Risk-Off Trades Dominate. Commodities Slump as USD Strengthens

ONG Focus | Insights | Written by Oil N' Gold | Wed Oct 27 10 07:50 ET

Risk appetite remained weak in European session amid concerns about 'measured QE' policies. The dollar strengthened while growth currencies and other risk assets plunged. Aussie tumbled as inflation missed expectations. Focus in the US session will be on durable goods orders, new home sales and oil inventory data. Commodities fell across the board. The front-month contract for WTI crude oil slipped below 82 ahead of official oil inventory report. Precious metals and base metals also slumped on profit-taking.

The Wall Street Journal said that the Fed will likely announce a bond-purchase program, worth a few hundred billion dollar spanning over several months, at the FOMC next week. The amount would be significantly lower than market expectations of at least $500B over 5 months. Investors took profits from previous 'short-USD' trades as the selloff was probably over-extended with such a 'small' amount of QE.

Currently trading at 0.9715, Australian dollar plummeted for a second day against the dollar as CPI surprisingly eased to +2.8% y/y in 3Q10 from +3.1% a quarter ago. This may prolong RBA's pause in tightening. Other commodity currencies, New Zealand and Canadian dollars also fell. The RBNZ will leave the official cash rate (OCR) unchanged at 3% for a second month at today's meeting. The accompanying statement will also be dovish as led by disappointments from GDP growth and retail sales. Policymakers would reiterate that 'the pace and extent of further OCR increases is likely to be more moderate' that previously anticipated.

The base metal complex has been a bright spot in recent months with copper's rally probably the most eye-catching. LME copper for 3-month delivery has risen for 4 consecutive months since July and accumulated about +30% gains since then. The major reasons buoying the price are robust Chinese demand, quantitative easing outlooks, weakness in USD and expectations of launch of physically-backed ETFs. We believe the last 2 were factors driving the rise to recent highs.

Besides JP Morgan, BlackRock has also planned to issue an ETF backed by copper. According to filing documents, each share in the iShares Copper Trust will represent 10kg of copper. It is expected these investment instruments should send prices higher. However, the impact may only be temporary.

Take copper as an example. Supply tightness is evidenced by low inventory levels and mine production problems. It's not unlikely that ETF issuers will acquire the metal from producers. Rather, they will source from LME house, thus, exacerbating the decline in LME stock. In this case, copper price will be boosted initially but higher copper price will trigger sales of scrap copper and demand for substitution. Eventually, copper price will again fall from the peak.

 

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Fraudulent silver trades? Have gold markets suffered in the same manner?

Since we received reports from the CFTC that market players have made "repeated" and "fraudulent efforts to persuade and deviously control" silver prices, we have heard that HSBC Holdings Plc and JPMorgan Chase & Co. are facing an investor's lawsuit of placing "spoof" trading orders to manipulate silver futures and options prices in violation of U.S. antitrust law.   The investor, Peter Laskaris, alleges that starting in March 2008, the banks colluded to suppress silver futures so that call options, or the right to buy, would decline, and put options for the right to sell would increase, according to the complaint filed late last week in federal court in Manhattan. The collusion was also intended to maintain prices at levels at which some options would expire as worthless.

 WHAT SHOULD WE BE GETTING FROM OUR BANKS ?

Once upon a time the banks had a limited influence on our lives.   If you needed a loan they were there to give it.   They looked after your money, for a price, but most day to day transactions did not involve a bank, just cash.   The same is still true in the underdeveloped world now.   But in the developed world the banks and the banking system are part of every single aspect of our financial lives.   They are the veins and arteries of the financial body, the economy.   While they are healthy and supportive of the body the heart of the central bank and the government can work well.   But when those veins and arteries harden, the entire body and heart have all-threatening problems.      And the banking system seemed to be in good moral health until the credit crunch of 2007.   Government stepped in to save the entire financial system by saving the banking system.  

Since then we have heard episode after episode of greed and dishonesty that has villainized bankers.   When John D. Rockerfeller came to this point he suddenly was seen on ‘Movietone News' singing hymns to clean up his act.   That may well be too late for the bankers.   These revelations no longer shock us but anger us, because bankers just don't seem to connect to a morality that should, in the light of their extended role in society should be far higher than the common man and capable of withstanding the fierce light of publicity.   With that extended role should have come a social responsibility that warmed us to them as they combed through their structures to remove practices that the general public would find disgraceful, but no, as each disgraceful secret is uncovered we realize that we are at their mercy until courts or government or a higher power steps in to put them on a leash.   Now our first thoughts are, "If they are doing that in the silver market, surely they are doing the same in every other market they are in?"  

IS THIS HAPPENING IN THE GOLD MARKET?

It is logical that the CFTC will ask the same question of other markets and uncover similar practices in those markets.   We hope that the banking morality that condoned these practices is at least sound enough to stop such practices when they are seen in their systems.   If so we should expect month end options and futures markets as well as the physical markets should become buoyant at month-end and not flat as ‘spoofing' kicks in.   A look at Friday the 29th October's silver and gold prices [and other markets?] could prove a revelation?

The same traders, speculators and bankers are deeply involved in the gold market too.   One has to commend commentators like GATA and Ted Butler and others who have been shouting that this is common practice for a very long time only to be treated with disdain by so many.   We hope they keep up their vigilance and keep the CFTC in the picture and doing their job.   Such results will certainly help to secure your profits in these markets.

