Archive for gold price
(Posted: May 17, 2013 from Twitter)
No one should be surprised if gold prices take another dive. The market certainly remains vulnerable to more institutional selling. That said, I’m looking for a bounce-back in the week ahead — with the yellow metal recovering some of the ground lost in the recent flash crash — if only because the price has fallen so far, so fast.
Some of the institutional players who were inclined to lighten their long positions or short the metal along the way down have already done so . . . and some of the large hedge funds — including a few that made news by selling in recent months — may begin re-establishing long positions at what they believe to be attractive long-term acquisition prices.
Moreover, Asian buying has been especially strong — apparent from the large premiums in the key Asian markets over London and New York delivery — and retail investment demand for coins and small bars in the U.S. and Europe has also provided some support.
I expect that some central banks have been and will continue to buy on dips and this too should help
However, the key to recovery is in the paper market. What the hedge funds and other large-scale institutional traders need now is a sense that downside risks are retreating and some degree of comfort that prices have hit bottom.
When that confirmation comes, pent up demand could give the metal a short-term boost . . . and, from there, who knows?
Recent talk of Fed tapering (that is reining in its accommodative monetary policy by reducing the magnitude of its monthly bond purchases) along with a worsening global economic picture has given the U.S. dollar a boost in world currency markets — and, by extension, has contributed to the swift sell-off in gold.
But with U.S. employment markets showing no signs of real and meaningful improvement and recent inflation data below the Fed’s own targets, expectations among Fed watchers are beginning to shift, albeit subtly, and this could make a world of difference for gold in the weeks and months ahead.
Filed under: Gold Briefs | American Precious Metals Advisors, central banks, gold, gold price, inflation, Jeffrey Nichols, monetary policy, U.S. dollar|No Comments
(Posted: May 15, 2013)
Gold prices have caved today under pressure from dollar appreciation and wave of technical selling at key chart points - selling aggravated by continued flow of funds from gold (and commodity indexes) to equities.
Just as the rising price trend in the equity indexes has attracting more buying, the renewed downward momentum in gold is engendering short sales and more outflows from gold ETFs.
Importantly, program trading and other technical strategies have added to the downward pressure on gold - and continue to do so. Â (See my previous commentary posted earlier today for more on program trading and the dark pools.)
Institutional selling of the commodity indexes (some of which include gold) and by commodity funds is also contributing to gold-price weakness.
But pricing across asset markets continues to be inconsistent and illogical. Rising equity prices are usually an indicator of economic vigor, right? And, falling commodity prices are usually an indicator of flagging demand and a weak economy, right? So, what’s going on here?
Few would deny that the global economy is faltering:Â Europe is sinking further into the abyss; America has yet to suffer the most serious consequences of sequestration and fiscal drag arising from Federal spending cuts and January’s payroll tax hike; and the major emerging economies are slowing as demand for their exports continue to erode.
So you tell me, which market — equities or commodities — is most accurately reflecting economic realities?
The key here is that the trading models and strategies that are driving gold lower and equities higher do not rely of real-world economics . . . but take their cues from internal market triggers where time horizons for successful trading may be measured in seconds.
As we have discussed long before most other gold analysts and commenters have even noticed, the battle for gold has been between physical markets and paper markets. And, for the last year and a half, it looks like the paper markets have won out.
This despite the fact that the physical markets have been super strong with intense demand for bullion bars and retail investment products . . . and from a number of central banks who are using episodes of price weakness to augment their official gold holdings.
Many of these buyers - both private sector and official - have a long-term perspective and allegiance to the metal, often accumulating gold with the hope and intention of passing on their holdings to future generations.
In contrast, traders and investors in the paper markets have much different motivations and often very short-term perspectives. To an important extent, they are trading for short-term gains and will take positions in one asset market or another based on their perception of relative return.
Unlike many physical buyers, the paper traders rarely have any long-term allegiance to the metal. They may be in or out, short or long, or arbitraging tiny price inconsistencies. Some of the biggest institutional players trade on both the regulated commodities futures exchanges (like the CME COMEX Division), regulated ETF markets (like the NYSE), and the largely unregulated dealer and inter-bank market where volumes can be huge but trades and outstanding positions may be invisible.
The abandonment of long gold-ETF positions built up over the past half-decade by hedge funds and other institutional investors and the short-term trading activities of a relatively small number of institutional speculators have together been largely responsible for gold’s steep price decline in recent months.
What could turn the price upward again?
It may be as simple as the depletion of long positions in paper markets — with selling by “weak hands” having run its course.
Or, it could be a revival of “safe-haven” demand — driven by renewed sovereign risk and fears of debt default by one -(or more) of the euro-zone nations . . . or even renewed talk of debt limits and default by the United States, unable to get its fiscal house in order.
Or, perhaps, it will take a rout on Wall Street — as equity investors realize the miss-match between equity prices and the state of the economy.
Or, maybe, it will take a step up in quantitative easing — in reaction to a string of negative economic indicators and deflationary fears — with still more bond purchases by the Federal Reserve.
Or, maybe a black swan, perhaps some unanticipated geo-political development, or some other event that strikes from out of the blue.
What do you think?
