Posted at 9:50 PM (CST) by & filed under In The News.

Jim Sinclair’s Commentary

There is only one kind of HONEST MONEY and that is GOLD.

Gold has no liability attached to it.

Gold has no hidden agenda.

Gold is universally accepted.

Gold is a time tested and proven storehouse of value.

Gold by being a proven storehouse of value is a reliable measure of value.

Paper currencies have never survived the test of time.

Paper currencies have always had a hidden agenda inherent in central banks.

Paper currency has a poor record as always acceptable, as a storehouse of value, and as a measure of value.

Good Money always forces out Bad. This is "Gresham’s Law."

So it has always been, so it will always be.

Why Can’t We Have Honest Money?
By Greg Hunter 12/07/08

Back in the late 60’s and early 70’s prime interest rates averaged 6 or 7 percent. Back before 1971 it was possible to save money at a reasonable guaranteed rate of return and easily keep ahead of what little inflation there was in the U.S. economy. That was the beauty of honest money that held its value and paid a real rate of return. In 1971 all that changed when President Richard Nixon took the country off the gold standard and went to a total fiat currency. A few years later the Employee Retirement Income Security Act (ERISA) was sign into law and that made possible the 401K plan. It allowed people to save in a brand new way largely through the stock market. The stock market is an invaluable tool of capitalism. It is how many companies raise capital and create jobs and prosperity. But what most people do not realize is a 401K is not a savings plan but an investing plan. When you save money, you put it away and get a guaranteed return. In an investment plan the money is put away but not guaranteed. Most people I know do not really understand their 401K plan. Folks are repeatedly told “invest for the long term.” They are also told there is really no other way to save for the future because if you simply save your money inflation will eat up your returns. By and large, working people are pushed into 401K’s. In the right business cycle with the right demographics (as in lots of baby boomers investing in stocks at the same time such as the 80’s and 90’s when business and inflation was stable) the 401K is a not a bad deal especially when you consider that companies often match or contribute funds to make the investment plan advantageous to participants. But in the wrong part of the business cycle (aging baby boomer population and big government bail outs of every big bank) the 401K can provide some gut wrenching lessons about “investing.” People are painfully finding out with every statement that these plans have not been such a good “long term” investment deal. The S&P 500 is back at levels not seen since 1998. And that doesn’t really account for companies whose share prices have been wiped out or bankrupted. A few examples spring to mind such as AIG, WaMu, Wachovia, Bear Stearns, GM, Ford, Fannie, Freddie, Lehman, Enron and World Com. Also, factor in a nearly 30 percent drop in the U.S. Dollar Index and how are people in 401K’s making money for retirement? The short answer: They are not!!! If you would have simply invested in money markets (and taken the company match) back in 1998 with your 401K you would have been hit with inflation but at least you would have a positive nominal return. Most people did take that route. Now, to help fund the multi trillion dollar bailout of Wall Street, the Fed has announced a new policy of “Quantitative Easing.” That means “printing money” to us simple folk. So getting any kind of return on cash will be impossible to do because the government will be printing it faster that you or anyone else can save it. Nobel Peace Prize winner Milton Friedman said it best, “inflation is always and everywhere a monetary phenomenon.” Printing lots of fiat currency is going to produce an ugly phenomenon for most people. I see a continuing freak show of bailout and default. If you are an investor then the stock market and all its risks and rewards are for you but if you are a saver then maybe you should have other options. Wouldn’t it be easier for most people to save if we just had honest money? Someday honest money will be necessary for the county and our citizens to survive.

Jim Sinclair’s Commentary

There is a TV advertisement that says "Don’t wait to buy gold, buy gold and wait."

Malaysia wants OIC countries to reconsider gold Dinar for trade
Bernama
KUALA LUMPUR, SAT: Malaysia wants Organisation of the Islamic Conference (OIC) member countries to reconsider the use of the gold dinar for trade, especially with uncertainties in the international currency market.

In stating this today, Second Finance Minister Tan Sri Nor Mohamed Yakcop said Malaysia would attempt to hold discussions with the OIC countries so that the issue of using the gold dinar could be studied indepth.

