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XMFSinchiruna (26.98)

More Valuable Gold Insight from Trader Dan

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January 30, 2009 – Comments (11)

Trader Dan Norcini

http://www.jsmineset.com/

Gold buying accelerated as Europe opened for trading in the overnight hours here in the States with the currency crisis the main factor propelling European based gold prices sharply higher. Paper is definitely OUT in Europe and metal is in. I suppose what is so revealing about this is that is marks an abrupt reversal from a pattern that has been seen for most of the better part of the entire near-9 year bull market in gold. Asian buying would take the metal higher whereupon the return of Europe based traders to their desks, it would be summarily derailed around the 2:00 AM CST period. What is happening now is that the price is accelerating higher near or about this hour. It has become obvious that a sea-change in sentiment towards the yellow metal has occurred in Europe and particularly in Britain. With no where to put money for a safe haven as bonds become suspect, gold is seeing significant hedge fund activity which is beating back the incessant selling by the bullion banks. That buying drove Gold priced in Euro terms to another brand new, all-time high for the London PM Fix at €715.620. Euro gold has taken out €700, quite a significant feat! So much for the deflationists’ arguments…

Once trade moved into New York, the bullion banks resurfaced in force and attempt to stem the tide. Today they initially showed their hand near and above the $920 level. Their footprint is more than obvious for those who can read price charts. However, in what must have been quite a stunner to these bullies of the sand box, they were beaten back out of their castle as the bulls pushed right through their picket lines. They have been feverishly attempting to stem the rise near $920 as failure means the highs made back in September-October last year around the $940 level would then be in play. If those give way, $1000 is a given and they know it.

The fly in the gold ointment however is once again, the mining shares which were whacked well off their session highs in a near perfect copy of Monday’s performance. The battle for 310 in the HUI and 127 in the XAU is quite fierce as the trapped shorts seem to be literally mounting a life or death defense of those levels. So far the bulls simply cannot dislodge them from their lairs but the day is not done yet and the longs are also showing some mettle for a change as they push the indices back up off the session lows. A strong closing breach of those levels, especially coming at the end of the week and thus painting a very strong showing on the weekly price charts, is something that the shorts are desperately trying to prevent. They know that a technical breakout will bring even more money into the gold shares which will overwhelm them and that is the reason we are seeing such fierce opposition coming in near those levels. I am sure that they are quite concerned about the reported record inflows in the largest gold ETF – GLD. That is why observing this kind of fierce and determined selling in the face of what is evidently a significant move into all things gold is so noteworthy. Just who sells like this and does so in such huge size when the path of least resistance is up?

Technically gold has CONFIRMED yesterday’s bounce off of the top of the triangular consolidation formation – the downsloping trendline which it broke out above earlier this week and then came back down and touched before ricocheting sharply upward off of that same line. The price action in this market is textbook and its behavior is more like I have come to observe in a normal, freely-traded market, bullion bank capping efforts notwithstanding. The fact that it has been performing so well-behaved tells me that serious buying has come into this market, buying which makes itself known on any price dips. Simply put – the safe haven flow into bonds has completely dried up and gold has now become the go-to vehicle. (I will show this on the Gold/Bond ratio chart which I will send up later this afternoon or evening). If the funds will stick to their guns, there is no reason that they cannot dislodge the bullion banks out of their defensive lines since the fundamentals are on the side of the longs. Keep in mind that the gold universe is still rather small in size and that it does not take all that much money to push it around.

I will be switching to the April gold contract for analysis purposes last week as the February has gone into its delivery period. Speaking of that, delivery notices for the first day of the period were strong, not as strong as December’s which stunned many observers as it came in at 8,600. By contrast, February’s first day were a mere 1,644 or 164,400 ounces. While I am glad to see the bulls shoving the perma gold shorts around for a change, the way to drive a final nail in the coffin and put these vampires to rest for good is to continue taking delivery of the gold and physically removing it from the Comex warehouses. Without the backing of physical gold in the warehouses, the shorts haven’t a leg to stand on and can be easily defeated.

Open interest is still a miniscule 348,000 contracts, far, far off from the peak made back when gold took out $1,000 where it peaked above 593,000. Can you see why this market is in such a bullish posture with the open interest readings at such a low level and gold less than $80 away from the $1,000 level? The funds could add another 150,000 new longs and the open interest would still be almost 100, 000 off the peak!  That is simply astonishing to this long-time trader. It is difficult trying to maintain a modicum of objectivity and not let one’s emotions cloud their judgment when analyzing this market simply because even contemplating another 100,000 new longs along, much less 150,000 or even 200,000 and $1500 gold would be a given. The bullion banks are going to have to absorb a tremendous amount of buying to merely keep gold from charging to $1000.

Resistance for gold is near the $938-$940 level and above that at $950. Support remains first near the $900 level and then at yesterday’s lows around the $880 level.

