ATLANTA – Gold spent almost the entire week above the psychologically important $1,000 level. Up to now trips above that benchmark had been fleeting. A quick look at the two-year gold graph still paints a bullish technical picture, but some of the indicators we follow can’t confirm that story … at least not just yet.
Breakout attempts are always dicey, always a little scary and they rarely launch higher without a significant retest of the breakout at least once shortly after the event. Trouble is, speaking on a very short-term level, that breakouts above important, long-established, historic resistance fail about as often as or even more often than they succeed.
Even more trouble is that bearish technical interests love failed breakouts even more than bulls love the originals. Jack Schwager, pro futures trader, technical analyst and author of several books on technical analysis says, “A failed signal is more reliable than the original signal.”
Just as bullish interests now await gold to print something above $1,033 in order to press the upside, an entire boatload of other actors are watching the action ready at a moment’s notice to pounce on the metal should the current breakout above $1,000 “give it up.”
In order for the yellow metal to continue higher it will take buying, new buying and lots of it in order to overcome the intense amount of selling by the largest of the largest gold futures actors. Instead of blasting higher on massive short covering once it cleared the four-digit barrier, gold has set up a “high flag” and the most visible short side players are adding to their net short positioning in record amounts as if convinced that gold has more downside than the opposite. (Much more about that in the Gold COT section.)
Gold is acting like everyone is waiting for the new buying to occur. Waiting for “something” to happen. Gold is waiting for the “trigger event,” … the “switch to be thrown,” … “the next wave of buying.”
The most bullish of analysts are giddy and cocksure, certain that we have embarked on the next leg much higher. The usual cadre of veteran bearish market watchers are just as convinced that gold has reached stratospheric nosebleed territory and claim the short-dollar trade has too many people on one side of the trading boat.
Meanwhile, most of the indicators we follow are acting the same way, as if they all now hail from Missouri and will wait to be shown that this is the “Big One.”
Technically speaking, both the gold and silver charts remain bullish, but unless the large numbers of new buyers show up soon, bullishness will very quickly morph into nervousness in the hottest of hot money that have joined the party in the wee hours of this breakout attempt.
Fundamentally speaking there hasn’t been much to argue against a higher gold and silver price going forward. If anything the fundamental picture for the precious metals has been reinforced over the past two weeks since the last full Got Gold Report. Hasn’t the U.S. continued to act just like Japan did in the 1990s? Hasn’t the U.S. dollar refused to bounce? Hasn’t the current “captain” and “crew” Americans voted into power continued to show disdain and disrespect to our currency and our own business community? Near-zero interest rates, massive liquidity injections, enormous fiscal mismanagement by Congress, dollar flight, Barrick closing 9.5 million ounces of fixed hedges, central banks now net buyers of gold, China encouraging its billion-plus citizens to buy precious metals and calling them “wise investments,” … (we have enough material for this paragraph to run several pages, but the point is made already).
If the game were merely a case of looking at just the fundamentals, then that would eliminate much of the challenging part of trading. But fundamentals can be and often are trumped temporarily. Trumped by adverse liquidity. Trumped by short-term events or “interventions.” Trumped by opposing mass psychology or even temporary “investor insanity.” Eventually the fundamentals nearly always win out, but short-term there is always the most powerful driver of all to contend with: liquidity.
In the simplest of terms, it really is all about liquidity. Short term it is all about whether or not more wealth will be flowing into or out of the commodity or the issue one is trading. If money flow is strongly positive, the price will go higher and vice versa - every time. The challenge, of course, is to predict which.
We’ve already had a spectacular run and now enjoy bulging paper profits on our short-term trading in gold and silver (assuming one remains on the long side). Many of the mining shares also exhibit highs or near highs. Paper profits are wonderful. “Green” is good. Let’s do what it takes to make sure we keep most of the short-term trading “fun” now, in case this breakout goes into the books as merely an “attempt.”