“At this time when the currency market is uncertain and challenging, maybe it will be good for the OIC countries to look again at the role of the gold dinnar in increasing trade among members,” he told reporters here today.

Earlier he officiated the opening of Wisma Yayasan Ekonomi Sejagat here.
Former prime minister Tun Dr Mahathir Mohamad proposed the use of the gold dinar in global trade in 2002.

Nor Mohamed said with the challenging economic conditions and weaknesses in the financial system, the use of the gold dinar could be reconsidered.

More…

Posted at 10:38 PM (CST) by & filed under Jim's Mailbox.

Dear CIGAs,

Gold will wake up, and exceed $1650. Alf is right! In fact that is CIGA Alf standing on top of Gold.

Awake

Jim,

I wondered if you’d seen the article linked below, "The Manipulation of Gold Prices" by James Conrad that was featured on the seekingalpha.com website on 12/4/08.

Click here to view article…

It’s one of the best pieces I’ve ever seen written by someone outside of JSMineset and brings together the subjects of Comex gold price manipulation, the Fed’s efforts to control the value of the U.S. dollar, quantitative easing and the Fed’s eventual need (and design) to devalue the dollar vs. gold. The article is too complex and wide-ranging to be quickly summarized, but some of the more interesting passages are as follows:

"The Federal Reserve must now make a tough choice. In the past, Federal Reserve Chairmen may have felt it necessary to support regular attacks on gold prices to dissuade conservative people from putting a majority of their capital into gold. Now, however, the world economy needs much higher gold prices in order to devalue paper money, not against other currencies in a "beggar thy neighbor" policy, but against itself. This can jump start the system. If the Fed continued to support gold price suppression, that would collapse the stock market far deeper than they can afford, most insurers will end up bankrupt, and there will be no hope of avoiding Great Depression II."

"Anyone who reads the written works of our Fed Chairman knows that Bernanke’s long term plan involves devaluing the dollar against gold. This is the exact opposite of most prior Fed Chairmen. He has overtly stated his intentions toward gold, many times, in various articles, speeches and treatises written before he became Fed Chairman. He often extols the virtues of former President Franklin Roosevelt’s gold revaluation/dollar devaluation, back in 1934, and credits it with saving the nation from the Great Depression."

Interestingly, the author suggests that some of the recent taking physical delivery of gold at the Comex may be attributable to "smart players at big firms" buying gold at the Comex to re-sell into the spot market for a profit in a process he calls, "backwardization." In support of this theory he makes an assertion I have only seen you make before, that:

"In spite of the ostensible existence of a so-called "London fix," 96% of all OTC transactions are secret and unreported. The transactions happen solely between two parties, and are done opaquely, in complete darkness." The current London fix may well be just as fake as the bank interest rate reports that comprised LIBOR proved to be, just a few months ago."

His predictions about the value of gold in the near future are very encouraging and may provide some needed solace to members of our community.

"The price of our pretty yellow metal is about to explode, and it is probably going to soar, eventually, to levels that not even most gold bugs imagine. COMEX gold shorts will be playing the price a bit longer, in an attempt to shake out some remaining independent leveraged longs. Once that is finished, however, and it will be finished soon, the price will start to rise very quickly."

Best regards,
CIGA Richard B.

Dear Richard,

Good work, but I think I have read a lot of this somewhere before. Maybe it was here!

Regards,
Jim

Dear Jim,

It seems many are dependent on credit cards to survive. 2 trillion is a lot of credit to disappear!

Credit-card industry may cut $2 trillion lines: analyst
Mon Dec 1, 2008 4:06pm EST

(Reuters) – The U.S. credit-card industry may pull back well over $2 trillion of lines over the next 18 months due to risk aversion and regulatory changes, leading to sharp declines in consumer spending, prominent banking analyst Meredith Whitney said.

The credit card is the second key source of consumer liquidity, the first being jobs, the Oppenheimer & Co analyst noted.

