( Article ) Is Gold a Hedge Against Inflation and Currency Weakness?

Until the Fed announced an expansion of its quantitative easing program two weeks ago, gold had begun to fade into relative obscurity. Sure, gold had risen in value from a low of $710/ounce back up to $900/ounce, but prices were still off 10% from the highs reached in 2008. Meanwhile, risk aversion had begun to decline and the stock market had begun to rise, such that pundits were talking more about stocks and less about gold.

Since the Fed’s announcement, however, gold has been thrust back into the spotlight. The same trading session that saw a record fall in the Dollar and a record rise in Treasury prices, also witnessed a 7% spike in gold futures prices. ” ‘Money is being pushed into the system and that’s creating the inflationary threats that the markets are contemplating…Commodities are a decent way to hedge against that potential threat,’ ” observed one trader.

Other analysts, however, caution that rising gold prices are a sign of the fear/crisis mentality, not inflation. “There are just not a lot of alternatives for global investors. You will see more and more investors moving into gold as a safe haven, and you will see more institutions putting money into commodities indexes.” In other words, gold is being driven by the safe-haven trade, which is evidenced by an increasing correlation with Treasury bonds. One commentator calls it a hedge against uncertainty: “The demand for gold is for gold coins, a massive flurry of bullion buying by ETF’s (and investors), and the institutions and traders buying the hell out of it. The reason is simple… pure fear.”

With the exception of the perennial gold bulls and conspiracy theorists, the short-term consensus is that due to “massive spare capacity now opening up in the global economy, soaring unemployment and a dysfunctional banking system – it would be very hard for central banks to generate a surge in inflation even if they wanted to.” This analyst further argues that the Fed is undertaking the expansionary program under the implicit assumption that it will have to siphon this money out of the financial system, if and when the economy recovers.

Of course, there is not even a consensus that gold is a good hedge against inflation. Mike Mish points out that the correlation between the US money supply and the price of gold is not very robust. When examined relative to a basket of currencies (rather than the Dollar), however, the relationship suddenly becomes much stronger. Especially when you filter out fluctuations in the value of the Dollar (which is affected by many factors unrelated to inflation), “gold is doing a reasonably good job of maintaining purchasing power parity on a worldwide basis.” This can be seen in the above chart:

Ascertaining a relationship ultimately depends on the time period of analysis, and the currency(s) in which prices are being tracked. Given also gold’s notorious volatility, it probably makes sense to use special inflation protected securities, rather than gold, as an inflation hedge.

(Latest News ) US Dollar Forecast Turns Bullish Despite S&P 500 Winning Streak

The US Dollar gained despite the sixth-consecutive week of S&P 500 rallies, breaking its correlation to safe-haven flows and confounding forex trading markets. Fairly steady improvement in global financial market conditions has arguably decreased the US Dollar’s sensitivity to major risk barometers. Yet a single week’s results hardly signals that risk tides have truly turned, and there is little reason to believe that recent developments reflect a permanent shift in the US Dollar’s trading dynamics.

Fundamental Outlook for US Dollar: Bullish
- US Dollar gains traction as carry trade takes a hit- Consumer Price Index Falls for First time since 1955, US in Deflation?- S&P 500 rallies hurt US Dollar, but outlook depends on future risk trends
The US Dollar gained despite the sixth-consecutive week of S&P 500 rallies, breaking its correlation to safe-haven flows and confounding forex trading markets. Fairly steady improvement in global financial market conditions has arguably decreased the US Dollar’s sensitivity to major risk barometers. Yet a single week’s results hardly signals that risk tides have truly turned, and there is little reason to believe that recent developments reflect a permanent shift in the US Dollar’s trading dynamics. The 20-day correlation between the Euro/US Dollar and the S&P 500 now stands at its lowest levels since January—at which point market sentiment took a sharp turn for the worse and the US Dollar rallied sharply. The two situations are far from identical, but overall economic headwinds would suggest that global financial crises are far from over. A turnaround in the S&P 500 and other key risk barometers would likely force US Dollar appreciation against the Euro and other major counterparts.
The Euro/US Dollar’s recent break to the downside certainly improves US Dollar outlook, and a relatively empty week of economic event risk suggests that currencies will largely trade off of technicals and risk-related flows. Economic calendars are sparsely populated with largely second-tier data releases. Possible exceptions include US Existing and New Home Sales reports and subsequent Durable Goods Orders data. Overall trends clearly show that the domestic economy remains in recession, but traders remain on the lookout for so-called “second derivative” improvements. In mathematics the “second derivative” is the rate of change in change. In this case, overall growth levels are clearly negative. A second derivative improvement would imply that the rate of contraction slows—thereby making way for a reversal in negative growth rates. Economic bulls cite the recent pickup in US Home Sales as early signs of “second derivative” changes, but it is far from clear that early signs of recovery will be sustained.
We will pay close attention to US Home Sales results, but we maintain that currencies are more likely to move off of broader financial market developments. If the US Dollar regains its tight correlation to risky assets, it will be most important to watch movements in the S&P 500 and other key risk measures. Given six consecutive weeks of advances, we believe it is only a matter of time before we see a sharp correction in domestic equity markets.

