Gold, Silver and Other PMs

Top 521. Apr 22, 2005 5:32 PM

» Normxxx - Beware The Commercial Pounce

Beware The Commercial Pounce

By Brady Willett, FALLstreet.com | 22 April 2005

Since the beginning of COT (March 1995), the commercials have only held a net short position as a percentage of open interest of more than 44% three times. In two of these instances – April 6 and April 12, 2004 – the extremely large commercial short position presaged a massive decline in the price of gold. As for the only other time that the net commercial short position as percentage of open interest has been above 44%, it was last week…

<img src="http://www.fallstreet.com/assets/images/...">

Since 2003 changes in the NCSPOI have coincided with the expected change in the price of gold 68.91% of the time. In other words, when the commercials are adding to their shorts the price of gold is usually rising, and when the commercials are reducing their short position (or profiting) the price of gold is usually declining. That the NCSPOI has nowhere to go but down strongly suggests that the price of gold is about to correct. That is, of course, unless the motherload gold rally is near, in which case the commercials will default as they chase the price of gold north of $1650 (Sinclair’s target).

As if continually trying to cheat death, many gold gurus argue that things will be different this time. For example, Ted Butler – who has vast experience analyzing the silver/gold markets – suggested in his latest commentary that ‘there has been a profound change in the gold COTs’. After providing no proof of this conclusion, Butler goes on to suggest - for some unknown/unexplained reason – that since a new noncommercial entity is in the market this ‘could be profoundly bullish’.

"I think there has been a profound change in the gold COTs. While the non-commercial large trader long category is at a level suggesting the tech funds are on the long side of gold in a big way, I don’t think it is the tech funds that are long gold. Yet. I think some other, very large, non-tech fund buyers entered the market and bought what the tech funds were selling on the break from previous highs above $445 in March. Just like what occurred in silver a few months ago. You must remember that while changes in the non-commercial category are almost always the result of tech fund activity, the tech funds are not the only traders in that category. So while most think the tech funds are already on the long side in gold (and silver), I don’t see it that way.

"I don’t want to dwell too deeply (for personal reasons) on why I say it’s not the tech funds that are heavily long, other than to say they never got buy signals (until today) and the concentration ratios in the COT for the long side say it isn’t them. The good news, of course, is that until the tech funds do accumulate a large long position, the chance of a major sell-off is slim."

Two important, related questions Butler neglects to ask are:

1) Is this "new" noncommercial gold bull as well funded as the commercials?
2) Will this new noncommercial gold bull be able to handle the pressure if the commercials throw sell orders for 60,000+ contracts at the gold market tomorrow?

Regardless of how you care to answer these questions, Butler is correct in that when the tech funds accumulate a large long position gold usually corrects. However, whether today’s tech fund long position is ‘large’ or not is open for debate. If you disregard speculation of a new mysterious noncommercial force, the position looks pretty large to me.

“At face value, the dealers’ and tech fund positions are reflective of a top and not a bottom.” Butler

A Manipulated Market is a Dangerous Market

The COT dynamics that have been controlling price swings in gold since 2002 may change in the future; the commercials may be forced to cover and the tech funds may end up laughing all the way to the bank. However, the important point to remember is that the commercials are, quite literally, the bank.

“The bottom line is that the COTs in silver and gold must be read with a filter that incorporates a new entry of a speculative trader on the long side.” Butler

Contrary to Butler’s opinion, the bottom line – much like the ling being touted in this space right before last years gold/silver price collapse – is that the COT suggests that price of gold and silver are headed for a correction unless some major market moving event transpires (ie. the US dollar crashes). To be sure, that the POG is [probably] being manipulated by the evil commercials isn’t a reason to go long in the near term, it is reason to be very afraid.

“My main purpose has been to end the silver manipulation and encourage all to investigate and then buy real silver.” Butler

The contents of this letter/report does not necessarily reflect the opinions or viewpoint of normxxx. They are provided for informational/educational purposes only.

-- posted by Normxxx

Top 522. May 11, 2005 3:01 PM

» Normxxx - Gold 'buy' signal pops up

Gold “buy” signal pops up

By Barry Sergeant | 6 May 2005

JOHANNESBURG (Mineweb.com) -- For the first time in some two years, Myles Zyblock, RBC Capital Markets's chief North American institutional strategist, has identified a buy indicator for gold stocks.

