The Long-Term Fundamental Case for Gold

“No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.”

~ United States Constitution, Excerpt from Article 1, Section 10 ~

A quick glance at most of the headlines over the weekend and the primary focus seemed to be either calling a near term top in domestic equity indices or a focus on the Greek debt situation. Why is anyone even paying attention to what is going on over there? Until the ISDA declares a default where the underlying Credit Default Swaps (CDS) are triggered, it is all just noise.

The ECB has broken the rule of law by placing itself as the senior creditor ahead of private creditors, the Greek government is trying to pass retroactive legislation to trap private sector creditors holding out of the PSI, and the leader of Greece was not even elected by the people of Greece – how much more manipulation and insanity do we need to monitor?

Similar to the price action since 2008, central banks around the world control everything from financial markets to the ascent of political leaders. These same political leaders help central bankers and planners control policy and decision making at the highest government levels in Europe and around the world. It would seem that the United States should change the motto from “We the People” to “We the Bankers.”

However, there is one particular asset class that even the central bankers have a hard time controlling. While they can impact short term price action through direct currency manipulation initiatives, in the longer-term gold is likely to move in only one direction – higher.

The price action on Tuesday reminded market participants that actions such as the Greek bailout come at a cost. Quantitative easing and/or printing money (depending on what one wishes to call the practice of producing fiat currency out of thin air) has a direct impact on the price of gold.

Many financial pundits argue that gold has no utility, but what they fail to recognize is that gold is the senior currency to all other fiat currencies. Silver is also a form of currency and is senior to all other fiat currencies as well. While one can draw the utility of gold into question, the idea that gold is the senior most currency to all other fiat currencies is not new.

The Constitution of the United States of America, which is over 200 years old, refers to gold and silver as forms of payment.  Looking back thousands of years the Romans used gold coins as a form of currency. The idea that gold and silver are currencies is certainly not a grandiose thought or a stretch of historical concept. Trying to depict gold as a worthless asset depends on your view and consideration of fiat currency.

There are those that would argue that the Federal Reserve of the United States is not actively manipulating economic conditions domestically or abroad. For those that view gold as a poor investment or hedge against currency devaluation need to consider the charts illustrated below. The chart below was produced by Thomas Gresham of Gresham’s Law.

Total Asset Growth of the Federal Reserve System – 1915 – 2012

It is rather obvious by looking at this chart that the Federal Reserve has actively sought to enter domestic and foreign financial markets. The surge in balance sheet assets serves to prove how far the Federal Reserve Bank is willing to go to maintain markets which seemingly are only allowed to move higher over time.

This chart is bearish for nearly any form of paper backed assets. The above referenced chart is long-term bearish for the Dollar and Treasuries and long-term bullish for physical gold and silver. As the Federal Reserve continues to debase the U.S. Dollar in concert with other central banks’ monetary easing programs, gold and silver prices over time are destined to move higher in virtually every form of fiat currency.

During the same time frame that the Federal Reserve has seen its balance sheet grow exponentially, the rapid rise of M2 money supply is staggering. The long term chart of M2 is compared to gold futures in the charts presented below.

M2 Money Stock

Gold Futures Monthly Chart

It is rather obvious what has happened to the price of gold as the M2 money supply has grown. The idea that the Federal Reserve has not already destroyed a significant amount of the purchasing power of the Dollar can easily be refuted by the two charts shown above.

In the short-term, gold and silver could suffer from a pullback, but in the intermediate to longer term it is unlikely that we have seen the highs of this bull market for either metal. As long as central banks around the world continue to print money and expand their balance sheets gold and silver will remain in a long-term bull market. The daily chart of gold futures is presented below.

Gold Futures Daily Chart

As can be seen above, it is not out of the question that we could see gold pullback to test one of the key moving averages in coming days/weeks. However, I expect the key support area to hold in the event of a sharp selloff. Ultimately, I expect to see a breakout over the resistance zone in the days/weeks ahead. However, I would not be surprised to see gold consolidate or work marginally lower from current prices before breaking out to the upside. Right now the primary threat in this fledgling gold rally is a short-term spike higher in the U.S. Dollar. The primary catalyst which could drive a flight to the Dollar involves the sovereign debt situation in Greece and the Eurozone as a whole.