The only way I know to play attempted breakouts and to eliminate the guesswork, indecision and anxiety they can wreak on traders is to execute sound short-term trading discipline, which demands that short-term traders ratchet up their trading and trailing stops to a point just under the perceived breakout. Should the market catch fire and keep on going northward, they enjoy the ride, comfortably, and safely, moving their stops up along the way in trailing fashion.
But the idea is to pick the most likely point which marks the failure of the breakout, placing a good-till-cancel stop there to exit, because failed breakouts invite that cadre of professional sharks who exploit them harshly, automatically and violently if the market will let them. The perfect stop is immediately under where the short-selling pros will first show up in size.
For now, Sunday, September 20, 2009, both gold and silver remain just above their respective breakouts in the most exciting, but dangerous locales in charting – the above-breakout “flag” formation. We’ll go out on a limb here and predict that whichever way the flags break, there will be significant and immediate follow through.
Please note: Gold Newsletter (GNL) subscribers received this issue of the Got Gold Report Monday morning, September 21. GNL subscribers enjoy access to all Got Gold Reports, technical charts, analysis and information, as well as Brien Lundin’s timely and actionable analysis of specific resource related companies. For more information or to subscribe visit the Gold Newsletterhome page.
Let’s see what some of the indicators are indicating:
Gold ETFs: As gold metal tested as high as $1,024 before ending up almost flat for the week (closing up $1.34 at $1,007.59 on the cash market), SPDR Gold Shares (GLD), by far the largest gold exchange traded fund,reported a net weekly increase of 8.849 tonnes to show 1,086.479 tonnes of gold bars held by a custodian in London.
Barclay’s (In December it will become BlackRock’s) iShares COMEX Gold Trust (IAU), reported no change to its 74.67 tonnes of gold held in COMEX warehouses.
All five of the gold ETFs sponsored by the World Gold Council (WGC) collectively added a net 11.49 tonnes of new gold metal, to a combined 1,277.07 tonnes worth about $41.5 billion.
Apparently there was somewhat more buying pressure than selling pressure in the world’s gold ETFs over the past week. The authorized market participants for gold ETFs add gold (and increase the number of shares in the trading float) in response to more buying pressure than selling pressure and vice versa.
Silver ETF: Barclay’s (also for now, and soon to be BlackRock’s) sponsored iShares Silver Trust (SLV), reported no change to its 8,726.20 tonnes of average 1,000-ounce allocated silver bar inventory.
Earlier this week we received several emails from readers who wondered what we thought about “SLV” being “owed” some ridiculous amount of silver bullion. One of them mentioned that he thought that SLV was “owed” some 30 million ounces (over 900 tonnes) or more. Apparently some analysts have speculated that the ETF has been unable to find silver or something.
“Are you aware that SLV is shorting SLV shares because they can’t find any silver,” one reader asked, innocently.
There may come a day, someday, when there is not enough bar silver available for silver ETFs in London, but we aren’t there yet. The idea does satisfy a certain circular logic. If the reader had expected SLV to add metal based purely on volume and price action and SLV didn’t add any, then the reader could have concluded that it must be because there was no silver available. However, the more likely reason for SLV not adding metal is because buying and selling pressure for the shares were more or less evenly matched for the period.
Had those readers been watching the spread between the price of spot silver and the net asset value (NAV) for SLV instead, they would not have expected there to be much in the way of additions to the SLV metal holdings over the past two weeks. If anything, the spreads were wider than normal for much of the past week, which does not support the idea that SLV would be adding silver. To the contrary. What is somewhat notable is that SLV did not end up shedding any silver despite the sometimes overly wide spreads. In fairness, there were also times of quite narrow spreads during the period, (which would indicate more buying pressure than selling pressure), but on balance, not as much. We cannot agree with the notion that the trust is somehow “owed” silver based on price and volume statistics, which are meaningless to how most metals ETFs add or shed metal.
