Stocks fall off a cliff, Gold rallies as Kerry ups Syrian rhetoric

August 27, 2013

Recap

  • Interesting first 24 hours of trade with a very long period of virtually no activity interspersed with a couple of signs of life in traders first after the weaker than expected US Durable Goods Orders (-7.3% v -3% expected) and then late in the trading day when a big sell order hit the stock market and gold went bid simultaneously. Apparently it was synchronous with Secretary of State Kerry upping the rhetoric about Syria but now proof of cause and effect really.
  • In the stocks kind of crashed from that point with the Dow finishing down 65 points but more than 100 points off the high for a fall of 0.43%. The Nasdaq fell just 0.01% and the S&P 500 fell 7 points to 0.39%. In Europe the FTSE and Dax were up 0.70% and 0.21% respectively but the action was in Milan where stocks fell 2.10% as Silvio Berlusconi’s party threatened to wreck the coalition and force new election if he is voted out of Parliament.
  • The ASX is going to be under pressure in our time zone today based on the above and you have to thing that the 5050 level is now pretty solid and the focus is likely to return to 4950ish.
  • Rates in the US liked the weaker than expected Durable goods with 10 year Treasuries heading under 2.80% closing at 2.79%, Bunds closed at 1.94% and Gilts at 2.71%.
  • On FX markets there was no momentum and I noted to colleagues yesterday afternoon that Durable goods would see the market a bit gappy if it deviated from expectations which is exactly what we saw. The US dollar lost ground initially with Euro (1.3367) trading up to 1.3394, USDJPY(98.44) trading down to 98.19, GBP (1.5575) trading up to 1.5611 and the Aussie (0.9023) trading up to 0.9069. The recovery in the US dollar is hard to pinpoint but it seemed to happen around the time that Gold went bid.
  • Indeed on commodity markets gold went very bid at the same time that stocks got hit late in US trade rallying from $1392 to around $1404 this morning. Nymex Crude was 0.46% lower to $106.13 Bbl and Copper sits at $3.33 lb. On the Ags it was again proof that Mandelbrot was right and Volatility begets volatility with Corn up 4%, Wheat up 3.23% and Soybeans rose 4.58%.
  • In other news the Taper is all the talk but the annual US Budgetary impasse is looming once again with the Treasury releasing a report saying October is the key date – again. Watch this space very closely in the weeks ahead.

Today we have Consumer Sentiment in Korea, IFO business Climate , Expectations and Current assessment in Germany which will be huge, Case Shiller house prices, consumer confidence and Richmond Fed index in the US.

Gold benefits from uncertainty

As noted above the pick up in gold was synchronous with the sell off in the US stock markets overnight reflecting the multiplicity of uncertainty which has raised its head in the past couple of days. Uncertainty about the path of US growth, uncertainty about the increasing rhetoric about Syria and uncertainty about the path of the stock market.

At least last night anyway – if you strip back the price action you see that US 10’s hardly moved, that Nymex Crude was lower and that Dr Copper and the Aussie dollar were essentially unchanged within a bit of a tight range.

All this tells me that is that Gold’s rally is speculative – that is not to say that it is not real – but it might struggle to get through the $1413 level which is the 38.2% of the sell off from the highs in October last year.

Now as readers know I am short gold and my stop is on the other side of this level.

Risk is what you feel – Why I don’t believe in Demo accounts

Let me give you a rhetoric alert here and also note that this is my personal view and doesn’t reflect that of VantageFX nor the authorities, but I want to talk about something that has occurred in my accounts which I think is instructive for traders with less experience than me.

Over my career I have traded some huge positions. I’ve had $400 million dollar bets on the Aussie for 10 cents, I’ve sold more than $1 billion Aussie in a day, I have advised some very big players to sell Aussie at 78 cents when the whole world thought that it was going to 80 saying I thought it was going to 67.75 – they did and it did.

I have traded some very big interest rate positions as well. In the early days of my career when the forward bill market used to be liquid and a lot of fun I have traded multiple $500 million tickets backwards and forwards after a CPI figure when it used to come out on Wednesday’s at 9.30am and my boss left me limit short and I essentially bet the entire balance sheet of an institution plus some in 2008 and 2009 as we entered the GFC.

All these bets paid off, all these trades were huge. So I am comfortable to take risk either on my account or on behalf of others.

But not everyone can take risk and not everyone should take risk.

I remember being at a bank one afternoon just after the day trader had left and the night trader had taken the book. A big fund came through and asked a fellow who is used to trading $5 million tickets for a price in $200 million. You can imagine the tension on this poor fellows face and the width of the price.

He wasn’t used to taking risk of that size and as a consequence I got the head trader to take the position off him and give it to London who were used to those positions.

The reason I raise this is because I have a couple of accounts and I mostly trade Forex. I like gold but I don’t know the nuances of the market that well. Now I could learn by mucking around on a demo account but I thought last week I would have a crack at going short and seeing how it goes.

Now I am way out of the money and there is a strong possibility that I get stopped out and lose a relative back of cash in these small accounts.

But what I have learnt and am learning about the nuances of the market are invaluable.

Risk is what you feel and demo accounts just can’t cut it – you have to trade live to live the emotion otherwise its just rhetoric.

Have a great day and good hunting

Greg

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