Insignia Consultants
Sunday, October 23, 2022
TIME 11:00 PM
IST
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2023 DIWALI FORECAST
Interest rates moving from ZIRP to NIRP to Volckerization
Before the pandemic “zero interest rate policy”
(ZIRP) was the norm. Federal Reserve, Bank of England, European central bank,
Bank of Japan were following a near ZIRP approach for economy.
Covid brought in stimulus or free money and “negative
interest rate policy” (NIRP). NIRP ensured that growth and employment did not
sink and growth fell but within manageable limit. NIRP and stimulus had one big
draw back. They caused asset bubbles and a historical high inflation. Ukraine
acted as a double whammy to commodity price inflation and overall global inflation.
NIRP has been followed by Volckerization of
interest rates. Former Federal Reserve chairman Paul Volcker is the master to
aggressively raise interest rates to meet his economic goals. Energy price and
electricity prices ballooned in Eurozone, UK and USA. Eurozone nations
accumulated natural gas and crude oil at any cost. They were worried over
meeting their summer needs. They are worried over meeting the natural gas
demand for the upcoming winters.
The net result, the Federal Reserve has raised
rates by 300 basis points so far this year. Fed funds futures traders are
pricing in a 95% chance of a 75 basis points hike at the central bank's Nov. 2
meeting. Futures show traders pricing in a 75% probability of another 75 bps
hike in December, according to CME Group data.
There is an old saying is that the world gets fever
when the federal reserve sneezes. The federal reserve has got the interest rate
hike fever. The world has caught the covid of interest rates. Nations want to
raise interest rates at the cost of growth.
COMEX GOLD FUTURES VERSUS US TEN YEAR BOND YIELD
- · There has been an inverse
correlation between gold price and US ten year bond yield since covid pandemic
began.
- · This inverse correlation will
continue in 2023 as well.
- · Our expectation is that US ten
year bond yield should form a long term top anytime from now before Valentine
day of 2023. Gold has bottomed out or is nearing a bottom.
I had suggested on www.marketwatch.com in one of my views in December 2021 that the
Federal Reserve needed to do a Volcker on interest rates even before the
Ukraine war. I now expect interest rates to be cut by the Federal Reserve from
June meeting and thereafter at every meeting next year.
Bond Yields and the US Dollar Index are the common influencing
factor for all asset classes and not just precious metals and base metals.
Rising bond yields was unexpected at last Diwali
and even early 2022. Bond yields have risen globally from April of this year
and continues to do so. Forex markets have also been affected by sharp rise in
US bond yields and sharp rise in the US dollar index. Most Asian currencies are
at a historical low versus the US dollar. Forex reserves of every nation is
sliding every month as they take intervention steps to prevent a sinking of their
currency versus the US dollar.
Recession is getting factored for next year for the
global economy on side-effect of rising interest rate world.
CORRELATION BETWEEN GOLD AND US DOLLAR INDEX
- · Gold price has fallen less than
rise in the US dollar index. This is a positive sign for 2023.·
- Inverse correlation between US
dollar index and gold will continue as long as rising interest rate rise/fall
cycle is there. This correlation will not work in a stable interest rate regime
of the Federal Reserve.
Rising bond yields+ rising US dollar index and reduced
global liquidity has caused a selloff in all asset classes except energies and
bonds. Precious metals, base metals, emerging market currencies and emerging
market stocks all nosedived.
The concept of safe haven was not there even for
gold. Gold prices sank in US dollar value while it remained firm in every other
currency. Weakness of local currency versus the greenback ensured positive
returns for gold in a falling price graph.
FACTORS WHICH WILL IMPACT GOLD AND SILVER PRICE
TILL NEXT DIWALI
Inflation, Interest rates, Bond yields, and US
dollar Index: I expect global interest rate
hike cycle to top out by the first quarter of next year if not in December of
this year. It is difficult to predict the time period as winter weather
extremity in the northern hemisphere will dictate inflation trend and interest
rate hike cycle. Under the worst-case scenario (if there is a Polar Vertex
blast for a long time in USA, UK, and Eurozone), global interest rate hiking
cycle will top out by March 2023 followed by a pause and interest rate cut
cycle.
