DOW up 144 points as gold and silver dived. So, guess we are seeing QE3 to push the stocks higher from here ... time to buy back our stocks again? GLD down 3.4% and SLV lost 4.4%. Time to exit SLV-c1 with a loss today due to my bet that market will go down and silver to go up. When should I buy back GLD or SLV?

By Eric McWhinnie

It was an ugly day for precious metals (NYSE:DBP). On Tuesday, gold (NYSE:GLD) and silver (NYSE:SLV) both fell as the Dow (NYSE:DIA) gained the most points in two weeks. Gold dropped the most in a year after reaching a new nominal high of $1917.90 per ounce. Silver also declined and reached a session low of $41.50 before rebounding back above $42. Since gold and silver often play off each other, let's take a closer look at gold as it provides a clear reason for the pullback.

As silver bugs will recall, back in April and May, silver margins were hiked 5 times in less than two weeks. The margin hikes sent silver tumbling from $50 an ounce. Since then, silver has struggled to sustain a move above $40. The strong precious metals rally last week powered silver to a new short-term high of $44.28 on August 22. On the same day, gold reached a high of $1917.90. However, gold and silver both saw sharp selloffs yesterday. As the chart below shows, gold has seen this type of move before.

The prior sharp selloff was seen on August 11. This is significant because the CME increased gold margins by 22%, effective after the close of business on August 11. The same beat down method seen in silver months earlier, was seen in gold. However, gold recovered quite well until yesterday's sharp selloff. So what caused this familiar selloff in gold and silver? Another margin hike! Late Tuesday, it was announced that The Shanghai Gold Exchange increased gold margins for forward contracts, the second time this month. Li Ning, an analyst at Shanghai CIFO Futures said, 'Gold prices on the global market have been rallying strongly and at an increasingly faster pace. The margin hike is a pre-emptive move in case prices crashed and caused great volatility in the market. The Shanghai Futures Exchange could raise margins on its gold futures contract soon too.'

For our premium newsletter subscribers, I warned about this exact situation on Monday. I said, 'Gold will meet resistance near $1900-$1950. As gold approaches the higher end of this range, be cautious of another margin hike in gold.' Many investors may be wondering where gold goes from here? The prior CME margin hike sent gold down 5%. If you apply the same 5% pullback to the recent high of $1917 in gold, you get a gold price of about $1821. Yesterday, gold for December delivery reached a low of $1826. Yesterday's low also coincides with our warning to premium newsletter subscribers. On Monday, I also said, 'Margin hikes worked extremely well a few months ago to dampen silver bugs, but investors should see this as another buying opportunity. Gold will find short-term support at $1825, and even more support at $1800.'

Investors looking to hold precious metals in their portfolio may want to consider gold plays such as AngloGold (NYSE:AU), Newmont Mining (NYSE:NEM), or Market Vectors Jr Gold Miners ETF (NYSE:GDXJ). Silver plays include First Majestic Silver (NYSE:AG),Endeavour Silver (AMEX:EXK), and Global X Silver Miners ETF (NYSE:SIL).




Flash Gold posts biggest drop since 1980 on Fed fears
Written by Reuters
Thursday, 25 August 2011 07:05


NEW YORK: Gold futures fell more than $100 on Wednesday, Aug 24 one of the steepest falls ever, as strong U.S. economic data and expectations of more Federal Reserve stimulus accelerated profit taking from the safe-haven record high of a day ago.

Selling spiraled out of control as money managers competed to liquidate positions in COMEX futures, which experienced their biggest single-day dollar loss since 1980. Volume looked like a record.

The price of gold bullion is now more than $150 below Tuesday's all time high of $1,911.46 an ounce, downed by intense speculation about whether the Fed will announce new plans to ease monetary policy at a meeting late this week.

Analysts said it was time for gold investors to take money off the table after the rally extended too far, too fast in recent weeks. Bullion rose as much as $400 since July.

"You have a commodity that retail investors, hedge funds and everybody were long, and the technical indicators showed it was overbought. It was just a matter of time before the market starts cracking," said Mihir Dange, COMEX gold options floor trader for Arbitrage LLC.

Spot gold was down 4.1 percent to $1,754.59 an ounce by 3:37 p.m. EDT, off its session low of $1,749.39.

Before gold began recoiling Tuesday from above $1,900, it had risen nearly 9 percent over six sessions.

