Posts Categorized: Trader Dan Norcini

Posted by & filed under Trader Dan Norcini.

Dear CIGAs,

It was more of the same type of price action that we have been seeing in gold for some time now. The market is torn between continued deleveraging from speculative
players on account of redemption requests from clients moving to cash versus safe haven buying.

It has been interesting reading the comments about this market in the financial press of late. The majority of gold pundits for the most part seems to be reading the same talking points which as usual are utterly and completely wrong. To hear them say it, gold as a safe haven is finished, over, kaput, pushing up daisies, swimming with the fishes, surfing its last wave, worm food, ad infinitum, ad nauseaum.

What these mindless robots seem unable to grasp is that the Comex is NOT the gold market. It is a paper market which has been the recipient of large speculative buys by commodity index funds. These funds take large positions in an entire gamut of commodities based on the weightings of those particular commodities in the various commodity indices that they use as a benchmark. It some cases it might be the Goldman Sachs commodity index. In others it is the Reuters/Jefferies CRB index; it still others it is the Dow Jones Commodity Index. That means they buy gold, silver, crude oil, corn, wheat, nat gas, sugar… etc… in the same percentage terms as they are weighted in those indices. For example, if the weighting in one of these indices for gold happens to be 5%, then for every million dollars of client money invested, they are required to buy $50,000 worth of gold futures contracts at the Comex. When these funds get redemption requests from clients, who now want out of the commodity sector, they are forced to sell FUTURES across the board to generate the cash needed to send back to their clients. That is why, for the most part, the entire commodity complex is sinking whether it is corn or soybeans or wheat or platinum, etc. If $20 million of cash is required to meet client redemption requests, then $20 million of commodity futures must be sold REGARDLESS OF THE FUNDAMENTALS IN THAT PARTICULAR MARKET.  In other words, it is FORCED liquidation on account of redemption requests. That has NOTHING TO DO with the real physical gold market where demand remains at unprecedented levels, levels so high that it is producing serious shortages of bullion for would-be buyers. This is what is producing the increasing dichotomy between the Comex and the real gold market. I would go as far as saying that we are for all practical purposes seeing a BLACK MARKET in gold beginning to develop.

Having said all that, it should still be noted however that while every single commodity futures market is in the red today on account of this forced selling, GOLD IS STILL RELATIVELY STABLE! Hey, you dimwitted pundits who keep pooh-poohing the yellow metal’s safe haven status because it is not trading at $1000, take note. Even in spite of the forced liquidation, gold is hanging in there precisely because there are enough buyers to offset a great deal of this continued forced liquidation. And this is in the arena of the futures market.  In the real world,  gold is fetching $1000 an ounce out there in some instances. Premiums for one ounce gold bullion coins are running anywhere from $65 – $100 above the quoted spot price and certainly above the phony price quoted on the Comex. Last year at this time you could buy all the one ounce gold bullion coins you wanted for $20 – $30 over the spot price.

Meanwhile back in Fairy Tale land at the Comex, open interest registered a bit of an increase in yesterday’s session moving up nearly 2,500 contracts. I suspect that come this Friday, when we review the Commitments of Traders report, we are going to see increases in the fund SHORT category with a sharp drop in the fund long category alongside of short covering by the bullion banks who have been using the forced selling to cover their shorts in order to capture their paper profits allowing them to hit the metal on the next rally and do the same thing all over again.

To put things in perspective about this open interest decline – we are down to levels last seen in November 2006. Let’s state this in terms that perhaps convey what I have been trying to say for some time now. NEARLY ALL OF THE SPECULATIVE INTEREST THAT HAS BEEN DRIVING PAPER GOLD HIGHER FOR THE LAST TWO YEARS HAS NOW DISAPPEARED due to this forced liquidation. This is incredible when you think about it a bit. So much deleveraging in gold has already occurred, that nearly all the buyers from the last two years are gone from this market. And yet, in spite of this, gold is still sitting above the $800 level. Back in November 2006, front month gold closed at the price of $646.90. Today, we are nearly $200 higher than that and yet nearly all of the speculative long side interest going back to that date is gone. Someone is buying gold because they see value in it and that buying has been sufficient to hold the price relatively firm compared to nearly every other commodity out there. What can be said about gold cannot be said about any other single commodity out there. If you doubt this, pull up the continuous price charts of corn or soybeans or platinum or copper, etc., and just look at them. Look at the chart of crude oil. Look also at the gold/crude oil ratio which has shot up strongly in favor of gold. (By the way, this alone is the reason why many of the gold mining outfits with quality mines, good management and good balance sheets are going to show some strong profits and continue to be sold down to levels that are extremely undervalued). Gold is even outperforming even longer dated Treasuries right now.

