Asian Metals Market Update: De-Gobalization, Localization And Protectionism

March 10, 2022

As an Indian and as an Asian, I am not surprised by the current rise in gold and silver.  The only concern is the snail’s pace of rise. Gold price has risen this year but still way below actual valuation. Ukraine and its developments tells me that anything digital can be controlled by USA/NATO alliance as they are the key technological provider the world. China is different, as it has always ensured that key technologies are developed in local mandarin language. China also has a strict compliance norm for technological companies to operate. “My way or the highway” is for global technology corporates wishing operating in China.

War in Ukraine will be over soon. But a hyper active and un-peaceful border will be there in Ukraine. World is watching how Russia is able to tide over total alienation. For example, till the early 1990’s the Indian Rupee-Russian Rouble trade was very active. Such arrangement can be revived. USA will try all kinds of carrot-stick approach to prevent the revival of such type of trades. It remains to be seen if Russia’s close friend like India and other nations succumb to NATO pressure. India in the past had succumb to American pressures of not buying crude oil from a close friend like Iran. World will be keeping a close watch on how India is able to help its Russian friend. If India does not succumb to American pressures and helps Russia when it needs most then all kinds of trade sanctions will be ineffective on Russia. A combination of China-India bonhomie on supporting Russia, the common friend can result in USA drinking its own spit.

The beneficiary will be gold and only physical gold. De-globalization, localization and protectionism will now catch up among nations in a big way. The Chamaeleon, has shown its true colors. Central banks and politicians know where to speed up in the long term.

Another reason why I will prefer to increase portfolio allocation to gold is the rising global arms race. Every nation has increased its defence modernization budget. USA, France, UK and Israel and China will be the key arms supplier to the world as Russia’s share gets eliminated. Arms manufacturers have patronage of American politicians. It also indicated a return to a barbaric word in a highly technological age. I do not have any options but to convert my surplus cash (in the house and in my bank) into physical gold.

The world will experience the so-called phrase “The New Normal” once war gets over in Ukraine. “The New Normal” will be in the form of (a) Higher commodity price (b) Higher inflation expectation by central banks and (c) Interest rates remaining way below long term acceptable levels. I can write a few pages on the so-called “The New Normal”. But yeah, may be some other day

LME ON RESTARTING NICKEL CONTRACTS

The LME issued a late notice that it’s unlikely to reopen before Friday. And even after restarting it will keep the training wheels on -- trading will only happen in European hours to begin with and with a 10% daily limit on price moves. The exchange said it’s also looking at a mechanism to reduce the short positions in the market before the restart, by “netting off” large long and short position holders on a voluntary basis. Our View: Hedging will be done more in local exchanges by producers and end users. More and more traders will buy physical metal only by proper price fixing. Buying or selling in “Un Fix Mode” will be less in the short term.

The repercussions of (halting of nickel trade in LME) will be felt from next week and in the coming months. I expect a very sharp reduction in intraday volatility and short term volatility. Physical buyers and physical sellers are always better off when there is  less volatile price moves. Look of speculation of some large LME brokers getting bust. Nothing will be there on the headlines. But behind the scenes there will be such things.

A lot of traders are long in gold and silver and copper. They will be out of the market if the price falls by more than two percent today. The trend of all metals and energies till 22nd March is the key. They need to break and trade over this week’s high by 22nd March to start another wave of rise. Failure to break this week’s high by 22nd March will cause a resumption of the medium-term bearish trend.

COMEX GOLD APRIL 2022 – current market price -- $1988.40

  • Gold has to trade over $1996.10 today to be in an intraday bullish zone and rise to $2015.90 and $2045.50 and $2075.70.
  • Anything can happen zone is between $1970.80-$1996.10.
  • There will be another wave of sell off if gold trades below $1970.80 to $1944.10 and $1920.10.

NYMEX CRUDE OIL (April 2022)  -- current market price $109.14

  • Crude oil has to trade over $112.70 to be in an intraday bullish zone and rise to $119.80 and 126.40.
  • Crude oil will crash to $106.70 and $103.20 and $97.10 as long as it trades below $112.70.

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