Gold Drops for Third Day as Dollar Strength Counters ETP Record

Gold declined for a third day as the dollar’s strength damped demand for alternative investments, countering record holdings in exchange-traded products. Silver slumped to a one-month low.
Spot gold fell as much as 0.6 percent to $1,686.70 an ounce, before trading at $1,689.20 at 3:47 p.m. in Singapore. Bullion slid to a one-month low of $1,684.77 an ounce on Dec. 7.
The dollar strengthened 0.1 percent against a basket of six major currencies including the yen after Shinzo Abe’s victory in Japan’s general election increased expectations that the central bank will add to stimulus. Gold increased 8 percent this year as central banks from the U.S. to China and Europe took action to prop up economies, debasing currencies and increasing haven demand. Abe has called for unlimited easing to revive growth.
“Headlines about potential stimulus are having little impact on the market at a time of light end-of-year trading,” said Xiang Nan, an analyst at CITICS Futures Co., a unit of China’s biggest listed brokerage. “Investment demand is holding up well, however the market needs buying on the physical side to move higher.”
Holdings in ETPs expanded 12 percent this year to 2,630.703 metric tons on Dec. 14, data compiled by Bloomberg show. In the physical market, the U.S. Mint has sold 35,500 ounces of gold coins so far in December, according to figures on the Mint’s website. At that pace, total sales for the month would be up 8.4 percent from a year earlier to 71,000 ounces, compared with 136,500 ounces in November.
Gold for February delivery slipped 0.4 percent to $1,690 an ounce on the Comex in New York. While money managers raised net- long positions in gold futures and options by 3 percent to 129,865 contracts in the week ended Dec. 11, the total number of speculative long positions fell 1.2 percent, dropping for a second week, U.S. Commodity Futures Trading Commission data show.
Cash silver lost as much as 0.5 percent to $32.1050 an ounce, the least expensive since Nov. 16, before trading at $32.1875. It’s still the best performing precious metal this year, rising 16 percent.
Spot platinum dropped 0.5 percent to $1,609.24 an ounce, and palladium declined 0.3 percent to $700.50 an ounce.

Source: Bloomberg


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Trading Edges Are The Foundation Of Success

Certain key factors have to be in place to succeed at trading the markets, and having a trading edge is the most important of them all. Security:   AAPL
Position:   Hold

Tune into the stock market on any given day and, most often than not, they are efficient in that all the available and unavailable information that pertains to them are already reflected in the current price. As a result, most of the time, prices will move randomly with no real force in any given direction and just drift aimlessly. If the markets were to trade in such a random fashion, most traders would be profitable, but the reality of attempting to trade such randomness is simply not profitable in the long run. Worse, it will be a fruitless and frustrating experience for the trader who can't overcome such randomness and identify those times in a stock or underlying instrument where price is slightly less random and statistically biased to form a sound trading edge. A reliable trading approach factors in positive expectancy where, over a series of trades, winners and losers are lumped together with their results averaged out and an expected value is calculated, the probability-weighted average of the payouts. Before either of these critical calculations can be formed in favorable terms, you have to have a trading edge that gives you a higher level of profitability and/or reward/risk ratio. See Figure 1.

FIGURE 1: B&H. A buy & hold strategy attempts to use time as its trading edge, but that is based on the premise that all stocks go up, no matter what, which is a bit flawed. No one can predict the future or be promised that a stock will eternally go up.

In theory, even a true zero-expectancy game can be traded in a random trading environment and break even but, as usual, reality is altogether different. In reality, costs such as commissions, slippage, missed trades, lack of discipline, missed profit targets, hesitation, and other factors can form a hurdle for traders who enter into trading without having accounted for them in the first place. Having laid the groundwork up to this point, the question remains how to find and develop a significant trading edge in order to develop an approach that suits your personality and forms the foundation of successful trading with positive expectancy and expected value. All trading edges start with observation that leads to a premise that acts as the starting point for a quantified trading edge.

