Despite Preemptive Gold Margin Hike In Shanghai, Gold Is Poised To Close May Near Record On Sovereign Risk Worries

Tyler Durden's picture

After a near epic margin driven collapse in silver, which appears to have been largely forgotten as the metal has resumed it upward climb, it is gold which has once again regained the crown in the fiat substitute race. As Reuters reports: "The speculators are coming back, mainly driven by the European debt crisis," said a Singapore-based trader. "Gold is likely to slowly move up during the summer unless we see big headlines, such as the U.S. raising interest rates earlier than expected." Of course, where some see "speculators" others see rational investors who are already discounting the inevitable next step by the central planner cartel, which forced to deal with a slowing economy will have no choice but to inflate the global adjusted monetary base (and dilute outstanding fiat) by another several hundred billion. Elsewhere, in preparation for another gold breakout, the Shanghai Gold Exchange hiked gold and silver margins once again, this time preemptively. "The Shanghai Gold Exchange said
on Monday it will raise margin requirements on gold forward
contracts to 12 percent from 10 percent from the June 2
settlement, a move to help ward off excessive volatility in
global markets during the Dragon Boat Festival holiday on June
6. The bourse will also hike silver forward contracts to 17
percent from 15 percent. It will also set gold daily trade
limits to 9 percent and silver at 12 percent from June 3."
Still, the gold fixing at the close of NYMEX trading was $1,539.1, $30 away from all time nominal highs. Incidentally, would it be too much to ask of the exchanges to provide the general public with just what the formula is that they use to make their margin hike (and, reduction) decisions? They would be amazed how quickly any allegations of collusion with the administration would disappear if only a little transparency was introduced to the "system."

And while "speculation" is always a great strawman to explain buying interest in precious metals, a far more realistic one would be that the world is once again bracing for the completely unpredictable domino effect associated with yet another spike in Greek insolvency sentiment (predictably capped by yet another Greek bank run, which is no surprise to anyone following the recent records in the CHF which has surged as more Europeans deposit funds in number Swiss bank accounts), in which the only flight to safety would be that which is not printable by global central banks. Even Kitco agrees:

“I think we’ll test the $1,600 mark sometime in the next two weeks,” said Zach Oxman, managing director of TrendMax Futures. “There are worries about the Eurozone and concerns about China slowing down. Despite the fall to $1,480, gold didn’t take the hit that silver and crude oil did.”

The debt crisis in the southern-tier European nations remains a significant factor for the markets. Greece is at the forefront of the most recent problems as concerns flared that it would not receive its next tranche of payments from the International Monetary Fund and the European Union. There are also some thoughts that China’s attempts to slow its economy are starting to take hold.

Jimmy Tintle, analyst at Transworld Futures, said the trend for gold for the past two weeks has been solidly higher and prices could easily test $1,560 next week provided there is no big news to change the trend. He is a little cautious about the markets because both the U.S. and the U.K. have three-day weekends ahead of them. Markets are closed on Monday in the U.S. for Memorial Day and in the U.K. for a bank holiday.

If prices do rise to $1,560, then gold is in striking distance of taking out the all-time nominal highs set at the beginning of the month, $1,577.40 for June gold and $1,577.70 for August gold.

Charles Nedoss, senior market strategist with Olympus Futures, said he’s “very bullish” on gold going into next week, especially given the poor performance by the U.S. dollar. The sovereign debt issue in Europe is the main support, he said. Still, he said, targeting the recent high of the $1,577 area would be “a lot of work for gold to do,” but doesn’t rule out $1,550.

As for silver, the next resistance level appears to be $40. The last time it was taken out, it took 3 weeks for the metal to make the 20% jump higher to the Hunt Bros nominal high. Any announcement out of Europe indicative that things are once again spinning out of control should be a sufficient catalyst to prompt the move higher.

