GENERAL MARKET CONDITIONS

The US bail out package has been passed. US September non farm payrolls have once again come in negative. Europe and rest of the world is copying the US and are bailing out defunct financial companies. Traders and investors will be thinking what next? The following factors (in short) will be the key to the markets for the rest of the third quarter:

1) US election scenario and the next president till mid November.

2) Interest rate cut: Bank of England may cut interest rates this week. Markets have fully factored in a quarter of a percentage interest rate cut by the Federal Reserve in its 29th October meeting. European central bank may also cut interest rates in November or December, 2008 by a quarter of a percentage. Interest rate cuts have always been bullish for gold and precious metals.

3) US dollar: US dollar has been gaining on the back of woes in Europe and UK and their inability to take unified action and quick action. Precious metals will soon be delinked from currency markets and the US dollar.

4) The number of new bankrupt companies coming to the surface: It will be all about mathematics. Markets will be calculating the amount spent on the buying out/financing bankrupt companies and whether the $700 billion is too little or too much. It will be hard to make any judgment on this. Volatility in all financial markets will rise.

5) Growth in other regions across the globe. The decoupling theory has been dumped. Decoupling between emerging markets growth and US economic growth. But emerging markets will recover faster than US. It will be all about the pace of recovery for emerging markets. If emerging markets also moves towards recession (too early to comment on this) then the pace of rise on precious will rise and 2007 October to March can be repeated in 2008 also.

6) Balance sheet of countries: Once all the financial defunct companies are brought up by all the central banks what will their balance sheets look like. At the moment countries are trying to finance each others. There will be a situation when will not be able to finance each other. Printing more currency notes and issuing more treasury bonds will not the solution to the financial mess created now. Gold will indirectly be the reserve currency of the world in the long time.

7) Spread of credit crunch across different parts of the globe: The US credit crunch has spread across the Atlantic in UK and Europe. BNP Paribas will take control of Fortis’s units in Belgium and Luxemburg. Further German government and financial institutions agreed on a 50 billion euro rescue package for Hype real estate holding AG.

The central banks across the globe are making coordinated effort for any sustained recession like environment. Global central banks have had a history to creating assets bubbles. This time around it will be the accumulation of bad loans/defunct company asset bubbles. If central banks do not take hard decisions then global recession will be only way out.

NYMEX CRUDE OIL (1ST CONTRACT)

Crude oil needs to hold $88 to be in bullish zone and target $98 and $103+ once again. A consolidated fall below $88 will result in $81.60 and $77.


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