SLV has no reason not to add silver and increase the trading float in order to answer periods of significantly more buying pressure than selling pressure. Indeed that’s exactly how the authorized market participants (AMPs) get paid for their stewardship of the shares. The AMPs take advantage of the arbitrage opportunity created when excess buying pressure causes the shares to trade higher than they should (at smaller share price-NAV spreads). In such cases they sell shares into the market in order to keep the price of SLV in line with the price of silver (to restore the spread to where it should be). Otherwise, before long the share price might not reflect the price of silver.
In return for the newly created shares the AMPs are required to deposit an appropriate amount of silver metal (currently .998327 of an ounce of silver for each new share) with the trust’s custodians in London. (Basically adding the trust’s name tag to several more racks of silver metal bars in the bullion bank’s soccer-field sized ultra-secure depository near London.) They are required to do so in minimum “baskets,” currently in minimum lot sizes of just under 50,000 ounces, (not all that much, really), but typically, except for small maintenance reductions, we rarely see changes in SLV metal holdings less than about 20 times the minimum (about 30 tonnes), probably because the logistics, convenience and economics of the trade demand that size.
Silver ETF critics usually have an agenda, such as a competing product or a naturally suspicious bent toward bullion banks. But the largest silver ETF has invited a heightened level of blog-whipping lately for one important reason. As we reported earlier in April, SLV has already exceeded the amount of silver foreseen in its custodian agreement with JP Morgan Chase, London, (the agreement called for up to 270,484.574.5 ounces, SLV already holds 280,553,742.3 ounces and has held slightly more in the recent past with the same custodian). The trust as yet has not announced a new custodian or sub-custodian agreement (or the amount of potential silver which might be available under it). So that fact alone leads to some speculation that available metal is scarce. However, as we also reported then, Barclays said that its custodian had agreed to continue share creation support for the time being, (pending the sale of iShares), which will allow SLV to operate normally.
Until the Barclays-BlackRock deal is closed, it may be unlikely that we would see any changes to the custodian agreements, unless, of course, there is a very major change in the requirements of SLV for metal. Until then they seem to have access to enough metal for current requirements at least.
At Got Gold Report, we continue to believe that with premiums for physical silver metal at very reasonable levels, even at discounts for some silver products, right now is an excellent time for longer-term investors to “exchange” their SLV shares for the real deal physical metal, provided the investor has the ability to store silver safely or, for larger amounts, is satisfied with exchange receipts or warehouse certificates for allocated metal from well-established, respected or official sources. (COMEX warehouse receipts held by your commodities broker or in a very safe place are one acceptable option.)
At any rate, we believe that fears by some analysts that SLV is “owed silver” or “short silver” are … uh … “misplaced enthusiasm.” We intend to continue to trade SLV accordingly and confidently.
Moving on, gold recorded a higher weekly low ($992.27 COT reporting Tuesday) and a significantly higher cash market high ($1,024.22 Thursday), in a similar pattern to the prior week, except that this time we have to note significant profit taking on Friday. The last trade on Friday printed $1,007.59 on the cash market, fully $16.63 or 1.6% under the Thursday high. For the week gold managed to book a net gain of $1.34 an ounce, or near flat.
Apparently traders were wary of the minor strength in the U.S. dollar Friday, wary enough to take chips off the table ahead of the weekend. Chart of Friday’s gold trading below courtesy of Kitco.com.
Please see the gold charts linked below for more technical commentary.
Having cleared upper technical resistance near $16.20, silver tentatively probed the middle $17s before Friday profit taking resulted in a net weekly advance of 23 cents, or 1.4%, for a last print of $17.00 on the cash market. Once again, both the weekly high ($17.66 Thursday) and low ($16.30 Monday) were much higher week on week, but like gold, silver saw meaningful profit taking ahead of the weekend. Please see the silver charts linked below for more technical commentary.
