Apple (AAPL) is one of the most actively traded stocks currently. For the trader who trades only stock, there are two major difficulties in executing trades in this stock:

1. It is breathtakingly expensive.

2. It exhibits periods of neck snapping volatility exposing the trader to substantial losses if he gauges the direction wrong and does not act quickly.

For the investor who is willing to learn an option based approach, both these problems can be easily dealt with by using structured option trades to control risk crisply and make efficient use of capital.

Because this underlying is such an actively traded stock, the options are extremely liquid and trade with very tight bid / ask spreads. These are the two essential characteristics for selecting an appropriate vehicle in which to trade options.

I thought it would be interesting to look at a high probability trade that does not depend on accurately predicting the price direction of AAPL.  Let us first consider the price chart below:

The horizontal orange lines represent the price boundaries of the option trade we will consider. The lines have been placed to coincide with areas of recent support and resistance. The lines are obviously placed somewhat subjectively and can be modified to reflect the nuances of the reader’s technical analysis biases.

The point of the thought process I want to lay out here is not to debate the exact placement of these lines, but to demonstrate how a high probability trade can be constructed using whatever technical methods you wish to use to determine areas of support and resistance.

The next point we need to discuss is the concept of a “vertical credit spread”. This is, as implied by the name, an options spread in which a credit is received into the trader’s account. The spread is constructed in either calls or puts, and represents a bearish or bullish trade respectively.

An example of a bullish trade, a vertical put credit spread, would be to sell the AAPL 490 strike put in June and buy the 485 strike. The result of entering this trade would currently be a credit of $60 for each contract and the full value of this contract would be realized if AAPL closed at 490 or above at June expiration. No additional profit is possible for this trade. The position has a maximum potential loss of $440 because we own the long put.

A similar bearish trade can be established using a vertical call spread.  In this example, the June 595 call could be sold and the June 600 call bought for a net credit of $45 per contract. This is the absolute maximum profit that can be made from the position.

The full value of the position would be realized if AAPL closed at 595 or below at June expiration. The position has a maximum defined risk of $455 because we own the long call.

The astute reader will now undoubtedly ask the question:  Why would anyone take a trade where he could make $45 and lose $455?  The answer lies in the probability of realizing the profit. At current prices, each of these credit spreads has an 88% probability of achieving its maximum profitability.

The position I would like to call to the reader’s attention is to do both trades simultaneously. The combination of a bearish call spread and a bullish put spread is termed an “iron condor”. The characteristic P&L curve is presented below:

The illustrated trade has a return of 31% on margin requirements and a probability of being profitable of 72%. Because it is a credit spread, the trade has no direct cost, but does have margin encumbrance requirements to secure the ability to enter the trade.

An important point is that only one side of the trade requires margin since it is clearly not possible to lose on both sides of the position. It is critical to confirm that your broker only requires margin on one side; a few “option unfriendly” brokers require margin on both sides.

If you find your broker is one of these dinosaurs- run, don’t walk away since that illogical requirement halves the potential return on the position.

This is but one example of using options to construct a high probability trade that is profitable over a wide range of price and uses capital efficiently. In addition, risk is crisply defined and accounts cannot be “blown up” by Black Swan events.

The use of options opens a host of potential profit opportunities beyond the simple “going long” or “going short” available to the stock trader. In missives to come we will explore more of these unique opportunities.

Looking for a Simple ONE Trade Per Week Trading Strategy?
www.OptionsTradingSignals.com

Jw Jones

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.

WHOLESALE MARKET gold prices climbed as high as $1594 an ounce during Monday morning’s London trading, jumping 1.5% in the first two hours, while Eurozone stocks looked to have stemmed four days of losses despite Greece and Spain seeing negative ratings decisions.

A day earlier, Dollar prices to buy gold jumped 2% in two hours during Thursday’s US trading.

“The bulls staged a big counterattack,” says the latest technical analysis note from Scotia Mocatta, a bullion bank.

“In terms of the longer-term technical [though], the picture is still bearish so long as we remain below last week’s high at $1642.”

On the currency markets, the Euro recovered some ground against the Dollar this morning, after sinking to a four-month low in Friday’s Asian session, during which time gold prices held most of the previous day’s gains.

Heading into the weekend, gold prices looked set for a slight weekly gain by Friday lunchtime in London – having risen 4% from Wednesday’s low.

“We’d like the market to hold at $1,550-$1,560,” says Nick Trenethan, Singapore-based senior metals strategist at ANZ .

“If it does that, then I think there’s a fair chance we could continue higher towards the $1,600 level, perhaps re-establishing the range there…but if the headlines out of Europe continue poorly, we may retest the lows.”

