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For years, climate change and extreme weather events, coupled with a ballooning population, have had an impact on food production and supply globally. The lingering COVID-19 pandemic and its effect on supply chains, as well as the recent geopolitical tensions involving two of the world’s largest food producers have further exacerbated fears of a looming food crisis.

In February, the FAO Food Price Index, which tracks global food prices, jumped to an all-time high, driven by higher prices of vegetable oil, dairy, cereals and meat.

The data by the UN Food and Agriculture Organization underscored the domino effect of rising energy prices and supply chain disruptions on the entire food and beverage industry, from upstream agro-processing industries down to downstream sectors including food retailers.

Wheat prices soar to record highs

Wheat, one of the most widely grown food crop in the world, is at risk of facing a supply crunch as the war between Russia and Ukraine drags on. Both countries account for about 30% of the global wheat production.

The crisis has led to US wheat futures soaring past record levels set in 2008.  However, growers are finding it hard to cash in on the surge in prices as farm cooperatives, flour millers and exporters have stopped buying wheat harvest for future delivery over fears that they may not be able to pocket gains from reselling, according to a Reuters feature.

Failure to sell their winter wheat may prompt farmers to cut down on their spring planting, potentially leading to further shortages and elevated prices.

Coffee prices shoot up

The price of coffee, a staple for many, is also on the rise mainly due to adverse weather conditions in a number of growing countries like Brazil, as well as supply chain delays linked to the resumption of economic activities in many countries.

In 2021, Arabica coffee futures grew 76%, the largest annual jump since 2010, according to The Wall Street Journal. The increase came as Brazil, the world’s top coffee-growing country, suffered damaging frosts that followed its worst drought in 91 years, curbing coffee production. The USDA’s Foreign Agricultural Service estimates a 19% drop in Brazil’s coffee production for the fiscal year ending in June 2022.

Coffee sellers and roasters have resorted to passing on the price pressures to customers, with Nestlé (OTCMKTS:NSRGY), which sells its coffee under the Nescafé brand, hinting in October that it would increase prices this year.

US coffee giant Starbucks (NASDAQ: SBUX) also disclosed plans to further hike prices to counter rising costs.

Sugar rush intensifies

Sugar, a staple pantry ingredient, is also seeing historically high prices. Although the impact of the Ukraine war on sugar is limited as Ukraine and Russia are not major exporters of the commodity, the surge in crude oil prices are predicted to boost the demand for sugar-based ethanol, leaving less sugar for exports and for food production.

Brazil, the world’s largest sugar exporter, was recently reported by Reuters to have shipped nearly 200,000 tonnes of raw sugar to Russia as concerns of stockpiling led to stronger demand for sugar and other food staples in the country.

Think you know where the price of commodities will head in 2022? Sign up to BlackBull Markets to trade CFDs on major cash crops including wheat, coffee, and sugar.

Rivian Automotive (NASDAQ: RIVN), the budding electric vehicle maker, initially bank-rolled by the likes of Ford (NYSE: F) and Amazon (NASDAQ: AMZN), is currently trading 80% lower than its peak since listing on the Nasdaq stock exchange.

Bear in mind that Rivian was listed on the Nasdaq in November 2021, when you had to be very unlucky not to make money in the stock market, especially as a company working in the electric vehicle domain. In a sign of the jubilant (and bygone?) era, within days of listing, investor exuberance had pushed RIVN up by 115%, to US $170 per share. RIVN’s market electricity has fizzled in the following five months and could do with a recharge.

The Rivian stock price is currently trading very close to an all-time low, at US $37.00, 80% lower than its all-time high. In contrast, Tesla (NASDAQ: TSLA), a company which Rivian investors hope can be emulated, is trading 25% lower than its all-time high (US $1,200 vs US $900), which it reached in November 2021 (roughly the same time Rivian reached its all-time high).

RIVN D1

RIV only just begun

As illustrated by its latest earnings call, Rivian has a momentous scope for growth.

