Morning Gold Fix: July 22, 2010
Commentary Courtesy of www.fmxconnect.com
Gold opened Wednesday’s trading at
$1191.8 per 100 troy ounces. After a day of up and down trading, with
prices falling as low as 1183.0 and rising as high as 1198.0, it ended
the day at very close to the same price, 1191.8. The metal has posted
slight gains this morning.
Bernanke: Reading the Tea Leaves
am not enthused by yesterday’s activity. Gold is unfortunately acting
like my observations warned. Weak longs are trapped above the market as
shown by options activity and intraday swings. Bernanke’s speech gave me
cause for further concern. Watching Gold while he was talking, and
having a position of my own I noticed a quick drop of a dollar right
before he went on. No big deal, but this is always a sign that a weak
hand is puking, not a weak hand initiating. Fair enough, I thought,
shake out the idiots before he speaks, and I continued to look for a
reason to buy.
Then he began speaking and my translation of his
comments were “ Deflation is the issue currently and I am considering
other ways to combat it.” That is what I took away from it in real
time. And Gold sold off another $6.00 right after the implication.
This is my issue. Bernanke could have said 3 things basically
1. Inflation Hawk: All is well, we are getting ready to remove the stimulus- should be bearish for everything
Inflation Dove: I’m concerned we are adding more liquidity- should be
bullish if you think the liquidity will create asset bubbles or
inflation will come on its heels
3. No changes are forthcoming- not sure what that means
essentially said number 2 by my interpretation, but the markets crapped
out. Why is that? It’s because the market chose to focus on its
disbelief that fed policy can help now.
Very scary in my
opinion. Geez, the promise of continued easy money should be good for a
bullish spike in everything but it did not come. My conclusion is simple
when it comes to Gold: too many specs are long with no fresh money
coming in right now. Sell bad news, sell good news after the rally too.
That is what a dealer would do until fresh money comes in. As we near
August options expiration it is becoming clear that 1180 is asserting
itself as a magnet with 9500 contracts open. I Had hoped for 1200, but
hopes are fading fast. Options Report Here
How to Look for a Market Bottom
long as OI continues to decrease, look to fade rallies. When you see
the market sell off and OI go up, then shorts are getting in, and that
should put you on alert for a possible bottom coming, but not a buy
signal. The buy signal comes when OI turns upward in a rally, then
selling rallies is not advised, as weak hands are out and fresh longs
are coming. In a nutshell:
· Selloff w/ OI coming in= long liquidation
· Selloff with OI flat= strong hands weak hands transfer AKA distribution
· Selloff with OI increasing= shorts getting in
· Rally with OI increasing= initiation of longs
· Etc, etc, etc
trick to trading this way is reading the stochastics and finding the
dynamic equilibrium number for OI to bottom and top out at. That or you
could just have clients calling you to puke positions all day and just
front-run their limit orders asses until they capitulate and stop out
into your welcoming arms.
gold was down 5.6 to $1186.2 per 100 troy ounces as of 7:01 AM EST,
this morning. The September U.S. dollar index was up .505 to 83.210.
October platinum was down 8.2 to $1521.6 per 50 troy ounces. Silver was
down 2.32 cents to 17.780.
Wednesday Options Recap:
buying continues to trickle in the short dated options but not as
urgently as it did last week. Volatility continues to soften in the
rally, and stabilize in the selloff suggesting trapped longs in the
market. The market is beginning to focus on August expiration. We expect
open interest to act as a magnet in the 1200 area. There was more
liquidation in Jun 11 and December 11 this time in straddle form. The
speculative funds are beginning to capitulate.