1A] PRIMER on CME ClearPort & Volume Indicator

ClearPort is a clearing service offered by CME that allows over-the-counter (OTC) trades to take place off-exchange.

CP trade categories include
1) Exchange for physical
2) Block Trades
3) Exchange for risk
4) Exchange for swap
1B] Of those, Exchange-for-physical (EFP) and block-trades constitute the majority of ClearPort (CP) transactions. EFR contribute a small component while EFS are rarely traded in the case of gold GC futures. ImageImage
1C] Exchange for Physical is the simultaneous execution of a GC futures contract and a corresponding physical transaction such as a forward contract on a physical transaction, ETF, etc. Image
1D] These OTC transactions that are cleared through the CME ClearPort system constitute 1%-6% (avg: 2.6%) of the total GC gold futures volume that is traded daily. The vast majority of total trading volume is transacted through the on-exchange trading platform called Globex. Image
2A] ClearPort Volume Indicator

Although trade volumes on the ClearPort system may be low compared to Globex, it is worth monitoring since spikes in volume tend to PRECEED drops in the price. For example, on Jan 4, ClearPort volume increased 400% compared to prior 5d avg. Image
2B] This was the first warning sign. The volume remained elevated Jan 5, 6, 7, 8. What happened to the gold price? On Jan 6, gold went down -2% and Jan 8, -4.5% from open to low. One can look to other historical examples of ClearPort volume being a good leading indicator.
2C] How to interpret the ClearPort Volume indicator?

1) when ClearPort volume's 5d moving avg starts to rise, prepare for a buying opportunity to occur within 0 to +3 trading days of the ClearPort Volume reaching its local peak. Image

Empirically, 86% of the local lows in the gold price occur within 0 to 3 trading days of the peak in ClearPort volume 5d moving-average. Image
2E] How to interpret the ClearPort Volume indicator? (cont)

2) when a down-move in gold is underway, the indicator can be used to put boundaries on when it has likely concluded and the bottom is in.
Gold futures volume data can be found here

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More from @CRutherglen

26 Sep 20
1) Although it is impossible to know where the gold price will top at during this current cycle, we can make some first-order guesses. Gold price based on M2 money supply modeling has back-tested well and thus is a good starting point.
@Frank_Giustra Image
2) Next question is by how much will the money supply (M2) need to increase by to bring the debt-to-money proportions back into equilibrium. In the '60's and '70s, that ratio was ~2.5. From '80s to '08, debt grew faster than M2 pushing the ratio up to 7 and trending down since. Image
3) To get the debt-to-M2 ratio back to its prior equilibrium level of 2.5, M2 will need to increase to $40t - $43t within the 2024-2026 time-frame.

This would imply a future gold price of $7500 to $8000.

Off-balance-sheet debt (not included) could make this price conservative. Image
Read 5 tweets

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