To sum up, as the equity markets fall off the cliff thumbing their noses at the monetary authorities, expect further risk aversion to occur which means further forced liquidation in commodities. Watch the Euro/Yen cross and the Yen itself to get a sense of when the bulk of this will abate. The Yen as well as the Swiss Franc are benefiting from the unwinding of carry trades and will tend to be the stronger currencies out there ( along with the US Dollar) as long as the risk aversion play is in vogue.

Trader Dan

Posted by & filed under Trader Dan Norcini.

Dear CIGAs,

It was more of the same type of price action that we have been seeing in gold for some time now. The market is torn between continued deleveraging from speculative
players on account of redemption requests from clients moving to cash versus safe haven buying.

It has been interesting reading the comments about this market in the financial press of late. The majority of gold pundits for the most part seems to be reading the same talking points which as usual are utterly and completely wrong. To hear them say it, gold as a safe haven is finished, over, kaput, pushing up daisies, swimming with the fishes, surfing its last wave, worm food, ad infinitum, ad nauseaum.

What these mindless robots seem unable to grasp is that the Comex is NOT the gold market. It is a paper market which has been the recipient of large speculative buys by commodity index funds. These funds take large positions in an entire gamut of commodities based on the weightings of those particular commodities in the various commodity indices that they use as a benchmark. It some cases it might be the Goldman Sachs commodity index. In others it is the Reuters/Jefferies CRB index; it still others it is the Dow Jones Commodity Index. That means they buy gold, silver, crude oil, corn, wheat, nat gas, sugar… etc… in the same percentage terms as they are weighted in those indices. For example, if the weighting in one of these indices for gold happens to be 5%, then for every million dollars of client money invested, they are required to buy $50,000 worth of gold futures contracts at the Comex. When these funds get redemption requests from clients, who now want out of the commodity sector, they are forced to sell FUTURES across the board to generate the cash needed to send back to their clients. That is why, for the most part, the entire commodity complex is sinking whether it is corn or soybeans or wheat or platinum, etc. If $20 million of cash is required to meet client redemption requests, then $20 million of commodity futures must be sold REGARDLESS OF THE FUNDAMENTALS IN THAT PARTICULAR MARKET.  In other words, it is FORCED liquidation on account of redemption requests. That has NOTHING TO DO with the real physical gold market where demand remains at unprecedented levels, levels so high that it is producing serious shortages of bullion for would-be buyers. This is what is producing the increasing dichotomy between the Comex and the real gold market. I would go as far as saying that we are for all practical purposes seeing a BLACK MARKET in gold beginning to develop.

Having said all that, it should still be noted however that while every single commodity futures market is in the red today on account of this forced selling, GOLD IS STILL RELATIVELY STABLE! Hey, you dimwitted pundits who keep pooh-poohing the yellow metal’s safe haven status because it is not trading at $1000, take note. Even in spite of the forced liquidation, gold is hanging in there precisely because there are enough buyers to offset a great deal of this continued forced liquidation. And this is in the arena of the futures market.  In the real world,  gold is fetching $1000 an ounce out there in some instances. Premiums for one ounce gold bullion coins are running anywhere from $65 – $100 above the quoted spot price and certainly above the phony price quoted on the Comex. Last year at this time you could buy all the one ounce gold bullion coins you wanted for $20 – $30 over the spot price.

Meanwhile back in Fairy Tale land at the Comex, open interest registered a bit of an increase in yesterday’s session moving up nearly 2,500 contracts. I suspect that come this Friday, when we review the Commitments of Traders report, we are going to see increases in the fund SHORT category with a sharp drop in the fund long category alongside of short covering by the bullion banks who have been using the forced selling to cover their shorts in order to capture their paper profits allowing them to hit the metal on the next rally and do the same thing all over again.

To put things in perspective about this open interest decline – we are down to levels last seen in November 2006. Let’s state this in terms that perhaps convey what I have been trying to say for some time now. NEARLY ALL OF THE SPECULATIVE INTEREST THAT HAS BEEN DRIVING PAPER GOLD HIGHER FOR THE LAST TWO YEARS HAS NOW DISAPPEARED due to this forced liquidation. This is incredible when you think about it a bit. So much deleveraging in gold has already occurred, that nearly all the buyers from the last two years are gone from this market. And yet, in spite of this, gold is still sitting above the $800 level. Back in November 2006, front month gold closed at the price of $646.90. Today, we are nearly $200 higher than that and yet nearly all of the speculative long side interest going back to that date is gone. Someone is buying gold because they see value in it and that buying has been sufficient to hold the price relatively firm compared to nearly every other commodity out there. What can be said about gold cannot be said about any other single commodity out there. If you doubt this, pull up the continuous price charts of corn or soybeans or platinum or copper, etc., and just look at them. Look at the chart of crude oil. Look also at the gold/crude oil ratio which has shot up strongly in favor of gold. (By the way, this alone is the reason why many of the gold mining outfits with quality mines, good management and good balance sheets are going to show some strong profits and continue to be sold down to levels that are extremely undervalued). Gold is even outperforming even longer dated Treasuries right now.