While the short-term price action may be bearish, the intermediate to longer term time frames are quite bullish for metals as central banks will continue to race to debase their currencies. Quantitative easing in the U.S. and around the world will become pervasive and gold prices could potentially soar in value. The data from the Federal Reserve Bank itself suggests that they are indeed increasing the money supply. As time has passed, the money supply and gold have seemingly grown in lockstep with one another. Surely inquiring minds do not consider this mutual relationship between gold and the money supply to be purely coincidental.

As further evidence that the Federal Reserve continues to use quantitative easing to manipulate asset prices through direct entry into financial markets, a chart of the velocity of M2 clearly depicts that the velocity of money is declining. I am not an expert regarding macroeconomic data, but if the velocity of money is declining to 1960’s levels would it be a stretch to say that we may be going through a period of stagflation? The chart below illustrates the Velocity of M2 Money Stock courtesy of the St. Louis Federal Reserve Bank.

Velocity of M2 Money Stock

For those unfamiliar with the term velocity of money, it is simply the rate of turnover in the overall money supply. The velocity of M2 is expressed as the number of times that a Dollar is used to purchase final goods or services which are included in the total gross domestic product.

Conclusion

The short term technical picture in gold is a bit suspect due to overhead resistance and recent U.S. Dollar strength. However, the longer term macro factors that impact the value of the U.S. Dollar and precious metals are all telling us the same thing.

As time wears on and central banks do even more to prop up the broader economy and failing financial institutions, it is without question in my mind that gold and silver will both benefit handsomely from these decisions being made by central bankers from around the world.

Ultimately, I am very bullish of gold and silver in the intermediate to longer-term, but in the immediate short-term frame gold could consolidate or pullback before breaking out to the upside.

By: Chris Vermeulen – Free Weekly ETF Reports & Analysis: www.GoldAndOilGuy.com
Co-Author: JW Jones – Free Weekly Options Reports & Analysis: www.Optionnacci.com

This material should not be considered investment advice. J.W. Jones is not a registered investment advisor. Under no circumstances should any content from this article or the OptionsTradingSignals.com website be used or interpreted as a recommendation to buy or sell any type of security or commodity contract. This material is not a solicitation for a trading approach to financial markets. Any investment decisions must in all cases be made by the reader or by his or her registered investment advisor. This information is for educational purposes only.

“Anticipate the difficult by managing the easy.”
                         ~ Lao Tzu ~

The peculiar vocabulary and concepts inhabiting an options trader’s thoughts are often the source of confusion to visitors to my world. I have often pondered that learning to understand options is a lot like learning a foreign language. When you arrive in the country whose language you seek to learn, you need a functional vocabulary immediately.

In order to be able to understand my world, I thought it would be helpful to discuss a bit of my language since it is helpful to grasp a few basics. I want to touch on some of the basic concepts necessary to form the basis for a functional language we can use to communicate concepts underlying a rational (hopefully) thought process leading to trade design and management.

In ruminations to come we will return to these fundamental concepts and begin to understand their function in the dynamic world of an options trader.  The nuances of their specific structures are beyond the scope of this blog.  We will return to consider these factors in virtually every trade because they re-appear each and every day in my world. For today, just shake their hands and remember their names.

One point not often discussed is the way in which options are priced. The quoted option price is in reality the sum of two separate components. These are referred to as the intrinsic and the extrinsic portions of the premium. I think of these as steak and sizzle respectively.

As I type, AAPL has closed at around $395. The January 390 call has 41 days to expiration and could have been bought for $18.90. Of this sum, $5 represents intrinsic premium and $13.90 represents extrinsic or time premium.

This is an important distinction because it is the extrinsic premium which is subject to time decay and change due to variations in implied volatility. We will get to a discussion of implied volatility in next week’s missive.

The intrinsic premium is subject to change solely due to changes in the price of the underlying security. There is no sizzle in the intrinsic premium; you can buy the option today, exercise it to buy stock, sell the stock, and pocket the $5. Of course, your trading career will not last long with that sort of trade, but my point is that the intrinsic premium has an easily calculable true value.

The situation with the extrinsic premium is quite different. The value changes not only with time to expiration but also with the constantly changing implied volatility. It is for this reason that an option trader must be very careful with this extrinsic component. Depending on the specific option under consideration, extrinsic premium may represent all, a portion, or a trivial amount of the entirety of the option premium.

