Friday market report: Year of the trader

April 14, 2017 08:12 AM

Morning trader checklist:                                                                

- Gold price breaks above key 200-day moving average

- Gold hits 5-month high on back of investor nervousness

- Safe haven has 10% gains in 2017 after 9% gains in 2016

- Gold options signal more gains as ETF buying increases

- Geopolitical uncertainty over North Korea & Middle East

- Tensions high -World awaits US move & Russia response

- Russia says chemical attack was terrorist "false flag"

- Poor March jobs report shows U.S. economy vulnerable

- French elections still tight and Le Pen still has chance

Metals Weekend Trivia:  What was the first metal to be formed into a tool?

Is There More Room at the Top?/Bloomberg:  Gold options are signaling there’s more room to run for bulls. Prices and volumes surged Tuesday on calls giving holders the right to buy bullion at higher prices. As of 11:21 A.M. in New York, trading in the most-active option was 10 times Monday’s total, and price swings on options were at the highest in three months. Investors also returned to the biggest exchange-traded fund backed by the metal.

India gold Imports Said to Jump 582% on Festival, Wedding Demand/Shruti Srivastava & Swansy Afonso:  Gold imports by India are said to have jumped almost seven-fold in March from a year earlier as jewelers stocked up anticipating a demand recovery during the wedding season that began this month and the auspicious Hindu gold-buying day of Akshaya Tritiya.

Shipments advanced 582.5% to 120.8 metric tons last month from a year earlier, according to a person familiar with provisional data from the finance ministry, who asked not to be identified as the data aren't public. Imports dropped 20% to 716.4 tons in the year ended March 31.

London Gold Benchmark Fixes $12/oz. Off Spot Price/Reuters - Peter Hobson & Jan Harvey:  London's gold price benchmark fixed some $12 per ounce below the spot price on Tuesday afternoon as the auction appeared to become locked in a downward spiral. From an initial $1,265.75, close to the spot price at the time, the auction price ratcheted steadily lower before fixing at $1,252.90 in the ninth round. From the fifth round to the eighth the bid and offer volumes remained frozen, unable to match.

Data on the website of the auction's administrator, Intercontinental Exchange (ICE) showed that only five banks took part in the auction on Tuesday afternoon, out of 14 officially accredited participants. This came a day after ICE introduced clearing for the LBMA Gold Price auction, which sets the benchmark used by gold consumers and producers worldwide, before several participating banks had the necessary systems in place. As a result, China Construction Bank, Société Générale, Standard Chartered and UBS are yet to confirm a date for their participation in the cleared auction, according to a notice on the LBMA's website. ICE declined to comment. The LBMA, which owns the intellectual property rights to the auction, was not immediately available to comment.

Lead Price Boost as Deficits Set to Widen/Frik Els - Mined lead production will continue to feel the effects of a global slowdown in mining capital expenditure, which will have a knock-on effect on refined lead supply. China produces nearly half the world's mined lead and is responsible for some 40% of global refined lead output. The country's production of refined lead will stagnate on the back of Beijing's pollution clampdown on heavy industry and growth will be muted at best elsewhere. China's imports of lead were up threefold last year and will slow going forward, but an increasing refined deficit will support import levels. Tightening conditions are already evident with LME warehouse stocks falling by 10% over the past month

Thanks to high recycling rates (lead's main application is in batteries and in the United States for instance recycling rates are close to 100%) mining makes up less than half of annual global supply.

Rationalize Your Lubricants/6 Ways to Decrease the Oil Cost on a Mine Site: A core fundamental of oil management is to rationalize the number of lubricants and lubricant packaging. The Total mining team has observed that this can result in savings up to 17 % of your total oil cost! This is done through savings in physical inventories, costs associated with handling, spoilage, theft, storage space and stock obsolescence.

*To our miners, if your using the Tornado Platform to hedge the risk in your core metals production we can also offer you the ability to hedge oil consumption. The creation of an energy hedge plan is at your disposal, today!

