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Morning Gold Fix: July 1, 2010
Commentary courtesy of www.fmxconnect.com
Gold fell a staggering $36.30, or 3.5% per 100 troy ounces on Thursday. The dollar, another safe haven asset, dropped 2%. Some analysts have suggested gold’s move was the result of a large fund unwinding a position by selling gold and buying back the euro.
Yesterday’s activity was the decisive battle for the time being between the “it’s a commodity crowd” versus the “it’s money stupid” folks.
Put another way, if you believe that we are in a deflationary cycle (like us), and you believe that gold is a commodity only (not like us), then its price must go down relative to currency during deflationary meltdowns.
If however you believe that Gold is not a commodity, and that it is money, then you believe it should hold value , or even appreciate in a deflationary spiral.
We believe that Gold is perception. For 20 years or so, its pricing exhibited the qualities of a commodity due to the global infatuation with Fiat money. Gold took it on the chin in the post Bretton-Woods world once the central bankers got their proverbial shit together. Perception being, we don’t need gold, so let’s just mark it where other commodities are trading, especially while central banks are divesting themselves of it.
Now, we believe that perception is changing. To wit: Gold as a commodity? Ridiculous. It is not consumed, therefore it is not an industrial metal. It is not eaten, and it is not grown. All of the gold ever mined still exists on earth, it cannot be destroyed. Its rate of supply growth increases about 1.7% per annum. It is money, or a competing asset class for money in the least.
For the last four days, Gold has been in a tug of war. The openings have seen it sell off with everything else under the sun in a deflationary puke. But as each day’s end approached it has rallied and held its own. But yesterday was different. Allow me to explain why from an order flow perspective:
For the last 3 days, a large European fund has been buying the dips as the market gets close to the trend line. They have bought futures and options on every big dip. Yesterday we did not see them buying. So when the market probed their “buy” area and no one was there to buy, that was a license to probe further for stops. So on a flow level, the buying dried up and the sellers came in.
On a reason for the selloff, I’d just say that for the time being, commodity perception wins.
But how upset can you be if you’re bullish? Gold is just undoing what it did during its rally in Euro terms. Can that really be upsetting? Volatility is not risk. The macro trend is intact.
A couple days ago we stressed that it is important to know why the market does what it does, and if the correlation holds up, then pick a level to trade. If it does not, then reassess. For us Gold sold off on a deflationary puke, most likely from sellers smelling that buying dried up, or from someone in a cash crunch liquidating assets for money...Or from a combo of the two.
I’d expect more selling as stops get hit. Then momentum funds will short the market. At that point you pick a spot if you are a buyer and wait for the market to go lower with stochastics not making new lows. That should tell you exhaustion on the move is approaching. At that point pick your spot. Only thing that invalidates this is if news turns form deflationary to sovereign crisis. If the news turns and the market does not, be careful. For now, I’m trading it short bias looking for a place to cover. But I’m invested long, capisce?
Oh, and buy the way, of course an arb exists between Comex and OTC metals. It is not a riskless arb, but it is an arb nonetheless. And it can be spoofed or manipulated for short periods. And along the lines of a pot odds concept in poker, if you have 50% of the open interest in something, what would it hurt you to push another 1000 lots into the market in the hopes of triggerring a liquidity event (weaker hand getting out) so you can cover? That is how it happens. More on this Monday.
August gold was down 1.0 to $1207.7 per 100 troy ounces as of 6:58 AM EST, this morning. The September U.S. dollar index was down .384 to 84.600. July platinum was up 11.9 to $1515.2 per 50 troy ounces. Silver was up 16.0 cents to 17.920.
-Elizabeth Thawne
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Gold is money and nothing else - JP Morgan.
“Gold is money, everything else is credit.“
Ferdinand Lips
just be patient on the trade... let the chart do its thing for a week or so... but F**** the S&P
A few percentage point fluctuations on a daily chart meaneth nothing.
On a daily basis it goes in whatever direction the daily trend takes it.
Those who believe that gold holds its value over time . . . years, decades, centuries . . . are unconcerned with daily hiccups. Where was gold 100 years ago, 50 years ago, 10 years ago, 5 years ago . . . versus where it is today?
Extrapolate that to the next 5, 10, 50, 100 years from now, and all the daily rumbles are just background white noise.
Exactly. Ignore the noise and keep buying if you can.