"In other words, we expect available consumer liquidity in the form of credit-card lines to decline by 45 percent."

More…

 

I can hardly believe people would pay for a dinner at McDonalds with a card!

Why Credit Cards Matter So Much

Yesterday put the nail in the coffin of a move from recession (small “r”) to Depression (capital “D).  Two pieces of news that were absolutely essential came out – and no, neither one was that we’ve been in a recession since last year, or that last week’s stock market rally was yet another sucker rally.  The first was the observation that McDonalds is now the second-largest merchant vendor on credit cards – that is,  people are now buying their Big Macs on plastic – in part because they don’t have the cash.  Credit card balances have risen enormously in the last few weeks, as people attempt to keep going through the holidays:

Commercial bank exposure via the total amount of credit card loans outstanding has risen more in the last 10 weeks than it did in the previous 10 months cobined. Moreover, the growth in the last 10 weeks — $32.3 billion, or roughly $600 million per shopping day — represents nominal growth of 9.3%, or 48.3% annualized over the last 10 weeks. According to American Express, delinquencies on credit payments rose to 4.1% of all credit outstanding in the third quarter, up from 2.5% in 2007, with Bank of America’s rate rising even more steeply – to 5.9% for the period. Moreover, the pool of loans deemed uncollectable rose to a high 6.7% in the third quarter, soaring from 3.6% last September. What consumer spending there is has been fueled in part by credit card: The second-largest merchant-vendor for credit card use is now McDonalds. This suggests that many consumers are in serious distress if they need to get their $4 Big Mac and fries with a credit card.

More…

 

Best,
CIGA Big Tatanka

Posted at 10:09 PM (CST) by & filed under In The News.

Jim Sinclair’s Commentary

Here is our Friday surprise – a busted bank.

Georgia bank closed in 23rd failure of year
By John Letzing, MarketWatch
Last update: 5:36 p.m. EST Dec. 5, 2008

SAN FRANCISCO (MarketWatch) — First Georgia Community Bank was closed by regulators Friday, marking the 23rd bank failure of the year amid the ongoing financial crisis.

The closure also represents the fourth so far this year in the Atlanta area.

The four branches of Jackson, Ga.-based First Georgia will re-open Saturday as United Bank, which has assumed First Georgia’s deposits, the Federal Deposit Insurance Corp. said in a statement.

United Bank agreed to assume the deposits for a 0.811 premium, the FDIC said, and it will purchase roughly $60.6 million of First Georgia’s assets.

As of Nov. 7, First Georgia had $237.5 million in assets and $197.4 million in deposits, the FDIC said.

More…

Jim Sinclair’s Commentary

Every major employer everywhere will be bailed out as the Obama Fiscal Stimulation Package provides the fuse to light Quantitative Easing.

Leaders in Congress Agree on Auto Bailout Plan
The New York Times
Friday, December 5, 2008 — 8:33 PM ET

Details were not immediately available but senior aides said that the bailout would include billions in short-term loans.

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Jim Sinclair’s Commentary

Note the recreation facilities for our paper tigers, the Hedge Fund Managers.

They should have arrested the Hedge Fund Managers.

Manhattan madam gets probation
The Associated Press
11:30 AM EST, December 5, 2008

A Manhattan madam who ran three escort services that employed $900-an-hour hookers has been sentenced after pleading guilty to promoting prostitution.

Kristin Davis was sentenced Thursday to the three months in jail she has already served, plus five years’ probation.

Davis was arrested in March at her apartment. Police said her client book contained the names of lawyers, actors, sports stars and hedge-fund managers.

More…

Jim Sinclair’s Commentary

This is an excellent development for the entire African Continent.

Removal of Mugabe would establish for the first time that a league of nations taking action to remove a cancer from the continent can be successful. This action would transmit a strong new message to those living in the past history of Africa.

Leaders like President Jakaya Kikwete are on the ascendancy.

Africa is on the move.

Go Mugabe or face arrest – Tutu

Zimbabwe’s President Robert Mugabe must resign or be sent to The Hague for the "gross violations" he has committed, Archbishop Desmond Tutu has said.