Pete's Corner

Gold to Rise When Treasury Currency Report is Published/Joaquin Monfort:  The US Treasury report on currency manipulation was ordered by Donald Trump to address the issue of countries manipulating their currencies, normally to devalue them and give an unfair advantage to their own exporters. The report is expected to be published mid-April and it expected to have a strong impact on the currency markets. Another market the findings may impact is that of gold which is heavily influenced by sentiment flows as it is used as a safe-haven in times of stress. 

If they are made, allegations of currency manipulation are likely to create greater geopolitical tensions, increasing demand for the precious metal. Most gold bullish outcome would be if the report actually named a big country a currency manipulator, according to James Steel, Chief Precious Metals Analyst at HSBC.

Goldman Sachs - Higher Real Rates to Ding Gold in Next Half Year/Allen Sykora - Kitco News:  Goldman Sachs analysts look for gold to pull back in the next half year as real interest rates rise but are “agnostic” for the longer term due to uncertainty about U.S. interest rates further down the road. Analysts also look for a pullback in silver and palladium but gains for platinum. In a research note released Wednesday, Goldman listed three-, six- and 12-month price targets for gold of $1,200, $1,200 and $1,250 an ounce, respectively. Comex June gold was trading up $2 at $1,276.30 an ounce as of 10:09 A.M. EDT.

“Although it is possible that further unwinding of the Trump-related equity trades or escalation in heightened geopolitical tensions pushes gold even higher in the next several weeks, we think that over the next three months, improvement in U.S. hard growth data and subsequent increase in real rates would bring gold prices down,” Goldman said.

The Trader

As you know I have been calling this the year of the trader. I read this article from a very well respected trader in his own right, Peter Hug, and I thought I would share it with you as it stands on its own. This individual does not care if we get hyper-inflation or a return to normal prosperity. The trader NEEDS volatility. There is no loyalty to the investment and positions can be maintained for moments. The psychology here is strictly profit. Buying physical metal is much too expensive from a spread perspective. The trader is looking for tight spreads, liquidity and movement (volatility). The futures exchange offers the best vehicle for the “experienced” trader. It’s a dangerous market for the novice. For individuals that wish to hold metals in a less expensive way than in physical form, unallocated accounts are at times an excellent alternative. Spreads range for 1/8% to 1/4% of 1%, which compares to spreads on physical ranging from 2% to 7%. It is important with these accounts that the metals are segregated from the assets of the dealer.  Larger dealers offer 24/7 capability with these accounts and provide alert services to keep clients aware of price movements. Since these are fully paid for positions, individuals do not need to worry about margin calls or mandatory liquidation which occurs in the futures markets.

Two tips from Peter that I like to close with:

Liquidity, liquidity, liquidity is the primary consideration. Look for extended transaction hours. Look for global representation. You may want delivery to HK, Singapore, Zurich, London. Not likely your favorite coin dealer can help you.

Geographical diversification is important. The mostly likely reason that you are buying physical metal and paying expensive spreads and then storing it; is because you do not trust paper promises or Government interference. If this is the case, why would you even consider storing the metals in your country of residence?

Zaner Metals has storage agreements with the largest vaulting and storage company in the Cayman Islands.

Weekend Trivia Answer:  Shiny, reddish copper was the first metal ever manipulated by humans, and it remains an important metal in industry today. The oldest metal object found in the Middle East consists of copper (it was a tiny awl dating back as far as 5100 B.C..).

Zaner Precious Metals Speaking Engagements:

Central States Numismatic Show

I will be speaking about hedging risk and the "how to rules for users" for coin dealers on the Tornado Platforms at the Central States Numismatic Show in Schaumburg, Illinois.

John Miles from our Commercial Division will be covering ERP integration from our Tornado Solutions Package


The 31st Annual Santa Fe Symposium®

Jaeson Parsons will be speaking on our hedging platform, Tornado. Make plans now to be in Albuquerque, New Mexico, from May 21–24, 2017.


About the Author

Peter Thomas is a senior vice president at the Zaner Precious Metal Division. As a licensed floor broker he was a filling broker in the silver pit back in the days when silver ran to $55 an ounce. He currently manages a global cash desk which handles Refiners, Recyclers, Mining Operations and Coin & Bullion companies.