HOUSTON -- Gold closed the month of September with a four-digit price of $1,007 and change, the first time it has shown a monthly close above $1,000. For the past two weeks since the last full Got Gold Report the yellow metal has consistently shown support in the $990s (on a closing basis).
Material resistance seems to have formed at slightly lower levels over the past two weeks, first forming in the $1,020s, then edging a little lower to just under $1,010. That shows up on the charts as a technical “flag” or small consolidation on the charts.
The fact that we have a consolidation – at upper and historic resistance – means that the jury is still out whether gold has what it takes to complete a convincing breakout. So far, the massive resistance put up by the largest gold hedgers and short sellers of “paper gold” futures has been enough to keep gold from printing new all time highs. (More about that in the Gold COT section below.)
The short-selling gauntlet thrown down against gold futures by the largest of the largest commercial futures traders remained in place over the past two weeks. While the battle rages on, it does so without us directly in the battle, as we have been stopped out (profitably) to the sidelines with most of our short-term trading.
The longer gold fails to advance beyond the upper edge of the developing technical “flag” (convincingly) the more emboldened those who would sell gold become.
On the other hand, the longer that gold fails to violate its obvious new support in the $990s, the more confident gold bulls will become.
Obviously, such a gold bull-bear stalemate will be short lived (no pun intended). Sooner or later gold will “show” its hand, forcing one side or the other to take defensive action.
We are convinced that whichever way gold ends up moving out of this high-consolidation there will be significant and rapid follow through. We are intensely interested as to which of the battling armies will achieve victory, but the indicators we follow religiously are in short-term conflict, rather than agreement.
We opened the last full Got Gold Report with:
“In order for the yellow metal to continue higher it will take buying, new buying and lots of it in order to overcome the intense amount of selling by the largest of the largest gold futures actors. Instead of blasting higher on massive short covering once it cleared the four-digit barrier, gold has set up a “high flag” and the most visible short side players are adding to their net short positioning in record amounts as if convinced that gold has more downside than the opposite.
Gold is acting like everyone is waiting for the new buying to occur. Waiting for something” to happen. Gold is waiting for the “trigger event,” … the “switch to be thrown,” … “the next wave of buying.”
We are about the same place as then, but with perhaps a bit of an edge developing for those on the short side very short term. However, we can’t call it much more than just a “bit” of an edge. The fact that gold has managed to hang onto chart real estate in four-digit territory for more than just a few days is a very strong bullish indication.
Up to now, all forays of gold above the $1,000 line were fleeting and immediately followed by very harsh sell-downs. The fact that gold has not even once attempted to challenge its initial consolidation breakout near $976 is also supportive. It suggests that gold is well bid on any dip currently.
We are nearing the one-month mark since gold first crossed the $1,000 line this time on September 8. Gold bulls may have become nervous since gold has stalled in its ascent, but if gold doesn’t break high-support soon (by closing below the $990s), it will be the bears who will get the “willies” and furnish the buying needed to blast gold northward as they exit.
We have personally been stopped out (very nicely profitably) on a majority of our short-term gold positioning. We remain long with ETFs, but with extremely tight, “at resistance” stops and we are considering some downside option protection as opposed to keeping the tight stops. The primary reason is because these positions are now very close to half a year old and we consider it unlikely they could be replaced anywhere near where they were put on.
As short-term speculators with large paper profits, our job is to protect those profits, especially at points of obvious and historic resistance.
Having said that we remain at the ready, like a bird dog on point, to redeploy back into gold (and silver) following Friday’s stunning reversal following the worse-than-expected U.S. non-farm payroll figures. The attempted sell-down immediately following that report was not only stopped in its tracks, but short covering right after that caused an impressive Friday near-high-close for gold. (Not as impressive for silver.)
Short-term trading aside for just a moment, we see no reason to change our longer-term positioning in physical gold and silver metal. If anything the events of the past few weeks have only added support to our primary thesis - that an entire world will want to convert their fiat currencies into precious metals on just about any dip.
Please note: The public issue of Got Gold Report is usually released only after a delay following delivery to Gold Newsletter (GNL) subscribers. However, due to New Orleans Investment Conference news below, this particular issue is being released to the public at the same time it is made available to GNL.
GNL subscribers enjoy access to all Got Gold Reports, technical charts, analysis and information, as well as Brien Lundin’s timely and actionable analysis of specific resource related companies. For more information or to subscribe visit the Gold Newsletter home page.
Let’s see what some of the indicators are indicating:
Gold ETFs: As gold edged up $12.09 for the week, SPDR Gold Shares (GLD), by far the largest gold exchange traded fund, reported a net weekly increase of 2.441 tonnes to show 1,096.548 tonnes of gold bars held by a custodian in London.
All five of the gold ETFs sponsored by the World Gold Council (WGC) collectively added a net 3.51 tonnes of new gold metal, to a combined 1,292.76 tonnes worth about $41.7 billion.
Apparently there was again somewhat more buying pressure than selling pressure in the world’s gold ETFs over the past week. But not enough to suggest a surge of buying interest.
