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US President Trump is holding the cards at this juncture. His tax cuts and reforms are now being viewed as becoming within reach. Thursday, the Senate approved a budget measure that may enable Republican leadership to initiate changes to the US tax code while not impacting the budget deficit badly. The Fed speaks and the market typically will react. The next Fed meeting is October 31st - November 1st. The December Fed meeting is scheduled December 12th - 13th. In this case the Fed has sentiment projecting a rate hike possibly on the table for December. Trump is interviewing and honing in on a possible Fed Chairperson. Jerome Powell, John Taylor and of course our current Fed Chair Janet Yellen may all be considered. The market will possibly react more to the deliverance or the inaction with more velocity than with earnings. Inflation still remains a muted 1.3 % a far cry from the Feds 2 % target rate. The last employment report came in at -33,000 due to the hurricanes that tormented parts of the US.

Seasonally, we look for the Christmas Gold run to begin. If the market can stay above $1300.00, we are on our way. According to the World Gold Council the Q2 Gold demand was decreased 10 % from 2016 at 953.4 tons. Central Bank net purchases were also lower than the previous year at 176.7 tons. The bar and coin investment sector was increased. By the end of Q2 (June) the Gold backed ETF's were 2.313 tons, that is $92.4 billion. The Gold backed ETF's in August were increased by 31.4 tons to 2,295 tons. The Perth Mint reports sales of Gold coins and bars at 46,415 ounces for September.

Gold is one of the very credible products that will have a tendency to bring both rational and emotional security. The US Dollar has drifting lower perhaps due to the anticipated tax cuts that were part of President Trump's election mantra having difficulty coming to fruition. Technology may further support the rise of metals as more Gold products become accessible online. Such as Goldmoney which handles $1.9 billion dollars in custodial assets. Instead of being backed by currencies they are backed by Gold and operate like a bank account.

While Gold itself may have enduring qualities, Investors may want to review their investment choices by:

  • How are they regulated?
  • Transparency.
  • Governance.
  • Capital position.
  • Integrity.
  • Technology.

Courtesy of the World Gold Council.

The US Dollar and Gold usually have that inverse relationship we've grown to look for! Yet both have been pressured in a risk-on environment. The thing about the Gold is that it is an emotional market that may move quicker and with more momentum than most when any of the factors that support it may trigger. One must ask though, if stock products were so wonderful, then why do the central banks hold Gold reserves. We must remember the true nature of Gold as a position trade of a safe-haven product. When the global condition may be unstable in any way, the investment world flocks to Gold. It is unusual for the Gold to be up when the Stock Indexes are also up. Something has to give! The Stock Indexes could be vulnerable to any pressures at these levels. Thus the opportunity for Gold to spike up! The problem being that any spike downs take out the stops and create momentum in a snowball effect. Traders may panic and reverse during such moves. We must recall the reason for holding Gold. As a safe-haven, it should be a portion allocated in proportion to the portfolio size. It must be able to sustain worst-case scenarios. The weaker US Dollar is also supportive to the Gold for the moment. Correlations may change over the years, so we cannot rely on the inverse relationship solely to propel the Gold higher.

According to the World Gold Council there are factors to support the Gold demand in 2017!

  • Heightened political and geopolitical risks
  • Currency depreciation
  • Rising inflation expectations
  • Inflated stock market valuations
  • Long-term Asian growth
  • Opening of new markets

The World Gold Council reminds us that 90 % of the physical demand for Gold comes from outside the US. Russia has been buying Gold and according to the Russian Central Bank may have 1,614.27 tons accumulated at this point. Asian economies may gain in wealth and they are notorious for purchasing Gold. It is projected that Asia may account for about 60% of the global growth in 2017. They have introduced their Gold Accumulation Plans at the Shanghai Gold Exchange thus encouraging holdings by consumers according to the World Gold Council. Japan has also increased their Gold holdings in recent years. Should the US Dollar become less of a premier currency since the Chinese have gained the Special Drawing Rights with the International Monetary Fund, then the US currency may be questioned where it is currently the preferred world currency. That is where Gold comes in! The People's Bank of China had gotten approval for their Special Drawing Rights (SDRs) from the World Bank allowing them to issue bonds drawn in Chinese Renminbe (RMB). As of October 1st, they include the Yuan. They have been known to buy Gold in recent years to accumulate backing for this event that they have waited for. The International Monetary Fund's special drawing rights is a feather in the cap for the Chinese currency. The Shanghai Exchange has had a sharp uptick in activity according to the World Gold Council to 346 tons compared to the normal 100 tons. The Shanghai Exchange (SGE) was selected by the Dubai Gold Exchange for the Shanghai Fixings as opposed to the London Fixings. China's Gold reserves as of the end of August were 59.24m fine troy ounces according to Bloomberg.

