Commodity Trade Mantra
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Gold Trading Swings continue Range Bound Behavior.

Gold Trading

Gold Trading Swings continue Range Bound Behavior.

Gold Trading remains modestly quite & range-bound but pleasantly now at a higher plane than as previously seen. Gold prices have climbed 1.6% since Aug. 2. Comex Gold Trading open futures positions at the end of the day as of yesterday, has continued to slide, falling another 2,816 contracts to 388,254. Gold Trading open interest on Comex is the lowest it has been since August 2009 and this will trigger higher volatility amid thin volumes. Thinner trading volumes & range bound trading conditions tend to mean more price movement volatility than might otherwise occur amid higher volumes with price movement triggers.

Potential Upside Triggers for Gold Trading:

Equity Markets seem to have stabilized after last months weak trading & Crude Oil is also modestly higher. Gold ETF’s have started to show some signs of Gold accumulation again. Last month, global Gold ETF – Exchange Traded Fund holdings declined 367,000 ounces but so far this month, global Gold ETFs have risen 429,000. Market’s Risk appetite seems to have improved slightly.

Higher food prices emanating from droughts in the U.S. Midwest and drought like conditions in India ultimately could offer support to gold prices. Higher grain and ultimately higher food prices are historically supportive of gold prices.

Investors are turning a blind eye to the U.K.’s faltering economy, which is shrinking faster than Spain’s, as the value of the nation’s independent monetary policy outstrips its deteriorating growth prospects.U.K. economy contracted 0.7% in the second quarter, while Spain’s shrank 0.4%. While U.K. borrowing costs have plunged over the past year, those in nations such as Spain and Italy have surged. The worsening economic outlook has prompted banks to predict the Bank of England will increase stimulus again this year. Moody’s, which has a “negative” outlook on the U.K.’s Aaa rating, lowered its 2012 estimate for the nation’s economic growth to 0.4%.

A potential Greece exit – Since forming a government after the June 17 election, the second in six weeks, Prime Minister Antonis Samaras and his ministers have been in talks with the EU, European Central Bank and International Monetary Fund to keep aid flowing during the fifth year of recession. They are working on identifying 11.5 billion euros ($14.2 billion) of further budget cuts and are 3.5 billion euros to 4 billion euros short of the target, Finance Minister Yannis Stournaras said this week. Samaras has vowed to make the sale of state-owned assets a priority. Greece’s state-controlled Public Power Corp. SA (PPC) is scheduled to sell to competitors to meet four-year-old European Union demands that the country deregulate its energy market. PPC is a test of Samaras’s ability to prove to the euro area and IMF that Greece is meeting their demands to open markets to competition, scale back the state and cut red tape, reported Bloomberg. Greece first has to resolve a dispute with the EU over PPC that predates the debt crisis. Time is pressing for the Greek government, which is scrambling to meet an Aug. 20 deadline to repay 3.1 billion euros of debt held by the ECB.

Europe’s stock markets began their latest rally two weeks ago when ECB President Mario Draghi said the central bank was “ready to do whatever it takes to preserve the euro”, raising hopes of bold steps to help lower the borrowing costs of Spain and Italy. Evidence that the Euro-zone’s problems have slowed economic activity in the United States and Asia has added to expectations that other major central banks will soon announce their own plans to ease policies. Last week the ECB outlined a plan aimed at directly helping two of the worst hit nations – Spain and Italy- which are battling with high borrowing costs while their economies wallow in deep recessions. Only the Uncertainty over the timing and the details of this aid is keeping Gold Prices from rallying. 

Weaknesses for Gold Trading:

Commodity traders have seen a lot of assurances & will not act on intent only, instead now eagerly await some real action from Central Banks to pump up volumes in Gold Trading. Markets also are on the watch for indicators & signs of a pick-up in global economic activity to whip up risk appetite or for a slump to expect fresh Quantitative Easing from the Central Banks. A Chinese slowdown would mean Base Metals moving downside & a weak INR combined with scanty rains would mean sharply lower appetite for physical Gold demand from India, the world’s largest consumer of the yellow metal. Gold is traditionally a popular gift at festivals and weddings inIndia. Indian consumers seem to prefer to recycle household jewelry now as the festive buying season begins from August, instead of buying new sets. The high price of finished Gold, which has crossed Rs 30,000 mark, is stopping consumers from buying new jewelry. The availability of recycled gold has increased in the market by almost 50%. Gold trading & demand at the start of the festival season has been slow with rural buyers staying on the sidelines, preferring to hold on to their cash at a time when deficient monsoon rains threaten to dent their incomes. The rural population accounts for 60% of the gold demand in India. India’s appetite for gold has already taken a hit this year from a weak rupee and an import tax hike. People will prefer to stay in cash than buy Gold due to the drought-like situation in the country. Gold Trading has taken a huge hit in the Indian Markets this year.

Many investors are worried that the ECB’s condition for action – that troubled countries ask for help from the Euro-zone’s rescue funds – has raised the risk that the crisis in Spain and Italy may have to get worse before a move can come. The bloc’s new permanent bailout, the European Stability Mechanism (ESM), also still needs approval by the German Constitutional Court, which doesn’t rule until September 12.

Hope for Gold Trading markets:

The entire Gold trading community expects the US Fed to deliver on QE3 at its September meeting, pushing Gold, Silver and Base Metals higher. Gold Prices have surged 70% from the end of December 2008 to June 2011 as the Fed kept borrowing costs at a record low and bought $2.3 trillion of debt in two rounds of so-called quantitative easing. ECB President Mario Draghi said the central bank was “ready to do whatever it takes to preserve the Euro”, raising hopes of bold steps to help lower the borrowing costs of Spain and Italy.

Beware of Initial direction in Silver or Gold Trading:

Whenever the much awaited breakthrough is seen, the initial movements may point towards a wrong direction & set of a false alarm as seen most of the times before the onset of a huge rally or a meltdown. A sharp downside may be set off by an initial sharp rise or a potential rally may be first seen as a downside spark. Do not jump the gun at the initial onset of a Silver or Gold Trading breakthrough. Wait for the initial heat to settle down & wait for the momentum to set in. I yet stand by my view of a large upside rally in Silver, later followed by Gold as reminded several times earlier.

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