( Article ) World Share Market

World Share Market

Stock market means a market where the trading of company shares, stocks, and bonds take place on a large scale along with issuing and redemption of the securities and other financial instruments. Shares offered by companies,pooled investment products like unit trusts and bonds are the securities that are generally traded in share markets. In order to trade certain security in the market, the security has to be listed in it.

Global share market participants range from small individual stock investors to large-scale hedge fund investors.

Another type of stock market may include traders going for verbal bids, while the other may be virtual, where a network of computers trade via electronic servers. Over the last couple of years, following an immense growth on electronic communication, the virtual share market is now growing phenomenally; the advantage being the cost-effectiveness and speed of transactions.

Some major roles of world share markets are:

Raising capital for companies
Facilitating company growth
Mobilizing Savings for Investment
Redistribution of wealth
Acting as a barometer of the economy
Government capital-raising for development projects
Creating investment opportunities for small investors

( Article ) The Psychological Factors of the Forex Market

There are so many factors that influence a currency's worth from the economic, political, and even social status of the country at hand. As opposed to other global markets, the Forex market is so big, no one person can have any serious affect on the rise or decline of any currency.

However, the opposite is not true. Many different aspects of the Forex market can influence Forex traders and how and what they decide to trade. Before we get into the psychological factors that influence Forex traders, we should talk a little bit about the primary means by which traders decide what to trade.

Forex analysis is of utmost importance when deciding what position to open or close. Analysis is of course categorized into two types: Technical and Fundamental. Most Forex traders use technical analysis and view the same charts, which leads to many traders around the globe trading in the same way and thereby causing a trend.

Fundamental analysis, however, should not by any means be ignored. Current events such as terrorist acts, war, big political or financial announcements can also take a big toll on the direction in which the market moves.

Rumors vs. Real Developments
As we said, the world's current events must not be ignored when trading Forex, as it can affect the market as much as anything else. Many traders have a news website open aside their trading platform, so they stay on top of world events. However, when paying attention to world events, it is very important to differentiate between real accurate news and fabricated rumors reported on the various media channels.

Many financial institutions will deliberately release a news report about a financial development, with the intention of making the market move up or down, depending on a current position. Before acting on a piece of news, verify that it is in fact real, then after you established that it is, check again!

Intervention and the Resulting Fear
As we have said, since the Forex market is so big, no one person or institution can have a real impact on the price of currencies. However, temporary fluctuations have been known to occur as a result of intervention by one institution or another.

Just to site an example, In 2002 the Bank of Japan watched the USD depreciate at a rate they believed was too rapid. They worried about the effect this would have on the competitiveness of Japanese exports to the US. The Japanese government decided to get involved and buy large sums of USDs, sometimes reaching numbers as high as 10 billion at a time. The market did not sit by quietly when one of these orders were placed. The USD would jump up to 150 pips within a few minutes. The Japanese government employed this tactic more than once and at different prices every time.

Now here is where it gets interesting. It was not the 10 billion USDs that made the market jump, what is 10 billion in a market of 4 trillion? What caused this fluctuation was the fear or emotional reaction that traders had to any talk of intervention on the part of the Japanese government.

The first piece of advice any Forex expert will tell you is, when trading Forex, leave all emotion out of the equation.

Follow the Leader Mentality
Many traders make the error of following a lead and assuming that if so many people are doing it, it must be the right move. What they do not realize is that those “so many people” had the same thought just moments before. Now this can work to your advantage if you get in in the beginning of such a trend, but if you join late, it might work against you. So if you see such a trend, check the news and the technicals to see what might have caused such a thing and decide whether you want in.

To summarize, there is really no room for emotion or personal feelings when it comes to trading Forex. Make sure that as a trader, you stay completely objective and scientific or else you might see some very heavy losses. Now, the big question is how to control your personal emotions and keep them out of the trading “room”? The answer is a trading technique. Make one for yourself and stick to it, no matter what.

Observe the movements of the market both from a fundamental and technical standpoint and if something does not seem right to you, don't trade, it's as simple as that. The market is not going anywhere any time soon, come back in an hour and decide on a trade then. When trading, never trade against the trend, always remember “the trend is your friend”. If you experience a loss, do not try to overcompensate in your next trade, stick to the plan. It is all about control when trading Forex.

