Posted On: Friday, October 26, 2007, 5:38:00 PM EST
Gold and Dollar Market Summary
Author: Dan Norcini
Dear CIGAs,
Included for you convenience is the Broad Dollar index, the Canadian Dollar and the Australian Dollar along with an assortment of charts of gold in various currency terms.
Please note the impressive action in gold when measured in alternative currency terms. We here in the US are somewhat short-sighted at times forgetting that gold is a universal currency and that investors from other nations are interested in how it is performing in terms of their own domestic currency. To illustrate how powerful this current leg in gold is, note the chart strength being demonstrated by gold in terms of the Russian Ruble, the Swiss Franc, and the British Pound, which made new multi year highs this week. In addition, gold in Canadian Dollar terms and Australian dollar terms is putting in bullish price action as down-sloping trend line resistance gives way and horizontal resistance levels come into play. I have already sent up charts earlier today of Euro gold and Yen Gold both of which are impressive, especially Yen Gold.
In short, what we are witnessing is a confirmation that gold has entered fully into the second stage of its bull market in which it is either outperforming many other currencies or threatening to outperform them. In other words, it is truly trading as the ultimate in currencies. That is why the attempts by the monetary authorities to suppress its price are meeting with such incredible difficulties. Buyers from all over the world are moving into gold and those who are attempting to stand against them are finding that they have bitten off far more than they can chew.
The enemies of honest money (gold) are not blind to this and trust me, they are making certain that they have long exposure to the gold market. That is one of the things that Jim is saying when he talks about the non-recourse loan situation in gold and who the lenders are!
The Commitment of Traders report this week is not particularly revealing since it missed the big move up of the last few days, but we pretty much already know who is doing the buying in the gold market without looking at the report and we know who is doing the selling.
I want to call your attention to the fact that this week’s reports will reflect the big events of the Monday of this week when we saw some quite significant moves in a number of markets than can be traced back to the conclusion of the G7 summit that took place last weekend. You will recall that it was on that day that the dollar demonstrated what a few of us termed a “laughable” rally since it was obvious that this was an entirely staged official sector ploy put on in an attempt to save face for the monetary officials who in reality are helpless to reverse the downdraft in the dollar. It is my belief that the buying in the dollar was completely contrived for public consumption last Monday and that like any other intervention it did not last long as the primary trend, which is down, quickly reasserted itself. Willing sellers were eager to pounce on the dollar using the short-lived engineered bounce as an opportunity to either get short or get shorter.
Nevertheless, what you will see in the COT reports this week for Gold, the Euro, and the Yen, and no doubt that of many other currencies as well, is a reflection of the dollar’s brief rally which gave birth to speculative long liquidation in an assorted number of other markets. By Wednesday of this week, all that was behind us and gold shot to a 28 year high while the Dollar dropped to a new decade plus low and the Euro went on to make another decade plus high.
The open interest in gold not only met the 500,000 level this week, but eclipsed it. With the kind of buying we saw taking place in there today, I would not be the least bit surprised to see open interest total 510,000 when they release the data on Monday morning for today’s session. As usual the top callers in gold have been dead wrong once again and by the records that I keep, many of them have the dubious distinction of having the poor dupes who pay them for their rotten services sitting on the sidelines with the gold bull freight train leaving them behind in the station. After all, these are some of the same guys who were braying and bleating that a top was in three weeks ago based on their “expert analysis of the COT reports”. Depending on where your starting point is, gold has traveled a minimum of $30 higher since then and a maximum of $40. That is a respective $3,000/contract or $4,000/contract worth of gains that their subscribers have lost.
There is an old saying about going to the well once too often. That is exactly what has happened to these self-anointed prophets who have plagued the gold community since 2001. They were fortunate to have managed to pick a few tops in the past so they deluded themselves into thinking that they alone possessed some sort of innate sixth-sense that put them in unique touch with the gold market so that top picking was an effortless accomplishment that could be done seemingly at will. All that was necessary was to convince their paid subscribers that they possessed this secret gnosis and that for a reasonable price they would share this gnosis for all those who were willing to surrender the labor of their hands for it.
What they overlooked was the nature of markets, the nature of gold and the nature of currencies. Quite simply – bull markets ALWAYS run further than people expect they will. Emotions such as fear and greed are powerful agents of market action and are more often than not underestimated by those trying to pick levels at which markets will turn. The gold market is a relatively small market when measured in financial terms and the entrance by even a rather small amount of well-capitalized investors or traders can drive it like a dinghy in a hurricane. Besides, the demise of the US Dollar and the stunning rally in crude oil has investors flocking to gold in droves and let me assure you, they are not running to the internet to read what some COT-based top picker is saying about the gold market before they step up and buy it. When you see crude oil prices over $90/barrel and rising, it is pretty damn hard to make an argument that it is not without inflationary implications.
The Canadian Dollar continued its torrid rally against the Greenback while the Australian Dollar, which to me still appears headed for parity with the US Dollar, made a brand new multi year high.
Watching the melt up in the US equity indices can best be described as watching a train wreck in slow motion for what we are witnessing in there is nothing but a mirror image of the meltdown in the US Dollar and the horrific implications on the inflation front that are coming our way/
Enjoy your weekend and remember to let the gold market tell you what it wants to do. Use the tools you have been taught here.
Dan
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