9 December 2008

Action In Gold From Trader Dan

Dear CIGAs,

The selling pressure at the Comex gold let up for a bit this morning as US equity markets were all going ga-ga over the proposed infrastructure expenditure program being discussed by the incoming administration next year. After all, what’s another $trillion here or there when you are already talking about bailing out anything that once moved and no longer does. Now we have the states lining up to get their share of the public dole from the feds. I am waiting for the catfish farms… seems like no one wants to eat fried catfish these days. And what about all those US Emu growers and the guys selling Alpacas?

Personally I like the Aussie model where they just print money and send it directly to the citizenry. I sent them a request by Fed-Ex this morning! Think about all those plasma TV’s and Ipods you can buy with that kind of money. Heck, with gasoline prices dropping closer to $1.00 gallon again, maybe some folks will spring for a Yamaha 4 wheeler. OPEC would love that. I am thinking that we should get some bumper stickers printed up – you know the ones that say; “I did my civic duty and voted – how about you?”… ours could read, “I did my civic duty and spent what I don’t have, how about you?”

By the way, OPEC might be gambling with the markets and deliberately trying to squash all the alternative energy source planning with cheap crude. That is about the only thing that I can come up with to explain the kind of eerie silence coming from them as crude drops lower and lower. Maybe they figure that cheap gasoline prices will dissuade politicians from subsidizing bio-fuels, wind and nuclear power startups which will compete with their product in the long run.

Once again we have the same old same ol’ as far as the gold market goes. The equities go up, the dollar goes down. Gold goes up and so does the commodity world. Tomorrow, who knows? One thing is certain – the hedge funds are out of control and the continued liquidation is causing horrific conditions as far as liquidity issues go. There are simply too many air pockets both over and the under the markets. It takes hardly anything in the way of an order size to move them.

Sure enough – as we have come to see over and over again – the usual price capping goons showed up at the Comex to knock it down off its best levels of the session. As I write this part of the commentary, gold is down $14 off its session high. The only answer to this is to continue taking delivery of the physical gold and getting it out of the Comex warehouses. We had a decent day of deliveries assigned this morning, along that line, with another 255 occurring. That brings the total deliveries for the month of December to 12,419 or 1.24 million ounces of gold. Warehouse totals remain relatively unchanged for the registered category at around 2.9 million ounces so we are close to 43%. The biggest stopper today, as was the case last Friday is HSBC. Bank of Nova Scotia was a net seller of 105 contracts. I am waiting to see a drop off in that registered category to see if the gold for these deliveries is actually leaving the warehouses.

Open interest continues to disappear - more deleveraging and index fund redemptions. I am hopeful that the worst will be over when the calendar changes to 2009. An open interest collapse of nearly 56% is simply humungous in any market.

Technically, February gold hit its session high right on the 50 day moving average. It will take a close above former resistance near $790 to spark more short covering and perhaps bring in some fresh buying. First support is at last Friday’s session low near $740.

The HUI ran up and into resistance at the 10 day moving average near the 225 level. That level closely corresponds to horizontal resistance near the 224-226 which are the swing highs make back in early November. A close above this level would be constructive for the mining shares as it would put them back above the 50 day moving average. Next resistance comes in at 250. Support is last Friday’s low near the 191 level. By the way, with today’s up move, the HUI has the 10 day and the 20 day both back above the 40 and 50 day moving averages. That is definitely NOT BEARISH. The 40 day looks like it might just be giving a hint of finally turning higher after moving lower since the battle of Thermopylae.

Bonds are having quite a schizophrenic-like trading day. I was quite stunned to see them trading higher right alongside of the equity markets earlier this morning. Overnight they were down as could be expected with money moving back into equities. No where but New York! Trying to explain the bonds is pointless anymore.

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