Gold Trading Remains A Complex Issue Till Friday 31st – Conflicting Views.

Category: ECB-European Central Bank | Gold Trading | US Federal Reserve August 29, 2012 | 2 Comments » Share
Gold Trading

Gold Trading Remains A Complex Issue Till Friday 31st - Conflicting Views.

Comex Gold futures prices ended the session modestly lower on Tuesday, as expected. Profit taking in Gold is being seen and some potential longs by large Momentum Players may be staying on the sidelines for now. Gold & other Financial Market movements remained lackluster with no major, fresh fundamental news to drive prices. Gold is today seen gaining for the first time in three days on speculation Europe’s debt crisis and further central bank stimulus will boost demand for a protection of wealth. A weaker-than-expected U.S. consumer confidence index reading released Tuesday bolstered ideas the U.S. Fed will make a fresh monetary stimulus move in the near term. Crude Oil rose as U.S. Crude Oil inventories are forecast to drop, a storm headed for the Gulf of Mexico and a fire continued to burn at Venezuela’s biggest refinery. With WTI Crude Oil close to $98.50 & Brent Crude Oil trading around $116 per barrel last week & rising, Investor logic suggests that Gold could go way above $1,855 soon. Gold trading may find quick downside support till Friday, as there may be a number of investors who missed the move to $1,680, looking to get in at lower levels, for further rises on hopes of some QE announcement at Jackson Hole.

Central bankers and finance ministers from around the world are scheduled to meet at Jackson Hole, Wyoming on August 31 and September 1. Surprisingly, ECB President Draghi said he will not be attending the Symposium as he is too busy with matters at hand. Draghi is likely concentrating on the Sep 6th ECB policy meet & the Sep 12th German constitutional court decision regarding Germany’s part in the bailout of the Eurozone. Draghi’s cancellation also raises expectations that he could make a big announcement at next week’s monthly ECB – European Central Bank meeting slated for Sep 6.

Line of thought, Contrary to Gold Bugs expectations:

As per latest market rumors doing rounds, Federal Reserve Chairman Ben Bernanke is unlikely to signal the chance of more Quantitative Easing when he speaks on Friday at the Kansas City Fed symposium in Jackson Hole. A pickup in economic data, including higher-than-expected July payroll figures, stronger retail sales and a rise in home prices as reported in the S&P/Case-Shiller composite index are signs that the U.S. economy has some growth. He may at most repeat what has been often noted earlier saying, “We stand ready to act if needed and we are watching events closely”. Yet if gone by the ground reality, last week markets across the board rallied ONLY when the most recent Federal Open Market Committee meeting minutes were released. The minutes suggested that the Fed was MORE open to more quantitative easing as they were concerned about the U.S. economy slipping. A few market experts are of the opinion that the minutes were two months old & at that time, the last three months of data were trending lower, but with the improvement since, in data the urgency to act is gone. With Europe in a recession & China facing a growth slowdown, there is not much the Fed can do to help. Any further Quantitative Easing will not be of productive help as it will not trigger job creation & as far as the economy is concerned, it is essentially on the same growth rate as it was prior to the recession. Inflation may also not have any major impact on theUSas may be seen in China, India or Brazil. The Gold Markets may have priced in the QE3 & ultimately can be disappointed.

Contrarily to the above line of thought, Fitch’s Riley said 28 August; the US is at risk of a downgrade by end of 1H 2013 without a “sensible” solution to US fiscal situation. The Fed may not say anything dramatic, but if the overall picture is considered, the Gold bugs may get what they want & what they would love is the Fed signaling an imminent fresh monetary stimulus move to soon be expected, possibly with a timeframe hint also. But just in case, Bernanke backpedals instead, an equally sharp pullback in Gold prices may be seen. Gold prices have a reasonable support at $1585 – 1594 range & then at the previous bottom support of $1540 which may now not hold any major strength. With a recent upside break, the bottom also has an equal chance of opening up right to $1360, once the $1540 support level cracks out. Read more on Gold Price Swings.

Political Influence on Gold:

The Republican Party is so concerned about inflation that it’s considering a return to the Gold Standard. While there’s little evidence those fears are justified, they could shape a Romney administration’s approach to the Federal Reserve. Mitt Romney, who will accept the party’s presidential nomination tomorrow at the convention, has criticized Fed Chairman Ben S. Bernanke for weakening the dollar through his bond-buying efforts known as quantitative easing. Romney said last week that additional Fed measures to stimulate the economy risked the potential for “inflation down the road,” reported Bloomberg. Such vigilance on inflation could affect the Fed if Romney wins in November. The former private equity executive has vowed to replace Bernanke, whose term expires in 2014. He’d likely fill any unexpected vacancies on the Fed board with inflation hardliners, who might favor raising interest rates before the end of 2014, as Fed policy makers currently plan. “A Gold Standard regime would be a disaster for any large advanced economy,” wrote Anil Kashyap, a former Fed economist and now aUniversity of Chicago economics professor. If the U.S. pegged the price of gold too high, the result would be inflation as investors rushed to sell their Gold to the Fed, thus boosting the domestic money supply. If the price were set too low, Gold would flow out of the U.S., shrinking the money supply and igniting a job-killing spiral of deflation or falling prices, says AEI’s Makin, a former consultant to the Treasury Department and International Monetary Fund.

