All sorts of alerts are flashing on the bullion markets again so we start monitoring closely again this asset class.
The gold miners have been attracting large positive fund flows as commented a few weeks ago. They have scored a technical price breakout amongst ever louder market rumors that the long awaited comex delivery problems are about to go public. (My long in green just prior to the breakout).
Bullion itself yesterday scored a classic price momentum breakout of a key level. The last 24 months or so have seen momentum entries to the upside fail badly as the bear has devastated the long side speculators. Historically speaking this cyclical bear market is not nearly as severe as the 1974 75 bear market in the bullion so there could well be more to come. But, for the moment, the bullion is showing price momentum again and is theoretically in a breakout price zone at a non over bought level.
In terms of correlating instruments yesterday was a severe risk off day. A day when we would expect to see the currency safety play (ie US$ strength) in full motion. In stead the US$ basket had a very bad day. Investors and speculators need a hedge. They must have a home for funds so if the US$ weakens as risk off momentum gathers then the bullion will attract inflows and there fore price appreciation. Note the algo bots allocate on historical models so the heads up human that has a grasp of economic history rather than short term cross asset class correlations has a distinct advantage, in my view. (These moments of advantage are rare and they wont last long as the super computers number crunch the implications of near term moves).
Here some now odd looking cross correlating instruments.
The delivery issues of the Comex and LBMA have been flagged for a long time. If risk off alongside S$ weakness plays out according to yesterday’s correlations alongside the Comex and LBMA issues going public then there targets on the bullion’s appreciation become absolutely meaningless. Instrument wise there is a window here for an asymmetric trade though you have to accept that 80% of asymmetric trades fail. This is fine as when you win you win very big but you must build that into the trading plan when designing your trade on this asset class.
Here the Commerz tech report, opening the door to 1375.
And a daily here picking up the continuing embargo on the asset class in India and apparent ‘jewelry demand’ from China?
I would suggest Chinese (and other) demand for physical bullion is something to do with this chart:
(Please read the latest Thunder Report for a more meaningful long term analysis). http://www.capitalsynthesis.tech/the-new-great-game-thunder-road-dec2013/
(Re the recent Etf Gld outflows, many institutions hold GLD etf positions. These are leveraged allocations for the institutions held on margin using their finance fractional balance sheets to hold these positions. Selling ETF holdings and buying paper futures helps to resolve near term delivery problems. I therefore wouldn’t get too concerned by near term etf GLD fund flows).
We should not under estimate the paper markets ability to dent any momentum move to the upside but with each paper ambush the physical situation becomes ever more critical. It is inevitable that one momentum push to the upside will not be held back due to the Comex and LBMA supply issues. The cross asset implications of this issue going mainstream are meaningful and not positive for Neo Keynesian money supply strategies. Therefore we should expect plenty of push back from the non asset backed fiat currency providers. They have had time to consider their next move.
All the best
Rich