In its Full Year 2021 earnings call, which was released on March 10, 2022, Rivian reported its first bout of revenue, a tiny US $55 million against a cost of revenue of US $520 million and other operating expenses (mainly R&D and administration) of US $3.7 billion. Consequently, Rivian reported a total net loss (inclusive of all costs) of US $4.7 billion for the full year.

The massive discrepancy between the company’s revenue and costs is a natural part of its growing pains. The automobile industry’s huge barrier to entry means that Rivian expects to be making a net loss for some time. However, it does expect to be profit-neutral by the end of the next financial year, and this might be what is more important for investors following the company.

No fast-charging solution

Rivian is still valued at over US $30 billion and far from a bust. However, it will perhaps take years for the company to charge its stock price back up to its IPO price of US $78.00. Even in the age of outsized valuations for EV companies and some residual investor exuberance in the market, investor confidence is butting up against obstacles such as the infamous chip-shortage affecting numerous car companies and tightening monetary policy from the US Federal Reserve.

To hasten the process and to overcome some of these obstacles on its way back to its IPO price, Rivian may have make better use of its US $18 billion cash reserve and carve out more than its planned 10% takeover of the EV market by 2030.

As it stands, Rivian’s total theoretical capacity at its two factories (600K) could garner 10% of the 2021 electric vehicle market. However, By 2030, electric vehicles sales are predicted to account for 1-in-2 vehicles sold, from a current 1-in-10. To account for 10% of all EVs sold in 2030, Rivian will have to boost production capacity to approximately 3 million vehicles per year.

For interest, Rivian generated its 2021 revenue of US $55 million on delivery of 2500 electric vehicles. The company’s guidance for 2022 expects to deliver 25K vehicles, which is a huge increase on its current production numbers, but fantastically far from the number of pre-orders on its books (83K) and unimaginably far from its 10% goal of 3 million.

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Silver got no love last week, suffering its worst week in thirteen weeks, and raking up a fourth straight month of losses. After losing US $1.35/t.oz between September 13 and September 18, the metal closed on Friday at US $22.38/t.oz. Before last week, Silver had not traded sub-US $22.50/t.oz for the entire 2021. One would have to rewind their charts to November 2020 to find Silver trading below US $22.50/t.oz.

The cause of Silver’s unpopularity might be the signs indicating that the US economy is in decent shape, regardless of Delta variant fears. For one, Retails Sales in the US pleasantly surprised last week, rising 0.7% vs an expected decline of 0.8%. With positive signs radiating from US economic reports, the seriousness of talk concerning a Fed-taper heightens, and with that, a stronger USD, and less demand for metal hedging.

What we might expect of Silver moving forward

Silver

We might be in uncharted territory here. At least according to a technical perspective and recent history. Silver has successfully defended the US $22.50/t.oz price level multiple times over the past twelve months. To find a closing price below this threshold, trek to July 2020, when Silver closed at US $19.40 as it ascended for eight weeks straight, to seven-year highs, topping out right before US $30.00/t.oz.

Now that the closing spell has been broken, a new era of prices may be on the way for Silver. Moving forward, don’t be surprised by a new range for Silver between US $20.00/t.oz and US $22.50/t.oz leading up to an announcement from the Fed concerning a definite taper timeline. It is possible that the FOMC meeting, scheduled for this coming Thursday, followed by Fed Chair Powell’s speech on Friday, will be the events responsible for the metal’s next significant move.

Silver, Technical Analysis

Palladium

Palladium is currently trading at USD 1,974/t.oz, a 13-month low for the soft silver-white mineral. In August 2020, Palladium was trading at such a price before it shot up within a hair’s width of USD 3,000/t.oz.

The metal’s current price is sitting snugly between two weak touchstone levels. Over the coming trading week, we could see Palladium claw itself back up to USD 2,200/t.oz, rejecting prices as low as USD 2,000/t.oz but remain suppressed from current levels or break lower into a pocket between USD 2,000/t.oz and USD 1,760/t.oz.

