Morning Gold Fix – February 28, 2011
FMX | Connect – www.fmxconnect.com - (Reported 2/28/2011)
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
April Gold settled at $1409.30 per troy ounce, a loss of $6.50 for the day. Volatility was offered today and risk reversals swung towards the puts.
April gold was up $4.9 to $1414.2 per 100 troy ounces as of 8:15 am EST this morning. The March U.S. dollar index was down 0.395 to $76.905. April platinum was up $7.6 to $1811.0 per 50 troy ounces. March silver was up 56.2 cents to $33.460.
Market Commentary
Options held up reasonably well in the fronts after yesterday’s post-close washout. Dealers came back buying puts in December and selling calls. Some speculators recommitted to the market by rolling their longs from April to June. This market is definitely a call skew market now with volatility firming in rallies and dropping in selloffs. What has changed and we see this in other markets as well, is the increase in fat tails (leptokurtosis); it seems that insurance must be bought at any price. In markets where the 20 delta call or put used to be king now it’s the 5 delta call or put that matters most. In gold it’s both: dealers continue to lean into the wings by buying 1x2 and 1x3 call spreads but the appetite for tails is insatiable. We don’t think this is temporary, the world is no longer pricing statistical probabilities, it is chasing after black swans. All markets seem correlated but at some point the risk-reward just isn’t there. Just because a wing call trades at 30% volatility does not increase the probability it will go into the money; it’s just a reflection of unquantifiable fear.
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Technical Overview
APR GOLD
The market is bullish. However, stalled secondary rallies against 1420+/- cautions for a roll over back to defensive trade easing into the 1380’s. A close under 138860 is negative. A close under 137650* is needed to highlight a larger short term top and downswing. Friday’s positive trade may prompt rallies, but a breakout punch over last week’s reversal high is needed to boost rallies to challenge previous highs at 1424+.
MAR SILVER
Overall the market is bullish. However, last week’s correction in the second half of the week cautions for near term reversing turnover. A drop under last Thursday’s low is negative. A close under 31255* will highlight a larger peaking turnover. A close over 3332* or pop over 33765 renews bull forces to drive rallies to a breakout attempt over the 3432 high and send a run to 3500-3600.
MAR COPPER
Last week’s corrections held 42525* support, keeping the larger formation bullish. Trade displayed a corrective bounce off 42525* and hints for recovery action to test 44875* resistance. A close over 44875* marks a short term turn to bullish trade, likely sparking secondary drives to recent highs. A rejection from 44875* calls for selloffs. A close under 42525* projects declines to 407-.
In the News
Bloomberg (Reported 2/28/2011)
Gold may rise in London, extending the best monthly gain since April, as turmoil in North Africa and the Middle East and concern inflation will accelerate boosts demand for an alternative asset. The U.S. said it will assist Libyan rebels trying to force Muammar Qaddafi from power, as pro-democracy protests that have swept the Middle East spread to Oman and reignited in Tunisia. The mounting unrest pushed oil prices above $100 a barrel in New York last week. Inflation in the 17-nation euro region quickened to 2.3 percent in January from 2.2 percent in December, a report showed today. Gold May Rise, Extending Monthly Advance on Unrest, Inflation
Reuters (Reported 2/28/2011)
Spot gold inched up on Monday, heading for its best month since last August, boosted by fears over the deteriorating situation in Libya and spreading violence in the region, supported by rising oil prices. In Libya, armed rebels who have seized control of Zawiyah, close to the capital Tripoli, were preparing for a counterattack as leader Muammar Gaddafi vowed to cling on to his 41-year-old rule. For stories on the unrest in Libya, Middle East and North Africa… Gold headed for best month since August on Libya unrest
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