Subject: Gold delta hedging...$1200/oz....???
What Does Delta Hedging Mean?
An options strategy that aims to reduce (hedge) the risk associated with price movements in the underlying asset by offsetting long and short positions. For example, a long call position may be delta hedged by shorting the underlying stock. This strategy is based on the change in premium (price of option) caused by a change in the price of the underlying security. The change in premium for each basis-point change in price of the underlying is the delta and the relationship between the two movements is the hedge ratio.
Investopedia explains Delta Hedging
For example, the price of a call option with a hedge ratio of 40 will rise 40% (of the stock-price move) if the price of the underlying stock increases. Typically, options with high hedge ratios are usually more profitable to buy rather than write since the greater the percentage movement - relative to the underlying's price and the corresponding little time-value erosion - the greater the leverage. The opposite is true for options with a low hedge ratio.
The yield on the 10 yr T note is 3.47%.
The euro fell.0014 to 1.4977. The pound lost .0182 to 1.6507 and the yen fell .14 to 89.83.
Crude oil went up 23 cents per barrel to $79.28.
The CRB gained 1.13 to 273.44.
Chilton sees decision in Dec on limits
WASHINGTON, Nov 10 (Reuters) - The Commodity Futures Trading Commission is moving toward issuing a proposal in early December to rein in excessive speculation in energy markets by setting hard limits on positions investor entities can hold in a contract.
Bart Chilton, one of five CFTC commissioners, said until a draft is completed it will be difficult to determine where the commission stands as an entity, but there is a broad understanding "that there are issues that need to be addressed and that doing nothing is not an option."
"I think there will be" position limits, Chilton told Reuters in an interview.
"I don't want to prejudge where we'll be specifically but if I had to guess where we'll come out ultimately I believe that there will be hard position limits ... for energy commodities and for other physical commodities" such as metals, he said.
The CFTC announced in July it was considering clamping down on big market players by implementing position limits in energy futures trading and other physical commodities. The agency already sets limits on some agricultural contracts.
CFTC commissioners and staff are meeting regularly with groups trying to garner their opinions, Chilton said. He added there are still several issues to address before a proposal can be put in writing and open to a period of public comment.
Prices for a slew of essential commodities -- including oil, wheat, and copper -- surged last year on what some analysts said was excessive speculation and big money inflows. Crude oil reached a record of $147 a barrel.
At the time, many lawmakers criticized CFTC for not doing enough to tamp down the influx of hot money from hedge funds.
Legislation working its way through Congress would empower the CFTC to set aggregate limits across markets for physically deliverable commodities such as oil.Officials from the IntercontinentalExchange Inc
Exchanges currently try to prevent manipulation and congestion by imposing limits on energy products in the last three trading days before a contract expires. The exchanges have accountability levels that trigger additional oversight tools, if a position exceeds a certain size.
The exchanges said the CFTC risks increasing volatility, distorting pricing functions and pushing traders to less regulated offshore markets.
During the interview, Chilton said he:
- supports mandatory position limits on all physical commodities.
- wants to err on the high side at first for position limits and look to "fine tune" or "ratchet down the position limits based upon the individual markets in the future." He said he did not want to "clamp down so tightly on position limits that traders move to less transparent markets or overseas."
- supports establishing a percentage to cap what portion of the market can be controlled by noncommercial speculators. Chilton said he did not know what percentage that should be.
- hedge exemptions need to be established and approved by the CFTC and not the exchanges. They also need to be verifiable "so anytime we want them to prove that they need that exemption they have to be willing to do so otherwise we'll revoke the exemption."
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Dear Mr Chilton,
Firstly let me say how much I appreciate how much you have achieved during these months since you were appointed as Commissioner of the CFTC. It is encouraging to say the least to have an officer of your standing and good reputation looking into the serious and previously ignored breaches of many of the CFTC’s regulations especially when it relates to evidence of illegal market manipulation.
The most serious and obvious is the glaring evidence of concentration and manipulation in the Silver futures market.
I quote from your march 31st 2009 letter in response to many e-mails sent to you by Ted Butler Bill Murphy and many others concerning this issue and evidencing details of manipulation by the primary 2 concentrated large traders JPMorgan and HSBC USA.
‘I view my job as having a primary purpose—protecting consumers—all else follows. I’ve tried to do all I can in that regard, most recently calling for criminal authority to put folks who violate the Commodity Exchange Act in jail and trying to alert people to the large number of Ponzi and Ponzi-like schemes out there’
I recently reviewed the Bank Participation report for October and see the same 2 banks have INCREASED their concentrated short positions in Silver from September’s 29,888 to a record 38,375.
I am mystified by this. Have these banks not been put on notice Yet?
Are they telling you these are hedged positions?
If so have you asked for audited back up to that claim that this is actual physical metal and not a risky derivative position elsewhere?
I am a metals trader based here in the UK and am familiar with the workings of the London Bullion Market Association you refer to in your letter.
I quote from your letter..
‘First, the commentary refers to the concentration levels of the net shorts. These positions that the CFTC includes in our Commitment of Traders report (COT) do not take into consideration all the positions held by the shorts that maybe used to hedge positions that they have with their customers—e.g. swaps, physical forward positions, lease positions, option contracts, etc. Thus, it is not as if the short futures position represents the single position of a large trader, but rather represents a position taken as a result of looking at an aggregation of many trades—on and off-exchange.’
Are you sure the hedged position exists or do you simply take the word of the bank at face value?
Are you aware that unallocated Silver and Gold in the world’s largest metals market here in London is unaudited?