Take control of yourself, your emotions, and your Forex positions.

( Article ) The Potential for Gain and Loss in Forex Leverage

The tremendous success and proliferation of the Forex market, and specifically the retail Forex market can be attributed to many factors. However, there is really one major advantage that the Forex market offers individual traders over other markets; leverage.

The leverage in the Forex market is the highest in the world. Traders can hypothetically trade with a 400:1 leverage, enabling them to trade $200,000 with a minimal capital of $500. This is of course a very attractive characteristic of the Forex market.

However, before one begins trading Forex with a high leverage, it is crucial to understand that as great as the potential is to gain by using leverage, the danger of loss is equally large. It is important to fully understand this point, so let's see an example to illustrate it.

If trader A has $100,000 capital and trader B has $1,000 capital, and they both open positions of $100,000, the result of a %1 drop in the currency is significantly different for the two traders. It is true that they are both out $1,000 but those $1,000 signify all of trader B's account and only 1% of trader A's account.

Trader A can continue to trade with the other $99,000 of capital, while trader B is out of capital and his account is closed. So, it is true that one can make an instant fortune by taking advantage of the high leverage the Forex market has to offer, but choose your leverage with great caution as it can easily become the downfall and end of your Forex trading if you do not trade wisely.

( Latest News ) U.S. dollar, yen fall as risk sentiment improves

NEW YORK, May 1 (Reuters) - The U.S. dollar and yen fell on Friday as improving risk appetite sparked by better-than-expected U.S. economic data pared demand for both currencies as a refuge against a global slowdown.

The dollar fell for a fourth straight session versus the euro, while the yen dropped to a two-week low against both the euro and dollar, with volumes thin given the May Day holiday in Europe. Higher-yielding currencies such as the Australian and New Zealand dollars were also some of the biggest movers on the day, moving in tandem with higher U.S. stocks.

Reports on Friday reinforced the view that the worst of the recession may have passed, making investors more comfortable with risk-taking. Data showed U.S. consumers felt more upbeat about the economy in April, while a closely watched gauge of manufacturing suggested the sector was gradually emerging out recession. For story see [ID:nN01402214].

The numbers were consistent with the Federal Reserve's less bleak outlook on the U.S. economy on Wednesday.

"Risk appetite is definitely coming back and the data this morning was phenomenal," said Melvin Harris, a market analyst at Advanced Currency Markets in New York.

"The reports are supportive factors to truly build the case that while things are not completely better yet, we are moving in a positive direction. Economic fundamentals will become more important in the next couple of months."

In early afternoon trading, the euro rose 0.3 percent against the dollar to $1.3258 and touched a two-week high against the yen at 132.33 yen . The euro last traded at 131.90, up 1.2 percent from late on Thursday.

The ICE Futures' dollar index, a measure of the greenback's value versus six major currencies, fell 0.3 percent to 84.591 .DXY.

The dollar, however, gained 0.9 percent against the yen to 99.46 , having hit a two-week high around 99.58 yen, according to Reuters data.

The Australian dollar rose 0.7 percent against the U.S. dollar to US$0.7304 . The New Zealand dollar also climbed 0.8 percent against the greenback to US$0.5693 , while the Canadian dollar was also firmer, with the U.S. dollar down 0.7 percent at C$1.1850 .

Investors were also encouraged by data overnight showing Chinese manufacturing gained further momentum in April, as well as by Friday's better-than-expected UK manufacturing survey.

"The antipodean currencies are amongst the top performers bolstered in part by encouraging PMI data out of China and in part by relatively high yields as market participants place money in (those) currencies over the holiday period," said Brown Brothers Harriman in a note to clients.

Optimism was further stoked in the United States after St. Louis Fed President James Bullard said on Friday unemployment rates in the United States will likely crest above 9 percent, but not reach levels set in the early 1980s.

( Latest News ) USD Mixed

The greenback was in the Thursday session, higher against the yen while slumping against the Australian dollar. Yesterday’s FOMC policy statement propped up the dollar on improved sentiment over the economic outlook. The Fed expressed optimism that the US economic recession may be moderating. The calendar today saw better than expected US reports, with weekly jobless claims declining to 631k versus an upwardly revised 645k a month earlier and Chicago PMI jumping to 40.1 in April, up from 31.4 in March.

US data slated for release on Friday consists of April University of Michigan consumer confidence, March factory orders and April ISM manufacturing. The final reading for the University of Michigan consumer sentiment in April is estimated to stand pat at 61.9. Factory orders are expected to post a 0.6% decline versus a 1.8% increase a month earlier. Lastly, the April manufacturing ISM is seen improving to 38.4 from 36.3 in March while the prices paid component is expected to edge up to 34.0 from 31.0.