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