THE AGE OF CONSEQUENCES

Bad banking practices have been going on for a long time, perhaps millennia but never has there been a time when so many have been exposed to the public eye.   We have long considered Politicians somewhat less than honest but they continue at the helm of society.   But again, never have so many dishonest politicians or their practices been so exposed.   We do live in an age of consequences now and we do expect it to continue.   What are the results of this in the financial world?   Distrust, doubt, increasing regulation but worst of all declining confidence is spreading across the world in the developed world's attitudes and practices.   If these revelations keep on coming then the description, moral turpitude would well describe the ways of the West.   Hopefully alarm bells are ringing in the right quarters and action is being taken, or is it?

What is a very visible consequence is the rising trust in gold as a wealth protector and counter to the depredation of the developed world.   The advantage that the emerging world has is that they never trusted their investments to ‘the system' before and are now seeing why they are right not to do so.   One of gold and silver, for that matter, is that they are outside the system of obligations by government [such as currencies are bound by].   Once in your hand you alone control it.   That is, of course unless the financial situation governments find themselves in becomes dire, then they are inclined towards following President Roosevelt in 1933 and confiscate their citizens gold.   Many ridicule that possibility.  

BANKS SELL CUSTOMER'S GOLD!

A sobering example of just how government, the banking system and citizens can end up against each other over gold came today, when we saw the report that Vietnam's central bank has stopped banks selling gold deposited by customers and using the funds for loans or for converting into foreign currencies, partly to help take downward pressure off the dong.   It is also concerned that, if the value of gold continues to soar, banks could suffer heavy losses when they have to buy gold back to repay depositors. 

Julian D. W. Phillips

Gold/Silver Forecaster – Global Watch

GoldForecaster.com

Is your wealth effectively structured to avoid the pernicious effects of the regulatory climate that we have moved into? It should be and we can help you to do so professionally and within the law. Please contact us for any help regarding this at: gold-authenticmoney@iafrica.com.

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Risk-Off Trades Dominate. Commodities Slump as USD Strengthens

ONG Focus | Insights | Written by Oil N' Gold | Wed Oct 27 10 07:50 ET

Risk appetite remained weak in European session amid concerns about 'measured QE' policies. The dollar strengthened while growth currencies and other risk assets plunged. Aussie tumbled as inflation missed expectations. Focus in the US session will be on durable goods orders, new home sales and oil inventory data. Commodities fell across the board. The front-month contract for WTI crude oil slipped below 82 ahead of official oil inventory report. Precious metals and base metals also slumped on profit-taking.

The Wall Street Journal said that the Fed will likely announce a bond-purchase program, worth a few hundred billion dollar spanning over several months, at the FOMC next week. The amount would be significantly lower than market expectations of at least $500B over 5 months. Investors took profits from previous 'short-USD' trades as the selloff was probably over-extended with such a 'small' amount of QE.

Currently trading at 0.9715, Australian dollar plummeted for a second day against the dollar as CPI surprisingly eased to +2.8% y/y in 3Q10 from +3.1% a quarter ago. This may prolong RBA's pause in tightening. Other commodity currencies, New Zealand and Canadian dollars also fell. The RBNZ will leave the official cash rate (OCR) unchanged at 3% for a second month at today's meeting. The accompanying statement will also be dovish as led by disappointments from GDP growth and retail sales. Policymakers would reiterate that 'the pace and extent of further OCR increases is likely to be more moderate' that previously anticipated.

The base metal complex has been a bright spot in recent months with copper's rally probably the most eye-catching. LME copper for 3-month delivery has risen for 4 consecutive months since July and accumulated about +30% gains since then. The major reasons buoying the price are robust Chinese demand, quantitative easing outlooks, weakness in USD and expectations of launch of physically-backed ETFs. We believe the last 2 were factors driving the rise to recent highs.

Besides JP Morgan, BlackRock has also planned to issue an ETF backed by copper. According to filing documents, each share in the iShares Copper Trust will represent 10kg of copper. It is expected these investment instruments should send prices higher. However, the impact may only be temporary.

Take copper as an example. Supply tightness is evidenced by low inventory levels and mine production problems. It's not unlikely that ETF issuers will acquire the metal from producers. Rather, they will source from LME house, thus, exacerbating the decline in LME stock. In this case, copper price will be boosted initially but higher copper price will trigger sales of scrap copper and demand for substitution. Eventually, copper price will again fall from the peak.

 

Latest Analysis from this Author

Economic Calendar 11/1/10 (Sunday, 31 October 2010 14:44 ET)Weekly Fundamentals - QE2 Decisions the Key Event ... (Saturday, 30 October 2010 12:11 ET)Gold Weekly Technical Outlook (Friday, 29 October 2010 18:03 ET)Silver Weekly Technical Outlook (Friday, 29 October 2010 18:02 ET)Crude Oil Weekly Technical Outlook (Friday, 29 October 2010 18:02 ET)Natural Gas Weekly Technical Outlook (Friday, 29 October 2010 18:01 ET)Sentiment Sours ahead of US GDP (Friday, 29 October 2010 07:07 ET)Gold Soars as ECB Policymakers Warn about Currency... (Friday, 29 October 2010 00:39 ET)Economic Calendar 10/29/10 (Thursday, 28 October 2010 11:43 ET)Gold Daily Technical Outlook (Thursday, 28 October 2010 07:14 ET)

View the original article here