Use access key #2 to skip to page content.

XMFSinchiruna (27.56)

Trader Dan Norcini Nails it -- as Always. :)

Recs

27

February 11, 2009 – Comments (11)

Again, for anyone with exposure to gold, Trader Dan's analyses are required reading as far as I'm concerned. In my opinion, he has never failed to grasp the underpinnings of every key moment of this volatile bull market run for gold thus far. For that matter, all of the material posted at jsmineset.com is invaluable to anyone with an interest in gold. I assure you, misconceptions and misunderstandings about gold are rampant here within the Fool blogs. I continue to do everything I can to help Fools understand why gold's move substantially higher remains inevitable, and feel as though anyone not convinced by now might well never be, but I'll keep posting on the topic right up through $2,000 gold in case I'm able to help even a handful of additional Fools. Life would be boring if everyone agreed with us, so I'm happy to have detractors, but at the very least I hope every investor will devote substantial time researching gold and silver, the state of the USD, etc. before deciding for themselves whether they want exposure within their portfolios.  

Here is Trader Dan's commentary from Wednesday, February 11. Please bookmark the site and follow his analyses regularly as I do. They are certainly worth your time:

 

Hats off to the longs who finally showed some mettle and refused to be stampeded out by the efforts of the bullion banks to keep gold bottled up under the $920 level. As trading opened in New York, sellers showed up near and above $920 and pushed the market back down below that level in an obvious attempt to induce short term longs to liquidate. The first hour of pit session trading was an offensive by the bears but the longs quite uncharacteristically, I might add, dug in and did not budge. When the sellers realized that the line would not break, they began covering and as they did so, the bulls moved in and began to press their advantage. The realization dawned upon the bears that they could not absorb the amount of bids flooding the screen and they headed for the hills. That hit the batch of stops that had been building over the last few days above the $930 level and once those were reached, up she went, all the way to just shy of $950.

The breach of this upper resistance band is highly significant from a technical perspective as it puts the market in a position to make a run to $956-$960 if bulls can keep the pressure on. That is the last significant barrier before the $990 level.  It also puts the market above the downtrending slope line on the weekly chart which is drawn off the 1033 high in March of 2008 and the 989 high made in July of last year, which as you might recall was the high water mark of gold before the meltdown occurred which took it all the way down to the $680 level in October. That breakout on the weekly chart is strongly bullish as this market has been trading below that trendline for almost a year now.

I should also note that alongside of the technical breakout of Dollar priced gold, gold priced in Euro terms racked up another all-time record high at the London PM Fix as it came in at €727.583 besting the old high of €719.199 made early last week. Also, gold priced in terms of the British Pound just missed setting an all time high as it came in at 653.795. Seeing gold making all time highs in terms of other major currencies or trading up near those levels just as gold priced in US Dollar terms is breaking out technically is extremely bullish for the yellow metal. It shows a worldwide devaluation of paper currencies is occurring simultaneously and that the move up is not just a Dollar-based phenomenon.

What makes today’s move strongly suggestive of the beginning of a solid trending move higher is the fact that the mining shares are showing, as of the time I write this,  technical breakouts as indicated on both the HUI and the XAU price charts. The XAU is attempting to put in its best closing level since September 2008. The 130-131 level has proven to be formidable resistance in the XAU and should it fall on today’s close, the bears will be very hard pressed to make any kind of  technical case. Ditto for the HUI should it be able to take out the 310-311 level on a closing basis. Both indices are currently trading above those levels as of this hour.

I continue to receive emails asking me about the gold ETF, GLD. Let me attempt to state here why I reference it on occasion and chart its reported gold holdings. I use it ONLY as a gauge of investor sentiment towards gold. When reported gold holdings are rising, it shows money is flowing into gold from the investor class. The inverse is true when gold is out of favor – money flows out and reported gold holdings fall. This is NOT a recommendation to buy the thing as I have come to believe that GLD is a Trojan Horse that siphons real gold demand away from the bullion market and into paper instead. For traders and very short-term oriented investors who want to trade in and out of it and are looking for a liquid entity to trade gold, (I prefer the futures market), it is just fine. But make no mistake – owning shares of paper gold is NOT THE SAME as holding the metal in your possession. Gold is insurance against paper – why would you want to own paper as insurance against paper??? Do not make the mistake of thinking you have protected your assets by buying shares of GLD as if that was the same as buying gold bullion. There is NO SUBSTITUTE for physical gold.

