“Woe to the land whose king is a child and whose leaders are already drunk in the morning. Happy the land whose king is a nobleman, and whose leaders work hard before they feast and drink, and then only to strengthen themselves for the tasks ahead”. (Eccl 10: 16-17)


"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat


Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


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Thursday, May 15, 2014

CME Lowers Gold and Silver Margin Requirements

In a move that is sure to raise the ire of the GIAMATT crowd, ( insert sarcasm here ), the CME announced a reduction in margin rates for gold by 7.7% as of the close of trading today ( Friday ). Speculative margins are now being lowered to $6,600 from the previous initial margin of $7,150. Maintenance margin drops to $6,000 from the current $6,500.

Silver margins are now cut 8.3%. Specs must put up $9,075 for an initial margin down from the current $9,900. Maintenance margins have been lowered to $8,250 from $9,000.

The recent range trade in both precious metals has resulted in lower volatility and that is being picked up in the exchange's computer program which measures that and either raises or lowers the margin requirements accordingly.

I am always amused by the reaction to these events by the GIAMATT crowd because inevitably, whenever the precious metals begin to make big trending moves ( in the upward direction ) , the swings in price begin to intensify. That ramp up in volatility, especially when gold is in a strong uptrend, can easily wipe out smaller, underfunded traders. The exchanges then respond in order to safeguard the Clearinghouse and to make sure that the process is protected. The perma gold bull camp then screeches to high heaven that it is all the more proof that the powers that be are manipulating gold by trying to force out the speculators.

Given the current low volatility by recent comparisons, this move by the exchange will actually make it easier for both longs and shorts, to increase the number of positions. If one is bullish, it actually makes it cheaper to increase the number of long positions in either metal. With the current positioning of the speculative community being net long, this benefits the bulls. Don't expect to hear a negative peep out of the GIAMATT crowd about this however. It is only when the exchanges raise the margins that they begin making noise.

One could easily make the equally bogus argument that the exchanges are making it much easier for specs to pad their current net long positions by lowering these margin requirements thus providing solid evidence that the exchange is working overtime to manipulate the price of gold higher, which is evidently a dastardly thing to do to the poor, friendless gold bears.

In overnight trading this evening, traders are expecting a victory in the Indian elections which is viewed as favorable for gold demand in that big consuming nation. Gold has popped up a few dollars as a result. The metal continues to hold above key support near the $1280 region.




16 comments:

  1. If gold tanks in the near future, as I'm afraid it may (timetable to death cross here), we will surely hear that these margin hikes were designed to lure in a few more long specs to the slaughter.

    ReplyDelete
  2. Hi Dan,

    Thanks a lot for that post once again.
    Sorry to be less active on the site, but I have priorities of my own right now...
    It's really great to see that this blog is attracting some well spirited people with real brains and different advices and background.
    My small contribution of the day regarding silver :
    I tried a few days ago a small gambling trade (short) on silver at 19.50, I was quickly stopped at 19.60 though above the resistance of the daily time unit.
    I didn't buy, though, because I'm also following the curious and exotic 2day candle chart.
    I was asked a few times why I am following this weird combination that noone follows, i.e 2day / 2week / 2month.
    First, because I happened to see that it gives interesting complementary information about price evolution potential.
    Here is the recent chart :

    http://i62.tinypic.com/2ptqp7t.jpg

    See how the Sup Bollinger band was diving down to the prices? That is the main reason I didn't expect prices to get through 20 $ and mentioned that PM prices potential up was limited in the short term. More particularly, see how the bollinger bands are acting well in terms of bouncing prices.
    Steve asked me once why I was using Bollinger bands as part of my tools for T.A, and this is another example illustrating why. I find them deadly useful in many cases. I don't know if Dan uses them as well, but I'd be curious to know :)

    Another thing about this timeframe is that it is long term and convenient to respect a 4/5 ratio between longer and shorter term charts : 2day - *5 - 2week -*4+ - 2 months.
    I prefer this ratio to the week / month / quarter because month - *3only - quarter seems a little weird.
    Anyhow, the idea is to check all possible time units where something might be useful.
    As one can trade within several time units, and within several markets, why not check them all if one has time, in order to detect the best opportunities, rather than remaining focused on one market, one time unit, and want to trade there everyday, while most of the time there will be nothing to do (except casino style trading --> road pizza guaranteed).

