The only thing that truly trends is humans extrapolating their rates of return emotionally. Everything else will regress to the mean at some point.
Investors are being given a gift and do not see it. Every rally in stocks should be used to lighten exposure to a crash and every corresponding dip in gold should be bought from a balanced portfolio approach. You should be peeling back equity exposure on every new high and adjusting your risk into something that is stable, holds buying power, and is liquid. That is the point of investing. Your home, your art, and your bitcoin will not fit those guidelines. Gold and silver do.
Do you think the millennials will be buying your 401k shares in 5 Years? Don’t be naive. No one went broke banking profits. And the Fed is handing you an opportunity retire with enough money now as they have moved the housing bubble back into the stock market. It took 10 years. Do you have another 10 years to wait if we crap out again? Protect your profits now.
Admittedly the title sounds like a Gold Bull rationalizing a losing position, as so many gold salesmen do, and we are long and are not selling you Gold. We are also swing trading from the short side. So it is what it is.
It"s jobs day and noone really thnks that matters to Fed policy anymore, Brexit breakthrough agreed, and shutdown avoided for now. A couple points before getting to the reason for our title. Let’s first count the ways in which Gold has had to deal with bad news these past 2 months.
Counting the Ways Gold is Bashed
Fund liquidation, Trump Tax Bill, Bitcoin, Brexit deal, Venezuela default (bearish for gold as they had to sell), and the usual short side players with deeper Fed sponsored pockets than the longs woth which they do battle. These are a few of Gold’s obstacles these past couple months. And yet here we are $100 above last years lows.
Kicking Gold Today’s Edition
The Brexit deal and Govt shutdown avoidance alluded to above, along with the end of year puke-age and Trump’s Tax Bill (as we have written about here extensively) have all been major negatives for Gold the past few weeks. And yet gold sells off (again) before the news comes out.. strange...
To be fair, we are seeing more longs with end of year hopes dashed selling these last couple days. There are some shorts getting in now however. Just not enough to spur a sustainable a rally we think.
Banks and The Fed in Bed Again And Gold Suffers for It
Post 2008 banks have been on the outs with The Fed as risk managers. The Fed had mandated more risk be cleared through exchanges. And they have succeeded somewhat.
In doing so, the border collies that run our monetary system have herded much derivative risk into a larger basket. TBTF became Bigger and more centralized (like Fannie Mae..).Their reason is this basket is more easily watched, and since they regulate exchanges, can be “advised” on policy.
But along comes an existential threat not just to global fiat backed governments, but to the US Banks that are their overlords. And boom! They have a common enemy. And that Enemy is Bitcoin.
Gold is suffering real collateral damage now as the banks pitch their new wonderful product to replace gold.. and it’s having an effect.
BTC Futures: Regulation and Repression to Follow
Note the complete banking industry turnabout to hailing BTC as the new gold on the coincidental heels of new futures contracts approved by the CFTC. Banks and brokers have a new product to sell you folks, and they are actually calling it a store of value, a new gold, if you will. This is in complete contrast not just to BTC behavior (volatile and a wealth generating currency, but don’t call it money yet), but to gold itself (low volatility, wealth preserver, money but not currency) Line up suckers for a new product to be castrated, regulated, and repressed by banks through exchanges with government blessing and oversight. People not long Bitcoins will be buying futures on margin while banks long BTC will be hedging and killing their much shallower pocketed but greedy clients. Let the fleecing begin in the NEW GOLD. JPM Calls BTC “New Gold”; Spoofing Starts Monday
Love Michael, Hate it When he’s Right
Michael Moor has been spot-on in handicapping market moves given price triggers. Read UPDATE: “Bear Trend with a $1700 Target” Has Problems for more. He saw for different reasons than us, a large bull move fermenting last month. He gave a level where that was negated. That level was breached. Now,to our chagrin, he’s called this sell-off from the $1272 area very nicely. In the process, he stopped us from buying dips for now. But we wish he’d see the end.. for our sake!
UPDATING OUR LEVELS
1-Our macro trade system says we should be out If the market is here come December 31.
2-The VBS indicator has yet to be triggered for a longer term volatility expansion. So according to that indicator we are still in a trading range, hard as that is to feel when you are long as we are.
Point being; Nothing has Changed
We made the observation that funds like to get in above the 12 month MA for punts. They did and they are now puking. We have a long position based on this and are swing trading around it.
We secondly stated that volatility would be expanding in 90 days. We are 45 into that and things are starting to percolate. We did say November would be one to remember. So that was a bit premature.
We believed a $50 move one way was coming which would cause a spike in volatility and a follow up move anywhere between $50 and $200.
All of this is in play and lining up from our original statements to today’s activity.
The only thing you have to ask yourself is will you be in a position to buy gold if it drops another $50 and then another $100 from there. Because that is what gold is for. It is to be bought when it gets cheaper. We will be buying to hold for 12-18 months at least as we roll equity profits into wealth preservation vehicles. We will also be trading it from both sides of the table. But this is what we do professionally.
