Gold prices: where they’re headed and how to profit

As far as investment and trading opportunities go, gold is currently the stock market’s poor cousin. No one really craves the yellow ore at this time. The reality is that unless you are looking for jewelry, there’s really no reason to buy the metal right now.

Back in September, when I last discussed the prospects for this precious metal, I wrote that “in the absence of further turmoil in Ukraine, gold prices could deteriorate to below $1,200, possibly even $1,180.”

The precious metal did bounce to the $1,225 level recently on concerns surrounding ISIS and the economic situations in both Europe and China. Since then, it has also collapsed to below $1,200 to $1,170 for the December contract.

Following the Federal Reserve’s recent elimination of its third round of quantitative easing (QE3) and its hinting at higher interest rates coming sometime in 2015, the metal is now at its lowest level since April 2010. The strong advance reading of the third-quarter gross domestic product (GDP) growth at 4.5% and the strong earnings growth in S&P 500 companies are also making us lean towards higher rates. With this, the greenback has been moving higher, which is hurting the demand for gold due to its denomination in U.S. dollars.

In addition, inflation, a supporter of gold, continues to look benign both at this time and as we move forward. The metal is used as a hedge against inflation and risk, so in the absence of these two key variables, I’m not surprised to see prices move lower on the charts. And it could worsen.

Moreover, the so-called positive impact of buying from India and China appears to be neutralized. The lead off towards Christmas is a major buying period for India, but don’t expect a strong surge in prices unless the country buys the entire Fort Knox gold reserve.

In fact, according to an article published by Bloomberg, in October, more than $1.3 billion left U.S. exchange-traded funds (ETFs) that focused on precious metals. (Source: Roy, D., “Gold Bulls Retreat With $1.3 Billion Pulled From Funds,” Bloomberg web site, November 3, 2014.)

On the charts, the breakdown at the psychological $1,200 level is bearish. Now, we could see a bounce back, but it would likely have to be triggered by a sudden swelling in geopolitical risk. The reality is that traders and investors are looking at equities at this time and not gold.

Gold is simply not desirable as a buy-and-hold investment; at this time, it should only be traded.

The precious metal’s break below $1,180 is bearish. Failure to rally could see gold move lower towards the technical support level around $1,125; alternatively, an oversold bounce could drive prices back up towards $1,200. A lot will have to do with the state of the global economy and geopolitical risk.

You can trade the uncertainty of gold via the use of a long option straddle on an ETF like SPDR Gold Shares (NYSEArca/GLD). This strategy would involve a two-legged trade via the buying of a put option and a call option with the same strike price and expiry. Through the use of this investment strategy, you make money should gold move enough in one direction or the other to cover the premium paid to initiate the trade.

by George Leong, B. Comm.

Dumping $1.5 Billion In Gold Futures At 00.30 ET

For the 5th day in a row, "someone" has decided that 00.30ET (11 am IST) would be an appropriate time (assuming the 'seller' is an investor who prefers best execution rather than the standard non-economically-rational share-repurchaser in America) to be dumping large amounts of precious metals positions via the futures market. Tonight, with over 13,000 contracts being flushed through Gold - amounting to over $1.5 billion notional, gold prices tumbled $20 to $1151 (its lowest level since April 2010). Silver is well through $16 and back at Feb 2010 lows. The USDollar is also surging.

The timing of the dump is right as Japanese trading breaks for lunch

Gold dumped...

and silver too..

One more random thing... the oddly spurious correlation between gold prices and Japanese bank VaR proxies is back again

MCX-lead (₹123.3/kg):Buy

The lead futures contract traded on the Multi Commodity Exchange (MCX) advanced one per cent on Monday to ₹125/kg. Since bottoming out from the December 2008 low of ₹40, the metal has been on a long-term uptrend.

However, the contract encountered a key long-term resistance (October 2007 peak) at ₹155 in August 2014 and started to decline. With this up move one-leg of the contract's uptrend appears to have come to an end. The contract has been on broad sideways consolidation phase in the range between ₹121 and ₹140.

Short-term view: In early August, the contract encountered resistance at ₹140 which the upper boundary of the sideways consolidation phase and began to decline. The short-term trend has been down since then.

Nevertheless, the significant long-term support in the band between ₹120 and ₹121 halted the metal's decline in mid-October. Subsequently, the contract started to change direction triggered by positive divergence in the daily relative strength index as well as moving average convergence divergence indicator.

The daily RSI is moving higher in the neutral region towards the bullish zone. Further the daily MACD has signalled a buy.

As the contract is reversing higher from a significant support band with positive bias, we take a contrarian bullish stance on the contract in the short-term. The contract can extend its progressing up move in the coming week and reach the price target of ₹130 initially and then to ₹133. Traders with a short-term perspective can buy the contract and also accumulate in declines with a stop-loss at ₹120 levels.