    Have a nice day all,

    ReplyDelete
    Replies
    1. Hubert;

      Thanks for your well thought out analysis. This is the mark of a good trader - but I must warn you as you seem to be an endangered species - a trader that actually thinks and does some analysis before placing a trade. What is the world coming to? :o)

      to answer your question - I personally do not use Bollinger Bands but I do know some other traders besides yourself who like to use them and have found them helpful. My view is that stick with the things that work for you and learn them inside and out. If the BB's work for a trader, good for them.

      The theory behind them is sound however and makes a lot of sense. The reason I think that they are good is because they use the concepts of statistics, which is different than so many of the various technical indicators out there which are essentially momentum based.

      Both of these metals, gold and silver, remain stuck in those ranges of theirs so that stochastic indicator is useful as well. I would like to see them finally breakout however, one way or the other, but we might have to wait for that vote in Ukraine in a couple of weeks before we see that.

      Good trading to you Hubert and a good weekend.

      Delete
    2. Thanks Dan,
      Have a great weekend as well :)
      Take care,

      Delete
  3. no no no Dan, you don't get it - the Snake Oil Salesmen will spin this as "See, the COMEX is trying to make it easier for The Cartel to slam the metals with NAKED UNBACKED PAPER SHORTS by lowering margin requirements...

    ReplyDelete
  4. Gold tanking in pre-market. If it breaks below $1,280, measured move takes it to the Dec. '13 lows of $1,190.

    Then you will see some "Serious Panic".

    Seems like most institutional investors are very anxious to sell gold and buy U.S. Treasuries and JGB's which have recently experienced a "Rip Your Face Off" rally, destroying guys like Jim Rogers, Kyle Bass who keep saying "Any Minute Now, Interest Rates Are Going to Explode!"

    ReplyDelete
    Replies
    1. Mark, you are completely wrong when you say that Rogers and Bass are getting destroyed by the bond rally. They are true winners and will NEVER get destroyed on 1 wrong trade. But I must say that you continue to be right on the palladium bet. Take care and have a good wknd and bet California Chrome; swb

      Delete
  5. Right Mark thanks for your insight. Personally I shall stick with Kyle Bass who certainly knows his onions, rather than listen to some bloke down the pub with a big gob...

    ReplyDelete
  6. More on the "mystery QE" Dan:

    http://www.silverdoctors.com/pm-fund-manager-former-treasury-official-dissect-the-feds-money-laundering-to-cover-up-true-qe-purchases/

    It does look more and more like Russia dumped a shit load of treasuries which is why the Fed came in and unofficially bought them. No doubt yields would be rocketing now if they hadn't done this. Also looks like they will continue to take up the sack in the bond market through official QE or otherwise.

    ReplyDelete
  7. http://investmentresearchdynamics.com/the-truth-about-comex-data-and-cftc-cot-reports/

    A Tribute to Ted Butler and his Useless work...

    ReplyDelete
    Replies
    1. Bob, u forgot to mention Harvey Organ; swb

      Delete
  8. Hi Dan
    It's more exciting watching the grass and flowers grow here, in chilly Ohio, than trading gold. BTW- Would it be too personal to ask what trading platform you use? Trade Station, Think or Swim, etc? I always wondered what you thought was the best. Thank you Sir.

    ReplyDelete
  9. The reduction in margin requirements will inevitably lead to increased leverage; in simple terms, in order to be able to speculate on $1293 x 100 oz of Gold, you will now only need to put up $6,600 - a ratio of 19.59x (compared to 18.08 x previously). In other words, you now get more speculative bang for your buck - $1.08, to be exact. (That's inflation for you! Let's blame QE.....)

    But hang on. Isn't "leverage" like, a REALLY REALLY BAD THING? You know, "paper claims" and all? Why aren't the Goldbugs up in arms about this?

    Here's why, and to understand it you have to deconstruct how they simply DON'T understand it. If you are sitting comfortably, then I will begin our Journey Down the Rabbit Hole:

    1. You see, COMEX leverage is not 19.59 or so, but more like 112. You want proof? - here it is, courtesy of a self-appointed Market Expert (previously a failed internet startup wannabe) sounding off on Koos Jansen's site (but could just as easily have been KWN or TF) - http://www.ingoldwetrust.ch/interview-fabrice-drouin-ristori-goldbroker-com

    Here you will learn that "This trend toward direct physical possession of gold will destroy the LBMA (London gold market) and the COMEX in time, as they are highly leveraged and a lot of unallocation and re-hypothecation has been happening there.

    On the COMEX market alone you have 112 paper gold claims for each ounce of physical gold available."


    which, of course, is based on our old friend, Harvey Organ's misinterpretation of the NYMEX Rulebook and the COMEX inventory reports.

