The Bullion Report for Oct 27th: At Ease

The Federal Reserve will be meeting next week and all eyes will be focused on the potential for another round of monetary easing. Speculation abounds as to the scope and depth of their actions, but most analysts are working on the assumption that at least $500 billion in Treasuries will be picked up over the next five months. Considering the global economic climate and the link between gold and the U.S. dollar, what could this easing mean for precious metals moving forward?


Past performance is not indicative of future results.
***chart courtesy Gecko Software’s Track n’ Trade Pro

Easing is a banking tool that is meant to stimulate economic activity. The Federal Reserve would aim to do this with a round of Treasury purchases. This would keep them on their current course of reducing interest rates and trying to jumpstart the money supply. With these purchases, they get excess reserves to make new money. The effect can be what the name implies – it gives the banks and the economy some breathing room.

The risks to easing run the gamut between the potential for hyperinflation and the chance that the easing will not be long or deep enough to achieve the desired stimulus results. In the present environment, both situations would likely represent a bane to the Federal Reserve and a boon to gold and other precious metals.

Debasing the U.S. dollar by increasing the money supply would likely spur additional interest in gold and other precious metal investment. After all, inflation serves to devalue a regular savings account. The trick to this, and the hope of the Federal Reserve officials who support this course of action, is that the global stage will negate the effect of this round of easing. Basically, if all the other central banks are doing it, there will be no one single losing currency. This kind of “competitive devaluation” might temper the reaction from the market. The caveat is that the increase in money supply on a global level would still be a possible motivator for investors who jump on gold as an inflation hedge.

Even if the inflation-situation does not come into play, or it is successfully combated, there is still an overwhelming amount of debt created by round after round of stimulus aimed at spurring economic activity. This has increased the demand for certain investments – like gold – amid flimsy fundamentals for other financial assets. It will probably mean more business for precious metals as investors seek havens if the stimulus fails and this second round of easing isn’t enough to bolster employment and economic growth.

It will be interesting to see what the Federal Reserve commits to, following next week’s meeting. Guesses seem to be centered on the possible commitment from officials to buy up $100 billion in Treasury debt per month for the next five months. This headline may already be priced into the markets, but recent gains in the dollar set up an interesting situation. The drop in gold prices on the strengthening U.S. currency could have set up perceived value entry points ahead of any additional official announcements. According to a story from Reuters, gold traders in India were already scooping up the metal on lower prices amid their festival and wedding season peaks. (1)

It seems unlikely that the Federal Reserve will fall short of the market expectations. Doing so at this point would bump up the dollar but it would jolt other financial markets in the process. Officials have not been working this hard for this long to rock the boat, despite some member objections to another round of stimulus. To quote Ben Bernanke’s own speech from the beginning of 2009, “The global economy will recover, but the timing and strength of the recovery are highly uncertain.” With this in mind, the effort they could be announcing next week will probably fall in line with their actions thus far. Commit to maintaining a response that adds liquidity and stimulus but keep the door open. This means giving a nudge and a wink but not committing to huge purchases right away. Look for officials to nibble at easing, not gobble.

Summary

There is probably no quick fix to housing and employment issues, but there has been strong effort to repair things since the 2007 start of the crisis. The cumulative efforts of the Federal Reserve could see results at some point, after all, employment is seen as a lagging indicator of the health of an economy. However, until there is a solid compass point that shows tangible recovery and economic strength, fear will still prevail. Fear of economic troubles and fear of future inflation issues as a direct result of continuing stimulus. This means that there is still a proverbial basket of issues from which investors can pull a potential catalyst for higher gold prices.

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As we move towards 8 or 10 billion people on the planet, there's a little less gold per capita. Each one of us will continue to be fighting over an ever smaller percentage of total resources. This is not a happy thought. - Dean Kamen

1 http://economictimes.indiatimes.com/...ow/6821101.cms

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PitGuru.com Weekly Grains Review for Oct 25th

By Matthew Pierce

Friday saw a choppy lower session with both corn and beans following the script gravitating back to the highest open interest strikes at $5.60 and $12.00. This kept most of the trade subdued throughout the session with nothing exciting on the fundamental side to direct interest ahead of the weekend. There was little expected so the trade allowed options to dictate the pace. Over the weekend I saw 4364 of the SX 12.00 calls exercised with 226 puts abandoned…a good move in hindsight. In corn I saw 3016 calls exercised and 5568 puts. The puts were thought to have futures against them. These were the only two features with all other floor commodities showing only marginal interest in Nov. The overnight session was dictated by macro factors with the USD taking another dive following nothing coming out of the G20 meeting. Crude is up on extreme food oil demand with palm screaming higher making 2 year highs. Chinese markets were higher as well helping the corrective upside sentiment. The day session looks to open in line or stronger than the overnight with support from the Euro, Chinese demand, Aussie weather and now talk of standing water delaying plantings in the SW of the US HRW region.