Another important concept is that of the “moneyness” of an option. An individual option can be classified in one of three categories of “moneyness:”

• At-the-money
• In-the-money
• Out-of-the money

At-the-money options by definition consist of a single strike price. Both in-the-money and out-of-the-money strikes usually contain several individual strikes within their groups.

In our example of AAPL, the at-the-money strike is the 395 strike. The in-the-money strikes consist of all calls with strike prices below 395 and all puts with strike prices above 395. The out-of –the-money strikes consist of all calls above the 395 strike and all puts below the 395 strike.

Obviously since the price of the underlying defines the category into which an option is classified, the category into which an individual option fits is fluid and changes dynamically with the price of the underlying asset.

The reason for taking the time to discuss in some detail this classification of “moneyness” is that there are important reliable characteristics of each type of option.

At-the-money options characteristically contain the absolute greatest dollar amount of extrinsic premium. In-the-money options have the least amount of extrinsic premium. Out-of-the-money options consist entirely of extrinsic premium, and therefore only contain sizzle . . . no steak can be found there.

Because the functional characteristics of these three categories of options differ, it is a basic strategy to combine options of different “moneyness” to achieve trades with the best probability of success and the highest risk/reward scenarios.

For example, buying an in-the-money call and selling an at-the-money call gives birth to a call debit spread, a high probability trade structure for the trader who is bullish in the underlying.

Next week we will cover the stealth concept of option trading, implied volatility. Failure to understand the impact of this variable is the most common cause of beginning options traders’ failure to succeed.

Join My Premium Options Writing Trading Service to Start Earning Monthly Income: JW Jones – www.OptionsTradingSignals.com

This material should not be considered investment advice. J.W. Jones is not a registered investment advisor. Under no circumstances should any content from this article or the OptionsTradingSignals.com website be used or interpreted as a recommendation to buy or sell any type of security or commodity contract. This material is not a solicitation for a trading approach to financial markets. Any investment decisions must in all cases be made by the reader or by his or her registered investment advisor. This information is for educational purposes only.

U.S. DOLLAR gold prices held steady just off $1760 an ounce during Wednesday morning trading in London, after a rally in Tuesday’s US session saw gold climb 1.3%.

Silver prices softened slightly but held above $34 per ounce – having through that level on Tuesday following the Greek bailout announcement. Stocks and commodities edged lower this morning, while government bond prices gained.

Gold prices ”[ran] into sell stops at the $1760 level,” says one gold dealer here in London.
“We don’t see a substantial amount of enquiries in the physical market,” adds Dick Poon, Hong Kong-based precious metals manager at refiner Heraeus.

However, “a break of $1763 will bring in fresh buying,” reckons the latest technical analysis from bullion bank Scotia Mocatta, “looking for a test of November high $1803.”

Greece has been given nine days to meet a list of conditions before it can receive its €130 billion agreed by Eurozone finance ministers yesterday. The list includes sacking underperforming tax collectors and readying state-owned companies for privatization in the summer, the Financial Times reports.

“The [Greek] deal may have removed near-term uncertainty,” adds Helen Roberts, head of government bonds at F&C Asset Management in London, “[but] it’s a hard environment to implement austerity measures. It’s a worry that the Greek government might not be able to do much even though they are fully committed to the agreement.”

“The greatest risk to the downside that we see for gold is a fresh Greek crisis,” warns HSBC precious metals analyst James Steel.

Here in London, two members of the Bank of England’s Monetary Policy Committee voted against its decision to expand its quantitative easing program by £50 billion earlier this month, while the remaining seven voted in favor, minutes published Wednesday show.

David Miles and Adam Posen both voted in favor of a larger increase of £75 billion, which would have taken the total size of asset purchases to £350 billion.

“This leaves the door open for more QE,” reckons Victoria Cadman, London-based economist at Investec.

“We’re looking for another £50 billion in May, and after that we don’t see any more as the economy picks up in the second half [of 2012].”

In a speech in Scotland yesterday, Bank of England deputy governor Charlie Bean acknowledged that “the current extended period of rock-bottom interest rates has impacted heavily on those holding most of their savings in deposit or short-term savings accounts, who have seen negative real returns.”

Bean added, however, that while the” side effects” of QE “may be unpalatable…treatment is invariably better than the alternative”.

Sterling gold prices hit an eleven-week high at £1119 per ounce Wednesday morning, as the Pound fell on the currency markets.

The gold price in Yen meantime moved to within 5% of last September’s all-time high today, touching ¥140,971 per ounce, as the Dollar hit its highest level against the Japanese currency since last July.

