For open consideration: {A repost & edit from a previous posting}
Gold is controlled by only two variables: Supply and Demand. But these are not simple variables. Supply comes from more than one source, as does demand. Options only smooth out volatility. Futures sales do not effect the spot price of gold. Options and futures follow well defined arbitrage formulas. As such you can take either side you want, or buy the spot price.
But where does excess supply come from? Two sources:
1) Production: in US Dollar sold into the market, when foreign currencies get devalued due to fiscal policy. Take for instance Russia. As they devalue relative to a basket off currencies, the workers will accept an ever decreasing pay, as payed in USD terms.
2) Currency fluctations: As a Foreign buys Gold at 32000 Yen {$300/oz * 100 Yen/USD} he sees a real net worth at 36400 Yen ($280/oz * 130 Yen/USD) And so as the POG drops he still realizes a real return.
But where does excess demand come from? Two sources:
1) Fear or Panic: Under 1 & 2 above & forward selling into the volatitlity lowers the move in the price of gold. As hedging into it becomes profitable, as fear is always temperary.
2) Currency instability: Depends on WHICH currencies are instable. If the USD Falls than you see a demand, if a currency falls relative to the USD you see a lack of demand.
Many people assume that their is this massive short position on GOLD, yet few question wether it is a covered position or not. If I shorted {which I didn't} Gold at $380/oz, than I can buy:
1) A gold stock that pays dividends, payed in gold.
2) A Call option on Gold stocks.
3) A future option on Gold.
4) Or the physical gold at spot.
And any of these, and more can be done before the Price of gold can move signifcanty.
So GOLD is effect by a double supply/demand curve which is based only on Commodity supply/demand, and currency supply/demand... nothing else. This is why you can get chart's such as this:
mypage.direct.ca
What this depicts is the USD strength on the horizon... And as of Friday shows an increasing USD strength, relative to a basket of currencies which is a negative for gold. And the vertical axis shows an over valued Price of Gold relative to commodity. Although these two are negative for GOLD, it may well trend up. But it's still over valued. Some time soon you will see excess supply from currencies come to lower the price of gold.
Message 5722992
Back here I made a comment that:
I think Japanese banks and BOJ are pulling foreign assets, and bringing home there YEN to meet the new capital requirements &
liquidity promises. And this is driving the run-up in gold. By
way of USD sell off. The yen should be trending to 150, but isn't. Must be cashflows.
Message 5791887
Regarding the yen, McCormick of J.P. Morgan believes there is more at work than just Japan's status as global creditor. During times of financial stress numerous trading positions are automatically unwound which tends to push the yen higher.
He agrees that Japan's huge investments abroad are being brought home, another plus for the yen, but once the heightened sense of risk aversion subsides among international investors, many will once again focus on economic fundamentals.
When that happens, the yen will likely suffer, he said.
Comment: And gold, as at this level they may be buyers... and soon sellers. So as the chart still is over valued, it will soon fall rapidly downwards. $265-$250 is coming.
PS: As stated before, I like Delta investing in options. But I will also speculate in high Gamma options. Very rarely, will I write an option, as I'm a speculator. Often I will daytrade within an options class. Writeing an option only gives a fixed MAXIMUM rate of return. If that's where you are at, go buy bonds. Why carry the risk? Shorting a stock while buying an options eats into returns.
I own ZERO options at this time {but am Cheering for GOLD to climb, so I can buy Put options on ABX}. |