Medium-term view: The medium-term outlook is sideways in the broad band between ₹121 and ₹140 for the MCX-lead futures contract. It is reversing from the lower boundary. A decisive rally above ₹130 can take the contract northwards to the upper boundary of ₹140 in the medium-term.

However, decisive close below the ₹120 will alter the sideways trend into bearish and pull the contract down to ₹115. In that scenario, investors should exit the long positions and stay on sidelines.

Peru trims its view of copper output in 2014, 2015

Peru will likely produce less copper this year and next than the government had forecast as big new projects face delays and output from the country's top producer has slid on lower ore grades.

Deputy Mines Minister Guillermo Shinno said on Tuesday that Peru's copper production in 2014 is now on track to rise just slightly from last year's 1.375 million tonnes.

"This year we'll reach 1.4 million tonnes of copper, almost the same as last year," Shinno told a news conference.

Next year the Andean country's copper output will rise to between 1.7 million and 1.8 million tonnes, Shinno said.

In September, Shinno said copper production in Peru would likely rise to 1.95 million tonnes in 2015 after coming in at about 1.5 million tonnes this year.

Shinno also said on Tuesday that Peru's gold production is set to fall by about 18 percent this year to around 4 million ounces, largely in line with his previous forecast.

So far this year, Peru's copper production has increased by 2.6 percent, while gold output has dropped 14.8 percent. 

A slower-than-expected ramp-up at Chinalco Mining Corp's large Toromocho mine has clouded the outlook for increases in copper production.

And a planned strike at the country's biggest copper producer, Antamina, now threatens to halt the mine's output of around 30,000 tonnes per month.

Antamina has already been struggling through a phase of lower ore grades. Production at the mine fell by 34 percent in September and 14 percent in the first eight months of 2014 from the same periods a year earlier.

Antamina is owned by BHP Billiton , Glencore Xstrata , Teck and Mitsubishi Corp .

"Next year we will again have Antamina with its usual production level," Shinno said. "They are going to produce 30 percent more compared to this year."

But a major boost in copper production from MMG Ltd's  Las Bambas project in southern Peru will have to wait until 2016. Last month, the Chinese-owned miner pushed back the start date for Las Bambas to early 2016 from the second half of 2015.

Peru is the world's third biggest copper and silver producer and the fifth biggest gold miner.

Nickel and its boom

In  the month of May, this year, nickel was supercharged, at the London Metal Exchange, climbing its highest peak, at 50 percent at 21,625 dollars per tonne. At the same time in the case of stainless steel, the price hit the ground  to 14,690 dollars  per tonne.

The sudden submission of nickel in the market has reflected the complete, hyped bull narrative of the market. The unexpected decision taken by the Indonesian government to ban the export of unprocessed minerals as well as lower grade nickel, triggered the forecasts on the surge.

One part of the forecast still states to be intact, which is, the Indonesian government’s ban on the nickel exports, even after such a long period of time, the country shows no signs of moving from its former decision, but still nothing changed, as predicted by the analyst.

It hasn’t; as expected, led to the halt of Chinese Nickel Pig Iron manufacturing as expected in the forecasts made by the analysts. Neither was there any kind of shortage or decline in the supply of iron ore in the market.

The stock houses at the London Metal exchange was filled with nickel produce and hit almost all the record, as the nickel produced in  China, flowed to LME warehouses. The story of nickel supply deficit, and closure of  nickel pig iron production of Chinese producers, even though expectations lingered on the surface.

Alcoa modernizes aerospace industries

The company, has also planned on to install modern manufacturing facilities in its plants, in order to ensure the high performance of aluminum-lithium plate as well as thick aluminum which is to be used in various applications including, fuselage frames as well as wing ribs.

The company’s investment in the plant would also include the installation aluminum plate stretcher, which would be used in the production of the commodities. The main use of the stretching process in the material is that, this procedure would, make the part of the plate, to be easily processed as well as machined. This brand new technique and method would enable the production of largest as well as high strength monolithic wing ribs in the whole aluminum industry.

Large wing ribs posses lack of strength and stiffness in the product. But in the case of the products produced in Alcoa, the aluminum stretcher would make sure that such a pressure does not take place in the produce.

The President of Alcoa Aerospace, Transportation and Industrial Products, Mark Vrablec, stated that,  the project intiated by the company, would be its key to progress in the aerospace industry. 

Oil: "It's The Economy, Stupid"

The cacophony of various talking heads proclaiming this morning that oil price weakness is not due to weak demand but to over-supply (which are obviously merely different sides to the same coin) was deafening. While he hate to steal the jam from their aggregate donuts, the following chart may just provide a hint at what is really driving oil prices... "it's the economy, stupid!"

Correlation is not causation but.. well in this case, it is

But while this chart is an inconvenient truth, we are sure the meme of US growth saving the world will continue to be spewed as gospel (oh wait a minute... isn't the entire sell-side now taking a chainsaw to their Q3/Q4 GDP growth estimates after construction spending and trade deficit data?) 

Chart: Bloomberg