It is not consumed, therefore it is not an industrial metal. It is not eaten, and it is not grown. All of the gold ever mined still exists on earth, it cannot be destroyed. Its rate of supply growth increases about 1.7% per annum. It is money, or a competing asset class for money in the least.
So beautiful!
I agree, some words to the wise to be sure.
I don't know much about art but I know what I like.
...and I like this:
http://finviz.com/futures_charts.ashx?t=GC&p=w1
All that plus the holiday low volume made it easy for the bullion banks to push the shorts and trip stops. Charts and a delivery (supply) problem keep pointing to a massive breakout, but the real money is such a threat to the status quo's funny money it has to slammed down in the paper markets. So let's sell our mining shares on the highs and buy back in on the dips. Hold the metal. We keep under estimating the panic that gold incites in our financial overlords. This pattern will keep repeating until the house of cards comes down.
Tyler I love you ya but "Gold appreciating in deflation"
Look at the price of Gold in Yen between 1980 and 2000 where we had so much "deflation" and the price of Gold went down by over 70% in yen terms.
http://ispeakofpeak.blogspot.com/2009/09/bull-market-in-gold.html
If it goes down 70% I'll take the tax hit on my 401k for early withdrawl...and be grateful ;-)
Smile and wave boys...smile and wave.
Yes, yes, very tempting if it moves down that much.
LOL...@ +/- 360 U.S. an ounce it's a no brainer.
I look at it this way...the beast is starving for fiat.
If they want a chunk of mine they can have it, on my terms of course. Coercion doesn't have to be the "be all end all" tactic on a constant basis, when negotion will work just as well ;-)
"Coercion doesn't have to be the "be all end all" tactic on a constant basis, when negotion will work just as well"
can you share that with our leaders?
If Marla can be accused of being a Mossad lackey...I believe I just did ;-)
That is only because of the un-priced aversion of a currency crisis in the US in 1980-81. The market was expecting US dollar hyperstagflation (or at least a continuation of the stagflation they had experienced for the previous ten years), but Volcker prevented that from happening. There is no preventing it now, not with a debt like that of the US.
YES! It's DEFLATION, STUPID!
"So when the market probed their “buy” area and no one was there to buy, that was a license to probe further for stops. So on a flow level, the buying dried up and the sellers came in."
So if there is nobody on the buy side, when gold goes to $2K, $3K, $4K per ounce, what "physics" in the universe gets us there? Please Einsteins, tell me how??? With the exception of the bright bulbs here, the US has NOT awoken to the idea of gold as money. Still a commodity here and with the deflation dead ahead, lots of opportunity to collect the shiny coins on sale, at a coin store near YOU!
Since Gold is priced in $'s, Gold can only apreciate in dollars during a $ deflation. We didn't have $ deflation between 1980 and 2000. Yen deflation? - Yep!
Since gold is money, those "analysts" should ask why hedge funds would sell the best performing asset of the past 10 years, in favor of the euro.
If that's really what happened yesterday.
But their gold isn't money - it's paper certs that represent gold (that isn't even there), so to them they sold a commodity. :)
I'm with you on the analyst's reasons - doesn't add up. First, if their gold was real and they sold it to buy my euros, I'd turn around with my euros and buy their gold :D
You are saying that they traded in derivatives? That is what caused this global melt down in the first place. It might be a little hair of the dog at this point, but that mutt is getting mad! It is about to turn on its master any time now.
Buy, biatchez?
It's not where it opens...it's where it closes that counts.
http://www.gata.org/node/8787
Patrick Heller: Massive drain of Comex silver inventories continueshttp://www.gata.org/node/8788
thanks for the submission...
definately, the chart damage has been done... its like looking at a broken vase, so sad. two general trendlines show support in mid 1100s, then in 800s, both of which are possible. it is decidedely going to go down from here...
i knew this was a possibility, and actually planned on it.. that gold would sell off as a puke with everything else. the one thing that doesnt make sense though is why the euro went up in the face of a generalized deflationary puke... remember when it seemed like everything was going to global parity??
>>> "Only thing that invalidates this is if news turns form deflationary to sovereign crisis. If the news turns and the market does not, be careful." <<<
exactly... and this is why i am troubled by the (dramatic) rise in the euro. nothing has changed in the sovereign crisis story, but the euro is rallying... and what about the treasury trade??? that also is a big fucked up question mark... ridiculous treasury rallly in past month doesnt fit well with a euro rally.
