On July 30, open interest on the Comex spot future Gold contract peaked at 238,119 contracts. Two days later, on Friday, August 1, the spot future Gold contract was savaged in late New York trading, falling $US 7.90 to close at $US 346.10. Two trading days after that, on Tuesday, August 5, total open interest on Comex Gold had plummeted to 202,427 contracts.
The latest "commitment of traders" report available gives reportable positions as of Tuesday, August 5. For the previous week, open interest was reported to have declined by 34,339 contracts. What had happened was that the speculators had greatly reduced their long contracts and the"commercials" has even more greatly reduced their "shorts". Since the spot price of Gold was falling almost throughout the reported week, it is clear who was taking profits and who was swallowing losses.
Last week, Gold was falling as volume was rocketing open interest was peaking. This week, Gold has been rising as volume subsides and open interest falls back to its level of two weeks ago. There can be little doubt that amongst the precautions taken in the lead up to the Treasury's $US 60 Billion refunding this week was the Gold price "hit" which culminated last Friday (August 1). It would also seem that the "short" were pulled out almost as fast as they were put on. Ever since August 5, volume has been desultory while open interest remains static.
Here are the relative performances of $US Gold, the $US Index, and the Dow since Gold broke above $US 300 to stay on March 27, 2002:
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If you doubt that Gold's breaking back above the $US 300 barrier to stay in March 2002 was a "sea change" for world markets, a glance at the percentages in this table should settle the matter beyond all reasonable doubt.
Two weeks ago, Gold was up $US 15.50. Last week, it was down $US 16.70. This week, it is up $US 10.20. You can see the whole thing played out on the daily bar chart. Note that the short-term average has remained above the longer-term one and that the Gold price is once again above both. You can also see that Gold is getting steadily more volatile on a daily basis.
On the weekly bar chart, the 20 and 40 week moving averages are coming together (at $US 345-347)and the support given has once again held successfully. You can also see on the longer-term weekly chart that Gold is safely back in the middle of its upchannel. We can say that support is ROCK solid for Gold at the mid $US 340s.
This message is repeated on the point and figure chart on this page. The high point for the line of "X"s preceding the present one was $US 364 set on July 28. If this move get above that July 28 level, a strong signal will be given for an assault on Gold's 2003 highs ($US 379 on a closing basis). And to get a feel for what a successful assault on the 2003 highs would mean, take a look at the $US 5 x 3 point and figure chart. Look at the line connecting the 1987 and 1996 tops. You can see that Gold has been trying to break above that line ever since it reached $US 380 at the beginning of February. Any penetration above the line would be the signal for a Gold price bolt.
Here's another perspective - a comparison between Gold's 2002 low and its present price and the $US index 2002 high and its present "price". All data is on CLOSING levels:
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You will find charts of the $US index and Gold here for comparison.
The Treasury's refunding auctions have been successfully concluded. Next week ,the Fed meets on August 12 and NOBODY expects them to change the 1.00% Fed Funds rate. Small wonder, observing what has happened to US market interest rates since the FOMC's last meeting on June 25.
Two weeks ago, Mr Bernanke chose to reopen the "debate" about the possibilities of "deflation" and Gold rose. Last week, everyone who is anyone, culminating with Mr Bush himself, declared themselves able to see the economic recovery, and Gold slumped. This past week (August 4-8), the huge hurdle of the Treasury refunding was cleared. Everyone sighed with relief and wondered what is to happen next. In the US, the "summer doldrums" are nearly over.
Given the situation, the "doldrums" for Gold should be nearly over too. The "fund selling" which forced Gold down in the leadup to the Treasury auctions was NECESSARY, but it had little or no effect on physical Gold (or Gold stock) investors. All of them anticipate higher Gold prices in the NEAR future. We think - this time - they're right.