Gold Trading Like A Coiled Spring
Makes A 16-Year New High Monthly Close!!!
by Bill Murphy, Chairman
Gold Anti-Trust Action Committee
October 31, 2004
October 29 - Gold $428.20 up $3.50 - Silver $7.29 up 14 cents
is inaccurate to say I hate everything. I am strongly in favor of common
sense, common honesty,
and common decency. This makes me forever ineligible for public office...
H.L. Mencken, writer, editor, and critic (1880-1956) GO GATA!!!
Gold came in higher and was quickly sold off by dealers and local traders when this US economic news hit the tape:
Q3 GDP reported 3.7% vs. consensus 4.3%; Consumption 4.6% vs.
Price Deflator 1.3% vs. consensus 1.6%
* * * * *
As the number was "dramatically" less than expected, you could hear the wind sucked out of the CNBC crowd and commentators. The immediate reaction had the S&P dropping 3, the dollar selling off, and gold rallying. However, this was to be short-lived as The Working Group on Financial Markets showed up on schedule to put the kibosh on the free market traders for the moment. Immediately, those same markets reversed course. No one knows this market adage better than the PPT: PRICE ACTION MAKES MARKET COMMENTARY. Since the US stock market futures rebounded so quickly, the disappointing GDP number began to fade as far as its negative significance was concerned.
The market then waited for other economic reports (see below), which turned out to be better than expected. Whether it was the PPT taking this opportunity to reduce their long exposure in the stock market, or was just profit taking after the big run-up this week, the market's rally after those numbers was just as short-lived as the sell-off.
Now for the fun. No grumpy MIDAS today. Just the reverse. Jumping up and down like a crazed hyena here. Why:
*Gold traded in classic and picture perfect fashion today and unlike its trading on most days over the past 3 years. After the early sell-off, it ground its way higher very quietly, making new high after new high. It would back and fill and then charge ahead again. It must have made 10 new highs as the day wore on and closed only 30 cents off its last high.
Not only is that sort of trading unusual for gold, it also breaks the pattern of making highs for the day in the first 15 minutes to an hour. This tells me The Gold Cartel is in the most serious of trouble. This is just what they didn't want to happen at the end of the month.
*The close was the highest on a monthly basis in 16 years. It took out the March 2004 close of $427.30. To find a higher one, we need to go back to August 1988. Gold finished at $431.30 back then. This bodes very well for next week as big picture players like pension funds, hedge funds, etc., will take this significant monthly close as a buying signal and most likely will be looking to jump on board.
*For the second week in a row there was a stunning surprise in the COT numbers released after the close. The small specs got even SHORTER. The large spec open interest rose 12,693 contracts and the short side rose 5,712 lots. The long commercial position fell by 80 lots and their short position rose by 3,964 lots. The small specs increased their longs by 3,462 contracts and increased their shorts by a stunning 6,399 contracts.
This is sheer speculation on my part, however I don't believe this has ever happened before. With gold in the most positive technical position of all-time, the small specs are going more short. This is SO bullish as it confirms the weak Caf� Sentiment Indicator and lack of interest in the smaller golds. The public has little appetite for gold investments and the small traders want to get more short even as we make 16-year highs. YUMMY YUM!
*What makes this all so powerful is it confirms what John Brimelow has been sending our way for months; the STALKER too. That is the physical gold market is on fire. As you will read below, JB reports the Indian premiums to be at levels most seen on GOLD LOWS, not HIGHS. Why? Probably because the Indians are competing against the Chinese for supply - and against the Arabs and Russians, among others. This is why the cabal's effort to flush out the specs keeps failing. Those buyers are waiting to buy the dips and they aren't getting filled because of this fierce competition for the available supply - so they are forced to pay up.
*Silver surged a nickel right on the bell. Morgan Stanley and other "commercials" are trapped on the short side. To have BOTH gold and silver close so well on Friday is extremely impressive.
*The Caf� Sentiment Indicator continues its outstanding track record. For months MIDAS has pounded the table how incredible it was to have gold doing so well with so little public interest in the precious metals sector. The indicator is still no better than a 5 (Max) with gold at 16-year monthly highs. Maybe when gold goes $450 bid, the public will wake up?
*We are so close to getting our long awaited Commercial Signal Failure with the surging physical market doing in the crooks. That goes for silver too.