Which of these three is most likely? Evidence suggests it could be the third scenario due to global supply constraints weakening demand for Palladium.

Does Palladium have the capacity to fall further?

In the short term, it seems likely. Palladium’s principal use is in catalytic converters of automobiles. Car manufacturers are experiencing supply chain bottlenecks (chiefly related to silicon chips), severely hampering their ability to deliver a typical number of new cars. Naturally, the need for catalytic converters has declined hand-in-hand with the decline seen in production capacity.

How long will the bottleneck in auto manufacturers’ supply chain last?

The bottlenecks are expected to get worse before they get better. This is one short-term factor working in opposition to palladium prices.

According to Intel (NASDAQ: INTC) CEO Pat Gelsinger, it might be two years before silicon chip shortages are overcome. Likewise, BMW’s (ETR: BMW) CEO, Oliver Zipse, sees chips being in short supply for at least the next 6-12 months.

85% of Palladium that is mined ends up in catalytic converters. As such, the mineral is heavily dependent on the automobile industry for its pricing. It might not be until the point in time that car production is ramped up, that the price of Palladium will find higher and more definitive levels of support. Palladium’s supply-demand ratio has been in deficit for the past decade, so we might expect a positive medium-term outlook for the mineral.

Extra, Extra! Gold Analysis!

While BlackBull Markets does not offer the option to trade Palladium, we do offer a cache of other commodities, including the always popular gold. For this week’s technical analysis of gold, Anish Lal breaks down gold's positive momentum on the hourly chart.

The Australian Dollar (AUD) is commonly referred to as a commodity currency. As in, the relative strength of the currency is correlated with the price of certain commodities. For the AUD, Iron Ore and precious metals are the commodities that significantly impact its value.​

Be that as it may, there is more to the AUD than commodity prices. The actions, or inaction, of the country's Central Bank is also a decisive variable affecting the price of the AUD. Therefore, a well-rounded analysis of the events concerning the AUD is helpful for traders of commodity currencies.

With this in mind, let us look at some of the key events likely to affect the commodity currency next week.

Is AUD sentiment about to turn positive?

commodity currencies AUD

A critical economic report is due from the Reserve Bank of Australia (RBA) on Monday, and traders will be watching and folding the results into their own trading decisions.

Australia Reserve Bank Governor, Philip Lowe, will be speaking on Monday. However, the RBA's public announcements have recently fallen down the rankings of importance for traders. The RBA is stubbornly dovish, and no one is expecting them to make any changes to its base interest rate or asset purchasing any time soon. Yet, the 15-day SMA closing in on the 50-day SMA in the AUDUSD chart supplied indicates the bearish disposition of the AUD may reverse.

Iron Ore can only support the AUD for so long

commodity currencies Iron Ore AUD

The price of Iron Ore has famously hit record prices this year, contributing to record Australian export values and the AUD reaching USD 0.79.

However, the high prices Iron Ore fetched in May have since evaporated, and with it, the AUD has fallen from its lofty perch. Currently, Iron Ore is priced at US $132.5 per tonne, a 2021 low representing a 40% decrease from its 2021 high. The price drop has been sharper than its rise, as China's stockpile of Iron Ore kept rising and demand from Chinese manufacturers declined.

The price of Iron Ore is expected to remain somewhat robust for the remainder of 2021 before falling to US$100/T by March 2022. At least, according to Goldman Sachs and the Australian government's commodity forecaster. However, the forecasts available were made before the slowdown in the Chinese economy became undeniable. The drop in Iron Ore could come sooner rather than later.

Countering the prediction that Iron Ore prices will fall

Countering the prediction that Iron Ore prices will fall is the developing political upheaval in the African nation of Guinea. The West-African country is a young up and coming Iron Ore producer. Its Simandou Iron Ore Project is expected to rival one of Western Australia's most prolific mining regions. As such, the pricing prediction of Iron Ore moving forward into 2022 and beyond considered Guinea's fresh supply of Iron Ore hitting global supply chains. Needless to say, if political strife in Guinea were to continue, prices might remain inflated for longer. In such a case, the AUD could rely on Iron Ore supporting a higher baseline.