According to Zyblock, among numerous indicators monitored, the one with the best track record is one of the simplest: the ratio of the dollar gold spot price to the Philadelphia gold & silver index, known as the XAU.

According to Zyblock, when the ratio is above 5.0 – an event known for only 12% of the time in the past 22 years - the average annual one-year holding period return for stocks in the XAU has been 38.4%.

“Importantly,” says Zyblock, “there was only one instance when the gold-to-XAU ratio was above 5.0 that investors lost money over a one-year horizon, and the actual loss was 12%. In other words, when the stocks are cheap relative to the underlying gold spot price (i.e., the ratio is above 5.0), it has almost always paid to buy precious metals shares.”

The twelve constituents of the XAU: Barrick, Agnico Eagle, AngloGold Ashanti, Gold Fields, Goldcorp, Glamis Gold, Harmony Gold, Kinross Gold, Meridian Gold, Newmont, Pan American Silver, and Placer Dome.

Zyblock says that when the ratio is below 3.0 - which has occurred 5% of the time in the past 22 years - gold stocks have returned -24.3% on average over a one-year horizon. “Moreover,” observes Zyblock, “there was never an episode when the ratio was below 3.0 where you earned a positive return from holding gold stocks.”

Zyblock’s bottom line: “The gold to XAU ratio indicator tells us to buy gold shares when it’s above 5.0, and to sell gold shares when it’s below 3.0 with a one-year holding period in mind. The ratio currently stands at 5.08. While one indicator is probably not enough to make a huge bet, this one sure provides compelling food for thought.”

The contents of this letter/report does not necessarily reflect the opinions or viewpoint of normxxx. They are provided for informational/educational purposes only.

-- posted by Normxxx

<img Width="520" src="http://www.321gold.com/editorials/saville/saville060305/1.gif">
Click Here, or on the image, to see a larger, undistorted image.

Top 523. Jun 3, 2005 12:50 PM

» Normxxx - The Dollar Rally

The Dollar Rally: Parallels with the late-1980s

By Steve Saville | 3 June 2005
email: sas888_hk@yahoo.com

Below is an extract from a commentary posted at www.speculative-investor.com on 22nd May 2005:

In the commentary posted at TSI on 3rd January 2005 we outlined a number of reasons why we thought an intermediate-term rally in the US$ was about to begin. Chief among these reasons was the fact that interest rate differentials were trending in favour of the dollar, but we also pointed out the following secondary reasons to expect a substantial recovery in the dollar over the ensuing 6-12 months:

1. There was a massive speculative short position in the dollar that would have to be covered at some point

2. Legislation had recently been passed that would allow US corporations to repatriate profits earned outside the US at a greatly reduced tax rate for a period of one year

3. Current purchasing power and interest rate differentials indicated that the euro was about 20% over-valued relative to the US$

Lastly, we noted that it was simply TIME for a dollar rally because the downward move that had begun in earnest during the first quarter of 2002 was now 'long in the tooth' as far as uninterrupted downward trends were concerned. As part of this discussion we compared 2002-2004 with 1985-1987 and pointed out that during this prior period a relentless 3-year slide in the dollar (a relentless 3-year rally in the Swiss Franc) had ended on the last trading day of 1987. The following chart was included in our 3rd January commentary to illustrate the similarities between the Swiss Franc's trend during 1985-1987 and its trend during 2002-2004.

We are always skeptical of analysis based on the assumption that the market will behave the same way in the future as it did during some prior period, firstly because there are always plenty of fundamental differences between two periods that are separated by many years and secondly because markets just aren't that simple. However, we find it interesting that today's currency market continues to behave in a spookily similar manner to the currency market of the late-1980s. Furthermore, a continuation of the similar price action would be roughly in line with what our other analysis suggests is a likely pattern over the coming 12 months.

