Gold Fails To Break Thru $1300

The Market Gage - Gold is Elemental

In the last couple of days, as the price of Gold failed to break thru the $1,300 dollar level that everyone was looking for, we witnessed the CME Gold open interest decline by over 40,000 contacts. That’s an indication there is a good amount of longs giving up on their investments.

The commitment of traders report to be released at 3:30 PM later this afternoon should verify what the open interest figures have been telling us.

So as the support in Gold seems to be drying up, one must expect the shorts to test the current support level of $1,261 in the days ahead.

The price of silver seems to be in worse shape as it broke thru two levels of support at $16.48 and $16.31. Silver traders are now looking at the $16.12 level and if it fails there, $16.00 is right around the corner.

The Precious Metals Markets have stiff competition from Equities and the likes of Bitcoin getting all the attention. And now as it looks like a Senate vote on a tax cut is imminent, one would expect the excitement to continue.

Bitcoin CME Futures Contracts vs. CME Gold Futures Contracts

All of the details on the Bitcoin CME Futures contact have yet to be released, but let me give you my expected comparisons on both contracts.

First the proposed CME Bitcoin Futures contract. I expect there will be two distinct differences on the two contracts. Bitcoin I expect to be a cash settled contract. Meaning if you are short going into the delivery month you will not be obligated to deliver a Bitcoin into the exchange to cover your short position as you are required to do so in Gold. And on the other side, if you are long a Bitcoin contract you will not receive a Bitcoin when your contract reaches its delivery date as you can in Gold. In the Bitcoin product as in the Gold futures contract upon delivery month I expect the exchange will give the Bitcoin investor the option of rolling out their long or short position to a future month as they do now in the Gold market.

If you choose not to roll your position and close it out I expect you need to close it out before
as they call it in the “Gold World” before first notice day.

Since Bitcoin is a digital product or asset as some like to call it and has no intrinsic value
it would be almost impossible to create a mechanism to deliver it against an exchange short position, or take delivery on a long position, especially with the limited supply of the Bitcoin product.

When intrigues me right now is this. Currently, the only way you could sell a Bitcoin now is if you owned one. When the CME issues their first Bitcoin futures contract unless something unexpected in the rules is released you should have the ability to short (or sell) a Bitcoin Future and have the ability to buy back your contract at a later date.

Also, currently if you buy a Bitcoin you have to pay the total cost of the coin upfront. I expect the CME Bitcoin Futures contract to be bought or sold on margin. Where I think the BIG troubles will occur for the Exchange is where they put the circuit breaker points in order to stop an unforeseen major move in the price, either up or down.

In my opinion this has to be their MAJOR concern ahead of all other potential issues that can arise in monitoring this undeliverable product. I expect, if and when this product if finally released the definition of the “WILD WEST” will have a new meaning.

Just to add, on Wednesday, and I find it no surprise that the Wall Street Journal is reporting that now Nasdaq Inc. and broker Cantor Fitzgerald LP are looking to join the rush on Wall Street to trade Bitcoin. Nasdaq aims to launch Bitcoin Futures in the first half of 2018, according to people familiar with the situation. Separately, Cantor said it is seeking to launch Bitcoin derivatives on an exchange it owns, also in the first half of next year. I just can’t wait to see a Bitcoin derivatives product. OMG.

Also as we are going to press, Bitcoin just took a leg up on the news that the Commodity Futures Trading Commission (CFTC) approved the listing of the Bitcoin Cryptocurrency Future on the Chicago Mercantile Exchange.

The Bank of France came out with this statement today, “Bitcoin is a speculative asset. Its value and extreme volatility have no economic basis, and is nobody’s responsibility. So those investing in Bitcoin do so entirely at their own risk.”

And for those who thought they were going to get a free ride from keeping their profits from Uncle Sam, Coinbase, the largest Cryptocurrency exchange in the world, has just received a court order from the IRS and a Federal Judge to release the records on their clients’ gains back to 2013. It looks like only 900 tax payers have reported the gains on their tax returns. As they say in France, “C’est La Vie.” (Or as Frank Sinatra sings: “That’s life.”)

Have a wonderful Friday.

Disclaimer: This editorial has been prepared by Walter Pehowich of Dillon Gage Metals. This document is for information and thought-provoking purposes only and does not purport to predict or forecast actual results. It is not, and should not be regarded as investment advice or as a recommendation regarding any particular security, commodity or course of action. Opinions expressed herein are current opinions as of the date appearing in this editorial only and are subject to change without notice and cannot be attributable to Dillon Gage. Reasonable people may disagree about the opinions expressed herein. In the event any of the assumptions used herein do not come to fruition, results are likely to vary substantially. All investments entail risks. There is no guarantee that investment strategies will achieve the desired results under all market conditions and each investor should evaluate its ability to invest for a long term especially during periods of a market downturn. No part of this editorial may be reproduced in any manner, in whole or in part, without the prior written permission of Dillon Gage Metals. This information is provided with the understanding that with respect to the opinions provided herein, that you will make your own independent decision with respect to any course of action in connection herewith and as to whether such course of action is appropriate or proper based on your own judgment, and that you are capable of understanding and assessing the merits of a course of action. You may not rely on the statements contained herein. Dillon Gage Metals shall not have any liability for any damages of any kind whatsoever relating to this editorial. You should consult your advisers with respect to these areas. By posting this editorial, you acknowledge, understand and accept this disclaimer.