Like the Bank of England, the Bank of Japan also expanded its quantitative easing program earlier this month.

Growth in Germany’s manufacturing sector has slowed this month, according to provisional purchasing managers index data published Wednesday. German manufacturing PMI fell to 50.1 – down from 51.0 last month (a figure above 50 indicates expansion).

Across the Eurozone as a whole, provisional manufacturing PMI rose from 48.8 in January to 49.0.
Over in China – the world’s largest gold bullion consumer in the fourth quarter of last year – flash PMI data compiled by HSBC.

Investment banking giant Goldman Sachs repeated its bullish view on gold prices Wednesday.

“We expect US real interest rates to remain lower for longer given our US economics team’s expectation for US economic growth to remain slow through 2012,” said a note from the bank.

“Consequently, we expect gold prices to continue to rise through 2012, reaching $1,940 an ounce in 12 months, and we continue to recommend a long gold position.”

Ben Traynor
BullionVault

Gold value calculator   |   Buy gold online at live prices

Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK’s longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.

(c) BullionVault 2011

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

U.S. DOLLAR gold bullion prices spiked to $1747 an ounce Tuesday lunchtime in London – a 1.3% gain on last week’s close – as US Markets re-opened to the news that European finance leaders have agreed to bail out Greece.

Silver bullion also spiked, hitting $33.97 per ounce – 1.9% up on the start of the week.

European stock markets by contrast drifted lower in Tuesday morning trading, while the Euro gave back most of the gains it made against the Dollar immediately after the Greek deal was announced. Commodities edged higher, while US Treasuries fell.

“Market reaction [to the Greek deal] has been remarkably muted so far,” one London gold bullion dealer noted this morning, before US markets opened.

Greece’s €130 billion second bailout was finally approved in the early hours of Tuesday morning, following a day of discussions among Eurozone finance ministers in Brussels.

The European Central Bank will pass on profits from its Greek debt holdings – bought below face value as part of its Securities Markets Programme aimed at supporting troubled sovereign debt markets – to the Greek government as a means of alleviating Greece’s debt burden.

Private sector creditors meantime will be asked to take bigger losses on their Greek debt holdings than previously agreed.

“From my point of view, this is a solid deal for investors, a fair deal for all parties involved,” said Charles Dallara, managing director of the Institute of International Finance, which negotiated with the Greek government on behalf of private bondholders.

“We’ve been able to avoid a disorderly default.”

Private sector losses will be equivalent to “more than 70%” of the net present value of the bonds, according to Jean Lemiere of BNP Paribas, who was involved in the negotiations.

The bailout means Greece should now be able to pay €14.5 billion of bonds that mature on March 20.

“Does this alleviate the risk of imminent default?” asks Callum Henderson, Singapore-based global head of foreign-exchange research at Standard Chartered.

“Yes, but not further out. Further out, the concerns of a default will keep coming back.”

“The risk,” adds a Hong Kong gold bullion dealer, “that we are going to have a sovereign default which leads to the collapse of the Euro still exists, but for that to happen in March, that risk is gone.”

The official statement released last night by Eurozone finance ministers calls for “further major efforts by the Greek society…to return the economy to a sustainable growth path”, as part of an effort to reduce the country’s debt-to-GDP ratio to 120.5% by 2020.

The statement also invites the European Commission “to significantly strengthen its Task Force for Greece…in order to bolster its capacity to provide and coordinate technical assistance”.

“Greece will find it difficult to shoulder even the reduced debt in the long-run if it does not implement far- reaching reforms,” says Commerzbank chief economist Joerg Kraemer.

“The probability will rise in the second half of the year that a frustrated EU stops payments to Greece.”

Gold imports to India meantime could fall in 2012 for the first time in three years, according to analysts polled by newswire Bloomberg.

India imported 969 tonnes of gold bullion in 2011, according to World Gold Council data, in a year that saw gold ETF demand double. The median estimate in Bloomberg’s poll was for 900 tonnes to be imported this year.

Silver bullion imports however could breach 5000 tonnes – up from 4800 tonnes last year – according to Bombay Bullion Association president Prithviraj Kothari.

“Silver demand is expected to rise on firm industrial and investment demand,”  Kothari told reporters at a conference on Tuesday.

