Morning Gold Fix – August 11, 2011
FMX | Connect – www.fmxconnect.com - (Reported 8/11/2011)
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
December Gold settled at $1,781.60 per troy ounce on Wednesday, a gain of $41.40 for the day.
October gold was down $3.0 to $1779.7 per 100 troy ounces as of 8:50 am EST this morning. The Sept U.S. dollar index was up 0.436 to $75.205. October platinum was up $14.3 to $1786 per 50 troy ounces. Sep silver was down 22.7 cents to 39.100.
Market Recap
After a brief bounce back on Tuesday, global equities faltered, selling off on the possibility of additional credit downgrades and questions about banks’ ability to weather worsening economic conditions. Investors continued to purchase safety, pushing bullion to all-time highs, 10-year U.S. treasuries to record low yields, and reducing their exposure to European contagion. France was the focus for today; the market was inundated with rumors that France may be the next country to see a credit rating downgrade and that Soceiete Generale needed to raise capital. Global markets are struggling to redefine value in an era of heightened volatility, slowing economic growth and heated debate over which nations have both the will and ability to pay off their sovereign debt. While we continue to maintain that the S&P’s rationale for downgrading the U.S. was flawed, if it is accepted as the new standard, than many more downgrades are coming.
Gold trading higher overnight, buoyed by strong demand out of Asia. Unlike yesterday, which saw bullion trade in a range, today was a clear trend-day higher. The pattern in options was similar however, with call selling in the 1800 strike and higher calls being purchased by speculators and shorts. The bulk of today’s activity was in October with roughly 6,000 lots of both the 1800 Call and 1900 Call trading. Volatility remains firm, with the front months trading above the backs on the term structure. Interestingly, put skew is performing almost as well or better than call skew on the highs, as longs seek to protect profits by buying puts and in some case creating dividends by selling calls. The bulk of the put buying is in GLD but the effects can be seen in the Comex market. Many people look at put buying as bearish, but in many circumstances it can be bullish. It shows longs are committed to the market and would rather protect profits with options than sell out their futures.
There were rumors in the market today that John Paulson’s fund might be liquidating his portfolio; he is long financials, housing and gold. We think if he were to sell his gold position it would have a huge effect on the price almost immediately. That is a function of his position relative to the market size. However, we do not think his gold position being liquidated would solve his problems as it is a small portion of his overall fund. Furthermore, 30% of the fund is his personal net worth. We saw evidence of large call liquidation by a fund today. We have spoken in the past about our stalking horse. If this player is Paulson liquidating he is selling options into strength. This means he would be selling futures into strength and the market is absorbing. So, until we hear that his fund is putting up the gates for redemptions we are not too concerned.
Market Prices
In the News
Bloomberg (Reported 8/11/2011)
CME Group Inc. (CME), the world’s largest futures market, raised the margins on gold contracts by 22 percent after prices surged to a record on increased haven demand amid a deepening rout in global equities. The initial-margin requirement, or the minimum amount of cash that speculators must keep on deposit, will rise to $7,425 per contract from $6,075 from the close of business today, CME said in a statement. The margin for hedging will also increase 22 percent, rising to $5,500 from $4,500, it said. Gold Futures Margins Increased 22% by CME as Investors Drive Record Rally
Reuters (Reported 8/11/2011)
Gold Fields (GFIJ.J), the world's fourth-largest gold producer, reported a 15 percent rise in quarterly profit that was just short of expectations as investors expected blockbuster growth from the surge in bullion. Shares of Gold Fields rose more than 2 percent in early Johannesburg trade, however, as part of an industry-wide advance after bullion climbed to a record $1,813.79 an ounce. Gold Fields retains 2011 target after profit leap
Kitco News (Reported 8/11/2011)
Gold futures ran up to fresh record highs overnight and then backed down on profit-taking, leaving the yellow metal roughly where it left off after Wednesday’s pit session. Comex Gold Steady After Backing Down From Fresh Highs Overnight
Technical Overview (GRI)
DEC GOLD
The market is bullish. Trade remains lined up for blow off rallies and closing over 1800 implies continued pressing action. If trade stalls around 1777-1800, be prepared for modest pullbacks to consolidate gains. Any corrective should only last a couple days to maintain strong bull forces. A close under 1741 is needed for near term pullbacks to test key 170410* support.
SEP SILVER
The market still suggests a short term turnover and should inject corrective pressures on trade to retrace against support at 3679*. Near term action may try to hold and congestion sideways at 3900+/-. Only a close over 4044* rekindles bull trend forces. Congestion under 4044* will bear flag and stay prepared for selloffs. A close under 3679* is bearish for selloffs to 3562.
SEP COPPER
Washout selloffs staged a test of the 38725 May swing low and previous weekly low at 38460. A close below 38460 alerts for a larger unfolding wash below 370-. Trade is trying to hold around the 38725/38460 lows and trigger near term reactionary recovery trade. A close over 40940* is needed to secure a sustained recovery. Further rejected rallies from over 400 caution for another test lower.
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