*Not only did gold and silver perform so nicely at such an important moment, copper went berserk, rising 8.3 cents per pound to $1.3375 as the warehouse stocks in Shanghai collapsed 29% out of nowhere. The copper bears have been counting on increasing stocks around the world to make their case. This is an Uh-Oh moment for the shorts.
From Bloomberg on copper:
"Global stockpiles monitored by the London Metal Exchange fell to a 14-year low, including declines at warehouses in Singapore and New Orleans. Phelps Dodge Corp., the largest U.S. producer, said China's copper use probably will increase 12 percent to 15 percent this year."
*Oil turned around too after staring at $50 per barrel, closing at $51.76, up 84 cents per barrel.
*On top of all of this, there is increasing nervousness over the US Presidential election next Tuesday. A very overvalued US dollar closed on its lows and lower against every major currency. If our election ever goes into another one of those protracted periods of determining who the real winner is, the dollar could really tank, not that it won't anyway.
John Brimelow Report
Bears prickled: AU & ABX growing Thistles?
Friday, October 29, 2004
Indian ex-duty premiums: AM $7.36, PM $8.12, with world gold at $425.55 and $425.95. Very ample, and lavish, for legal imports. The Indian paradox continues: partly in celebration of the correction in oil prices, the rupee firmed again to the highest since June 14, facilitating gold imports.
These are the sorts of premiums more normally associated with lows in world gold. Unless world gold prices rise meaningfully quite soon, the world's largest gold buyer is going to be demanding the shipment of a great deal of physical.
On a much smaller scale, TOCOM continues a buyer. Volume fell 40% to the equivalent of 24,589 Comex contracts, but the active contract was up 5 yen and world gold went out $1 above NY's close. Open interest edged up only the equivalent of 474 Comex lots, but according the Mitsubishi, the public's long increased almost 10% to 80.1 tonnes (almost 26,000 Comex lots). Why this is happening is not clear - the yen rose to a 6 month high today, which is normally inimical to TOCOM gold longs - but the trend seems set and merits watching. Gold imports into Japan have been steadily rising for several months, and it is possible that the country is about to stage a private gold flurry. The 2001-2 bullion buying splurge stared much the same way, when state insurance of bank deposits was in question, as it is once again.
New York yesterday traded 65,532 contacts, with open interest rising 2,140 to 321,538, right back to the record high. In fact, the Bulls quietly won an important tactical victory. UBS notes:
"In New York yesterday, gold had a rather slow start with most professionals short, expecting stop-losses to be triggered. Gold did dip after the surprise Chinese interest rate increase but fewer than expected stops were triggered and the market then posted a nasty five dollar rally to peak at $427."
(Nasty from whose point of view?) Refco Research smelled the coffee and covered a reasonably profitable silver short before their target, muttering:
"it is hard to account for gold's resilience-a third retreat from 430, 319,000+ (contracts) of open interest and a $4 dollar drop in crude oil, but December gold spends just 15 minutes below 423?"
A legitimate comment from an orthodox Western hemisphere perspective, e.g. ignoring India.
Barclays Capital's Gold analyst Kamal Naqvi, who as an India could be expected to be aware of his country's predilections is the only writer to grasp China:
"The reality is that Chinese demand has not been the major driver of gold and silver prices, so there is no direct implication from the exchange rate hike..."
Naqvi also points out the curious fact that hedge reducing AngloGold actually increased the net delta of its hedge book by 6.6 tonnes this quarter (which another observer notes may have been a mechanical response to price changes but surely could have been offset). Combined with ABX's derisory 200,000 oz reduction, this raises the suspicion that the hedge books of these two firms are extremely adhesive, if not toxic. A very prickly - indeed Thistle -y situation.
Unless a very large and aggressive seller enters the gold market, $US prices will have to rise. Even a bout of dollar strength might not serve, unless the rupee is involved.
John sent out two more juicy morsels later on:
JPM's "Metals & Energy Technical Strategist" almost always plays gold as a short, with respectable success.. Don't readily recall such a bullish stance, especially on a high.
"The market has again rejected the 430.50/431 highs (3rd time this year) but the pullbacks still look corrective to us... we can see the market extend to new highs in the week/s ahead... we are looking to build a long position for such a break higher, with little in the way of important resistance till 464 and then 500!! ...only a move through 415 would really start to do damage to this view." (JB emphasis)
"Trade Strategies: Long Gold at 426 add at 423, risking 419 targeting 440/455"
The estimated volume rose 46% in last 30 minutes to 54,000.