The Nobel Prize winner also told Dutch television that Mr Mugabe should be removed by force if he refuses to go.

On Thursday, Kenya’s Prime Minister Raila Odinga said African governments should oust Zimbabwe’s leader.

Archbishop Tutu said Mr Mugabe had ruined "a wonderful country", turning a "bread-basket" into a "basket case".

US Secretary of State Condoleezza Rice has also repeated US calls for Mr Mugabe to go, saying a "sham election" has been followed by a "sham process of power-sharing talks".

Zimbabwe has declared a national emergency over the cholera outbreak, which has killed at least 565 people – the most deadly in the country’s history.

More…

Jim Sinclair’s Commentary

If you want to see the real numbers consider a subscription to www.shadowstats.com

November Jobs Plummet 732,000 Net of Revisions, Down 873,000 Net of Concurrent Seasonal Factor Bias

– Official Recession Start Is Late, As Usual Required Reserves Surge Anew

Jim Sinclair’s Commentary

As Trader Dan said, good riddance to this rotten garbage.

D.E. Shaw, Farallon Restrict Withdrawals as Fund Freeze Deepens
By Saijel Kishan and Katherine Burton

Dec. 4 (Bloomberg) — D.E. Shaw & Co. LP, the investment firm run by David Shaw, and Farallon Capital Management LLC limited withdrawals by clients, joining more than 80 hedge-fund managers to impose restrictions in the past two months.

D.E. Shaw, which oversees $36 billion, capped redemptions from its Composite and Oculus funds, said two people familiar with the New York-based company. Farallon, a $30 billion firm based in San Francisco, did the same with its biggest fund after investors asked to get back more than 25 percent of their money.

The firms are two of the biggest to block withdrawals, known as putting up gates, so they aren’t forced to liquidate investments at distressed prices to raise cash. New York-based Fortress Investment Group LLC said yesterday it froze an $8 billion fund after getting redemption requests for 40 percent of its assets. Tudor Investment Corp., the Greenwich, Connecticut, firm run by Paul Tudor Jones, locked the $10 billion BVI Global fund last week ahead of plans to split the fund into two.

“There’s no longer the stigma associated with putting up gates or suspending redemptions as it was before this crisis,” said Jaeson Dubrovay, head of the $19 billion hedge-fund group at consulting firm NEPC LLC in Cambridge, Massachusetts. “It’s actually being encouraged by some large institutions as a way to protect longer-term investors from those who panic and redeem.”

Darcy Bradbury, a spokeswoman for D.E. Shaw, and Steve Bruce, a Farallon spokesman, declined to comment.

Industry assets peaked at $1.9 trillion in June, data compiled by Chicago-based Hedge Fund Research Inc. show. Investment losses and withdrawals may shrink that amount by 45 percent by the end of this month, according to estimates by analysts at Morgan Stanley.

More…

 

Jim Sinclair’s Commentary

What goes around comes around.

Fortress suspends redemptions as investors seek to pull $3.5 billion
Miles Costello
December 4, 2008

Fortress, the New York-listed hedge fund, became the latest victim of the market crunch last night as it suspended redemptions on four of its flagship Drawbridge funds after investors moved to pull $3.5 billion (£2.4 billion) – almost half the funds’ assets.

Shares in Fortress, one of the few listed hedge funds, lost more than 25 per cent as it said that redemptions meant the assets managed by the four funds would fall to $3.65 billion by January.

Wes Edens, Fortress’s co-founder and chief executive, has already told shareholders that investors were preparing to redeem capital as they seek safer-haven assets to escape the hedge fund rout. Despite this, yesterday’s alert sent shares as low as $1.71 in early trading before they closed at $1.87.

At the end of September, Fortress was one of the world’s biggest hedge fund managers, with assets under management of $34.3 billion. Its latest decision underscores how wide-reaching the hit on the industry has become. Fortress said that its move was temporary but gave no date for unfreezing the funds.

More…

Jim Sinclair’s Commentary

The deluge of printed money and massive fiscal stimulation in the trillions by the incoming US Administration is unavoidable.