Afghan

The political, social, and military turmoil currently occurring in Afghanistan will have wide-ranging consequences. Some of which have, of course, already played out. Some will play out over a more extended period.

The consequences I am interested in are related to the commodities market. The consequences, as it relates here, could play out over the short or long term.

Short term consequences

The possibility of unrest in Afghanistan spilling over to its neighbouring region, however that manifests, is a real threat. Afghanistan shares a border with several significant producers of the most commodity traded raw commodities.

To the west of Afghanistan is Iran, a big producer and exporter of oil, iron, and copper. Iran is responsible for approximately 3.5% of the global crude oil production, churning out 2.7 million barrels per day. Concerning Iron and Copper, Iran ranks 11th and 15th largest producer globally, respectively.

To the South and East of Afghanistan is Pakistan. Pakistan is the fifth largest producer of cotton in the world. The sixth-largest producer of cotton, and second-largest exporter, Uzbekistan, shares a tiny slither of a border with Afghanistan in the north. Together, Pakistan and Uzbekistan produce more than 2 million tonnes of cotton per year.

Turkmenistan, the fourth-largest producer of Natural Gas globally, shares a sizable border with Afghanistan's north.

Political implications of trading with Afghanistan or the countries leadership have also to be taken into consideration. For one, Afghanistan's newly self-appointed leadership, the Taliban, are said to have halted imports and exports with Pakistan and India, two of its largest trading partners, as of last week.

Production and exports of Afghanistan

exports

Afghanistan itself is not an efficient producer or exporter of goods. In 2019, they exported a minuscule US$780 million worth of product. For comparison’s sake, Turkmenistan exported US$10.5 billion worth of goods in the same year.

Yet, within Afghani exports are some commonly traded soft commodities, like Coffee, Cotton, and Soybeans. While, at this point, they appear in minor quantities, Afghanistan has room to lift its production capacity significantly.

Gold and other minerals appear sparingly on the export sheet of Afghanistan. It is within the sphere of hard commodities that Afghanistan holds the most promise.

 

Afghanistan underutilising its natural resources

Afghanistan's infrastructure is severely underdeveloped, resulting in underutilising its natural resources and limiting its production capacity.

It is estimated that the country holds more than US$3 trillion worth of minerals within its complex geography. Mineral deposits are thought mainly to consist of iron, copper, cobalt, lithium, and gold.

Herein lies the long term consequences. Afghanistan can become a much bigger player in the supply of raw materials. But this will, of course, take time and investment in the country's infrastructure. From whom this investment might come is up for debate, but it appears China has already thrown their hat in the ring.

Arguably, the most exciting resources that Afghanistan have are cobalt and lithium. Cobalt and lithium are in high demand due to their application in emerging technologies like EV batteries. Macquarie Bank of Australia is predicting a lithium shortfall of up to 61,000 tonnes by 2023, up from 2,900 tonnes in 2021.

Cobalt and lithium are currently priced at three-year highs. Cobalt at US$50,000 per tonne and lithium at 92,500 yuan per tonne (~US$14,000).

Colbalt Lithium

Silver W1

Silver has rejected prices lower than $21.5 and higher than ~$30.0 for more than a year. What it hasn’t done, until recently, is cross below its 50-day simple moving average in this time. Consequently, we might expect a very strong retest of the $21.5 level in the next couple of weeks. Strengthening this proposition, the alligator bands have separated and creating some distance between themselves. there is very little indication that a reversal is imminent.

Fundamentally, the impetus could be there for Silver to be pushed much lower 

DXY

The USD, currently at a ten-month high, has absorbed the news that the Fed is likely to slow the pace of asset purchases before years end. Naturally, we might expect the USD to jump on such information, and as an inverse correlate, Silver to fall.