    On one occasion in January this year the ratio of OI to COMEX Registered Gold Inventory briefly touched 112, but not only is this a nonsense number, by the time the article was written, it had fallen back to around 60.

    2. In more prosaic terms - but still fundamentally meaningless - , the ratio of OI to total COMEX deliverable Gold inventory (Eligible + Registered) was around 5.4 : 1, but that number is nothing like as sexy as 112, so let's go with the big number and let the Professionals do the arithmetic. Oh, and Keep Stackin', right.....

    3. Now, someone pointed out in a comment on that article that OI:Inventory wasn't leverage at all; at the time the Initial Margin requirement was $8,800, so off of a Futures price of $1330/oz this gave an leverage ratio of 15.15.

    4. This, of course, was far lower than the leverage available a year earlier (before the Evil Evil Cartel Smash) when Gold was trading around $1600 and the margin requirement was only $7040, giving a ratio of 22.73. As the leverage had fallen very significantly, you might have thought development this a Good Thing, but no! HAVEN'T YOU BEEN LISTENING TO ANYTHING THE GURU TOLD YOU? - leverage is 112:1, not 22, not 18 and certainly not 5. I'm glad we cleared that up. 112, got that? 112. Very bad. Manipulation. Cartel. 3-2-1 SLEEP!

    So, Boys and Girls, for those of us who have to earn their daily bread by working in these so-called Markets, leverage is an important metric. For all of the Experts, however, less - so: they have their own magic numbers which are far more impressive and likely to attract attention. And let's face it, those numbers can be pretty much anything they want them to be (and mean), whereas us Lilliputian intellectual pygmies are condemned to operate in the real world using real money and trying to make real sense of it all

    I envy them, really I do. Sound Engineer, Finance Director of a Retail Electronics chain, failed Pension Salesman, failed internet entrepreneur one minute, acclaimed expert the next, whereas after 30 years at the coal face I am still very much an Apprentice (as the Markets never lose any opportunity to remind me). Ah, shucks, it's only money.......

    ReplyDelete
  10. Incidentally, I forgot to note the relationships between these various nouveau savant contributors

    1. Koos Jansen notes Fabrice Drouin Ristori as his "associate" - http://www.ingoldwetrust.ch/interview-fabrice-drouin-ristori-goldbroker-com

    2. Fabrice runs Goldbroker.com - and on the Board of that firm we find Egon von Greyerz https://www.goldbroker.com/en/news/egon-von-greyerz-board-fdrcapital-swiss-gold-become-money-competition-buy-physica-gold-fierce-115

    3. Greyerz is of course far better known due to his involvement in Matterhorn Asset Management, in which capacity he is a regular contributor to King World News: http://kingworldnews.com/kingworldnews/Broadcast/Entries/2014/3/16_Egon_von_Greyerz.html

    4. Matterhorn Asset Management recently interviewed Koos Jansen, referring to him (at 0:45 in this video) as "the Go-To Guy" http://matterhornassetmanagement.com/2014/03/20/chinas-gold-policy-is-one-of-the-worlds-most-important-developments/ (based no doubt on the truly massive experience of the Gold markets he has garnered since establishing his website in 2013)

    These tightly-knit self-laudatory groups typify the Goldbug community - whether it be the Craig Hemke - Andrew Maguire clique, Jan Skoyles - Stacy Herbert - Max Keiser - scratch beneath the surface and they are all bigging each other up, patting each other on the back, and, of course, cross-selling each other's business models to an unsuspecting audience

    Beneath the veil the professional credentials underpinning these individuals are typically scant, opaque and/or unimpressive: Car Lease salesman, failed Pensions broker, Sound Engineer, Electrical Appliance retailer, retail stockbroker (who claims to be a derivatives expert because earlier in his career he once sold "more than $1 million of options". Here's testimony to just how good he is/was, from his own mouth: http://www.youtube.com/watch?v=40xyqt0DidY )

    I have no personal gripe with the individuals involved - I just have a visceral aversion to lies and bullshit dressed up as sophistry

    ReplyDelete
  11. still I think that you cant compare this tiny reduction to the hikes previously. If we would get 5 consecutive margin reductions then I would think that the prices are indeed manipulated higher. Before I see that I will have to be prone to think that someone wants to keep the prices contained. http://www.zerohedge.com/article/cme-margin-hike-4th-and-5th-charting-parabolic-rise-cme-silver-margin-hikes

    ReplyDelete

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