Where Are Commodities Headed?

12/15/2012 6:00 am EST


John Netto

Author, The Global Macro Edge

John Netto discusses where gold prices are headed and how it may be affected by the fiscal cliff.

My guest today is John Netto.  He’s the author of The Protean Market.  We’re talking to him about commodity prices today and how he’s trading those, so John, let’s start with gold.  GLD a very popular ETF.  Obviously gold futures got huge liquidity.  What are your thoughts about pricing here?

Yeah, you know gold is ironically going through what I believe is another leg up higher in what’s been a ten-year bull market now.  We saw gold in August of 2011 hit highs up near 1925 in overnight session, sold back down to the 1550 level, and has steadily worked its way back higher, and is now, in my opinion, forming a base for another move higher as well.  Gold, ironically though, is another market that as you look at the end of 2012 could actually be impacted by capital gains, and you would say well, why would gold be impacted by that?

Well, it’s a stock that has a lot of gains from investors, hedge funds own it, there’s a correlation between gold and some of the other risk assets right now going on with the fiscal cliff and the correlation to the dollar, and so as a result of that, I think that gold can actually rally with any fiscal cliff resolution that comes about as well.  Conversely, if there isn’t a fiscal cliff resolution that’s going to put more pressure on the Fed to keep interest rates low and central banks around the world will also keep interest rates low, so I think we’re in a situation where gold needs to come to short-term technical selling, but as long as you have negative interest rates around the world and a Fed that’s going to continue to have pressure to use stimulative monetary policy as the outline when Operation Twist ends they’re going to continue buying more Treasuries.  It’s a great environment to own gold and to use any breakdown or any weakness to add to your portfolio.

Alright, let’s switch gears and talk about the yen, a currency, obviously, that you follow.  What are your thoughts here?

I think the yen is going through a huge catalyst right now.  I think that the USD/JPY can be the currency trade of 2013.  As you look at what metrics are in place it will not surprise me to see USD/JPY at the 92 handle, and we’re talking a huge massive gain.  The yen has been in a long-term bull market against the dollar.  That has come to an end.  All the talks we’re seeing in terms of fiscal stimulus, the BOJ has cut back-to-back times for the first time in their history, and that tells me that for the first time the Japanese will in earnest now, begin a robust and massive quantitative easing program.  They’ve obviously done quantitative easing in the past but I mean never to this extent and we’ll see gold pricing and it will see the dollar against the yen, it will see Aussie-yen, it will see euro-yen, all appreciate considerably against that market and that is the trade for 2013 that people are positioning themselves for right now.

In terms of numbers give us some levels both on the downside and upside that you’re looking for.

Sure.  Any weakness they’ll look at the 78, 79 level to buy the USD/JPY.  First real leg higher goes to 85, we consolidate there, then 87.50 consolidate there, by June of next year I can see us at the 88 handle, 89 handle, and then we’ll continue to grind higher up to 92 by year’s end.

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