Here in London, the daily average volume of gold bullion transferred between parties by clearing members of the London Bullion Market Association was 690.5 tonnes in January – a 1.0% gain on the previous month, and a 15.3% year-on-year gain – LBMA clearing statistics published Monday show.

By contrast, the daily average volume of silver bullion transferred fell last month, dropping to 4641 tonnes – the lowest level since March last year. The daily average silver volume fell 24.3% from December – though year-on-year it posted a gain of 24.6%.

Ben Traynor
BullionVault

Gold value calculator   |   Buy gold online at live prices

Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK’s longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.

(c) BullionVault 2011

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

WHOLESALE MARKET gold bullion prices held above $1730 an ounce in Monday morning’s London trading – roughly in line with where gold has been for much of February – while European stocks and commodities edged higher amid hopes that policymakers might finally approve Greece’s second bailout. US markets are closed for a holiday.

Silver bullion prices were also fairly flat this morning around $33.50 per ounce.

Earlier on Monday, gold bullion prices jumped $14 an ounce in Asian trading after China’s central bank eased its monetary policy stance over the weekend.

“The rally lasted only for a very short period of time,” says one gold bullion dealer in Hong Kong.
“Once we traded [higher], resting [sell] orders took over and stabilized the market. It seems despite various bits of precious-positive news, the market is still in a consolidation phase.”

The People’s Bank of China announced Saturday that it is cutting the reserve requirement ratio – which dictates the amount banks must hold in reserve as a proportion of their assets – by half a percentage point. Large commercial banks will see their RRR fall to 20.5% as a result.

The cut “reflects that stimulating economic growth is currently the government’s priority” reckons HCBS economist Ma Xiaoping, who adds that it will “help release liquidity” to the tune of around 400 billion Yuan ($63.5 billion).

Elsewhere in China, the Shanghai Gold Exchange announced Monday it is cutting its gold trading fees on a number of contracts. It follows last week’s announcement by the Shanghai Futures Exchange that it was lowering its margin on gold futures contracts with effect from the start of next month.

Singapore meantime will make investment grade gold bullion exempt from a 7% sales tax with effect from October, Reuters reported Monday, citing industry sources.

“I think this is really going to change the landscape in Singapore,” says one gold dealer.

“Asset managers will [be] very excited. The trend in the last three years is that people are moving to physical hard assets from paper.”

Eurozone finance ministers are meeting in Brussels today to discuss putting the finishing touches on Greece’s €130 billion second bailout.

“All the elements are in place,” France’s finance minister Francois Baroin told French radio this morning.

Reports suggest there remains uncertainty over how the entire package will be financed. For example, the Financial Times reports that the European Central Bank has been asked to make up a €6 billion shortfall by agreeing to forego some profits on its Greek bond holdings – bought at below-face-value prices on the open market – which would have the effect of easing Greece’s debt burden.

However, “the gut feeling is that this is going to go through” one Eurozone official tells newswire Reuters.

“Everyone feels the pressure this time to deliver… I don’t see anybody wanting to be responsible for pulling the plug on the deal at this late stage.”

“There is [though] scope for events to disappoint,” warns Neil MacKinnon, London-based global macro strategist at VTB Capital.

Economists at Citigroup say they expect today to bring agreement on a bond swap to reduce Greece’s debts, but that final approval of the complete package may be delayed until after the next European leaders’ summit on March 1.

The International Monetary Fund will only contribute €13 billion to a second Greek bailout – equivalent to 10% – the FT reports, much less than its contribution to previous Eurozone bailouts. Relative to its IMF contribution, Greece already holds the all-time record for the amount borrowed from the IMF, the FT points out.

Iran has ceased its oil exports to Britain and France, its oil ministry announced Sunday. The move follows the imposition of sanctions by the European Union. Monday’s FT reports that Iran is struggling to find buyers for its oil and may have to resort to cutting its output or storing it in tankers, so-called floating storage.

The US Congress Friday approved a bill extending a payroll tax cut and unemployment benefits through to the end of 2012.

“Given that it had until February 29 to do this it was not a bad effort from policymakers,” note Standard Bank currency analysts Steve Barrow and Jeremy Stevens, who add that while the extension adds $100 billion to the US deficit, not extending the tax cuts and benefits could have costs the economy up to one percentage point in growth this year.

In New York meantime the difference between bullish and bearish contracts held by Comex gold futures and options traders – the so-called speculative net long – fell over the week ended last Tuesday for the first time since the week ended January 3.