The SPDR Gold Trust has conformed to the rules of the Sharia Law thus certified by the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI). Sharia Gold Standard has been approved by the World Gold Council in conjunction with other entities. Expectations for increased Gold sales may propel the Gold products higher. Currently there are few Sharia Law compliant products for Muslim investors. Once the guidelines have been met, the products available may increase thus allowing more allocations in Gold products. The Islamic Finance Stability Board expects growth to be around $6.5 trillion by 2020 with just a 1 % projection toward Gold allocations would be about 1,700 tons of Gold according to the World Gold Council. In Dubai, a new currency, the OneGram (OGC) is backed by one gram of Gold and may be used for digital payments. This may take off and offer more demand on Gold!

German investors added 76.8 tons of Gold thru ETF's, bars and coins according to the World Gold Council. According to the World Gold Council, every central bank reserve manager follows the mantra of: safety, liquidity and return. The financial universal market for Gold is thought by the World Gold Council to equate to approximately $3 trillion US. If the central banks continue to purchase Gold as insurance if you will for their country's reserves, then the investors themselves may continue to seek the Gold as a hedge for their portfolios. The Fed potential hikes and the strong US Dollar may pressure the Gold, but nothing can take away the safe-haven feature of the metal.

The main sentiment pushing the Gold prices is protection as a hedge against inflation. The US has been going thru a low inflationary period that is expected to turn into a high inflationary period with the new leadership. According to former Fed Chair Alan Greenspan, "Gold is not for short-term gain, but for long-term protection". Dr. Greenspan believes that there may be a risk of stagflation globally stemming from stagnant economic growth paired with rising inflation according to his commentary in a report from the World Gold Council.

Gold Chart

(QST 10/20/2017 6:15 PM CST)

The safe-haven properties of the Gold are perfect for those times of uncertainty and/or conflict in the world or a time of easing! The Gold (December) contract is in a bearish mode if it stays below $1307.80. $1283.20 may be the comfort level or point of control. The range may be $1300.00 to possibly $1250.00 for the moment. If $1250.00 holds, it may be viewed as a potential support. Any poor data, disappointment in the current administration, conflict or dovish Fed may boost the price of Gold. The unmet inflation target may also create that doubt in the US economy. A Fed hike then would pressure the Gold market further to previous levels.

Leslie Burton of https://www.danielstrading.com/about-us/futures-brokers/leslie-burton

Take a close look and feel free to call in and talk to me in greater detail. It would be my pleasure. Good trading! Call me at (877) 224-1952 or email me at lburton@danielstrading.com