Open interest readings from yesterday confirm some weaker shorts were run out even as the bullion banks dug in. I still remain amazed at the incredibly low open interest levels with gold a mere $50-$60 away from the $1000 level, 350,000 to be precise. If the bulls can continue to stand behind their convictions, it would not be difficult for them to push gold over that level quite quickly should they decide to stand firm. As mentioned previously, the only thing standing between them and $1000 is bullion bank selling.

I want to point out something that has been rather interesting on the delivery front for the February contract (Lo and behold – we actually had some take place today for a change!). It has been going on since the delivery period began but I have not mentioned it until now as I wanted to monitor it a bit more closely before commenting on it. What I am referring to is who is doing the majority of the stopping of delivered gold this month. Out of the 2,456 deliveries this month, JP Morgan and Goldman Sachs have taken 1,683 of them combined. That is 68% of all the gold delivered this month. Respectively, Morgan has taken 1,305 with Goldman taking 378. Now, we have no idea who these firms are taking the gold for – it could be for some of their clients or it might even be in house but it is noteworthy. I have seen Morgan being a decent size stopper in times past but really have not noticed Goldman doing a whole lot.  For comparison’s sake, Goldman and Morgan took only 7.5% of all the gold delivered back in December 2008. I will be keeping an eye on this throughout the rest of the delivery period to see if they retender or not. Keep in mind that the delivery process will always remain shrouded in secrecy because of the nature of the process. The brokerage firms that traders do business with know when their customers take delivery but that only shows up under the name of the firm listed as one of the stoppers – it does not show who actually took the gold. That is all internal to the broker and between them and the warehouse that they use to ship the product or take delivery of the warehouse receipt from. That information does not need to be released to the public nor should it be to respect the privacy of all involved but we can watch to see the names of the firms involved and look to see if there is anything that is out of the norm and then do some guessing based on any pattern that might be developing.

February 2009 Comex gold showed an increase of 29 contracts yesterday so it is likely that is new buyers who intend to stand for delivery. That brings the total remaining open interest in the contract to 3,129 or the potential for 312,900 ounces of gold. We’ll track this to the end of the delivery process.

In some other news, the balance of trade numbers for the month of December 2008 were released this AM showing a trade deficit of -$39.93 billion. That is the lowest number since February 2003. Also, the entire yearly trade deficit for 2008 came in at $677.10 billion against $77.26 billion for 2007. I should note that a significant portion of the lower number can be attributed to the US-OPEC trade deficit which was $4.66 billion. That was the lowest number since December 2003 which was $4.6 billion. To give you some sort of comparison to show just how much the drop in crude oil prices has helped alleviate the US-OPEC deficit – back in July of this same year it was $24.18 billion. That is a six-fold reduction in 5 months time! Just goes to show how much a slowing economy can alleviate an out of control trade deficit.

Bonds are continuing their bounce off of the 100 day moving average as they move out of oversold territory on the technical charts. It looks to me like bonds are attempting to rebound up to near the 20 day moving average near the 129^27 level. They could conceivably make a 50% retracement to near the 50 day moving average at the 133 level before the issue of supply comes front and center again. Shorts have been nervous that the Fed could make good on its chatter about buying the long end of the curve to artificially push down rates and support some sort of recovery in the real estate markets. With lots of profits showing in their accounts, why not ring the cash register and enjoy the booty and wait for another chance. Remember, bulls make money, bears make money but pigs get slaughtered.