The U.S. dollar bearish trade may be overly “crowded,” but the dollar was unable to gain any ground this past week, again. The U.S. dollar index (DXY) ended the week at 76.48, down another 19 basis points from the prior week’s Friday close as shown in the U.S. dollar index graph below in the charts section.
As the “Dixey” fell 80 basis points, from COT reporting Tuesday to Tuesday, to 76.46, ICE commercial traders added 2,384 contracts to their collective net long positioning. The “ICECOMs” reported a net long position back up to 11,419 DXY contracts out of a total open interest of 34,399 contracts (LCNL:TO = 33%) as of September 15. As recently as two weeks ago the ICE commercial’s net long position had dwindled down to less than 5% of the open interest.
Apparently the ICE commercials believe what many analysts are currently saying: that the dollar-short trade is too populated, too popular and overdue a bounce. We’ll see. The U.S. dollar index chart is below in the charts section.
The Gold/Silver Ratio (GSR) continued to improve this past week as silver outperformed its yellow cousin again, finishing the week at 59 and change. See the short-term GSR chart below in the charts section.
The longer-term chart continues to do exactly what we figured it would, only a little faster than we thought it might. Unless the world falls off the edge of a global financial abyss we can see this ratio making new lows in the lower 40s within a year or so as the real scarcity of physical investment silver becomes better known.
Those who heeded our call to sell gold and buy silver last October and November, when the gold/silver ratio peaked at 88 ounces of silver to one ounce of gold, are very glad they did now that it takes less than 60 ounces of silver to buy the same ounce of gold metal.
Large, well-financed mining shares have traded into a “breakout flag” of their own as shown in the HUI index charts below in the charts section. However, when compared to gold metal itself, the Big Miners (BMs) as a group have so far refused to “answer” gold’s breakout higher. One look at the HUI/Gold Ratio chart below shows that the most popular and best-financed mining companies are thus far not exactly enthusiastic about four-digit gold metal. That’s worrisome very short term.
Perhaps more worrisome is that so far the smaller, less liquid and more speculative miners and explorers continue to woefully underperform relative to their larger relatives and relative to gold metal. There are good reasons for that, but still if the general consensus of money managers was that gold and silver were heading much higher, we should be seeing more of an “answer” out of this very volatile small mining sub-sector. A relative few small mining companies have enjoyed a magnificent August and September, but on balance the group of “little guys”, represented by the Canadian S&P/TSX Venture Index or CDNX (see the charts linked below in the charts section) have been crawling while the HUI has been sprinting to the upside.
The chart below compares the CDNX with the HUI for instant comparison:
If, repeat IF, this current breakout attempt by gold and silver turns out to have real “legs,” we have little doubt that the “little guys” will explode to the upside in very short order as collective fear and disdain for speculative issues morphs into intense greed and interest in them virtually overnight. But it is now unsettling that more liquidity has not found its way into the small miners and explorers with gold above $1,000 and silver above $16.30.
It may reflect that, rightly or wrongly, many or even most observers are suspicious or cautious about the present breakouts for gold and silver. The next section covers a good reason that some long-time gold and silver watchers are presently cautious.
Gold COT Changes: In the Tuesday 9/15 Commodities Futures Trading Commission (CFTC) commitments of traders report (COT) for gold metal the COMEX large commercial’s (LCs) collective combined net short positioning (LCNS) increased another 13,864 contracts, or 5.1%, higher from 270,707 to a new all-time record 284,661 contracts net short Tuesday to Tuesday as U.S. dollar spot gold rose $11.83, or 1.2%, from $995.40 to $1,007.23 while the total open interest INCREASED 16,179 to 467,892 contracts open.
The LCNS exploded a stunning 54,089 contracts and the open interest jumped an equally amazing 67,010 contracts the week prior, but notice that all commercials as a group increased their net short positioning less than the increase in open interest both of the past two weeks.