This tells us some VERY big players wanted in before the weekend, while The Gold Cartel desperately did what they could to fend them off. Without the cabal's relentless price-capping, gold would have erupted on the close. However, The Gold Cartel lost the day because of the 16-year high monthly close, one which will attract more accumulation early next week. A move above $431 spot could usher in a torrent of buying and could require the emptying of Fort Knox to stop a gold price explosion.
CARTEL CAPITULATION WATCH
The PPT fared better with their DOW propping. It rose another 23 to 10,027, while the DOG lost 1 to 1975.
The DOW managed to move up AGAIN and stay above the popularly important 10,000 mark even though the dollar closed late below 85 (84.98, down 38) and crude oil reversed course to close up sharply.
The euro rose .64 to 127.93 and the yen ended the day at 105.82, a new low for the move.
08:30 Q3 Employment Cost Index reported 0.9% vs. consensus 1%
Prior reading 0.9%.
* * * * *
09:46 University of Michigan Confidence reported 91.7 vs. consensus 88 -- Reuters
Prior reading 87.5.
* * * * *
NEW YORK, Oct 29 (Reuters) - U.S. consumer sentiment deteriorated in October as rising energy costs and persistent job worries made Americans less optimistic about the future, according to a survey released on Friday. The University of Michigan's said its consumer confidence index dropped to 91.7 in October, down from 94.2 in September but higher than a mid-month reading of 87.5, according to market sources who saw the subscription-only report. -END-
* * * * *
09:58 Oct. Chicago Purchasing Manager's reported 68.5 vs. consensus 59, says Bloomberg, citing Market News
Prior reading revised to 61.9 from 61.3.
* * * * *
10:04 Chicago PMI stronger than expected; strongest since January 1988
The 68.5% October reading was much stronger than the 59.0% consensus and September's 61.9%. It was also the strongest reading in more than 16 years. Both the orders index and production index were very strong - rising to 79.4% from 69.7%, and to 79.1% from 58.9%. The employment index remained subdued, rising to 54.1% from 53.9%. These regional indexes are quite volatile, so some caution is warranted in interpreting the October report, but the strength is nevertheless impressive. Stocks moved higher initially but are now pulling back: Dow +30.0. Bonds moved lower: 10-year note (4/32) to yield 4.07%.
* * * * *
WASHINGTON, Oct 29 (Reuters) - U.S. businesses are less optimistic about economic growth, hiring and capital spending than they were three months ago, but high energy costs have not had a big impact on spending plans, a survey on Friday showed.
In the survey of 115 members of the National Association for Business Economics, 29 percent said they were more pessimistic about economic growth in the second half of 2004 than they had been three months earlier, while 18 percent said they had a rosier outlook.
14 percent of respondents expect the U.S. economy to grow at more than a
4 percent annual rate in the second half of 2004, down from 47 percent
who saw such robust growth in July...
The survey was taken between Oct. 11 and Oct. 22...
* * * * *
What am I missing here? The Wall Street pundits continue to claim there is no inflation threat in the US. Yet, the employment cost index is running at double the rate of the Fed Funds rate, which means real interest rates in the US are still negative and that is inflationary.
What is going to happen to US business optimism WHEN higher energy costs DO start making an impact on spending decisions?
Some fun from Sarge:
Re: seasonal and hedonic quality adjustments:
is of great importance to set a resolution, not to be shaken, never to
tell an untruth.
There is no vice so mean, so pitiful, so contemptible; and he who permits himself to tell a lie once,
finds it much easier to do it a second and a third time, till at length it becomes habitual.
Hey Midas . . .
Anyone ever discuss the definition of hedonic? It comes from the Greek hedonikos, from hedone, which means "pleasure."
Ever heard the word "hedonistic?" That's an adjective meaning "devoted to pleasure." Hedonism is any theory that gives PLEASURE a central role. Hedonism is the pursuit of pleasure as a matter of ethical principal. As Wikipedia says, "The simplest form of hedonism in ethics is "whatever causes pleasure is right". Even that simple version immediately runs into trouble. Pleasure for whom? Average pleasure? Is that the median or the mean? How can you make interpersonal comparisons of pleasure, anyway? Or even cross-time comparisons for the same person?"
Having said that, how do we apply this to STATISTICS?
