Futures market

_{This was clearly seen in 1980 when silver rose from $6.08/oz on January 2nd 1979 to $50/oz on January 21st 1980 or more than eight fold in less than 13 months (see chart).}

Given silver’s volatility, dollar, pound or euro cost averaging into position remains prudent. Similarly, when prices have had a parabolic gain - dollar, pound or euro cost averaging out of a position will be prudent as it will be nigh impossible to time the top.

It appears that while investors seem loathed to sell their underlying positions, they are actively (and anxiously) hedging in equities and credit today...

The Vietnamese Central Bank sold another 25,700 taels (37.5 grams, 1.2 troy ounces) at a gold bar auction on Friday in order to try and satiate the massive public demand for gold in Vietnam.

The Central Bank hopes that the sale of gold into the market will reduce the very high premiums paid by gold buyers in Vietnam, the largest buyer of gold in Southeast Asia after Thailand and one of the largest physical buyers of gold per capita in the world.

Vietnamese people hold gold as a store of wealth for protection against war, inflation and currency depreciation. In recent months, the bursting of bubbles in the stock market (see chart) and property market and the continuing devaluation of the dong has led to record demand in Vietnam and a surging premium over the spot price of gold.

Today, the premium was close to 5.5 million dong which is the equivalent of a very high premium of $217 per ounce over spot. 

"I am going to hit on some of the landmines that you can encounter within order-matching engines, and then I am going to give a forecast on, at least from my perspective, what’s going to happen over the course of 2013"

It is a fact that COMEX gold inventories are falling and silver inventories are rising. Why and does this help predict the next price move?

In an almost perfect mirror-image of last week the dump in stocks into Thursday was caught and ramped back to new highs. Today is the best day for the S&P 500 futures market since the first day of the year. Volume was well below average which is exemplified by the fact that the VWAP (or market balance point for the day) closed down 4 points despite ES up over 20. The bounce was already on a roll before Hilsenrath sparked some last minute momentum surges above yesterday's highs.

The last time Hilsenrath tried to be relevant, back on May 22, he essentially said to ignore anyone who tried to time the Taper (but don't call it a Taper) when he said: "when the Fed shuts off bond buying, it won’t be abrupt and it won’t be predictable." So just to make sure market expectations of tapering are actually very predictable, if at least on the short end, moments ago Hilsenrath once again hit the tape with the following: "Fed Likely to Push Back on Market Expectations of Rate Increase: Federal Reserve officials have been trying to convince investors for weeks not to overreact when the central bank starts pulling back on its $85 billion-per-month bond-buying program. An adjustment in the program won’t mean that it will end all at once, officials say, and even more importantly it won’t mean that the Fed is anywhere near raising short-term interest rates. Investors aren’t listening." So here comes the Hilsenrally to save the day by making investors listen, even if not so much for the benefit of stocks this time, as for bonds, which little by little are starting to lose it.

Equity bulls remain cognitively biased to the belief that a rising interest rate market implies growth expectations (enough to warrant a Fed Taper) that confirm the hope priced into stocks (entirely missing the bubble concerns and technical corruptions in the markets caused by these policies). However, at the very short-end of the interest-rate curve in the US, the market has pulled forward rate-hike expectations from End-2015 to May 2015 in the last month alone. The problem with the velocity of this adjustment is that in order to hike rates - the entire extraordinary asset purchase program known as QE4EVA has to be over... Still think equities are pricing that in?

In November, NYU Professor Nouriel Roubini stated, “gold at $1,500 is utter nonsense.” In less than two years, gold was above $1,900. This week, the mad professor is back with his swiss-cheese logic and anti-gold rants.

One glance at the chart below and it is very clear that there is a glaring difference between the market's reaction to the Fed's QE and the BoJ's QQE. Aside from the magnitude and velocity of the equity market response that is, the Fed has been inherently volatility-suppressing (with VIX near all-time lows as stocks rise) while (aside from the last week or so), as the Nikkei surged, Japanese implied volatility also surged. As UBS' Larry Hatheway notes, fundamentally, Japan’s policy settings and preferences (moving from deflation to inflation, which is the stated objective of ‘Abenomics’) embed a great deal of implied volatility, only some of which has already manifested itself in asset prices. The proverbial cat has been thrown among the pigeons - scatter they must - the Fed’s QE has dampened volatility while the BoJ’s QE has boosted volatility. In sum, the price of success - where success is defined as ending deflation in Japan—is likely to be significant volatility in Japanese asset markets.

• National Security Advisor Tom Donilon resigning, to be replaced by Susan Rice - Obama announcement to follow
• Japan's Abe targets income gains in growth strategy (Reuters), Abe unveils ‘third arrow’ reforms (FT) - generates market laughter and stock crash
• Amazon set to sell $800m in ads (FT) - personal tracking cookie data is valuable
• 60 percent of Americans say the country is on the wrong track (BBG)  and yet have rarely been more optimistic
• Jefferson County, Creditors Reach Deal to End Bankruptcy (BBG)
• Turks clash with police despite deputy PM's apology (Reuters)
• Rural US shrinks as young flee for the cities (FT)
• Australia holds steady on rate but may ease later (MW)
• The Wonk With the Ear of Chinese President Xi Jinping (WSJ)
• Syrian army captures strategic border town of Qusair (Reuters)

Turd Ferguson, of the TF Metals Report, does superb work and commentary on the precious metals markets. His latest analysis on Friday’s Commitment of Traders Report caught my attention for a number of reasons, in addition to it being so well done.

• South China Sea tension mounts near Filipino shipwreck (Reuters)
• OECD cuts economic forecasts as eurozone drags on growth (FT)
• Switzerland frees banks to settle U.S. tax evasion cases (Reuters)
• U.S. Says Firm Laundered Billions (WSJ)... no, it's not HSBC, also: Free Corzine!
• Ardent conservative Bachmann to not seek re-election to Congress (Reuters)
• Russia faults U.S. over 'odious' Syria rights resolution (Reuters)

Two years ago it was only gold and silver that saw the CME's wrath on a daily, and sometimes hourly basis. Back then, however, it was due to soaring prices. Today, it is due to the bone-crushing price collapse in the Nikkei which has just seen the CME hike most Nikkei-related outright futures margins by 33%. So not only will those who resume trading Nikkei-related products in the futures market see a big loss in their P&Ls, they will also have to post some 33% more margin. We can only hope they still have some collateral and aren't margined up 100%. That would not be good for the Japanese pennystockmarket and "experiment" no matter how much good luck Jens Weidmann wishes them.

In all the hoopla over Japan's stock market crash and China's PMI miss last night, the biggest news of the day was largely ignored: copper, and the fact that copper's ubiquitous arbitrage and rehypothecation role in China's economy through the use of Chinese Copper Financing Deals (CCFD) is coming to an end.