There is a big-time lag between interest rate hike
and its negative impact on inflation and growth. This year’s interest rate hike
will see a sustained fall in inflation on or from the first quarter of next
year and successive quarters.
Bond yields and the US dollar Index will form this
decade’s top by March of next year. The only risk to this view is a nuclear war
in Ukraine and crude oil price seeing a sustained rise over $130.
Central Banks Gold buying: Central banks have been net buyers of gold even in
a diminishing forex reserves scenario. Central banks will continue to increase gold
reserves as a hedge to a long-term volatile US dollar value. European central
banks gold reserve increases are the biggest surprise of this year. I am not
giving the data on changes in central banks gold reserves. The World Gold
Council website has all the information on who is buying physical gold and who
is selling physical gold.
De-dollarization: Bilateral trade and multilateral trade without the use of US dollar is increasing
at a very fast pace. ASEAN bloc nations have suggested to trade without the use
of US dollar in order to tide over continued rise in US dollar and the
shortage. Nations know that USA has exported its inflation by rapid gains in
the US dollar. Usd/jpy at 150.00 was unthinkable. They will continue to take
steps to reduce dependence on US dollar for global trade. De-dollarization is
always bullish for gold.
Ukraine: There is uncertainty on how and when the Ukraine war will end. Right now,
Ukraine is causing energy price inflation. Significant Ukraine news will
increase volatility in all asset classes.
Safe Haven: Gold is not a safe haven. The price crash of this year has suggested
that gold price is not a safe haven. Gold price falling less than most asset
classes is a positive sign for next year. This has been overlooked by most of
us.
Gold investment returns can never match selected
stock returns. But when price fall gold fares equally better. Leave aside day
traders and jobbers, gold is the best safe haven or go to investment in hard
times.
Chinese demand for gold and silver: The Chinese economy has suffered this year. Covid
lockdown days has been very high. Chinese demand for precious metals and base
metals is very low and way below long-term averages. Demand from China should
rise next year significantly for gold, silver, copper, and base metals. Chinese
demand trend will be the “X factor” for bullish price trend or bearish price
trend in precious metals, base metals, and energies.
Silver demand and copper demand or battery metals
demand: Silver’s long term demand
outlook indicates shortage for the metals. The current fall and further fall
(if any) will be short lived. Copper and battery metals (used in electric
vehicles) long term demand outlook is hyper-bullish. New technologies (which replace
copper and nickel in battery) have to come mainstream to reverse the long-term
outlook to bearish. One needs to keep a close watch on new technologies which
can be implemented. Silver below $15.00 is a great long-term investment. Copper
if it trades below $6000 LME for a two consecutive quarter will suggest
sustained long term recession. Global growth outlook to a certain extent will
be reflected by demand outlook for silver, copper, battery metals, and
industrial metals.
Recycling: Copper and silver can be cheaply recycled. Rising electricity prices in
Europe makes it impossible to recycle aluminium, steel, and nickel and other industrial
metals. Global electricity price will be the key to base metals recycling
industry. Recycling supplies have to increase significantly to reduce the long-term
pace of rise and also address future supply shortages. There are no proper
official numbers on recycling output as the same is more scattered
geopolitically and highly unorganized. Global electricity price trend will
dictate recycling trend of base metals.
The world will go through a big political change if
and when the Ukraine war gets over. Gold and silver are the best hedge against
such an uncertainty. We have suggested to increase portfolio allocation in
bullion to twenty percent in the long-term investment from five percent before
the start of this year.
The US dollar is in the last phase of the rise. No
single currency or a basket of currencies are there to replace the greenback. Bitcoin
and selected crypto currencies were expected to replace the US dollar in the
long term. They have failed. Gold and physical gold is the best hedge against
long term devaluation of paper currencies.
Hundreds of factors come day in and day out. One
needs to differentiate between day trading, weekly trading, investment period
between one month to five years and more. If you mix any of them, there is
bound to be trading losses and investment losses. Be very clear in your mind on
the time period of investment or trade. Never roll over your day trade into a
weekly and further into a short-term investment just because there was a market
to market (MTM) loss.
