With a new year approaching and newly elected US President Donald Trump promising to make the US great again, this is an interesting Trading Club meeting hosted by hedge fund manager Lex van Dam and the Academy’s Chief Investment Strategist, James Helliwell. Our monthly Trading Club meeting aims to identify trading and investment opportunities for your portfolio along with a round up of the most recent action across global markets.
Investments in the infrastructure, specifically referenced by President-elect Trump in his victory speech, is one of our key themes which we will be looking at along with some other ideas which developed from the market moves we have observed in anticipation of Trump’s presidency, which was also correctly predicted by James.
We begin the December Trading Club Meeting with our country analysis which for those of you reading our blog for the first time is part of the Lex van Dam’s 5-Step-Trading® methodology taught in the Million Dollar Traders course. Let’s take a look at the scorecard for the US economy.
This month we see a clear picture of improvement in the US economic outlook.
Industrial production growth is still negative, but as we have been tracking for quite some time now in our previous trading club meetings we see that the rate of change is decelerating (positive). The unemployment rate and particularly retail sales also show significant improvement, which is what typically “bulls” would be looking for. The US is also getting closer to 2% inflation and it seems this is the best picture of the US economy we’ve seen for quite some time now. The Trump effect is there and the US is no longer in deflation.
Underlying economic data is absolutely key for traders and investors, whether you trade currencies, commodities or stocks. Viewing our recorded meetings regularly will help you form a clearer understanding of how to invest as we analyse economic data for the US, UK, Europe, Australia and Asia to identify new opportunities for our trade ideas.
December Markets Outlook
As you may have noticed from our blog posts earlier this year we are closely following the commodities market, particularly the precious metals.
What a terrible month for Gold!
Last month we said to expect support around 1210 – 1250, above the 1170 pivot. However, the break below the 1250 level was absolutely critical.
By looking at the fundamentals we see that we had +3 on the scorecard last month and this should in real time begin to provide perspective on why we like combining fundamental and technical analysis together. You can have the right fundamental view, but at the wrong time and until price moves accordingly you can get dragged down and lose money.
By looking objectively at Gold, referring to the above mentioned scorecard we begin with excess liquidity which is a positive:
A lot of money remains in supply, largely misallocated, compared to the amount of production that it returns. So we could make an assumption that it is a positive for owning gold and not holding cash which is being eroded in value. Let’s now have a look at US real interest rates:
In terms of US real interest rate we can see that the trajectory has been down for some time now. Real rates in the US have been supportive of higher gold, however, in the last month the magnitude has changed from basically 0 to 20 basis points following the movement of 10-year yield, and similarly the 2-year yield has begun to tick up now. If this momentum is sustained we might have seen the low in real rates which could pose a problem for gold.
ETF holdings are being liquidated, seeing outflows and turning down. This is a negative for gold.
We’ve also looked at the Futures Positioning, Risk Reversal, Short Interest and Seasonality with the latter being a terrible month for gold. However, from a fundamental perspective elements on our scorecard suggest that there has never been a better time to own gold.
To sum up, in terms of fundamentals, it is a positive time for owning gold, especially if you are not in a rush to make profit from it in the next 6-12 months, says Lex van Dam, however, in terms of timing and technical analysis it looks weak, noted James.
Lex van Dam’s Trading Club provides access to our best trade ideas within FX, stocks and commodities each month and stay ahead of the action with our weekly market report. We hope you found this article interesting and insightful. For further discussion or to receive access to our monthly Trading Club meeting, join us at the Trading Club.
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