Gold price vs dollar shows true extent of rally

Commodities priced in US dollar usually have an inverse relationship to the world's reserve currency.

None more so than gold.

Given the current geopolitical environment (spurring safe haven buying) and what's been happening on global financial markets (falling bond yields, tanking stocks and massive volatility), gold would be expected to be trading higher than today's $1,240 an ounce.

But as this chart shows the recent strength in the gold price has been into the teeth of a rampant dollar.

Any reduction in support for gold prices from US monetary policy could easily be offset by new positives

Research house Capital Economics on Friday released the best chart I've seen to put the relationship between gold and the dollar in proper perspective.

Julian Jessop Head of Commodities Research at Capital Economics says for the third time since 2013 gold has found decent support at around $1,200 per ounce, but this time it's different:

This latest episode is all the more remarkable given the strength of the US dollar. On the basis of the past relationship between the two, the price of gold might now be expected to be touching $1,000.

Jessop believes "any reduction in support for gold prices from US monetary policy could therefore easily be offset by new positives, including policy easing elsewhere, higher volatility in other asset markets and strong physical demand from emerging economies."

Capital Economics' house view is that the price of gold should rally to $1,300 per ounce next year, and to $1,400 in 2016.

Aluminum faces decline in production after 8 years

During the first half of the year 2014, many Chinese smelters shut down under the label of increasing charges of electricity and also declining profit. In addition to the estimated 1.3 million metric tonnes, which cut down in the year of 2013, about 1.4 million metric tones of copper were cut down in the year half of 2014.

The Chinese smelter now came to the realization that the profit rate is increasing and the companies have planned to start and increase the production by the end of this year. Even though the come back Chinese smelters are a relief, but they will have to face a lot of challenges starting from, the way to achieve constant profits, steady supply of bauxite and alumina and also the availability of a cheap source of energy.

Other than the Chinese producers the western producers have also cut down their outputs. Rusal, the Russiahn aluminum producer, declined its production by 324,000 metric tonnes in the year of 2013, and is also anticipating on declining the production of copper to about 3.55 metric tonnes.

Bank of America Merril Lynch bullish on base metals in 2015

Bank of America Merril Lynch in a research note published Wednesday forecasts bullish 2015 for base metals, backed by structural improvement of market fundamentals. The report also states that macro-economic pressures led to substantial retracement in prices of some base metals during summer this year.

According to the report, cyclical headwinds continue to exist for the time being. However, early signs of structural improvement in fundamentals are already visible in individual base metals. Aluminum market fundamentals are looking strong with the metal expected to shift to deficit in 2014. Bofa ML forecasts aluminum price to reach $2,010 per mt in 2015.

As for Nickel, the supply-demand situation may turn out to be extremely bullish through 2015. Higher Chinese refined and ferronickel imports and declining LME stocks may trigger further strengthening of market fundamentals for the metal. Nickel is expected to end in a deficit of nearly 50,000 mt in 2015, BofA notes. The Nickel prices may average at $23,836 per mt in 2015.

According to BofA Merril Lynch, copper still has the weakest fundamentals among base metals. China has de-stocked huge inventories of copper during summer, resulting in lower imports. But with copper inventories at substantially lower levels, the bank forecasts rebound in copper prices during 2015. The LME copper prices are likely to average at $6,939 per mt in 2015.

Natixis sees Copper to decline to $6,335 a ton in 2015

Since 2010, the mining industry has struggled to satisfy global demand for copper . In 2014 Natixis finally expected to see a surplus, only for China’s SRB to take advantage of the sharp fall in copper prices during March to add to its strategic reserves, leaving the market once again facing a deficit. 

This does not change the underlying fundamentals of the market, viz that copper is currently moving from deficit to surplus, but it has left the market with a dwindling supply of available copper stocks, keeping the forward price curve in backwardation for the time being.

With rising mine output and elevated TC/RCs, Natixis is increasingly optimistic that a copper surplus will soon become visible. This is expected to lead to further weakness in copper prices over the period 2015-16.

Natixis is therefore projecting a decline in copper prices to somewhere around $6,335 a ton in 2015. This would be followed by a gradual recovery in copper prices during 2016, averaging $6,500 a ton, as market expectations focus increasingly upon prospective deficits in the period out to 2020 rather than the surplus in the market during 2015-16.

Natixis predicts 275,000 mt deficit for global aluminum market in 2014

The French bank Natixis has predicted deficit for global aluminum market in 2014. The bank forecasts a deficit of 275,000 mt in 2014- the first annual deficit in eight years, primarily on account of large scale production cuts and rising aluminum demand across the globe.

According to Natixis, the global aluminum supply will total 49.2 million mt, whereas global consumption is likely to total 49.475 million mt, thus resulting in a deficit of 275,000 mt deficit.

Large number of Chinese smelters cut production during 2013 and H1 2014, due to rising power costs and falling profit margins. Cutbacks totaled approximately 1 million to 1.3 million mt in 2013 and 1.4 million to 1.8 million mt during first half of the current year. However, the bank predicts that many of these facilities may come back online during the last quarter of 2014.

In addition, Rusal had cut its aluminum output by 324,000 mt in 2013. The company also aims to further reduce its aluminum production by another 323,000 mt this year. Similar production cuts were implemented by Alcoa through closure of its smelters in Italy, Australia and Brazil.

Natixis forecasts global aluminum supply to reach 51 million mt in 2015. The global consumption will total 52.2 million mt, thus resulting in a deficit of 1.2 million mt. Furthermore, the bank predicts 5.5% growth for global aluminum demand in 2014 and 2015, followed by 6% growth in 2016.

DOW, SPX, DAX, FTSE ALL FALL DOWN.

SOURCE http://www.tradingchannels.co.uk/

Dow Drops 1500 Points In 3 Weeks, Nasdaq Enters 'Correction' As VIX Breaks 30

From 17,350 intraday highs "proving the recovery is here," we are 1500 points down just 3 weeks later. The Nasdaq just fell 10.5% from its highs, officially in correction. VIX broke above 30. Perhaps, just perhaps, the gap to fundamentals is finally about to be filled...

Dow ugly...

Nasdaq in correction...

VIX breaks above 30..