To illustrate how today's currency market appears to be following a similar path to the one followed by the same market during the late-1980s we've included, below, a chart comparing the Swiss Franc's performance over the two years beginning in July of 1987 with its performance beginning in July of 2004. Notice that:

a) The SF broke higher in both October of 1987 and October of 2004 and surged into year-end

b) After dropping into the first half of February (1988 and 2005) the SF consolidated for about 3 months

c) The consolidation ended via a sharp break to the downside in mid-May of both 1988 and 2005

If the similarities continue then the Swiss Franc will drop to much lower levels over the next 3 months, bottom during August-October, rally into December, and then decline to its ultimate correction low during the first half of next year.

<img Width="520" src="http://www.321gold.com/editorials/saville/saville060305/2.gif">
Click Here, or on the image, to see a larger, undistorted image.

Something along the lines described above would actually mesh with our expectations for other markets. In particular, we expect gold and gold stocks to bottom well before the dollar peaks so a peak in the dollar around the middle of next year would fit nicely with our forecast of a gold-sector bottom during October-November of this year. One probable scenario, for instance, would have gold stocks bottoming in October of 2005, rallying strongly into December along with a rebound in the Swiss Franc, and then consolidating for several months while the SF dropped to a new low.

The contents of this letter/report does not necessarily reflect the opinions or viewpoint of normxxx. They are provided for informational/educational purposes only.

-- posted by Normxxx

Top 524. Jun 27, 2005 10:17 AM

» Normxxx - A Whiff Of Reflation?

<img src="http://www.bankcreditanalyst.com/images/general/blirtry.gif">

Does Gold Smell A Whiff Of Reflation?

27 June 2005

<img Align="Left" hspace="10" vspace="5" src="http://www.bankcreditanalyst.com/public/...">Gold prices are rising strongly in all major currencies, suggesting expectations of reflationary policies in the months ahead.

The price of gold in U.S. dollars is up about 6% in the past month, despite a stronger U.S. dollar and ongoing Fed tightening. The rally is more pronounced in euros or yen, where prices are at new multi-year highs. Gold got a boost this week following the Swedish Riksbank rate cut and fresh signs that the ECB and BoE may be cutting rates later this year (we expect both to do so). The prospect that the Fed is reaching the end of its tightening cycle is also mildly bullish for gold. Bottom line: further signs of reflationary policy support from global central banks could send gold prices higher in the near term.

The contents of this letter/report does not necessarily reflect the opinions or viewpoint of normxxx. They are provided for informational/educational purposes only.

-- posted by Normxxx

Top 525. Aug 4, 2005 3:05 PM

» Normxxx - Hold Your Breath!

Hold Your Breath!

Gold may be getting ready to break out here— OR, it may be just another feint based on the dollar's (temporary?) weakness. In any case, STAY LOOSE!

Zyblock’s bottom line: “The gold to XAU ratio indicator tells us to buy gold shares when it’s above 5.0, and to sell gold shares when it’s below 3.0 with a one-year holding period in mind. The ratio currently stands just below 5.00. One indicator is probably not enough to make a huge bet, but this one would surely provide the needed confirmation!”

The contents of this letter/report does not necessarily reflect the opinions or viewpoint of normxxx. They are provided for informational/educational purposes only.

-- posted by Normxxx

Top 526. Aug 5, 2005 2:16 PM

» Normxxx - Did gold price really increase?

Did the gold price really increase this week?

By Paul van Eeden | 5 August 2005

The gold price increased by 1.6%, from $430.10 on Monday to $437.12 on Thursday. At the same time the dollar fell 1.7% against the euro and 1.3% against the yen. If we just use those two currencies as a proxy for the dollar then the average decline was 1.5%. That is not materially different from 1.6% given that we are only looking at two currencies. It therefore seems reasonable to state that the increase in the gold price this week was due to a decrease in the US dollar exchange rate.

While more and more analysts now recognize the US dollar exchange rate causes changes in the US dollar gold price, many still do not understand how and why. I sometimes read that a decline in the US dollar made gold less expensive in other currencies, thereby increasing demand for gold and causing the price to increase. That is hogwash. Take this week as an example.

The gold price is up because the dollar went down. But did the decline in the US dollar cause gold to become less expensive in euros? No. The gold price was 354.79 euros on Monday and 354.42 euros on Thursday. Clearly the gold price in euros did not change in any significant way. The same would be true if we consider the gold price in yen.