Over in India, the world’s largest source of gold demand in 2011, “demand has come down [from Thursday]” said Ketan Shroff, director at Mumbai-based wholesaler Pushpak Bullion, speaking this morning.

“People were waiting for a correction and all of a sudden prices went up yesterday. If prices go up further then we may see more fall in demand.”

By contrast, the world’s largest gold ETF, the SPDR Gold Trust (GLD), added 2.1 tonnes to its gold bullion holdings Thursday, taking them to their highest level this month at 1278.7 tonnes.

Silver prices meantime rallied as high as $28.66 an ounce this morning – though they remained 2% down on the week by Friday lunchtime.

Here in Europe meantime, the European Commission and European Central Bank are planning for scenarios whereby Greece leaves the Euro, according to European Union trade commissioner Karel De Gucht.

“A year and a half ago there maybe was a risk of a domino effect,” De Gucht tells Belgian Dutch-language newspaper De Standaard.

“[But] a Greek exit [now] does not mean the end of the Euro, as some claim.”

Ratings agency Fitch however cut Greece’s credit rating by a further two notches Thursday evening, reflecting “the heightened risk that Greece may not be able to sustain its membership of Economic and Monetary Union.”

Fellow ratings agency Moody’s last night downgraded 16 Spanish banks, including the Eurozone’s biggest bank Santander, following its downgrade of 26 Italian banks on Monday.

“Amidst the ongoing Euro area debt crisis, the Spanish government’s rising budget deficit and the renewed recession, sovereign creditworthiness has declined,” said a Moody’s statement.

Despite the downgrades, shares in Spanish banks were among the biggest gainers in Friday morning’s trading, with Bankia – which was partly nationalized last week – seeing its shares bounce by over 30% at one point following losses in recent days.

Spain’s government has hired Goldman Sachs to undertake an independent valuation of Bankia, according to Spanish newspaper Expansion. Spain is also expected to name independent auditors later today to determine how big a bailout the banking sector needs.

Yields on 10-Year Spanish bonds meantime eased slightly this morning, though remained above 6%.

“Volumes are light,” reports one trader, “just bits and pieces on the screens…there’s a [potential] can of worms to be opened [if Greece leaves the Euro]and it can become very messy and people don’t want to be too involved.”

As gold spiked this morning, yields on German 10-year bunds fell to fresh all-time lows below 1.4% at one point, as investors pushed up the price of German government debt.

“To see a return of gold reacting positively to macro stresses is indeed refreshing,” says a note from Swiss investment bank UBS.

“But it is still far too early to make any firm conclusions from here that gold has indeed turned the corner…[gold] will have to consistently exhibit its safe haven properties, and do so for some time to attract strategic buying.”

Gold prices by Friday lunchtime remained 3.3% down from their levels on May 6, when Greek elections failed to produce a government.

European stock markets managed to pare early losses on Friday, with the Euro Stoxx 50 Index – which tracks blue-chip Eurozone stocks – showing a gain on the day by lunchtime following four straight days of losses. Here in London however the FTSE was still showing a 0.8% daily fall as we headed towards US open.

Across the Atlantic, stock market futures trading suggested the S&P 500 would open higher Friday, with Facebook set for its first day’s trading.

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 prices climbed as high as $1594 an ounce during Monday morning’s London trading, jumping 1.5% in the first two hours, while Eurozone stocks looked to have stemmed four days of losses despite Greece and Spain seeing negative ratings decisions.

A day earlier, Dollar prices to buy gold jumped 2% in two hours during Thursday’s US trading.

“The bulls staged a big counterattack,” says the latest technical analysis note from Scotia Mocatta, a bullion bank.

“In terms of the longer-term technical [though], the picture is still bearish so long as we remain below last week’s high at $1642.”

On the currency markets, the Euro recovered some ground against the Dollar this morning, after sinking to a four-month low in Friday’s Asian session, during which time gold prices held most of the previous day’s gains.

Heading into the weekend, gold prices looked set for a slight weekly gain by Friday lunchtime in London – having risen 4% from Wednesday’s low.

“We’d like the market to hold at $1,550-$1,560,” says Nick Trenethan, Singapore-based senior metals strategist at ANZ .

“If it does that, then I think there’s a fair chance we could continue higher towards the $1,600 level, perhaps re-establishing the range there…but if the headlines out of Europe continue poorly, we may retest the lows.”

Over in India, the world’s largest source of gold demand in 2011, “demand has come down [from Thursday]” said Ketan Shroff, director at Mumbai-based wholesaler Pushpak Bullion, speaking this morning.

