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The Gold Market

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By EconMatters

  
Mario Draghi is a Hype Machine

 

The Gold Market is pretty interesting here as investors realized on Thursday that much that comes out of Mario Draghi`s mouth is complete hyperbole, because things aren`t nearly as dire in Europe as some bankers try to persuade for additional stimulus out of the ECB, and Germany isn`t going to sign off on the extreme bazooka stimulus measures because Germans by nature are conservative, and there is a commensurate symmetry between ratcheting up extreme monetary measures and stoking the fire of unintended consequences.

 

December Rate Hike Fully Priced into Markets

 

The Federal Reserve is all set to go on with a 25 basis point rate hike in two weeks, the financial markets have priced this in to the tune of around 80%. The surprising tone of the precious and industrial metals price action of Friday in the face of the US Dollar strengthening and oil getting hammered on OPEC news was interesting to say the least. The entire complex rallied from Copper, Aluminum, Platinum, Palladium and Silver to Gold as new money moved into the sector, and stayed there even after Mario Draghi tried to walk back the Euro from Thursday`s currency gains on the US Dollar.

 

Gold Price Action

 

After putting in the low for the year on Thursday morning of $1,045 per troy ounce, Gold finished Friday at $1,084 on the February 2016 futures contract. Gold has been hovering right around the $1,060 - $1,070 level for the last two weeks, and even if this is just short covering, somebody forced some shorts to cover. Maybe financial markets and the Metals markets are starting to realize a ‘One and Done’ rate hike by the Federal Reserve isn`t the end of the world. And given the $18 Trillion and climbing in US Debt facing central bankers at the Fed they are going to have to be doing a whole lot of “monetizing” or in layman`s terms currency printing for the foreseeable future so Gold and other Metals look attractive here at multi-year lows.

 

Follow Through

 

We will see if there is any follow through next week, but Copper had its first weekly rise in two months, and China smelters announced production cuts earlier in the week. Several of the other industrial metals showed signs of strength as well for the week. Even though there is a rate hike in two weeks by the Fed, markets often move before the fundamentals. Have the metals markets already priced in the effects of this rate hike on the US Dollar; that the Fed is likely to hike but be relatively dovish in hiking so as mitigating any takeoff in the US Dollar going forward for the next 3 months?

 

Crowded Trade – Portfolio Repositioning

 

Is this long the US Dollar, short the Industrial and Precious Metals trade losing steam, or is this just some short covering ahead of the Federal Reserve meeting hoping to avoid the similar fate of Euro Shorts on the morning of the ECB Policy Announcement? Best to take some profits on this trade before the actual event.

 

It will be interesting how Gold trades next week, and for the remainder of the year; but it and many of the industrial metals look like longer term buys at these prices from an investment standpoint.

 

$1,100 Level in Gold

 

Consequently watch the $1,100 level in Gold, if Gold breaks above this mark things could get interesting again for the shorts, as many who took this ride down from the $1,190 level probably want to avoid giving back much more profits on this trade, and have lots of stops placed accordingly at this key resistance level of $1,100.

 

Dovish Fed Speak

 

If the US Dollar tanks on the Fed announcement and Press Conference look for Gold to test the $1,190 resistance level with a huge couple of days of major short covering, and new longs pressing the trade from the long side just based upon the momentum Algos smashing the US Dollar and Buying Gold Futures as part of the same programmed trade. The type of day where Gold futures are up $45 one day, $27 the next and voila “let`s see where overhead resistance lies into year-end squaring of positions”?

 

Silver Market Leading Indicator of Money Flows

 

2016 will be interesting for the price of Gold to say the least, but let`s not get ahead of ourselves, there are still 4 weeks left in 2015. And for some reason traders didn`t feel like pressing those Gold shorts at $1,045. They couldn`t even hold Gold below the $1,060 level which obviously some traders tried to accomplish and failed miserably with how Gold ended the week trading all the way back to $1,088 before some profit taking ensued into the close.

 

Moreover, this happened when the Euro weakened and the US Dollar Index was up +0.73% on Friday. Therefore pay attention to any follow through for Gold and the other Metals next week. But the price action on Friday piqued my interest, especially in Gold and Silver; as I expected some of the Industrial Metals to climb with the production cut announcements. But Gold and Silver I figured were dead in the water until the Fed announcement on December 16th and they both showed signs of life from the long side on Friday.

