Morning Gold Fix – June 29, 2010

FMX | Connect – www.fmxconnect.com - (Reported 6/29/2010)

The following is a summary of yesterday’s US gold activity and a recap of Asia & European markets overnight. It includes our proprietary options analytics and news stories from industry professionals.

Summary

Gold closed at $1238.6 per 100 troy ounces yesterday, falling $18 from its open after a technical failure just outside record levels. The selling has continued in Asian & European trading with gold down about $4 for the day currently.

Whither Gold?

Yesterdays’ activity was not much of a surprise to us. It seemed like the Gold of old. Speculators get long, cover shorts going into an event that can have an impact on Gold (G-20). Nothing happens immediately relevant to Metals during the event. Participants look at each other for 30 minutes as the market starts out flat. Then it dawns on the weak longs, that they have the patience of gnats, and the selling starts.  This is Gold behavior circa 1997.

The fact is that there was a real reason to sell yesterday. Europe’s austerity rhetoric trumped the U.S. Spendthrift philosophy. What would happen to gold if everyone stopped spending  and sovereign debt was reduced like Europe hopes? That would not be bullish for anything, hence a selloff in gold is not unreasonable.  But here is the catch…. If people stop spending, how do you intend to service the existing debt? So Europe is full of it. They want us to keep on spending while they tax their own populace and set up barriers to imports. The only thing the Europeans will be buying over the next 20 years is Bordeaux and BMWs. 

You default when you cannot service your debt.  Who would default? The public would default first to their bankers, which would cascade uphill to the banks and then the government. So, you must prevent individual defaults. How do you do that? Devalue, debase, depreciate. You go to the presses. So you see, Europe has to print money no matter what they tell us.

Yesterday, I called the Krugman-Geithner-Bernanke loose money types the KGB. Little did I know that the real KGB was alive and kicking. Apparently, Gold is a factor in whatever the Russian spies were doing in the U.S. But if you wish to read something interesting on the concept check out page 95 of this pdf by one of our favorite analysts, James Rickards. In it he describes how Russia would destabilize the U.S. dollar as a reserve currency and gold’s role in it. I promise after you read it, you won’t make any tinfoil hat jokes ever again.

August gold was down 3.6 to $1235 per 100 troy ounces as of 7:13 AM EST, this morning. The September U.S. dollar index was up .478 to 85.91. July platinum was down 18.2 to $1547.4 per 50 troy ounces. Silver was down 9.3 cents to 18.59.

-Elizabeth Thawne

For Market Prices Click Here

Monday Options Report

Despite the downward spiral of futures today, options activity today was almost entirely bullish. Speculative funds came in putting on directional plays in August, December, and February. First the Feb 1450/1550 call spread was purchased approximately 1500 times. Next, a December condor centered around the 1500 area was purchased as well. Finally, after the washout in futures, and marking the low of the day. A spec came in and purchased the August 1200/1280 risk reversal.  Market makers were happy to sell everything to the speculators as they were long volatility and slight nervous about the lack of bullish directing. At the end of day, volatility was higher, especially in the back months. The options market continues to behave in a bifurcated manner. The short dated months are dominated by ETF activity while the back dated months are dominated by large macro players. 

End of Day Straddle Runs

Weekly Technical Outlook

FMX Morning Newswire

Bloomberg (Reported 6/29/2010)

“Gold fell for a second day as some investors sold the metal to lock in gains from its rally to near a record.

Bullion dropped 1.3 percent yesterday after earlier trading within 0.2 percent of an all-time high. European equities declined today amid concern China’s economy is growing at a slower pace than estimated.” Gold Falls for a Second Day in London as Some Investors Sell After Gains

NS Futures (Reported 6/29/2010)

“A large portion of the sharp drop in the London gold fix overnight is a catch up to the slide seen in the US Monday afternoon action. After the gold market generally ignored news of a decline in Peru gold production in the prior, trading session, it is possible that the gold market will also ignore news this morning from Gold Fields of a rise in 4th quarter production.

Equity markets in Asia and Europe are mostly weaker this morning, which has led to US stock indices posting sizable losses during the initial Tuesday morning trade action. The Dollar is much strong against most of the major currencies, but has lost ground versus the Yen going into the US opening.” Daily Metals Commentary 

Reuters (Reported 6/29/2010)

“Gold inched higher in Europe on Tuesday as persistent concerns over the euro zone debt crisis supported safe-haven demand for the metal, but the stronger dollar limited gains.

Spot gold was bid at $1,237.20 an ounce at 1111 GMT (7:11 a.m. EDT), against $1,236.05 late in New York on Monday. U.S. gold futures for August delivery eased 60 cents to $1,238.00.’” Gold inches higher as haven buying supports

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