Long term impact on global economy and global
political scenario after the Ukraine war?
Ukraine war should get over by next year. The
importance lies over the fact that Ukraine and Russia feed the earth with crops
and industrial metals and virtually everything which humans need to survive and
grow. If you control Ukraine and Russia, you control everything. NATO and
allies want to control everything. Russia’s Putin is just trying to prevent the
same.
Probability1: In my view Russia will lose the war. Russian president Putin will either
quit, get killed. There will be a new elected representative in Russia. I also
see NATO disintegrating Russia and controlling large parts of it’s through a
puppet government. If this happens then industrial metals, energies and food
prices will fall first followed by a multidecade rise. Global inflation will
sink if Putin is removed as president of Russia and/or Ukraine wins the war.
Probability2: I do not expect nuclear weapons to be used by Russia unless Ukraine uses
it first. Iraq, ouster of Ghaddafi in Libya experience suggests that NATO will
use nukes first and the media will blame Russia for the same. A probability of
an over fifty percent for use of nukes in Russia will cause global stocks to
sink and move into a sustained period of long-term recession.
Probability3: Russia will not be allowed to control Ukraine or even parts of the same
like Donbass province or Kiev. Russia alone cannot win the war with Ukraine. Global
stocks will rise sharply, interest rates will cut, inflation will sink due to
higher base effect among other multiplier effect.
How long will China and Iran and Turkey support
Russia and what will their relations be with US, UK, and NATO allies once the
war with Ukraine gets over. Global political dynamic will see a new change once
the Ukraine war gets over. Economic policies will change. Bilateral trade pacts
will be renegotiated. Multi-nation trade pacts will also be renegotiated. Trade
blocs could see new members or fewer members. Physical gold is the only long-term
hedge against such uncertainty.
Since I started my career, central banks have been
dictating our financial decision making by (a) Interest rate change. (b) Focus
on inflation, deflation, recession, and stagflation. (c) Central banks are using
liquidity change measures for dictate financial markets according to their
whims and fancies. Core issues are never addressed. Boom-bust cycles are
getting shorter every year as central banks ignore core economic issues and act
like liquidity managers.
Global warming and technological innovations are
changing our lives. Silver, copper, aluminium, and steel are the key industrial
metals which will needed in much more quantities than available on earth to
combat global warming and to embrace new technology. A year or two to falling
price trend in them, will not alter the long-term bullish trend. Gold is the
only alternate to falling value of paper currencies and paper assets. Natural
gas is the future of energy and not crude oil. This year’s rise in natural gas
is just the beginning of a multi-decade bullish trend.
TECHNICAL VIEWS
Comex Gold Near Term Futures (closing price on 21st
October $1656.30)
- · 50% retracement at $1567.40 is
the key long term support.
- · Key long-term resistance is at $1806.90
and $1975.40.
- · Gold can rise to $1816.70 and $2050.70
before Diwali of 2023 as long as it trades over $1567.40.
- · All the price fall upto $1500
will be a part and parcel of the long-term bullish trend.
- · We remain bullish on gold till
Diwali of 2023 (around middle of November 2023).
- · We prefer a buy on crash
strategy as long as gold trades over $1505.60.
- · A ten percent downside risk is there
with unlimited upside rise potential.
· However short-term traders and
traders wanting to invest for a period of less than four months need to wait
till the outcome of US senate elections (after 9th November) and
then decide.
Comex Silver Near Term Futures (closing price on 21st
October $1906.60)
- · 100% retracement is at $1701.50
followed by $1476-$1551 zone. These are the key long term support zone.
- · Silver needs to trade over
$1701.50 till Diwali of 2023 to rise to $2554.10 and $3201.00.
- · A daily close below $1701.50 for
a week will cause a plunge to $1551 and $1412 and $1337. This is the technical
view.
- · Cautious optimism for being bullish
in silver. I have been wrong in 2022.
