Murphy On the Markets
Bill
Murphy
October 29 - Gold $428.20 up $3.50 -
Silver $7.29 up 14 cents
Gold Trading Like A Coiled Spring/Makes
A 16-Year New High Monthly Close!!!
It
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:
08:30 Q3 GDP reported 3.7% vs.
consensus 4.3%; Consumption 4.6% vs. consensus 4.6%
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.
December gold
http://futures.tradingcharts.com/chart/GD/C4
*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.
Gold monthly
http://futures.tradingcharts.com/chart/GD/M
*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 Café 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 Café 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.
The
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.
JB
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.
December dollar
http://futures.tradingcharts.com/chart/US/C4
The euro rose .64 to 127.93 and the yen
ended the day at 105.82, a new low for the move.
US economic news:
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.
Just 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…
-END-
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:
"It 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. --Thomas Jefferson
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. Moreo
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’Neils 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.
There is a
So 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.
Garic
Mahendra versus Arch Crawford:
TODAY AT 14:15 P.M.
E.S.T., ASTROLOGER ARCH CRAWFORD WAS INTERVIEWED ON CNBC STREET SIGN.
HE PREDICTED
TODAY GOLD IS AT TOP AND WILL START TO DECLINE FOR NEXT 30 DAYS BEFORE RISING
AGAIN. SAME FOR OIL.
ANY COMMENTS?
KIND REGARDS
ELMAR
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.
HUI
http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=hui&sid=0&o_symb=hui&freq=1&time=8
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!
SMILIN' MIDAS
Appendix
Just sent to WSJ, Barron’s, Power Lunch,
Kudlow & Cramer, IBP, Bloomberg & Street Account.
Editors,
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
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