Ultimately, you are going to buy gold if you think there is going to be some kind of persistent, severe inflation problem, and that just doesn’t seem to be very realistic. For many, their inflation fears stem from a belief that Fed failures helped cause the financial crisis and that its policies since then have risked greater economic distress. The Fed began cutting its benchmark Federal Funds rate in 2001 and kept it below 2% until late 2004, a stance that helped inflate the housing bubble. The Fed’s unprecedented efforts to fight the financial crisis, including more than tripling its balance sheet to $2.83 trillion, have stirred outsize opposition.

Further Gold Rise Forecasted:

Gold is poised to climb the most in two years as prospects for additional economic stimulus by governments from the US to China stoke demand for the precious metal as a bet against inflation, a survey showed. Bullion for immediate delivery may reach $1,800 an ounce by the year-end, extending gains this year to 15%, according to the median forecast in the Bloomberg survey of 15 traders and analysts at a conference in Hyderabad in South India. Gold is set for a 12th year of gains as the European sovereign debt crisis boosts haven demand amid speculation of further policy easing by central banks, including the US Federal Reserve, which may be considering a third round of so- called quantitative easing, or QE3. Investment holdings have expanded to a record on demand for a hedge against inflation. The US economy has been sluggish and there is a growing belief that there is going to be QE3 soon. This anticipation is driving the market.

“Europe’s financial situation is straining at the seams and with no fix forthcoming, demand for safe havens is likely to remain strong,” said Bimal Das, director at ScotiaMocatta, the metals trading unit of Bank of Nova Scotia. The European leaders are preparing for a critical month in the three-year-old crisis that will involve the formulation of a European Central Bank bond-buying plan, a progress report by Greece’s international creditors and a looming German court decision on bailout funding on 12 September.

“More cash is coming into the market from investors,” said Philip Klapwijk, global head of metals analytic’s at Thomson Reuters GFMS. “We expect there to be QE3 by September and Gold will move substantially higher. The ETF demand has picked up and will continue to grow as prices rise.”

India’s love for Gold will never die. It is considered auspicious to buy & gift Gold in most Indian festivals & occasions. Indian Gold demand may have been low on the back of a weak Indian Rupee this year, but with the onset of the festive season in India, people are buying Gold with cash to avoid the higher duties. As a result, these cash purchases will not be recorded in the official data.

Official Gold Interest – Central Bank Purchases driven by Asset Allocation, Not Price :

Central banks will purchase close to 500 tonnes this year after becoming net buyers in 2009, according to the producer-funded World Gold Council. Central banks added 254.2 tonnes to their holdings in the first half, according to the council, as countries from Russia to South Korea added to reserves. Billionaire investors George Soros and John Paulson increased their stakes in the SPDR Gold Trust, the biggest gold-backed ETP, in the second quarter, US Securities and Exchange Commission filings showed on 14 August.



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Request Your Views On The Above Article

  • http://none Hemmant

    Could help me. I am looking to find how many long/short positions are open at the end of the day and the change during the course of the contract. If you could point me in the right direction, that would be a big help.

    • http://www.commoditytrademantra.com Rajesh J. Shah

      A contract has both a buyer and a seller, so the two market players combine to make one contract. The Open Interest position that is reported each day represents the increase or decrease in the number of contracts for that day, and it is shown as a positive or negative number. An increase in open interest along with an increase in price is said to confirm an upward trend. Similarly, an increase in open interest along with a decrease in price confirms a downward trend. An increase or decrease in prices while open interest remains flat or declining may indicate a possible trend reversal.
      When a rising trend of open interest begins to reverse, expect a bear trend to get underway. A breakout from a trading range will be much stronger if open interest rises during the consolidation. This is because many traders will be caught on the wrong side of the market when the breakout finally takes place. When the price moves out of the trading range, these traders are forced to abandon their positions. It is possible to take this rule one step further and say the greater the rise in open interest during the consolidation, the greater the potential for the subsequent move. Rising prices and a decline in open interest at a rate greater than the seasonal norm is bearish. This market condition develops because short covering, not fundamental demand, is fueling the rising price trend. If prices are declining and the open interest rises more than the seasonal average, this indicates that new short positions are being opened. As long as this process continues it is a bearish factor, but once the shorts begin to cover, it turns bullish. If prices are rising and the volume and open interest are both up, the market is decidedly strong. If the prices are rising and the volume and open interest are both down, the market is weakening. If, however, prices are declining and the volume and open interest are up, the market is weak; when prices are declining and the volume and open interest are down, the market is gaining strength.
      Bottom Line
      Open interest can help futures traders get a sense of whether the market is gaining strength or getting weaker. As an analyst of futures markets, avoid the common mistake of failing to take this number into account.