Equities continue swooning as further details of the government’s “stimulus” bill become known and the thing is seen for what it really is – a gigantic pork-ladened spending orgy which will do little in the way of creating any lasting jobs in the bill’s current form. Bonds still do not like it because they continue to remain focused on the enormous supply of debt coming down the road that is going to be created as a result of this boondoggle.

 

11 Comments – Post Your Own

#1) On January 30, 2009 at 3:20 PM, XMFSinchiruna (26.98) wrote:

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#2) On January 30, 2009 at 3:40 PM, djemonk (< 20) wrote:

That reads like the plot of a choose your own adventure fantasy book.  Turn to page 17 to fight the dragon.

Good writing.

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#3) On January 30, 2009 at 4:55 PM, rofgile (99.42) wrote:

TMFSinch, really nice writing style. A++. I hope you are right about gold breaking through - we'll see what happens here next. I've noticed that silver is rising lately - it is up near $12.50 these days, maybe it's on a move up to $14? If silver keeps rising even though industry is shutting down, I think gold could easily go to $1000.

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#4) On January 30, 2009 at 5:24 PM, XMFSinchiruna (26.98) wrote:

Thanks guys, but again, I am not Dan Norcini. :P

I excerpted the above text from a contribution from expert trader Dan Norcini over at jsmineset.com

However... here's something I DID write. :)

The Gold Purchase Heard 'Round the World

U.S. Steel: Under-Stimluated Steel

Railroads' Brakes Beginning to Screech

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#5) On January 30, 2009 at 5:29 PM, XMFSinchiruna (26.98) wrote:

rofgile

$1,000?  :)  Think bigger my friend. Once we get above the July high for gold where it first attempted recovery from the correction, the next significant stop will be in the $1,250 area, IMHO.

Gold is like a beachball held underwater... when it busts out the action is going to be rather epic. All this talk of gold being overvalued is ludicrous. Time will tell... and I mean REAL time. In the near-term... anything is possible within manipulated futures markets... until the crooks are prevented from dominating the COMEX, no assumptions about near-term action can safely be made.

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#6) On January 30, 2009 at 9:17 PM, DemonDoug (35.21) wrote:

i've learned my lesson. when all the TA's say that gold is going to the moon, it's time to sell.

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#7) On January 30, 2009 at 10:03 PM, kstarich (30.28) wrote:

Sinch,

I always look forward to your posts to set the chatter about gold straight. 

In the end paper money is Mans money and gold is Gods money and God will not be mocked!

I was told years ago that gold is actually precipitated sun rays.  Does anyone here know if that is true?

Demon- What is TA? I hope this is not an obsenity.

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#8) On January 30, 2009 at 10:15 PM, kstarich (30.28) wrote:

Sinch

What do you think near term about JOY, BUCY, and MTW.  I sold all three in SEPT.  They have been beaten down but With precious metals potentially sky rocketing maybe I should consider owning these three?

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#9) On January 31, 2009 at 1:05 AM, Tastylunch (29.38) wrote:

kstarich

TA=Technicial Analysis

 

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#10) On January 31, 2009 at 8:54 AM, Mary953 (77.10) wrote:

Kstarich -  

TA is what I am trying to figure out with the excellent help of GoodVibe.  This post http://caps.fool.com/Blogs/ViewPost.aspx?bpid=137406&t=01007737217973478225  is nothing more than an index of sorts to the information so far if you are interested in finding out about it. 

Sinch -

Great post.  I am new to your blogs.  Obviously I have been missing a fair amount of information.

Doug -

I try not to discount anything until I know what it is.  I don't know enough about TA to make judgements about that yet.  I do know that it works for some and is an indicator for others.  For me, it is still a puzzle to be solved.

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#11) On January 31, 2009 at 10:37 AM, XMFSinchiruna (26.98) wrote:

kstarich

I don't know about owning all three of those... that sounds like pretty heavy exposure to heavy industry in this climate. Had Obama's stimulus package come in at more than the feeble 5% for infrastructure currenctly proposed, I might have supported such a move. That 5% allocation is pretty much like Obama giving domestic industry the finger. :)

I have always considered MTW too exposed to some vulnerable markets in the context of a depression. Terex, too, with its recent foray into port supply equipment is a no go IMO. The ones to keep an eye on for a major bump from mining activity, in my opinion, are CAT, JOY, and BUCY. 

For what it's worth, in my research I probably visit the websites of at least 20 mining companies per week for news releases, etc... and one thing that always strikes me is that CAT equipment shows up in virtually every picture...  I know that's anecdotal, but it has been consistent enough over the years that it has become a basis for my investment thesis on CAT. A major part of the business for those heavy equipment makers is the after-market business for repair and replacement parts. When big miners buy fleets of thosehuge CAT trucks, they also contract CAT repair crews and distribution centers for parts and supplies... and there is big money in that.

Mary953

Thanks for reading. If you have particular interest in any given portion of the mining industry, or a given aspect of gold / dollar topics, please let me know and I can pull up a few pertinent posts from the archive. :)

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