Record number of Americans using food stamps: report
Wed Dec 3, 2008 6:22pm EST
By Roberta Rampton

WASHINGTON (Reuters) – Food stamps, the main U.S. antihunger program which helps the needy buy food, set a record in September as more than 31.5 million Americans used the program — up 17 percent from a year ago, according to government data.

The number of people using food stamps in September surpassed the previous peak of 29.85 million seen in November 2005 when victims of hurricanes Katrina, Rita and Wilma received emergency benefits, said Jean Daniel of the USDA’s Food and Nutrition Service.

September’s tally — the latest month available — was also boosted by hurricane and flood aid, Daniel said on Wednesday.

But anti-hunger groups said the economic downturn is the main reason behind the higher figures.

"It’s a disturbing trend," said Ellen Vollinger, legal director with the Food Research and Action Center. She said she expects more people will turn to food stamps as unemployment figures rise and the economy remains weak.

More…

Jim Sinclair’s Commentary

We live in a dangerous world with major social and economic consequences.

Report: Israel Preparing to Strike Iran Without U.S. Consent
Thursday, December 04, 2008

Israel is drawing up plans to attack Iran’s nuclear facilities and is prepared to launch a strike without backing from the U.S., an Israeli newspaper reported Thursday.

Officials in the Israeli Defense Ministry told The Jerusalem Postthat while they prefer to act in consultation with the U.S., they are preparing plans that would allow them to act alone.

"It is always better to coordinate," a senior Defense Ministry official told the newspaper. "But we are also preparing options that do not include coordination."

It would be difficult, but not impossible, to launch a strike againstIran without permission from the U.S., as the American Air Force controls the Iraqi airspace Israel’s jets would have to enter on a bombing mission.

"There are a wide range of risks one takes when embarking on such an operation," a senior Israeli official told the Post.

More…

Posted at 9:52 PM (CST) by & filed under Trader Dan Norcini.

Dear Friends,

Many of you have been sending me links to a recent essay from a man whom I greatly respect and consider a friend, Professor Antal Fekete. His piece was dealing with the gold basis. In it he mentioned that backwardation had occurred for a 48 hour period in which spot gold was trading at a premium to the Comex gold futures market, something which we refer to as backwardation.

I want to offer a few comments on his article as a way to answer the many emails I am receiving on this. It will allow me to post one reply instead of vainly attempting to answer so many individual emails that are rapidly threatening to overwhelm me.

First of all, I prefer to use the term backwardation to refer not so much to a negative basis as Antal defines it, but rather to the structure of the particular futures market that is concerned. I do agree with Antal’s use of the terms, “negative and positive basis”. This is really not an attempt to split hairs for me but simply a use of the terms in such a manner that I have learned to use them as a trader.

The normal structure of the majority of futures markets, a few are excepted, is one in which the nearer contracts trade at a discount to the distant month contracts. The reason for the higher price in the distant months is that those prices include the cost of storing the commodity or warehousing it, plus the insurance needed to cover the stored commodity in the event of theft, fire, etc and interest costs. Under normal conditions, the price of those distant commodities converges with the cash price as the time for delivery draws near. That makes sense since if you are no longer storing the stuff, you no longer need to pay for the warehousing nor do you need to insure it, etc.

In backwardation, the front or “nearer” contracts trade at a premium to the distant month contracts. Markets that go into backwardation are markets that are marked by exceptionally strong demand for that particular commodity or exceptionally low supply at current prices. What the market is attempting to do is as Antal states in his piece – that is, to draw out sufficient supply from potential sellers to meet the current levels of demand. If I cannot get you to sell me your scarce apples at $0.25 each, I raise my bid to $0.30. I might be able to make you a bit more willing. If that still did not do the trick, I would have to raise my bid even higher to perhaps $0.35 each in order to entice you to sell that same apple. If you look at the board for “Apple Futures” and see that apples for delivery in June of next year are going for $0.30 but you can sell them now for $0.35, chances are that you will sell those apples to me instead of waiting 6 months, during which anything might happen in the world of apples!

