Gold closed out the year here in the US on an impressive note recouping nearly all of its intraday losses as trading neared the 11:00 AM hour. From that point on, it moved steadily higher. It should be noted that volume was so low you could have swung the turret of an Abrams tank around the trading floor and not hit a soul. Granted, that is a bit of an exaggeration but much of the usual crowd was not even on the floor today and were probably not even looking at the screens.
With the Dollar stronger and crude oil tending to the downside, it was pretty much a given that selling pressure was going to show up – that plus the fact that a particular well known newsletter writer decided to buy gold yesterday – alas for the bulls, that is generally good for a sell off as it occurs with predictable regularity. Dip buyers, who were watching the price action near the 10 day moving average, saw it hold and then moved in driving prices up nearly $30.00 off that level! The intraday recovery shows that buyers are in control of the gold pit for now. It did not hurt matters any that crude oil began moving higher pushing well off its session lows.
Looking back over the past year gold performed remarkably well. With the exception of the bonds, it was one of the few if only markets that showed a gain. So much for the dire predictions of the gold bears including one warning about the feds knocking it all the way down to $400 based on some cockeyed entrails reading of Federal Reserve data. Such seem to forget or are unaware of gold’s role as a currency. When the de-leveraging trade and dollar repatriation that occurred as a result of that began to subside, the Dollar immediately ran out of steam and with that downward pressure on gold subsided. While gold can move independently of the US Dollar, it is still a given that the two are inseparably tied to one another in an inverse fashion.
By the way, on the continuous gold chart it closed out 2007 at $838.00 and ended 2008 at $883.60. Once again another up year for ol’ yeller. The mining shares did not fare as well – the HIU closed last year (2007) at 409.37. As I write this it is trading near the 302 level. The XAU closed 2007 at 173.32. It is near 124 right now.
On the delivery front – we began the delivery process for the thinly traded January contract. While not as impressive as how December started off, (it should not be expected to be) a respectable 1,138 deliveries were assigned. The Bank of Nova Scotia was the big seller with 1,067 while J P Morgan Futures was the big buyer taking 1,072.
Open interest nudged back above the 300,000 level yesterday which is a good sign of returning speculative interest. Keep in mind that unless enough of these paper buyers will actually stand for delivery and take the gold out of the warehouse, the bullion banks will continue to plague the Comex market.
Technically gold is consolidating its last leg up while it waits for a full contingent of traders to return on Monday of next week. Resistance near the $880 level gave way right before the pit session closed with the next level of resistance above that near $888-$890. The breach of $880 was no mean feat. Support surfaced at today’s low near $860. Below that is $850 and then $838 – $835. Downsloping trendline resistance on the monthly chart comes in near the $910 level which gold will have to best in order to convince sideline sitters that a trending move to the upside is going to occur. If this month’s performance is any clue to gold’s price action as the calendar changes to 2009, it should start off on a solid footing with the technicals favoring the bulls especially with it being able to muster a close above $880.
I think it safe to say that those of us who have been trading 2008 will not forget this one. Memorable is an understatement. I do not ever recall seeing price swings and volatility of such extreme magnitude in my entire trading career. More than a few hedge funds are now history and they will not be back to plague the markets as they have done for so long. Some of the players involved in that industry seem to more closely resemble the famous Hydra of Greek mythology. Cut off one of its heads and two of them grow from the wound so it would not be unexpected to see them surface running another fund under a different name.
Bonds actually got whacked pretty good today. It is hard to say whether it is just longs booking gains for 2008 or a definitive top has formed. It is generally not a safe bet to make too many assumptions based on price action in these thinly-traded holiday markets. I watched the pork belly pit hit limit up today on a measly 10 lot buy order so take that as a bit of a caveat when looking at price action today.
I hope all our readers have a Happy, Healthy and Prosperous New Year in 2009.