“People were waiting for a correction and all of a sudden prices went up yesterday. If prices go up further then we may see more fall in demand.”

By contrast, the world’s largest gold ETF, the SPDR Gold Trust (GLD), added 2.1 tonnes to its gold bullion holdings Thursday, taking them to their highest level this month at 1278.7 tonnes.

Silver prices meantime rallied as high as $28.66 an ounce this morning – though they remained 2% down on the week by Friday lunchtime.

Here in Europe meantime, the European Commission and European Central Bank are planning for scenarios whereby Greece leaves the Euro, according to European Union trade commissioner Karel De Gucht.

“A year and a half ago there maybe was a risk of a domino effect,” De Gucht tells Belgian Dutch-language newspaper De Standaard.

“[But] a Greek exit [now] does not mean the end of the Euro, as some claim.”

Ratings agency Fitch however cut Greece’s credit rating by a further two notches Thursday evening, reflecting “the heightened risk that Greece may not be able to sustain its membership of Economic and Monetary Union.”

Fellow ratings agency Moody’s last night downgraded 16 Spanish banks, including the Eurozone’s biggest bank Santander, following its downgrade of 26 Italian banks on Monday.

“Amidst the ongoing Euro area debt crisis, the Spanish government’s rising budget deficit and the renewed recession, sovereign creditworthiness has declined,” said a Moody’s statement.

Despite the downgrades, shares in Spanish banks were among the biggest gainers in Friday morning’s trading, with Bankia – which was partly nationalized last week – seeing its shares bounce by over 30% at one point following losses in recent days.

Spain’s government has hired Goldman Sachs to undertake an independent valuation of Bankia, according to Spanish newspaper Expansion. Spain is also expected to name independent auditors later today to determine how big a bailout the banking sector needs.

Yields on 10-Year Spanish bonds meantime eased slightly this morning, though remained above 6%.

“Volumes are light,” reports one trader, “just bits and pieces on the screens…there’s a [potential] can of worms to be opened [if Greece leaves the Euro]and it can become very messy and people don’t want to be too involved.”

As gold spiked this morning, yields on German 10-year bunds fell to fresh all-time lows below 1.4% at one point, as investors pushed up the price of German government debt.

“To see a return of gold reacting positively to macro stresses is indeed refreshing,” says a note from Swiss investment bank UBS.

“But it is still far too early to make any firm conclusions from here that gold has indeed turned the corner…[gold] will have to consistently exhibit its safe haven properties, and do so for some time to attract strategic buying.”

Gold prices by Friday lunchtime remained 3.3% down from their levels on May 6, when Greek elections failed to produce a government.

European stock markets managed to pare early losses on Friday, with the Euro Stoxx 50 Index – which tracks blue-chip Eurozone stocks – showing a gain on the day by lunchtime following four straight days of losses. Here in London however the FTSE was still showing a 0.8% daily fall as we headed towards US open.

Across the Atlantic, stock market futures trading suggested the S&P 500 would open higher Friday, with Facebook set for its first day’s trading.

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 WHOLESALE MARKET gold price jumped at the start of New York trade on Thursday, cutting the week’s previous 3.3% dive to 5-month lows in half as the Euro fell and Eurozone stock markets slumped once again.

The gold price touched $1558 per ounce before easing $3 lower. Silver did not follow, failing to break this morning’s earlier Dollar high at $27.86 per ounce.

German Bund yields fell to fresh record lows, but Spain had to offer investors in new 3-year debt an annual yield of 4.37%, up from the 2.89% charged at the last comparable sale in April.

The European Central Bank confirmed it has ceased working with some Greek banks because it believes them to be insolvent, while Portugal’s Diario Economico newspaper claimed a joint visit by the ECB, IMF and European Union to assess Lisbon’s €78 billion bail-out will also discuss contigency plans should Greece quit the single currency.

Greece’s interim cabinet of academics, lawyers and diplomats was today sworn in, pending fresh elections in four weeks’ time.

The gold price in Euros jumped 1.9% from Wednesday’s low, trading above last week’s closing level.

France’s new finance minister, Pierre Moscovici, today said the socialist government of Françoise Hollande will not ratify the European Union’s fiscal pact agreed by 25 out of 27 member states last December.

Gold’s Relative Strength Index – a technical measure of the speed and size of price change – “is approaching extreme oversold territory,” says the latest technical note from bullion bank Scotia Mocatta, “but there are no warning signs yet of a change in trend.”

“Gold is definitely in oversold territory, and there should be some good buying interest around the low in December,” Bloomberg quotes Dong Zhuying at Haitong Futures Co.