During the Wednesday US session, after the release of the Fed minutes, the USD index fell from 93.15 to 93.05. However, in early Asian trading, the USD has powered its way up to 93.30. The slight drop on Wednesday could be attributable to the Fed’s unassertive tone and the presence of some dissenting voices. In any case, Silver isn’t going to be benefiting from a weak USD any time soon.

Can Silver turn things around?

Silver has favoured a position in the lower half of its ranging band. So, an extra significant catalyst will have to present itself to push Silver above $27.0 and, once that hurdle is cleared, onward to $30.0.

For one, global demand would have to really pick up. And pick up at a greater rate than that which an average Covid recovery could spur.

What Silver needs is the green revolution. Such a proposition is not entirely preposterous. This brings me to the reason I wanted to write this article in the first place.

The Biden Administration’s Silver lining 

Yesterday the Biden Administration announced that it has a target for 40% of the electrical energy consumed in the US to be generated by solar panels by the year 2035. Currently, the US produces roughly 3% of its electricity via Solar.

As it stands, solar panel manufacturers are responsible for approximately 20% (or 3,000 pounds) of global industrial silver consumption. Thus, regardless of how the US accomplishes its goal (technological innovation and government incentives, no doubt), the flow-on effect for Silver could be the significant catalyst it needs to build, and sustain, some significant gains.

There is a British artist called Martin Creed whose work I like. One reason I like Creed's work is that he steers clear of connecting his work to some esoteric philosophy, like many artists (unsuccessfully?) do these days. Instead, the underlying theme for a lot of his work is indecisiveness and the fear of making the wrong decision. So, for example, rather than committing to a particular colour palette in a painting, Creed will use all the colours available in a pre-made painting set (like which, shown in the painting below). This way, he avoids the anxiety of making the wrong decision and fretting over the opportunity costs.

martin creed

What does this have to do with Gold?

The connection I am making between Martin Creed and Gold is this:

There are many different methods for investing in Gold. When you can't decide on the best investment type or don't know how to evaluate the best decision, perhaps it's best to go with them all.

Like the strategy of diversifying a complete investment portfolio, you can diversify the subsections of your portfolio. In the case of Gold, the different investment options all have their specific benefits and drawbacks, incentivising diversification in the asset.

There are traditional options to gain exposure to Gold, such as physical bars and coins, ETFs, shares in mining companies, and CFDs. But a few new blockchain options have cropped up in the recent past, which could require some attention.

Diversify into Blockchain Gold?

Blockchain Gold comes in two primary forms.

The first is the ubiquitous Bitcoin, otherwise called Digital Gold. While not precisely 'Gold', the asset has recently rebranded itself as a store of value and is seeking to usurp some of the bullion market. It is safe to say that if you had diversified into this 'Gold' at any time in the past three years (excluding the past month), your returns would have been incomparable greater than the traditional investments listed above. In this respect, I'm sure this missed opportunity has caused many investors anxiety or regret.

Arcane research: gold token

Tokenised Gold is the second blockchain option. It is, as its name suggest, tradable tokens backed by physical bullion held. The gold is typically stored in Central Bank-grade vaults. The advantage of tokenised Gold over physical Gold is improved liquidity. Granted this is predicated on demand for tokenised Gold and the network security remaining. However, ETFs offer a very similar product without the wild-west aspect inherent in the crypto-sphere. Even so, tokenised Gold took off in 2020, as illustrated by the above graph by Arcane Research.

Last note: Invest in art instead?

art investment gold

Perhaps an investment in the art of Martin Creed or other artists is preferred over Gold. After all, art investments' have essentially outperformed all investment vehicles over the past few decades. Not to mention, if diversifying is your game, then the art world has your back. For example, at your local art fair, you could pick up a conservative landscape painting, while at the same time, something akin to a sculpture consisting of a banana taped to the wall.

It has been an interesting couple of weeks on wall street. Inflation fears cropped up every second day, while the Fed intimated that raising interest rates is back on the table. Meanwhile, several big-box retailers beat their earnings expectations, and US manufacturing reportedly sprung back to life at a record pace. To top it all off, the US Dollar lost ground to its trading partners.