- · Silver will also crash in case
it does not break $2149.50 (two hundred day moving average) by end of January
2023.
|
LONG-TERM MOVING AVERAGES
|
|
|
DAILY
|
|
WEEKLY
|
|
MONTTHLY
|
|
CME FUTURE
|
100day
|
200 day
|
|
100 wk
|
200 wk
|
|
100 month
|
200 month
|
|
|
|
|
|
|
|
|
|
|
|
GOLD
|
$1,742.43
|
$1,816.70
|
|
$1,809.45
|
$1,692.70
|
|
$1,445.10
|
$1,300.60
|
|
SILVER
|
$1,938.60
|
$2,149.50
|
|
$2,366.30
|
$2,088.30
|
|
$1,850.90
|
$1,974.80
|
|
COPPER
|
$356.98
|
$404.13
|
|
$413.10
|
$342.60
|
|
$301.60
|
$316.10
|
|
CRUDE OIL
|
$90.48
|
$90.82
|
|
$72.20
|
$60.34
|
|
$59.87
|
$72.20
|
Comex Copper Near Term Futures (closing price on 21st
October $347.75)
- ·
100% retracement is at $302.40 followed by $278.10.
- ·
Copper needs to trade over till next year $302.40 to rise to $442.80 and
$538.20.
- ·
Copper will crash if it does not beak one hundred week moving average of
$413.10 by end of March 2023 to $252.00 and $201.60.
- ·
All the price fall till end of March 2023 will be a part and parcel of
the restarting of the bullish trend.
Nymex/WTI Crude Oil Near Term Futures (closing price on 21st
October $85.05)
- · Crude oil is bullish in the long term as long as it trades over two
hundred month moving average of $72.20.
- · 100-day simple moving average around $90.80 is the price for crude oil
to be in a short term bullish zone.
- · Key long-term support: $53.20 and $72.20
- · Key long-term resistance: $104.70 and $136.50.
- · Wider trading range for crude oil is between $70-$104-$127. Crude oil
has to fall below $70 or break and trade over $127 for another one wave rise.
- · Global demand for crude oil will be high atleast till September of 2023.
Thereafter demand will plunge on (a) Reduced global travel and (b) Electric
Vehicle adoption in Asia will start eating into crude oil demand on or from
October 2023 and further months.
Unknown risk is very high till next year. How Asian
nations will deal with falling forex reserves, rising import cost, and
inflation, and social furore will need a close watch. Asia (excluding Japan) is at the heart of global demand cycle
and global consumption cycle. Volatility in all asset class will rise as and
when unknown factors arise.
INDIA – USD/INR, MCX GOLD, MCX
SILVER, AND NIFTY VIEW
Direction of Indian Rupee versus the US dollar (usd/inr)
will dictate the price of all precious metals, energies in India. Usd/inr
continues to weaken on widening interest rate differential between India and
USA. It needs to narrow for any sell off or gain in usd/inr.
Bond market inflows will rise in India if and when
global interest rate start to top. India is one of the fastest growing nation
in the world. India will see GDP growing over seven percent if and when global
interest rate top out and global growth engine restart. China will be the only
real competitor to India when its local growth starts to pick. Despite the
weakness in usd/inr, I am optimistic on Indian economy not just for next year
but for the rest of the decade.
Reserve bank of India and all Asian central banks
will rebuild their forex reserves when forex inflows start to grow. India is
one the best nations to invest for the long term. Cautious optimism in the
short term.
I am not discussing where and when usd/inr will
form a medium-term top. We are looking at 78.00-85.50 wider range for next one
year. A lot of traders globally are betting on a total of 150 bps interest rate
hike by the Federal Reserve in November and December meeting. No one is really
thinking of a January interest rate hike. Over shooting over 85.50 will be
there if Federal Reserve chairman indicates that they will be raise interest
rates in January 2023 and further months.
MCX Gold Near Term Futures (closing price on 21st
October Rs.50626.00)
· MCX Gold near term futures has to trade over Rs.47737 to rise to Rs.53514,
Rs.56745 and Rs.59975.
- · All the price fall upto Rs.47737 will be a part and parcel of the long-term
bullish trend.
- · 100% retracements are Rs.48951 and Rs.52265. These are the initial
support and resistance.