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emsolý's picture

There's a good talk on gold as a wealth preserver between James Turk and Egon von Greyerz on Goldmoney.com:

http://www.goldmoney.com/video/greyerz-interview.html

JW n FL's picture

if the Fed Printed $3 trillion in debt.. and another $15 Trillion in Loans (this does Not! include swap windows and TARP / TALF and so fucking on...) over three years..

 

$18 Trillion divided by 3 years ='s $6 Trillion in New Supply is Printed a Year!

 

$6 Trillion Dollars divided by 365 days ='s $1,643,835,6164 a Day in in New Supply is Printed a Day!!

 

$1,643,835,6164 Billion a Day divided by 24 hours in a Day ='s $684,931,506 an hour in New Supply is Printed an Hour!!!

 

http://goo.gl/FnxBZ  Treasury Direct $14 Trillion Debt

http://goo.gl/TMl74   $15 Trillion in Loans

http://goo.gl/EXzal  / ='s $29T

jeff montanye's picture

as jesse notes, deliverable silver on the comex has fallen from nearly 37 million ounces to barely 31 million in the last month.  july open interest is about ten times that.

AgShaman's picture

Hahaha....I hear the Bullion Banks are contracting the Edmund Fitzgerald to deliver the big bricks of silver about the land. They'll be taking the main routes thru the Great Lakes....so no worries mate!

Bubbles the cat's picture
Bubbles the cat (not verified) May 30, 2011 4:02 PM

Call me a gold buggin troll but maybe $2000 by Christmas ain't entirely out of the question.

Cynthia's picture

I'd like to know if Gold Bugs think that having gold in your pocket will give you a Heart of Gold:

http://www.youtube.com/watch?v=Eh44QPT1mPE&feature=related

Al Gorerhythm's picture

Depends upon what criteria you use to measure a golden heart. I didn't junk you but WTF are you on about?

Bubbles the cat's picture
Bubbles the cat (not verified) Cynthia May 31, 2011 4:02 AM

I'll ask my broker.

Bubbles the cat's picture
Bubbles the cat (not verified) Cynthia May 31, 2011 9:05 AM

OK....back from lunch with my broker. He said Neil Young's already got plenty of precious metal.

http://www.nme.com/news/neil-young/2564

http://www.youtube.com/watch?v=12T95RHGLH8&feature=related

alangreedspank's picture

 

Can't remember the exact logic behind it, but some gold bug recalled gold and inflation going UP as the interest rate were being increased in the early 80s.

It takes sometimes then for inflation and gold to chill in this high interest rates environment.

 

trav7777's picture

depends upon if the banks are charging a higher rate than the background.

That sucks debtmoney out of the system.

The problem we face is that our currency is backed by debt, but the debts are unpayable and defaulted.

HamyWanger's picture

Actually, the only way to beat inflation is to go ahead of it. Nothing will happen if the FED does a 0.25% hike. 

The nightmare of deflationists, stock market shorters and PM haters is far from over. It has just begun. 

I expect that 100 dollars of 2015 will buy around 20 dollars of now. 

trav7777's picture

that would be $500/bbl oil and $7500/oz gold...against wages still paid as if $20 was still $20

HamyWanger's picture

Yep, and so what? 

If you had said to your great-grandfather that an average car would cost $10,000 in the near future, he would not have believed it. 

Each new generation unconsciously adapts to the new nominal prices. And the wages will surely do it too. 

Nominal prices in Japan and in Italy before the euro did not use to be that ridiculously high. But people have adapted, and begun to consider them normal, with new points of reference. Earnings always follow mild inflation, with a 6-month lag at worst.  

Fiat2Zero's picture

Well other than people can't afford to eat.

"Bringing the Middle East uprising to a US city near you"

topcallingtroll's picture

I am going to ballpark that as a sustained inflation rate of forty percent for four years. Not going to happen.

trav7777's picture

wages haven't kept up for the past 40 years, dipshit

JW n FL's picture

maybe longer than 40 years.. the American worker bee / debt slave.. has been being slowly boiled for at least 40 years!

