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FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Marc Faber "Middle East Will Go Up In Flames" ... "Have To Be In Gold and Stocks"

Commodities / Gold and Silver 2012 Mar 06, 2012 - 12:57 PM GMT

By: Gold_Core

Commodities

Best Financial Markets Analysis ArticleGold’s London AM fix this morning was USD 1,685.60, EUR 1,282.24 and GBP 1,068.26 per ounce.

Yesterday's AM fix was USD 1,698.00, EUR 1,286.17 and GBP 1,073.60 per ounce.


Gold fell $6.30 in New York yesterday and closed above the $1,700/oz level at $1,705.30/oz. Gold fell in Asia prior to further modest price falls in Europe which saw it fall below yesterday's inter day low of $1,694/oz. Gold is now trading at $1,686.40/oz.

Gold’s short term technicals are poor and a further correction to or below the 200-day moving average at $1,670/oz is possible (see Barcap view below). However, it is worth noting that gold’s weakness has coincided with recent dollar strength and gold has not fallen as much in euro, pound or other fiat currency terms.

The fundamentals of significant macroeconomic, systemic and monetary risk will support the precious metals. As will the increasingly risky geopolitical situation - the risk of which is not priced into markets just yet.

Swiss money manager and long term bear Marc Faber, aka "Dr Doom", says political risk in the Middle East has increased significantly with war between Iran and Israel “almost inevitable”, and precious metals and equities investments offer some safety.

"Political risk was high six months ago and is higher now. I think sooner or later, the U.S. or Israel will strike Iran - it's almost inevitable," Faber, who publishes the widely read Gloom Boom and Doom Report, told Reuters on the sidelines of an investment conference.

Brent crude traded near $123 per barrel in volatile trade on Tuesday on fears of a disruption in Iranian supplies. Israeli Prime Minister Benjamin Netanyahu showed no signs of backing away from possible military action against Iran following a Monday meeting with U.S. President Barack Obama.

"Say war breaks out in the Middle East or anywhere else, (U.S. Federal Reserve chairman) Mr Bernanke will just print even more money -- they have no option...they haven't got the money to finance a war," said Faber.

"You have to be in precious metals and equities ... most wars and most social unrest haven't destroyed corporations - they usually survive," he said.

He said that Middle East markets had largely bottomed out, though regime changes from the Arab Spring revolutions were unlikely to be investor-friendly.

Faber said that in uncertain times, investors had to reconcile themselves to volatility.

"If you can't live with volatility, stay in bed," he said, pointing out that even cash [sic].

The 66 year-old, who has earned the moniker "Dr Doom", earlier told the conference that the likelihood of war in the Middle East was boosted by Western powers' imperatives of keeping China in check, given its dependence on Middle Eastern oil.

"The Americans and the western powers know very well they cannot contain China economically.... but one way to contain China is to switch on and switch off the oil tap from the Middle East," he said.

"I happen to think the Middle East will go up in flames," he said.

Barclays Capital: Gold Support At 200 Day At $1670/oz - Buy Gold Dip

Barclays Capital said in a report that gold faces near term hurdles such as bouts of dollar strength, broad risk reduction and profit taking, but this is a healthy correction and the broader macro backdrop remains gold favourable.

Barcap analysts see downside gold support at the 200-day moving average at $1670 and then at $1645. Upside resistance is at $1730/$1760 and at $1800 and a close above $1800 would confirm further upside as the broader macro backdrop remains gold favourable.

Given the negative interest rate environment, longer-term inflationary concerns and lingering sovereign debt uncertainties.

Barcap said a weekly close below $1,719/oz will force it to adopt a neutral near-term bias on the precious metal and "in such an instance, risk would increase for a re-test of the 200-day average near $1,670/oz and an extension of the six-month range trade before gaining traction in the second half of the year."

OTHER NEWS

(Reuters Global Gold Forum) -- Industrial & Commercial Bank of China's (ICBC), world's most valuable lender, gold leasing business reached 62.8 T of physical metal last year. Industrial & Commercial Bank of China's started leasing gold in January last year and lends out to a year.

(Bloomberg) -- Cash Gold in China Falls for Second Day, Futures Little Changed

Gold of 99.99 percent purity on the Shanghai Gold Exchange fell for a second day, tracking an overnight decline in international bullion prices. The benchmark cash contract slid as much as 0.7 percent to 345.50 yuan a gram, and last traded at 347 yuan. June-delivery metal was little changed at 348.73 yuan a gram on the Shanghai Futures Exchange.

(Bloomberg) -- Silver Calls at Highest Since 2010 on Economic Recovery: Options

Options traders are the most bullish in 16 months on an exchange-traded fund tracking silver, this year’s best-performing metal, betting it will continue its rally as the global economy recovers.

