if you have an opinion on where stocks are heading, whether up or down…then you also have an opinion of whether the risk-on trade will be in play or if the risk-off trade will be in play. And knowing that, you’ll be able to know which currencies have an edge and which ones don’t. Then you can play them against each other.

For instance, if the risk-off trade favors the dollar and hurts the Aussie dollar and New Zealand dollars then you can sell-short AUD/USD or NZD/USD and benefit from both dynamics going on there.

So keep an eye on what stocks [and even commodities] are doing and you’ll have a great take on what is going on in the currency market even though you may not have as much experience in the currency market. This is a great way to take your stock market experience and translate it into what that means in the currency market.

As investors , you will find that transacting your trades in the currency market (rather than the stock market) can carry some distinct advantages such as: no commissions, just the spread to pay…less slippage, quicker fills on your orders, 24-hour a day trading, etc. Happy investing in the currency market

Disclaimer: This is just a research piece and not an investment advice. All financial transactions carry a RISK.