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Sun, 12/06/2015 - 22:50 | 6885932 mister33
mister33's picture

The comex will be hit hard in the near future rest assured. The bull gators obviously haven't all been fished out of the swamps. The thing is for precious metals investors it's in the best interest of all to let the paper price go lower so the physical specimen can be more widely distributed globally. It's kind of a below the surface "submarine" event because it obviously isn't publicly declared by the mainstream information outlets of a system rigidly geared on expansion of central bank balance sheets which necessitates continual growth and ever increasing returns. The thing to realize is that precious metals and other markets aren't manipulated out of evil machavelianism so much as they are "controlled" out of necessity for maintenance of the global marketplace. However that ability isn't eternal. You can't over, over-clock a computer or it burns out the processor. Already the affects of marketplace manipulation are having real distortions of real economic processes which generate real GDP. When the time comes where GDP can no longer be sustainably, artificially induced, there will be an enormous global marketplace correction in which precious metal holders will benefit greatly. The greatness of the benefits will be determined by how much physical supply has spread because the more locations physical supply has seeped, the greater the ability will be, and with increased efficiency, a transition back into "the premier currency" (Alan Greenspan) can become and if the world has an ability to realize a multi-polar power structure versus a monopolistic power source the greater the potential for economic healing in a way which enables, although through perseverance, hope for a global future economically on top of the decaying existing broken structure. Fiat purchasing power will be reduced necessarily and investing in producing assets is still a gamble on the success of the assets. It may be wiser to invest in more-tangible assets like food, bullets, etc... Yet for those who believe in global economic transition over mad max and can afford to be patient, precious metals remain a "premier investment" for procurement of the institutions of family and life.

Sun, 12/06/2015 - 18:20 | 6884673 PoasterToaster
PoasterToaster's picture

Paper Bugs rejoice, lol.

Sun, 12/06/2015 - 14:36 | 6883757 exartizo
exartizo's picture

Dead cat bounce likely instead of "signs of life"

and YES.

things REALLY ARE THAT DIRE IN EUROPE.

GOLD = $925
SILVER = $13

Sun, 12/06/2015 - 19:42 | 6885038 WhackoWarner
WhackoWarner's picture

Yup baby.  We are going down down.  Been watching gold/silver for 40 years off and on.  NO we go down before bullion is seen widely as a STORE OF WEALTH AND LABOUR.   Right now it is a toy of Wall ST. 

 

I do point out.  My Mom bought me an oz. or 2 of gold in 1980's.  How has currency held up since then?  I care not what games are played,

Sun, 12/06/2015 - 19:45 | 6885053 WhackoWarner
WhackoWarner's picture

COMEX watchers  are  akin to an abused spouse who keeps coming back for more.

Sun, 12/06/2015 - 17:48 | 6884503 SILVERGEDDON
SILVERGEDDON's picture

Problems with gold start with the unit cost ratio versus silver.
Almost all gold mined is still in existence.

Paper gold has not been as mercilessly manipulated as silver paper because of the influence of institutional and governmental gold asset holders.

Silver mining has dwindled to incidental recovery as a by product of copper, nickel, and lead mining - pure silver mines were played out for the most part over one hundred plus years ago.

Down turn of economy will not deter the most significant modern day usage of consumer electronics - the smart phone. Silver is the most efficient conductor of electricity on a unit cost basis.

Economic recovery of silver in consumer electronics is not feasible, even in China. Economic recovery of silver used in most other modern day applications of silver is not feasible either.

The ten percenters will never stop wanting new consumer electronics, and they survive down turns to the economy just fine it seems.

Add in the newer industrial uses of silver that also shrug off economic issues out of necessity - medical wound dressings, water purification filters, etc., and you have a continuing demand for a metal whose annual production has been falling for decades.

So, you have an indispensable metal being consumed by industrial use constantly, declining in mining production, and under supply pressure to serve both the industrial and monetary silver markets.

Take away the paper manipulation of 300 times the available physical silver available in the market, and there's a problem with price discovery for the real deal versus fantasy paper silver that never existed.

Lastly, the uncertainty of a major economic event always moves people to seek out safe haven for their hard earned money. Fiat currency has a history of failure for thousands of years, a near perfect track record of failure.

Silver and gold have a five thousand year history of recognized value in times of uncertainty, more so than any other commodity you can name that is portable, incorruptible, stable, and internationally recognized.

To summarize, with silver spot trading for substantially less than the cost of production, I see no down side to investing in it as a safe haven.

If the whole world burns, silver will be a recognized form of currency far easier to trade with than anything else short of 22 LR ammo.

I would rather dance with the silver devil than take on Wall Street, Goldman Sacks Biters, JP Morgan Chase, banks, politicians, the Fed, the CIA, NSA, DHS, IRS, and all of the other thieves on the loose out there gaming their phony paper reality.

