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Gold and silver were 'stepped on' several times during the day, as the usual antics that accompany a major FOMC meeting have already begun. Since the Fed is expected to say something about the son of QE2, we should expect the powers that be to step on gold rallies to help buttress confidence in paper.
There was a minor to-do on the weekend as the long expected changes in high leverage off exchange trading began to become visible in the markets, with a couple of dealers curtailing paper trading in the metals. I view this as of little consequence, and perhaps bullish because it is the paper market that is used to manipulate the price of the metals lower, although not so much effect because the ruling is only for retail traders, and not the big commercials.
The news events this week will be any developments in the Greek sovereign debt situation, the FOMC decision on Wednesday (two day meeting) that may very well give the markets some insights into the nature of what will follow QE2, and of course the Russell 2000 rebalancing on Friday which may drive specific stocks as they move on and off the list.
Today was one of the lightest stock volume days of the year, so any moves may have an exaggerated affect on short term prices.
I thought this press release from a silver mining company was interesting relative to the divergence between the miners and the metals which was featured last week.
By means of disclosure I have a very small trading position in this company, and as a caution I have to advise that it is highly volatile. As such I do not possess a profound knowledge of their operations. I do not like to mention individual companies at all, but it is difficult to reference a share buyback otherwise.
I tend to trade actively in the miners, and hold bullion, so I may not have this position for long even at the end of the week. This is in no way any endorsement of this company or any suggestion about its future performance.
I would expect other companies with the appropriate cash flows and positions to employ this type of relief from the short selling that has been plaguing them, as well as the headwinds of the recent stock market decline. But the divergence between miners and metals predates the stock market correction.
This might also be a period of acquisition and consolidation as we had seen in the Canadian juniors as oil made its moves higher.
The countervailing trend of course is the stock market weakness which weighs on all equities to varying degrees. A stock market 'crash' would hit the miners rather badly.
Generally I prefer to own bullion for the long term, rather than taking a leveraged play in the miners which are unsuitable for investment purposes for the average portfolio due to the risks which must be taken into account.
If you speculate with leverage, the odds are very high that you will lose money. I don't think I can state it more plainly than that.
SILVERCORP ANNOUNCES SHARE REPURCHASE PROGRAM
VANCOUVER, British Columbia – June 17, 2011 – Silvercorp Metals Inc. ("Silvercorp" or the "Company") intends to commence a Normal Course Issuer Bid to acquire up to 10 million common shares from June 29, 2011 to June 28, 2012, representing 5.7% of the Company's 175,047,941 common shares currently issued and outstanding. The Company is taking this action because it believes that prevailing market conditions have resulted in Silvercorp's shares being undervalued relative to the immediate and long term value of Silvercorp's portfolio of producing and development properties in China and Canada.
Purchases will be made at the discretion of the Directors at prevailing market prices, through the facilities of the TSX and/or the New York Stock Exchange (NYSE) in compliance with regulatory requirements. There can be no assurance as to the precise number of shares that will be repurchased under the share repurchase program. Silvercorp may discontinue its purchases at any time, subject to compliance with applicable regulatory requirements. The Company intends to hold all shares acquired under the issuer bid for cancellation. The Normal Course Issuer Bid is subject to regulatory approval.
Directors and senior officers of the Company are not aware of any previously undisclosed material changes or plans or proposals for material changes in the affairs of the Company, nor do any of them have the present intention to sell shares of the Company during the Normal Course Issuer Bid.
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The off exchange traders, particularly those trading in currencies, had expanded their markets into various commodities, offering non-product backed paper trading at very high rates of leverage.
The Congress and CFTC started taking a dim view of this sort of activity, and has tentative prohibited it as of July 15.
This does not curtail any on-exchange trading, such as the CME, or any ETFs, or any other product with a leverage of less than 10:1 or actually involving substantial physical backing or intended delivery of product within 28 days.
I have not quite gotten the time to assess the impact if any this might have on retail trading in forex itself. I have included a few forex related documents below. My initial take was that this is targeted at retail currency speculation, and gold and oil fall into it as a secondary effect. I have relatives visiting this weekend to celebrate my wife's recovery from her recent illness so I have not had time to inquire further.
This is my reading of the situation, subject to additional information. I am trying to obtain the forex type contracts detail to understand customer rights, if any, in obtaining delivery of spot commodities.
There *could* be something to this if there is in fact a means to obtain delivery in some reasonable way. But otherwise it looks like a crackdown on speculation by smaller specs in off exchange products and push to move them to exchanges for all but the larger 'exempt few' who enjoy privileged access to almost everything.
I am a little surprised that people were not screaming about 'currency controls' which might be a little more to the point that talk about prohibiting the trading in gold, oil, and silver.
For the most part it seems like much ado about nothing with regard to gold and silver and oil etc., but its good for clicks, and it helps to cheer up those sitting in depreciating paper on the sidelines who have missed the commodity bull markets.
Gold money was not private property in the 1930's, it was an instrument of the state, and subject to the state's disposal. That is not the case now.
Forex.com reportedly sent out this notice to customers on Friday.
Date: Fri, Jun 17, 2011 at 6:11 PM
Subject: Important Account Notice Re: Metals Trading
Important Account Notice Re: Metals Trading
We wanted to make you aware of some upcoming changes to FOREX.com’s product offering. As a result of the Dodd-Frank Act enacted by US Congress, a new regulation prohibiting US residents from trading over the counter precious metals, including gold and silver, will go into effect on Friday, July 15, 2011.
In conjunction with this new regulation, FOREX.com must discontinue metals trading for US residents on Friday, July 15, 2011 at the close of trading at 5pm ET. As a result, all open metals positions must be closed by July 15, 2011 at 5pm ET.
We encourage you to wind down your trading activity in these products over the next month in anticipation of the new rule, as any open XAU or XAG positions that remain open prior to July 15, 2011 at approximately 5:00 pm ET will be automatically liquidated.
We sincerely regret any inconvenience complying with the new U.S. regulation may cause you. Should you have any questions, please feel free to contact our customer service team.
Sincerely,
The Team at FOREX.com
Here is one of the relevant products offered by Forex.com:
How Leverage for Spot Gold Works
Leverage for spot gold trading is set at 100:1. This means that for every $1 you have in your account balance, you have $100 in buying and selling power for gold trading. As a result, leverage increase a client's buying and selling power and enables clients to participate in a market that may otherwise be cost prohibitive. Keep in mind that increasing leverage increases risk.
This is the long and short of it. If you want to trade paper, there are still plenty of ways to do it. But you might not be able to do it in the US unless you are using an exchange with structured counter party risk and contracts, and regulated leverage.
Here are some related documents, that interestingly enough deal with the Forex aspects of this ruling.
CFTC: Final Retail Foreign Exchange Rules
Hedge Funds Trading FX May Be Caught Out By Dodd-Frank
Dodd-Frank Dispatch: Retail Forex Transactions Rule for National Banks
Time Running Out On Retail Currency Business
Obama Threatens Forex; Says Goodbye to OTC Gold Trading
