Hedge funds add 30% to bullish bets in Gold.

The gold price ended Friday with a third week in a row of gains after bullish positions held by large investors soared again.

By the close of regular trade on the Comex division of the New York Mercantile Exchange, gold futures for April delivery – the most active contract – hit $1,323.60 an ounce, up $6.70 from Thursday's close.

There appears to be a definite shift in sentiment this year after 2013's dismal performance with the smart money only now catching up with gold's almost 10% rise this year.

Long positions – bets that the price will go up – held by so-called managed money increased by 8% to 140,840 lots in the week to February 18 according to Commodity Futures Trading Commission data released after the close of business on Friday.

At the same time short positions were cut by 10,603 to just under 50,000, which translates on a net basis hedge funds holding 31% more bullish positions: net longs of 90,942 lots or 9.1 million ounces.

Net longs jumped 17% in the week to February 11, CFTC data showed. Net longs fell to a paltry 26,700 lots in early December when shorts held by large investors peaked at more than 80,000 lots.

That was the highest number of short positions since 2007, back when gold changed hands for $700 an ounce.

Shanghai Stocks Continued Downward Trend

At a time when many of the world's major stock indices are showing signs of topping, the Shanghai Composite Index is poised to continue the decline it began in 2009. Although there is probably a long-term buying opportunity on the horizon, in the near term we expect opportunities for two or more short trades. In this article, we describe our primary scenario for that index, showing possible price targets and a rough time frame for a decline. Readers interested in the alternate scenario, which is more bearish.

The spectacular crash in the Shanghai index in 2007 and 2008 coincided with the decline in stock indices worldwide, and Shanghai also participated in the global stock rally from late 2008. However, while many other indices continued to advance after that time, Shanghai has taken a sideways-down path to visit prices not far from its 2008 low.

We don't believe the decline is over. Traders working on a time frame of a few weeks may still find short trades from a continued series of lower highs, especially using the channel trendlines as a guide. Investors with a long-term perspective should watch for a buying opportunity sometime in late 2014 or 2015.

We admit it was difficult to assign an Elliott wave count to the decline from 2009. There have been several overlapping moves, and many of the sub-moves have corrective patterns. The whole decline is best seen as a large, downward diagonal C-wave. The factor that crystallized the count for us was the index's good behavior within the modified Schiff channel shown on the weekly chart below.

From the current price area, we expect the index to trace out a final three-wave move downward into support. If it stays within the channel, then 1,536 is an attractive target. However, 1,342 and 1,099 are also viable. In any case, if this scenario comes to pass, price probably will remain above the index's 2005 low of 998.23.

Another thing to watch for confirmation of this scenario is the index's behavior in the near-term with respect to the midline of the channel. Price should be entering the down-phase of the 44-week empirical cycle. The primary scenario would be called into question if price rises very far above the midline, and certainly if it exceeds the prior high labeled as "a" of "(iv)". At that point, the alternate scenario would probably move to the fore, and we might also consider that a cycle inversion had occurred.

India may slash gold import tax to 6% before end of Feb

A new report citing a senior government official says India may cut its gold import duty to between 6% and 8% before the end of February.

India's finance ministry, fighting a crippling current account deficit and a weakening currency pushed up gold import duties tenfold – from 1% at the start of 2012 to 10% today.

WSJ.com reports the government is now considering reducing the import tax "as the current-account deficit is estimated to have fallen by almost half to around $45 billion this financial year ending March 31 from $88 billion last year.

Other measures including excise duties at 9% and new rules such as strictly cash only for imports, a rule that calls for the re-export of 20% of all imports, transaction taxes and even bans on gold-backed exchange traded fund investments have all stymied India's gold industry.

But the government import restrictions have led to a scarcity of physical gold inside the country which increased smuggling activity and sent premiums paid over the London price to rocket to as much as $130 an ounce during the gold festivals and wedding season.

Despite the curbs Indian consumption still rose by more than 100 tonnes to 975 tonnes last year while according to some estimates "unofficial imports" almost doubled.

The gold trade employ three million Indians and according to polls India's ruling Congress party is facing defeat at June's general elections.

Rusal reports record low aluminum output in 2013

World’s largest aluminum company-Rusal reported a drastic drop in its aluminum output during 2013. The company’s aluminum production touched record lows during the year. The total yearly aluminum production amounted to 3.86 million mt. Further, Rusal sees the output to drop further to 3.5 million mt during 2014.