When the US dollar declines it does not change the gold price in other currencies and it does not change the demand for gold. It merely means that stuff we buy (or price) on international markets with US dollars become more expensive in US dollars.

I also read this week that the increase in the gold price was due to the looming labor strike in South Africa. A major strike in South Africa could have a short-term (emotional) impact on the gold price, but it did not this week.

If the gold price increased because of what is happening in South Africa don’t you think the gold price in euros and yen would also have increased? Why would only the US dollar gold price increase? The gold price in euros decreased by 0.1% and increased by only 0.3% in yen. Because the gold price did not increase in euros and yen I do not think that talk about a labor strike in South Africa had anything to do with the increase in the US dollar gold price this week.

Since the magnitude of the change in the US dollar gold price coincides with the magnitude by which the US dollar exchange rate changed it is obvious that the only thing that changed this week is the dollar.

The contents of this letter/report does not necessarily reflect the opinions or viewpoint of normxxx. They are provided for informational/educational purposes only.

-- posted by Normxxx

Top 527. Aug 8, 2005 7:42 PM

» Normxxx - Signal I Waited For

SKI Gold Stock Prediction

By Jeffrey M. Kern, Ph.D. | 8 August 2005

Put me in suspended animation after I buy

Simple translation of this Update: Buy gold stocks on Tuesday's close. Then sell on a sell signal or at a 100%+ profit. The maximum risk is a large 20% until 5 months after the buy day.

Last weekend I wrote that the next weekend's Update (this one) should be the BIG ONE. At least I got that correct. Mark Tuesday 8/9/05 as the day that the indices go to the long-term bull market side. The rare event that I spoke of a month ago appears to be occurring. The master 92-96 index will be buying on Tuesday's close on the rare 92-96 index buy signal that is on the Path and NOT XXed Out. The buy signal is going to be generated on Monday and SKI will be risking his monies starting on Tuesday's close.

Please remember that SKI signals mark critical points. And they do it beautifully. I must write that it IS still possible that last Wednesday's spike into the 92-96 index at 8.29 (US GLOBAL INVESTORS FUNDS US GO (NasdaqSC)— USERX) could have marked a major high. That run pattern of 3 Down and 5 Up marks the high at 8.29. But that scary run pattern (that for example, marked the exact multi-year high on 12/2/03 at 9.37) can be offset by 4 or more consecutive days down to form a low. The declines on Thursday, Friday, and today give us 3 days down. IF we get 1 more day down (of any size), the run pattern will also turn bullish. Please go your nearest gold sanctuary and pray for Tuesday to be a down day of any size. One more day down into the buy signal will arrest almost all of my fears that I will be buying near a major high.

Now I am going to temper your enthusiasm a little more. The risk on this buy signal is substantial. Nothing can offset the master 92-96 buy signal except for a 92-96 sell signal. Those 92-96 back prices are falling and will continue to fall down to the 6.28 May low. In other words, I (You) could lose about 20% on this signal in the worst-case scenario. Plan now that you MUST sell on a 92-96 sell signal at any time in the future. And the eventually rising stop-loss will take 96 trading days (5 months) to reach the 'all-clear' point. Therefore, for this buy signal to generate a profit, prices need to rise for more than 5 months before there is a rising stop. The 92-96 buy signal would be predicting rising prices for far longer than 5 months! And such a long-term rise is exactly what is expected. But if it is wrong, it will sell at a loss.

The other possibility is that prices fall into Tuesday and the index buys at let's say, 7.85. Thereafter, prices immediately fall and sell the system out in just a few days for a 3-4% loss. There have been several 92-96 buy signals on the Path that have sold very rapidly at small losses. That would be unfortunate, but acceptable. A 20% loss would be the largest in history and would be unbearable for me.

[Normxxx Here: Me too! ]

Here is the history of 92-96 index buy signals on the Path. Be aware that the 92-96 index does not sell out at highs. I'll have to rely on the run pattern or something else to identify a sell point near the top. For example, on 5/29/02 I wrote, "The run is now at 2 down and 7 up, rising an average of almost 3.5% per day. Such runs have ALWAYS marked major highs EXCEPT during the greatest bull markets in history (e.g., during the late 1970s). THIS RUN PATTERN HAS ALWAYS MARKED MAJOR HIGHS EXCEPT DURING SUPER BULL MARKETS. Therefore, after USERX experiences its first down day, that should be a major high." I sold there. Thereafter, USERX plunged to 3.58 and the 92-96 trade finally sold at a (lesser) profit at 4.06.