So a hedonic quality adjustment is nothing more than number tweaking which results in pleasure. Now who are they trying to please?? You and I?? Or themselves??
I think the clowns in D.C. have a misunderstood on hedonic adjustments.
They aren't pleasing me!!
Chuck checked in early on:
Morning. Did you come in for the funeral? One day we'll meet, and I still believe it will be watching the sunset over the Pacific in Puerto Vallarta, sipping a Modelo Negra or a Margarita.
The gold share market is getting more and more curiouser. I can't imagine who is selling these cheapies, but it is quite extraordinary. If gold is going to break out, we should see some real pop in Newmont and Goldcorp. The discrepancy between them and the exploratory stocks is getting more and more extreme. If this was occurring after a large move up, it would be a very dangerous warning sign, but I see the opposite here.
I wouldn't be surprised to see this happen right after the election, no matter who wins. It's a Friday, so I never expect anything good for us, but there is a persistence in the metals market. Chuck
Garic hits the nail on the head:
While I am sure most gold enthusiasts first reaction to this week in the market is once again being disgusted at the obvious the manipulation in Oil, Stocks and Gold, I am ecstatic. Whoever is taking the other side of the trades by shorting gold and buying stocks during an environment of growing stagflation spent a lot of money on a contra fundamental trend trade. Even with all this capping Gold is set up to close at a 16 year weekly closing high and a 16 year monthly closing high. 16 years is the amount of time Barrick & J.P. Morgan have been in the business of hedging Gold; therefore, by definition every hedge contract ever written is under water at the end of this week and the end of this month. J.P. Morgan just reported their poorest trading revenue in many quarters. By definition their Gold trading books will be closing this week and this month at new lows. Pressure will be building to make quarterly earnings and it is clear their Gold trading tactics are hurting.
Technically speaking the Gold market has now completed a similar chart pattern as it's 28 week consolidation of 2002 which setup the move from 330 to 380. Any one who has ever studied William O'Neil's greatest winner's charts should be drooling; a clear cup and saucer formation has formed.
The U.S. dollar index is also closing at an 8-year weekly and monthly closing low. Therefore, prudent foreign holders of U.S. financial assets will be losing sleep this weekend.
As far as the stock market is concerned every time the Dow has rallied off of it's lows this year the VIX (Volatility index) has plunged; theoretically from smart money shorting puts. This time it didn't plunge. Does that mean smart money feels this is a temporary rally; therefore, they are using this rally in the averages to cover their short in puts. It is being reported that dollar volume of new issues this month has been the highest since October 2000. So I went back and took a look at October 2000. Let's remember that the economic climate had turned down over the summer; yet, the S&P and Dow hung in going into the election and had a significant 8 day rally at the end of October going into the election closing Monday November 6th the day before the election at 1432. The rest of the week was not so good the S& P fell to a closing low of 1351 by November 13th and continued down 21% over the next 5 months to close at 1139 on March 23rd.
who would you rather be: a foreign investor in American financial
assets, a stock index investor who if history repeats itself is about to
lose 21%, a J.P. Morgan account executive whose client is sitting on a
$1.8 Billion mark to market loss or an investor in Gold which just
closed at a 16 year monthly high. For all that has been said about the
open interest in Gold being large, one thing is indisputable the longs
have a profit and the shorts have a loss.
Mahendra versus Arch Crawford:
AT 14:15 P.M. E.S.T., ASTROLOGER ARCH CRAWFORD WAS INTERVIEWED ON CNBC
HE PREDICTED TODAY GOLD IS AT TOP AND WILL START TO DECLINE FOR NEXT 30 DAYS BEFORE RISING AGAIN. SAME FOR OIL.
My friend Mahendra called today, pleased as punch and just as bullish as ever on gold and silver. I'm going with him.
I'm not watching CNBC. However, how typical. Gold makes a 16-year monthly high close and they bring on a bear.
More proof that mine gold supply is on the wane, while costs are rising sharply:
JOHANNESBURG (Mineweb.com) -- Production targets at the Ashanti operations that AngloGold absorbed earlier this year were nearly met at in the third quarter of 2004, but costs were substantially higher than budgeted.
