Thursday, November 21, 2013
CME lower Margins on both Gold and Silver
As of the close of trading, this Friday, tomorrow, the CME Group[ will be lowering margin requirements for their flagship gold and silver contracts. Spec margins will be moving down to $7,975 from $8,800 for opening a contract while maintenance margins will be lowered to $7,250 from $8,000.
For the full sized Silver contract, initial margin requirements will be $11,000 from the current $12,375 with maintenance levels at $10,000 from the previous $11,250.
Volatility has waned somewhat in both metals allowing the computer to mark these margins lower.
The HUI closed extremely poorly today barely managing to maintain itself above all-important chart support near the 210 level. Owners of these beleaguered shares will not want to see this give way, especially to end the week. If it does, get set for even further losses in this bleeding sector in the near future. Where these things are going to find buying support and at what level is very difficult to see right now. Quite frankly, the entire sector has fallen completely out of favor with the mainstream investment world. Only the most die-hard of gold bulls remains holding them.
As mentioned in last night's post and many other posts, those miners which did not HEDGE expected gold production were quarreling against all sound wisdom as they have left themselves completely naked and exposed to downside price risk in the underlying metals. This could have been completely avoided had they instituted some decent analysis in their risk management departments, assuming they even have one.
Keep in mind, any economic data that looks the least bit rosy will feed ideas that the Fed is going to taper sooner rather than later. That will undercut the reason to hold gold or anything gold-related for the time being.
I want to also emphasize that even if the Fed were to taper, say something in the vicinity of $20 billion, that would still leave them purchasing $65 billion/month of Treasuries/MBS. While that is still an extremely significant amount, what the market is looking at is the expected IMPACT ON INFLATION. The way the market currently sees it, if $85 billion/month is not producing any measurable inflation, then any reduction in that amount should further lesson any inflationary impact from the overall bond buying program. That is why gold is paying such close attention to the Tapering/Non- Tapering debate.
I want to reiterate - until the market in general becomes convinced that inflation threats are rising, gold is going to struggle. Also, we will have to see NEGATIVE REAL RATES to bring some serious and concerted buying into the metal. Barring that, it is CONFIDENCE that is going to have to give way for the current bear market in gold to reverse course.
For the full sized Silver contract, initial margin requirements will be $11,000 from the current $12,375 with maintenance levels at $10,000 from the previous $11,250.
Volatility has waned somewhat in both metals allowing the computer to mark these margins lower.
The HUI closed extremely poorly today barely managing to maintain itself above all-important chart support near the 210 level. Owners of these beleaguered shares will not want to see this give way, especially to end the week. If it does, get set for even further losses in this bleeding sector in the near future. Where these things are going to find buying support and at what level is very difficult to see right now. Quite frankly, the entire sector has fallen completely out of favor with the mainstream investment world. Only the most die-hard of gold bulls remains holding them.
As mentioned in last night's post and many other posts, those miners which did not HEDGE expected gold production were quarreling against all sound wisdom as they have left themselves completely naked and exposed to downside price risk in the underlying metals. This could have been completely avoided had they instituted some decent analysis in their risk management departments, assuming they even have one.
Keep in mind, any economic data that looks the least bit rosy will feed ideas that the Fed is going to taper sooner rather than later. That will undercut the reason to hold gold or anything gold-related for the time being.
I want to also emphasize that even if the Fed were to taper, say something in the vicinity of $20 billion, that would still leave them purchasing $65 billion/month of Treasuries/MBS. While that is still an extremely significant amount, what the market is looking at is the expected IMPACT ON INFLATION. The way the market currently sees it, if $85 billion/month is not producing any measurable inflation, then any reduction in that amount should further lesson any inflationary impact from the overall bond buying program. That is why gold is paying such close attention to the Tapering/Non- Tapering debate.
I want to reiterate - until the market in general becomes convinced that inflation threats are rising, gold is going to struggle. Also, we will have to see NEGATIVE REAL RATES to bring some serious and concerted buying into the metal. Barring that, it is CONFIDENCE that is going to have to give way for the current bear market in gold to reverse course.
