“seasonal Trends In The Australian Forex Market: Profits And Patterns” – On Friday the ongoing trade dispute between the US and China seemed to escalate a notch to the next level, at least verbally. The Trump administration has announced a series of tariffs that are due to take effect in three weeks and China has hit back by announcing retaliatory action. In fact, the US government said:
It all makes sense – after all, who needs a trade? It is well known that mountain caves cut off from all contact with the outside world are some of the richest places on earth… no, wait. After all, futures traders take the news as a reason to sell. We don’t really believe it, because they were brought in for the same “reason” about a dozen times and never sold on those previous occasions. However, commodities were sold – and the main reason is that global growth is slowing down, and the leading indicators outside the US have recently entered contraction territory.
“seasonal Trends In The Australian Forex Market: Profits And Patterns”
Gold was sold sympathetically, perhaps because precious metals with significant production demand such as silver and platinum group metals were hit hard. It doesn’t really make sense, but it should be noted that the relationship between gold and commodities appears ambiguous. They tend to tend in the same direction – especially when the USD declines – but economic conditions (or economic confidence conditions) that are bearish for stocks are actually bullish for gold and vice versa. It’s ironic that gold has withstood bearish fundamentals for some time and is now trading on a trend that could be considered more bullish than bearish.
Ahead Of The Game: April 24, 2023
Regardless of the reasons for selling, we prefer to watch technical indicators, because we can never know for sure which fundamental drivers will be given the greatest weight by market participants. The gold market continues to look interesting on that basis – this seems like a good time to pay attention and prepare for possible changes. The reason is that a number of potential differences are starting to appear (while the previous highs this year were marked by bearish differences).
The chart above compares the price of gold in USD to the HUI Index and the price of gold in euros. The red dotted lines show the big bearish divergence that was entered after the period rally that started in December, the green dotted lines show the bullish divergence that appeared recently.
Obviously, the differences can always be erased – but the bigger they are, the harder it will be. “Big” refers both to its size and the time spent creating it. The latest trends and signals are not firmly established yet, but they are strong, which is why we point to them. Readers may remember that among other things we wrote about the “canary in the gold mine” in late 2015 (again a good time to pay attention to the sector). A similar development seems to be going on now:
Stocks of South African gold mining companies, such as Randgold Resources (NASDAQ:GOLD), which derive most of their revenue from domestic operations are an early positive sign that they are close to meaningful downside. Note that “near” sometimes means that one has to be patient for months – but a lead time has not been set. Here we compare the movement in the price of Randgold to DRDGOLD Limited (NYSE: DRD) (which generates all its income in SA) and the HUI Index – note what happened at the end of 2015 and what started to happen recently. We shouldn’t expect an exact repeat of the 2015 pattern (or the 2001/2002 pattern for that matter), but this is definitely a strong signal.
Aud/usd Technical: Hovering Below The 200 Day Moving Average As Rba Looms
In case you are wondering why we are showing DRD but not Harmony Gold Mining (NYSE: HMY), the latter is currently subject to some development of the company which has weight in the stock price – namely the placement of a share to support the recent purchase of Moab Khotsong. Surprisingly, the stock sold off for a second time on the same news, although the layoff was only half as large as initially feared. HMY was abandoned in 2015 as well, but eventually followed DRD’s lead and was not caught up with it, but quickly caught up (HMY’s gold price is more pronounced).
Similar to the divergence shown in the first chart, one must remember that the signal related to Randgold’s price is relatively new and not fully developed yet. In other words, a follow-up is needed, which will be provided by the price of Randgold that exceeded 2017 at the end of the high period close to ~ZAR 18, 600 per ounce, effectively confirmed by the prices of SA-based stocks.
There is actually a good reason why the Randgold price and SA gold stocks often lead the USD gold price and the HUI near major lows: Fed rate hikes often affect emerging market economies before they affect the US economy. This is especially important for developing countries that have incurred large dollar debts and/or have large current account deficits. Significant stress on high-risk EM funds and risky assets tends to emerge frequently in these situations.
During this time the Argentine peso and the Turkish lira were heavily overvalued (Argentine currency was of course fixed at the turn of the millennium as well). The problem for investors is that most EM currencies are not particularly liquid and are often subject to heavy central bank intervention and various restrictions designed to prevent “evil speculators”.
Tomei Consolidated Bhd (7230)
The rand is an asset, as the South African Reserve Bank deliberately avoids intervention in foreign exchange markets. So much so that the rand has a much better economy than many other EM currencies – making it an attractive indirect hedge when the latter is under pressure. Hence accelerating weakness in the rand will continue to develop as conditions of distress in the EM space worsen.
However, this is often a precursor to a change in direction for the US dollar. This economic squeeze like the one affecting emerging markets will eventually hit the US economy with a recession, which will cause the Fed to reverse course. The price of gold in USD terms often turns in advance of its corresponding peak in the dollar index. This is an overview of the reasoning behind the view that the sub-sector of South African gold mining shares is useful as a leading indicator of the sector as a whole.
Keep in mind the caveat that what worked in the past will not work in the future – but in this case we can point to many historical examples in important places and the idea is supported by what we think is a reasonable logic.
The 30-year chart also suggests that it is time to pay more attention to the gold market. As it happens, the lowest period of the year is June 13 (the highest period for the next strong period is November 18). It should be noted that strong seasonality has produced a positive return on only 60% of bonds over the past three decades (in USD terms).
Aud/jpy Technical: Potential Push Up Within A Major Range
In the recent gold bear market the results have been very disappointing, with negative returns seen for four consecutive years (2013 – 2016). 2017 was the first year since 2012 when positive returns were recorded again. However, the returns in the good years were so great that a respectable annual return of 8.42% was achieved on average. Given the 4 odd years of negative returns prior to 2017 it may be time to moderate the positive returns (note that in the past strong seasons have often produced positive returns even in bear markets).
Gold, 30-year chart (generated using Seasonax at Bloomberg). All statistics refer to the strong season marked in red. Obviously seasonal gains are more evident in bull markets than in bear markets, but there were notable exceptions such as the late 1980s and late 1990s when the period was profitable in bear market conditions as well. The average annual return is large and beats the return made during the rest of the year (negative -0.20% per year). Long negative streaks are often followed by long positive streaks.
We don’t know yet how it will play out this year, but we’ve noticed that the gold sector tends to be low in either the May/June window, or failing that, near the peak season in November-December. example of cycle reversal – this happened last in 2016, when the height of the year happened in late July, 6 weeks after the normal period. Note that this also refers to long-term trends – it certainly doesn’t work that way every year.
Fortunately there is little risk involved with betting on a positive outcome. The latest low in the HUI is about 169 points
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