An example of a market that went into backwardation occurred back in the Minneapolis wheat market not all that long ago in which traders bid the price of the front month contract to a never-before-seen price of nearly $25 bushel for wheat! To give you an idea how extreme that was, wheat generally sells for anywhere from $3.50 – $5.50 or so. The market was telling sellers that it wanted hard spring wheat at any price and was willing to pay that price as long as the wheat was delivered RIGHT NOW.

Now as far as backwardation as I define it goes (a structure in the futures market in which the front month gold contract trades at a premium to the distant months), gold is not there yet.

I am linking below a few spread charts that compare the December gold contract to both the April 09 and the June 09 contracts to show you that December is still trading at a discount to both April and June with the notable point that its spread has indeed narrowed. While technically this is not backwardation as I understand the concept, it is a narrowing or a move in that direction and that is something definitely worth paying attention to.

Now let’s go to the term “basis”. That is the difference between the futures market price of a commodity and the spot market or cash price of that same commodity. Antal mentions that gold has exhibited a negative basis, one in which the futures market price is lower than the cash or spot market price. That is, as he points out, very unusual as it would seem to indicate a tightness in the physical market brought about by would-be sellers not willing to part with their gold. Again, Antal is absolutely correct – if spot gold is trading at $750 and the futures market is trading at $745, that is a $5.00 per ounce risk free profit just sitting there waiting for a type of arbitrage. One could immediately sell his physical gold at the $750 price and immediately buy it at $745 in the futures market with the intent of taking delivery to meet his contractual obligations and pocket $5.00 ounce for however many ounces one wished. Buy 5 million ounces of gold at $745 and sell that same amount of gold for $750 and you have gotten yourself a cool $25 million profit less the delivery expenses, etc. Not bad. That is why such a thing does not occur very often nor does it last for long. Too many would jump on the chance for a no-risk trade of such nature. Why then are they not doing so? Antal has answered that question – they are not willing to part with their gold for paper profits! That is what makes this development so noteworthy.

The key is whether or not this sort of thing continues for long so we will definitely have to monitor it.

One thing I wish to add however – trying to construct a gold basis chart is a bit difficult to do. One of the reasons is because the basis, which as Antal correctly defines as the difference between the front month futures contract and the cash or spot price, must be defined at the exact same moment in time due to the wicked volatility of the futures market. The gold futures market generally is moving much faster than the spot price of gold. To get an accurate reading of the gold basis then is very difficult at times due to the lag. Some of you might have noticed this when you have been recently making purchases of gold and are getting a spot price off of a web site such as Kitco and looking at the futures market price. You can see the difference. Sometimes, by the time you get to making that phone call to place your order thinking you have gotten a deal, you are informed that the spot market price of gold has “caught up” to where it was trading on the futures.

In the grain markets we can generally use the price being quoted at one of the elevators and compare that to the futures market price to determine the basis. Same goes for the livestock, etc. In gold however, we have to use the spot market price at any given moment so for a basis chart to be accurate, in my opinion, it must give the spot market price of gold and the futures market price of gold at the exact same hour of the day. For example, one could take the London PM fix done at 9:00 CST, and take the hourly price of gold on the Comex front month contract and compare the two prices. That would give you an accurate basis chart.

If anyone out there actually has some basis charts for gold, I would be interested in knowing how they were constructed. What time did they use to make the comparison?

I can give you a brief basis chart using the last week and the December futures contract at 9:00 AM CST and comparing that to the London PM Fix so that you can see the basis. It is indeed negative in some instances as Antal has mentioned.

In closing let me just state how grateful I am for Antal’s excellent essay and for his innumerable talents which he brings to bear for the benefit of those who love honest money! I was not fortunate enough to have been able to sit in on his classroom series but I have no doubt whatsoever that those that did came away with a wealth of knowledge.

Trader Dan

Click here to view today’s Gold Basis and Spread charts with commentary from Trader Dan Norcini

Posted at 3:37 PM (CST) by & filed under General Editorial.

