GLD, SLV, USO and Options Active, Probably Due to 0% Rates, Mideast/Asia Tensions. Inflation Risk?

Today was a very interesting day for gold, silver and oil and I was monitoring their ETF equivalents $GLD (Gold), $SLV (Silver) and $USO (Oil).. There's been geopolitical tension around the world recently between India/Pakistan, Israel/Palestine and Russia/Ukraine and it could be that these commodity traders are either anticipating an ugly event, pricing in the 0% interest rates or covering their short positions for a reversal/bear market rally. Either way $GLD rallied on volume spikes right before 1:00p and had active front month call activity. It's interesting because I saw $UNG and it's options get bid up a few days ago on the Russia/Ukraine debt conflict (blog post). It's tough to tell what exactly is driving all of this activity because we're in a recession with disinflationary forces. But billions of dollars are set to multiply through the economy once banks start lending again.

Anyway check out the intraday volume spike in GLD today in the chart below. GLD Options were also active. The JAN 90 strike traded close to 6,000 contracts, the JAN 100 strike traded close to 14,000 and the JAN 110 strike traded 5,000 contracts on cheap premium. Calls outnumbered puts. Looking at the technicals on the 9 month chart it broke the 200 day moving avg which probably brought a herd of buyers but it's knocking right up against the downtrend line which could act as resistance. Also GLD moved higher on low volume and all of the option activity occurred in JAN so it's a short term time horizon.

$GLD (Gold ETF) Intraday Volume Spike (Yahoo Finance)

$GLD 9 Month Chart (Yahoo Finance)

$GLD Option Activity, Call Volume Active (Yahoo Finance)

Below I provided the USO (Oil ETF) and SLV (Silver ETF) charts. Both were being bid up today. All of this activity could bring a short squeeze in commodity prices or a bear market rally on the charts. But this slowdown is serious and there definitely needs to be more conviction. If the USD can't sustain a downtrend and rates remain at 0%, a commodity rally will probably be unsustainable. But I'm watching for a reflaciones trade folks! There are a bunch of moving parts in a global reflation trade so I'll blog about it in pieces and maybe I'll come up with something interesting.

$USO (Oil ETF) - (Yahoo Finance)

$SLV (Silver ETF) - (Yahoo Finance)

Natural Gas ETF $UNG Sees Activity On Gazprom/Naftogaz Debt Issues

I've been seeing conflicting indicators in the market regarding a potential reflation trade linked to commodities, currencies, interest rates, and the BDI shipping indices. It's been a tug of war between deflationary and inflationary forces and with oil plummeting, the US Dollar and gold bouncing in a channel, and 3 month T-bills yielding 0% I need more conviction before even thinking about price stabilization and risk appetite.

But market indicators aside, political risk is showing itself in the natural gas market. I saw some interesting movement in the natural gas ETF this morning primarily related to the Gazprom/Naftogaz debt conflict and gas meetings in Moscow. Russia's Gazprom is ordering Ukraine's Naftogaz to pay back billions in debt by the end of the year and warned Western Europe of potential gas disruptions if they aren't paid.
"The Russian gas-export monopoly, Gazprom, and the Russian government have warned European consumers of possible disruptions in supplies pumped through Ukrainian territory at the start of 2009. Gazprom is threatening cuts to Kiev over a $2.4 billion (1.8 billion euro) debt Russia says Ukraine's state gas company Naftogaz owes Gazprom." Deutsche Welle

Putin also said today the "Era of Cheap Natural Gas is Ending".
"Speaking in Moscow at a meeting of the Gas Exporting Countries Forum, or GECF, Prime Minister Putin said liquefied natural gas has become an expanding global business that requires construction of more liquefaction facilities and special terminals to transfer supplies. He says existing gas fields are being depleted and promising new ones are farther away from leading consumption centers. As a result, says Mr. Putin, expenses for exploration, extraction, and transport of gas are rising." Voice of America

2008, The Year of Anxiety, Will Monetary Stimulus Save The Global Economy?

How about this distressed and volatile year? I Learned something new every day. Investors need some Zoloft after experiencing a 49% ytd loss in the S&P in November. Right now (Dec 30, 2008) we're down 39% ytd. Hopefully your mutual fund managers beat that #. As you know the U.S Government is throwing hundreds of billions of dollars at the U.S economy to try to spark growth and save jobs¹²³. China is engineering a $585 billion stimulus package and they recently lowered the one year lending rate¹. Japan is also trying to stimulate their economy and intervene in the forex market to halt the rise of the yen which has been killing Japanese exports. It also looks like Europe might need a big stimulus as well. So central banks and their printing presses are throwing as much money as they can at this global growth/deflation problem. Investors are positioning themselves for this deflationary period by sacrificing yield to protect principal. Treasuries are like the new savings account. Hopefully 2009 will be a better year. Happy New Year, PEACE!