Wednesday, May 20, 2009

Rebalancing The Twins (Again) - Oil & Gold Positions

I have decided to close out both positions in long oil and long gold, after having rolled over a couple of times this year.

Double long position:
NYMEX miNY Light Sweet Crude Oil April 2009 $38.575
Sold $60.14

Initial long gold position $802
Went double long at $900.6

Average long position: $851.3
Sold $926.40

My reasons for getting out of gold was that the reflationary dangers and inflationary dangers do not seem to be that high right now. In fact I see the deflationary pressures being even a tad stronger in the coming months. Gold may still try for $980 in the coming months but I see better ways to put my capital to work. Let's just say gold has a better chance of hitting $850 than $980 in the coming months. Could have sold when it went to $1,000 but one must also remember why we bought, the objectives, which was to provide a hedge somewhat to equity positions, so its ok.

As for oil, the contango oil trade, where future delivery of oil is progressively priced higher than current price of oil has forced the shorts to keep covering their positions. Do I believe that the global economy has recovered sufficiently for real demand to spike? No. I do think too many players have hoarded too much long positions in oil though, and would have to unwind soon. Got my 55% return over a few months, I am out of this contract. While I do not think oil will scale back to $80 this year, I also do not think it will collapse below $45 anymore. When I cannot seem to read where the thing is going, better get out.

-------------------------------------------- (Previously...)

Friday, February 20, 2009

Rebalancing The Twins - Update (Oil & Gold)

Well, the psychological $1,000 for gold has been struck. Time to reassess the situation. Still not time to sell as I mentioned that being long gold is absolutely necessary if you are going to play some shares in current times.

The sad part was that I got out of oil futures short position too soon and did not short them again. Fair enough, cannot win everything, but I have been looking to go long on oil futures for the last few weeks and am now comfortable with the level. Hence gold position stays the same, rollover as usual.

Double long new position now:

NYMEX miNY Light Sweet Crude Oil April 2009 $38.575


Initial long gold position $802

Went double long at $900.6

Average long position: $851.3

Justification: Going long on gold is one of the safest plays for as long as I have argued since August last year because there are those doomsday scenarios playing out, whereby all assets are worthless, hence gold. I don't subscribe fully to that theory but it makes gold move up for those who buy on that premise. My stronger conviction is the amount of money being printed that is not backed by anything, particularly in the US and Europe. Technically they can absorb back the liquidity when things fare better but that is not going to happen the moment we see recovery. The slump is so bad that it is likely that all central banks and governments will keep ample liquidity in the financial systems for as long as they can - long reflationary play and a long way for players to get out profitably before we bump into the next reflationary bubble. Those on the deflationary camp might as well put more money to Madoff funds.

As for oil, I wished I had ridden it down all the way but it was too volatile for my liking. I like crude oil futures very much, one the current price is below production cost in general, thus OPEC cuts and lower investments into new oilfields. Decimation of demand is overblown if you look at consumption per day figures from IEA in December and January. If you look at crude oil futures 6 -9 months down the road, its more than $55-$60, that may be speculation or hedging, but it also points to where the trend is headed. Oil prices will rise, not so much on pure demand recovery but more on a reflationary play.

p/s photo: Kama


x123 said...

I have a question:
1) how did you purchase the "NYMEX miNY Light Sweet Crude Oil".

Salvatore_Dali said...

i use options express... go and open an account in singapore... i use options express for futures, options and other overseas stocks

Eric How, said...

I just wanna bite the gal in the pic.....

Zero said...

Nice call. I share the same view as well. So what's your take on the other better ways to put capital to work now?

Winston Siew said...

Yeah. Am curious too. What next? I'd liquidated 80% of my position from klse & hkex and I dunno what to do next? I share the same view bout gold & old but at the same time I think it's extremely risky to hold cash now. In short I'm hopelessly directionless.