The commodity currencies, the Canadian, Australian and New Zealand Dollars, are all higher today which is one of the reasons why platinum, palladium, natural gas, gasoline, crude oil etc, are all higher. Grains are showing weakness today on news of rain in Argentina but have moved off of their session lows. It sure looks to me like many individual commodity markets have now completed their separation from the broad-based commodity selling that was occurring as hedge fund deleveraging and index fund redemption related selling took the entire complex lower, irrespective of demand/supply factors that were present for those same markets. This is a good development and indicates that the deflation-minded selling is drying up for a growing number of commodities. Many are showing basing patterns; some are even showing the beginnings of fledging uptrends.

 

11 Comments – Post Your Own

#1) On February 12, 2009 at 12:43 AM, RainierMan (75.83) wrote:

Thanks for the article. 

I appreciate that you are still willing to talk about gold, even when plenty of people take you task on it. You put me onto CEF, AUY, and SLW several months ago, and it been nice steady gains.

Any thoughts on other good gold stocks now that both the metal and the stocks have run up a bit? 

 

Report this comment
#2) On February 12, 2009 at 1:34 AM, kaskoosek (76.31) wrote:

There are better opportunities than gold right now.

-Stable dividend paying stocks

PM, VIP, VOD, CEG.

I see no reason in buying gold except as a hedge in case the financial system collapses or gold replaces currencies as the basic form of payment.

-Platinum is a better buy. (also very rare) Report this comment
#3) On February 12, 2009 at 2:21 AM, goldminingXpert (29.57) wrote:

Most intersting that gold continues to levitate without ag, oil, nat gas, or anything else commodity related rising. Also, the dollar continues to rise--obviously this can't continue forever, will the energy complex/dollar or will gold/silver win? I'm betting on the former, but it will be interesting. Divergencies like this don't last too long, and we're about to get a violent wave down, the question is, will it be gold or the dollar that does the plunging? Only time will tell...

Report this comment
#4) On February 12, 2009 at 3:25 AM, DemonDoug (81.68) wrote:

that article is nothing but a bunch of TA mumbo jumbo.

Gold is overvalued based on historic ratios of gold:oil.

It was EI that was saying that the best traders are right 63% of the time.  No one person can possibly  "always" nail it.  What if gold goes down to 500?  What if it stays in a range of 800-1000?

Anyone talking about "moving averages" every other sentence loses me almost immediately. Sorry sinch, this isn't required reading, unless you are studying short term day or swing trading.  For LTBH of gold investors, this is just another voice in the wind my friend

 

Report this comment
#5) On February 12, 2009 at 8:22 AM, cmoney85 (< 20) wrote:

 

I am not yet convinced of buying gold (atleast not in large amounts, will increase my stake some).  To me its a hedge against inflation yes (obviously), but I'm not convinced it will be worth a dime if the financial system takes a dump.  If that happens, my gun is going to get me alot more food than your gold will, because if I wanted I could take your gold with my gun?

Am I missing something?

Can we possibly have inflation in this mess?  I guess since the government spends money like its water, I guess that means it will become worth as much as water.  

Or will we have like one blogger wrote, inflation and deflation at the same time?  That seemed about as likely as any thing I have heard thus far.  

But what if the bulls and bears on this cancel each other out? Maybe we'll be fighting over this all through the depression, and nothing happens.  Dollar stays the same, gold stays the same, no one wins? or we all win, cuz no one lost? 

 

Report this comment
#6) On February 12, 2009 at 9:30 AM, XMFSinchiruna (27.56) wrote:

MichaelinWA

It's always tricky getting into precious metals equities after a run like this, since I expect volatility to only increase over time while still maintaining the multi-year bull market run. May juniors have moved strongly of late, but not to the extent of intermediates like AUY or SLW. I would recommend nibbling on some juniors... perhaps a small speculative position in something like CDE that could multiply 10-fold or more once Palmarejo production ramps up. I still like the smaller junior silver producers like Great Panther and Endeavour Silver, too. Fool on!

