Market Observations with Rob Kirby

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Goldman Zeros Japan

by Rob Kirby, Kirby Analytics. March 13, 2006

A news item was quietly reported – in Japan of all places – back on March 3, 2006 which I strongly feel is of the utmost importance. This piece involved a change in the way things are reported on the Tokyo Commodities Exchange [TOCOM]. The changes are to take effect as of April 1, 2006 – no fooling.

Right from the Reuters News release,

TOKYO, March 3 (Reuters) – The Tokyo Commodity Exchange hopes to attract more foreigners and a wider range of investors, including institutions, with plans to bolster players' anonymity and list new products, a senior exchange official said on Friday. TOCOM, Japan's top commodity exchange, aims to discontinue its practice of disclosing daily outstanding positions for each member starting early in the next business year, which begins in April.

This is important and relevant because – like the Fed's discontinuance of M3 Money Supply Reporting – it signifies the removal of another measure of transparency that promotes/ensures accountability on the part of all players in the financial system.

The soon to take effect changes on the TOCOM will bring that exchange more in line with the opacity that has long been exhibited by New York's COMEX [affectionately known and referred to by insiders and critics as the CRIMEX] – where open interest data are clumsily aggregated and reported to the public close to one week in arrears via the COT Report.

It says here, that the reason being offered [that of anonymity and to attract business] is as credible as the Fed's claim that ceasing M3 Money Supply reporting later this month was designed to "save money." The reality, I'm afraid, is making the actions of TOCOM participants "stealthy" more likely has its roots in the factual account outlined below:

Appearances vs. Reality

The activities of Goldman Sachs "shorting gold" on TOCOM was first brought to my attention by Adrian Douglas via Bill Murphy's daily Midas commentary at Lemetropolecafe.com. On Jan. 10, 2006 Adrian Douglas reported,

Today Jan 10 Goldman Sachs has gone more short on TOCOM. They have not changed their long position it is still at 3611 as it was on Jan 5. The Short position has increased to 20072. Their short position has increased about 6000 contracts in 5 days.

This is a big losing position with the large rise in gold from $489 on Dec 21 when they first started loading up on these contracts.

From this, we can surmise that Goldman's gold "short position" stood at about 14,000 contracts on Jan. 5, 2006 when the price of gold stood at 526.00. Since that date, Goldman's "long position" has ranged from the number above to 6,016 as of Feb. 23, 2006.

Goldman's "shorting" of gold on the Tokyo Commodities Exchange [TOCOM] – described above – appears to be at odds with this Bloomberg article that cites a Goldman Report dated Dec. 19, 2005 – where gold was named a top trading pick:

You have to love this article that just hit the wire at Bloomberg.

Cartel Head Honcho Goldman Sachs is cited.

QUOTE Bullion is a "top trading pick" for 2006, Goldman Sachs Group Inc., the third-biggest securities company, said in a Dec. 19 report, citing concern over inflation, currency values and the U.S. trade deficit. END

Oh really! Goldman Sachs is bullish on gold? At the end of the article they list the predictions of all the analysts for the gold price for 2006. Goldman Sachs prediction is... wait for it... $515! That really is a bullish call, a real top trading recommendation considering we closed at $530.3 on the first trading day of the year.

Barclays comes in with a call of $465. What a bunch of clowns! They probably have the right digits but not arranged in the right order! Even JP Morgan has predicted $558 and that must have brought tears to their eyes to go to press with that!

And here is what Goldman's open interest has done [as of key dates] since – reconstructed data complements of Lemetropolecafe.com [Midas] commentaries:

DateShortLongPOG
Jan. 1020,072--541.00
Jan. 1831,6774,415545.00
Jan. 2537,3904,606561.00
Feb. 139,226--569.00
Feb. 853,054--550.00
Feb. 1445,993--540.00
Feb. 1641,5166,016540.00
Feb. 2044,192--554.00
Feb. 2141,337--553.00
Feb. 2241,2326,016552.00
Feb. 2445,1625,688558.40
Feb. 2847,492--561.50
Mar. 245,563--568.30
Mar. 645,955--555.20
Mar. 1041,6464,553539.90

The long data is incomplete – but is of little consequence because it changes so little. What is noteworthy is that Goldman Sachs had Gold rated as a "buy" for clients all the while they were aggressively selling [piling on the shorts] from late Dec. 05 onward to a peak at or around Feb. 8, 2006. Given the fact that Goldman had publicly stated gold was a buy – why were they piling on the shorts from mid Dec 05 to Feb 8?