The reason for the Euro rise...the Swiss.
somehow feels like it is bigger than that. oil, gold and equities drop on a deflationary/liquidity-crunch thesis, should have seen rise in us$... at least that is what i took the ridiculous treasury rally in the past month to be, and anticipation of exactly this... "if global deflationary crisis, flight to us dollar".
still struggling with some cognitive dissonance about this whole thng.
Euro short-squeeze triggered by tightening ECB liquidity.
“Some analysts have suggested gold’s move was the result of a large fund unwinding a position by selling gold and buying back the euro.“
Then, why did the selling start after the PM fix in London and not and not after the Market in NY opens? If I have to sell for a good price I will do it in the most active market; here while London and NY are open.
Selling paper gold short makes way more sense as an explanation.
Moreover, the US$ got sold hard yesterday, beating gold down is supporting the Dollar.
So I bought 500 shares of PHYS yesterday at 11.50 and 500 today at 11.55... and I'm thinking about really loading up. So... smart or not?
I've seen a lot of comments about paper gold vs physical here at ZH ... but what's everyone's take on PHYS?
If it doesn't shine it's still only paper
This is what I'm looking for with my question. Is what you're saying true in the case with Sprott's fund? I know there are rules and limits to a person's ability to take delivery with PHYS... but investors do have that ability. So I'd like to get more opinion... but I do respect yours. Thanks.
I would recommend GoldMoney as its located outside US jurisdiction. Canada could be coerced to do whatever US authorities want. As for Sprott's fund itself, it seem legit. But at least some, if not all, of ones PMs should be under your direct physical control. Considering what is happening... and what is not happening to address it, how can one trust any government?.
This is precisely the argument here - is gold a currency (bullion) or a commodity (PHYS, GLD, etc)? If you think it's a currency, then like fiat money, it should at least be physically in your pocket, proverbially speaking. If you think it's a commodity, then you can play the paper market. But don't expect that currency and commodity are necessarily interchangeable. If you own paper gold, don't expect to be able to trade it for gold you can put in your pocket. If you own bullion, don't expect to take it to your local grocery store and buy some pork and beans. At least not yet - gold and silver bullion is a hedge against inflation: a safety net for hard times, when you see trillion dollar notes blowing around the streets.
PHYS is like any other paper investment - buy it to play the market. But like FRB "gold certificates" and "silver certificates", don't necessarily expect to be able to take physical possession. Lots of things happen, whether it's government promises broken or fund promises broken. There may also be an income tax advantage to sprott's fund, but if you buy bullion for a hedge against catastrophe, you won't likely ever sell it anyway so taxes are moot. Sprott may be one of those people who actually buys and stores the gold to back his fund, unlike GLD and others that are "fractional reserve gold funds", for lack of a better concept.
PHYS is solid, but I prefer physical delivery rather than trust anyone else. It's your life, your money, why take a risk? I'm a dealer, and personally I'd refuse a client's request for me to hold something for them. It's theirs, send it out....
Lot of guys want to play the "smart" trading game with paper GLD, PHYS, etc. Bounce in and out on ups and downs. Well they end up losing gobs of money, nearly all, it's too volatile and there are no "tells", despite TA, it's a manipulated market. Best thing is to order physical, take delivery. Buy-and-hold. Boring, but it works. It would be safer hiding gold and silver bars under a bush in your front yard rather than go up against the corrupt in the markets to play MO-MO trader.
Aw, shoot. How'd you know?
What's your address?
1 Maiden Lane
Didn't the fed securitize your shruberies?
If you can pick up PHYS without a premium, then its probably a good bet.
A move in the gold price like this suggests the onset of declines in the discount rate, and it may be a biggie, but will play out over several weeks. Welcome to seasonality in gold.
It fell $36.30 per ounce not $36.30 per 100 ounces. Per 100 ounces it fell $3630.00.
It was written 3.5% on 100 ounces, 36.30/oz.
Well, I dont want to sound like a bean-counter but "per" has a mathematical meaning. Later in the article and also in other articles about gold on zerohedge there are things like "August gold was down 1.0 to $1207.7 per 100 troy ounces". To the best of my knowledge gold price is quoted in Dollars per troy ounce and not in Dollars per 100 troy ounces.
The minimum size of the lots that are traded at the spot market is an entirely different thing. One also does not say "the Euro is trading at $1.25 per €100,000", this would be either a Zimbabwe-Euro or damn strong Dollar.