“Paring its losses near key support at $1525,” says Ed Meir at Intl FC Stone, the gold price likely saw “a decent amount of short-covering” by bearish traders on Wednesday, if not “fresh buying” after it held that level.

European stock markets fell again Thursday, losing value for the 8th session out of 11 in May so far and taking Madrid’s Ibex 35 index down to a fresh 9-year low, some 3.4% down on the day.

Crude oil slipped to new 6-month lows after data on Wednesday showed US energy stockpiles more glutted than any time since 1990.

Commeting on gold’s 20% drop from last summr’s all-time highs, “I believe gold will become a haven again, especially if you see fragmentation in the Eurozone,” said the World Gold Council’s Marcus Grubb to Bloomberg TV this morning, launching market-development group’s latest Gold Demand Trends report.

“Because then you’re going to get currency depreciation, you may get inflation in some countries, deflation in others…and you’ll see gold’s attributes as a hedge come to the fore.”

In the first quarter of 2012, global gold investment demand rose 13% by weight and 38% by Dollar value from the Jan-March period last year, says the report. In the jewelry sector, “Gold is underpined now by two large markets and China is playing catch up to India,” says Grubb, also speaking to Reuters this morning.

“Per capita gramme consumption rates are rising in China.”

Acknowledged as the leading authority on global demand and supply analysis, the World Gold Council says that China’s gold demand again beat India in the first quarter of 2012.

“You’re going to see China become the largest gold market overall by the end of this year for the first time,” Grubb believes. “It’s worth remembering that growth rates are still in the 7-8% range. So people are getting wealthier, and they will continue to buy gold strongly we believe.”

Beijing last month halved the rate of import rates on gold jewelry. So far in 2012, India has quadrupled its gold bullion import tax.

After last weekend’s cut by China’s central bank to the reserve ratio requirement – easing credit by enabling commercial banks to lend out more of the cash deposits they take – the State Council of China said Wednesday it will spend CNY36.3 billion ($5.7bn) over the next 12 months subsidizing household purchases of large electrical items, fuel-efficient cars and energy-saving lightbulbs.

Despite the cut in the reserve ratio requirement, however, lending by China’s four largest banks has “been flat so far this month” says the Shanghai Securities Journal.

Both the central and commercial banks were net sellers of foreign currency in April, the People’s Bank of China said this week, indicating an outflow of capital.

China’s 12-month trade surplus has halved from its peak above $300 billion of early 2009, according to data cited by the Financial Times.

Adrian Ash
BullionVault

Gold price chart, no delay   |   Buy gold online at live prices

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.

BENCHMARK prices to buy gold for London settlement rallied more than $10 an ounce off new five-month lows beneath $1528 on Wednesday morning, bouncing as the Euro, world stock markets and commodity prices also paused this month’s sharp liquidation.

Spanish and Italian bond yields also eased back but remaind over 6% after Spain’s prime minister Mariano Rajoy told the parliament in Madrid there is “a serious risk that the markets won’t lend to us or lend only at astronomical prices.”

Over in Greece – where the daily “bank run” of withdrawn Euro deposits is now totaling some €700m per day – president Karolos Papoulias meantime appointed a judge to act as interim prime minister and set the date for an election re-run as 17th June.

“[Gold] selling continued in Asia today across all exchanges,” says Swiss refinery and finance group MKS in a note.

“Market participants have given up waiting for a bounce,” says a Singapore dealer. “The market will do what it needs to do to clean out the weakly margined before it becomes healthy once again.”

Hedge-fund legend George Soros opted to buy gold in the first quarter of 2012, reversing previous sales according to new data from March 31st released yesterday and showing his fund more than trebling its position in the $60 billion New York-listed SPDR gold ETF.

Fellow billionaire hedge-fund manager John Paulson – who represents the largest single holder of SPDR Gold shares – maintained his clients’ stake, leaving it unchanged for the first time since June 2011 at the equivalent of 53.8 tonnes.

Losing 8% since end-March, prices to buy gold have now lost one-fifth from the record Dollar peak of September last year – “the common definition of a bear market,” notes Bloomberg News.

“This is an example of our old friend ‘the crowded trade’,” reckons John Ventre, manager of Skandia’s Spectrum and multi-asset funds, speaking to Investment Week.

“Very many investors now own the asset, even though the market is in fact incredibly small. As investors – particularly levered ones like hedge funds – take losses in other parts of their portfolio, then selling pressure emerges across the board as investors pull their horns in.”

The spot-price to buy gold “is not far from our downside target zone at the September and December 2011 lows,” says the latest weekly report from technical analyst Axel Rudolph at Commerzbank in Luxembourg.

