Paper gold at the phony Comex continues its disappearing act as more and more longs throw in the towel and close things out for the year. I should note here that volume in the Comex is absolutely horrendous dropping under 100,000 per day over the last few days. Toss in a collapse in open interest and it is pretty easy to see that what we are witnessing is a destruction of liquidity which allows any relatively larger-sized order to move price pretty much wherever the “orderee” wishes things to go. There is simply no one to take the other side of the trade with the result that large air pockets are forming in this market into which prices may drop or, in the event that prices rise, may shoot sharply higher. The same thing is happening in every single commodity complex out there.
There are some fresh short sellers but these are minor compared to the selling originating from speculative longs bailing out in the face of disappointing price action. The fed’s crony pals cap the price on any rise and then stand back and cover those shorts as all the lemmings dutifully abandon ship. Presto – an ATM for the bullion banks courtesy of the weak-handed longs who still try to play the paper game against these insiders.
Technically, you could not get a more classic definition of a washout which is exhausting itself as both shrinking volume and collapsing open interest signal that this is NOT the beginning of a bear trend but rather a technical washout that is winding down. I especially like the fact that volume is so anemic – it indicates no particular enthusiasm for the downside but more of a general disgust type of trade. Every single technical analysis book that I have ever read over the years will tell the shorts to be very careful selling a market in which volume and open interest are falling off – you simply never know when the last long who is going to run has run – when they do, that is it and the shorts then lose since there is simply no one left to sell the market to. For now they are sitting pretty but I suspect many buyers are waiting in the wings and should this market move down to near the $730- $720 level in February, these will emerge and make their presence felt quite strongly. The risk/reward no longer favors the shorts at these levels. What do they have, maybe $60 on the downside at the absolute best?
Still, all things considered, even paper gold is holding very well compared to the carnage in the rest of the commodity markets. For instance, crude topped out near $150/ barrel. Today is dropped below $41. That is nearly a 73% price collapse. December corn hit $8.00 bushel this past summer. Today it broke below $3.00 – the first time in two years it has been below the $3.00 level. That is a price drop of 62%. Platinum peaked at over $2200/ounce earlier this year. Today it was trading at $790 – a drop of a “mere” 64%. Copper is 67% off its peak. Silver is down 56% off its best levels seen this year. Yet gold is only down 27% off its peak price. Even with all the paper selling at the Comex, gold has withstood the orgy of redemption related selling pretty doggone well. And we know that demand for the real deal, the actual yellow metal is phenomenal, paper games at the Comex notwithstanding.
Support near $770 gave way in New York this morning (gee- what a surprise) setting up a move down to test $740 and then that level that I mentioned above, $730-$720. Resistance is now $770 followed by $790 and then $800. Unfortunately the 10 day moving average in gold has turned down so the short term posture of the market is not particularly friendly. The longer term 40, 50 and 100 day moving averages are all still trending higher however. The late session comeback from off the worst levels of the day is a bit friendly although it is probably pre-weekend short covering by profitable shorts.
On the delivery front – another 274 were taken yesterday bringing this month’s total to a very respectable 12,164 or 1.2 million ounces. Comex is still reporting registered totals at 2.9 million so about 41% of that gold has been taken. The question remains – are these buyers willing to take it OUT of the warehouses and remove it completely? There still remains time for even more deliveries to be taken. Interestingly enough for the first time in some while, Bank of Nova Scotia was a net seller. They issued 263 against stopping of 51. The biggest stopper was once again HSBC. Some of you know that HSBC is one of the authorized warehouses for Comex so whether they are taking this gold in to meet outgoing deliveries is still unclear at this point. The trading arm is in a sense separate from the warehouse folks so we will not know unless we can see the actual warehouse stocks report showing the gold moving out of HSBC’s warehouses at some point.
The mining shares continue to struggle. At least they have managed to bounce a bit off the session lows for now – if they could manage to stay above 205 into the close it would be a psychological victory.. After managing to trade above the 50 day moving average, a significant bullish technical feat, both the HUI and the XAU have broken down below every single major moving average in the last week. The longer term moving averages are still moving lower in both indices but the 10 and 20 day are trending upwards which was a friendly signal. Today’s break below both of those shorter term moving averages means that the bulls choked and surrendered their advantage to the shorts. The longs must stand their ground and do it quickly. All I can say is to repeat that so much hedge fund money is leaving the markets that nothing is safe until those idiots are finally run out of business. Good riddance to the sorry lot of them.
It looks as if OPEC is content to allow crude oil prices to decline below the $40 level – a level which I thought they would try to defend. So far, not a peep out of them which is quite remarkable. Given the horrendous payrolls number if they do not at least attempt to cut back production so as to mop up some of the extra supply on the market, $40 will come and go and they will then be debating about whether or not to try to keep the price above $30. By the way, you might as well kiss the noisy clamor for alternative energy markets such as ethanol and other “green” technologies bye-bye for a while. As gasoline prices drop to close to $1.00 gallon, one thing you will not hear is the voice of politicians screaming for us to burn our food supplies in the gas tank.
The bond bubble continues with yet another high in the long bond. The frontrunning by firms ahead of the Fed’s intentions to buy Treasuries to keep interest rates low, along with the usual “insane haven” play, has resulted in the bubble being blown even larger. I am sure that the clerks in the pit and the guys manning the digital decks are ready to quit this business and permanently retire after this week.
The yields on Treasuries of shorter dated maturities are comical. I suggested last week that investors buy brass, gunpowder and reloading equipment. This week add to that some Wii’s and the game cartridges that go with them. You can sell those on Ebay and make more money than the stinking ridiculous bottomless abyss of a Treasury will ever pay you. Better yet, let’s hire some lobbyists to represent us and head to Washington and demand a bailout of $200,000 per family. After all, if we the good ol’ consumer, won’t buy, what’s the point of sending all this money to the banks, the auto industry and only heaven knows who else they plan on donating to. Just imagine all the pent up demand that would be unleashed. Why we are at all, just scrap the entire tax system and declare a year tax holiday. That would surely get things going. After all the government doesn’t need any damn revenue anyway. They can just keep printing more IOU’s and called them a “treasury”.
Click chart to enlarge today’s action in Gold as of 12:30pm CDT with commentary from Trader Dan Norcini