I'm glad some Fools continue to appreciate my posts. I must say that blogging in this day and age about a topic this potentially divisive is extremely exhausting, but I do it out of a desire to help my fellow Fools through this very difficult time. At some point, because I'm approaching a point where just about everything I feel I need to say about gold, silver, and the USD has been said, so I may begin to shorten replies like this one by just posting replies like this one. :)  I need to live my life, too. :)

kaskoosek

How about 700 billion reasons to buy gold, or how about just a threat of foreign refusal to fund the enormous expenditures being devised in the halls of Washington as we speak. Or, how about the ridiculous beating gold mining stocks have endured since the last time gold traded at these levels... perhaps the allure of profit is what drives you... gold has that covered as well.

Replace platinum with the word silver above, and you just might be on to something. :)

goldminingXpert

Gold is not a commodity. Gold is money. Nixon signing a piece of paper attempting to strip it of that role, launching a global financial experiment that's younger than I am, does not represent the final word on this matter... the currency failures we're seeing around the world should make that case crystal clear. There's a good reason why the British pound was called sterling. Gold and silver were monetary metals throughout history, and the arrogance of a society that believes pieces of paper can replace that overnight -- despite countless lessons from history that paper currency regimes always fail -- is absolutely astounding to this Fool.

"Gold still represents the ultimate form of payment in the world". - Alan Greenspan, 1999

Those who don't think gold can continue moving higher without oil or other industrial commodities following suit because of some silly ratio are absolutely deluding themselves, with all due respect. The gold/silver ratio bears watching, and of course the USD will continue to factor heavily over the long run, but so many other ratios that people routinely cite are broadly misinterpreted. All of them may be instructive in some way, but misinterpreting those ratios can be as harmful to investors as ignoring them altogether.

DemonDoug

I agree that technical analysis has a more limited role in a tumultuous period like this than under perhaps more normal macroeconomic circumstances, but that does not mean Fools would do well to ignore it. Technical analysis still has a very important role to play, but now thousands of qualitative factors must be brought to the anaylsis table as well.

As referenced above, your assumption that gold is overvalued because of the gold/oil ratio is a prime example of mis-interpretation of a ratio. Ratios are instructive, but can also easily lead people to false expectations. Ratios like gold/oil can indeed have a way of normalizing to a mean over the very long haul, but not always. What drives oil prices is nothing like what drives gold prices, so there is absolutely nothing preventing a divergence from the historical mean to last months, years, or even generations if circumstances should conspire to establish a new valuation paradigm for one or the other. In this case, that is what is happening to gold... it is entering a new valuation paradigm based upon the irreparable cracks in the modern financial system.

Extrapolations drawn from Trader Dan's analysis -- i.e. saying gold will continue higher before correcting because of the breakouts he describes -- those might indeed be subject to a percentage of accuracy in hindsight that will be less than perfect as with any technical analysis. But, again, that does not erase the value of such analysis by any means... it's up to the reader to carefully manage his/her own extrapolations.

No matter how you slice it, these WERE significant breakouts both for gold in USD and for the mining equities yesterday. Does that mean the run will continue in a straight line without any further hiccups... of course not. The value of what he does is in revealing the positions of the troops on the battlefield... how entrenched the bullion banks are with their manipulative short positions, or how steadfastly investors are countering the manipulation with their long positions.

I am by no means a short-term or channel trader, as any of my past discussions with goldminingxpert will attest, and yet I read Trader Dan's analysis daily and glean great insight from it. If you choose to look away because of some phrases you don't like, well there's nothing I can do about that.

Despite yesterday's impressive action, I am just as ready for a quick and violent correction back to $800 as I am for a swift continuation beyond $1,000. No one can predict the short-term, and I consider it folly to try under these circumstances... what matters is the trend, which remains higher. I for one would be happy to see $800 gold once more, since it would permit me an opportunity to back up the truck, but I suspect we may not see that level again for several years. GmX's $500 target... there's simply no way.

cknapp01

Gold will rise substantially even if Washington is able to hold the pieces together enough to prevent the sort of complete societal collapse you seem to be describing. That is why I invest in gold. If guns ever come to rule our daily lives here in the U.S., then God help us all.

