India regained its top position from China as the biggest consumer of Gold in the first nine months of 2015 with a total of consumption of 642 tonnes. China is a close second lagging just 63 tonnes behind at a total consumption of 579 tonnes in the first nine months according to the GMFS 2015 Gold survey. In India, jewelers consumption increased by 5% year-on-year to an estimated 193 tonnes in Q3 2015, the highest quarterly consumption since Q1 2011.The increase in demand in the third quarter is primarily attributed to the fall in local gold prices to the lowest since August 2011.The total official gold imports to India in the third quarter increased by 23% to 263 tonnes, which is the highest quarterly volume year-to-date. In China, after a lackluster second quarter this year, which was the lowest second quarter recorded since 2011, demand rebounded in the third quarter. Total gold demand amounted to 196 tonnes for the period, a modest 3% year-on-year improvement.
Back to India, on the eve of Diwali, the government will launch important gold-related schemes, including the Gold Monetization, Prime Minister Modi announced this week, expressing confidence that it will give a new direction to economic development. The Prime Minister was happy to announce in accordance to his last budget, the government would enact “some important changes” during this Diwali festival, prior to “Dhanteras” when Gold is purchased by the people. Diwali is on November 11th. Under the Monetization, Indian citizens can deposit Gold into a bank and the bank will pay interest like it does cash. Previously citizens had been holding Gold in safety deposit boxes or at home which did not earn interest. Besides the Gold Monetization scheme, the government will also launch Gold Bonds and Gold coins. “In the last Budget, we had announced an important scheme. In our country, gold has become a part of our social life. Gold is treated as a means of economic security, a help during times of crisis” according to the Prime minister.
From a technical perspective, Gold’s recent ascent took it to the 1190 level, which was a 50 percent retracement from the 52 week high/low. We have since pulled back about $30.00 an ounce which shouldn’t be surprising given the enormity of the Fed’s policy release this afternoon in regards to future interest rate hikes Those looking for long term exposure to the upside due increased physical demand from the number one and number two consumers in the world may consider the following trade. I propose buying the June 2016 Gold 1300 call and selling 2 June 2016 1400 calls for a purchase price of $2.00, or in cash value $200.00. The risks on the trade are the price paid for the spread plus all commissions and fees. There is also additional risk here with being short an extra 1400 call. If all option positions exercise in the money one would be short a futures contract that e1400 basis June 2016 futures. In this scenario, if exercised the long 1300 call and one of the short 1400 calls would collect $10,000 minus all commissions and fees.
For those interested in grains, Walsh Trading’s Senior Grain analyst Tim Hannagan hosts a free grain webinar each Thursday at 3:00 pm central time. Tim has been ranked the #1 grain analyst in the United States per Reuters and Bloomberg for his most accurate price predictions for soybeans and corn in the years 2011 and 2012. Link for next week’s webinar is below. If you cannot attend live, a recording will be sent to your email upon signup. Or please contact me at any time slusk@walshtrading.com
RISK DISCLOSURE: THERE IS A SUBSTANTIAL RISK OF LOSS IN FUTURES AND OPTIONS TRADING. THIS REPORT IS A SOLICITATION FOR ENTERING A DERIVATIVES TRANSACTION AND ALL TRANSACTIONS INCLUDE A SUBSTANTIAL RISK OF LOSS. THE USE OF A STOP-LOSS ORDER MAY NOT NECESSARILY LIMIT YOUR LOSS TO THE INTENDED AMOUNT. WHILE CURRENT EVENTS, MARKET ANNOUNCEMENTS AND SEASONAL FACTORS ARE TYPICALLY BUILT INTO FUTURES PRICES, A MOVEMENT IN THE CASH MARKET WOULD NOT NECESSARILY MOVE IN TANDEM WITH THE RELATED FUTURES AND OPTIONS CONTRACTS.
