Gold Fixes/ Rates/ Volumes – Bloomberg
Gold is mixed in various currencies but popped nearly $15 after the Chinese announcement that they would be lowering their bank reserve ratio. It shows the world's second largest economy is swinging into easing mode which is not a good sign.
Hua Zhongwei, analyst at Huachuang Securities, Beijing: "It's the start of a relaxation cycle, and the central bank is expected to take more steps … the economic slowdown is there, and capital inflows are set to fall further, and many banks are finding liquidity shortages."
Gold’s fundamentals remain very sound due to strong broad based global demand and gold looks oversold technically.
Gold continues to consolidate, after its recent correction, below its 100 day moving average which appears to be acting as resistance for the moment.
The London AM and PM Gold Fix (USD) of the last two days in a row have been identical – to the cent – which is highly unusual. View data from LBMA Website.
On Monday and Tuesday, the 28th and the 29th of November, the gold fix was identical in dollar terms and nearly identical in pound and euro terms.
On Monday, the 28th, gold’s AM and PM fix was at $1,714.00/oz.
On Tuesday, the 29th, gold’s AM and PM fix was at $1,717.00/oz – exactly just $3.00 higher than the day before.
It may be a coincidence but if it is one, it is highly unusual as it happens rarely.
While it has happened twice in 2011 – on January 10th and February 2nd - it has never happened two days in a row. It happened six times in 2010 but again never for two days in a row.
Should it happen a third day in a row today – then questions will be asked as to whether the official sector and or bullion banks are attempting to fix prices at this level.
This was attempted by the London Gold Pool in the 1960’s when the Federal Reserve and seven European central banks capped and artificially suppressed the price of gold for a few years before the controls collapsed in 1968 due to free market realities.
Gold rose 24 times in the next decade from $35/oz in 1971 to $850/oz in 1980.
Obviously, there is a motivation for attempting to cap gold prices due to a real risk of an international monetary crisis due to the growing European and global debt crisis – not to mention an increasingly likely European currency crisis.
It is too soon to jump to conclusions and judgment must be suspended for now.
It will be interesting to see what happens on the London PM Fix at 1500 GMT today.
Cross Currency Rates - Bloomberg
Morgan Stanley has said it prefers exposure to gold, silver and livestock in the coming year, as such commodities perform well in a global economic slowdown.
Gold, silver and livestock are the most preferred commodities while base metals and crude oil are the least, the bank noted.
The defensive nature of gold, and silver to a lesser degree, will create significant investment demand as investors look for safe havens in a period of risk aversion.
Amanda Cooper in the Reuters Global Gold Forum reported on gold options positioning.
The shift in overnight open interest on the most-active contracts has been mostly in favour of upside calls, with strikes above $2000 generally seeing more increases in OI.
The largest change in overnight open interest on Feb options surfaced in $1950C, which rose 898 lots to 4,178 contracts, followed by $1750C, where OI rose 410 lots to 4,437. In the larger strikes, the most noticeable change was in $1800C, where OI fell 611 lots to 5,917 and in $2100C (-193 lots to 6,450).
For April options, the most significant change in OI filtered through into $1200P (+201 to 1,556), $2300C (+105 to 3,360) and $2200C (+100 to 5,011). Overall, the top three strikes by open interest remain the same: $2000C, $2500C and $1800C.
In December 2012, there was only very marginal changes in OI, leaving the ranking of the top three strikes unchanged at $3000C, $2000C and $2500C.
Finally, Amanda reminds us of the put/call split for 2012 gold options. Calls are heavily favoured on all most-active contracts, with April calls outnumbering puts by around 3:1 (see chart above).
Britain has evacuated all its diplomatic staff from Iran, Western diplomatic sources told Reuters on Wednesday.
Geopolitical risk remains elevated but is being ignored by markets for now.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.