Morning Gold Fix – April 29, 2011
FMX | Connect – www.fmxconnect.com - (Reported 4/29/2011)
The following is a summary of yesterday’s US gold activity and a recap of Asia & European markets overnight. It includes our proprietary options analytics and news stories from industry professionals.
Summary
June Gold settled at $1531.20 per troy ounce on Thursday, a gain of $14.10 for the day. The contract printed fresh highs and option trading was dynamic.
June gold was up $8.4 to $1539.6 per 100 troy ounces as of 8:15 am EST this morning. The June U.S. dollar index was down 0.221 to $73.090. Jul platinum was up $12.0 to $1851.9 per 50 troy ounces. May silver was up 150.0 cents to $49.0200.
Market Commentary
Futures opened up in the 1430 area, above where they went out last night on the Globex close. Options immediately underperformed. By underperformed, we mean relative to yesterday at 4:30 as opposed to yesterday at 1:30 when the Comex closed. It makes sense that option volatility would get hit, considering that truly all the news was out.
The day started with a seller of the August 1750 Call. They traded 7.50 and $5 higher, you could still buy 7.50s. The call wing proceeding to take a beating in every month, specifically for calls 10 delta and lower.
We can say that the volatility of volatility has increased dramatically. It’s clear that market makers are fading away from every big order that comes into the ring, creating volatility swings on a minute to minute basis, as they seek to digest the business coming in. Around 11:30 a decent-size buy order came in for the August 1650 Call, on top of of fresh contract highs for the future in the 1536-37 area. This order was different from the August 1600 C buyer order but scary nonetheless. 2000 lots were bought in 500 lot clips. The buyer knew what he wanted and he got it done. On the floor, the August 1600/1750 1x2 Call spread was quoted and traded for volume with the customer purchasing the August 1600 C. Locals and market makers don’t mind this trade as everyone needs upside to cover VAR risk. And let’s face it, the June 2000 Calls aren’t helping anymore.
We can’t help but feel this market is being managed on some level. We’ve had an orderly move higher for many days in the last two weeks but when the market gets a little frothy and when it gets away from whoever wants to buy it at low prices, we seem to sell off on the close. The closing range seems to be “painted” lower. A low futures settlement is nice for an unfilled buy order. We wonder that if there is a large buy order being patiently executed when the VWAP explosion will be. For those of you unfamiliar with the term, Volume Weighted Average Price is the average fill price that the broker does for his client. On big orders these are very important. As a result, especially in equities, many brokers will do their best to make sure the last contract they buy is higher than the VWAP, citing it as proof of a good fill. To keep this simple, if we were patiently buying 20,000 lots for a client and had a 1000 lots left it would be tempting to go to the market with those contracts. We’ve seen this happen before for both silver and gold.
Back to options. Volatility was lower most of the day but went out slightly bid for the back months. Call skew was decidedly lower.
Market Prices
Technical Analysis (GRI)
JUN GOLD
The market is bullish and positioned for a stretching run near 1550. Trade is in an aggressive bull phase and favors follow through rallies. Any corrective dips should find upside momentum forces preventing hard setbacks and injecting support at 152090* and 150990*. A couple day consolidation should quickly bull flag and provide a staging level for rallies. A close under 150990* is needed to drive a retracement to test 1479* for a larger peaking turnover.
JUL SILVER
The market is bullish and trying to power trade into an attack of Monday’s high. A close over Monday’s high implies blow off moves to 5500+. A back off from around Monday’s high alerts for additional near term corrective congestion and could back track trade along 4652* support. A drop back under 4500 warns for a harder correction to test for support at 43645* and a possible peaking turn.
JUL COPPER
The market appears to be in a month and half sideways congestion. This week’s back off / rejection from key 44130* resistance, puts the market back into sideways / defensive congestion with chances for a slide to attack for a bear breakout under 418. A close under 418 targets to 404-. A close over 44130* targets a run to upper edges of congestion around 450+/-.
In the News
Bloomberg (Reported 4/29/2011)
Central banks that were net sellers of gold a decade ago are buying the precious metal to reduce their reliance on the dollar as a reserve currency, signaling demand that may extend a record rally in prices. As developing countries accelerate purchases, gold may reach $2,000 an ounce this year, compared with a record of $1,538.80 yesterday in New York, said Robert McEwen, the chief executive officer of producer U.S. Gold Corp. Euro Pacific Capital’s Michael Pento, who correctly predicted gold’s highs for the past two years, forecast a 2011 high of $1,600. Gold-Buying Central Banks May Signal Bullion Extending Record Price Rally
Reuters (Reported 4/29/2011)
Gold steadied on Friday, just shy of fresh record highs and set for its seventh successive weekly gain, driven largely by the decline in the dollar to its lowest in nearly three years. The dollar fell to its lowest since July 2008 against a basket of major currencies, after data this week painted a picture of an economy with slower growth and higher inflation, and after the Federal Reserve signaled it would not tighten monetary policy any time soon. Gold set for seventh weekly gain as dollar sags
NSFutures (Reported 4/29/2011)
While the bulls might be disappointed by the lack of a new all time highs overnight, the gold market remains within striking distance of the all time highs in the early Friday morning trade. While the Dollar hasn’t fallen to fresh new lows in the overnight action, the Greenback remains within close proximity to a downside breakout on its charts and therefore the impact from the currency markets might be slightly supportive of gold prices this morning. While equity markets in Asia and Europe were mixed during overnight trading, early indications are for US equity markets to open today’s session with slight gains. The Dollar is weaker against most of the major currencies during overnight trading. Daily Metals Commentary.
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