Euro-Dollar Pair To Dive

Written by Jamie Saettele, Currency Analyst: It is still possible that the EURUSD challenges congestion near 1.4452 before the pair reverses and drops to a new low (below 1.4330).  However, the EURUSD may drop below 1.4330 without first challenging 1.4452 and complete wave C (and larger wave 4) of the A-B-C decline from 1.4967.  A potential terminus for the decline is where wave C = wave A at 1.4309.  The next 5 to 6 weeks should see larger wave 5 exceed 1.5000.

Higher gold prices need of the hour to boost recycling in the Middle East

12/16/2007 07:32 PM | By Naushad K. Cherrayil http://archive.gulfnews.com/articles/07/12/16/10175139.html Dubai: Gold prices will need to return to levels close to $850 to encourage a further surge in gold recycling in the Middle East, GFMS's latest report said. "With gold pushing through $800 in early November, this sharp rise was expected to have provided the impetus for a hood of recycled gold from Saudi Arabia, the world's largest supplier of scrap last year. "However, this has not been the case, with scrap fows from the Kingdom surprisingly weak in the second half of this year," said Cameron Alexander, an analyst at GFMS. Year ahead Looking ahead to the next year, he said it is unlikely that Saudi scrap gold volumes will return to 2006 levels unless a higher gold price is achieved. The resultant slump in jewellery consumption would likely encourage a portion of retailers to take advantage of record prices and liquidate their holdings. "Consider that average scrap volumes were over 30 tones per quarter in 2003 globally but, so far this year they have fallen to under 20 tones on average," Alexander said. Similarly in the Middle East, the reaction to the rise in the metal prices has been controlled, with scrap supply supported by the distribution chain unloading slow moving inventory rather than individuals of loading gold assets, as was the case for much of 2006. "Several dealers in Saudi Arabia involved in the scrap market said they were perplexed at the lower volumes of scrap currently being returned to local gold souks in spite of a 27-year high for the gold price," he said. Trend: Dubai scenario Demand for jewellery in Dubai has been modest with consumers buying solidly on dips in prices. But right now they do not appear selling, or exchanging jewellery, with the expectation of higher prices on the horizon, GFMS's report said. The most simple explanation of this appears to be that, as expectations of higher (and ever higher) prices have taken hold, consumers have reduced the amount of old jewellery they are willing to sell back. Report says the rise in the gold price, even in euro terms, obviously features but its direct importance should not be overstated.

Dumb Money Dumps Gold

Alex Roslin at cotstimer says:

Turns out the "dumb money" small traders in gold derivatives have thrown in the towel. The latest data shows their net long position falling to a bearish extreme as a percentage of the total open interest in gold futures and options.

What does that mean in layperson's terms? The folks who tend to be positioned the wrong way in the markets believe gold has topped, and they're selling it. That means my system based on trading opposite to the small traders in gold has just flashed a renewed bullish signal for Canadian Gold iUnits (symbol XGD). (See the table below for more details.) Personal disclosure: I've been long XGD since this setup flipped to bullish back in May. I found in my research on the past COTs data that the best way to trade XGD was to fade the gold small traders.

However, not all markets work the same. My research also found it was best to trade on the same side as the "smart money" gold commercial traders—these would be the gold miners—for bullion itself as well as the HUI Gold Bugs Index and USERX U.S. Gold Fund. That's just the way this fascinating data works.

And these three latter setups flipped to bearish in the Sept. 25 COTs report due to extreme pessimism on the part of the commercial traders. Since September, the commercials have steadily reduced their large net short position to the point where my gold and HUI setups have just gone to neutral (zero) for the first time in nearly two months. Of course, the commercials are still far from actually getting to the point where they'd flip my setups to bullish.

In silver, the "dumb money" small traders have bumped up their net long position a fair amount since the previous COTs report. Now, they're just slightly negative about silver's prospects compared to the historic data. My silver signal remains solidly in the bullish column, where it's been since July. (Disclosure: I've been long SLV iShares Silver since that signal started, too.)

The action in copper since September has been quite depressing if you happened to be a bull. Since my copper setup gave three renewed bearish signals starting in the Sept. 25 COTs report, copper is down about 15 percent. Yikes. With the latest COTs report, my copper setup still has a bearish tilt because the "dumb money" large speculators—the big investment firms and hedge funds—are still fairly bullish by historic standards. This, despite the dramatic selloff! It makes you wonder how these folks stay in business. Oh yeah, that's right. Commissions, management fees, tax loopholes, offshore accounts. Almost forgot.

And what of the beleaguered U.S. buck? Do the COTs give any hope for the poor greenback, so crushed and unloved? No, sorry, they don't. In fact, the "smart money" commercials in U.S. dollar index futures have again reduced their net long position—their seventh straight such move. My dollar setup, already on a bearish signal since way back in Oct. 2006—when the dollar's latest downtrend started—now has a decidedly bearish tilt.

For more details and signals from my setups for equities, energy, the Treasuries, currencies and agriculture, visit my free blog COTsTimer.Blogspot.com. Good luck this week.

Milk, Gold, Rupees and Rubles

This should not be a secret, but it is, to most of the world.

Gold prices fell,

Bid/Ask 661.60 - 662.40

Low/High 659.90 - 677.70

Change -0.70/-0.11%, about $22

even though Russia broke records in Gold vs. Forex Reserves. Russian Central Bank said its gold and foreign exchange reserves reached $413.1 billion as of July 20. The amount is the record one in the histories of both the former USSR and Russia.

Carry traders in Japan and Switzerland have been borrowing money (since this is what carry trade is about) in countries with low interest rates and investing in gold. You can see this in the Japanese yen and Swiss franc. Whatever investments sunk into the trades are adversely affected.

Gold demand dipped today as prices headed up but dealers ported moderate sales taking place late the previous day, when prices dipped to one-week lows. This is almost a mumbo-jumbo according to the cold-hard as gold truth about gold.

Ned Schmidt, the editor of the Value View Gold Report said that it is the “beginning of the demise of paper assets…spilling over into the gold market."

Let these carry traders trade. Instead, watch India, the largest consumer of gold. Watch the weather in India as well. The good monsoon at propitious time will yield good harvest, which will lead to an unusually bustling mid-August wedding season, and that should mean strong gold demand. See, no quiet intergovernmental agencies at work here. Sometimes a secret is not really a secret.

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There are more to this than the Mitrokhin archives, though. Milk jugs in Russian’s cellars should hold entire home movies shot by KGB officers ignorant of the future. While much of these stashes are irretrievably lost to the alcohol-induced amnesia and realigned priorities, there is a lot to be learned just from various officials discussing the subjects, and attempts to recover the jugs. That’s when Echelon and SALWISS come in. As a background reading, here is more on Echelon and SALWISS.

Got milk?