The suitable 92-96 index buy signals on the Path have been correct 8 out of 11 times. Note that they are not perfect, but are the required SKI signal for all huge bull runs since the early 1970s.

[Normxxx Here: That is, they are necessary but not sufficient to insure a large profit. ]

1. 1974: Buy 42.8 Sell 50.8 in only 15 trading days.
2. 1977: Buy 14.2 Sell 16.0 in only 31 trading days.
3. 1977: Buy 14.7 Sell 15.7 in only 29 trading days
4. 1977: Buy 16.5 Sell 21.0 in 136 trading days
5. 1977: Buy 21.5 (Exact high to the day) Sell for a 7% LOSS at 20.0 in 9 trading days
6. 1978: Buy 20.8 Sell 73.8 in 465 trading days. The first great bull run.
7. 1981, October: Buy 54.8 Sell for a 2.6% LOSS at 53.4 in 2 trading days.
8. 1982, July: Buy 40.6 Sell 88.2 in 220 trading days. The second great bull run.
9. 1983, 4 days after trade #8 ended. Buy 85.1 Sell 89.7 in 16 trading days.
10. 1985, May 5: Buy 56.6 Sell for a 18.4% LOSS at 46.2 in 61 trading days. This one was an 18% loss and was very strange. I actually delayed buying, then sold when it rose 10% in a week, then bought back and sold at 46.2 for a total loss of 12%. Bad.
11. 1993, Feb 11: Buy 14.8, prices rise to 28.3 over 6 months before collapsing into the 92-96 sell at 18.50 (the exact day of a major LOW!). This was what I call the third bull run since 1972.

The current signal (today) cannot sell out quickly at a profit. This one will either have to sell out fairly quickly at a loss or be a great bull run. The bull run, if it occurs, would be wave 3 up and should be the most powerful of this decade. In my view, I must risk buying this signal to preserve the purchasing power of my dollars. Of-course Tuesday is the day that the Federal Reserve will raise interest rates again and the markets will react to their statement.

What does this mean for other financial assets? A year ago I vehemently wrote to sell real estate and everything on the triple sell signal. I did. I am worried that this 92-96 buy signal will auger for a continuing rise in real estate and that I have sold everything except for my home. But I've also learned that inter-market relationships are temporary and unpredictable. Interest rates used to rise with rising gold stock prices, but that relationship has fallen apart this decade. The dollar has risen for months but the gold stocks have also risen. I recommend that you don't use this gold stock buy signal for other markets. I am still expecting rising interest rates and a falling real estate market. I'm also guessing that the stock market won't fall apart while the gold stocks are rising, but that the stock market also won't be exploding upwards with the gold stocks.

When I buy, I usually anticipate an immediate (that's within one day) rise in the gold stocks. That is NOT the case with this signal, a long-term buy signal. In the late 1970s, the gold stocks stayed flat to up for a month before declining 10% and only then started their explosion (the system sat through a 6% loss). In the early 1980s, the 92-96 buy signal was followed by a decline of 9% over 3 weeks. In both cases, the 92-96 index did NOT sell. One had to sit through a loss before the explosion. In 1993 the gold stocks simply rose, immediately and continuously in a gradual manner. In other words, since the current 92-96 back prices will be falling, the current signal could be followed by sideways to down action for several weeks. Do not bet (via options, for example) that the gold stocks will instantly explode off of this signal. The only bet is that any price decline will NOT yield a 92-96 sell signal (and remember, those back prices will be falling, so a decline may not sell the system out).

I'd love to be able to buy and then go into a stupor for several months, only to be awakened by a 92-96 sell signal. I'd want to avoid watching the markets, because if we don't get 1 more down day, the gold stocks might scare the heck out of me before rising on the last possible day to avoid a 92-96 sell signal. It has happened before. USERX could easily fall back to the break-out at around 7.82 in the weeks ahead to scare the heck out of me (if they don't fall to there in the next few days). If you buy the signal, stay disciplined and don't sell unless the 92-96 index sells or we get a long and large rise.