The drop in the spec net long “may mark a consolidation phase in the gold rally in the absence of new price drivers,” says the latest note from precious metals consultancy VM Group.

The volume of gold bullion held to back shares in the world’s largest gold ETF, the SPDR Gold Trust (GLD), rose to its highest level since December 14 last week. By contrast, the iShares Silver Trust (SLV), the world’s biggest silver ETF, saw its silver bullion holdings decline slightly.

Ben Traynor
BullionVault

Gold value calculator   |   Buy gold online at live prices

Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK’s longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.

(c) BullionVault 2011

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

The latest Commitments of Traders (COT) report, released on Friday by the Commodity Futures Trading Commission (CFTC), showed that large futures speculators added to their overall US dollar long positions last week for the first time in three weeks and Euro short positions increased after falling for two consecutive weeks.

Non-commercial futures traders, including hedge funds and large speculators, increased their total US dollar long positions to $16.98 billion on February 14th from a total long position of $10.63 billion on February 7th, according to the CFTC COT data and calculations by Reuters which calculates the dollar positions against the euro, British pound, Japanese yen, Australian dollar, Canadian dollar and the Swiss franc.

Individual Currencies:

EuroFX: Currency speculators were back to increasing their Euro short positions following two consecutive weeks of declining shorts. The positions are still higher than when the euro registered a new record high for euro shorts on January 24th at a total of 171,347 contracts. Euro net short positions advanced to 148,641 contracts against the currency on February 14th from the previous week’s total of 140,593 net short contracts.

The COT report is published every Friday by the Commodity Futures Trading Commission (CFTC) and shows futures positions as of the previous Tuesday. It can be a useful tool for traders to gauge investor sentiment and to look for potential changes in the direction of a currency or commodity. Each currency contract is a quote for that currency directly against the U.S. dollar, where as a net short amount of contracts means that more speculators are betting that currency to fall against the dollar and net long position expect that currency to rise versus the dollar. The graphs overlay the forex spot closing price of each Tuesday when COT trader positions are reported for each corresponding spot currency pair.

GBP: British pound sterling positions declined for a second consecutive week to the lowest level in a month, according to the data as of February 14th. British pound positions saw a total of 40,599 net short positions on February 14th following a total of 33,122 net short positions registered on February 7th.

JPY: The Japanese yen net long speculative contracts fell sharply last week to decline for a second consecutive week, according to the data on February 14th. Yen long positions dropped to a total of 29,459 net contracts reported on February 14th following a total of 55,171 net long contracts on February 7th. Yen speculative positions have now fallen to their lowest level since December 27th when positions totaled 22,585 contracts.

CHF: Swiss franc speculators rose their short bets against the Swiss currency to the highest level in at least four years last week. Speculator positions for the Swiss currency futures numbered a total of 15,863 net short contracts on February 14th following a total of 9,795 net short contracts as of February 7th.

CAD: Canadian dollar positions rose higher after surging the previous week to the best total long position in four months. Canadian dollar positions rose to a total of 9,566 net long contracts as of February 14th following a total of 2,184 short contracts that were reported for February 7th. CAD positions are now at their highest position since late August when long contracts equaled 13,939.

AUD: The Australian dollar long positions dipped slightly for the second consecutive week following a run of six consecutive weekly increases through January 31st. Australian dollar positions decreased to a total net amount of 73,741 long contracts on February 14th after totaling 75,095  net long contracts reported as of February 7th. The AUD speculative positions were at their highest level in six months when Australian dollar long positions totaled 81,438 on January 31st.

NZD: New Zealand dollar futures speculator positions advanced higher and rose for an eighth consecutive week through February 14th. NZD contracts increased to a total of 23,870 net long contracts as of February 14th following a total of 23,335 net long contracts on February 7th. NZD positions have now risen for eight straight weeks after touching a nine-month low on December 20th. NZD contracts have ascended to the highest level since August 2nd when net long contracts totaled 24,126.

MXN: Mexican peso speculative contracts improved for a sixth straight week and are now at the best position since August 9th. Peso long positions numbered a total of 41,239 net long speculative positions as of February 14th following a total of 34,107 long contracts that were reported for February 7th.