Gold versus the commercial net short positions as of the Tuesday COT cutoff:
Source for data CFTC for COT, cash market for gold.
The large commercial net short positioning has never been so high nominally, but then gold has never traded for a whole week above $1,000 before.
The motivation to hedge gold at a four-digit price is considerably higher than, say $75 cheaper if for no other reason than because, up to now, gold has not managed to stay above $1,000 for more than a matter of a few days.
The chart above looks at just the nominal amount of commercial net short positioning. The chart below compares the COMEX commercial net short position for gold with the total open interest (LCNS:TO). That gives us a better idea of how the largest hedgers and short sellers are positioned relative to the rest of the COMEX traders.
As measured against all COMEX open contracts, the commercial net short position is also now at record levels, with the LCNS:TO equal to 60.9% of all contracts open on the COMEX, division of NYMEX in New York. (Note that we have had to change the scale of the right axis on LCNS:TO charts. It previously topped at 60%. Today’s reading would have been off scale otherwise.)
Source for data CFTC for COT, cash market for gold.
Repeating from the last full Got Gold Report: A very high LCNS:TO is dangerous and usually bearish, but as we have been saying, a very high LCNS:TO does not necessarily mean the commercials are “right.” Indeed we have expected that the LCNS:TO would be quite high if and when gold would challenge the “Great Wall of Gold.” (See the two-year chart below in the charts section to see the Great Wall of Gold graphically.)
Although we certainly expected the “opposition” to gold advancing higher than the old $1,033 pinnacle to be material, the current commercial net short positioning is well beyond what we might have reasonably expected. It is quite simply stunning. Just since August 18, when gold closed then at $938.95, as gold added $68.28 or just 7.27%, the large, well-funded and presumably well-informed traders the CFTC classes as “commercial” added a bone-crunching 80,116 contracts to their already elevated net short positioning – an increase of just under 40%.
That is the equivalent of selling over eight million ounces of gold or over 249 tonnes of “paper gold.” (Interestingly, and for comparison, that’s just about the same amount of real gold metal that resides in all of the COMEX warehouses, both Registered and Eligible.) So the increase in the commercial net short positioning since August 18 is equal to just about all the gold backing up all the 467,000 open contracts on that bourse – if one wanted to look at it that way.
In Texas English, the COMEX commercials have thrown down the gauntlet against gold in a very big way. We have no way of knowing for sure, but we wouldn’t be at all surprised to learn that there has never been such a collective short-seller wall thrown up against gold.
Below is a chart that shows the large commercial net short positioning relative to gold going back to 2003. Obviously this is an exceptional stance the short sellers have taken right now. Exceptional in the sense that they seem to have taken exception to the idea that gold might go higher than $1,033.
Of course it does not necessarily mean that the commercials are “right.” But it sure does show that they really do “mean business” in their gold’s-not-going-higher positioning.
Dang, this is an interesting, but dangerous time to be a gold short seller. The odds clearly favor them as these well-funded, uber-connected bullion banks apparently have unlimited resources to take the short side of as much paper gold the world is willing to speculate with. Imagine, however, how they must feel knowing that the world is just one political blowup from a really nasty move counter to that massive net short gold positioning.
And, that’s just ahead of some historically flammable religious and traditional holidays too. And right after the current U.S. administration unintentionally just sent a clear signal to its best ally in the Middle East they are pretty much on their own when it comes to Iran. (By withdrawing the missile defense shield from Poland, et al and signaling the U.S. will “talk” to Iran, but not about nuclear weapons! God help us. The 2010 elections cannot get here fast enough to make a difference.)
Is it any wonder why ammunition for some popular small arms has become very scarce in the south, and has nearly doubled in price over the last six months? (Please pardon the political digression.)
At any rate, what is crystal clear is that the COMEX commercials are now very strongly positioned for gold weakness; the strongest commercial net short positioning ever. The bad news is that they are mighty strong and very determined. The good news is that gold at some price point not very much higher, should turn some of them into rabid buyers.