U.S. gold futures for December delivery settled down $104 at $1,757.30 an ounce. Reuters data showed that is the biggest price drop of the continuous, front-month contract since January 22, 1980, when it tumbled almost $150. On a percentage basis, it was the steepest fall since December 2008, during the financial crisis.

COMEX futures volume topped 430,000 lots, on pace to surpass a record from August 9, preliminary Reuters data showed.

Silver dropped 5.9 percent to $39.34 an ounce.

Gold came under pressure after steadying overnight, after a report showing new orders for U.S. durable goods orders rose 4 percent in July, more than expected and offering hope the ailing economy could dodge a second recession.

Analysts warned of a sharp correction from this month's rally was possible, especially if Friday's central bank meeting at Jackson Hole, Wyoming does not result in a Fed announcement of a third round of government bond buying, or quantitative easing, also known as QE3.

"The correction really should be taking place now, because of all the (bets) on the table," said Ashok Shah, chief investment officer at London & Capital.

"But the journey is not complete until Jackson Hole is done," Shah said. The Fed conference starts on Thursday.

CALL-PUT SPREAD NARROWS, MARGINS EYED

On the options front, the spread between the 25-day implied volatility of COMEX gold and that of put options has narrowed since Monday, a sign that gold option investors were turning bearish.

The CBOE gold volatility index .GVX is near at its highest since April 2009.

The CME Group (CME.O) said late Wednesday it would raise maintenance margins for trading COMEX 100-ounce gold futures by 27 percent, after the close of business on Aug 25. The Shanghai Gold Exchange and Hong Kong Mercantile Exchange had raised margins on some of gold contracts this month.

Holdings of the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, fell by nearly 25 tonnes on Tuesday, their biggest one-day outflow since January 25.

Spot platinum dropped 2.8 percent to $1,805.49 an ounce, and palladium was down 1.5 percent at $745.28 an ounce. - Reuters

Supermax : I will be interested on her again .... but it is sharply diving at the moment.

9.10 am : KLCI up slightly.

SLV-c1 : At 0.63, will see if I want to add some positions later.

Sunway-wa : Welcome back ... grabbed at 0.60 level as many profit-taking will be seen today. Done.

CIMB : Going below 7.40 now ... why? She is dragging KLCI down. DOW up two days, KLCI down two days? Any correlation?

Sunway-wa : Ouch ... 0.58 and 0.60 done so far. 0.56 not done.

Genting : Well, moving up above 9.60 again ... up, down, up ... without a certain direction. Could technical-analysis being used here?

Sunway-wa : Coming back down, 0.56 done.

11.40 pm : Nothing much around, just watching my Sunway-wa taking making some losses.

KLCI is in red zone - CIMB and Axiata pulling the index down. Tenaga going below 5.40 now.

Sunway-wa : At 0.55 now. ouch.

12.50 pm : GOLD at 1740 level now, still retracing, as DOW expected to move higher, everyone is talking about QE3 now. Yeah for stocks ... down for gold.

2.55 pm : Axiata done at RM4.60 moments ago.

3.45 pm : Wow ... Axiata done at 4.58 too. 4.56 not done, otherwise I will be collecting too much of her. This morning I e-mailed a new turtle of mine that I am looking at her at 4.62 strong support level. So, as it dives, I queued for her lower. Done? Axiata is cheap? Hmm ... the last time I spoke about her with my ex-colleague in Sabah, it was at RM3 and I told her I prefer Axiata rather than TM.

But, today is nice ... TM and Axiata is actively traded with TM up, Axiata down.

Tenaga : AT 5.30 now. Hmm ... collect at RM5.10 level?

CIMB : Going below 7.30 now. PT, who bought at RM8 some time go decided to buy-n-hold. I dont know about it. It shot up to RM9 ... and still holding. Recently, he joined my cohort-1 and CIMB already at RM8 again. We had teh-tarik and I told him about the RISK of CIMB. He told me days ago he cut CIMB for small loss around 7.90 level. Luckily I got it right and CIMB at 7.30 now ... hmm ... cheaper now, right?

5.05 pm : Losses in Sunway-wa and SLV-c1 today. Ouch ... a lesson which gamblers seldom learn.

Supermax : At 2.82, still watching to grab her bcak. Now, I just read a broker report, valuing her at 25% discount to TopGloves's PE. This is another rough estimate for the so-called target price. And Hartalega is preferred. So, we have Kossan and Harta as the better bet than Supermax and TopGlove in this sector. What about the abandoned Adventa and Latexx? Abandoned as ... if you read about the news of investors buying them but fall-out?





TEH