COT Currency Data Summary as of February 14, 2012
Large Speculators Net Positions vs. the US Dollar

EUR -148641
GBP -40599
JPY +29459
CHF -15863
CAD +9566
AUD +73741
NZD +23870
MXN +41239

Other COT Trading Resources:

Trading Forex Using the COT Report

]]> http://fxnewsindia.com/2012/02/17/adam-hewison-afternoon-update-on-stocks-forex-gold/feed/ 0 http://fxnewsindia.com/2012/02/17/trading-analysis-the-new-bull-market-its-oil/ http://fxnewsindia.com/2012/02/17/trading-analysis-the-new-bull-market-its-oil/#comments Fri, 17 Feb 2012 22:06:00 +0000 contributor http://countingpips.com/fx/?p=27503

Today we will use MarketClub’s Trade Triangle Technology and figure out Oil’s next big move.

CRUDE OIL (APRIL CONTRACT)
BIG PICTURE: Strong Trend +100
TRADE TRIANGLES: Long-Term = Bullish | Intermediate Term = Bullish | Short-Term = Bullish
MARKETCLUB SCORING: Trading Range (50 to 65) : Emerging Trend (70 to 80) : Strong Trend (85 to 100)

It appears as though the crude oil market is coiling up and getting ready to spring upwards. Here are my 3 main reasons for being bullish on crude oil.

# 1: All our Trade Triangles are green indicating that a very strong trend is in place.

# 2: Crude Oil tends to make major lows every eight or nine months (last major low in October) look at the weekly chart on the video and I’ll show you this.

# 3: The Crude Oil market tends to make a major high every 11 or 12 months.

Presently we are about 6 to 7 weeks away from making a major high in Crude. This cyclic pattern, if it persists, should push Crude up and into a new 6 week high in late March or early April. A move and close on Friday over $103.38 should be viewed as very bullish for Crude Oil, indicating sharply higher levels to come in the weeks ahead.

Learn more about our Trade Triangles and how you can use them in your own trading for just $8.95 here!

DISCLAIMER: As with any market analysis there are no guarantees. Always use stops to protect capital and never trade with funds that you cannot afford to lose. With our monthly, weekly and daily Trade Triangles all in a positive mode, we expect to see further gains in Crude Oil.

SPOT MARKET prices for buying gold held just above $1730 an ounce during flat trading this morning in London, as speculation continued over whether a Greek bailout will be agreed next week.

Prices for buying silver were also very flat – hovering above $33.50 an ounce – as were those for commodities and stocks ahead of President’s Day in the US on Monday.

“A quiet session,” said one Hong Kong gold dealer this morning.

Heading into the weekend, the price of buying gold was up less than half of one percent on the week by Friday lunchtime, with silver also showing very little movement from last Friday’s close.

German finance minister Wolfgang Schaeuble has reportedly called for Greece to be allowed to default. Chancellor Angela Merkel is firmly against such a development, according to press reports.

“Schaeuble doesn’t think the Greeks can deliver any more [austerity measures],” an official from Merkel’s CDU party tells the Financial Times. Schaeuble has also this week suggested Greece should postpone general elections scheduled for April and install a technocrat government.

Eurozone finance ministers are due to meet Monday to discuss Greece’s second bailout, with Germany, the Netherlands, Luxembourg and Finland – all rated AAA by ratings agencies – calling for increased permanent supervision of Greece’s fiscal affairs.

“The one thing we should take away from Lehman Brothers,” former US Treasury secretary Henry Paulson said this week, “is you don’t want a big systemic institution to fail in a messy way, and you clearly don’t want that to happen with a [Euro] member state.”

“We expect [gold's sideways] trend to continue into the weekend, as participants remain wary of taking on new positions ahead of Monday’s Eurozone meeting,” says today’s note from Standard Bank commodities strategist Marc Ground.

The German parliament is expected to vote on any bailout deal on February 27. If enough members of Merkel’s coalition government oppose the measure, she may need to rely on opposition Social Democrat and Green votes.

Elsewhere in Germany, Merkel’s personal choice for the ceremonial role of German president resigned today amid allegations he misled parliament over a €500,000 loan to buy a house.

The European Central Bank meantime is expected to swap its existing Greek bonds for new ones that would not tie it to any collective action clauses to which private investors would be subject.

This means the ECB would be protected from taking losses on its holdings – an event that ECB
president Mario Draghi has said would amount to monetization of government debt.

“In Europe, all bond holders are equal, but the ECB is more equal than others, apparently,” says Thomas Costerg, London-based economist at Standard Chartered bank.