The misunderstandings concerning inflation / deflation are as rampant as they are with respect to gold and silver. Inflation as we'll witness it is ultimately a currency event, and so of course it can occur concomitantly with a deflationary spiral. That is why we call it stagflation.

Your 'what if' simply will not be. :)

Report this comment
#7) On February 12, 2009 at 9:46 AM, cmoney85 (< 20) wrote:

Thanks for the info, I am a new pup, and doing pretty well actually thanks to experienced people like those on CAPS willing to share their knowledge.  I think I am starting to understand/see how things will work out in a "stagflation".  I had never heard the term before I dont beleive, and to me it seems like the worst possible thing that could happen.  

So now I'll go buy some Gold.  

Last question, the market price of gold, how much gold is that based on, 1 oz, 1 troy oz?  I can't seem to find any chart that says.  

Sorry if that is a dumb question. 

Report this comment
#8) On February 12, 2009 at 11:00 AM, XMFSinchiruna (27.56) wrote:

cknapp01

There are no dumb questions here. I'm happy for you that you're about to gain exposure to the only unencumbered asset class out there.

Gold is always quoted in troy ounces. Beware of scams on EBay or other sites that try to confuse buyers between ounces and troy ounces. If you're looking for physical bullion, APMEX has a terrific reputation. For a paper bullion proxy, I maintain that CEF is tops, which holds roughly equal values of gold and silver in secured vaults in Canada. Good luck with whichever vehicles you choose, and feel free to e-mail me anytime (from my CAPS profile) with questions.

TMFSinchiruna 

Report this comment
#9) On February 12, 2009 at 11:09 AM, rofgile (99.33) wrote:

Just a note - you can buy silver from Ebay at/near and below spot prices.  I bought a set of sterling silver flatware (over 40 troy ounces ~ 92.5% silver = 37 ounces pure silver).  The price was $400, while the value in silver would be $450 (at current prices).

So, if you are looking to buy a small stake in silver - you could try finding a good deal on antique sterling silver off of ebay, and maybe get it below spot.  What is nice is that the silver bought this way is a) more pleasing than a paper stake in SLV, b) useful, c) has value above the price/weight in silver which you could also sell it for.  I've seen a set like the one I bought selling for over $800 at an estate sale and similar values at antique stores. 

Worst comes to worst - price of silver falls to $5.00/oz or something like that, at least you still have something cool..

Just a thought outside of the box here.

Report this comment
#10) On February 12, 2009 at 12:02 PM, DemonDoug (81.68) wrote:

What drives oil prices is nothing like what drives gold prices.

And this is the crux of where our opinions diverge, sinch. 

I am for a swift continuation beyond $1,000

And this is why TA is total bollicks, we were all waiting for that last year, we got there, and then? Promptly lost value.  Last time I checked accounts settled on the NYSE had to be settled in USD, not gold.  Gonna be a tough go for gold in the near term, I'm afraid.

Report this comment
#11) On February 13, 2009 at 2:05 AM, RainierMan (75.83) wrote:

Yeah, how could gold ever reach $1000/oz? That's all of $60-$70 way from where it is now.

Some of you are still living in mid-2008. I see it in the TA of people who have been warning everyone off gold since it was at $750/oz. Their charts from last year show how gold is in a long term decline. And then we have the, "it's just a worthless metal" argument.  As if other currencies were in such great shape. I think this is the wrong way to view gold.

And then keep hearing the, "you can't spend gold at the store" view. I can't spend stocks at the store either. Or oil, for that matter.

Conditions both financial and pyschological are not the same as they were 9 months ago. I don't know when gold is going down, and I don't know how far it will run, but I know why it's going up right now.

Gold may go to $400/oz eventually, but I don't plan on going along for that ride. In fact, I don't plan on going for the ride back down to $750/oz.

Like everything else, you manage your risk. My risk is different that Sinch's risk, but that doesn't mean I should avoid gold. When I don't like the way gold is moving, I'll get out, and take my profit with me.

 

 

 

 

 

Report this comment

Featured Broker Partners


Advertisement