What Does The SPR Release Mean For Gold Trading

Tyler Durden's picture

Is it a coincidence that the government announced the release of crude from the SPR just days after it was disclosed that Dodd-Frank will make trading in OTC spot products illegal? Perhaps. On the other hand if there is indeed a concerted and very politicized effort by the government to encroach and "centrally plan" yet more industries, the implications for precious metals trading could be substantial. FMX Connect summarizes these as follows: "Our two cents are as follows. It does not pay to fight the government right now. Even though Bernanke can’t print more oil it is clear that we are entering into a new phase of a centrally planned economy. To us this smacks of price controls. When you combine it with the Dodd-Frank bill prohibition of OTC gold trading, you might see that we are setting up for something worse. Tin Foil Hat Alert: All gold will trade through exchanges and while we don’t think ownership will be prohibited it may be taxed to death."

Full note from FMX Connect:

Summary

August Gold settled at $1500.9 per troy ounce, a loss of $19.60 for the day.  Volatility was bid in the selloff with put buyers overwhelming the market and speculators liquidating calls.

Market Recap:

Today's option activity showed the other side of Gold's bipolar nature. We’ve mentioned it many times before, that the back half of the curve is dominated by call buying speculators while the front part of the curve is the domain of GLD hedgers. Before today’s selloff a prop shop purchased the 1400/1450 1by2 put spread. They bought the 2 and sold the 1. The structure actually sold vol., But by the end of the day, even with volatility higher the seller was profitable. This is entirely because the market moved heavily towards a put skew. We would expect more of the same if the market continues to sell off. One should expect volatility to back off aggressively if we bounce. We feel the call buying in October will dry up and straddles there are a sale. December however will retain speculative interest.

We stated two days ago that precious metals were on our radar for a major selloff. Our indicator proved correct and gold capitulated yesterday. If the indicator remains true to form, this market could see 1460 in a week. Regardless it’s given us $40 of downside already.

Interestingly enough, Silver did not trigger its alert until today's close. We would say that while gold has been the weaker of the two metals in this selloff, silver may be catching up next week.

Comments on the SPR Release

President Obama with coordination from the IEA agreed to release oil from the SPR in an attempt to quell concerns about high gasoline prices. This has been discussed ad nauseum. We would like to put in our two cents. First, as many already have said, any oil that is sold now, must be bought back later. Second, from the opposite point of view, the government can buy it back whenever it wants. Therefore, from this, it is not that bullish, as there is no imperative to buy back the oil anytime soon. As a side note, our Government could have been selling puts and or selling call for years to create revenue on an otherwise inanimate object sitting in the ground. We think they are generally lacking commodity risk.

Our two cents are as follows. It does not pay to fight the government right now. Even though Bernanke can’t print more oil it is clear that we are entering into a new phase of a centrally planned economy. To us this smacks of price controls. When you combine it with the Dodd-Frank bill prohibition of OTC gold trading, you might see that we are setting up for something worse. Tin Foil Hat Alert: All gold will trade through exchanges and while we don’t think ownership will be prohibited it may be taxed to death.

Directional Commentary:

Options: The emotional indicator continues to switch from greed to fear as GLD related put buying has spread from July through October while traditional speculative call buying has withered away. Many would interpret this as bearish and we wouldn't disagree. But all that says that if we rally back vol. will get hammered and if we selloff vol. will explode. In either direction, calls will not be invited to the party. Options Conclusion: Bearish

Technical's: Gold is oversold right here. It has had two monster down days, breaking through its long term trend line and its 50 day moving average, a important touchstone for the last year. A bounce should be forthcoming. We would pick spots and lean into it as long as the market remains under 1518. Our target is 1460 with a stop at 1520. Technical Conclusion: Bearish, Short Term: Bullish

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Active Options

N1500 call

N1520 call

Q1400 put

Q1450

 

 ATM Volatility Curve:

image

As of 4:00 P.M.

 

Volatility Smile:

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***From NYMEX Settlement

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Iam_Silverman's picture

"What Does The SPR Release Mean For Gold Trading ?"

