ROSS NORMAN - Fiscal Cliff Avoided - Gold Cliff Created ?
There has been much speculation about the causes of the 24 tonne
gold sale on COMEX yesterday but closer inspection provides some clues... and more importantly what it tells us about
the market outlook for 2013.
The sale looks like a carefully crafted trade prepped and
successfully executed by a well known $14b US fund. Prior to the sale there had been an unusually large purchase of gold 'puts' - a
leveraged options play that profits from a downward spike in prices. There had also been some early selling on the
overnight electronic platform presumably to test the waters before the big guns fired a devastating salvo. If you are going to
bet, bet big.
The short sell on the NY opening at 08:20 had the desired effect on
prices, especially as the $1730 level was breached where it triggered 'stops' (a bit like the "collect £200" in
monopoly) which had the desired effect of cascading the decline which develops its own momentum. Think World Trade Centre.
The motivation (other than profit) for the trade is clear. It is a
bet that the US Fiscal Cliff will be averted and that the Democrats and Republicans will find common ground in their polarised
positions on revenue raising between tax increases and austerity cuts. It is also arguably a bet that the US
will be out of the mire well before both Europe and Emerging Nations with the dollar positive environment being - by
extension - gold negative. In other words, while looking for a Fiscal Cliff we actually found a Gold Cliff.
If you know something of a man from how he behaves under adversity
then the same can be said of markets. Gold did not flounder nor did it bounce back with vigour to former levels
- it just responded positively. That is to say it performed a classic 50% retracement (prices fell from $1742 to $1705
and now find itself mid-way at $1735) - a good indicator of simply positive sentiment. No more than that.
Gold now finds itself in a slightly uncomfortable position - it is
having one of those Goldilocks moments - neither too hot, nor too cold - and seeking, or lacking clear direction.
Yesterdays move was a successful wheeze and traders will feel pumped by its success. More worryingly it may give an
indication to where the risks lie for gold looking ahead to 2013. That is to say that if the US economy IS the first to show
signs of recovery next year then the dollar-friendly environment could well take the shine off gold for a further year.
This is not a bearish forecast but may call into question whether the 17% year-on-year compounded rises we have seen for a
decade can be sustained or perhaps replaced by more modest gains. Some bulls now seem to see single digit growth as
a bear market.
Yesterdays sell-off seems to fulfill that trading maxim - "if you
are going to panic, then panic first".
Sharps Pixley, London
29 Nov 2012
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