“Over the next few days a minor bounce back towards the breached 2008-12 uptrend line is likely to be seen before another down leg rears its head, probably by next week.”

Together with gold Wednesday morning, silver bullion also bounced from new five-month lows, adding 50¢ to trade above $27.70 per ounce.

Over on the Hong Kong stock exchange, however, shares in Chow Tai Fook Jewellery Group – the world’s biggest publicly listed jewelry retailer – closed 10% down at an all-time record low.

Along with the rest of Asia, the Hang Seng Index overall fell for the 9th session in ten, while US crude oil dropped through $93 per barrel and copper contracts dropped another 1.5% on the day.

“Gold’s slide has to be put in perspective with other commodities,” says Walter de Wet at Standard Bank in London, pointing to the 1-month drops in crude oil, platinum and copper.

While prices to buy gold have lost 7%, “Even [emerging-market] currencies such as the Brazilian Real and the South African Rand have depreciated 7.9% and 5% respectively against the US Dollar.

“Liquidation is taking place irrespective of market fundamentals.”

“Jewelers don’t know what to do,” says Ronald Leung, head of Hong Kong’s Lee Cheong Gold Dealers, speaking to Reuters.

“Maybe when the price has stabilised at some levels, they will start to reenter the market. There’s a bit of scale-down buying.”

Some wire reports said Wednesday that demand to buy gold had picked up despite a fresh record low in the Indian Rupee capping the new lows in the world’s #1 consumer market.

“Amid drying-up demand in off season,” says NDTV – pointing to the traditional summer lull between wedding and festival periods – these lower gold prices “could ease the burden on [India's] import bill.”

India’s gold bullion imports equaled some 2.6% of GDP last year, almost equal to the country’s entire balance of trade deficit.

On top of 2012′s quadrupling of import duty, “Gold imports could be discouraged by creating opportunities for more productive investments in the economy,” writes RV Kanoria, president of the Federation of Indian Chambers of Commerce & Industry (FICCI) – fresh from urging the privatization of India’s coal-mining sector – in the Economic Times of India today.

“A better investment climate through focus on reforms will steer investors to look towards ventures than just stock up gold.”

Adrian Ash
BullionVault

Gold price chart, no delay   |   Buy gold online at live prices

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.

The EUR/USD fell to the lowest level since the middle of January and looks to test 1.2700 soon. The low for the year was registered on January 13th at 1.2623.

WHOLESALE MARKET gold bullion prices dipped below $1550 an ounce for the first time since December on Tuesday – a fall of 7% since the start of this month – before regaining some ground by lunchtime in London.

“The bear channel support had been at $1581,” say technical analysts at Scotia Mocatta, the bullion banking division of Bank of Nova Scotia.

“The next target is a full retracement to December’s low of $1522 and there does not appear to be much standing in the way.”

“Gold bugs[are] hiding deep in their gold caves pondering why gold isn’t rallying in spite of [the] sharp spike in risk-off sentiment,” said NYU professor Nouriel Roubini on Monday via the medium of Twitter.

Asian dealers however report a pickup in physical gold bullion demand.

“At the moment supply is a bit tight for immediate delivery,” one Singapore dealer tells news agency Reuters.

“Refiners can’t deliver immediate gold because there’s a sudden surge in demand. We’re seeing demand from India, Thailand and Indonesia.”

Silver bullion meantime dipped below $28 per ounce for the first time since January 1 on Tuesday, before bouncing slightly, while European stock markets also regained some ground after Monday’s heavy losses. Commodities were broadly flat on the day, while major government bond prices eased.

The president of Greece is today expected to ask politicians to agree to the formation of a technocrat government, as the stalemate following last week’s election continues. The left-wing Syriza, which came second in the election and currently leads opinion polls, has indicated its opposition to the proposal.

“We don’t want to consent to any kind of bailout policies, even if they are implemented by non-political personalities,” said Panos Skourletis, spokesman for Syriza, referring to austerity measures such as public spending cuts, agreed by Greece’s previous government as part of its bailout package.

Any Greek government “would have to stand by the [austerity] program,” said Jean-Claude Juncker, Luxembourg prime minister and chairman of the Eurogroup of single currency finance ministers, speaking on Monday.

“If there are dramatic changes in circumstances, we wouldn’t close ourselves off to a debate over extending the deadlines.”

“The Euro breakup story is gathering steam again,” says Marchel Alexandrovich, London-based senior European economist at Jefferies International.

“If Greece were to ever exit the Euro, no amount of reassuring comments will convince investors that other countries won’t soon follow.”

