Bill Murphy on Gold

July 16, 2005

"If you have zest and enthusiasm you attract zest and enthusiasm. Life does give back in kind."

Dr. Norman Vincent Peale

GO GATA!!!

The funds unloaded early, taking gold down to $417.40 and the bottom of its massive wedge formation. The Gold Cartel and rest of the trade were substantial buyers, which firmed the market up. Then, a huge physical market purchase sent gold up $1 on the day.

The gold open interest rose 1559 contracts to 270,876. This tells us the funds, in addition to liquidating, were going short yesterday. Based on the gold action we saw today, the liquidation part is over, with this morning’s quick spike down looking like a selling climax.

What fun to see gold reclaim $420 so quickly. Good stuff, especially with the dollar on the upside. Gives us a real shot that a bottom has been put in.

The COT revealed the commercials adding 11,391 contracts to their long positions and decreasing their shorts by 18,042. No surprises there.

The silver open interest rose 1607 to 125,544 and remains unusually high, especially when contrasted with gold. The silver open interest is higher than when the gold open interest was 355,000. Talk about dichotomies.

Don’t know what to make of this one. The SEP/SEP silver spread narrowed 3 cents today. That is a substantial narrowing and usually indicates supply stress and is bullish.

Silver seemed to be a victim of some unwinding of long silver, short gold spreads.

The euro gold price finally showed signs of life again, storming back to 349.16, after sinking to the 346.60 area yesterday.

The dollar rose. 35 to 89.62, while the euro lost .50 to 120.71.

The CRB lifted .46 to 309.57. That would have put the old CRB about 314.50, still not far from multi-decade highs. Dec corn popped 6 more cents to $2.68.

I am still a proud member of Dr. Norman Vincent Peale’s Marble Collegiate Church in Manhattan, New York. The dynamic Dr. Peale, who wrote the heralded "Power of Positive Thinking," was still preaching when I joined his church in the early 80’s. His successor and friend of mine, Dr. Arthur Caliandro, is very special in his own right. It was my privilege to be responsible for Marble Collegiate Church’s first "I Have A Dream" sponsorship program – which was in its infancy stage. The bottom line is Marble raised enough money for this program to guarantee that a 6thgrade class in Harlem, N.Y. could continually guarantee its student graduates a college education if they lived up to their part. I was present for the first recognition ceremony at Marble. I still have a great affinity for Dr. Caliandro and Marble.

For more information on this very special program:

http://www.ihad.org/pres_msg.php

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So why should I bring that up except for relating to the Dr. Peale's quote? Simple. It is all about what Gold Rush 21 can be. A primary goal of GR 21 is to increase enthusiasm and zest to beat the bums. There is an enormous amount of positive thinking going into our historic conference in The Yukon. It is all about what the gold market can be. It is all about the effort which is going to be mustered to defeat The Gold Cartel. That effort might be the difference between $420 gold versus say $820 gold. It is the difference between your gold shares going nowhere fast and going up 300 to 1,000%, and more in some cases. It is the difference between a free market and an Orwellian one.

Let’s hear it for Vancouver. Excellon Resources and Iron Mask Explorations – both Vancouver based – just signed up. GATA thanks Ian Gordon, Joe Martin and Candente’s Joey Freeze for their continuing efforts to make GR 21 a historic success. Vancouver is coming on like my favorite race horse, Silky Sullivan:

"And now here comes Silky Sullivan!" -- Various race-callers

When the track announcer made that announcement during the 1958 Santa Anita Derby (GI), the then-record crowd of 61,123 that showed up for California's main Kentucky Derby (GI) prep race, began to scream and stomp for the big, handsome chestnut who had captured their hearts with his come-from-way-behind running style.

