Thursday, September 8, 2011
From Goldman’s head gold trader Zak Dhabalia (i.e., someone that can not be found on 360) who says what only fringe blogosphere dares to speculate: namely that central banks and/or metals excahnges (CME/LBMA) openly intervene at key inflection point to slam the price of gold down. More importantly, according to Zak, now that the latest “authority” intervention has been priced in, it is up, up and away for the yellow metal yet again.
From Goldman Sachs
Coming back from vacation probably wasn’t such a good idea after all….The gold market is clearly moving into a new dynamic from an orderly market rally to a disorderly market rally. The strong feature of the last 3 years was a relatively steady up move accompanied by declining option vols. This gave encouragement to investors to accumulate gold without a fear of dramatic price risk and from a risk adjusted asset allocation perspective the relative merits of gold were improving against other asset classes particularly for those that view and compare gold against currencies. However since the beginning of August the price spike has been accompanied by higher vols which have accelerated again this week as 1 month reached mid 30s. There has been some rather disturbing price action in the last 48 hrs creating extremely challenging trading conditions.
After rallying nearly 100 usd last week from 1795 to 1895 with demand coming from the official sector and some leveraged players rebuilding length following the severe prior correction we traded to new all time highs of 1922 on Tuesday shortly before the Swiss Franc intervention. The immediate aftermath was in complete contradiction to prior recent episodes of intervention and what anyone would have expected. Instead of spurring a further gold price rally on the basis that it was one of the few remaining safe haven “currencies” we saw a 50 usd collapse in minutes. The source of this flow seems hard to pin down with some speculating over whether “authorities” were concerned about the signals of an accelerating gold price and its impact on other fragile markets. Soon after, much of the losses were recovered but the psychological damage had been done and there followed a series of liquidations from within the leverage space with gold closing down 50 usd on the day. This was then exacerbated by a near 60 usd flash crash within 2 minutes during the Asian session.
We have since traded down to 1795 yesterday with talk of technical damage (double tops etc) but recover to 1840 this morning. Despite the fact that discretionary leverage positions are significantly lighter there is still heaviness of CTA type positions that can be reduced. However official sector activity, and PWM is already using this latest dip to re-accumulate and it may be the case the market is already close to clean positions at ever higher prices.
From a technical perspective minor support comes in at 1795 with more significant support at 1705. Above, the double top area of 1920 takes on much more significance. Despite the much higher vols we are happy to own short dated 1-2 mth high strikes more than flat price positions in the current environment.
This article was posted: Thursday, September 8, 2011 at 3:04 pm