Sun, 12/06/2015 - 19:51 | 6885078 class of 68
class of 68's picture

Geddon,

good post. I'm sure you've seen Steve's work at SRSrocco solid as well.

although steve convinced of the energy tie in. I like him but his fracking graphs and charts do not include

Marcellus, which is far stronger than the Bartlett et al. I see the mid stream guys here (PA and Ohio) continuing

to pile on compressors, even with little demand and in some cases little supply (presently) it is perplexing. I do

see some event on the near horizon boosting CL within CLN6 time frame much higher than tonights $44.88. Friend at

BP agrees.

thanks,

rwz

Mon, 12/07/2015 - 17:04 | 6889582 exartizo
exartizo's picture

WTI= $20 (in the absence of a Black Swan ME event) by 1-31-16

Sun, 12/06/2015 - 11:46 | 6883147 Hongcha
Hongcha's picture

I would be a proud owner of some 23-carat ISIS gold coins, but we will never see ISIS coins.  They are not a nation, have no ability to get it done, are scrambling to survive.

Maybe Chinese gold-jacketed zinc knockoffs.

Sun, 12/06/2015 - 10:19 | 6882898 maneco
maneco's picture

Web Bot, Bitcoin, Silver and Comex December Gold: https://www.youtube.com/watch?v=9meuLo4qk9Y

Sat, 12/05/2015 - 19:56 | 6881412 InnVestuhrr
InnVestuhrr's picture

The only investment I have in metals is a big one in jacketed-hollow-points, jacketed-soft-points, and full-metal-jackets,

but zero in gold.

Sun, 12/06/2015 - 20:28 | 6885238 kiwimail
kiwimail's picture

And dont forget Spam cans.

Sat, 12/05/2015 - 21:09 | 6881678 Canadian Made
Canadian Made's picture

what have you done with your USDs??

Sat, 12/05/2015 - 23:06 | 6881922 Bossman1967
Bossman1967's picture

I use mine to wipe my ass after a shit every day

Sat, 12/05/2015 - 23:45 | 6882037 fowlerja
fowlerja's picture

OK...but it sounds like you are flushing money away ...and that can add up quickly...plus it is disrepectful to have our founding President eat shit every day...

Sun, 12/06/2015 - 07:46 | 6882656 lakecity55
lakecity55's picture

Please wait til they put Bath House Barry on the One. Then wipe away!

Sat, 12/05/2015 - 19:44 | 6881378 Joebloinvestor
Joebloinvestor's picture

They are already spreading the propoganda about ISIS and gold, so expect to be called a terrorist if you have any.

http://www.dailymail.co.uk/news/article-2829097/Now-ISIS-wants-introduce...

Sun, 12/06/2015 - 04:30 | 6882476 fukidontknow
fukidontknow's picture

Here's the latest ISIS vid on Gold.

https://www.youtube.com/watch?v=BG7YXKE4x3w

 It's obvious that ISIS is a CIA / Federal Reserve Trojan horse because the last thing they want is a return to an honest money system. Their ploy is to spread propaganda that an honest banking system is terrorism. I'm pretty sure the brain dead in the West will lap it up - as they go further and further into counterfeit debt to the evil money changing war mongering murderers that we call politicians and bankers.

Sun, 12/06/2015 - 14:49 | 6883795 Usura
Usura's picture

A technical error exists in that they used 28.3495 grams per ounce, rather than 31.1035 grams per troy ounce.  This is a surprisingly stupid mistake in what appears to be a professionally produced video.

Sun, 12/06/2015 - 16:29 | 6884139 fukidontknow
fukidontknow's picture

Yes they also missed that Roosevelt had devalued to $35 from $20 long before the Nixon shock.

Sun, 12/06/2015 - 12:52 | 6883368 jellen
jellen's picture

If you take Alah out of this video, Id say its spot on.

Sat, 12/05/2015 - 22:38 | 6881878 CHoward
CHoward's picture

I read that link/story back in November.  ISIS, unless totally destroyed, probably will issue their own currency using gold and silver in their new Caliphate.

Sun, 12/06/2015 - 01:26 | 6882299 DeadFred
DeadFred's picture

Friday's move was very big and very unexpected. OPEC (Saudi Arabia) announced that the economic war on Russia would continue and at the same time gold and silver exploded. All three usually move together so what was different this time? Since economic war is being waged did Russia (and China?) just start a new front? We all know that the Comex will die as soon as ANYONE with moderately deep pockets calls their bluff and call for delivery yet no one has (yet). Was this day one of an attack on the Western financial system through the metals markets? If so you will see a spectacular rise in the coming weeks as shorts try to close postions before they are lotteried to deliver. China has been happy to play along with the scam and maybe even help it since it provided discount gold but all things end. Russia has started calling bluffs in other arenas so maybe this is another one.

If you play options on SLV and GLD like I do don't forget a leg to cover the possibility of them going insolvent. It's really cheap insurance. Especially if Friday's action continues into the next days.

Sun, 12/06/2015 - 20:00 | 6885115 class of 68
class of 68's picture

Fred,

I have found the comex options to be a better fit (for me anyway) than SLV or GLD options, The margins on short low delta options  are very low. Even on the (at the money) margins are reasonable. Of course if you are "long" calls there is no margin requirement at all. at the Comex Maintenance future  margins: gold  $3,750 and silver $6000 . 

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