Silky Sullivan was more than just a racehorse. He was a phenomenon, the star of his own TV show and ghost-written newspaper column. He was the "people's horse," a Hollywood matinee idol with a flair for drama and suspense. Just when he seemed hopelessly beaten, he actually had the opposition right where he wanted them…

The Santa Anita Derby was vintage Silky. In the first five furlongs, he fell 28 lengths off the pace. But when jockey Bill Shoemaker rattled his bit - Silky didn't like to get hit with the whip - here he came, flying past horses until he was 3 ½-lengths ahead at the finish line…

http://www.kentuckyderby.com/2002/derby_coverage/derby_news/derby_news_04012002.html

-END-

That is the sort of late energy/sign ups coming out of Vancouver the past week or two. We are down the home stretch, so keep 'em coming Vancouver.

A month ago at Joe’s gold show in Vancouver I said the following in my presentation to the attendees:

"If GATA were to count on the response we have received to date from the Canadian mining industry, we couldn't beat the Little Sisters of the Poor."

That surely is no longer the case. By the time Gold Rush 21 is over, our team will be fully capable of giving The Gold Cartel all they can handle. Although, while we have several all-pros coming from Toronto, the participation and interest from the Bay Street crowd has been tepid to put it kindly. To describe the response between Vancouver and Toronto in football terms:

Vancouver 45 Toronto 14

Howe Street 45 Bay Street 14

Here is a beaut: In another Silky Sullivan performance, it gives me great pleasure to inform Café members that there are more attendees coming from Mexico than Toronto, including a television crew. ROB-TV where are you?

Mexico 24 Toronto 10.

There is still time Toronto. Some details:

*www.GoldRush21.com

*Our extraordinary event coordinator, Janet Lee, can be reached at janet@klondiker.com

*The History of Dawson City, Yukon Territory

http://www.yukonalaska.com/communities/dawsonhist.html

The John Brimelow Report

Happy Indians. A question for TGL

Friday, July 15

Indian ex-duty premiums: AM $3.33, PM $3.57, with world gold at $419.70 and $418.70. More than ample for legal gold imports. India is clearly a solid buyer at these prices.

Attitudes in the Far East seem to have improved too. TOCOM volume jumped 107% to the equivalent of 18,070 Comex lots; and although the active contract was down 9 yen, world gold recovered 20c from the NY close. Open interest rose the equivalent of 519 Comex lots; according to the Mitsubishi data, the "general public "added 7.3 tonnes (2,347 Comex contracts) to their long. On the Shanghai Gold Exchange, premiums jumped $1.50 or so to the $2.64 - $2.86 zone. The locals apparently do not credit the story reported in the FT that China will revalue next month, otherwise gold would be at a discount.

HSBC sensibly points that Friday is a poor day to look for physical activity from the Muslim world, a point one should perhaps have emphasized considering the damage done on July 1st. At this time of the year, besides geopolitical and oil driven demand, offtake from the tourist trade, especially in Turkey, is appreciable.

The most notable thing about yesterday’s NY selling binge - which saw estimated volume double from Wednesday to 80,000 lots – was the last 30 minutes. Estimated volume on the day exploded 60% - 30,000 contracts (93 tonnes) as an effort by gold to rally from the low was stopped at +$1 and beaten back to +50c. These dimensions are extreme (packed into, after all, only 1/11th of the trading day), and indicate that the sellers – whether commercially motivated shorts or policy-driven – were very determined not to permit a significantly stronger close.

In fact, actual volume was somewhat higher, 87,318 (c.75, 000 net of switches) and open interest rose 1,559 contracts (4.84 tonnes) to 270,876, despite several commentators identifying stop-loss selling at $422. ScotiaMocatta:

"Dealers were noted sellers above 424.00 capping the price…after a few hours of sideways trading fund selling came into the market. Resting stop loss orders were elected below 422.00 causing a sharp sell off…"

It is clear, as suggested yesterday, that predator short sellers were attracted in.

The chart situation is ugly. It has upset Dennis Gartman who has begun to cut his positions:

"Gold/… is EUR 346.80 this morning and that is far below its high of EUR 367 only two weeks ago. What was a profitable trade is now becoming "un-" and it is foolish not to act, so we shall, reducing our exposure by one third immediately... and prepared to do more should spot gold in US dollar terms close today below $319.50." adding (with a suitable chart)

"SPOT GOLD IN US DOLLAR TERMS: A Trend In Jeopardy?This trend extends back into the spring of '01, and it is now in very serious jeopardy of being broken. We can make this discussion rather simple and to the point: this trend line damned well better hold! Nothing more must needs be said."