Gold - Still Money After All These Years
http://www.insidefutures.com/article/159381/Gold%20-%20Still%20Money%20A...
augmister-how long before gold gets to 4k?
Do your own due diligence:
How Can We Possibly Calculate the Future Value of Gold?We can calculate the future value of gold by looking at its past value against assets. For example, what could 100 oz's of gold be exchanged for during the bottom in the 30's? Same with silver but since gold will be out of reach for most people, silver demand goes through the roof, taking the ag:au ratio from some 50:1 to more like 12:1.
Best future case I see is the 1oz gold keeps you in shelter and food for a year, and 1 oz of silver keeps you in shelter and food for a month.
Where it should be? -> Gold $8400, Silver $700
No argument from me on this one. I can remember silver coins in circulation so I'm on board. Your argument for the gold/silver ratio is going to be subject to the stored purchasing power formula which arises from prevailing circumstances at first, and then from stabilization, hopefully. In the old West a silver dollar got you a room for the night, a hot bath, a steak dinner, a couple of whiskies, and your horse boarded. The gals were a bit extra.
I believe you may be on to something with your estimates.
At first one looks at 8400/700 gold/silver and might say that's pie in the sky type stuff...I did.
Then, on reflection, we would have to factor in a WORLD currency "standard" (the dollar in this case) being somewhat less than a pristine "standard" of value measure. Then it starts to fit.
As an aside, I don't hold Eagles as when the time comes I wouldn't want it misinterpreted as $50.00 by a devaluing regime...LOL.
Hey, no problem with the Eagles. It's the authenticity that counts and AGEs will be the "gold standard". Silver quarters and dime won't be a problem just because they have the denominations on them as well.
We took possession of enough silver yesterday to double our Ag holdings; we're saving the rest of our spare FRNs and waiting for a big dip in Au to stock up. I'd like to double that, too!
Every time the PTB short sell to supress the price, there is upward price movement right after the beat down. I really, really want to be holding a big bag of coins when that accumulated tension releases...upwards.
I don't know, I think the price action earlier this week might have been to push people into treasuries.
Technically, during a pure deflation, like Japan, you really want to be only in dollar or strong dollar assets (maybe US bonds). I agree with John Williams (shadown stats) - I think we may be on the cusp of a Currency Crisis - more deflation is going to panic foreigners and result in massive selling of US assets. Where they go? Don't know - Russian rubles, Canadian Dollars, gold... who knows.
I think GLD is fine, but better to hold physical gold (silver). It's a five year plan until the monetary chaos settles down. I don't know how all of this will end, but it's looking like a pretty bumpy ride. Remember, the worst part of the great depression was not the first 2 years...
Your assuming continuous gubermint interference and "stimulus". You forget that if the goobers in the gubermint leave business alone, market forces correct VERY QUICKLY. We need a big crash and burn. Yeah, it'll hurt like hell, the entitlement system will be vaporized. The credibility of Gubermint will be exposed as the fools they are. No more bailouts, stimulus or intervention. Then within a year, we can rebuild.
I agree except I'd give it 3 years... but regardless it would allow the system to reset.
We believe that Gold is perception...
I’m trading it short bias looking for a place to cover.
But I’m invested long, capisce?...
But how upset can you be if you’re bullish?
Pretty upset if you have staggering losses following someone who said the day after the peak on 21 June 2010:
So puke all you want ye of little faith, we’ll be there buying all the way down to zero!!
http://www.fmxconnect.com/fmxmetalsconnect/post/2010/06/22/Morning-Gold-...
A lot of very expensive fabulous fantasy doublespeak gobbledegook bad advice from someone once the youngest female floor member in Chicago.
http://www.fmxconnect.com/fmxenergyconnect/post/2010/02/10/FMX-7c-Connec...
The fact is Gold is down, -67.70 so far from the top, -$6770 a contract.
KISS:
Buy low and sell high...
Gold is consumed by electronics components
Then I guess we can expect people to rip their televisions and stereos and computers apart and boil 'em up in home smelters to get the gold out in a few years. Not to mention all those wedding rings. [Her: Honey, what happend to your ring? Him:I replaced it with brass, darling. Isn't it shiny!]
Will cyanide and arsenic and ceramic cupolas be available at Home Depot, I wonder?
Certainly a lot of details like that to take into consideration. Thanks windows vps | cheap vps | cheap hosting | forex vps