That soon they will be"releasing" gold from Fort Knox?  In an attempt to drive the price down for the consumer?

fmxconnect's picture

All ready done and shorted by all the TBTF banks. Thank robert Rubin for creating the idea 20 years ago.

IQ 145's picture

 "What does the Release mean for Gold Trading?"; very little; and the little that it meant is already done. There won't be any $1460 gold in a few weeks; silver made a beutiful multi-month double bottom today; nice buying opportunity. Pm's will trade up next week. It's just static.

rocker's picture

Like your IQ on this one. The reaction in Gold and Silver from the Oil Smack Down is just about done. Most who were long Oil on margin had to sell everything. Just like they did when the dollar reversed on them. All of this is creating opportunities for real investors.  Just a footnote, Bambi did warn them a few weeks ago. In a way it was funny. Those who are burning Americans by pumping up oil prices got burnt.    

caconhma's picture

"Even though Bernanke can’t print more oil it is clear that we are entering into a new phase of a centrally planned economy. To us this smacks of price controls."

But Bernanke does not control the world oil demand and supply. Any central planning system inevitably creates severe shortages and black markets.

The best & easiest oil solution for Bernanke was to ask our Middle Eastern "friends" to pump more oil. But, it appears, they cannot do it. It obvious that for now we reached a peak oil production. Chinese, Indians, Vietnamese, etc., demands keep growing. Their people are not about to get out off their cars and start riding their bicycles again.

Oil shortages are just a beginning generating food shortages. Now, we are talking about hunger in the USA. Shit, it becomes an explosive issue. We are not talking any more about civil unrest. We are talking about a revolution with a real slaughter of the ruling elite.

 

PS

The Soviet collapse did not result in a revolt since the Soviet totalitarian system have the first class security/oppression apparatus and people were totally demoralized and did not have guns. In the USA, it is a totally different situation.

I do not think Bernanke and his masters are that stupid! Remember Obama is not either Stalin or Hitler or Franco or Pinochet or even Saddam Hussein.

Idiot Savant's picture

The Soviet collapse did not result in a revolt since the Soviet totalitarian system have the first class security/oppression apparatus and people were totally demoralized and did not have guns. In the USA, it is a totally different situation.

There are many differences in a Soviet v. United States collapse. Here's a piece by Dmitry Orlov, which outlines some major differences. A good read IMO.

"Closing the 'Collapse Gap': the USSR was better prepared for collapse than the US"

 

http://www.energybulletin.net/node/23259

 

 

 

caconhma's picture

It is a very good piece. Thank you.

In USSR, during its 70-years survival, people went through

- 2 revolutions

- multiple civil wars

- the NAZI invasion

Consequently, Soviet people used to survive. People did not rely on their government for survival since it was never offered. The Soviet state was designed to be a self-sustained. It did not need to import any thing.

Finally, during the Soviet collapse, the rest of the world was stable and in a good economic condition. So, Russians were able to use their export to recover. At the same time, America cannot survive without importing the basic commodities. USSR was a totalitarian state with its survival as the primary objective.

knukles's picture

Lemme see.  How much gold is really there if it's all 400+oz Wolframs (slaties) plated to say, a 1/64th of an inch?   

bigelkhorn's picture

Great stuff as usual. 

 

I think it is interesting what has happened in the last week, Greece problems, Bernanke admiting US is crappy, and oil problems too. A crazy week, I am guessing there is a bigger move coming on the market. Been following this guy for a while, his trading advice is killer and is very accurate.... latest video - http://www.youtube.com/watch?v=xKP90DrpfzQ

DoChenRollingBearing's picture

For, what, a couple of years I have been preaching that gold was a BARGAIN at under $1500.  Since we breached that level (for now?), I still feel that everyone should own gold.

Gold is the best diversification you can get (if you have none or very little now) and is also the best wealth preserver in town.

I practice what I preach.  If it goes down, it matters little for me.  I just buy as I have money come in.

Harlequin001's picture

The opening intro hints at the real problem, it will be taxed to death...

And so hopefully will end paper gold trading in the US.

