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.
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*reduction not hikes
ReplyDeleteHi Dan,
ReplyDeleteThanks 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,
Hubert;
DeleteThanks 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.
Thanks Dan,
DeleteHave a great weekend as well :)
Take care,
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...
ReplyDeleteGold tanking in pre-market. If it breaks below $1,280, measured move takes it to the Dec. '13 lows of $1,190.
ReplyDeleteThen 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!"
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
DeleteRight 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...
ReplyDeleteMore on the "mystery QE" Dan:
ReplyDeletehttp://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.
http://investmentresearchdynamics.com/the-truth-about-comex-data-and-cftc-cot-reports/
ReplyDeleteA Tribute to Ted Butler and his Useless work...
Bob, u forgot to mention Harvey Organ; swb
DeleteHi Dan
ReplyDeleteIt'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.
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