A Visual Measure of the Recent Selling Pressure in Gold
Dan Norcini
I am of the opinion that the reason for this undertaking is that once resistance in place near $410 fails, gold will vault directly to the $425-$430 region and test the double top highs. A breach of that region will then send gold directly to a test of $450. It would seem the financial powers that be have decided to send a message to speculators that gold is off limits as a soaring gold price a few months before the general election is not something they desire. By pouring on the paper shorts, they are obviously of the opinion that they can cause frustrated longs to ditch their newly established positions and remove the buying pressure that has been rebuilding under the gold market. Whether they succeed in this gambit remains to be seen. What is certain however is that the statistics reveal the desperation of the haters of gold and the lengths they are going to this time around to keep the illusion of economic wholesomeness alive and by consequence to once again plunder the public.
I have included a chart of August gold complete with a graph of the open interest totals over that same time period. For the sake of illustration, I have marked both charts with lines and included the closing gold price along with the date and above that, on the open interest graph, the total number of contracts open along with the date for that figure as well.
Observe first the notations on the left side of the Gold chart. You can see that on March 3, 2004, August gold closed at the price of $394.60. Just a few days later, by looking above to the open interest graph, you will see that open interest bottomed at 226,780 on March 8, 2004. Zeroing in a bit closer, we can see that on March 16, just shy of two weeks later, gold closed at $404.50, an increase of just about $10.00/ounce. What was the open interest figure on that date? Answer - 245,495. In other words, it took a total of 18,715 new contracts (245,495 - 226,780) to drive the gold price to a $10 gain.
Now look over at the right side of the chart where you will see that I have located the point where both the closing gold price and the open interest totals are relatively close in number to the earlier March 2004 period. That occurs on June 29, 2004 when gold closed for the day at $393 and open interest came in at 224,251. While not an exact match it is close enough to serve our purpose of comparison.
As of last Friday, July 16, gold closed for the day at $406.80. It had moved $13.80 from its closing price on June 29 in a bit more than two weeks. Simultaneously, open interest had increased from 224,251 to 263,574 or an increase of 39,323 contracts. In other words, this time around it required more than TWICE the amount of new buying to move the gold price a mere $3.80 higher than it did four months previously.
Let me give you the figures in a side by side table to make the comparison more striking.
What this reveals is quite extraordinary. The commercial short category, a.k.a. the gold cartel, has been expending a tremendous amount of firepower in order to absorb the prodigious amount of new buying which is entering the gold market. They are currently selling at a rate of more than 2X the pace of their selling a mere four months ago. It is almost as if they are in overdrive. From where this trader sits, this determined effort has the smell of desperation to it. A failure to hold gold here and a run to $430 and gold will be screaming out "TROUBLE" to all who have ears to ear.
Contrary to the assertions of the half-wits who continue to deny government collusion in the gold price suppression, the commitments data reveals that the only sellers of size in this market are the commercial category. Since it is a know fact that the majority of mining outfits have indicated they are REDUCING short hedges, not increasing them, that leaves the bullion banks as the main entities making up this segment of the open interest. As a trader of many years experience, what I find particularly odd about the above data is that normal hedging activity would be diametrically opposite in mode to what is seen here. Let me explain.
By nature, sellers obviously want the highest price possible for their product. They do not fight bull markets. On the contrary, they sell scale up into such markets with lighter amounts of sales done at lower levels while SLOWLY increasing levels of selling as the market rises. Normally, when speculators are determined to drive up the price of a particular commodity, shrewd commercial interests will simply step aside and let them drive the price significantly higher selling token amounts to cover portions of their inventory or future production. Then as buying pressure begins to abate, they increase the volume of their sales. The idea of course is to obtain the best possible price for their product.
Referring to the above chart once again, note the date of June 16, 2004 when gold closed at $385.20. That date marked the low in the number of short positions held by the commercial category which came in at 127,617 contracts. As of Friday, July 16, gold closed at $406.80 for a $21.60 monthly increase. Since the data will not be released until this Friday, July 23, I am guessing, but feel very confident, that the number of commercial shorts will have increased to over 180,000 during that same time span. In other words, the gold price runs up a mere $21 and the commercial hedgers pile on more than 50,000 new contracts or the equivalent of 5 million ounces? Who are they fooling? No bona fide hedger in his right mind would act so stupidly. This is not hedging in any sense of the word; it is naked speculation. Nor is it scale up selling to obtain the best possible price for a product; it is a brazen and obvious attempt to squash a price rally and force the price back down. Any outfit employing a risk management program of such nature would deserve to have the entire board of directors voted out of office by their stockholders and replaced with those who actually were in the business of offsetting risk; not taking it on. They certainly would demand an explanation from that board as to why they were not "selling high" or allowing for the price to rise to higher levels before they sold the bulk of their product.
One last thing and I close - The above data also reveals that a tremendous amount of physical gold from Central Bank vaults must also be in the process of being mobilized to add supply onto the market to absorb all this new, pent-up demand. It is one thing to slap on one short position after another and play around in the make believe world of the Comex. After all, all that is required to do that is to have sufficient margin to layer on positions. It is another thing to deal with the real gold market which is the physical market. That market doesn't deal in paper; it deals with real gold bullion. If you are going to offer it for sale, you had better have it to sell. Simply put, the cartel is burning through gold like the California wildfires are burning through sagebrush. The tragedy in this is that this gold belongs to the citizens of America yet it is being used to further the private schemes of a group of elite bankers and financial power brokers. I do not know which is worse - the fact that this is occurring right under our noses or the fact that so many seemingly do not care nor do they want to even know about it.
Dan Norcini
July 20, 2004
Dan is a professional off-the-floor commodity trader residing in Texas and can be reached at dnorcini@earthlink.net with comments.
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