Morning Gold Fix: July 21, 2010
Commentary courtesy of www.fmxconnect.com
Gold opened Tuesday’s trading at $1183.2 per 100 troy ounces, and proceeded to rebound from an 8 week low, eventually closing at 1191.7. It has continued its rally this morning with slight gains.
Yesterday’s activity was disappointing if you are a Gold bull. Here is why.
There was massive selling in Calls all the way up yesterday by funds and bullion Dealers. Translation: the funds are ”Trapped longs” and the bullion dealers know it. Technical traders understand this best. Essentially there are out-of-the-money futures and options spec longs who are running out of patience. Every rally will be met with selling by them. This does not mean we will not go up. It just means that it should be orderly, with a washout when whoever is buying is done. Yesterdays’ rally seemed to be a dollar weaker/ commodity stronger based impulse. So perhaps the inflation trade is stepping in here a little. For me, that means orderly movement in a rally as well, as opposed to deflationary crisis. The key is open interest. If OI decreases in the rally, I would not buy strength.
In fact, I’d go so far to say that with trapped longs and expiry approaching, this market will be between 1190 and 1210, 7 days from now. Book that bet.
Fed Fights Deflation by Buying Gold
We read an interview yesterday with Lee Quaintance co-founder of QB Asset Management. He is a high yield veteran of the markets. He laid out a case for $5,000.00 gold which we thought made sense. Essentially his point was there is too LITTLE money chasing too much debt. His solution was to have the Fed buy Gold and reduce credit. Buying gold fights deflation by printing money, and shrinking the debt prevents paper asset bubbles. Interview here. Anyway it will never happen, the government will tax gold at 70% first or confiscate it before it announces $5,000 is the fixed price. But it is nice to hear someone making a somewhat legit case for higher gold.
August gold was up 4.5 to $1196.2 per 100 troy ounces as of 7:16 AM EST, this morning. The September U.S. dollar index was up .505 to 83.210. October platinum was up 11.6 to $1529.4 per 50 troy ounces. Silver was up 18.2 cents to 17.875.