As already stated ...the bottom is IN. What we need now is a confirmed uptrend. What is necessary for any uptrend to be confirmed is simple. The price must correct to a level HIGHER than its previous low, and must then go on to a HIGHER lever than the one it reached in the move before the correction.
(Gold This Week - May 18)
You will notice that we have posted more than the usual last five days of market action this week. We have the daily course of trade from May 17, the day before the $US 13.80 run up, to date. Notice the open interest. In round number, it went from 109000 to 140000 - and right back to 109000.
If you are curious, you can download the zip file which shows the daily data back to the beginning of 1996. If you do, you will not find an instance when Gold open interest went below the 110000 level prior to May 7, 2001. In fact, Comex Gold open interest hasn't gone below the 110000 level since it was basing for its last bull market in January-March 1993
When open interest gets this low, a little bit of increased action goes further than usual in pushing prices up - and down. But over the period being examined here, the "up" was a one day affair, the $US 13.80 boom on May 18. All the rest of it has been "down", slowly at first, then gathering momentum on May 24 when the Russian Gold sale scare was sprung, and then climaxing after the long weekend when the spot future contract fell $US 12.50 on May 29-30. The great run up of open interest was, of course, on the SHORT side. The great "run down" in the open interest climaxed on May 31, when open interest collapsed by just over 18000 contracts - and the shorts took their profits.
"Now, what happened on May 24? What happened was that Gold started going UP again - in terms of ALL currencies. It rose in Asia. It rose in Europe where the London PM fix was $US 286.05 - $US 2.60 higher than the AM fix of $US 283.45. Then, in early trading in New York, spot future Gold reached $US 287.30 - only $US 0.50 below where it had closed at the top of its $US 13.80 explosion of the previous Friday (May 18)."
(Gold This Week - May 25)
That was, of course, when the story about Mr Putin planning to sell Gold came out. And one of the most telling quotes about the entire situation came out at the same time - it was attributed to Mr Andy Smith of Mitsui: "the news from Russia had served as a good excuse for funds, which went long during this week's blistering rally, to restructure their positions".
Is any comment really necessary? Look at the open interest figures!
The term "bubble" is a useful one in financial analysis, referring as it does to any market which has seen prices blown up to disproportionate levels. But, in this context, what is the opposite of a "bubble"? We don't know of a convenient word to use, but if one wants to describe the present $US Gold "price", that is what we are seeing. How about an "elbbub"? Kinda catchy - don't you think?
A "bubble" has nowhere to go but DOWN. An "elbbub" has nowhere to go but UP.
The chart of $US Gold is above. Here are the charts of Gold in the other currencies we cover.
Gold in Yen
Gold in Euros
Gold in D-Marks
Gold in Aussie Dollars
The interesting thing about these charts is that Gold has already commenced to move up again in terms of Euros, D-Marks, and Aussie Dollars, while it has continued to fall in terms of Yen. We know that there was a high-level from Japan in Washington this week to talk to Treasurer O'Neill and Mr Greenspan. We know that in the immediate aftermath of Japan's new Prime Minister, Mr Kiuzumi, taking the reins recently, there were several threats from Japanese officials that it might be necessary to start repatriating Yen by SELLING U.S. Treasuries.
We also know that the U.S. Dollar index broke through to a post-1986 high on May 31 when it rose 0.88 to 119.19 (the 2000 high, set on Nov. 24, was 118.45). But the Dollar is NOT rising against the Yen - it is falling.
Finally, we know that Mr Greenspan claimed that "inflation" was not a problem in the U.S. during a speech he gave on May 24. And we know that three trading days later, the number one "infation exhibit" - the $US Gold price - had been tamed.
We know all this, what we don't know is how long all these machinations can last. U.S. (and world) investors have pinned their hopes on a "second half" recovery in the U.S.. Well, the "second half" starts today.
Gold is now back in the mid $US 260s, where it has languished for almost the entire year - except for the excitement of the last three weeks. But the situation is NOT the same. With open interest back down to the lowest levels in a decade, volatility is just a "rumour" away. As we said here last week, it is getting harder and harder to keep the "ellbub" in its place.
As you may or may not be aware, there have recently been some very bad floods in the Siberian region of Russia. Floods occur every spring in this region, but this year, the property damage has been particularly severe. According to reports, up to 17,000 people have abandoned their homes because of these floods.
The news of these floods has been out for a while now, but up until today, no one knew how the Russian government intended to address the problem.
Now - we do.
At around noon (US EDT), Russian Prime Minister Vladimir Putin was quoted as saying that his government would sell Gold (and diamonds) if: "...a clear scheme is provided to me, intended to send help to people now in the streets."
Here are the London fixes for Gold on May 24:
AM Fix: $US 283.45
PM Fix: $US 286.05
In early trading in New York, spot future Gold had moved to $US 287.30 (it closed on May 23 at $US 284.00). Within minutes of the quote attributed to Mr Putin, the spot future price plunged about $US 12. By the close of trading on May 24, spot future Gold had settled at $US 279.40 - down $US 4.60 on the day and about $US 8.00 below the level it had reached before the quote from Mr Putin became known. By the way, all the other precious metals trading on Comex were up on the day.
You will note the quotes around the word "trading" in the heading above. Here's a quote attributed to Mr Andy Smith of Mitsui: "the news from Russia had served as a good excuse for funds, which went long during this week's blistering rally, to restructure their positions."
On the Comex, the "position" had just switched from being predominantly short to being predominantly long for the first time since last summer. Clearly, a "restructuring" was deemed necessary.
Here's what no one yet knows about Mr Putin's intentions:
Of course, the answer to that last question is clear. It should be fairly obvious that the announcement was made for the express purpose of reining in the Gold price. It should be equally obvious that things must be getting a bit desperate out there to resort to so transparent a strategem to accomplish this.
Certainly - just read the introduction to this page.
But please consider the U.S. stock markets. So far this year, the Fed has lowered interest rates by 250 basis points (from 6.5% to 4.0%). On top of that, the U.S. MZM (Money of Zero Maturity - or - "spend this right away money") has increased by 25% over the past three months. No, it hasn't increased by 25% on an "annualised" basis, it has increased by 25% - in thirteen weeks.
This isn't market manipulation? Of course it is, and of the most transparent kind. But since the Fed has gotten away with it, so far anyway, the people in charge of the U.S. financial system obviously think that no one will see what they are doing, no matter how obvious it is, because they don't want to see it.
We'll see. The Gold War has been declared yet again. Stay tuned.
FLASH: May 24 - 6PM US EDT - Apparently, now the Gold sale is to be "delayed".