All the above factors have meant that the US indices have been see-sawing every other day.

How closely does GME follow the movement of the market?

At this point in the GameStop short squeeze, which has (admirably) been ongoing for months now, I would expect very little correlation between GME and the market at large.

GME is a beast all of its own, with market forces beyond the general day-to-day pettiness of the major US indices. People trading GameStop stock are not interested in inflationary pressure in the US. They are not interested in commodity prices. They are not interested in when The Fed begins tapering off its stimulus.

What are GME investors interested in?

They are interested in the camaraderie and taking advantage of a significant oversight on behalf of hedge funds. Above all, they are interested in sticking it to the man and making money from those who have bet against a perfectly fine horse. Is GameStop worth its current market cap? Not at all. Is it a viable business? Most definitely now that it has paid off all of its debt and raised more than half a billion to facilitate its transition into a primarily digital business. However, its valuation is still mostly based on investor’s hope for the squeeze, more so than the Company’s fundamentals.

How closely is GME correlated to the S&P

co-effecient

To make things easy, let us look at the correlation coefficient between GME and the S&P over the past month and compare it to a time in 2020 before the big squeeze began. A value of 1 would indicate that GME and the S&P are highly in sync, while 0 is not so much. A negative value would indicate a negative correlation.

GME has indeed uncoupled further from regular market forces and appears to be in a league of its own. As the above image illustrates, the correlation between GME and the S&P has shrunk. Last year, a moderate correlation of 0.57 existed. Since this time, the correlation has shrunk to 0.19, based on the previous month of data. Such a low figure indicates a very weak correlation.

Is GME a good hedge against a market downturn?

It will be interesting to see what happens to GME’s price during more extreme market events. Can diamond hands withstand a complete market downturn or a repeat of the 2008 GFC? I guess it would depend on GME’s status as a hedge against a market crash.

Could GME be the new Gold?

Purely based on GME investor’s current motivations, I don’t see why GME couldn’t act as somewhat of a hedge against a broader downturn. The incentives of GMEs investors are aligned elsewhere. Some may sell their lottery ticket to pay for food, etc., but I would expect it to be one of their last investments sacrificed. In this way, GME and its meme coin brethren could be the new Gold and value stocks.

Please note: BlackBull Markets does not offer the option to trade in GME. What we do offer are forex, commodities, indices and a number of major US stocks.

What gold traders should be watching this week

gold traders be aware: the price of gold is going to be dependent on a few variables over the coming week.

Two significant calendar events out of the US will be firing off the next four days. The first is the Inflation Rate YoY updated for March, due Wednesday 14. The market consensus is that inflation will be up by about a percentage point, somewhere around 2.5% to 2.6%. In February, the inflation rate came in at 1.7%, up .3 percentage points from the previous month.

If inflation comes in as expected, or, higher, we might see 10-Y treasury bond yields retrace their March accent, possibly up to the 1.740% range. In this event, gold may break through the US$1,650 support level it has twice bounced off in the past couple of months. A consolation may occur in between this support level and the historical touchstone in the high US$1,500s.

Gold Support levels

Market consensus predictions for the inflation rate have overestimated inflation for the past year. Although, typically by only one percentage point. Perhaps the analysts have given more prudent predictions for March and will hit the nail on the head this time.

US Retail Figures for March

The second event to be mindful of this week is US retail sales figure for March. This report is appearing at the end of the week. A historical view shows us that the US retail figures have been relatively flat for the last six months of 2020, never changing by more than 1.7% in either a positive or negative direction. 2021 is a different story, though. Sales lifted to a positive 7.6% in January, which lead into a negative 3% in February. The market consensus is that retail sales will again bounce back to somewhere in a positive 4 – 6% range.

Gold traders should keenly watch the retail sales figures as these are great early indicators of how the economy is performing. The figures can be used to predict GDP and inflation trends. For one, high sales figures could lead to higher expected inflation next month, which flows onto bond yields.