We await the resolution of this battle royal underway, positioned as we mention below in the summation section.
Silver COT: The silver LCNS also increased markedly over the two weeks since the last full Got Gold Report, and although quite high now, the silver LCNS kind of seems tame relative to its yellow cousin. As silver gained 62 cents or 3.8% COT reporting Tuesday to Tuesday (from $16.41 to $17.03 on the cash market), the large commercial COMEX silver traders (LCs) added a big 5,525 contracts or 9.8% to their collective net short positioning (LCNS) from 56,401 to 61,926 contracts of net short exposure.
The total open interest ROSE 7,452 contracts to 123,873 COMEX 5,000-ounce contracts open, after jumping 9,750 contracts the week prior. The commercials really piled on the short side the prior week as the LCNS exploded 8,345 contracts. The increase last week (the week of September 8) was the largest one-week increase in commercial net short positioning for silver since September of 2007.
Source for base data CFTC for LCNS, London Silver Fix for silver from LBMA until 2-26-08 then cash market
For context, the chart below compares the silver LCNS to the total number of open contracts on the COMEX, division of NYMEX (LCNS:TO). That gives us a better idea of how the commercials are positioned relative to all the COMEX traders. When compared to all the contracts open, the commercial net short positioning in silver futures increased from 48.5% to fully 50% of all COMEX contracts open. That is the highest LCNS:TO of the year, but nowhere near a record.
Source for base data CFTC for LCNS, London Silver Fix for silver from LBMA until 2-26-08 then cash market
Readers and friends might find it interesting that the record net short positioning for the commercials in silver occurred in 2005 with silver then in the $7.40s. On March 8, 2005, the silver LCNS:TO came in at an offensive 65.17%, meaning that the COMEX commercial’s net short positioning dwarfed and overwhelmed the corresponding reportable long positioning. As overwhelming as that net short stand seemed at the time, it turned out to be “net wrong.”
It took a while, but silver left the $7.40s behind and clawed its way up to over $9.00 by the end of that year. Based just on that anecdote, we could say that although a very high LCNS:TO is usually bearish, sometimes a very high LCNS:TO is actually a precursor to a major breakout higher.
If we think about it, it really wasn’t all that long after that when silver first touched a double from that March 2005 colossal net short stand by the COMEX commercials.
New Orleans Conference Just Ahead
The New Orleans Investment Conference, to be held at the Hilton New Orleans Riverside October 8-11, is fast approaching. For more information or to reserve for the conference please use this special link. Please feel free to send me an email note if you plan to attend so we can connect there.
What a power-packed event this New Orleans conference is shaping up to be. The lineup this year rivals any in the 35-year history of the conference. Including Dr. Marc Faber...Dennis Gartman...Peter Schiff...Dr. Stephen Leeb...Doug Casey...Rick Rule...Adrian Day...Frank Holmes...Bob Hoye...Bob Prechter...Dr. Mark Skousen...Ian McAvity...Pam and Mary Anne Aden...Brent Cook...David Coffin...Lawrence Roulston…Thom Calandra…Rick Santelli…Carl Rove…Howard Dean…Charles Krauthammer and many, many more.
With the world now navigating the choppiest of uncharted waters in a global sea of uncertainty, this has to be the one must-attend conference of 2009. Sure hope to see you there.
Summing up: Some of what follows is a repeat from prior reports with new comments in bold.
As we reported a month and a half ago: It is rare and usually bearish for the LCNS:TO for gold to reach the 50%-plus level. (Right now the gold LCNS:TO is at a shocking record high of 60.8%). However, we remind everyone now as we did then, that it was in August of 2005 when we witnessed the LCNS:TO reach the stratospheric 58% level with gold then attempting to test the $450s. It was the week of August 16, 2005, in fact. The LCNS:TO was 58.3% that week with gold closing at $446.32.
