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Wednesday, October 5, 2016



What a frickin’ mess; yea, the gold market too, but I’m talkin’ about the torrential rains on the backside of the humungous Hurricane Matthew here in the Caribbean. We didn’t get all that much wind, as I’m southeast hundreds of miles from the actual hurricane, but the rain kept coming, then coming some more, and at times I felt like I was auditioning for “Noah’s Ark”. The cleanup has already started, but it will take a few days for the flooding to subside. I can’t imagine the horror of being straight in the path of this thing.
The worst thing that could possibly happen after yesterday’s debacle in gold, was to see a sharp $4 - $5 rally out of the gate from the New York open; any early strength will be sold aggressively, and the only thing that can turn this market around is a lower sharp selloff in early New York trading followed quickly by a rebound above the drop … mindless chop during the mid hours … then strength going into the close that traps the shorts. If you’re looking for gold to go higher, I’m pretty certain this is the scenario you have to see, and as long as early trading has strength, it will get sold hard.
Of course, it was Christmas in October for the bullion banks and dealers, as their “bullion wall” of selling these last few weeks has definitely made their year, as they buy on the way down from long liquidation from retail and hedge fund specs.
And while I saw this drop below 1300 coming, and wrote about it extensively in blog posts before, I didn’t really think it would be as “orderly” as it was; I was expecting more of a total flush of the stops in one fell swoop, and instead we got wave after wave of sell stops in the range of $3 - $6 on the way down. In any event, it was the event of the year for bullion banks and dealers.
Coming into today’s trade, after the downside debacle yesterday, there’s no way I’m getting long gold unless we get some kind of waterfall or lower line exhaustion hit, for the very simple reason that rallies today and for the next few days will be sold aggressively by the commercials and those longs stuck from higher prices yesterday. So, get ready for some very choppy and nasty price swings for at least the rest of this week with a very negative bias for price, especially the first half of the day. Today’s one gold trade directly below.

I wrote a couple of days ago about the “new” CFD stock indices at ASSETS FX and I also questioned whether trade conditions could be kept and whether or not the whole exercise is a “bait & switch” brokerage house/LP operation. Well, it didn’t take but a day for round turn commissions to be added to the mix now did it? It appears, at least for the DOW30 CFD, that RT commissions add approximately 1 index point to the net cost, so you’re looking at an effective spread of 2.4 index points. Still not bad [I give it a “B”], but it makes me wonder what changes comes next as I don’t trust these guys one damn bit to do the “right thing” and keep conditions stable. Maybe they prove me wrong, but so far it only took them one fucking day to introduce commissions, and if they raise the spreads I’m going to go ballistic. We’ll see what happens … stay tuned.
You simply have to realize that outside of electronic MT4 trading in FX, which is about 15 years old [and XAUUSD is considered as FX], all of the other CFD markets are relatively new; stock indices, interest rates, and commodities are going through the “growing pains” FX went through years ago. Hell, I can remember 10-12 years ago when the EURUSD spread was 4 PIPS, and FX crosses like GBPJPY had spreads of 7-8 PIPS and that was considered “cutting edge”. Now, of course, due to competition from hundreds of brokerage houses across the world instead of dozens, spreads in FX are at the same rate they used to be on the trading floor, where traders paid hundreds of thousands of Dollars to join the exchange to trade.
This will eventually happen in the CFD’s, but one major difference is the role of the U.S. Government in “strong arming” LP’s and/or brokerage houses to 1) either don’t offer the CFD products [so as to protect the corrupt CME and their futures contracts], or preferably 2) do not accept U.S. clients, or if you must offer these products, 3) offer them at high spreads and commission costs so as not to create competition with the CME.
Eventually, all the CFD’s will go the way of FX, and trading costs will come down to level, that if you are an LP and/or a brokerage house, you won’t have a choice in what your spreads and costs are because they become “standardized” across the industry. For example, is there anybody out there that would trade GBPJPY with a 7 PIP spread at any brokerage house, when you could trade it “net” at 99.99% of all other brokerage houses at 2.5 – 3.0 PIPS?
For a long time, before the CFD’s came onto the MT4, spot gold was all over the place in terms of where brokerage houses and LP’s offered the spread; up until only recently the lowest was $0.50 and the highest I saw was $1.50. Imagine trading gold with a spread of $1.50 versus now at about $0.25 “net”? Yes, it makes a hell of a difference to your bottom line doesn’t it?
So, with their latest pricing schemes, stock indices at ASSETS FX are an upgrade from where they were prior to 10/1/16; the best conditions are in the DOW30, followed by the SP500, and then the DAX30. I’ll have the volatility algorithms for the DOW30 and the SP500 ready for release relatively soon.
Well, here we are at Noon, and despite 3 trips up to the upper exhaustion lines at RM=1 in gold in the last hour, price is right back down hugging the lows near 1266. This is going to be a very messy trade the rest of this week, but I’m hoping tomorrow for a lower New York “out-of-the-gate” open that takes prices lower; it’s the market’s only chance for a rebound into the close that pushes prices higher.
The dog didn’t handle all the rain well, and he’s chomping at the bit to get to the beach, where I’m hoping it doesn’t look like a garbage dump of storm debris. In any event, I need my Vitamin C therapy [Corona’s & Limes] and I am sooooo outta here.
Have a great day everybody!

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