You should be peeling back equity exposure on every new high and adjusting risk into something that is stable, holds buying power, and is liquid. Your home, your art, and your bitcoin will not fit those guidelines. Gold and silver do.
On combination, Michael says we may have another $30 or so of downside coming. This would trigger the VBS indicating a $50-$200 move relatively quickly in one or the other direction.
Which brings us back to our original post a month ago declaring volatility is soon to expand in about 90 days. We also stated then a $50 move in either direction will yield another $200 in continuation or reversal of that first move.
Notes From a call today on potential gold trades.
- It looks like we will be seeing a move of $50 to $75 in either direction in the next 90 days.
- That move could be slow and orderly, or fits and starts, that is not handicappable or important to the system
- If a move like above occurs, then we will most definitely get a signal to be long Vol. on a risk reward basis as the monthly indicator will expand
- Directionally, our first play would be to go with the direction at time of the trigger. Our second would be to stop and reverse at a predetermined level.
- this is a longer term play than usual for the VBAS so we will most likely express the position traditional way via long straddles.
- Direction would then be expressed by NOT hedging gamma on daily break evens but more like every 2 weeks, and then only half of accumulated deltas. In this way we would remain long/ short in direction of the trend.
Monthly:
- Buy straddles or hedged call spreads on a monthly settlement above 1305 or below 1191 [Edit- now $1338 and $1192 per chart below]
- early entry- put on 1/2 position on a day signal as described above.
- exit everything on 3 bars if not profitable.
- Gamma hedging TBD.
Monthly chart updated today. Gold has dropped approximately $35 thus far from that call. A $75 drop from Oct 25th"s level would be in shouting distance of $1192 and likely trigger the indicator of even higher volatility.
The plan is: Gold drops $50 from that post date, triggering the VBS for expanding volatility.
At that point one either goes with the trend, or waits for a quick exhaustive selloff and reversal for a major rally. In simple terms: of Gold trades $1192, it will not sir there long. We will sell if it hits there, initiating a short. But that is only to keep our finger on the pulse. Having a position in a market heightens your radar and forces you to respect your discipline. Doing so will tell us if being short is wrong. This will in turn mean being long is right. And we will reverse hard.
So, here’s to a market dump to $1193 and what could be the beginning of a new run higher. Yes, VBS also implies lower is equally possible from $1193, but given the seasonal nature of Gold and it’s tendency to make lows at end of the year as funds sell, we’re optimistic that the buy low and sell high rule of investment will replace our current swing trading behavior of selling weakness and buying it lower. This as we described all part of trading around a core long position. We’d love to start swing- trading from the long side with a core long position. Stay tuned.
Previously:
About the author:Vince Lanci has 27 years’ experience trading Commodity Derivatives. Retired from active trading in 2008 after netting $90MM in an Energy arbitrage strategy he devised for a NY hedge fund; Vince now manages personal investments through his Echobay entity and advises natural resource firms on market risk. Over the years, his expertise and testimony have been requested in energy, precious metals, and derivative fraud cases. Lanci is known for his passion in identifying unfairness in market structure and uneven playing fields going back to his first anonymous Zerohedge post on Silver. He remains a contributor to Kitco, Zerohedge, and Marketslant on such topics. Vince contributes to Bloomberg and Reuters finance articles as well. He continues to lead the Soren K. Group of writers on Marketslant.
Bloomberg reports:
Progress
An early-morning breakthrough on Brexit first-round negotiations takes the process toward the next stage of forging the U.K.’s post-exit relationship with the European Union. The thorny issue of the Irish border was effectively parked while outline agreements on citizen rights and the divorce bill were achieved. Leading Brexit campaigner Nigel Farage labeled the deal a “humiliation.” Gilts dropped and the pound remained relatively unchanged in the wake of the deal.
Bank rally
Shares in European lenders are soaring this morning, with the Stoxx 600 Banks Index climbing as much as 3 percent, after Basel III capital rules will see “no significant increase” in provisioning for the institutions. The final batch of post-crisis regulations announced yesterday will see requirements decline for some large banks. The agreement and culmination of intense lobbying removes a regulatory risk which had been hanging over the sector for almost a decade.
Markets rise
Overnight, the MSCI Asia Pacific Index added 0.6 percent, while Japan’s Topix index closed 1 percent higher following data showing the country’s economy expanded faster than expected. In Europe, the surge in bank shares is lifting the Stoxx 600 Index, which was trading 0.9 percent higher at 5:45 a.m. S&P 500 futures added 0.3 percent, the 10-year Treasury yield was at 2.389 percent and gold continued its recent slide.
Shutdown
Congress sent President Donald Trump a bill extending federal funding for government spending to Dec. 22, avoiding a shutdown which was scheduled to begin today. Lawmakers, who already have a busy schedule coming into the year end, will seek to resolve issues on spending limits in the next couple of weeks which would allow for agreement on a longer-term budget.
