Hourly Action In Gold From Trader Dan
Posted: Jun 18 2010 By: Dan Norcini Post Edited: June 18, 2010 at 1:52 pm
Filed under: Trader Dan Norcini
Dear CIGAs,
Gold shot up to a brand new record high in US Dollar terms in today’s session as it continues moving higher on its own merits. It did not especially matter what the Euro or the Dollar seemed to be doing today as both were rather quiet compared to recent volatility that has marked those pits; nevertheless, gold powered through the capping efforts of the banks at $1,250 on good volume forcing some of the fresh shorts encouraged by some CTA’s and other advisory newsletters out of the market. It would seem that gold is becoming a star in its own right as crude oil was tame today as was the bond market and the equity markets. In other words, the typical “outside influences” were missing that tend to impact gold leaving the larger macroeconomic forces the main factor in gold’s performance. Clearly investors who have deep misgivings about the current state of the global economy, particularly the West and its increasingly unsustainable burden of indebtedness, want to own the metal.
Silver saw additional upside follow through after yesterday’s breaking out from its congestion zone with the market in a technical position to mount a challenge of the $20 zone.
With both gold and silver moving higher alongside the HUI, metals bulls are pleased to see the train carrying all the passengers in the same direction for a change. I might add here that the HUI is outperforming gold on a percentage basis today but pretty much in sync with silver on that same percentage basis. It looks like some of those ratio spreads are being lifted off of the gold/gold shares trade which is encouraging particularly since the S&P 500 is not especially strong today. We might just be seeing some preliminary signs that the profitability of that trade is coming to an end for the hedgies. From looking at the chart, it does appear that the HUI will need to take out 500 – 502 in a big way to see a much larger unwinding of those trades. If it does, and that is going to be tough resistance, the shares will more than likely see much sharper gains as a goodly amount of those short legs are going to be in deep trouble.
See the ratio chart below to get a view of the performance of that trade.
Click link below to enlarge today’s HUI-Gold Ratio chart in PDF format
CHART: http://jsmineset.com/wp-content/uploads/2010/06/June1810HUI.pdf
Open interest saw a significant increase in yesterday’s run towards $1,250. It shot up an astonishing 27,000 contracts! That tells us two things – first – there were very serious buyers at work which is why the market was able to break out of its congestion pattern below $1,245. Second – the reason it did not take out $1,250 was because the bullion banks threw everything but the kitchen sink at it to hold it below $1,250. You would have to sit and watch these markets each and every day, tick by tick, to get a feel of how many bids were absorbed by the bullion banks. What is even more astonishing however is that the market plowed right through this plethora of offers at $1,250 as if they did not exist in today’s session. Clearly, something is changing in the gold market as the big kids on the block are not able to successfully hold off the charging of the bulls in the manner that they are accustomed to.
Still, it is mind-boggling that some seller/sellers would fight so hard to absorb so many bids when they could merely sit back and institute a nice, scale-up selling program to take advantage of the determination of all these new buyers, guaranteeing themselves a good selling price for their gold. Instead, they fight like hell to ensure that they sell their gold at a lower price. That is all that I need to tell me that the selling is not true commercial hedging but is rather intended to contain upward price movement. No one who wants to maximize their selling price trades like this, no one. Speculators do this all the time – but NOT TRUE HEDGERS. Keep in mind that there are two levels of margin requirements; one for speculators and another for hedgers, which is lower. That allows a hedger to control the same number of contracts as a speculator but with FAR LESS MONEY. That is why the Comex stinks to high heaven. Everyone and their brother, with a lick of common sense, understands that the bullion banks get hedging margin rates but are acting like speculators as to the manner in which they sell.
Since we are now into uncharted territory on the nominal price chart in gold, pegging resistance areas will be bit more challenging. It looks to me like we have today’s high as the first new level of selling resistance followed by another layer up near the $1,280 level. Should gold be able to plow through $1,280, it will move to $1,300 in short order as we will see an upside acceleration due to more shorts getting squeezed.
It will be interesting to see what this afternoon’s Commitment of Traders report tells us of the state of the gold market through Tuesday of this week as far as the positioning of the players goes and exactly how many of these shorts are weak hands.
DAN'S CHART:
http://jsmineset.com/wp-content/uploads/2010/06/June1810Gold.pdf
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