Morning Gold Fix – July 19, 2010

FMX | Connect – www.fmxconnect.com - (Reported 7/19/2010)

The following is a summary of yesterday’s US gold activity and a recap of Asia & European markets overnight. It includes our proprietary options analytics and news stories from industry professionals.

Summary

Gold opened Friday at $1209.0 per 100 troy ounces. After peaking slightly up at 1210.9, it dropped precipitously to its close at 1188.2, the lowest close since mid-May.

What to Watch For/Think About

Looks like I missed some action late last week. The market continued to weaken with some bounces. Persistent rumors that Paulson is liquidating his GLD holdings are in the market. Hungary is the next debt bomb about to explode and a general return to risk is keeping equities buoyant for the most part.

Here is what we are watching/thinking:

· Hungary will not default, it will just be bailed out, Europe cannot handle another round of headline risk

· The IMF is seeking $250bn more for its own bailout fund. Which is hilarious because they are no longer asking for it as needed. They are preemptively getting lines of credit with solvent countries to bail out insolvent countries. “Even when not in a time of crisis, a big fund, likely to intervene massively, is something that can help prevent crises,” Dominique Strauss-Kahn, the IMF managing director told the Financial Times. “Just because the financing role decreases, doesn’t mean we don’t need to have huge firepower ... a $1,000bn fund is a correct forecast.” Who needs QE2 in the U.S. or a second round of ECB measures when the IMF will do the printing for you. These fuckers are laying the groundwork for the New World Order and a destabilizing

· Austria CDS are widening this morning on the perception that its banks may have Hungary risk and its stress test results.

· The first Gold backed Currency was announced last week. This is the road to ruin for the Dollar as global reserve currency: Slow incremental acceptance of alternatives form seemingly meaningless areas of the world. ranks break first where there is little to lose by change. Last in places that cannot afford it. FULL STORY HERE

· Gold contango continues to shrink disproportionately with the bond market and flat price behavior.- our own spread position has made quite a bit in the last month, so we are watching this closely. At first, our short bond hedge performed as it should, losing us money as the spread made it. But recently, the spread has come in more that the bond market or the underlying price say it should. Still too early, but this is the early tell of short squeezes.  E.g. Z 2011/ Z 2013 spread was in the 70’s last time we were here. Now it is in the low 50’s.

· Late week activity saw two things in options that are in my opinion bearish. Hedge funds  ceased buying options for the upside, and began spreading their longs to minimize losses. This is bad news, because for every option player there are usually 3 futures players doing the same. Furthermore, the put skew popped nicely late in the day Friday from GLD put buying, not a good sign. And finally, volatility has gone from decreasing on a down move to increasing on one… fear is kicking in. if you are bullish, then a panic selloff may come- get ready to buy cheaply. If you are bearish…. A panic selloff may come- get short

· My NGD got hammered last week! Seems to be a really good predictor of things in my portfolio.

August gold was down 0.2 to $1188.0 per 100 troy ounces as of 7:32 AM EST, this morning. The September U.S. dollar index was up .132 to 82.790. October platinum was up 2.9 to $1515.0 per 50 troy ounces. Silver was down 1.3 cents to 17.775.

-Elizabeth Thawne

For Market Prices Click Here

Weekly Options Report

End of Day Straddle Runs

FMX Morning Newswire

Bloomberg (Reported 7/19/2010)

“Gold, little changed in London trading, may extend last week’s decline after investors reduced holdings of the metal on speculation that recent price strength was overdone. Hedge-fund managers and other large speculators trimmed their net-long positions in New York gold futures by 2 percent to 204,921 contracts in the week ended July 13, according to U.S. Commodity Futures Trading Commission data.

That’s the lowest since the week ended April 6. Immediate-delivery gold has lost for three weeks out of four.” Gold May Extend Decline as Investors Trim Net Long Positions

NS Futures (Reported 7/19/2010)

“The gold market is attempting to start the new trading week out in a slightly positive posture. However, the currency impact in the early going today is somewhat limiting and the fear of slowing remains in the marketplace.

Equity markets in Asia were generally lower, but stock indices in Europe have been mixed during overnight trading. US equity indices are moderately higher during the initial Monday morning trading action.” Daily Metals Commentary 

Reuters (Reported 7/19/2010)

“Gold eased below $1,190 an ounce in Europe on Monday, extending the previous week's 1.5 percent fall, due to lower investment demand for the precious metal as appetite for other assets improved. Spot gold was bid at $1,189.55 an ounce at 1112 GMT, against $1,193.10 late in New York on Friday.

U.S. gold futures for August delivery rose $2.00 an ounce to $1,190.20. ‘We are pivoting around $1,200 still, $15 either side,’ said Saxo Bank analyst Ole Hansen.” Gold eases below $1,190/oz; risk premium recedes

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