The ratio of calls to buy the iShares Silver Trust versus puts to sell rose to 1.88-to-1 on March 2 and touched 1.93 on Feb. 24, the highest level since October 2010, according to data compiled by Bloomberg. Traders pushed the price of calls that pay should the exchange-traded fund rise 10 percent last week to the highest level since April versus puts betting on a decline of the same size, data on 30-day contracts show.

Investors are increasing speculation on gains after silver surged 21 percent this year through yesterday, more than any other commodity in the Standard & Poor’s GSCI Index of 24 raw materials except gasoline. A recovery of the worldwide economy and central banks’ injection of stimulus are spurring demand for the metal, according to BGC Partners Inc.’s Michael Purves.

“There’s optimism among silver call buyers,” Donald Selkin, the New York-based chief market strategist at National Securities Corp., which manages about $3 billion, said yesterday in a phone interview. “It’s a bet that silver will continue advancing based on the industrial usage and the economic improvement, as well as a flight to safety.”

Silver prices have swung along with economic projections over the past year. Futures on the metal jumped 90 percent between Jan. 28, 2011, and the three-decade high of $49.845 an ounce reached on April 25. They then dropped 48 percent through Dec. 29 before climbing 29 percent through yesterday’s settlement of $33.695 an ounce. In 2011, industrial demand accounted for 56 percent of silver consumption, according to data compiled by Toronto-Dominion Bank.

Adding Jobs

Employers in the U.S., the world’s largest economy, probably added more than 200,000 workers for a third straight month in February amid optimism about the expansion, economists said before a report this week. Payrolls increased by 210,000 last month after rising 243,000 in January, the most in nine months, and 203,000 at the end of 2011, according to the median projection of 55 economists surveyed by Bloomberg News. It would mark the strongest three-month stretch in almost a year.

The silver ETF, which is a security used to bet on gains or hedge against losses, fell the most since November on Feb. 29, after Federal Reserve Chairman Ben S. Bernanke gave no signal that the central bank will take new steps to boost liquidity. The ETF dropped on March 2 after Spain raised its budget-deficit target for 2012 and German retail sales unexpectedly declined, and again yesterday after China pared the nation’s economic growth target to 7.5 percent from an 8 percent goal in place since 2005.

‘Awful Lot’

“I don’t see an awful lot of upside in the next month,” Bart Melek, the head of commodity strategy at TD Securities Inc. in Toronto, said in a telephone interview yesterday. “Silver is following gold as it’s a quasi-monetary asset. From an industrial side, the Chinese have formally downgraded their growth rate. I would not be surprised if the metal slips a few more dollars.”

Implied volatility, the key gauge of options prices, for 30-day contracts closest to the silver ETF’s price tumbled 57 percent from its Sept. 28 high to a one-year low of 31.88 on Feb. 24. It was at 36.76 yesterday. Calls betting on a 10 percent gain on Feb. 28 cost 1.03 times more than puts protecting against a 10 percent decline, according to data compiled by Bloomberg. That was the biggest gap since April.

‘Big Move’

“Some investors are anticipating a big move, getting long through call options at these relatively low volatility levels,” Purves, chief market strategist and head of derivatives research at BGC Partners in New York, said yesterday in a telephone interview. “There’s industrial demand if the world economy recovers and an investment demand for silver as a hard currency.”

The number of outstanding shares of the silver ETF has increased by 3.1 percent since this year’s low in January to 324.5 million on March 2, its highest level since October, data compiled by Bloomberg show.

The Chicago Board Options Exchange Volatility Index, as the VIX is known, gained 4.4 percent to 18.05 yesterday, while its European counterpart, the VStoxx Index, added 5.5 percent to 23.80. The European volatility gauge increased another 5.2 percent to 25.04 as of 10:17 a.m. in Frankfurt today. The CBOE Silver ETF Volatility Index rose 3.1 percent to 40.16 yesterday after falling on Feb. 17 to its lowest level since the gauge’s inception a year ago.

Biggest Change

Since the last options expiration on Feb. 17, call ownership for the silver fund gained 24 percent to 1.77 million on March 2, versus a 23 percent increase for put open interest, data compiled by Bloomberg show.

The five options with the biggest increases in ownership since Feb. 17 were all calls, the data show. June $36 calls, with a strike 9 percent above yesterday’s close, and June $35 calls added the most, gaining 24,554 and 21,921 contracts, respectively, from none.

“It doesn’t just have the precious-metal sheen to it, it’s got the industrial-metal sheen,” Jim Strugger, a derivatives strategist at MKM Partners LP in Stamford, Connecticut, said in a telephone interview yesterday. “It’s just a highly leveraged trade. Highly leveraged to something better than Europe falling into a deep, dark hole and hard landing in China. To me, that speaks to broad optimism for the most part."

For the latest news and commentary on financial markets and gold please follow us on Twitter.

GOLDNOMICS - CASH OR GOLD BULLION?



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Mark O'Byrne
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