The aluminum output during 2013 declined by nearly 8% over the year, when compared with the total output of 4.17 million mt in 2012. According to Oleg Deripaska, CEO, Rusal, the company has been successful in implementing the production-cut plans as scheduled. He further stated that the reduced operational levels are expected to be sustained throughout 2014 as well.

Rusal's total aluminum production capacity is 4.5 million mt/year across 14 plants worldwide. Of these 14 aluminum smelters, 12 have cut output year on year in 2013 anywhere from 5% to 90%. The exceptions were the Bratsk and Krasnoyarsk smelters in Siberia, the two largest production units with a capacity of 1 million mt/year each. These two smelters posted 0.2-0.7% output increases in 2013.

Rusal forecasts global aluminum consumption growth of 6% in 2014 over 2013. According to the company, China and other Asian economies are expected to grow strongly and the developed markets including the US and Europe should continue to show a healthy growth. Also, ex-China aluminium market deficit will grow from 570 thousand tonnes in 2013 to about 1.4 million tonnes in 2014.

"Polar Vortex" Shock

The "polar vortex" shock has arrived, only this time it is not in the form of another 12 inches of overnight snow accumulation but in the shape of household utility bills. A reader was kind enough to send us his just received ConEd bill for the month ended Februery 10. The result speaks for itself. It also speaks for where so much of US household disposable income will go in first quarter. 

And unfrotunately it will get worse before it gets better. On the back of a rapid decline in the "glut" of low cost natural gas (as stockpiles are drawn down to the lowest level since 2004) and the shift in forecast (that the freezing weather could last well into March), Natural gas futures are soaring (up over 10% today). This is the highest front-month futures contract price since December 2008 as "the possibility of periodic shortages now looms."

Arbitrage opportunities

How will you react if someone says that there are arbitrage opportunities in a particular commodity?

If you are not familiar with the market, it could sound Greek or Latin to you. But if you are familiar with the market, you will immediately react, saying you are already tapping them.

Market behaves differently from one place to another or even one exchange to another. One reason why arbitrage is available is because no market is perfectly efficient.

When the inefficiency shows up in one market or the other, traders get an arbitrage opportunity.

Basically, arbitrage is buying a commodity in one market and simultaneously selling it in another, profiting from a temporary difference. This is considered a riskless profit for an investor or a trader.

For example, let us take the arbitrage opportunity in gold contracts that was available a couple of weeks ago on the National Commodities and Derivatives Exchange (NCDEX) and the Multi Commodity Exchange of India (MCX).

On January 24, gold contracts maturing for delivery in April ruled at ₹28,815 for 10 gm on NCDEX. On MCX, they were quoted at ₹28,623.

On both these exchanges, gold is traded in a unit of 1 kg with prices being quoted at ₹/10 gm.

The arbitrage opportunity here is that a trader can buy one unit on MCX and sell one unit on NCDEX.

But things are not as simple as they seem to be. This is because you cannot interchange commodities from MCX to NCDEX or vice-versa.

Therefore, you will have to look for opportunity to square off the positions on both the exchanges. It will depend on how prices behave subsequently.

Arbitrage opportunities are available in spot markets too but you will have to take into account factors such as local taxes and transportation charges.

Russian giant Rusal sees Aluminum output to decline further in 2014

Russian giant Rusal expects its aluminum output to decline further to 3.5 million metric tons this year.

Company's aluminum production declined by 8% year-on-year 3.86 million metric tons last year, the lowest output since its 2007 merger with Sual.

“Last year witnessed the supply side adopting a disciplined approach to production, with Rusal successfully completing its production cut program which resulted in cuts of 316,000 mt, or 8%, compared to 2012. Reduced operational levels are expected to be sustained throughout 2014 as Rusal remains at the forefront of creating an efficient supply side dynamic,” said Rusal CEO Oleg Deripaska, in a statement on Tuesday.

The full impact of the production cuts, backed by growing consumption demand, have begun to be take effect, with the aluminum market – ex - China – moving into deficit at the end of 2013. This deficit is estimated to expand further in 2014.

Looking ahead, RUSAL expects global demand to remain healthy, with 6% growth forecast in 2014, supported by positive signals of returning confidence across all key sectors and markets. While demand fundamentals remain robust, it is vital that the supply side continues its disciplined approach to production. This will take time but there is no doubt that the industry is on the right path towards environmentally friendly and economically efficient production.

The company's aluminum production was the highest in 2008 at 4.42 million metric tons.