By the next reporting week, August 23, 2005, the LCs held their collective net short ground. (Similar to what occurred this August/September. The LCNS:TO has not fallen below 54.7%.) The LCNS:TO read an even higher 58.4% even after gold had fallen a little to $438.90. The figurative “wall” thrown up against gold then appeared to be holding, but that appearance was misleading.
One week later, the week of August 30, as gold merely edged lower to the low $430s, the COMEX commercials did the unexpected. In the course of just one week they covered or offset a huge 54,227 contracts and the LCNS:TO plunged from 58.4% to 47.8% in one report! That was with gold at $431.65. (Interestingly, this time we saw the U.S. banks dumping a big portion of their net short positioning just ahead of a breakout higher for gold, as we reported in the last full report.)
By May of the next year, 2006, gold had advanced up to test the $730s for the first time in this gold bull, more than 60% higher than where it was when the LCNS:TO first reached 58% the prior August. (To understand that in context of today’s market, gold would have to rise to $1,520 the ounce by next May to equal the 2005-2006 breakout performance.)
So, when we say that it is usually bearish to see the LCNS:TO so high, we can also point to and attempt to understand the periods where that huge selling by the commercials turned out to be “wrong.” Indeed, if gold is ever to gain a foothold above the Great Wall of Gold it will likely be during a period when it looks very heavily defended. Sort of like it did in 2005. (Just as it does right now.)
This is a gold bull market until proven otherwise. In a bull market speculators have but two possible positions: Long or on the sidelines. Definitely not short, except to hedge. (At least just yet.)
We firmly believe that if gold is to punch through the Great Wall of Gold it will likely be despite activity in the U.S. dollar, or rather, regardless of it. It will also be when gold makes another advance in all global fiat currencies at the same time as it did in 2005. Sure enough, gold advanced in all global fiat currencies over the past month.
Gold may or may not be ready to make that next advance. No one can see the future and no one “knows” when such an advance will occur in advance. (We are witnessing the first attempt now.) However, the sheer size of the opposition to gold at present is impressive in both size and tenacity. Therefore we need to take note, to understand it, and trade with extreme caution on a short term basis.
Longer term, given the actions of the current “captain” and “crew” American voters saw fit to elect to run this badly leaking national flagship, it would not be all that surprising if the world (especially Asia) suddenly wanted a lot more gold metal and a lot fewer of our paper promises in the weeks and months ahead. (Newswires are flooded with stories that support that view.)
Add now the “Barrick Put,” the “Chinese Put,” and the “Russian Put,” under gold as well as the notion that central banks have suddenly become net buyers according to GFMS Consulting. Add in the idea that the United States will have to borrow in excess of $2 trillion just in order to run in place over the next fiscal year. Add that confidence in all fiat currencies is being eroded at an accelerated pace now as governments and central banks attempt to reflate the easy-money bubbles they have already given us with gross mismanagement, overreaching and overspending. Add in the fast decline of respect for the United States as an example of capitalism, the rule of law, sanctity of contract and fiscal responsibility. (This list could easily fill two full pages, but the point is made. Confidence in the U.S. dollar is low and falling – confidence in gold is universally high and rising.) Absent some kind of unknown catastrophe or direct intervention, gold should continue to receive a “bid” as everyone, everywhere looks for ways to exit the once mighty and once proud U.S. dollar. This, as all investors large and small struggle with the idea of maintaining the purchasing power of their collective wealth. Got Gold?
We remain on the hunt for special situations and “vulture opportunities” via “stink bids” for obvious lack-of-liquidity, non-news-related, over-reaction sell-downs on the miners via our Vulture Bargain Hunter Method. Companies we believe have been sold down too far with longer-term high-percentage recovery possibilities, like the candidates Brien Lundin mentioned in the most recent Gold Newsletter. The failure of the “little guys” to answer their larger cousins is a non-confirmation of sorts and is worrisome very short term.