One more step towards a third world economy reliant more and more on illegal gold trading to retain any semblance of real value...

trav7777's picture

gold is relatively portable if you know what I mean

billwilson's picture

Futures expiration on Monday ... Gee, dya think that may be part of the reason for the sell-off? Usually is. Nice initial bounce on Tuesday, then one more sharp sell-off on Wednesday (or later Tuesday), then a bottom is in. The miners not following to new lows today is the "tell".

knukles's picture

Back to "defending" $1500 again?  Now, who was that masked person about 3 or so weeks ago began selling a boatload of what was it, 1450's?
Don't say it ain't so, Joe, that they're at it again..... 

And BTW, anybody else (of course as its been heretofore discussed, so not to forget it at this "critical" moment) remember that the physical volume of COMEX good delivery silver has been plummeting as folks have been pulling the shit out of warehouses like there's no tomorrow?

Arragh, thar be elephants trampling hereabouts, methinks.

Threeggg's picture

It's all about "The Paper"

.

GoinFawr's picture

I know you. And you know when.

Stuck on Zero's picture

My observation, over a lifetime of observing management in companies, is that as a manager fails, because of poor policy decisions, the manager will ask for more power and control and will tighten down what they have.  If you give that manager more control and things get worse he/she will ask for more control.  What usually happens is that the backlash comes and everything gets worse and disaffection grows rampant in the ranks.  Isn't this repeated at the government level with every failed program the government attempts?

Isotope's picture

Yeah, I read this somewhere a while back with respect to police and this sort of thing. Their usual attitude is, "This law isn't working, we need more of it." Kind of a variation on, "I've cut this board two times and it still isn't long enough."

Yen Cross's picture

Read +1 Nice work, Gentlemen!

 

       I have an EVIL TWIN that speaks languages, you could  only imagine!!!!

Isotope's picture

It almost looks to me like the early signs of the government beginning to flail around. It's a giant, it is wounded, and losing control of itself and its surroundings. It makes increasinly violent and unpredictible decisions and moves, not caring about the real consequences, further injuring itself in a death spiral.

This is probably a uselessly vague thing to point out in the sense of any specific analysis. But it is important to remember to stay as far away from the beast as you can, because even in its injured state it can still hurt you badly if you try to interfere.

Misstrial's picture

+1000

I've been thinking of it as a drunk who first meanders, then weaves back and forth, then stumbles, gets up staggers to and fro a bit before falling down again. The drunkard's path of travel is unpredictable.

Try to help and risk getting physically attacked.

~Misstrial

Prometheus418's picture

People (as a group, that is) suck.

I remember very clearly feeling something like this shortly after Sept. 11th, 2001.  The image I had then was of a schoolyard bully having had his pants pulled down when he was looking the other direction, and then lashing out at all the other children in the schoolyard.

Now it's a full-grown drunk.

Charming.

Jasper M's picture

Translation: "Market forces are about to reassert, and take the price of oil back down to where it's been doomed to go for a long time. We disapprove, so here's a conspiracy theory."

False Capital's picture

Tin Foil Hat Alert: All gold will trade through exchanges and while we don’t think ownership will be prohibited it may be taxed to death.

 

In that case I will hold it till death. These bitches will get nothing from me.

 

 

DoChenRollingBearing's picture

+ $1500.

Tinfoil Hat Brigade member Bearing complete agrees.  Gold can sit still for GENERATIONS, just sitting there protecting wealth.

And it can be quietly given away.

Isotope's picture

Black market, it's what's for breakfast. And lunch. And dinner.

(BTW, isn't that supposed to be Bitchez?)

Hacked Economy's picture

"Bitches" = derogatory term, intended to belittle and demean.  Commonly used by teenagers and blog trolls.

"Bitchez" = brotherly term of endearment.  Commonly used on ZH to form bonds with fellow Fight Club members.

GoinFawr's picture

the single junk was a cherry on top.

GetZeeGold's picture

 

How are they going to tax my gold in the sock drawer?

