Trader profile: Beware of decline in demand

Geopolitical events, fiscal policy challenges and monetary strategy have taken centre stage, leading to higher volatility, says head of treasury trading at National Bank of Fujairah.

Junaid Anwar Khan recommends caution when dealing with commodities. Pawan Singh / The National
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Name: Junaid Anwar Khan

Job: Head of treasury trading at National Bank of Fujairah

What asset class and geography are you focused on?

I am focusing on precious metals and G10 currencies in the wake of events that took place in the third and fourth quarter of last year. Given the monetary and macroeconomic landscape, a multitude of opportunities and threats exist for market participants. The former carries significance for China, India and South East Asia, while for the latter, events that took place in the euro zone will have far-reaching implications this year.

What is the outlook for the month ahead?

As February draws to a close, geopolitical events, fiscal policy challenges and monetary strategy have taken centre stage, leading to higher volatility. Falling growth rates in China and emerging markets ushered in dark clouds over base metals and bulk commodities, with precious metals being the exception. Strong consumer demand from China and sovereign buying had led to an extended bull run in precious metals, but demand has abated on both fronts, culminating in a steep decline. With the US dollar on the ascent, precious metals are likely to come under pressure (with palladium the potential exception). A firm revival in consumer demand from traditional importers of bullion is the only ray of hope in the medium term. Base metals and bulk commodities might also suffer from the same malaise. As a result, caution is key. The US dollar is likely to emerge victorious next month in the currency wars as quantitative easing, negative interest rates, structural reforms and benign growth rates engulf the G10 currencies.

What are the main risks, either upside or downside, to the outlook?

On the precious metals front, a meteoric rise in demand for gold and silver bars from key consumer nations has the potential to rejuvenate the bull trend. Sustained growth in demand volume is then likely to morph into a long-term trend, but as is the case with commodities in general, caution in strategy and execution should be the order of the day. In the foreign exchange arena, a sharp decline in US growth coupled with a precipitous fall in core inflation might prove to be the undoing of the dollar’s bull run against the G10 majors. In addition, the Greece-EU debt negotiations and macroeconomic indicators emanating from both core and peripheral Europe will be closely monitored in the months ahead after the launch of the ECB’s quantitative easing programme.

What is the best investment at the moment?

Among the commodities, palladium looks attractive. Issues associated with the supply chain from key producers and rising industrial demand were the catalysts in last year’s bull phase. The metal fell victim to the macro bear run on commodities in the second half of last year and remains under heavy weather at the moment. I expect prices to reattempt the lows from early last month, which could then act as a potential entry point to go long on palladium. On a similar note, going long on gold in euro or yen terms might also be a choice to consider.

What was the best investment you were ever involved in?

There have been positive instances in precious metals, which would stand out in memory and motivate us to better face a new day in the markets.

What was the worst?

The river doesn’t always flow in one direction in financial markets. Opportunities present themselves in different forms across various asset classes. Timely execution with a contingency plan defines the ratio of success. Hits and misses are part of a trader’s life; the hope of the right opportunity on the financial horizon keeps the torch alight, the mind nimble and ready to act.

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