Wild Wild East- 7:07am EDT
Silver and Gold are showing strength again during Asian hours from Chinese retail.. Make no mistake, these were/are retail shorts covering positions as China devalues the Yuan. Last night China reduced the Yuan/ USD peg- Soren K.
MarketSlant Yesterday: "We think that Asia, and China in particular are the main reason. China is well on its way to listing commodities in its own currency and facilitating trading via vaults, sales forces and ease of access."- Click HERE for full article
- Yuan/ USD fix 6.685 vs 6.659
- Gold trades 1375.40 last 7:07AM EDT
- BBERG: CHINESE DAY TRADERS BEHIND SILVER FRENZY
- SAXO BANK: RETAIL TRADE BEHIND RISING VOLUME AS OPEN INTEREST FALL
New York Front Running the Asian demand- 11:33 EDT July 6th
Short Squeeze From Yuan Deval
As we said HERE when the Comex closed yesterday, We believed the New York traders now understood the origin of the spikes during Asian hours. US traders were now positioningthemselves for the next round of China-based buying in the hours to come The cause was retail investors covering short positions. Not as some would have you believe "Day Traders" a perjorative term these days. The Chinese investors are likely the victims of aggressive salesmen in a new open market. The snake oil salesmen have come to Asia to prey on the newly minted middle class.Chinese retail investors have been net short silver for reasons unknown. Perhaps against long Gold positions. But the open interest reducing is a sign that this is not day trading. It is the reduction of positions carried more than a day.
From Our Article: "The current driver is the Chinese-not so-stealthy Yuan devaluation post Brexit. This is driving investors to get out of their currency before it devalues more."
Gold rallies to 1373.70 A.O. 6:03 ETA
- Interactive chart courtesy Kitco
We also think Saxo Bank's Ole Hanson has it right.
"While hedge funds have been partly behind silver’s surge in 2016, the recent jump is reminiscent of China’s speculative frenzy in commodities earlier this year, Hansen said. After retail investors drove up prices of iron ore to steel rebar, a trading clampdown by regulators sent them falling again. A similar collapse probably won’t happen to silver as it’s more globally traded commodity, he said."
MarketSlant: For precious metals, broader global liquidity makes a big difference. And because of that difference, we feel you will see more and more origin demand in Asian hours and selling in USA hours. The current driver is the Chinese not so stealthy Yuan devaluation post Brexit. We think Mr. Hanson is spot on and likely smartly informed Saxo's own clients before speaking with Bloomberg
New to Markets
The Chinese investor is unlikely educated in things like margin calls and currency devaluations by his salesmen. It is the wild west there for brokers priniting money on a new middle class of investor. So when they wake up to margin calls they must cough up money or cover. Clearly they are covering. For the Chinese broker an "uninformed investor is our best customer".What is old in the US is new in China.
Open interest sinking means short covering rally.
- Chart courtesy Bloomberg
What Next From China?
Now that they have mostly covered, expect this. Those retail investors with funds available will now be talked into buying Gold and Silver. Expect pullbacks in PMs to be met with fresh buying whenever the Yuan is devalued against the USD. You are beginning to see an uptick in the chart above. Traditionally retail sheep get fleeced on price in the way in and the way out. Then when the flow stops the bigger players trigger stops pushing them out. Its an old trick using urgency and panic to get people to rush to the exits. As a former Lehman stock broker I can tell you this with confidence. Eventually retail is talked into using options by the salesmen to limit losses. That will be the next product listed if not already on Silver in Shanghai. But as long as China devalues the Yuan, which is a byproduct of their frayed relationship with the EU post UK Brexit, dont sell the rally is our comment. The best trade has been to buy the US close and sell the London Open.
Dominos are Falling
- Brexit leads to weaker position for China with he EU.
- GBP involuntary selloff forces China to move faster on its own devaluation for trade reasons
- Gold, Silver and the USD benefit
- NEXT: the US announces lower rates and/or QR$ to weaken its own currency and lessen its debt obligations
- All Currencies circle the drain
- What are they circling the drain against if all are down: GOLD
As water circles the drain it picks up momentum. What starts as imperceptible movement becomes a juggernauit of centripetal force headed to a black hole. Theanalogy applies to world FIAT currencies very well.
Good Luck. Am out of here for day reachable by email only. Stay with the Slant for Subjective Truth.
Read more by Soren K.Group