The authorized market participants for gold ETFs add gold (and increase the number of shares in the trading float) in response to more buying pressure than selling pressure and vice versa.
Silver ETF: Barclay’s (soon to be BlackRock’s) sponsored iShares Silver Trust (SLV), reported a small, maintenance reduction of 3.53 tonnes to 8,594.22 tonnes of average 1,000-ounce allocated silver bar inventory.
As expected in the last full Got Gold Report, SLV reported a reduction of 128.45 tonnes the week ending September 25. That sale of metal by SLV had been telegraphed by the market in the form of wider than normal spreads between the spot price of silver and the net asset value of SLV per share as we reported in the last full Got Gold Report.
We have to take note, then, of some modest negative money flow (more selling pressure than buying pressure) for the largest silver ETF. Taken in context with continued lower premiums for physical silver products lends support to the bearish case for silver very short term.
However, we would not be at all surprised if silver were to find overwhelming support not all that far below the current trading.
Please see the charts linked below for technical commentary on gold, silver, the U.S. dollar, mining shares and key ratios.
Gold COT Changes: In the Tuesday 9/29 Commodities Futures Trading Commission (CFTC) commitments of traders report (COT) for gold metal the COMEX large commercial’s (LCs) collective combined net short positioning (LCNS) declined 12,376 contracts, or 4.3%, from an all-time record 287,610 to a still stratospheric 275,234 contracts net short Tuesday to Tuesday as U.S. dollar spot gold fell $22.20, or 2.2%, from $1,014.50 to $992.30, while the total open interest fell 12,560 to 454,585 contracts open.
Notice, please, that the decline in LCNS was roughly equal to the drop in open interest. That argues with those who blindly contend that “the commercials drove down the price.” Instead, as gold declined a little in price, the LCNS declined a little. If the commercials had “driven gold lower” wouldn’t their net short positioning have increased?
Gold versus the commercial net short positions as of the Tuesday COT cutoff:
Source for data CFTC for COT, cash market for gold.
The chart above looks at just the nominal amount of commercial net short positioning. The chart below compares the COMEX commercial net short position for gold with the total open interest (LCNS:TO). That gives us a better idea of how the largest hedgers and short sellers are positioned relative to the rest of the COMEX traders.
As measured against all COMEX open contracts, the commercial net short position remains at extremely high levels. As of Tuesday, September 29, the LCNS:TO was equal to 60.6% of all contracts open on the COMEX, division of NYMEX in New York. That is only just slightly lower than the all time record 61.6% of the prior week.
Source for data CFTC for COT, cash market for gold.
Clearly the large, well-funded and presumably well-informed traders classed by the CFTC as commercial remained strongly positioned for gold weakness as of the most recent COT report.
Silver COT: As silver declined 97 cents, or 5.7%, COT reporting Tuesday to Tuesday (from $17.12 to $16.15 on the cash market), the large commercial COMEX silver traders (LCs) reduced their collective net short positioning (LCNS) by a dinky 249 contracts, from 64,355 to 64,106 contracts of net short exposure.
The total open interest ROSE 571 contracts to 128,695 COMEX 5,000-ounce contracts open, after rising 4,251 contracts the week prior.
The COMEX commercials sure didn’t exit very many of their net short positions as silver fell just under a dollar. They were apparently convinced that silver has much more downside with the white metal in the low $16s.
Source for base data CFTC for LCNS, London Silver Fix for silver from LBMA until 2-26-08 then cash market
For context, the chart below compares the silver LCNS to the total number of open contracts on the COMEX, division of NYMEX (LCNS:TO). That gives us a better idea of how the commercials are positioned relative to all the COMEX traders.
When compared to all the contracts open, the COMEX commercial net short positioning in silver futures edged down slightly from 50.2% to 49.8% of all COMEX contracts open.
Frankly, we are disappointed in the very small amount of commercial net short reduction as silver tested the $16 level. That suggests that the commercials are pretty secure in their short-silver positioning at present. Of course, as we have said so many times, that doesn’t necessarily mean the commercials are “right.”
Source for base data CFTC for LCNS, London Silver Fix for silver from LBMA until 2-26-08 then cash market
Although a very high LCNS:TO is usually bearish, sometimes a very high LCNS:TO is actually a precursor to a major breakout higher.
Our personal stops for short-term silver trading having already been very profitably met, we await further developments in the silver market with extreme interest. If we were still heavily long silver, we would be at the tightest of tight stops so long as silver remains under its recent breakout level of roughly $16.30. Either that or we might elect to buy some “insurance” in the form of near-strike (no lower than $15) long-dated (no closer than December) puts. Please see the silver charts below in the charts section for more technical commentary.
Our current stance is that we would like very much to reenter the silver ETFs on either a harsh retrace (once convinced the retrace has run its course) or on a convincing surge up above the recent highs in the middle $17s (if convinced that a true runaway breakout is getting underway).
We await further signs from the silver market following a nicely profitable trade in other words. We have taken no action with our longer-term physical positions and, with the profits from the short-term trading in hand, we are eager to add to them under the right conditions now that premiums for physical silver have returned to reasonable levels.