(Actually, something more does need to be said: what is your hypothesis as to what went wrong? After all, barely a week ago the entire TGL portfolio was various types of long gold plays. Please would any Gartman subscriber out there ask?)

In point of fact, of course, despite noisy bearishness in several quarters, gold did not break today. Especially considering the appreciable commercially-motivated short now present, it seems likely we will be tackling the $440 level again sometime in August.

JB

CARTEL CAPITULATION WATCH

The US stock market levitation keeps on keepin’ on. The DOW gained 12 to 10,641 and the DOG rose 4 to 2157.

08:30 June PPI reported 0.0% vs. consensus 0.4%; ex-Food & Energy reported (0.1%) vs. consensus 0.1%)

Prior PPI unrevised from (0.6%); prior ex-Food & Energy unrevised from 0.1%.

* * * * *

08:30 May Business Inventories repored 0.1% vs. consensus 0.2%

Prior revised to 0.2% from 0.3%.

* * * * *

08:30 July Empire Manufacturing reported 23.9 vs. consensus 10

Prior reading revised to 10.5 from 11.7.

* * * * *

09:15 June Industrial Production reported 0.9% vs. consensus 0.4%; Capacity Utilization 80% vs. consensus 79.6%

Prior Ind. Production revised to 0.3% from 0.4%; prior Capacity Utilization unrevised from 79.4%.

* * * * *

Houston's Dan Norcini:

Hi Bill;

Last week I sent a short commentary about the silver market after looking over the COT and doing some quick analysis. At that time, I mentioned that silver appeared to be getting very close to bottoming. My rationale was that the level of fund shorts was at a level where typically, in this market, we have reached a bottom.

This week’s data only confirms me the more in my belief. Actually, the fund net long position is now once again incredibly close to levels which have marked near term bottoms. There is only about a 2,000 contract position difference from the recent low in May this year. Open interest has increased every day this week since the Tuesday the report came out and is now 2,500 contracts greater than it was on the day of the COT report. The fact that this occurred with silver heading downward leaves me reasonably sure that the fund net long position is now at the same level it was in May this year when we bottomed near 685.

Same goes for the fund short positions. That category of traders actually slightly increased their selling this past week and have probably exceeded or are very close to at least 20,000 contracts short. The funds have an amazing ability to sell the bottom of the silver market as they do in the gold market. Fading them near support levels and resistance levels has been very, very profitable.

Additionally, the big, bad commercial category ( I say this with tongue in cheek since the commercials are not omniscient nor are they always right as the myth continues to be perpetuated by those who are ignorant of such matters) is now only 800 contracts or so shy of the low point that was reached in May of this year as well.

What we can ascertain from this is as follows:

Silver is finding commercial short covering and fresh commercial buying taking place anytime it dips down toward the 710 region and below. It especially finds strong commercial buying interest near the 685 region and above. At the same time it does, the zombie-like trading funds who cannot tie their own shoe laces much less think without a black box telling them how to do so, decide to unload all their longs and institute fresh shorts. Needless to say, between the gold and silver markets, it is a wonder that we have not seen more of these hopelessly inept trading fund managers who are wasting their clients’ money go belly-up by now.

The skinny in all this is that the downside risk in silver appears to be quite small at these levels and I suspect there are more than a few traders who are eagerly waiting to buy any further dips in the silver market. I would especially expect the region just above 685 to offer major support and a strong buying opportunity.

About the only thing that might derail such a scenario is if some sort of fundamental realignment were to take place in which the trading funds could actually be induced to move to a completely net short position. How or why this might happen is difficult for me to conceive given the fundamentals underlying the silver market. Even then, it is hard to see silver heading lower than 655-660 as that has proved to be the bottom of a long term trading range in which silver is ever so slowly constricting or coiling for a major move.

Dan Norcini

 

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THE GOLD PRICE IS GOING MUCH, MUCH HIGHER!!!

 

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