Morning Gold Fix – July 14, 2011
FMX | Connect – www.fmxconnect.com - (Reported 7/14/2011)
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
August Gold settled at $1585.50 per troy ounce on Wednesday, a gain of $23.20 for the day.
August gold was up $3.6 to $1589.1 per 100 troy ounces as of 8:30 am EST this morning. The Sept U.S. dollar index was down 0.207 to $75.340. October platinum was up $6.1 to $1773.1 per 50 troy ounces. Sep silver was up 90.4 cents to 39.0550.
Market Recap
The market came in $7 higher, poised to challenge all-time highs. Momentum buyers came in and accomplished what they set out to do. Not only did we penetrate the highs today, but we settled above them. We can’t remember making a new high and settling above it in the previous 6 months.
It would seem that bad news for the economy is good news for risk-taking. Bearish info lifts stocks, commodities and anything else with risk associated with it. The problem is that gold is supposed to be a risk-off asset, so what’s going on here? Our partner Peter Beutel put it succinctly: “Every time you read a bad piece of information on the economy it puts us one step closer to actually having a QE3 and Bernanke said as much during his conference.” This is very similar to what happened in the ramp-up to the announcement of QE2, including how the Federal Reserve tested the waters. So if you choose to ignore gold’s price spikes its plan is working perfectly.
Options were the “absolute tell” of what futures were going to do today. It seemed that every options call buyer came in seconds before futures took off. In fact, when GLD opens at 9:30 we usually see a brief respite from call buying and fresh put buying. This was not the case today. On the GLD open September options exploded, with buyers of calls between 1600-1700 bidding those options relentlessly. Specifically, a fund purchased over 5000 September 1600 Calls today. We believe that same fund subsequently sold a similar amount of August 1600 Calls, rolling his position out. Traditionally, this is not viewed as bullish and is instead viewed as throwing good money after bad, but it didn’t feel that way today. Put skew even went negative in September options, something unheard of in a month dominated by GLD put buying.
Dealers sold straddles, and purchased strangles in October. Other dealers bought February strangles. The August Call wing was alternatively bid and then slammed, operating on the whims of the 1600 strike orders. On the day, call skew blew out and the 1700 to 1900 strikes overperformed. Wings in general, including puts, held their own.
There were approximately 27,000 lots of August 1600 Calls going into today. Roughly 7,000 traded today. Expect open interest to go down by a significant amount tomorrow. But know this, the seller of calls today, was not in our opinion, the scale-in buyer from three months ago. There is still a massive long out there and it would be foolish to guess what he is going to do. Nevertheless, we will try. We expect one of three things to happen with these options:
1. They will be liquidated (we doubt it).
2. They will be ignored by the owner unless they are in the money (very likely).
3. August Gold will touch 1600 and the calls will be converted into puts, at which point the shorts will get carried out on stretchers when the market sells off from negative gamma hedging.
There are a couple of players out there who love to do #3 and if we knew that one of them owned the options, we’d give it a high probability of happening, we just aren’t sure at the moment. What we can say is that the August 1600 strike should have a large gravitational pull for the next week or two.
Finally, Silver broke through the 100-day moving average and is now back on track with its big brother Gold. We alerted to this possibility late last week and hope our readers bought options on our suggestion.
Market Prices
In the News
Bloomberg (Reported 7/14/2011)
Gold rallied to a record after Moody’s Investors Service placed the U.S. credit rating on review for a downgrade, U.S. debt-ceiling talks stalled and Europe’s sovereign crisis persisted, boosting haven demand. Immediate-delivery bullion climbed as much as 0.5 percent to an all-time high of $1,589.80 an ounce, and was at $1,582.75 at 4:03 p.m. in Singapore. Federal Reserve Chairman Ben S. Bernanke’s comments that additional stimulus may be needed also drove the metal’s ninth day of gains, the best run since April. Gold Surges to Record as Debt ‘Turmoil’ Drives Demand for Haven
Reuters (Reported 7/14/2011)
Gold prices hit record highs for a second day on Thursday after hints of further policy easing from the Federal Reserve and a Moody's warning the United States may lose its top-notch credit rating hurt the dollar and sparked buying of safe-haven assets. The precious metal was also strengthened by concerns over euro zone debt levels, which have intensified over delays to policymakers' plans to discuss the crisis and after Greece's credit rating was downgraded by Fitch late on Wednesday. Gold hits record after Moody's warning, easing hints
Kitco News (Reported 7/14/2011)
Comex gold futures prices are trading modestly higher Thursday and scored another fresh all-time record high of $1,594.90, basis August futures. Silver is trading solidly higher and hit a fresh nine-week high overnight as prices close in on the $40.00-an-ounce level. Safe-haven investment demand is again featured amid the European Union sovereign debt crisis and the U.S. government wrangling over its debt ceiling. Comex Gold Hits Another Record High; Silver Closing in on $40
Technical Overview (GRI)
AUG GOLD
The market’s is bullish, triggering a breakout over the previous 157770 high and opening up potential for aggressive rallies to reach for 1612-1620. Stable action over the old 157770+ high could motivate another strong bull day. Any corrective setbacks at this stage should only last a couple days and hold over 154650* to keep bull forces. A close under 154650* is needed to signal a reversing / topping turn in the market.
SEP SILVER
The market has powered a bull upturn from sideways congestion and signals for climbing advances to reach over 4000+. Trade is poised for follow through rallies today and a close over 3900+ should help boost a run to 4020. Any corrective dips should now find support back within recent congestion and holding off 36155* will help promote advances. Only a close under 3528* marks a reversing turn back to negative trade.
SEP COPPER
The market is bullish with this week’s bull flag setting up for a pressing run to 450-452. Despite the past few corrective days, trade is ready to resume rallies. A pop over 44565+ should spark rallies. Any correction should only last another day to maintain upside momentum forces. A close under 42880* is needed to trigger a reversal turn and multi-day setback near 41890*.
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