Trading and Investment in Currency Futures Options and Commodities Forex Metals and Energy: 2023 Diwali Forecast for Gold, Silver, Copper, Crude Oil and Nifty

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 21^st 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 9^th November) and then decide.

Comex Silver Near Term Futures (closing price on 21^st 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 21^st 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 21^st 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 21^st 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 21^st 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

PLEASE NOTE: HOLDS MEANS HOLDS ON DAILY CLOSING BASIS

PLEASE USE APPROPRIATE STOP LOSSES ON INTRA DAY TRADES TO LIMIT LOSSES.

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.

You can also mail your queries at insigniaconsultants@gmail.com

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Trading and Investment in Currency Futures Options and Commodities Forex Metals and Energy

Monday, October 24, 2022

2023 Diwali Forecast for Gold, Silver, Copper, Crude Oil and Nifty

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