Today’s calls are as follows: Beans are called 15-20 Higher looking at the contract high at 1235 (SF) as the first bull target. Corn is called 10-12 Higher looking to go above Friday’s high with last week’s high at 579 ½ the first upside target with the contract high at 588 offering a second level this week. Indicators remain in the upper end of the range but are still below the contract highs. Wheat is called 7-10 Higher looking to achieve the 50-day MA sitting at 702 ½ this week. Meal is called 2-3 dollars Higher looking at last week’s contract high at 340.20 as the only target. Bean oil is called 130-150 Higher leading the way on the floor looking to achieve the 50% weekly retracement level at 49.77.


Concerning weather: Weekend rains were far greater than expected in the SW region of the US with many areas that needed rains receiving them for HRW plantings. This system moved slowly across the Midwest with all harvest activity stalled. This should ease the record rate seen for this year’s harvest allowing time to catch up with the markets. There is some talk of too much rain in areas of N. TX, NE OK and SE KS but this is not a major factor yet. The benefit of the overall rains outweighs the spotty standing water. The above map shows a bearish forecast with only the far NE corner of the Corn Belt still looking at any rains to stall harvest. Looking at Australian weather, the NW’s opportunity for rain is stunted today as compared with Friday’s forecast. The forecasted rains have been pushed off to this weekend with fading confidence in the overall impact this will have. Without these rains Aussie NW production will fall to less than 50% of last year’s crop. China is looking at a very cold forecast possibly damaging their recently planted winter grain crops with wheat a serious concern. This is a short lived situation but one that deserves watching due to wheat corn relationship spread levels.

Looking ahead at this week I see commodity demand as the major factor. Chinese demand in particular is the focal point of the trade with continued rumors floating all over the trade that a major corn deal is in the works. This only enhances the availability of profit in long option and volatility plays heading into Month End. I expect to see more and more OI hitting the trade as moving into Nov due to profit potential versus a staggering US equity picture. The retail sector looks to suffer even though estimates are above last year. The 5-year trend remains low and slow not offering any incentive to join the party. On the other hand, commodities continue to gain in open interest; commodities have a real supply and demand story coupled with massive world currency issues. This train is just warming up for all late comers.

***chart courtesy Gecko Software’s Track n’ Trade Pro
Past performance is not necessarily indicative of future results.

Pitguru Financials Review for oct 18, 2010

By PitGuru Frank LaMantia

Citigroup earned $2.15 billion compared to a loss of $3.24 billion last year at this time. It is still owned by the government but shares are being sold back slowly. Currently the government owns about 12% of the company and wants to be free of the company by year end 2011. Bad loans are down 30% for the past quarter to $7.66 billion which could mean consumers may be getting control of personal finances. (1)

This trader mentioned that buyout and mergers may jump this quarter. Not every company is struggling and when one company falls another takes its place. Survival of the fittest has been how Wall Street worked over the past 100 years. But since 2007 government aid, bailouts, and the too big to fail attitude has changed this motto. Northeast Utilities is purchasing New England Energy for $4 billion in stock and St Jude Medical is buying AGA Medical Holdings for $20.80 per share. The company is also taking over $220 million of debt but is taking over a rival company. (2) (3)

Industrial production was announced down -0.2% and was forecasted to be up 0.1%. Capacity Utilization came in as expected at 74.7%. Tuesday housing starts and building permits are both forecast to come in at 550k. On Wednesday Mortgage Applications which came in at 14.6% at the last announcement will be released; along with Crude Inventories. Many will be looking at Thursday’s initial jobless claims which are forecast to be 450k. Also leading indicators will be released and expected to be around 0.3%. (4)

Apple will be announcing earnings after the close which could propel the market overnight. IBM is also a name that one should be watching to see if the markets will take kindly to the numbers. This week earnings and language used by the Fed could give a more clear direction on where this market is headed. Obviously, the market is stagnant at technical levels previously discussed.