“This could set a dangerous precedent, and, by creating a de-facto two-tier market, this could discourage investment in other peripheral debt markets.”

If private sector Greek bond losses are deemed to be involuntary, this could also trigger payments on credit default swaps, which act as a form of debt insurance.

“The probability of triggering CDS has increased because the ECB has protected itself,” says Padhraic Garvey, head of developed-market debt at Amsterdam-based ING Groep.

The United States meantime has no plans to give additional money to the International Monetary Fund, US Treasury undersecretary for international affairs Lael Brainard told the Senate banking Committee Thursday.

US consumer price inflation dropped to an annual rate of 2.9% last month, according to figures published Friday – down from 3.0% in December.

China’s central bank may have been buying gold in the fourth quarter of last year, according to a report in Friday’s FT.

Elsewhere in China, a huge stockpile of silver bullion has built up in the country, according to investment bank analysis this week.

Ben Traynor
BullionVault

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Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK’s longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.

(c) BullionVault 2011

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

WHOLESALE MARKET prices to buy gold bullion slipped further on Thursday in London, falling to a three-week low beneath $1709 per ounce as a raft of positive US data buoyed the Dollar, and fresh rumors broke of a Eurozone exit for Greece.

Last night’s phone-conference of Euro politicians said that Greece must accept extra budgetary oversight if it is to get the extra bail-out funds to meet March’s critical bond-repayment deadline.

US crude oil prices meanwhile ticked near five-week highs at $101 per barrel. Silver prices fell 2.4% to hit the lowest level since 25 January around $32.70 the ounce.

The price to buy gold fell to £1090 per ounce for UK savers, but held above €42,300 per kilo for Eurozone investors as the single currency dipped below $1.30.

“Key gold support is in the $1706 area and resistance is at last week’s high around $1752,” reckons the latest technical analysis from bullion bank Scotia Mocatta.

“Market sentiment towards [buying gold] seems broadly bullish, but some large stops lurking above $1730 are helping to keep a lid on things,” says a London dealer.

More broadly, “As a whole gold is adopting a more prominent role in the financial system,” said the World Gold Council’s Marcus Grubb to MineWeb this morning, launching the market-development organization’s latest quarterly Gold Demand Trends report.

“Central banks are [now] a key part of this market. They bought 439 tonnes last year, which is a huge move on the demand side, but they also were leasing more gold into the market…largely [to raise cash for] adding liquidity to help the European banking system.”

Spying “no end currently to the woes of Greece and Italy,” the WGC’s new report says that “ongoing difficulties in the [single Euro currency zone] will further stimulate gold investment demand.”

Gold Demand Trends also shows China’s private demand overtaking world No.1 India in the fourth quarter of 2011, by holding equal with the last 3 months of 2010 by volume while India’s demand fell 42% to the lowest level since the global recession of early 2009.

France saw positive net gold investment in 2011 for the third year in a row, after being a consistent “dishoarder” for almost two decades.

Minting some 80 tonnes of gold coin, Turkey was the world’s top bullion mint once again, according to the WGC’s data.

On the economic front Thursday, new US jobless claims fell to a near 4-year low last week, new figures showed, while housing starts were also better than analysts forecast.

Excluding fuel and food, factory-gate prices in the US rose 3.0% year-on-year in January, compared with Wall Street estimates of 2.6%.

In contrast to US gold investment demand, which slipped 29% by value at the end of 2011, US demand to buy gold jewelry rose 12% in the last quarter compared with Christmas 2010, says the WGC’s report, reaching $2.3bn.

But “Household debt remains elevated by historical standards,” says a new report from the Federal Reserve Bank of Richmond,  “and other determinants of consumer spending remain weak.”

Chinese households meantime grew their demand to buy gold jewelry 27% by value year-on-year, spending three times as much as did US consumers.

China’s physical gold investment demand rose 20% by value.

“It will probably take some time before investors in Hong Kong fully warm up to this [gold ETF] product,” writes UBS strategist Dr.Edel Tully, noting unimpressive demand for the city’s new exchange-traded gold trust, launched on Monday.

“One of the main appeals of gold in its key markets such as China and India is that it is a tangible, hard asset and easily accessible to retail consumers in physical form.

“The shift from gold coins and bars to an exchange-traded product may take some getting used to.”

Adrian Ash
BullionVault

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Adrian Ash is head of research at BullionVault, the secure, low-cost gold and silver market for private investors online, where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2012

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.