As traders we believe that physical metal supply is strained here in London is run on a fractional reserve basis and does not back up the OTC short positions? (as evidenced recently in Gold with large premiums being offered above spot at settlement as an incentive not to take delivery)
You go on to say in your letter..
‘Don’t get me wrong, I am still concerned about concentration. That is why I think we need some mandatory hard cap position limits for traders. Currently we have only accountability levels. These levels (which can be abrogated, and in fact are run through frequently) merely mean that the traders above the accountability levels are looked at more carefully. I think we need to do more, and have said so publicly. I have taken the liberty of also pasting a recent news article on this matter for you further information. It is interesting to note that all four of these commercial traders are members of the London Bullion Market Association and are established traders in the silver and other metal markets. The positions represent not only proprietary positions but also customer positions as well.’
I do believe you are a man of your word and see progress with upcoming position limits but I urge you not to make exceptions especially for the 2 large concentrated positions as they stand now.
You inherited this mess but now have a chance to bring a clean sweep to what is largely seen as a criminal activity conducted under the nose and in contempt of the CFTC.
Thank you and kind regards
Andrew T. Maguire
Harmony to close high-cost mines in next 6 months
LONDON, Nov 11 (Reuters) - South Africa's Harmony Gold (HARJ.J) plans to close "a couple" of mines which have low grade ore or are too expensive because of the strong rand, Chief Executive Graham Briggs said on Wednesday."With the costs you've got in underground operations, at (grades of) 3 grams a tonne, you battle to make ends meet," Briggs told the RBC gold conference in London.
"There will be closures, probably a couple of closures in the next six months or so."…http://www.reuters.com/article/rbssIndustryMaterialsUti
litiesNews/idUSLB21169420091111?rpc=401-END-
story No 2.
Barrick shuts hedge book as world gold supply runs outGlobal gold production is in terminal decline despite record prices and Herculean efforts by mining companies to discover fresh sources of ore in remote spots, according to the world's top producer Barrick Gold.
By Ambrose Evans-Pritchard, International Business Editor
Published: 7:20PM GMT 11 Nov 2009http://www.telegraph.co.uk/finance/newsbysector/indust
ry/mining/6546579/Barrick-shuts-hedge-b
ook-as-world-gold-supply-runs-out.html-END-
Bill H:
Deflation or Inflation?
To all; will it be deflation or inflation? That is the question! Let me start by giving my opinion on the final outcome and then explain the why or how part. As you all know, I believe we will end up with a different if not completely new monetary system as a result of the Dollar's failure. This failure of the Dollar will be described by historians as a "hyperinflationary event" that basically zeros out paper assets that are Dollar denominated. Other global fiats will join this hyperinflation nightmare and thus "zero out" their paper obligations. This I believe will be the final chapter of the greatest fiat experiment known to man leading up to a new currency regime.
It's the "how do we get there" that I nor anyone else can know for sure. My opinion is that somewhere in the not to distant future we get another deflationary panic where asset values get smashed again. These assets will include commodities, real estate, paper assets associated with real estate, stocks, corporate bonds, etc.. In other words, FEAR will re enter the hearts of investors world wide. Accompanying this will be a bounce in the Dollar. In other words I think we will see an asset crash like nothing we have seen before with a caveat.
Last year we saw EVERYTHING thrown out including Gold, I don't think we will see this again to the same extent or even close. This next panic will be fast and furious with huge haircuts on a daily basis. The initial reaction will probably be a "flight into the Dollar" and include U.S. Treasury bonds. I don't believe this "flight" will last very long until the thought process changes into one where the solvency and credit worthiness of the Treasury comes into question. This...is what leads to hyperinflation, a LOSS OF CONFIDENCE IN THE ISSUER!
I just can't see the stock market going straight up from here as would be the case if hyperinflation were but days or weeks off. I think that foreigners will sell U.S. assets as vote of "no confidence" in the Dollar and THIS may be the spark to the panic. The vote of no confidence gets the ball rolling downhill and will be mistaken for a deflationary event which will be exacerbated by the "carry traders" who have their fingers on the sell button 24/7. The unwinding of the carry trade may get the Dollar bounce started but sovereign supply from central banks and continuous Treasury beggings will kill any rally of substance.
I believe during this "failed rally" that the ultimate hyperinflation will be sparked. It will be at this point that the "light bulb" goes on and investors begin to flee anything Dollarrelated. I do not believe Gold will have anything more than a 10%-15% correction during a potential deflation scare and will probably be like Paul Revere warning everyone with an early upside move in anticipation of a currency trainwreck.
There is another possibility of the "how" do we get to hyperinflation. We could wake up one morning after sleeping on new highs in Gold, commods, stocks, etc. and the Dollar hits a 3-7 point downdraft that results in a panic and wholesale dumping of anything and everything Dollar related. THIS will be the final outcome as I see it, the question in my mind only remains HOW do we get there?
Make up your own mind and plan accordingly but I do not think it's wise to try to trade out of your PM insurance assets based on a "what if". Once we get to the point of a "new currency", the game will be about ounces and how many you have control of. If you erred and traded out and missed the buyback, you will have "less ounces". You cannot be caught with "less ounces" and more of anything else because once the currency implodes, the tollbooth on the road to wealth will collect few tokens other than those made of Gold and Silver. Regards, Bill H.
The "tonnes in the trust" did tick up earlier today, the 6.1 tonne addition being the biggest increase in over a month, following an addition of 4.9 tonnes four days ago.