1 http://finance.yahoo.com/news/Citigroup-earns-215-billion-apf-1301075638.html?x=0&sec=topStories&pos=main&asset=&ccode=
2 http://www.cnbc.com/id/39718420
3 http://www.cnbc.com/id/39719414
4 http://biz.yahoo.com/c/e.html


***chart courtesy Gecko Software’s Track n’ Trade Pro
Past performance is not necessarily indicative of future results.

Risks and Benefits of Managed Futures

Welcome to the world of cta managed futures! Before you open your first futures account, there are likely some questions you are asking…..what exactly can I gain from managed futures accounts and what are the risks for investing futures?

There is a substantial risk of a loss in all futures and options trading, no matter who is managing your money, so why try managed futures? Part of the reason some investors may decide that managed futures are a place for them to place their risk capital is that a managed futures fund may offer more diversity for a portfolio.

If you are a new trader and you have read about the risks associated with trading, but decide that despite the risks, you would like to invest in futures – what markets? Straight futures or options? Long options or short?

Some investors may see managed futures as a way to try techniques and a strategy that differs from their own portfolio efforts and knowledge base. Although, you will want to make sure that the risk tolerance level that the managed futures broker is taking is compatible with yours.

Alternately, a managed futures strategy may be implemented to try to hedge certain positions already in an investment portfolio. Correlated and non-correlated trades may offer a level of diversity that can be potentially beneficial in certain market conditions. However, there are still substantial risks of a loss, no matter what strategy is being used.

For example, an investor who has certain stock portfolios may choose to open an account with a CTA whose managed futures strategies include certain commodities such as livestock or gold, rather than putting all of their risk capital into stocks.

Click to register for free and learn more about the potential benefits – as well as the risks – associated with a diversified portfolio and managed futures!

Trading in futures and options involves a substantial risk of a loss and is not suitable for all investors. Past performance is not necessarily indicative of future results.

Futures Prices as of July 6, 2009

More futures prices, check out futures prices quotes & charts

Market Expert: US Recession WILL End First

Market experts Andre Julian (OpVest.com - commodities Investing ) and Ron Shah give investing tips to boost your portfolio in today's market. ... recession Andre Julian Ron Shah ...

Stock Option

Successful traders learn to follow a set of rules consistently. These set of rules are called a trading system. When using stock options, it is very important to use a stock option trading system.

I've backtesting several stock option trading systems and have learned to avoid commonly taught systems that result in a net loss over time. A new stock option trading system I am still backtesting involves high flying stocks Google, CME, or RTP.

The leverage of stock options can cut both ways. You can lose faster as well as win faster with stock options. Therefore, you want to get past the point of trading because of emotions or addiction and trade by your rules. Of course, your stock option trading system needs to be backtested with lots of samples to ensure you have positive expectancy.

Positive expectancy means that when you trade many times over the long run, you will have a net profit. You will be surprised that some stock option trading systems being taught or sold may have a NEGATIVE expectancy in the long run. That is, you will be trading at a net loss. They may have worked in a strong trending market a few years ago but they do not work in our current 2005-2006 slightly trending stock market.

That's why I am focusing on stocks that are expensive and that have a high intra-day range - or average true range. Google, CME, and RTP are in the $200 to $500 range. In fact, there are not many other stocks over $200 that have options besides those three. Normally, options two strikes out of the money are relatively expensive for these stocks - except during the expiration week.

Let's look at a stock option trading system I'm still backtesting:

• On the Monday before option expiration, buy three strangles on Google, CME, or RTP that are 2 strikes out of the money for that expiration. For example, on Monday, May 15th, with expiration Friday on May 19th, Google is at 400. Buy the 420 call and the 380 put. If it is not earnings month, the strangle should cost around $300 to $350.
• You'll have to watch the price quote most of the day for Tuesday, Wednesday, Thursday, and even Friday.
• Try to estimate based on chart patterns whether a certain time is close to the high or low for the day. Better than that, if the price of the total strangle is profitable by $100 or more per strangle, sell one. The normal intra-day range for these three stocks swings enough to cause some profit.
• Repeat step 3 on Wednesday and Thursday. Many times a year, there is a news event that can cause a $10 to $30 move on a single day. These are the home runs you are looking for that will more than cancel the strike outs of the relatively inactive days.

This stock option trading system has precise definitions for entry and relatively precise definitions for exit. Trade like a robot one week a month. I've traded this system a few times and have gained more than 50% twice and lost 50% once. In future articles I will present the detailed backtesting results of this system.

Steve Burke