For short-term traders there is no choice but to tighten stops up to an “at resistance” level, and let the Trading Gods decide when the trade is done. Unless gold can print something above $1,033 and maintain that level, the sellers will likely become emboldened and those on the long side will likely lose their nerve, then rush the exits once again.
A well placed stop now could mean the difference between a very nice profit and a very harsh “profit-ectomy.” Please do not confuse that with a sell signal, which it isn’t. No sir, if gold manages to find enough buying interest to cause a new thrust higher, we sure want to be on board. Indeed, it is this kind of set up we had thought would be in place when gold did finally explode on higher through the Great Wall of Gold.
With the miners merely “answering” gold, with the ETFs showing only mediocre positive money flow or just flat in that department; with the largest of the largest gold futures traders record net short the metal and apparently able to take as much of that anti-gold positioning as they want, the odds probably favor one more reaction to the downside.
But I personally won’t be betting on that, exactly. I’ll let the Trading Gods decide when the short-term trade is done. That’s what we traders do. Longer term, I’m confident that an entire world now wants very badly to catch any dip at all in the one true standard and store of value - which we know resides in gold and silver.
Got Gold Report Charts
Below are few samples of the Got Gold Report (GGR) technical charts. Gold Newsletter subscribers enjoy access to all GGR charts and all the GGR reports, commentary and trading ideas.
A few closing comments:
Quick notes from the week that didn’t make it into the body of the report in random order.
- Dollar cannot really bounce, why?
- People are converting dollars into anything but dollars. Grains, oil, metals, copper, companies, “stuff.”
- So many exploration companies hit so hard in 2008, now only a precious few are loved. We prefer the unloved that have a shot. Big potential, big risk though. Bargain hunters hungry, but scared.
- Uranium explorers cold, in the dark, but soon may become radioactive. One new reactor per month globally over the next four years?
- Natural gas rocks! Following CFTC caused purge. Should continue till December. Royalty trusts need to retrace a little.
- Peter Schiff running for Senate in Connecticut, send money.
- Suddenly a flood of new financings in both majors and small companies.
- With the money Barrick just raised to pay off their bonehead hedges, Barrick could have bought all the 8700 tonnes of silver in SLV and had money left over.
- Can interest rates go any lower? No, not very much anyway. Bonds are imperiled.
- Some silver bullion products trading at discounts? Really? Is that a contrary signal? 90% silver U.S. coins the bargain of the bunch.
- One of the easiest things to do is to hedge an extended long position, or buy “insurance” for it. Why don’t more people take advantage of it at critical resistance?
- China says early frost hits their bean crop. Uh-oh.
- Yom Kippur is one week away. Sometimes a dicey time of year in the Middle East. Be very careful out there.
That’s it from Atlanta, this week. Until next time, good luck, good trading and as always, MIND YOUR STOPS.
The above contains opinion and commentary of the author. Each person should study the issues carefully and, as always, make their own informed decisions. Disclosure: The author and/or his family currently holds a net long position in SPDR Gold Shares, net long iShares Silver Trust, long San Juan Basin Royalty Trust (SJT), long Permian Basin Royalty Trust (PBT), long the following “Vulture Bargain Hunter Stocks” mentioned in this report or within the last three months: Timberline Resources (TLR), Paragon Minerals (PGR.V), Forum Uranium (FDC.V), Odyssey Resources (ODX.V), Radius Gold (RDU.V), Columbus Gold (CGT.V), Endeavour Financial (EDV.T), Terraco Gold (TEN.V), Hathor Uranium (HAT.V), Natcore (NXT.V) Esperanza Silver (EPZ.V), long DZZ as a gold hedge (but with an extremely tight stop) and currently holds various (approximately 20) other long and short positions in mining and exploration companies. The author receives no compensation from any company mentioned in this report. To contact Gene use LLCCMAN (at) AOL (dotcom).