We are somewhat concerned that the silver miners have been underperforming the metal lately and that affects our confidence very short term.
New Orleans Investment Conference This Week
The New Orleans Investment Conference, at the Hilton New Orleans Riverside October 8-11, is here. For more information or to reserve for the conference please use this special link.
This “NOIC” is the one must-attend conference of 2009. What fantastic timing for a major conference event to occur. And what an amazing lineup of business and intellectual giants conference organizer Brien Lundin has assembled for us this year.
“The New Orleans 2009 faculty will feature dozens of the most successful advisors in stocks, precious metals, mining shares, mutual funds, currencies, options, fixed income investments, economics, geopolitics and more.” To see all the powerhouse talent that attendees will have access to at this year’s Big Easy confab, click here. You’ll be amazed.
I will be making two completely different presentations at the conference. “Trading Gold and Silver Using Indicators” and “Vulture Bargain Hunting – Gaming the Resource Company Gurus.” I also may sit in on a panel or two for the gold, silver and resource company markets.
My good friend Thom Calandra, who has had a very hot hand lately for his Ticker Trax on Stockhouse.com subscribers, will be there and plans a workshop. The Coffin Brothers, Eric and David, who produce the Hard Rock Analyst service will also be there hosting a valuable workshop.
I sure am looking forward to presenting, to listening and learning from the professional advisors and experts Brien will have there for us and I hope to see you there too. Again, for more information, for the spectacular line-up of speakers this year and to reserve for the conference click on this special link.
Summing up:
We closed the last full Got Gold Report with the following (in italics). “For short term traders there is no choice but to tighten stops up to an “at resistance” level, and let the Trading Gods decide when the trade is done. Unless gold can print something above $1,033 and maintain that level, the sellers will likely become emboldened and those on the long side will likely lose their nerve, then rush the exits once again.
A well placed stop now could mean the difference between a very nice profit and a very harsh “profit-ectomy.” Please do not confuse that with a sell signal, which it isn’t. No sir, if gold manages to find enough buying interest to cause a new thrust higher, we sure want to be on board. Indeed, it is this kind of set up we had thought would be in place when gold did finally explode on higher through the Great Wall of Gold.
With the miners merely “answering” gold, with the ETFs showing only mediocre positive money flow or just flat in that department; with the largest of the largest gold futures traders record net short the metal and apparently able to take as much of that anti-gold positioning as they want, the odds probably favor one more reaction to the downside.
But I personally won’t be betting on that, exactly. I’ll let the Trading Gods decide when the short-term trade is done. That’s what we traders do. Longer term, I’m confident that an entire world now wants very badly to catch any dip at all in the one true standard and store of value - which we know resides in gold and silver.
We remain on the hunt for special situations and “vulture opportunities” via “stink bids” for obvious lack-of-liquidity, non-news-related, over-reaction sell-downs on the miners via our Vulture Bargain Hunter Method. Companies we believe have been sold down too far with longer-term high-percentage recovery possibilities, like the candidates Brien Lundin mentioned in the most recent Gold Newsletter.”
We see no reason to alter the above.
Having been very profitably stopped out of most of our short-term gold and silver positions we can now comfortably wait for signs that suggest that it is time for reentry.
This is a gold and silver bull market until proven otherwise. As speculators we have but two possible positions in a bull market. In bull markets we can be long or on the sidelines. Definitely not short, except to hedge.
Oh, and speaking of Vulture Bargain Hunting, the following small resource companies on our list seemed to be attempting bottom consolidation or post-crash consolidation breakouts over the past week. (Click on the name to go to our tracking chart.) Forum Uranium (TSX: V.FDC), Paragon Minerals (TSX: V.PGR) and Victoria Gold (TSX: V.VIT).
As long-time readers know, our favorite time to add to our Vulture positioning is immediately after bottom consolidation breakouts.
Got Gold Report Charts
Below are few samples of the Got Gold Report (GGR) technical charts. Gold Newsletter subscribers enjoy access to all GGR charts and all the GGR reports, commentary and trading ideas.
That’s it from Houston this week. Until next time, good luck, good trading and as always, MIND YOUR STOPS.
The above contains opinion and commentary of the author. Each person should study the issues carefully and, as always, make their own informed decisions. Disclosure: The author and/or his family currently holds a net long position in iShares Silver Trust, long San Juan Basin Royalty Trust (SJT), long Permian Basin Royalty Trust (PBT), long the following “Vulture Bargain Hunter Stocks” mentioned in this report or within the last three months: Timberline Resources (TLR), Paragon Minerals (PGR.V), Forum Uranium (FDC.V), Odyssey Resources (ODX.V), Radius Gold (RDU.V), Columbus Gold (CGT.V), Endeavour Financial (EDV.T), Terraco Gold (TEN.V), Hathor Uranium (HAT.V), Natcore (NXT.V) Esperanza Silver (EPZ.V), long DZZ as a gold hedge (but with an extremely tight stop) and currently holds various (approximately 20) other long and short positions in mining and exploration companies. The author receives no compensation from any company mentioned in this report. To contact Gene use LLCCMAN (at) AOL (dotcom).