Some Good news for a Change
The following story detailing a medical treatment for some of these new and extremely dangerous antibiotic resistant bacteria is most encouraging...
http://www.foxnews.com/health/2013/11/21/necrotizing-fasciitis-new-treatment-discovered-for-deadly-flesh-eating-disease/?intcmp=latestnews
http://www.foxnews.com/health/2013/11/21/necrotizing-fasciitis-new-treatment-discovered-for-deadly-flesh-eating-disease/?intcmp=latestnews
Crude Rally is drawing some buying into Gold
Crude oil is currently experiencing a rather sharp rally as it is being led higher by the products, based on recent data suggesting the steep drop in prices is stimulating demand. Throw in a weaker Dollar, a weaker Yen ( no safe haven trade), a pop in grain and bean prices, and even a bump in cattle, and you have some buying hitting the general commodity sector. From what I can see right now, a goodly portion of this is short covering, with some bottom picking occurring across the sector. This is serving to lift gold from its worst levels of the session, along with silver.
Let's see where the dust settles by day's end to draw some conclusions.
Let's see where the dust settles by day's end to draw some conclusions.
Venezuela Selling Gold?
There is an interesting story from Dow Jones this morning mentioning Venezuelan newspapers reports about a swap deal between that country's Central Bank and Goldman Sachs in which the bank will supply 1.45 million ounces, (around 45 tons) of gold up to October 2020 for cash. We are talking about a duration of about 7 years (depending on when the actual gold swaps would begin) so when averaged out it means a bit more than 6 tons per year. That is rather mediocre in my view but I do find this story noteworthy in the sense that perhaps some Central Banks are souring on gold in the present environment.
Also, Thomson Reuters GFMS, estimates that gold production will reach a record 2,920 tons this year. Their report, which draws on data from the China Gold Association, states that China has produced 253 tons of gold through the first nine months of this year, an increase of 4.9%.
Gold currently has several headwinds that it is having to contend with. Among these are the lack of inflation pressures (energy prices and food prices at the wholesale level are basically flat, according to the PPI which came out this AM.) Additionally, rising interest rates here in the US, in combination with the low, official stated rate of inflation, have produced POSITIVE REAL INTEREST RATES, always a barrier to upward progress in gold.
Until investors here in the West become concerned with inflation, gold and silver are going to struggle to maintain any rallies.
In looking at the VIX or the Complacency Index as I prefer to call it, it is once again down sharply today revealing the lack of fear among investors. Nearly every single dip lower in equities continues to be seized upon as the only fear out there is the FEAR OF MISSING FURTHER GAINS IN US STOCK MARKETS. It really is amazing watching this phenomenon. When it will finally end is anyone's guess at this point. In the meantime, one cannot fight the tape and expect to profit.
Also, Thomson Reuters GFMS, estimates that gold production will reach a record 2,920 tons this year. Their report, which draws on data from the China Gold Association, states that China has produced 253 tons of gold through the first nine months of this year, an increase of 4.9%.
Gold currently has several headwinds that it is having to contend with. Among these are the lack of inflation pressures (energy prices and food prices at the wholesale level are basically flat, according to the PPI which came out this AM.) Additionally, rising interest rates here in the US, in combination with the low, official stated rate of inflation, have produced POSITIVE REAL INTEREST RATES, always a barrier to upward progress in gold.
Until investors here in the West become concerned with inflation, gold and silver are going to struggle to maintain any rallies.
In looking at the VIX or the Complacency Index as I prefer to call it, it is once again down sharply today revealing the lack of fear among investors. Nearly every single dip lower in equities continues to be seized upon as the only fear out there is the FEAR OF MISSING FURTHER GAINS IN US STOCK MARKETS. It really is amazing watching this phenomenon. When it will finally end is anyone's guess at this point. In the meantime, one cannot fight the tape and expect to profit.
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