 

 

William113's picture

They hired 16,500 IRS agents and bought 1200 Remmington 870 pump shotguns when they passed the health care bill. Thats how

kumquatsunite's picture

None of whom have English as their first language; in other words, the foreigners who hate you are coming for you! Oboma's plan has always been to create a "final solution" of immigrats controlling the government and forcing you to your knees. Nobody hates us as much as those we let in under the guise of "compassion". They are then stuffed into government jobs where, just as in Dr. Zhivago, the lower classes punish those who have been successful and productive. Time to run and hide, my fellow kumquats, time to run and hide. Oh, don't forget your daily dose of Judge Judy! Any time I'm feeling "compassionate" I replay a segment from her show and watch how the gutter trash behave...

Ace Ventura's picture

They can't. Provided you keep that 'barbaric relic' in the sock drawer like a good little citizen and not actually try to sell it for whatever form of functioning currency exists at the time (dollar, new dollar, amero, bancor, etc).

Not sayin' you would do so, of course. Just sayin'.....if you know what I'm sayin'.  :-)

 

Hook Line and Sphincter's picture

So sad! If you still play in a casino and expect to win, you are a sucker. 

Keep betting your paper AU, and end up giving all your stuffed bears back to the oli-carnies.

 

PaperBear's picture

"speculators liquidating calls".

What fools, just take the physical metal and be done with paper gold.

equity_momo's picture

Let assume the govnernment put a tax on all physical gold transactions of say 20% (in the UK Silver is taxed at VAT of 20% for example)   What will the unintended or intended consequences be? Im sure it wont be what the govn desire , ie  , a lower gold price. Thoughts?

DosZap's picture

They already do.

Under a $1000.00 purchase, cost's you 8.25% in Texas.

When you sell, you pay 10% for short term profits (12mos sale or less), and 28% for over 12 mos(long term), and add the profits to your regular income, and it get's taxed yet again.

If a VAT hits it, then I will just move offshore...........bout had enough of this clusterfk now.

When will we get  tired of assholes taking from us what belongs to us, by malevolent means?,that we act.

DoChenRollingBearing's picture

Send me a gmail DZ if you would like the link to my blog, we share some interests (gold, offshore).  I run it under my real name so do not post the link here.

DosZap's picture

DoChen,

gmail sent hours ago.

Hit me.

Dr Zaius's picture

The thing about gold is that in small enough quantities (a few ounces to perhaps a few pounds) it is virtually untraceable. It can be loaned, sold, bought, carried and stored outside the prying eyes of the government. That seems to be a big reason why gold is a menace to TPTB and their desire to control everything.

equity_momo's picture

In the UK there is zero tax on physical gold and if you stick to the UK denominated coins , sovs and brits , theres no capital gains either as it is still considered tender (although noone wants to use it as such as its all stamped with 50 pound value)

If govns start to impose VATs and more draconian taxes to physical metals i can see how one would go offshore. There is simply little other safe store of weath that i feel confident comes out the other side of this cluserfuck.  And it would drive a thriving black market no doubt.  

New taxes on physical metals would seem an obvious step for the knuckleheads in charge though.

DosZap's picture

equity,

Like I said, if they start the seizure,VAT crap, I personally will expat, and take my stuff w/me.

Hell of a lot more ways to get off this continent than Air.

Jonas Parker's picture

and that's why I buy my gold in Oklahoma...

Dr Zaius's picture

Well, I would imagine that much of the trading be moved underground and gold smuggling over US borders would become common. I imagine much of the physical gold market happens for individuals in units of a few ounces at a time. It would be virtually impossible to stop at that level. Mexico and Canada could grow a healthy business of providing a safe haven market and storage of gold owned by Americans.

lincolnsteffens's picture

Whoops, sorry about that I didn't mean to junk you. I wanted to add to your thread.

I spoke with a customs officer in Boston about moving gold into and out of the US since you have to report $10,000 crossing the border. He said US gold coins and other "bullion" are treated as commodities and not money. There is no prohibition or reporting to move commodities out of the US. I've sent a small amout of money overseas and am planning to bring at least two money belts with gold this winter. Sooner if they try to restrict it. Who the hell can possibly believe we are a nation of free people. We are only free to do what isn't allowed by ever increasing laws and regulations. The US is still a great place for me to live since I'm doing well. I pity the poor underdog that doesn't understand what is happening.