FIGURE 2: AAPL, WEEKLY. Using the weekly chart, a 40-day simple moving average (SMA), and entering on AAPL's all-time high when the stock is trading above its 40-day SMA, you have a defined edge to exploit price action at its rising while exiting the market when price trades below a pivot low and the 40-day SMA. This combination of strategies keep you in the trade when it is moving in your direction without the risk of being exposed to the market until all the trading edges align in a low-risk setup.

In a perfect world, price would have no memory or recall of where it began or where it came from, but again, in reality, market memory is not the result of price but of the human beings who trade price altogether. If we observe that humans remember where price has come from then see price come to some price level, like support or resistance, then you can form the premise that most traders will trade off of support or resistance, depending on the context at the time, and the trade becomes a self-fulfilling prophecy. You can form an approach that trades between support and resistance since other traders and investors that make up the market are likely to lie in waiting at those price levels and ride the momentum back and forth between them. See Figure 2.

You can take it a step further by using moving averages to filter out which side you trade -- support or resistance -- to only take the trades that are likely to improve your profitability and risk/reward ratio overall, the two key metrics of your trading edge. The important thing is to track your results and then make concerted steps to improve each component -- positive expectancy, expectancy value, profitability, risk/reward ratio -- to refine your edge. More important, by tracking your results you can determine when a trading edge has lost its statistical bias and step away until it returns. Finally, remember, the most important thing about trading edges is to use them to develop a trading approach that matches your personality so you are psychologically able to keep following it even during losing streaks; otherwise, you may not bother following it at all.

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Oil Trades Near One-Month Low as Fuel Stockpiles Seen Rising

Oil traded near the lowest close in almost a month in New York on speculation that an Energy Department report will show fuel stockpiles climbed in the U.S., the world’s biggest crude consumer.
Futures were little changed after dropping for a fifth day yesterday, the longest losing streak since October. Distillate supplies, including diesel and heating oil, are projected to rise a second week while gasoline inventories may reach the highest level since April, according to a Bloomberg News survey before the government report tomorrow. The Organization of Petroleum Exporting Countries is gathering in Vienna to determine the group’s targets for crude production.
“Crude is starting to feel the weight of softer demand given lower refining activity expected in the first quarter,” said Filip Petersson, a commodities strategist at SEB AB in Stockholm. “The market needs a clear statement or action from the Saudis that they will cut production to the already agreed upon quota.”
West Texas Intermediate crude for January delivery was at $85.74 a barrel in electronic trading on the New York Mercantile Exchange, up 18 cents, at 8:47 a.m. London time. The contract slid 37 cents to $85.56 yesterday, the lowest close since Nov. 15. Prices have fallen 13 percent this year and are headed for the first annual decrease since 2008.
Brent for January settlement on the London-based ICE Futures Europe exchange was at $107.67 a barrel, up 34 cents. The European benchmark crude was little changed at a premium of $21.97 to WTI, near the widest in a week.

Fuel Supplies

Oil may extend its decline in New York after settling below an upward-sloping trend line on the daily chart yesterday, according to data compiled by Bloomberg. Losses tend to accelerate when technical-support levels are breached. This line, connecting the intraday lows of June and November, is around $85.66 a barrel today.
U.S. distillate inventories probably increased 1.5 million barrels in the week ended Dec. 7, according to the median estimate of seven analysts surveyed by Bloomberg before tomorrow’s Energy Department report. Gasoline supplies may have gained 2 million barrels to 214.1 million. Crude stockpiles are expected to have shrunk 2.5 million barrels as refineries boosted fuel production, the survey showed.
The American Petroleum Institute in Washington will release separate inventory data today. The industry group collects stockpile information on a voluntary basis from operators of refineries, bulk terminals and pipelines. The government requires that reports be filed with the Energy Department for its weekly survey.

