Gold And The Dow: Options Expiry
Stewart Thomson | Sep 22, 2015 03:18PM ET
As I write this update, US stock markets have already given up all of yesterday’s gains this morning. To make an already-bad situation worse, “Quadruple Witching Hour” occurs on Friday.
Individual stock options, stock futures, stock indexes and stock index futures all expire then, and this expiry could ignite a new wave of panic selling.
The volume on this daily chart of the Dow is very bearish. It’s surging on declines, while drying up on rallies.
A closer look at this morning’s action. That’s the hourly bars chart, using December futures. There’s a head and shoulders top pattern in play.
The Fed’s QE program fostered the growth of government size and power, while causing banks to hoard capital, rather than loaning it out to businesses.
QE also caused US companies to borrow money and engage in stock buybacks. This created phoney PE ratios, and made the market look less overvalued than it was, and is.
With low rates, banks have no incentive to make loans, and government has massive incentive to borrow money and expand itself. The bottom line: The stock market and the government are not the US economy, but QE and low rates make it appear that they are.
In my professional opinion, the Western gold community needs to stop cheering for deflationary QE and deflationary rate cuts, and start thanking Janet Yellen for her taper, and for her upcoming rate hikes.
Those rate hikes will increase money supply velocity, cause inflation, and significantly boost gold prices.
UBS (NYSE:UBS) bank economists just presented a highly rational view of gold to their clients. Their statements feel “solid”, and that’s appealing to institutional investors.
Get The News You Want
UBS bank can move significant client risk capital with their research reports, and this one is great news for gold price enthusiasts around the world.
Also, I expect the new and fully transparent PBOC gold buy program to become a “game changer” for most gold market fundamentalists in the coming months. When bank economists begin focusing on the PBOC buying, that will bring even more institutional money into gold.
Gold stocks tend to lead gold, and this daily chart suggests that Market Vectors Gold Miners (NYSE:GDX) is poised to leap upwards, above a key downtrend line.
A GDX breakout would likely usher in an acceleration of the current gold market rally, and my key 14,7,7 series Stochastics oscillator suggests that the breakout will happen.
When will the breakout happen? The next COMEX gold option expiry date is Thursday.
Gold has a tendency to lose upside momentum in front of expiry days, and then rally after the options expire.
That’s the daily chart for gold. While the technical picture looks solid, a decline to the minor support zone at $1115 - $1125 ahead of options expiry day is likely.
From there, I expect the US dollar to run into serious trouble against the yen, and create a surge of FOREX liquidity into both the yen and gold.
That’s the daily chart of the dollar versus the yen. The uptrend line is broken, my Stochastics oscillator is verging on a sell signal, and there’s a nasty symmetrical triangle pattern in play. The implications for the dollar are clearly bearish, and that’s good news for gold.
Janet Yellen spoke several months ago about the “waning effects”of the rising dollar, and my technical analysis suggests her outlook
was very timely.
Another look at that key dollar versus yen chart. There’s a double top pattern in play, with major implications for downside price action in the dollar.
President Xi Jinping looks and acts like a “Golden Terminator”, and I want to remind the Western gold community that a large part of his reform include the internationalization of the yuan.
On that note, please click here now. This key policy paper from PBOC official Dr. Yao Yudong is arguably the most important paper published about central banking and gold in decades. Gold is clearly going to play a very transparent and official role in the reformation of China’s currency, and ultimately in the entire global financial system.
Like an arrow shot by a “bull era” archer, Dr. Yudong’s roadmap for gold and the yuan can’t be taken back. Both China and India want to see global gold price discovery less pinned to things like Thursday’s COMEX option expiry, and more to gold jewellery demand versus mine supply. They’re taking the steps to make this “reformation” of the world’s ultimate asset a wonderful reality. Good times await the Western gold community in the coming years, and the dollar versus yen chart suggests the good times may begin… in just a few days!
Thanks!
Cheers
Written between 4am-7am. 5-6 issues per week. Emailed at aprox 9am daily.
Stewart Thomson is a retired Merrill Lynch broker. Stewart writes the Graceland Updates daily between 4am-7am. They are sent out around 8am-9am. The newsletter is attractively priced and the format is a unique numbered point form. Giving clarity of each point and saving valuable reading time.
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