Thursday, March 10, 2016

Bob Janjuah looking to Gold as a safe haven for this year

In a world of NIRP and QE, and where the bid for liquidity in markets is many multiples of the levels of liquidity the sell-side can offer, I find it extremely difficult to get any visibility in FX markets. FX markets are the most exposed to central bank credibility and are also where significant flows can drive markets most immediately, more so than in other markets like Rates or Equities. 

My bias is to believe that the USD is the least worst “long” until the Fed flips on its current policy path. But as with the BOJ's recent easing and the market’s response (the opposite of what was trying to be achieved), the credibility issue of central banks in general, and of some central banks more than others at any given time, has now become a major uncertainty factor. 

As such, I feel that this is an extremely difficult market to call on anything other than a very medium-term basis. I am not alone here – the 20% rally in gold since December testifies to this. My key message for 2016 remains unchanged in terms of FX markets (strong USD until the Fed reverses course), but I am increasingly inclined to look at gold again as a safe haven for 2016, and am increasingly inclined to avoid tactical calls on FX markets.

The over-reach of central bankers and their failed policies is not news to me. What is news to me, especially after the BOJ's easing in January, is that markets are now either at or very close to losing all confidence in the post-GFC policy response crafted by the Fed/ECB/BOJ et al much earlier in 2016 than even I had expected.