OPEC Quota

OPEC, which supplies about 40 percent of the world’s crude, is expected to maintain its output quota at 30 million barrels a day at its meeting tomorrow, according to a Bloomberg survey of 18 analysts published last week. The group will release its monthly oil market report at about midday today.
“My expectations are for oil to hold” at about $85 a barrel, said Jonathan Barratt, the chief executive officer of Barratt’s Bulletin, a commodity newsletter in Sydney. “We may see some rhetoric come out of OPEC that will support prices, but I don’t think they will change the quota.”
Saudi Arabia and other Gulf nations increased output this year to replace volumes lost from Iran, whose exports have been curbed by U.S. and European Union sanctions, relegating it from the rank of OPEC’s second-largest producer.
The 12-member group last month estimated demand for its crude at 29.72 million barrels a day in 2013, an assessment reaffirmed yesterday by a subcommittee in Vienna. The International Energy Agency in Paris on Nov. 13 predicted the so-called “call on OPEC” at 29.8 million barrels.
OPEC may temporarily extend the role of Secretary General Abdalla El-Badri as talks on a successor remain in deadlock, according to two people familiar with the matter. The meeting is scheduled to select a replacement for the Libyan, whose second three-year term ends Dec. 31.

Source: Bloomberg

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Euro Near 2-Week Low After Italy’s Monti Says He May Quit

The euro fell toward its lowest level in two weeks after Italy’s prime minister said he intends to resign, rekindling concern that a change in government will upend efforts to rein in debt.
The euro slid versus most of its 16 major counterparts before a Dec. 13-14 summit of European Union leaders to debate a road map to overhaul the currency bloc. Demand for the greenback was limited amid speculation the Federal Reserve may announce this week additional bond purchases. The Australian dollar fell after China reported weaker-than-expected trade figures.

 

The euro fell 0.1 percent to $1.2913 as of 6:41 a.m. in London. Photographer: Kiyoshi Ota/Bloomberg

Dec. 10 (Bloomberg) -- Steven Saywell, global head of foreign-exchange strategy at BNP Paribas SA, and Nick Beecroft, chairman of Saxo Capital Markets U.K. Ltd., discuss the prospects for the euro, yen, Swiss franc and pound in 2013. They talk with Mark Barton on Bloomberg Television's "Countdown." (Source: Bloomberg)

 

Mario Monti, Italy's prime minister. Photographer: Alessia Pierdomenico/Bloomberg

“In the near term at least, it does look like the euro wants to go lower,” said Imre Speizer, a strategist in Auckland at Westpac Banking Corp. (WBC) The report that Italy’s Mario Monti may quit “impacts the euro because it’s evidence of more political instability within the zone.”
The euro fell 0.1 percent to $1.2913 as of 6:41 a.m. in London after touching $1.2877 on Dec. 7, the weakest since Nov. 23. It slid 0.2 percent to 106.44 yen. The dollar bought 82.43 yen, 0.1 percent below the close last week, when it reached as high as 82.83, the strongest since Nov. 22.
Monti will try to corral his coalition, which includes his predecessor Silvio Berlusconi’s People of Liberty Party, for a vote to pass budget legislation before handing in his “irrevocable resignation,” national President Giorgio Napolitano’s office said in an e-mailed statement on Dec. 8.
The prime minister will quit immediately if his allies won’t comply, Monti’s spokeswoman, Elisabetta Olivi, said in a telephone interview.

Italian Yields

Italian 10-year bond yields rose 10 basis points, or 0.1 percentage point, in three days to 4.53 percent on Dec. 7. The yield is still almost 2.5 percentage points below its closing level of 7 percent on Nov. 16, 2011, when Monti was named prime minister.
Monti, 69, has been weakened as his tax increases push Italy deeper into recession. Berlusconi announced on Dec. 8 that he will seek the premiership in next year’s election and criticized Monti for running a “German-centric” program.
“Combined with the region’s economic prospects, the growing political risk in Italy may be a double whammy for the euro,” said Junichi Ishikawa, an analyst at IG Markets Securities Ltd. in Tokyo.
The euro fell 0.9 percent in the past week, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The greenback rose 0.3 percent, while the yen was little changed.