To sum up, as the equity markets fall off the cliff thumbing their noses at the monetary authorities, expect further risk aversion to occur which means further forced liquidation in commodities. Watch the Euro/Yen cross and the Yen itself to get a sense of when the bulk of this will abate. The Yen as well as the Swiss Franc are benefiting from the unwinding of carry trades and will tend to be the stronger currencies out there ( along with the US Dollar) as long as the risk aversion play is in vogue.

Click chart to enlarge today’s 12 hour action in gold in PDF format as of 12:30 pm CDT with commentary from Trader Dan Norcini.

Posted by & filed under Trader Dan Norcini.

Dear CIGAs,

The whole world will end unless Congress passes this bill we are warned… this bill is about freeing up the credit markets we are told….Wall Street must be bailed out or else Main Street will fall we are told….

Yes indeed, we must make certain that employees that ride bicycles to work instead of driving those dirty cars can have their employers can pay for those expenses….

Unreal – this has become nothing but a pork barrel spending project loaded with goodies….

Trader Dan

Click here to view the full text of the bailout bill…

Email your State Senator and let them know your opinion on the Bailout Bill:

Click here for a complete contact list of all US Senators…

205 (Page 205 in the link above)
1 SEC. 211. TRANSPORTATION FRINGE BENEFIT TO BICYCLE
2 COMMUTERS.

3 (a) IN GENERAL.-Paragraph (1) of section 132(f)
4 is amended by adding at the end the following:
5 ‘‘(D) Any qualified bicycle commuting re
6imbursement.”.
7 (b) LIMITATION ON EXCLUSION.-Paragraph (2) of
8 section 132(f) is amended by striking ‘‘and” at the end
9 of subparagraph (A), by striking the period at the end
10 of subparagraph (B) and inserting ‘‘, and”, and by adding
11 at the end the following new subparagraph:
12 ‘‘(C) the applicable annual limitation in
13 the case of any qualified bicycle commuting re
14 imbursement.”.
15 (c) DEFINITIONS.-Paragraph (5) of section 132(f)
16 is amended by adding at the end the following:
17 ‘‘(F) DEFINITIONS RELATED TO BICYCLE
18 COMMUTING REIMBURSEMENT.-
19 ‘‘(i) QUALIFIED BICYCLE COMMUTING
20 REIMBURSEMENT.-The term ‘qualified bi
21 cycle commuting reimbursement’ means,
22 with respect to any calendar year, any em
23 ployer reimbursement during the 15-month
24 period beginning with the first day of such
25 calendar year for reasonable expenses in
26 curred by the employee during such cal

206
1 endar year for the purchase of a bicycle
2 and bicycle improvements, repair, and stor
3 age, if such bicycle is regularly used for
4 travel between the employee’s residence
5 and place of employment.
6 ‘‘(ii) APPLICABLE ANNUAL LIMITA
7 TION.-The term ‘applicable annual limita
8 tion’ means, with respect to any employee
9 for any calendar year, the product of $20
10 multiplied by the number of qualified bicy
11 cle commuting months during such year.
12 ‘‘(iii) QUALIFIED BICYCLE COM
13 MUTING MONTH.-The term ‘qualified bi
14 cycle commuting month’ means, with re
15 spect to any employee, any month during
16 which such employee-
17 ‘‘(I) regularly uses the bicycle for
18 a substantial portion of the travel be
19 tween the employee’s residence and
20 place of employment, and
21 ‘‘(II) does not receive any benefit
22 described in subparagraph (A), (B),
23 or (C) of paragraph (1).”.
24 (d) CONSTRUCTIVE RECEIPT OF BENEFIT.-Para
25 graph (4) of section 132(f) is amended by inserting

207
1 ‘‘(other than a qualified bicycle commuting reimburse
2ment)” after ‘‘qualified transportation fringe”.
3 (e) EFFECTIVE DATE.-The amendments made by
4 this section shall apply to taxable years beginning after
5 December 31, 2008.