Key Trends for Trading Markets 2018: This Will be a “Gold”en year

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Abalgorithm: Inflation around the world is starting to pick up. Only a matter of time before policy makers will start to get nervous. All the bond market money is about to pour into commodities and stocks. Gold is pushing the envelope. Charts below.

While higher inflation might, in the short run, be positive for record-breaking stock markets — with wage pressures still modest, greater pricing power for companies should juice profit margins — ultimately it poses a threat to earnings if wage rises become broad based.

Core US inflation — which excludes food and energy — stands at 1.8 per cent, below the Fed’s 2 per cent target, and the eurozone’s core inflation rate remains lower still at 0.9 per cent. Real yields, calculated by subtracting inflation expectations from Treasury yields, remain dormant. That means despite inflation beginning to tick upward, financial conditions remain more or less unchanged. Money is staring to move into assets which can protect against inflation, EPFR shows above.

Given the trend to inflation, we believe this is the year for Gold and other commodities.

GOLD IS BREAKING OUT. GO LONG AT 1360 IS OUR CALL AND DO NOT GET OUT TILL PRICES CLOSE UNDER 100 DMA. HENCE REMAIN LONG TILL FURTHER UPDATE

GOLD weekly is above last week highs and is above 2017 highs. The essentials for a breakout are now satisfied. Prices are touching the 2 SD of the 20 MA of the weekly. The fact its nowhere near the 3 SD gives us comfort that it is not overbought

Bond Market Crash starting
One of the key reason for commodities to rise in 2018 is the money pouring out of bond markets. Yields on Germany 10 year are now breaking out to multi week highs. See below.


The Germany 10 yield is now above 0.61%. The breakout need to be carefully observed for followup moves.

The German 10 y minus the UST 10 Year yield is picking off the lows. This is often relevant for EURUSD trading. However EURUSD has already hit 1.25 and is expected to range trade in a 300 pip range.

The Dow Jones commodity index confirms what we know and we have been suggesting to clients. Be long commodities with Gold having the highest weightage. The index is at new highs.

F-indicator
abalgorithm uses the Fundamental F Indicator to find the strength of an economy.

The F Indicator has been rising all thru 2017. The EU economy is moving north and growing much faster and better than a year years before. While earlier it was Germany that was leading the pack, but all countries are now doing well within the EU market.

The F- Indicator for GBP is falling. The UK economy has been worsening. The latest jobs data show further slide in employement. However average earning was at 2.5% which was meeting expectation. This is an indication of higher inflation and lack luster job less growth.

The F Indicator for New zealand economy is worseing with no sign of improvement. However the New Zealand being a commodity economy will pick up this year as dairy prices will rebound in keeping with money flodding into commodities.

The SPY index is at new highs. There is no respite and consolidation.

The SPX has been rising above due to the insatiable hunger for junk yield. Money that is flowing into SPX is chasing higher and higher yield. The Fidelity high income fund is composed of high yield and high risk instruments. Investors has been chasing it and just explains the internal nature of the current market rise. We do not need to tell you how this will end. Last time there was a chase for yield was in 2007 and then the 2008 crash happened. Keep a watch on this...It is a leading indicator.

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