Greece has meantime said it will meet €430 million in bond payments due today, Reuters reports.
Ratings agency Moody’s announced Monday that it has downgraded 26 Italian financial institutions. Over in Spain, yields on 10-Year Spanish government bonds remained above 6% on Tuesday, a day after hitting their highest levels since November.

“It’s looking alarming right now,” says Luke Spajic, senior fund manager at world’s largest bond fund Pimco.

“The market is effectively trying to price in a disorderly exit for Greece.”

In contrast with Spanish bonds, yields on 10-Year German bunds sank to record lows Monday, hitting 1.43%. Germany’s economy meantime grew 1.7% in the year to the first quarter of 2012 – up from 1.5% annual growth to Q4 2011 – according to provisional estimates published Tuesday.

Growth in the Eurozone as a whole was flat, showing 0.0% year-on-year GDP gain in Q1 – down from 0.7% to the previous quarter – Tuesday’s provisional estimates show.

Germany’s Federal Court of Audit is to report to the Bundestag its objections to the way the nation’s gold bullion is stored, the Wall Street Journal reports. The Court is expected to ask the Bundesbank to check that gold stored abroad is still there, the WSJ adds.

Over in India, “gold smuggling has increased drastically because of the increasing value of the metal,” Indian customs commissioner PM Salim told Indian press Tuesday.

“Most of the money used in gold smuggling is hawala money,” added another customs officer, referring to transfers of wealth that occur outside traditional channels so as to avoid leaving a trail.
“If people buy the metal from here, they will have to show the purchase, but if gold is bought from outside, they can pay hard cash and not pay any tax to the government.”

India’s government has twice this year doubled the import duty on gold bullion, as well as proposing to extend gold jewelry sale taxes. The latter measure was dropped following a three-week long protest by Indian gold jewelers.

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 PRICE OF GOLD and gold futures dropped yet again Monday morning, recording the seventh drop in nine trading days in May so far as industrial commodities, global stock markets and the Euro currency all sank amid Athens’ failure to negotiate a new coalition government.

Silver bullion also fell hard, touching $28.44 per ounce and losing 8.9% from the start of this month.

The price of Spanish government debt today fell yet again, pushing 10-year yields above 6.2% ahead of an auction of new bonds later today.

Greek public-sector salaries and state pensions may be unpayable “from the beginning of June” says a letter from stand-in prime minister Lukas Papadimos to party leaders, republished by Ta Nea, after May’s tranche of the international bail-out was cut and tax revenues came in below target.

“We do not think the gold bull market is over,” says a note from Morgan Stanley analysts, even though “gold has moved lower and is trading at levels not seen since December 2011.”

Viewed on a technical chart analysis, “Damage has certainly been done [but] we do not think it is irreversible,” they add, pointing to a sharp rise in speculative “short selling” by gold futures traders now expecting prices to fall further.

“The last time positioning was at these levels, prices embarked on a move higher, rallying to near $1800 per ounce. We are buyers of gold here.”

The rise in speculative short-selling of gold futures is “disconcerting” however, says Marc Ground at Standard Bank, because “while investors have over the past few weeks appeared cautious of running too short on gold, this fear seems to have evaporated.”

Over in the currency markets – where the Euro fell to new 4-month lows vs. the Dollar at $1.2860 – “We continue to target $1.20 for Euro/Dollar,” says Ground’s colleague, currency strategist Steve Barrow.

“Whether this takes time, or comes in an instant, could depend on the outcome of Greece’s political impasse.”

Energy, metal and food prices all sank once more Monday morning as European stock markets lost more than 2% of their value, with Madrid losing 3% and Athens dropping 5.3%.

At the weekend Swedish central banker Per Jansson said that “of course the question [of a Greek exit] is discussed.” Irish central bank chief, and fellow European Central Bank policymaker Patrick Honohan told journalists that “technically, it can be managed.”

“We wish it to be possible for Greece to remain in the euro but Greece must live up to its commitments,” a spokeswoman for the European Commission said Monday morning.

If Greece breaches the agreed terms of its bail-out deal then staying in the Euro would be “an impossible equation and I think in that sense it is an irresponsible statement,” said Finland’s Europe minister Alexander Stubb today about the ongoing calls for an end to cuts in Athens.

German chancellor Angela Merkel meantime suffered a drubbing in a state election on Sunday, with her Christian Democratic Union drawing only 26% of the vote in North Rhine-Westphalia, giving the coalition of Social Democrats and Greens a winning majority of 50%.

