Gold, Silver near $1200, $1700 Strikes and Streep's $114,000 Clinton Bet

Market Commentary

 

The dollar dropped overnight, the FTSE rallies to a record on a softer British pound, China's PPI spiked 5.5% on expectations of 4.6% and Trump embraces nepotism to  probably noone's surprise.

  • Spain’s Banking-Rescue Cost Reaches EU60.7 Billion, Auditor Says: BBG

  • Citi cuts Goldman Sachs to Sell
  • IRAQ PLANS TO EXPORT 3.64 MLN BPD OIL IN FEBRUARY, LIKELY ALL-TIME HIGH - SOURCES
  • The Mexican Peso Is Crashing To Record Lows
  • Renewed USDJPY selling, back to 115.66
  • Wholesale Inventories 1.0%, Exp. 0.9%
  • MEXICO CENTRAL BANK SOLD $2 BILLION LAST WEEK TO SUPPORT MXN: BBG
  • Immigration in focus as U.S. Senate confronts Trump nominees (Reuters)
  • Jeff Sessions to Be Grilled on Race in First of Hearings (WSJ)
  • Libya Ramps Up Oil Production, Threatening OPEC Plans (WSJ)
  • Tillerson Must Answer for Trump, Big Oil, Even Putin in Hearing (BBG)

For What it is Worth:

Taken as a whole, headlines are increasingly reflecting the following trends in our view

  1. Seeds of Revolution: SA issues growing. Trump may be a catalyst, but he is not the cause in Mexico
  2. Debt and Debasement:The USD rally is either pausing for the cause, or getting ready to reverse. Not a revolutionary statement for sure. But we think at some point Trump will be the trigger of a USD reversal lower.
  3. Anglo Alliance Coming?:The UK will look for a safety valve trade partner to make its EU exit more palatable. The US is that safety valve
  4. Whiff of inflation Ignored: The UK's weak currency and strong stocks are the classic signs of first stage inflation and a model for what may be the next  sea-change in the US
  5. Brexit hurts China: China may lose an important intermediator to the EU via its UK ties. Trade, monetary, and political implications are growing in import as a result. 

 

Trump Today (10)

  • Trump Announces his Son-in-Law as a non-paid Senior White House advisor- c'mon are you surprised?
  • Senior executives of Ford Motor Co and Fiat Chrysler Automobiles issued assurances on Monday that they will go ahead with new investments in Canada, despite moves by president-elect Donald Trump to discourage manufacturers from building vehicles outside the U.S. 
  • Jack Ma, the founder and executive chairman of Alibaba Group Holding Ltd, met with Donald Trump for about half an hour on Monday.
  • Appointees and nominees start to get grilled today- Jeff Sessions on "Race", and Tillerson on Putin among other things
  • Meryl Streep etcetera. The answer to this and almost all political questions is money. In this case Streep's donations to  Dems (click to scroll)

The day is still young

 

Silver and Gold

 

$1200 and/or Bust- Optionality and Hedgers

Noted before we are seeing some buy stops in the $1200 area accumulate likely from Asset allocators and MOMO funds looking to trade headlines. What remains to be seen is if there are sellers looming in that area as well. Lacking that info we look at options play.

If the relatively large open interest in the $1200 calls and $1100 puts is a function of hedging (producers and/or GLD players who buy put/sell call), then as we approach that area, we might start to see short call positions rolled up to a higher strike. So, if you start seeing $1200/$1300 call spreads bought, that is not necessarily bullish. Look at it more like an option seller rolling his bet up. So, if a producer or a long spec sold $1200 calls to finance an $1100 put purchase, expect some of those calls to be bought in if we get there and then rolled higher. That is neither bullish nor bearish. If no  buy-side interest in those calls comes in, and we are at expiry, be careful of a pin.

On the put side, the $100 put purchases, if by a producer hedging his risk is also not a directional indicator. It is usually a sign that a producer didn't want to sell metal at that level for operational, stock price, or directional bias. If we go down there again, keep in mind for every producer who hedges with options, there is a guy who didn't hedge at all. So the option buyer who didn't sell metal looks smart now. The non-hedger who did nothing looks bad later if we do test that area.