Barrick Denies Report It Will Quit Tanzania Amid High Costs
By Stewart Bailey

Dec. 5 (Bloomberg) — Barrick Gold Corp., the world’s biggest gold producer, denied a news report that it is considering withdrawing from Tanzania because of high operating costs.

The company has invested $1.5 billion in the African country, is in the final phases of building its Buzwagi mine and “has no intention of pulling out of Tanzania,” Vince Borg, a Barrick spokesman, said today in a telephone interview from Toronto, where the company is based.

Earlier today, Dar es Salaam-based IPP Media cited Gareth Taylor, Barrick’s vice president for Africa, as saying that poor infrastructure in Tanzania made operations in the country unprofitable and could force the company to cease doing business there.

“Barrick has been and will remain committed to Tanzania,” Borg said. The company will work with the government to ensure the country’s legislation remains “competitive with other jurisdictions so that Tanzanians can continue to benefit from mining.”

Barrick fell C$2.51, or 7.6 percent, to C$30.59 as of 10:07 a.m. in Toronto Stock Exchange trading. The shares dropped 21 percent this year through yesterday.

More…

Posted at 3:14 PM (CST) by & filed under Trader Dan Norcini.

Dear CIGAs,

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

 

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Posted at 12:49 PM (CST) by & filed under General Editorial.

Dear CIGAs,

1. Today’s news on the cost of mining and infrastructure is in my opinion posturing for meetings between the Chamber of Mines and the Presidential Committee on Mining Revenue next week.

2. High costs can be a product of a company having sold the gold production of their mine forward 10 years in order to obtain non-recourse loans. The price of gold would then be delivered against those sales forward and used in the calculation of income in order to derive costs of mining according to International, Canadian and US Generally Accepted Accounting Principles (GAAP).

3. The infrastructure in Tanzania from Mwanza to Dar es Salaam is excellent.

4. A main high power electrical grid and delivery system exists in the area of Mwanza and can service multiple mines.

5. Gold can be shipped via air. This is most certainly true if you own multiple large aircraft yourself.

6. In my opinion mining costs in Tanzania are among the lowest in the world, especially if you have an open pit potential to finance your future underground operations.

Regards,
Jim

Posted at 9:48 PM (CST) by & filed under Trader Dan Norcini.

Dear CIGAs,

Linked below are a few charts showing the custodial account treasury holdings and agency holdings. If there is any wonder why the bond market is experiencing a once-in-a-generation bubble, just look at the Treasury Holdings chart. It is going vertical. Meanwhile, the chart showing the Agency debt holdings such as Fannie Mae and Freddie Mac continues its “fall off a cliff” imitation. Foreign Central Banks are dropping Fannie and Freddie debt like a bad habit and rushing into US Treasuries. I keep wondering just who it is that is supposed to provide the capital for Fannie and Freddie to function! The feds supposedly dumped $200 billion into them if I recall correctly but foreign Central Banks have already unloaded $120 billion. At the rate the FCB’s are ditching the debt, it looks like it is a wash and we are back to where Fannie and Freddie were in July.

I read these charts as an indicator as to just how dire is the condition of the world’s current monetary system. If any of these foreign Central Banks balks at buying US Treasuries or even whisper about selling them, Katie bar the door on the US Dollar. Still, I think it is just a matter of time before the US has to devalue the dollar if it ever hopes to make good on these ever-increasing obligations. It reminds me of one of those old biology films we used to watch back in school when the virus would divide and just keep on dividing and dividing and dividing. Maybe we could rename US Treasury bonds to US Treasury viruses – They just keep on multiplying until they suck the life out of their host.

Also, note the yield charts on the 3 month and the 10 year. The three month is effectively at zero. I have not shown them but the one month is at 0.01% and the one year is at 0.61%.

Talk about zero bound… Quantitative Easing, here we come with a vengeance. They have no other choice.

Trader Dan


Click here to view today’s Custodial Holdings, 3 Month Money and Ten Year Treasury charts with commentary from Trader Dan Norcini