More Purchases

In the U.S., the Federal Open Market Committee meets for the final time this year on Dec. 11-12. It will consider whether to expand purchases of assets after its so-called Operation Twist program of swapping $45 billion a month in short-term Treasuries for long-term debt expires this month.
“There is a good chance that the Fed will announce a new round of money printing and bond buying,” said Westpac’s Speizer.
Expectations of more central bank stimulus come as data released Dec. 7 by the Labor Department showed the unemployment rate in the world’s biggest economy dropped to 7.7 percent, the lowest level since December 2008.
Economists polled by Bloomberg News say U.S. retail sales probably rose 0.5 percent in November from the previous month, when they declined 0.3 percent. The Commerce Department will publish the figures on Dec. 13.
The central bank has already pumped $2.3 trillion into the financial system through two rounds of quantitative easing, known as QE, to stimulate the economy. In September, the Fed also announced a plan to buy $40 billion of mortgage-backed debt each month.

Chinese Exports

Australia’s currency weakened after data from China’s customs administration showed that exports rose 2.9 percent in November from a year earlier while imports were unchanged. Both trailed the median analyst estimates in a Bloomberg survey.
The Australian dollar slid 0.1 percent to $1.0482. It touched $1.0516 on Dec. 6, the highest since Sept. 21.
In Japan, gross domestic product shrank an annualized 3.5 percent in the three months ended Sept. 30, revised data from the Cabinet Office showed in Tokyo today, matching preliminary figures from November. The median estimate of economists surveyed by Bloomberg was for a 3.3 percent drop.
Futures traders increased bets that the yen will weaken against the dollar to the most since July 2007, figures from the Washington-based Commodity Futures Trading Commission show.
The difference in the number of wagers by hedge funds and other large speculators on a decline in the yen compared with those on a gain -- so-called net shorts -- was 90,326 on Dec. 4, compared with net shorts of 79,466 a week earlier.
“Extreme short market positioning will likely limit the ability of the currency pair to push higher,” Mitul Kotecha, Hong Kong-based head of currency strategy at Credit Agricole SA (ACA), wrote in a note to clients today in reference to the dollar-yen cross. “On the topside, 83.15 will market strong resistance for the currency pair,” he wrote, noting a level last seen on April 2. Resistance is an area on a chart where orders to sell may be clustered.

Source: Bloomberg

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Qatar LNG Spot Sales to Fall 40% by 2014, QNB Says

Qatar, the world’s biggest producer of liquefied natural gas, will reduce spot-market sales of the fuel by at least 40 percent by 2014, curbing supplies available for Europe, state-controlled Qatar National Bank (QNBK) said.
Spot volumes available for sale will drop to about 27 percent of total output this year from 28 percent, and to 16 percent by 2014 as long-term supply agreements go into effect and new ones are signed, the bank’s QNB Group said in a report.
“These new contracts are mainly to Asia Pacific and South America, meaning that Europe’s share of Qatar LNG exports is likely to fall,” according to today’s report.
A drop in Qatari LNG sales to Europe may boost dependence on Russian pipeline gas and push up prices on the continent nearer to Asian fees. Japanese LNG prices averaged $17 per million British thermal units this year, 16 percent higher than last year, the bank said. European prices rose 8 percent to $11.
“This provides a price incentive for spot-market deliveries to be exported to the Asia Pacific, in addition to the rising number of long-term” agreements, the bank said.
Asian demand for LNG, which is gas cooled to a liquid for transport by tanker, has grown as nations seek more fuel for power generation. Japan has increased purchases since shutting almost all its nuclear capacity following the Fukushima reactor disaster in 2011, while U.S. imports have dropped amid a boom in domestic shale-gas output.

Japanese Demand

Japan, the world’s biggest LNG buyer, will have to purchase at least 21 million metric tons on the spot market this year, according to data from Tri-Zen International Inc. The country paid an average of $16.84 per million Btus in September, down from $18.07 in July, which was the highest price since Bloomberg began compiling the data in 2006.
Qatar, which can produce 77 million tons of LNG a year, is diversifying its customer base, increasing its shipments of the fuel to 23 countries last year from eight in 2007, the bank said. The country is planning its first LNG delivery to Singapore and is reported to have signed a sales agreement with Thailand, the bank said. Jordan is also seeking to buy LNG from Qatar, which is helping it build a re-gasification terminal.
Qatar exported 47 percent of its supplies to Asia last year, with Japan purchasing 12 million tons, India 10 million and South Korea 8 million, according to the report.
Europe bought 42 percent of Qatari production, with the U.K. being the single largest buyer. Britain has a long-term agreement for an annual 12 million tons and purchased 4 million tons on the spot market, the bank said. Italy bought 6.1 million tons, Spain 4.8 million tons and France 3.2 million tons.