Price inflation in Germany’s wholesale markets rose sharply in April, new data showed today, while industrial production across the 17-nation Eurozone fell much harder than forecast, down 2.2% year on year.

On the FX market, the Euro today hit fresh 42-month lows vs. the British Pound, but fell less quickly than gold futures or bullion, with the gold price for Eurozone buyers slipping beneath €39,100 per kilo for the first time this year.

For Indian buyers, “The weakness of the Rupee is countering the fall in the Dollar gold price,” says Jeffrey Rhodes, global head of precious metals at INTL Commodities DMCC in Dubai, speaking to the Wall Street Journal.

“That’s likely to act as a drag on demand in the world’s biggest market.”

“There is hardly any work these days,” complains a Jaipur goldsmith to The Times of India. “First the 21-day long jewelers’ strike and now the increasing gold prices have rendered us jobless.

“It is getting tough for us to survive.”

India’s imports of gold bullion fell by two-thirds last month compared with April 2011.

Gold futures on the Multi Commodity Exchange in Mumbai today slipped back to a 5-week low, down 3.3% from early May’s new all-time highs.

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.

The latest Commitments of Traders (COT) report, released on Friday by the Commodity Futures Trading Commission (CFTC), showed that large futures speculators raised their overall US dollar long positions last week for the first time in four weeks as speculators increased their euro short positions to the highest level since February and Australian dollar long positions fell sharply.

Non-commercial futures traders, including hedge funds and large speculators, increased their total US dollar long positions to $20.95 billion on May 8th from a total long position of $13.31 billion on May 1st, 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 speculator sentiment declined for the first time in three weeks in the euro currency as euro net short positions or bets against the currency increased to 106,990 contracts on May 8th from the previous week’s total of 106,990 net short contracts on May 1st. This is the highest level for euro short positions since February 13th when short contracts totaled 148,641.

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 rose last week for a fourth consecutive week and ascended to  their highest level in over a year. British pound positions saw a total of 25,339 net long contracts on May 8th following a total of 16,493 net long contracts registered on May 1st. Pound positions have continued to rise higher and are now at the highest level since May 3rd 2011 when long contracts equaled 30,807.

JPY: Japanese yen speculative contracts improved last week for a fourth consecutive week as Yen positions totaled 41,093 net short contracts reported on May 8th following a total of 50,173 net short contracts on May 1st. The improvement in the Japanese positions has coincided with the USDJPY spot price declines as the pair currently trade under the 80.00 level.

CHF: Swiss franc speculator positions decreased last week after improving the previous week. Speculator positions for the Swiss currency futures registered a total of 16,494 net short contracts on May 8th following a total of 14,311 net short contracts as of May 1st.

CAD: Canadian dollar positions declined last week after reaching the highest level of the year the previous week. Canadian dollar positions fell to a total of 60,095 net long contracts as of May 8th following a total of 70,223 long contracts that were reported for May 1st. CAD positions had recently surpassed their previous highest level of the year and reached their best level since March of 2011 on May 1st.

AUD: The Australian dollar long positions dropped sharply after increasing the previous week. Aussie positions fell to a total net amount of 25,104 long contracts on May 8th after rising to 52,280 net long contracts reported as of May 1st. AUD speculative positions are now at their lowest level since November 2011 when long contracts equaled 12,542.

NZD: New Zealand dollar futures speculator positions declined for a third week as NZD contracts decreased to a total of 6,224 net long contracts as of May 8th following a total of 8,025 net long contracts on May 1st.

MXN: Mexican peso speculative contracts trended slightly lower after edging higher the previous week. Peso long positions decreased to a total of 36,928 net long speculative positions as of May 8th following a total of 42,045 long contracts that were reported for May 1st.

COT Currency Data Summary as of May 8, 2012
Large Speculators Net Positions vs. the US Dollar

EUR -143984
GBP +25339
JPY -41093
CHF -16494
CAD +60095
AUD +25104
NZD +6224
MXN +36928

WHOLESALE MARKET gold prices touched their lowest level since the first week of January Friday, hitting $1574 an ounce before recovering some ground, while stocks and commodities fell and US Treasury bonds gained, with dealers in major gold buying countries reporting continued limited demand for precious metals.

Silver prices fell to $28.54 an ounce – also a four-month low, and 6.1% down on last Friday’s close.

Heading into the weekend, spot market gold prices looked set for a 3.7% weekly loss by Friday lunchtime in London. Based on PM London Fix Gold prices, the week ended 2 March was the last time gold fell further in a single week.

On the currency markets, the Euro fell to its lowest level against the Dollar since January 23 – two days before the Federal Reserve published policymakers’ interest rate projections for the first time, showing a majority expected near-zero rates until at least late 2014.