Therefore, if we don't get the 1 more down days, I may only buy 50-75% on Tuesday and use any and every subsequent down day to add, to buy more. Adopt a buying strategy that fits your personality and that you can adhere to based upon what you know of your own emotions and the scenerios I have just outlined.. Do NOT buy more than you can afford! Do NOT allow yourself to (panic) sell on a decline that doesn't generate a 92-96 sell signal!

I have been waiting for a signal such as this for years. Such signals always occur, we just don't know how long we have to wait. And I promise (100%) that if this signal occurs and the rise ensues, that the market will decline into a sell signal at some time in the future. Hopefully, just not for many many months.

I've been writing these Updates for 5 years now. This appears to be the signal that I've been waiting for. Thousands of people are on the email list and even more are readers. Please put me in suspended animation after I buy so that I don't have to endure the pain/euphoria of watching. Just another day or two to wait. SKI's going to be a gigantic but anxious bull? I can't believe it, but that's the way it is. I sure hope this signal, which occured on Monday, will be correct (that's an understatement!). I am already having difficulty sleeping and I haven't even put any money at risk. Perhaps you can tell that emotionally I'm more anxious and worried than excited.

Simple translation of this Update: Buy gold stocks on Tuesday's close. Then sell on a 92-96 index sell or at a 100%+ profit. The maximum risk is a large 20% until 5 months after the buy day.

**************************** [Later in the day...]

SKI Update
8/8/05

CONCLUSION: I am waiting to buy until the first UP day (close) in the gold stocks. Will I get one soon?

I apologize if my suddenly frequent messages are disturbing, but this is
THE week. I only send these if it’s important.

I believe that I have an important handle on the gold stocks this week and this is bull vs. bear time in a big way. The master 92-96 index buy signal has, of-course, been generated today for (buying at) the close tomorrow (Tuesday, 8/9/05). I am writing this before the stock market closes in the U.S., but I’ve watched the gold stocks open the day higher only to sell off as expected.

I continue to expect that the gold stocks will decline tomorrow for the fourth straight down day into the signal (but note that it is rare for the 92-96 index to buy at a low, reinforcing my recommendations below). The 92-96 buy signal indicates that a bull market has started, but it is not always timely or correct. It’s perfectly fine to buy tomorrow’s close and then to use a 92-96 index sell signal as the stop, but read on please.

I am writing to emphasize one scenario that I stated in this weekend’s Update. It’s the one where the index buys and then sells quickly at a small loss. That is a perfectly common and reasonable possibility. If tomorrow’s anticipated decline continues for another day or two (depending upon the size of the decline), the index may just sell quickly at a loss. There is no rule that says that the decline has to end at 4 days down. Such runs usually end at 4-5 days, but there have been times when they’ve extended to 10 days down. For example, the one real loser out of those 92-96 index trades listed above continued for 9 days down.

Therefore, I am going to wait to buy until the first up day. That is the logical strategy: I may buy a little (2%?) higher than the index, but the odds of being correct will be extremely high, and if I “only” make 148% instead of 150%, what’s the big deal? Remember how I always write that I am risk-averse, that I try to avoid large losses. I want to avoid the possibility of losing 2-5% on this buy signal in 2-3 days (even though 3% is not a “large” loss).

It is rare for the 92-96 to 'buy' at a low, and that 3 Down and 5 Up run into last Wednesday’s high just might be a major high. So, I will hedge a little. If the gold stocks go up tomorrow (8/9/05), then I will buy 75% and add a little on each and every down close. If they go down, as expected, then I will delay buying until there is an up day. And if you don’t have the luxury of being on vacation from a university (me) and watching these goldies during the day, then you can just buy as soon as possible, the day after an up close.

I’ve discussed this with my colleague and his conclusion is that I am being logical and analytical. He stated that he does not hear my sometimes emotional tone. I strongly recommend what I am suggesting: Be prepared to buy, but wait. If the gold stocks unexpectedly turn up tomorrow, I will be buying. If they continue down into a quick 92-96 sell signal, then they may also generate the 35-39 index sell instantly (those prices are also at 7.62 now) and SKI will remain bearish. Why does SKI suggest delaying? This time I’d truly say it’s NOT that I am being “chickenski”. It really is wisdom gained from experience. I am now calm because I know what to do.

