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Potential 'Long' Gold Trade

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I am not sure what I was thinking on Friday. I was definitely second guessing myself all over the place.

On 20/03/2020 at 19:01, TrendFollower said:

Sometimes when the directional movement of an asset is unclear then it is best not to trade that asset. 

It looks like Silver has entered a congestion area. So I will wait this one out.

Spot Silver_20200323_08.24.png

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@Bopperz,

Don't try and second guess anything.

Right now Gold and Silver both look like they are trying to break outwards but this could be a false breakout and tomorrow or earlier there could be another bearish move downwards. Silver to me looks more bearish than Gold but Gold has touched intraday its 200 DMA on the 'daily'. If I crossed its 100 DMA on the 'daily' then I would be more bullish but the question you have to ask yourself is are there any other Commodities that could outperform Gold from here?

I think there are and I shall post in those threads accordingly. 

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I mentioned in a previous few posts back in this thread (Sunday) that if Gold did not go above $1600 by the end of the week then Gold bulls should be worried. Well it looks like Gold is touching distance of this price point within a couple of days of me stating this so it will not need a week!

There is a strong possibility that capital could flow into the 'Previous Yellow Metal' as trust begins to wane on Central Government monetary policy around the world. 

I think we could see a point this week where there are simply more buyers than sellers for Gold and it drives the price upwards as investors and traders reallocate their portfolios in the wake of decisions made by major Governments in relation to their monetary policy going forwards. 

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Any idea why the spread on Gold has gone to $9 (now $5)?

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1 hour ago, psycho said:

Any idea why the spread on Gold has gone to $9 (now $5)?

Just received this from another broker:

Dear client,

Please note there is no price for Gold and Gold mini due to the spread of Covid-19, causing several gold refineries to close, creating a shortage of physical gold in the markets. We are working with our liquidity providers to provide you with the best of the liquidity. We will inform you once the price is back.

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Posted (edited)

@BigDeal Thanks for that.

On a webinar I attended earlier, lack of liquidity was also the explanation.

Would this be positive for the metal and miners or does it mean the price currently being quoted is too optimistic?

IG also quoting prices to close positions only not open new ones

Edited by psycho

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Gold is an interesting dichotomy in situations like this; lower supply and continued demand leads to higher prices normally of course. However, if the commodity cannot be refined, then it is pretty useless because the gold miners can  continue and create supply without an outlet for it.

So I don't have an answer, (and I don't trade gold). But that's why the brokers are not offering long or short openings at the moment - they cannot price it accurately and hence would be taking on additional risk, as I am sure you are aware.

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The Gold miners only supply a tiny proportion of the total physical Gold available in the world, so I don't believe the explanation of your broker. It's more like the brokers are cashing in on demand by increasing their spreads if you ask me

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@psycho,

You can open a Gold position using 'Futures' rather than 'Spot' with IG to reduce the current spread which is near enough $10 at 8:30 pm UK time. IG will state their are liquidity issues and there may well be but it is hard to confirm the accuracy of such liquidity issues. 

Have a look at my thread 'Investing in Gold Funds' as this concentrates on investing in funds which invest in Gold mining companies. It may be of interest to you but if not then no worries. 

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@BigDeal,

I would expect the demand for Gold to be increasing but not in the physical sense. Gold is a piece of metal which cannot be used to purchase anything like a cup of coffee, a sandwich or be used for the weekly shop at the Supermarket.

So right now it is speculative capital and temporary safe haven capital demand which in my opinion is causing the liquidity issues as there is a mad rush to increase exposure to Gold with brokers rushing to try and satisfy demand but also manage their exposure and risk at the same time. Currently there are delicate times and if brokers do not manage their risk then they could end up with difficulties.

On the flip side the more people at home it increases the chances of more people trading whilst at home. This could mean bumper revenues this quarter and next. 

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31 minutes ago, TrendFollower said:

You can open a Gold position using 'Futures' rather than 'Spot' with IG to reduce the current spread which is near enough $10 at 8:30 pm UK time

Thank you. Yes I got a helpful popup when looking to trade suggesting I look at the futures 

 

You may also be interested in this: Goldman Sachs tells clients it is time to buy gold - which would have had something to do with the 4% rise today.

 

There was also another article in the FT:  Gold bars in short supply due to coronavirus disruption
Retail investors buy up bars and coins to protect money during market rout

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@psycho,

No worries. 