- · MCX gold near term future will fall below Rs.48951 only if usd/inr
appreciates or falls value wise. It will also not be easy to break Rs.53514
initial resistance, unless gold in US dollar value gets some firepower.
- · Trading range to watch till Diwali of next year is Rs.48951-Rs.53514.
- · A fifteen percent rise till Diwali of 2023 will be difficult for MCX
gold futures to achieve. Those who are looking for investment return exceeding
fifteen percent should avoid gold. My minimum target is a ten percent rise by
next Diwali. Gold investment return in India will be Equal to or Higher than
Indian ten-year bond yields but much lower nifty futures or investment in
selected stocks.
MCX Silver Near Term Futures (closing price on 21st
October Rs.57613.00)
- · MCX Silver has to
trade over 2022 low of Rs.51551 (till Diwali of 2023) to rise to Rs.63011 and
Rs.66351 and Rs.75089.
- · MCX silver future
will crash only if it does not break Rs.63011 by end of February 2023.
- · Technically silver
is not out of the bear shadow. Silver needs a daily close over Rs.59373 for
over a week to attract a short covering rally.
- · Short term
investors need to remain on the sidelines.
- · Long term investors
need not worry over their investment. They can invest on any fall of more than
ten percent.
- · Despite all the
bullish long-term fundamentals, silver has not risen this year. Investors still
prefer gold over silver. Silver Future
investors need to switch to physical silver for long term investment. Short
term silver future traders have to use higher trailing stop losses.
- · Trend of silver after
December Federal Reserve meeting will be sustainable.
|
LONG TERM MOVING AVERAGES
|
|
|
DAILY
|
|
WEEKLY
|
|
MONTTHLY
|
|
MCX
FUTURE
|
100
|
200
|
|
100
|
200
|
|
100
|
200
|
|
|
|
|
|
|
|
|
|
|
|
GOLD
|
₹ 50,792.00
|
₹ 50,730.00
|
|
₹ 48,884.00
|
₹ 44,736.00
|
|
₹ 36,091.00
|
₹ 27,669.00
|
|
SILVER
|
₹ 57,432.00
|
₹ 61,044.00
|
|
₹ 63,783.00
|
₹ 55,232.00
|
|
₹ 46,277.00
|
₹ 40,710.00
|
|
|
|
|
|
|
|
|
|
|
How to trade in Precious metals, base metals, and
energies till next Diwali?
- · I will prefer to
buy naked far dated call option (July 2023 and onwards) on any major crash in
gold, silver, and copper.
- · A more than fifteen
percent fall in crude oil will induce me to invest in July 2023 naked call
option.
- · I can also buy a
naked put option in WTI crude oil with a strike price of $60 for September 2023
if there is a major spike.
- · A fall of more than
ten percent (if any) should be used to increase investment in gold and silver.
- · Future traders of
gold, silver, and base metals trade for intraday till Christmas. Sit on cash.
If there a price fall of over three percent in any week, go long or invest for
the short term to medium term. (depending on global circumstances at the day of
investing.)
NIFTY TECHNICAL OUTLOOK FOR DIWALI OF 2023
- · 100 day MA: 16887.70,
200 day MA: 16994.70.
- · 100-week MA:
16291.60, 200-week MA: 13734.50
- · Nifty can rise to
20080 and 22584 by Diwali of 2023 as long as it trades over 15072.
- · Immediate long-term
support is at the one hundred week moving average of 16291.60.
- · Nifty will crash
only if it does not break 18758.20 before end March to 15072.40 and 13734.50.
- · Long term bullish
trend is intact. But a “W shaped price move cannot be ruled out for Nifty.
OUR PREFERRED
SECTORS TO INVEST
Banking
Credit growth will
see a big spurt in India as interest rates start to cut from the second half of
2023. Especially small and micro finance banks. There will be a major
consolidation in the banking sector due to increase in merger and acquisition
activity.
Our preferred
stocks:
HDFC Bank:
Accumulate upto Rs.1310.00
Ujjivan small
finance bank: Accumulate
Yes Bank:
Accumulate
IDFC first bank:
Buy upto Rs.47.00
Indian Bank:
Accumulate upto Rs.184.00
Electric
Vehicle and allied sectors
EV sector is in
the nascent stage at present. We expect a major technological change in the
coming months. Battery technology should see a big upgrade.