Risk Disclosure

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE. THE RISK OF LOSS IN TRADING FUTURES CONTRACTS OR COMMODITY OPTIONS CAN BE SUBSTANTIAL, AND THEREFORE INVESTORS SHOULD UNDERSTAND THE RISKS INVOLVED IN TAKING LEVRAGED POSITIONS AND MUST ASSUME RESPONSIBILITY FOR THE RISKS ASSOCIATED WITH SUCH INVESTMENTS AND FOR THEIR RESULTS.YOU SHOULD CAREFULLY CONSIDER WHETHER SUCH TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR CIRCUMSTANCES AND FINANCIAL RESOURCES. YOU SHOULD READ THE "RISK DISCLOSURE" ACCESSED AT DANIELSTRADING.COM. DANIELS TRADING IS NOT AFFILIATED WITH NOR DOES IT ENDORSE ANY TRADING SYSTEM, NEWSLETTER OR SIMILAR SERVICE. DANIELS TRADING DOES NOTE GUARANTEE OR VERIFY ANY PERFORMANCE CLAIMS MADE BY SUCH SYSTEMS OR SERVICES. STOP ORDERS DO NOT NECESSARILY LIMIT YOUR LOSS TO THE STOP PRICE BECAUSE STOP ORDERS, IF THE PRICE IS HIT, BECOME MARKET ORDERS AND, DEPENDING ON MARKET CONDITIONS, THE ACTUAL FILL PRICE CAN BE DIFFERENT FROM THE STOP PRICE. IF A MARKET REACHED ITS DAILY PRICE FLUCTUATION LIMIT, A 'LIMIT MOVE'', IT MAY BE IMPOSSIBLE TO EXECUTE A STOP LOSS ORDER. WHEN INVESTING IN THE PURCHASING OF OPTIONS, YOU MAY LOSE ALL OF THE MONEY YOU INVESTED. WHEN SELLING OPTIONS, YOU MAY LOSE MORE THAN THE FUNDS YOU INVESTED. STRATEGIES USING COMBINATIONS OF POSITIONS, SUCH AS SPREAD AND STRADDLE POSITIONS MAY BE AS RISKY AS TAKING A SIMPLE LONG OR SHORT POSITION. A PERSON CONTEMPLATING PURCHASING A DEEP-OUT-OF-THE-MONEY OPTION (THAT IS, AN OPTION WITH A STRIKE PRICE SIGNIFICANTLY ABOVE, IN THE CASE OF A CALL, OR SIGNIFICANTLY BELOW, IN THE CASE OF A PUT, THE CURRENT PRICE OF THE UNDERLYING FUTURES CONTRACT OR UNDERLYING PHYISCAL COMMODITY) SHOULD BE AWARE THAT THE CHANCE OF SUCH AN OPTION BECOMING PROFITABLE IS ORDINARILY REMOTE. YOU SHOULD BE AWARE THAT IN THE EVENT YOU LIQUIDATED THE LONG SIDE OF A BULL CALL SPREAD AND STILL MAINTAINED THE SHORT OPTION POSITION, THEN YOUR RISK WOULD BE UNLIMITED. A PERSON CONTEMPLATING PURCHASING A DEEP-OUT-OF-THE-MONEY OPTION (THAT IS, AN OPTION WITH A STRIKE PRICE SIGNIFICANTLY ABOVE, IN THE CASE OF A CALL, OR SIGNIFICANTLY BELOW, IN THE CASE OF A PUT, THE CURRENT PRICE OF THE UNDERLYING FUTURES CONTRACT OR UNDERLYING PHYISCAL COMMODITY) SHOULD BE AWARE THAT THE CHANCE OF SUCH AN OPTION BECOMING PROFITABLE IS ORDINARILY REMOTE. FOR CUSTOMERS TRADING OPTIONS, THESE FUTURES AND/OR FOREX CHARTS ARE PRESENTED FOR INFORMATIONAL PURPOSES ONLY. THEY ARE INTENDED TO SHOW HOW INVESTING IN OPTIONS CAN DEPEND ON THE UNDERLYING FUTURES PRICES; SPECIFICALLY, WHETHER OR NOT AN OPTION PURCHASER IS BUYING AN IN-THE-MONEY, AT-THEMONEY, OR OUT-OF-THE-MONEY OPTION. FURTHERMORE, THE PURCHASER WILL BE ABLE TO DETERMINE WHETHER OR NOT TO EXERCISE HIS RIGHT ON AN OPTION DEPENDING ON HOW THE OPTION'S STRIKE PRICE COMPARES TO THE UNDERLYING FUTURE'S PRICE. THE FUTURES CHARTS ARE NOT INTENDED TO IMPLY THAT OPTION PRICES MOVE IN TANDEM WITH FUTURES PRICES. IN FACT, OPTION PRICES MAY ONLY MOVE A FRACTION OF THE PRICE MOVE IN THE UNDERLYING FUTURES. IN SOME CASES, THE OPTION MAY NOT MOVE AT ALL OR EVEN MOVE IN THE OPPOSITE DIRECTION OF THE UNDERLYING FUTURES CONTRACT.THIS MATERIAL IS CONVEYED AS A SOLICITATION FOR ENTERING INTO A DERIVATIVES TRANSACTION. THIS MATERIAL HAS BEEN PREPARED BY A DANIELS TRADING BROKER WHO PROVIDES RESEARCH MARKET COMMENTARY AND TRADE RECOMMENDATIONS AS PART OF HIS OR HER SOLICATION FOR ACCOUNTS AND SOLICIATION FOR TRADES. DANIELS TRAIDNG, ITS PRINCIPALS, BROKERS AND EMPLOYEES MAY TRADE IN DERIVATIVES FOR THEIR OWN ACCOUNTS OR FOR THE ACCOUNTS OF OTHERS. DUE TO VARIOUS FACTORS (SUCH AS RISK TOLERANCE, MARGIN REQUIREMENTS, TRADING OBJECTIVES, SHORT TERM VS. LONG TERM STRATEGIES, TECHNICAL VS. FUNDAMENTAL MARKET ANALYSIS, AND OTHER FACTORS) SUCH TRADING MAY RESULT IN THE INITIATION OR LIQUIDATION OF POSITIONS THAT ARE DIFFERENT FROM OR CONTRARY TO THE OPINIONS AND RECOMMENDATIONS CONTAINED THEREIN. EXAMPLES OF HISTORIC PRICE MOVES OR EXTREME MARKET CONDITIONS ARE NOT MEANT TO IMPLY THAT SUCH MOVES OR CONDITIONS ARE COMMON OCCURRENCES OR ARE LIKELY TO OCCUR. HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM. ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADE PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF THE HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS. EXAMPLES OF HISTORIC PRICE MOVES OR EXTREME MARKET CONDITIONS ARE NOT MEANT TO IMPLY THAT SUCH MOVES OR CONDITIONS ARE COMMON OCCURRENCES OR ARE LIKELY TO OCCUR. STRATEGIES USING COMBINATIONS OF POSITIONS, SUCH AS SPREAD AND STRADDLE POSITIONS MAY BE AS RISKY AS TAKING A SIMPLE LONG OR SHORT POSITION. YOU SHOULD BE AWARE THAT IN THE EVENT YOU LIQUIDATED THE LONG SIDE OF A BULL CALL SPREAD AND STILL MAINTAINED THE SHORT OPTION POSITION, THEN YOUR RISK WOULD BE UNLIMITED. YOU SHOULD CAREFULLY CONSIDER WHETHER SUCH TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR CIRCUMSTANCES AND FINANCIAL RESOURCES. YOU SHOULD READ THE "RISK DISCLOSURE" ACCESSED AT DANIELSTRADING.COM. DANIELS TRADING IS NOT AFFILIATED WITH NOR DOES IT ENDORSE ANY TRADING SYSTEM, NEWSLETTER OR SIMILAR SERVICE.

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