Source: Bloomberg


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Gold Drops to Four-Week Low as Commodities Fall on Budget Talks

Gold fell to a four-week low in London, dropping below $1,700 an ounce, as a stalemate in U.S. budget talks weighed on commodities.
Commodities retreated for the first time in four days as talks over the so-called fiscal cliff of spending cuts and tax increases remained deadlocked. European Union finance ministers meet in Brussels today to discuss measures to stem the debt crisis. Bullion pared some losses as the dollar reached a six- week low versus the euro.
“It’s more the risk aversion out of commodities which is probably having an impact on gold,” Peter Fertig, the owner of Quantitative Commodity Research Ltd. in Hainburg, Germany, said today by phone. Still, “there are arguments investors should buy gold on worries the U.S. economy could fall over the fiscal cliff,” he said, citing demand for a haven investment.
Gold for immediate delivery dropped 0.6 percent to $1,705.41 an ounce by 9:23 a.m. in London. Prices reached $1,696.78, the lowest since Nov. 6. Gold for February delivery was 0.9 percent lower at $1,706.40 on the Comex in New York.
Holdings in gold-backed exchange-traded products climbed 1.7 metric tons to a record 2,623.4 tons yesterday, data compiled by Bloomberg show. Prices are up 9.1 percent this year as central banks from Europe to China pledged more steps to spur economic growth.
Gold may gain as businesses temper spending and stimulus falls short, John Gilbert, chief investment officer at General Re-New England Asset Management, a unit of Warren Buffett’s Berkshire Hathaway Inc. (BRK/A), wrote in a newsletter. Buffett said in a February letter that investors should avoid bullion as it doesn’t have the potential of farmland or companies to produce wealth.
Silver for immediate delivery fell 1.1 percent to $33.2950 an ounce. Platinum was 0.6 percent lower at $1,596.13 an ounce. Palladium declined 1.2 percent to $683 an ounce.

Source: Bloomberg

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Italy Sells 7.5 Billion Euros of Bills as Yield Drops

Italy sold 7.5 billion euros ($9.7 billion) of six-month Treasury bills, the maximum set for the auction, at the lowest yield on a similar note in more than two and a half years.
The Treasury in Rome today sold the 182-day bills at 0.919 percent, the lowest since April 2010 and down from 1.347 percent at the last auction on Oct. 29. Investors bid for 1.65 times the amount of bills offered, up from 1.52 times last month. Italy returns to the market tomorrow with the sale of as much as 6 billion euros of five and 10-year bonds.
“From a pricing perspective, Italy has overcome the euro- zone crisis,” said Nicholas Spiro, managing director of Spiro Sovereign Strategy in London. “Italy is by no means out of the woods and has become a tale of two halves: an increasingly resilient and externally driven bond market and an economy in deep recession amid mounting political uncertainty.”
Italy’s 10-year yield declined 6 basis points to 4.67 percent at 12:07 p.m. in Rome, the lowest since June 2011. That left the difference with comparable-maturity German debt at 328 basis points.

Falling Yields

Italy sold 3.5 billion euros of zero-coupon bonds yesterday at the lowest yield on a similar bond since October 2010.
The country’s bond yields have fallen since European Central Bank President Mario Draghi said in July that the Frankfurt-based institute would do what’s needed to keep the euro and announce in September a bond-buying program for nations in financing stress.
Italy needs to uphold Prime Minister Mario Monti’s pledge to shore up public finances in order to enjoy investor confidence even after elections due by April, the Organization for Economic Cooperation and Development said in its latest Economic Outlook report this week.
The Paris-based OECD also said that Monti’s efforts to reduce the deficit won’t allow Italy to start trimming the euro region’s second-biggest debt next year and that “further fiscal tightening in 2014 would be necessary.”

Source: Bloomberg


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