Filed under: Gold Briefs | American Precious Metals Advisors, central banks, Dark Pools, ETFs, Exchange-Traded Funds, fiscal policy, gold, gold price, Jeffrey Nichols, monetary policy, Quantitative Easing, U.S. dollar|No Comments
(Posted: May 15, 2013)
Day after day, gold trading has been, and continues to be, dominated by institutional trading in the “dark pools” where over-the-counter dealer and interbank activity goes largely unseen.
Don’t under-estimate the influence of trading in the dark pools where “invisible” institutional trading can - in a flash - knock gold to the mat, leaving most gold-market participants and observers wondering what happened.
Indeed, much of this activity in the interbank and dealer market goes unreported - but buy-sell transactions, high-frequency, and other program trading in these dark pools, often at crucial chart points, can be overwhelming — sometimes triggering bigger waves of buying or selling –with big profits for those institutional trading desks that know how to play the game.
The gold market is especially vulnerable to trading in the dark pools because it offers a relatively small playing field compared to equity, bond, and currency markets - and the flow of funds, in or out, can have a larger price effect.
With gold markets sometimes overwhelmed by trading in these dark pools of low-cost liquidity (thanks to the Fed’s near-zero interest rate policies) the near-term outlook for gold remains highly uncertain.
That said, the long-term fundamentals and physical-market developments are more bullish than ever - or at least more bullish than we’ve seen in many years - and sooner or later these must rule the day.
Gold continues to confound as technical and computer-driven program trading triggers selling on U.S. derivative markets - all despite favorable physical-market fundamentals and what should be seen as economic and geopolitical developments favorable to gold.
The underlying gold-market theme in recent days, weeks, and months has been, and continues to be, selling of paper gold derivatives on futures exchanges and, importantly, over-the-counter dealer and interbank markets (the so-called dark pools of liquidity).
Much of this undercover paper activity is made possible by the Fed’s near-zero interest rate policy. The dealers and traders that comprise these dark pools are profitable, at least in part, because their cost of money is so low and the availability of liquidity is seemingly unlimited.
Indeed, this machine-driven trading activity — and the abandonment of long positions seeking higher yields — explains the paradoxical failure of gold to move higher . . . as one should expect during a period of super-accommodative, highly reflationary, monetary policies now being pursued by the Fed and other major central banks around the world.
If this were a sic-fi movie it might be titled “Invasion of the Machines.” And, just like the movies, the good guys — those with patience who have trusted the long side — will win in the end.
Filed under: Gold Briefs | American Precious Metals Advisors, central banks, Dark Pools, ETFs, fiscal policy, gold, gold investment, gold price, Jeffrey Nichols, monetary policy, Quantitative Easing, U.S. dollar|No Comments
(Posted: May 10, 2013)
Just when many gold-market participants and observers thought it safe to wade back into the long side of the market, the metal has taken another dive.
Having begun 2013 near $1,650, gold prices are now off about 15 percent for the year to date and some 25 percent from its all-time high just over $1,920 in September 2011. A number of writers have already declared the end of gold’s decade-long bull-market run. And, even some of the most outspoken gold bulls are worried that the yellow metal has lost its mojo.
Having failed to build upon the nascent upward momentum and unable to move back to the $1500 an ounce neighborhood, gold has again fallen victim to institutional selling in the “dark pools” where over-the-counter dealer and interbank selling goes unseen.
What Happened
Don’t under-estimate the influence of dark pools where “invisible” institutional trading can — in a flash — knock gold to the mat, leaving most gold-market participants and observers wondering what happened.
Indeed, much of this activity in the interbank and dealer market goes unreported — but buy-sell transactions and “high-frequcncy” trading in these dark pools, often at crucial chart points, can be overwhelming and is intended to trigger bigger waves of buying or selling (these days mostly selling) and big profits for those institutional trading desks that know how to play the game.
The gold market is especially vulnerable to trading in the dark pools because it offers a relatively small playing field compared to equities, bonds, currencies — and the flow of funds, in or out, can have relatively big price effect.
Triggers
Moreover, gold’s mini “flash crash” on Friday morning did not occur in isolation from other markets. Many other commodities, including the energy complex, have also fallen sharply in recent days. So too have many of the major currencies. The yen, Swiss franc, euro, Aussie, and Canadian dollar are all off sharply. The other side of the coin is a stronger dollar — and this often correlates with gold-price weakness.
These broad market developments, along with gold’s loss of upward momentum, may have triggered the computer models that increasingly govern trading by some of the big institutional traders and speculators.
With gold markets sometimes overwhelmed by “machine trading” in the dark pools of liquidity . . . and with the cost of large-scale trading next to nothing (thanks to the Fed’s near zero interest rate policies) . . . and with Friday’s action creating another technically damaging blow, the near-term outlook remains uncertain.
That said, the long-term fundamentals and physical-market developments are more bullish than ever — or at least more bullish than we’ve seen in many years — and sooner or later these must rule the day.
Filed under: Gold Briefs | American Precious Metals Advisors, Dark Pools, gold investment, gold price, High-Frequency Trading, Jeffrey Nichols, monetary policy, U.S. dollar|No Comments
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