Our preferred
stocks:
Tata chemical:
Accumulate upto Rs.950.00
Tata Motor:
Accumulate upto Rs.360.00
Capital Goods
(excluding consumer durables)
Upgrade, replace,
and new demand for machines and related equipment should cause a surge in
demand for capital goods in India.
Our preferred
stocks:
BEL: Accumulate
upto Rs.85.00
BHEL: Accumulate
upto Rs.50.00
Finolex Cables:
Accumulate upto Rs.435.00
Industrial
metals
The worst will be
over w.r.t slower demand for base metals this year. Demand will be pick up in
the first two quarter of 2023 albeit slowly followed by zooming demand for the
rest of the year. Global economic outlook is also expected to be rosy from the
second half of 2023.
Our preferred
stocks:
NMDC: Accumulate
Vedanta:
Accumulate
SAIL: Accumulate
Jindal Stainless:
Accumulate upto Rs.117.00
Information
and technology (I.T)
I.T sector stock price has been falling this
year. We expect the I.T sector to be the dark horse among all the sectors.
Our preferred
stocks:
HCL Tech: Buy on
dips. Major support at Rs.900.00
Infosys: Buy on
dips. Major support at Rs.1360.00
(Additional Disclosure: Insignia Consultants
does not give any stocks investment dips or any form of advice. Stocks portion
is prepared by the co-founder Mr.Manan Somani. He is a regular trader in
stocks, nifty futures and options. He has positions/investment in the stocks
mentioned above). The above is not an investment
advise or an advise to invest.
Lesson which I learnt in 2022 as an advisor
- · Electricity price
in Eurozone, UK, and USA dictated inflation and factory output. Electricity
price will be one the key economic factor next year as well.
- · Central banks can deliberately cause
recession by quick interest rates hikes among other measures.
- · We need to adjust our investment strategy
to short term and quicker boom-bust cycle.
- · Food prices are in a secular one-way
bullish trend due recurrence of extreme weather.
- · No investment can be called a safe haven.
To conclude
Every year brings in new factors which influence the
financial markets. This year interest rate hike and controlling inflation was
the key driver for all asset class. Investment strategies based on interest
rate pause and inflation subsiding have started. Volatility will skyrocket in
the next eighteen months in the global financial markets due to long term
global political change and change in central bank priorities. One needs to
have to a flexible mindset for trading and investment. Realignment of
investment may have to be done in the next eighteen months if factors and
circumstances necessitate. Trading and investment is all about mind game.
Winners will be those who have a flexible mindset. Happy Diwali.
Disclaimer: Any opinions as
to the commentary, market information, and future direction of prices of
specific currencies, metals and commodities reflect the views o the individual
analyst, In no event shall Insignia Consultants or its employees have any
liability for any losses incurred in connection with any decision made, action
or inaction taken by any party in reliance upon the information provided in
this material; or in any delays, inaccuracies, errors in, or omissions of
Information. Nothing in this article is, or should be construed as, investment
advice. All analyses used herein are subjective opinions of the author and
should not be considered as specific investment advice. Investors/Traders must
consider all relevant risk factors including their own personal financial
situation before trading. Prepared by Chintan Karnani Website www.insigniaconsultants.in.
Disclosure: Insignia
consultants or it employees have trading positions on the trading strategies
mentioned above. Our clients also have positions on the trading strategies
mentioned in the above report.
Insignia Consultants does not have any branches in
India.
Insignia Consultants does not have any marketing
agents in any city in India.
NOTES TO THE ABOVE REPORT
ALL VIEWS ARE INTRADAY
UNLESS OTHERWISE SPECIFIED
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MEANS HOLDS ON DAILY CLOSING BASIS
PLEASE USE APPROPRIATE
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THE TIME GIVEN IN THE
REPORT IS THE TIME OF COMPLETION OF REPORT
ALL PRICES/QUOTES IN
THIS REPORT ARE IN US DOLLAR UNLESS OTHERWISE SPECIFED.
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