 

whomever junked him needs to grow a set and speak up.

Al Gorerhythm's picture

"Each new generation unconsciously adapts to the new nominal prices. And the wages will surely do it too."

Oh? Just like since the start of this current paper money system, perpetrated on us since 1913? You neglect the destruction of savings in your theory. Each new generation is asked to take up the yolk of indebted servitude, to carry the load for the past generation. The past generation, slipping quietly into retirement, discovers that its saved wages of 40 years, hasn't the purchasing power of yesteryear. Your observations are blinkered. The new generation is born into their situation and know no other normal. The older generation discovers too late, that their normalcy bias anchors them in a romantic period of purchasing power long gone. 

Think back Hamy. Draw on your memory powers. Can you see that guy in front of you holding a fob watch, saying: "You are getting sleepy, you are getting sleepy".

HamyWanger's picture

I've never said wages were to keep up exactly with inflation. I'm totally aware that inflation disrupts capital allocation. 

There will a few deaths by hunger and some chaos for 2 or 3 years, but in the end it is a small price to pay to avoid a deflationary spiral and a government default. 

Al Gorerhythm's picture

Oh, yes you did. It's the new normal, you know.

Each new generation unconsciously adapts to the new nominal prices. And the wages will surely do it too. 

Al Gorerhythm's picture

"There will a few deaths by hunger and some chaos for 2 or 3 years, but in the end it is a small price to pay to avoid a deflationary spiral and a government default." 

May you live in interesting times. What a complete CUNT. As long as you are insulated, huh? May some lucky bastard step over your near-lifeless body and opine "Looks like this guy needs help. Oh look, a rainbow!"

 


Bob Sacamano's picture

So any steps you are taking to "insulate" yourself would be hypocritical?  Ready to distribute "your insulation" equally to all below you?

Muir's picture

@Hamy

"Yep, and so what? 


If you had said to your great-grandfather that an average car would cost $10,000 in the near future, he would not have believed it. 

Each new generation unconsciously adapts to the new nominal prices. And the wages will surely do it too. 

Nominal prices in Japan and in Italy before the euro did not use to be that ridiculously high. But people have adapted, and begun to consider them normal, with new points of reference. Earnings always follow mild inflation, with a 6-month lag at worst.  "

__

exactly!

and even though some behavioral finance types have dared to call this a bias, others, most notably Gerd Gigerenzer, have pointed out the great survival benefit to such discretionary perceptions.

duo's picture

In the '70s everything essentially tripled in price but wages went along with it. Since 2000 prices have doubled (except by BLS standards) but wages have barely moved.

Expect another 3x-5x increase in prices without wages (except for bankers) increasing this decade.  Vietnam caused the '70's inflation, Iraq/Afghanistan/Libya will cause '10s inflation.

Al Gorerhythm's picture

Money printing, compound interest mumbo jumbo and credit creation causes inflation. Persistently, insidiously. Hamy World.

Bubbles the cat's picture
Bubbles the cat (not verified) alangreedspank May 30, 2011 4:19 PM

That was the 80's. Before logic lost it's shine.

legal eagle's picture

Kids should be taught to buy one ounce of silver from every paycheck until they get full time job, then one ounce of gold (or 10 grams if all they can afford) each month. Better than any retirement plan available.

Alpha Monkey's picture

Not sure where you think kids work at part time, earning enough to buy an ounce of gold. Even back in the mid 90's when I was just starting work, my paychecks were only 300 or so every two weeks.  And, I might add, this was working 40hrs+ as a 16y/o at McDonalds. 

So, if minimum wage has roughly doubled since my time, these kids are only working half my hours, and the price of gold has has roughly quadrupaled.... You do the math.

 

Also, wtf is going on in gold?

Jendrzejczyk's picture

"Kids should be taught to buy one ounce of silver from every paycheck..."

