China will support demand in metals | 23 October 2015

Forecast for the week October 19 - October 23:

XAU/USD:

"In the coming weeks we should open short positions with the "yellow metal" for two reasons. Firstly, G-7 countries have low expectations on inflation and on this background, gold seems to be an overvalued asset. For the last three and a half of months, the precious metal is now at the highest level. At the same time, during this period, yield on 10-years US treasury bonds decreased by 36 basis points. The last week, US Department of Energy has reported about a significant increase in crude oil reserves, which will put pressure on the price of "black gold" and will help to reduce yield of new government bond of leading world countries. Second, the last two weeks, corelation of "risky" and "safe" assets changed. Traditionally, when the world has has the demand in shares, gold gets under pressure as a "safe" asset. When investors are willing to risk and go to the stock markets - they do not need to buy "yellow metal" to hedge their risks. However, in the last two weeks we saw an increase in the quotes of both gold and leading stock indexes. Such trends have been observed in the past, and they ended with drop of quotations of the precious metal. This week we should open Sell positions with at XAU/USD on growth of quotations to 1181/1192 and take profit around 1147.

XPT/USD and XPD/USD:

In the first half of the week, the platinum group metals will show a moderately positive trend against the background of positive data on Chinese GDP for the third quarter. Throughout the third quarter, investors in the world had concerns regarding a strong economic slowdown in China. However, macroeconomic reports on household spending and the trade balance indicate that in the third quarter, "hard landing" is not expected. However, this does not mean that we expect the positive dynamics to continue. We can see decline in business activity in the next quarter, which will boost negative expectations again. However, now we can expect a moderately positive data that would support demand in both metals, because China is the №1 player on the market of car production and insures main demand in the metal in the whole industry. It is also worth noting that we don't have to rely on a strong price growth now, because the world's leading economies show a decrease in inflation expectations, which usually plays against metals. Another negative factor for the platinum group metals - a slowdown in the growth rate of the US manufacturing sector. Manufacturing has been dropping for 2 months in run, and the USA is the second largest player in the automotive market. This week we should expect a flat market on XPT/USD within the range 965 -1045, and the flat on XPD/USD within the range 670 -736.

S&P500:

In the first half of the week we shall expect dominance of "bullish" sentiment and growth to 2050 for two reasons. First, as we noted earlier, China can expect a moderately positive data on GDP for the 3rd quarter, which will be welcomed by participants of the stock market. It was the collapse of the Chinese stock market in summer that made many investors to hastily leave the US Stock Exchange. Now, when extent of tension will be reduced, bulls will start opening long positions again. Secondly, we can expect a moderately positive data on the volume of building permits issued against drop in mortgage interest rates and increased incomes. Positive dynamics of the real estate market has usually provided support for the stock market. Corporate reporting season is now in a full swing and currently shows a mixed trend. In the coming week, we should pay attention to the statements of the high-tech sector companies, as well as consumer goods companies. Negative factors include leadership of the utilities sector in the last trading week. This sector is "protective" and its leadership points to growth of pessimistic sentiment. This week we should expect a flat market within the range 1990 -2050.