Bullish about Shanghai index, gold

IN 2008, China's stimulus programme saved the world from a global depression that was expected to be of the same magnitude as the 1929 Depression. One result of the global rescue was the need to redirect Chinese earnings away from US Treasuries and into a more friendly and productive environment. The New Silk Road policy is part of that redirection. So too is the rapid progress towards the internationalisation of the yuan. The redback - the Chinese yuan - is becoming a viable alternative to the greenback. The issuance of yuan denominated bonds is rapidly growing so its useful to examine the performance of the underlying Chinese market.

Associated with this currency growth is the impact on gold as a hedge against government economic policy. The sudden drop in the gold price does not signal a change in trend and we update the gold outlook.

The Shanghai Index has moved above the long-term uptrend line. There is a high probability that the index will cluster around the value of the long-term trend line and move a little above and a little below the line.