The US Dollar Index – which measures the Dollar’s strength against a basket of other currencies – hit its highest level since March 16 this morning.

“When the market gets very nervous, then they buy Dollars and gold finds it difficult to rally,” says Jesper Dannesboe, senior commodity strategist at Societe Generale in London.

“Given what’s going on in the markets at the moment, any rally will probably just be a bounce before another setback.”

The Reserve Bank of India ordered exporters to convert 50% of their foreign exchange holdings to Rupee Thursday, a day after the currency closed at an all-time low against the Dollar in Indian trading.

Despite the central bank’s move, however, the Rupee again fell against the Dollar on Friday, at one point coming within 0.6% of Wednesday’s low. Rupee gold prices however still traded slightly lower this morning. The most heavily traded gold contract on Mumbai’s Multi Commodity Exchange, the June delivery contract, touched its lowest level in over a month during Friday’s trading.

“Slowly deals are taking place as market is in the falling mode,” one dealer told newswire Reuters.
“Traders will try to catch the bottom…[but] people will not be willing to maintain huge inventory in a falling market and only resort to need-based buying.”

Over in China – behind India the world’s second-largest gold buying nation last year – some gold dealers say they expect to see gold demand growth fall this year.

“Chinese consumers share a quite pronounced tendency in which they usually buy gold when prices are rising and refrain from purchasing when prices are conceived to be on a downtrend,” says Xin Zhihong, vice president at Shanghai jeweler Lao Feng Xiang.

“Some consumers are now sitting on the sidelines…the expectation that gold prices will always rise and that gold’s value can only appreciate seems to have faded.”

“It’s the worst start of the year [for Chinese gold demand] since the financial crisis in 2008,” adds Emily Li, brand general manager at Chow Sang Sang, the second-biggest gold jeweler in Hong Kong.

China’s gold imports from Hong Kong – seen by many as a proxy for overall imports – rose 59% month-on-month in March, figures published this week show. The 63 tonnes figure however was 39% down on last November’s all-time high, while the volume of gold heading from China to Hong Kong also rose, leaving net exports in March at 38 tonnes.

Chinese consumer price inflation fell to 3.4% last month – down from 3.6% in March, according to official data. Growth in retail sales and industrial production also slowed, while figures published Thursday show exports grew by 4.9% year on year in April, compared to 8.9% y-o-y a month earlier.

The lower CPI figure “confirms that inflation is trending down and that the policy focus will remain on promoting growth,” reckons Zhang Zhiwei, Hong Kong-based China economist at Nomura.

“The weak export data yesterday put more pressure on the government…probably policy loosening will become more likely going forward.”

Here in Europe, the Spanish government is set to miss its deficit targets in both 2012 and 2013, with both Spain and Italy expected to fall back into recession, according to European Union forecasts published Friday.

The forecasts, produced by the European Commission, show that Spain’s deficit for this year is expected to be 6.4% of GDP – compared to an EU target of 5.3%. In 2013, Spain is expected to have a 6.3% deficit-to-GDP ratio, versus a target of 3%.

Despite the news, yields on 10-Year Spanish government bonds fell slightly this morning, dipping back below 6%.

France meantime is forecast to meet its 2012 deficit target of 4.5% of GDP. Next year, however, the Commission says it expects the French government deficit to be 4.2% of GDP, meaning that France, like Spain, would miss the 3% target. The Commission has the power to fine governments that miss EU targets.

“Without further determined action…low growth in the EU could remain,” said Olli Rehn, European Commissioner for economic and monetary affairs, adding that there are “large disparities between member states”.

In Germany, consumer price inflation remained unchanged at 2.1% last month, official figures published Friday show.

German inflation however is likely to be “somewhat above the average within the European monetary union” Bundesbank head of economics Jens Ulbrich told the German parliament finance committee this week.

Greece, which is still without a government after Sunday’s election, must stick to its reform plans or it risks having bailout payments stopped, German foreign minister Guido Westerwelle said Friday.

“If Greece strays from the agreed reform path, then the payment of further aid tranches won’t be possible,” said Westerwelle.

Over on Wall Street, JPMorgan recorded a $2 billion trading loss in the first quarter of the year, Q1 earnings published Thursday show.

“This puts egg on our face,” said JPMorgan chief executive Jamie Dimon, who blamed “errors, sloppiness and bad judgment” for the losses.

Investors meantime are “losing faith” in commodity hedge funds, Reuters reports.

“For people that only came in when the noise about commodities started a couple of years ago, they have basically done nothing,” one investor told the newswire.

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.