P.S. After I’d written this weekend that I was worried that real estate
hadn’t been going down, I read the excellent site
http://truecontrarian.com/ only to become aware that last
Thursday-Friday witnessed an extraordinary drop in real estate related
stocks!

The contents of this letter/report does not necessarily reflect the opinions or viewpoint of normxxx. They are provided for informational/educational purposes only.

-- posted by Normxxx

Top 528. Aug 13, 2005 12:43 PM

» Normxxx - Missed Thursday's Jump?

If you failed to buy on Tuesday or Wednesday, before the jump on Thursday, you may now want to wait a while...

Gold - Not a short-term buy based on COT, August 13th 2005

By Carl Löfberg | 13 August 2005

This Fridays COT numbers confirmed the anticipated deterioration in Gold's COT structure, after the past weeks strong rally. Short term gold does not look like an attractive buy, even though we could get through the resistance in the $455 area with this move.

Looking at the most recent COT chart for gold I feel a liquidation of some more speculative gold positions next week might be prudent. If past performance is any indication of the future we will probably see a correction of $20-35 in the POG by the end of September. Gold has still rallied from $438 to $445 after Tuesdays COT data, so it's safe to assume that commercial shorts stand at even higher levels today than the graph indicates. Additionally gold is overbought short term (RSI, blue circle). In the past year similar market structures have lead to quite sharp and fast corrections (oval red areas). I'm not saying this will happen in the immediate future but stops at the power up-trend lines for more speculative holdings might not be a bad idea.

The dollar has declined quite nicely the past few weeks. Even though COTs don't run the forex market like they do gold and especially silver (IMO) they have still had a quite good record of being on the right side in the dollar the past few years. The huge commercial short position in the USDX has declined somewhat the past few days but there is still room for a lot more to the downside. However, with gold looking quite vulnerable short term and the USDX trading around it's 38% Fib. resistance and being quite oversold short term, we might get a little reaction to the upside in the dollar, before continuing on our ride to new lows.

The COT structure in silver has not changed much the past week. Just looking at silver by itself doesn't get one worried. It looks like there would be plenty of room to the upside. However, if we get a correction in gold, I can't really see it as silver positive. Hence, I'm happy with the silver positions I hold at the moment and look for possible weakness in the coming days/weeks to pile up some more.

While gold managed to break it's triangle formation to the upside we might still have to wait for one more corrective cycle before breaking to the upside in silver. If we get a correction in gold and silver, I would not be too concerned even if resistance in silver at the $6.80 level would break marginally. I believe silver is a manipulated market and if I would try to hold silver prices down, I would definitely try to shake silver investor confidence by trying to push the price below it's long term up trend line in the probable gold correction in the next few days/weeks.

As one reader pointed out, and many of you have probably noticed, the Nymex silver inventories have risen to 111 M oz the past month. Nymex silver inventories have stood at 102-105 M oz for months before that. Put into perspective this 6-9 M oz inventory increase is about 0.7%-1.0% of annual consumption and quite small compared with the annual structural deficit of roughly 60 M oz in 2004. I don't see this as being of any big significance for silver so far, but it's worth keeping an eye on warehouse stocks. I don't believe we will see a real explosion in silver price before we start to have serious delivery problems in silver. With warehouse stocks increasing, though marginally, I don't see that happening in the immediate future. And that is good, since it gives some more time to accumulate holdings at these give away prices.

August 13th 2005
Carl Löfberg
Tampere, Finland

The contents of this letter/report does not necessarily reflect the opinions or viewpoint of normxxx. They are provided for informational/educational purposes only.

-- posted by Normxxx

Top 529. Aug 14, 2005 12:57 PM

» Normxxx - Beijing issues gold bar

Beijing issues 12-animal gold bar

The first batch of gold bars featuring "the year of dog" was put into market on August 10. The gold bars of China's 12 year-representing animals will be issued gradually within 12 years with limited editions. They are of five sizes. Picture shows a model presenting a gold bar of "the year of dog".

-- posted by Normxxx