Is the gold correction done?
Looking at last Tuesday’s Commitment of Traders numbers, we see that gold is no longer overbought. I assess the possibility that the correction is over, and does it matter?
ALASDAIR MACLEOD
For traders caught on the hop, recent moves in gold and silver have been brutal.
From an all-time high of $2790 on 30 October, gold fell by nearly 9% in 13 trading sessions to last Wednesday’s low.
The fall in silver was even more brutal, amounting to nearly 15% top to bottom.
In today’s trading session however, there has been some recovery, notably in Asian trading hours which is encouraging, particularly given that there has been little change in dollar bond yields and the dollar’s trade-weighted index.
Nevertheless, this recovery feels only technical so far.
Some commentators will say that Biden granting permission for Ukraine to use long-range missiles to strike deep inside Russia is behind gold’s recovery overnight.
There is likely to be some truth in this.
But by provoking WW3, the move is scarcely believable.
We wait to see if back-channel communications with Russia lead to this permission given by a president not in command of his senses is countermanded by more level heads.
On the positive side for gold, it does appear from the COT figures to no longer be overbought, at least as regards hedge fund positioning:
The pecked line is the long-term average net long position, which we can take as being neutral.
The COT position last Tuesday was net long 165,296 contracts, The danger zone is anything close to 200,000 and above.
We cannot rule out a further dip in MM net longs, but most of the price damage seems to have been done.
The Swaps’ net short position has also corrected somewhat but is still uncomfortable for this category, which is comprised mostly of bullion bank trading desks.
This is next:
I have taken these numbers back to 2006 to illustrate how extreme their position is in an historical context and the virtual impossibility of them returning to more normal levels.
But the Swaps’ pain is relieved somewhat by the fall in the gold price, evident when looked at in money terms:
Bear in mind that there are only 16 longs, and 24 shorts.
The gross position of the shorts averages $2.37bn, down from a staggering $3.69bn on 24 September.
Of course, we don’t know their position in London, but it is unlikely to give much comfort.
The backstop for short positions is usually out-of-the money call options, merely transferring the liability to other bullion banks in the event of a big move in the gold price.
On balance, I would say that traders would probably want more evidence to justify their sell dollar/buy gold trade.
But with renewed tensions over Ukraine and Putin’s warning about the western alliance using long-range missiles the atmosphere continues febrile, to say the least.
Furthermore, Trump’s economic policies, if carried out, are certain to drive interest rates and bond yields higher, and the dollar with them.
Not only will this kill equities, but the damage to the yen and its bond yields, the damage to sterling with its new Labour government, and the damage to the euro system will be considerable.
Globally, equities are likely to crash.
Just look at how extreme the S&P looks relative to the long bond:
The disparity is over twice as great as it was at the time of the dotcom bubble.
And now we can see that UST bond yields will rise further, because Trump’s tariffs will push up consumer prices, and his tax cuts will lead to (he hopes temporary) an increase in the budget deficit. Equities cannot retain these levels.
Why does this matter for gold?
We are staring a credit crisis in the face, and when you have a credit crisis, it’s best to get out of credit, including the currency it is denominated in, which is itself also credit.
Conclusion: Traders might indulge in a little tizzy-snatching, but in doing so they miss the far more important bigger picture: a humungous debt crisis destructive to fiat currencies looms.
0 comments:
Publicar un comentario