Yes thanks for the article. I am not a long term fan of Gold but I do see short term or medium term exposure to Gold as people still hold traditional and historical values that Gold is an excellent store of value and until this remains there will always be demand albeit 'artificial' in my opinion for Gold. This is why I think Gold has not revisited its all time high of near $2000 during the build up to the financial crisis.

I do see institutional investors and pension funds potentially increasing their exposure to Gold during this unstable period. 

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The difference between the Gold spot price and Gold futures prices has increased considerably overnight when compared to yesterday afternoon. 

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@CharlotteIG,

Please see my post above. This is the first time I have personally experienced this since I have been a client of IG. Are you able to offer any explanation and when myself and others can expect normal service to be resumed here?

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2 hours ago, TrendFollower said:

@CharlotteIG,

Please see my post above. This is the first time I have personally experienced this since I have been a client of IG. Are you able to offer any explanation and when myself and others can expect normal service to be resumed here?

Spot gold is priced in the same was as FX, using interbank.

Whereas Gold futures is the future market. With most of our other commodity cash markets we use the futures to price the cash. 

The spot market is prices using interbank. Although they should move parallel when there's demand for gold sometimes people only believe movement will be in the future or at present.  

  • Thought provoking 1

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@CharlotteIG,

Thanks for a prompt response. 

Are you making an assumption or is it your personal opinion in relation to what you state below?

3 hours ago, CharlotteIG said:

Although they should move parallel when there's demand for gold sometimes people only believe movement will be in the future or at present.  

Is there any evidence to support this as the cause for the difference between Spot Gold prices and futures? I have not seen such a wide difference for the past few years I have been a client of IG.

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On 24/03/2020 at 22:13, TrendFollower said:

people still hold traditional and historical values that Gold is an excellent store of value and until this remains there will always be demand albeit 'artificial' in my opinion for Gold.

@TrendFollower this is a very interesting idea that is beginning to gain traction with me especially after I saw this article Why Quantitative Easing Isn't Printing Money .

14 hours ago, TrendFollower said:

Is there any evidence to support this as the cause for the difference between Spot Gold prices and futures?

Here's the explanation I could find Coronavirus shutdowns cause glitches in gold market

The problem is the futures market is for delivery of 100gm bars which are short because some of you lot have bought up most of the physical gold!!!  They are starting a new futures contract for delivery of 400g bars.

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13 hours ago, TrendFollower said:

@CharlotteIG,

Thanks for a prompt response. 

Are you making an assumption or is it your personal opinion in relation to what you state below?

Is there any evidence to support this as the cause for the difference between Spot Gold prices and futures? I have not seen such a wide difference for the past few years I have been a client of IG.

It's my opinion on why they could have possible moved apart so much (long term/ short term). 

The way in which they're prices though is fact. 

Spot is priced off inter bank whereas futures is the underlying future contract.

With other commodities they will move parallel and have adjustments. 

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@psycho,

I am always wary of how accurate media reports are 'market noise'.

They do have a bias and so I keep an open mind. The article is very interesting from CNBC. I think that article for me sums up why faith is being lost in relation to Central Governments and their Monetary Policy. 

Cue: Future - More Efficient Cryptocurrencies Which Are Better A Better Form Of Money

This new form would be decentralised and cannot be manipulated by Governments around the world. 

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@TrendFollower Good points.

Not being an expert on cryptocurrencies, I still have the following reservations:

  1. It relies on computers and therefore electric power.  If either the payer or the payee does not have either of these, it stops being a medium of exchange.  Cash requires no such thing.
  2. Security issues such as hacking, loss of hardware, passwords (remember the exchange owner who died in India)
  3. volatility makes it difficult for business to accept
  4. Changes in algorithms or rules could expand supply (bitcoin/bitcoin cash) leading to devaluation
  5. The government can manipulate anything by simply changing the law

I am however so underexposed to cryptos that I need to raise my awareness and position so any guidance of suitable threads or reading material to speed up my knowledge would be much appreciated.  Thanks in advance.

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@psycho,

Thank you. 

In terms of you points.

1. Yes true but have an open mind. There was life before cash and there will be life after cash. It will just be a different medium of exchange. If we do not embrace change and making things better, we can never change from cash. Where does it say in the world's rules that payment must be by cash? Debit card, Credit card, Paypal, Apple Pay, Amazon Pay, these are all methods of digital payments using money but not in cash form. 