The 310,000 ounce target set in the third quarter was about 13,000 ounces short, according to Mineweb's calculations, while costs at the mines averaged around $296/oz, compared to the $269/oz budgeted... - END-
Last night I had a lovely dinner at the Petroleum Club here in Dallas with my friends Charles Pace, his pretty and brainy girl friend Kate, Ray Foster, and Neal Foneman, CEO of Aflease in South Africa. Neal was impressive and seems like the right man to turn this beleaguered company around. It has been beset with investor/management turmoil, skyrocketing energy costs, and much higher rand affiliated costs. Recently, they shut down some gold operations which were causing a cash flow drain and have restructured the company to concentrate on their strengths:
*A world class Uranium resource.
*Expediting production from their high margin gold properties and going into production in Q2 2005.
Other South African gold producers have been beset with similar problems. Durban Deep is an obvious one. When gold takes off, the South African gold producers that have been beaten up are likely to roar. Few in the gold world envision bullion trading at $500. It will. As gold takes off for that kind of price level, the cost problems besetting these companies will fade in the background and their share prices will explode.
To read more on Aflease (35 cents on the Nasdaq pink sheets), go to www.aflease.com
There is another enormous positive about this company. It is surrounded with some of the brightest and most able people in the gold industry. They are also some of my favorite people anywhere:
*Brett Kebble, GATA's hero, who rescued Aflease via a bailout through Randgold Resources.
*Peter George, the Mr. Gold of South Africa, and a veteran, staunch GATA supporter. Peter is a substantial investor in the company.
*Ferdi Lips, ex-Swiss banker of note, who wrote Gold Wars, and has had an exemplary career in and around the gold industry from his native Zurich. Ferdi is a Director.
I own Aflease and will be buying more in the near future.
One of the most enjoyable aspects of my tenure as GATA chairman the past 6 years has been the people I've met and how many are intertwined. Neal met with J-Pacific CEO Nick Ferris in Vancouver before coming to Dallas and also with one of my heroes, the ubiquitous John Anderson. Japan's legendary Tammy Matsufugi (who has one of the only gold funds in Japan and is another GATA supporter) is a significant investor in both J-Pacific and Aflease. Then there is GATA favorite Adam Fleming, former Harmony chairman, whom Neal worked with years ago at Harmony. All in all, a wonderful group of people.
The gold shares rose with little enthusiasm and are falling way behind bullion. The XAU gained 1.84, while the HUI rose 4.91 to 233.60.
While gold is making its 16-year monthly highs, the HUI isn't even close to its 52-week high of 258.60.
Rarely does a fundamental and technical set-up come together like this in such an incredibly bullish way. There is no telling what could happen when gold breaks through $430 decisively. It's only a matter of time before a gold derivatives neutron bomb goes off, which could send the price up in ballistic fashion. When and how will depend on the speed of gold's price ascent. Stay tuned though, one is coming in the weeks or months to come.
One more point to stress going into this sweet dreams weekend. While some of the most sophisticated investment players in the world (like the Russian Central Bank) know what GATA knows, your average investment manager has never even heard of us and our work, thanks to the fact we do not have a free financial press in the United States. They don't know half the central bank gold is no longer there. They don't know the humongous size of the gold short position, one which cannot be covered unless gold rallies hundreds of dollars per ounce - and then only because the peasants of the world take profits with their holdings and bring thousands of tonnes of scrap to the market. They don't know about what kind of scam The Gold Cartel has pulled on the investment world. They will one day, but not now.
What is important is YOU KNOW! And therefore, YOU KNOW what is coming!
GATA BE IN IT TO WIN IT!
Just sent to WSJ, Barron's, Power Lunch, Kudlow & Cramer, IBP, Bloomberg & Street Account.
Comex Gold Futures had a 16 year weekly and monthly closing high today. The previous weekly closing high was 426.80 on 01-04-04. The previous monthly closing high was 427.30 on 03-31-04. Many market observers believe weekly and monthly closing prices are more significant than daily closing prices because this shows true investment interest. While the media has been reporting that Gold has been rising only because of the falling dollar the real story in Gold is after 16 years of producer hedging mine production is below jewelry demand. Producer hedging has helped depress the price of Gold and thus the long range profitability in the Gold Mining Industry. Indeed, Barrick Gold's mark to market loss in their hedge portfolio has crossed $1.8 Billion with today's closing prices. Third quarter earnings report from every major Gold Mining Company showed falling production and rising costs and depressed earnings across the board. This suggests there is little incentive to bring more pro Garic.
Copyright (c) Le Metropole Cafe, Inc.
© 2004 Bill Murphy
Bill Murphy | Chairmen & Co-founder, GATA