The Roll

Finally, watch the roll as we approach $1200. If the spread gets especially strong, then longs are committing to another leg. That's good. But post the Feb/ April roll watch for dealers to test their resolve. Remember at first notice, the longs must decide first. So it's always: Puke, Roll or Announce intention to take delivery. And US Funds generally don't take Comex delivery. If delivery is taken, expect it to be enroute to China via London where the mark up over spot is better for the banks to sell their "clients"

Chart Focus on RSI: Note decreasing market highs last year every time the RSI peaked. By itself it just implies decreasing interest or a "disinvestment cycle". The market gets overbought on less volume with lower interest is a facile explanation. What is annoying is that RSI levels in efficient markets are generally though of as bought above 80% and oversold under 20%. Gold and Silver seem to have boundaries at 30 and 60% last year. Explanation? Hangover from so many people getting hurt over the last couple years thinking Gold was as liquid as bonds just because it traded on a screen. Conclusion? Good. It's an investment tool not a 24 hour insurance policy.

Silver

 

Gold

 

 

 

George Gero's Notes- "Back to Basics"

(any clarifications by us in italics )

Gold, Silver and Copper

  • Gold rally since Dec 31 close at 1151 has brought price move of 40 dollars up 
  • Open interest 404,673 then now 442186, and we are back to basics.
  • Silver OI at 165763, following gold, but options are starting to see more at 1,000,893.
  • Today some profit taking as markets look for more news that could change dollar index
  • Traders looking for clues in Trump actions and interest rates moves as more FED speakers have asked for increases.
  • Index rolls have played a part in moves and now traders will look for $1200 closes just as stocks look for 20,000.
  • Prices at those ($1200) levels are psychological now as well as media interest..
  • Asset allocators in the US have been fleeing ETF’s and heading for stocks.
  • Copper OI is at 231,387, seeing some support from auto sales

Ratios and Spreads

  • Traders will watch the new NY-London spot contract arbs. - (related to old EFP physical to prompt futures spread-SK)
  • Gold-silver ratio 70.95
  • Gold-Plat at 201.00, Plat-Pall at 225.45  
  • Gold Roll: Feb-April 300 up a few from 260 a week ago.- (consistent as longs usually roll first based on first notice rules-SK)

Copper price recovers; strike talks eyed

  • The three-month copper price recently traded at $5,720 per ton, up $129 on the previous day’s close.
  • “Copper has been fickle so far this week as its being led by different factors with oil, iron ore, currencies all being drivers at any particular point,” the same LME trader added.
  • Stocks were down 1,500 tons to 293,400 tons and cancelled warrants were down 3,775 tons to 88,275 tons.
  • There are also concerns surrounding mine supply as the threat of strikes at Chile’s Escondida, the world’s largest open pit copper mine. Workers are demanding a 7% pay rise and have until January 23 to negotiate an agreement.
  • Citi Bank projects copper mine supply growth rates of little over 1% this year to around 21.1 million tons. This, it said, will sustain price moves above $6,000 per tonne later this year.
  • The arbitrage for copper imported into China was put at -$148.98 (-1,034.64 yuan), according to Metal Bulletin calculations.

Courtesy of george.gero@rbc.com

Some info relayed from 3rd party sources believed to be reliable

 

 Expired Calls on a Clinton Presidency or Meryl Streep sure gets around, right?

 

https://www.opensecrets.org/indivs/search.php…

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3 comments sorted by

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The Canadian (not verified)

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YES the US dollar will go down. Remember Trump's reaction after Brexit. He was in Turnberry the day after the referendum and this is what he said: ‘When the pound goes down, more people are coming to Turnberry.’. Trump is a businessman and a majority of his appointees have strong business connections. To make "America great again the best and fastest way to create jobs is through a lower dollar. This will also play well with the currency war and the low renmibi. Consequences of the lower dollar: - Higher inflation (it's about time!!) - Higher gold price (it's about time!!!)
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Soren K.

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Wouldn't it be something if somehow Streep got paid by the DNC for her speech? like a rebate on her Clinton campaign money spent?
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Shortvogue (not verified)

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The Pradas are the Devils.