2. Yes security issues are a risk and concern. Cash is used for money laundering. Cash is used to prostitution and drugs including Class A illegal drugs. Cash is used to evade taxes. Cash is used for bribery. Cash is used to hide wealth. Cash has many risks and concerns yet we still use it. Cash is difficult to trace from an audit trail purposes / fraud. Crypto would reduce this risk considerably. 

3. Volatility in Crypto is now but in the future it could reduce. Just look at the volatility in Gold at the moment!

4. It could but unlikely. Even if it did then it is not different to the value of cash being eroded due to monetary and economic policy by governments around the world. 

5. Yes which is why decentralised Crypto rather than centralised is the way forward. 

Read my threads under the Crypto and Blockchain forums such as Blockchain Trilogy, Bitcoin Digital Gold and many others. I will try and tag you into some of them if I remember as this is the wrong thread to discuss these points.

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@psycho,

Yes sure. 

As for Gold it seems to be at the juncture where it is trying to decide what its next move is upwards or downwards. 

I am not sure how much more money the likes of the US And UK can seriously throw at the problem. The more money a country throws to me signals the greater inherent problems they have. The US And UK do not have the largest populations yet they are throwing the most money at the situation which is alarm bells ringing for me. They know should the US and UK go through a serious recession then it could have serious consequences to the rest of the world. 

Cue: Watch Bond prices and Gold closely for any clues for future price moves in equities. 

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25 minutes ago, TrendFollower said:

I am not sure how much more money the likes of the US And UK can seriously throw at the problem.

I was just having this conversation with my uncle.  At the end of the day, government debts are the biggest ponzi scheme on the planet - they make the rules for their currency so if the circumstances do not suit them, all they have to do is change the rules.  I think the current situation is so extreme that normal rules (or what we are used to normal) no longer apply (again!).

Gold is complicated further by the spread between cash and futures.  I was tempted to short the future and go long the spot but that might be trying to be too smart (not a good quality in such times methinks).

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@psycho,

At the moment I am not sure of Gold's future longer term direction as at the current juncture it could easily drop from here. When you look at both Gold and Silver on the 'daily' then it does look like it wants to be bearish from here. I could be wrong of course and the price action will confirm or reject my view shortly. 

I agree that Government debts are at insane and ridiculous levels. I love the term 'Asset Purchases'. When you actually look at what the Governments are doing in terms of accounting principles then one begins to understand what a giant problem it is. 

The problem is that major Government have to ensure the stock markets are propped up as if the stock market mechanism fails then so too does the wealth of the citizens of the country and their retirement. Therefore Governments will do their utmost to ensure that equities keep rising for as long as possible and this is why equities long term are a wealth creating asset class. Gold I am not so sure about. From an investment perspective there are far better assets to invest in which will provide a bigger capital appreciation than Gold.

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Gold is currently trading 'sideways' and I personally would stay away from trading Gold when it is trending sideways. 

709817224_SpotGold_20200330_13_18.thumb.png.97752d49c3e5a91894b256d2c122cd1c.png

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Gold and Silver are both looking rather bearish today on the 'daily'. 

The question I am now asking myself is will Gold try and return back to the $1500 price area?

1147981163_SpotGold_20200331_13_18.thumb.png.3ec5b11d25f2cc3797914815c4f4f1bd.png

That is the 'psychological' price zone which must hold for the Gold bulls. Any break below it means the Gold bears are flexing their muscles. 

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1 hour ago, TrendFollower said:

Gold and Silver are both looking rather bearish today on the 'daily'. 

If it reverses from the 1550-85 area, couldn't it be the formation of a reverse h&s?

I agree if it breaks 1500 then it is a bearish sign.

Edited by psycho

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@psycho,

I think Gold's price behaviour is going to be news driven. Positive news will lead to bearish Gold price action and negative news will lead to bullish Gold price action. A lot of it will be down to risk tolerance in the market and the overall sentiment in the market. 

Fear and panic will lead to a rising Gold price and the opposite to a declining Gold price. Of course the US Dollar will play a pivotal role in all this and the US Federal Reserve and the US Monetary Policy including the interest rate strategy. 

I find looking at Bond prices a good clue as to the direction of the price of Gold. 

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