The data above also would appear not to jive with this Globe article [Feb 14, 2006] – since by that date, the data clearly demonstrates that Goldman had become a buyer – covering shorts – after a 20 dollar price break:

Sell gold: Goldman
ROMA LUCIW
February 14, 2006

Goldman Sachs Group Inc. is recommending that investors get out of gold and lock in their gains just two months after it suggested they buy.

On Dec. 5, the brokerage issued a list of its top trades for 2006, one of them being the purchase of gold futures for delivery in December 2006, priced then at $534.50 (U.S.).December gold futures settled Tuesday at $568.30 on the Comex division of New York Mercantile Exchange, which would have given an investor who followed Goldman's advice a return of 6.3 per cent over two months.

Goldman said it recommended locking in gains because of fears that the price of bullion will slide.

"We have given back quite a bit of the profit since we entered the trade in early December, but are worried about the potential for the price to slide all the way down and have decided to exit," Goldman said.

Gold for April delivery - the most active contract -rose to $548.90 Tuesday. The yellow metal touched a 25-year-high on Feb. 2, then suffered its biggest drop in two years on Feb. 7. Monday's closing price of $542.10 for the current contract was the lowest since Jan. 5.

"Technically, yesterday's break of earlier February lows suggest further potential trouble as does the inability to hold the gains made after the bounce from that large decline," Goldman said. "The move below $545 is potentially troublesome."

And Now For Dessert

The topper – like a triple fudge – crushed nuts, whipped cream with cherries and sprinkles really needs one – is this:

Over the past couple of months, virtually all of Goldman's "shorts" have been put on in the Dec. 06 and the Feb. 07 contracts. They are and have been consistently "long" their relatively paltry 3 – 6 thousand contract position in the near months – as in 3,838 contracts long in the nearby April 06 contracts. You can see it for yourself here, but you better hurry – you only have until April 1, 2006.

So, despite public utterances in the mainstream media on the part of Goldman Sachs, their actions – as depicted by their positioning on TOCOM – are highly consistent with price capping and at odds with views being espoused by their analysts for widespread public consumption.

Oh well, as of April 1, 2006 – I guess that means there will just be one less thing to worry about, eh?

Today's Market

Overseas equity markets began the week on a positive note with Japan's Nikkei Index gaining 245 points to close at 16,361. North American equities began the week mixed with the DOW virtually flat at 11,076.02, the NASDAQ up 5.00 at 2,267 and the S & P up 2.55 – closing at 1,284.15. NYMEX crude oil futures gained 1.81 – ending the day at 61.77 per barrel.

Foreign exchange markets saw the US Dollar Index give up .32 ending the day at 90.15.

In the interest rate complex, the only change was that the short end of the curve [2-year] eased some from 4.77% to 4.72%. The balance of the curve was unchanged with the benchmark 5-year at 4.77% as well as the 10-year at the same 4.77%.

Precious metals did better with COMEX gold futures gaining 6.10 to close at 546.80 while COMEX silver futures added .20 to close at 10.16 per ounce. The XAU added .95 to close at 127.75 and the HUI tacked on 2.53 to close at 295.13.

On tap for tomorrow, at 8:30 a.m. – Q4 Current Account data is due to be released, expected -217.0 B vs. prior -195.8 B. Also at 8:30 a.m. – the Census Bureau is due to release Feb. Retail Sales data, expected -.7% vs. prior +2.3%. Ex-autos expected -.1% vs. prior +2.2%. Then at 10:00 a.m. the Census Bureau is due to release Jan. Business Inventories, expected +.1% vs. prior +.7%.

Wishing you all the most pleasant of evenings and prosperity always!

Rob Kirby

© 2006 Rob Kirby

Contact Information

Rob Kirby | Proprietor, Kirby Analytics Newsletter - Proprietary Macroeconomic Research
Toronto, Ontario, Canada | Observations | FSU Editorials | E-mail

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