Opening Statement from the July 2018 CCPM Forecaster 

Opening Statement from the July 2018 CCPM Forecaster 

Originally published on July 1, 2018 

Overview

Given our initial forecast for a boost in global growth released in September 2017, we have remained guarded in terms of commodities pricing for a variety of reasons. In review of more recent variables, we discussed that commodities have been underperforming relative to global economic demand and growth as a result of the possibility and extent of changes to trade policy on global growth. Moreover, we pointed to recent fund outflows from emerging markets as a consequence of these concerns.  

Trump’s trade threats continue to weigh a great deal on the capital markets. In particular emerging markets have been hit hard with Southeast Asian and Latin American nations leading the way. In short, we view Trump’s strategy and approach to trade negotiation as reckless and counterproductive.

As one might imagine, business uncertainty as a result of trade demands from Washington has adversely impacted commodities pricing. Notably, the commodities index we track in this publication (GCC) has declined below...

While the global economy has taken a few shots as a result of Trump’s “trade tirade,” it remains on solid ground. But it is certainly not as strong as it was prior to Trump’s trade tantrum which commenced in March. Regardless, investors should note that global trade issues alone could ultimately adversely impact the economy and capital markets. The problem is that the longer trade discussions persist without amicable compromise, the greater the chance that business and investor uncertainty will persist.

At the same time, gradually rising interest rates in the US will add pressure on other central banks to begin raising rates. As a very rough estimate, we believe pressure will begin to mount by...

China

The recent selloff in Chinese equities officially pushed China into bear market territory after a decline of 20% from the peak made in the stock market early in the year. In isolation this does not necessarily indicate that the Chinese stock market will remain bearish throughout 2018. However, increasing trade tensions between Washington and Beijing is adding further strain on China’s economic growth picture, which already faces credit growth constraints during a period when it seeks to transition from an export-based manufacturing economy to an economy based on primarily domestic consumption. [1]

In addition, the yuan experienced its largest monthly decline ever versus the USD in June. Unlike the sudden rapid devaluations in 2015 and 2016 due to interventions by the Chinese central bank, we believe the plunge in currency value was the result of USD strength versus emerging market currencies as a result of trade concerns.

As you can imagine, worries over further devaluation of the yuan can intensify efforts by Chinese nationals to withdrawal capital from the mainland (capital flight) which in itself can create problems. And we must not forget that a weakened yuan versus the USD is in direct conflict with many of the trade objectives stated by Washington. 

Finally, we cannot forget that China’s credit boom is one of the largest and longest in world history. Historical data indicate that credit booms of this size and duration often precede financial crises. But the case with China is different altogether and really has no historical context so we must remain especially diligent in monitoring the situation.

Chinese officials continue to scale down risky assets while minimizing loss of economic growth. Nonetheless, we believe...

Oil

As a means by which to corner Iran economically, Washington has been pressuring the world to ban Iranian oil exports. Recently Washington announced that nations will have until November 2018 to completely wean off of Iranian oil imports or else they will face tariffs from the US. This announcement caused oil pricing to soar after a badly needed bearish retracement. However, Trump’s pattern of unpredictability as well as his sporadic if not irrational approach leads us to consider that these demands could be altered in the future.

Currently the White House is attempting to convince Saudi Arabia to boost output in order to make up for supply reductions due to the boycott on Iranian oil. A definitive announcement in favor of such a boost is likely to result in a short-term selloff in oil, as traders are most likely looking for an excuse to lock in profits before setting up for the next leg up in oil pricing.

In conclusion, while we are sticking to our previous target range for Brent and WTI crude pricing, we believe there is plenty of room for additional geopolitical events that could push oil pricing beyond what we have deemed to be our fair value price range based on supply and demand. But such price movements should be treated as short-term manifestations of price inefficiency rather than a realistic reflection of the current bull trend.

US Dollar Strength

As Trump’s trade demands have strengthened, investors have been piling into to the USD for safe haven refuge. This trend could reverse the previous weakness in the USD thereby creating sufficient strength to maintain the longer-term bull trend. Regardless, to reiterate, we believe the dollar is likely to remain strong throughout 2018.

Furthermore, continuation of trade uncertainty is likely to strengthen the USD versus various currencies in SE Asia and Latin America. As previously discussed...

Interest Rates

In the June 2018 issue of the CCPM Forecaster we stated the likelihood of four rates hikes for 2018. A few days after the June 2018 CCPM Forecaster was released we reported in the June 2018 Intelligent Investor (Part 1) that the Fed would most likely raise rates by 25 basis points during its June meeting.

During its June meeting the Federal Reserve upped its bias from three to four rate hikes for 2018 after raising short-term interest rates by 25 basis points. Approximately two months earlier the Fed raised its bias for three rate hikes from a previous two for 2019.

Gold & Silver

Although gold has remained in a mild bull trend since having made multi-year lows ($1,046) in late December 2015, the longer term trend remains bearish. This observation is nothing new to tenured subscribers of the CCPM Forecaster.

In contrast, after mounting a rally from multi-year lows made in late December 2015 ($13.63) silver has been in decline and remains in a bear trend from a long, intermediate and short-term perspective. 

We have emphasized our longer-term sentiment for gold and silver as an important part of our trading strategy. We believe this big picture perspective has proven invaluable, as it has helped traders navigate gold and silver trading with stunning accuracy for several years.

Rather than gold serving as a safe haven asset as some might have anticipated, the US dollar has filled this role. We have continued to witness this trend for several years. Looking ahead, as short-term interest rates continue to trend upward it will put more downward pressure on gold pricing. And once the ECB begins to hike rates...

Over the past decade, we have published a plethora of articles, audios and videos covering virtually every aspect pertaining to gold and silver. These publications have been focused on presenting the realities of precious metals while debunking the countless myths and lies spread by the huge network of charlatans.

Overall, we have decisively demonstrated that gold and silver should never be considered as prudent investments. Most often, gold and silver serve as short-term trading vehicles and on occasion, alternative investment strategies of limited duration for active investors...