Al Gorerhythm's picture

Kids should be taught to save from each pay cheque, a portion to be set aside to buy eventually one ounce of silver.

knowless's picture

the tradition was to give the child a silver coin, and tell them to never spend it, just keep it unless their life depended on it, in the pocket, always, they used to sew it into clothes, when people only had one change of them. it instilled a sense of value, a notion that in times of trouble, you would have a way to avert crisis.

 

knowless's picture

holding pattern again, last time i saw it was:april 21st right before the fifty sky.  not gonna really predict anything, but maybe a big spike this week?

 

http://www.zerohedge.com/forum/what-gold-chart

http://twabbler.net/images/35340770006840958880.jpg

today:

http://i.imgur.com/6nLK9.jpg

Sudden Debt's picture

It's pretty clear they can't keep it under control forever.

Today, while driving to work I was wondering: A average house is worth 10.000 ounces of silver. If you think about it that only 1/10th of a ounce of silver is mined per person on earth, a house is worth the silvermining for 100.000 people.

Put in this calculation the fact that industrial demand is bigger than the mining for year now and that deficit keeps on rising, this will eventually boost silver into the stratosphere.

 

Hansel's picture

Same thinking applies to gold.  There is roughly 0.85 oz gold per person on the planet, and also about 0.85 oz gold in America's reserve per American, yet in the U.S. the average price of a new home is $268,900, or 174 oz of gold.  No numbers make sense right now when calculating gold as money.

Misstrial's picture

There are already places in the USA where you can buy a house for one gold coin.

~Misstrial

Manthong's picture

You will probably need some guns though, if you plan to move in.

duo's picture

A 1961 quarter bought a gallon of gas.  Today that same quarter is worth about $7, or almost two gallons.  Either silver is overvalued by about 2x, or $7 gas is on the horizon.

trav7777's picture

it's possible for you to grasp that production ratios of materials may change, right?

HamyWanger's picture

Unless there's a big technological advance in one sector and not the other, it is doubtful. 

eisley79's picture

Why did you pick 1961, and quarters?  How about dollars, bullion silver, and gasoline, charted for 100 years, see if there is any value in your observation.

 

Also note what the treasury was doing in 1961 'son'

http://www.silverinstitute.org/19601965.php

duo's picture

In Babylon 3000 years ago an ounce of gold bought 350 loaves of bread.  Do the math.

Al Gorerhythm's picture

Yep. From antiquity to modern times, a half-wit was and is still, a half-wit. They just don't (can't) get it.

duo's picture

It's amazing that prices in gold have stayed almost constant for the duration of human history, yet so many believe that paper can for some reason render history meaningless.

Fiat2Zero's picture

The technological advance is called war. The government has been subsidizing gas prices in a variety of ways for a long time.

The actual cost at the pump is far more when you factor in indirect costs.

Conversely, the government has been suppressing the price of silver for a long fucking time. At least from the 60's with the introduction of the Coinage Act, when Johnson eliminated silver from our coins, threatened that the Treasury would dump silver onto the market and crash the price, and eliminated the final tie of "future exchange" with our currency.

Silver is undervalued by at least 3 times currently.

You can't make solar panels without silver (10% of the cost), a cruise missile has 500 oz of silver in it.

Industrial demand is rising, but nowhere's near as fast as investment demand.

Try telling 1 billion Chinese and 1 billion Indians experiencing super high food inflation that they shouldn't buy silver. They'll tell you silver is real money and that people in the US don't have a fucking clue.

Oh yeah, also, the Chinese and Indian peasantry (who buy the silver) do not read ZH. Therefore the Jedi Mind tricks of paid shills like Hamy Wanger do not affect them.

A_MacLaren's picture

a cruise missile has 500 oz of silver in it.

I've heard this "thrown out there" but never seen it documented.  Got a link?

JW n FL's picture

I think last year it was like 20 oz's.. and the number has grown to 500 for sure! LOL!!

 

and I Love metal! so I am no silver hater.. gold is for tungstun lovers! LOL

 

I own Gold so take it and shut it!