Posted: Feb 12 2009 By: Jim Sinclair Post Edited: February 12, 2009 at 4:16 pm

Talk about gold stocks outperforming gold on this move with charts and diagrams is on financial media and should get some attention from all those illegal, legal and pool gold share short sellers.

Dan Norcini:

Once again gold scored brand new record all time highs when priced in both Euro terms and British Pound terms at the PM Fix. Euro gold was fixed at €740.094 while BP gold was set at 663.746. Canadian Dollar priced gold notched another all time high yesterday over 1,170 and is on course to score yet another today. Aussie priced gold is perched just below its record all time high. Ditto for Russian ruble priced gold. Can someone say world-wide currency devaluation?

Meanwhile, back in the States, Dollar based gold pushed further away from the trendline break that occurred yesterday moving up to and then slightly beyond $950 before selling hit it again but that was not enough to derail the bulls. Dip buyers are quite active today.

I suppose we should have expected to see it coming but isn’t it pathetic to see these desperation tactics coming out of officialdom whenever gold manages any sort of technical breakout that guarantees it to make news or garner the attention of the financial press. Once again the old soldier is pathetically trotted out of his barracks to show his face, rattle his saber and flourish his musket in what is no doubt supposed to impress uninformed observers and fill them with awe and trepidation. Unknown however is the fact that his saber is rusted into its scabbard and his musket has no powder.

I am referring of course to the announcement by the IMF of a sale of some 400 tons of gold which was to have the effect of stampeding the longs into abandoning ship. What a laughable, pathetic, pitiful display of weakness. Do you think any of that gold, should it even be approved for sale which is still uncertain, will make the least bit of difference to the gold market? That gold will never see the light of day. The Chinese will buy it all in one fell swoop. If they do not, the Arabs will. Instead of having to scour for bits of gold here and there and hither and yon, they get the convenience of being able to get it all in one place and at one time at one price. For that matter, any of the Eastern Central Banks whose countries are holding massive amounts of Dollar-denominated reserves will be more than anxious to bid for this gold. That way they get a wonderful opportunity to rid themselves of the greenback without disrupting the Forex markets and at the same time buy an asset to protect themselves somewhat against its devaluation which is now a given thanks to the recklessness of our monetary authorities and the spendthrift political class.

From a technical perspective, gold is sitting right at the top of the uptrending channel shown on the price chart below. It is moving closer to the next chart resistance level near the $960 level. That level looks to me to be about the only thing standing between it and $986- $990. Initial support has now moved to near the former resistance zone between $930 - $920. Below that is $910 - $908.

Volume was heavy in yesterday’s strong move higher which is a positive sign.

Incidentally, the major gold ETF, GLD, reported an increase of 40 tons in its holdings yesterday bringing that number to a new record at 935 tons. That is pretty remarkable demand in terms of money flowing into that entity. Too bad more of that money is not directed into the Comex futures markets and specifically into deliverable gold.

Their charter prevents many big investment funds from investing in the futures markets so the ETF enables them to play gold via the ETF, but that is still a paper entity for all but the largest players who can take positions large enough to actually demand physical delivery of the reported gold holdings. Who knows, maybe some of those guys will actually do so but I am not holding my breath waiting.

The drama surrounding the deliveries in the February gold contract continues with Goldman Sachs and JP Morgan Futures once again the big stoppers. Out of 145 deliveries, Morgan and Sachs took all but 12 of them. They currently have taken 70% of all gold delivered in February. Interesting indeed. One thing makes this unclear however. In order to take delivery, one has to be LONG gold. We know that the bullion banks are themselves short gold so technically they cannot be taking the gold directly for themselves through this arrangement. That leads me to continue to believe that this gold is for clients although I will be the first to admit that I am purely guessing here. Either way, it is quite intriguing watching this unfold.

Open interest registered an increase of only 5800 contracts yesterday. Considering the extent of the move up and the big volume, it is evident that a large degree of short covering was involved in the surge higher which is no surprise seeing that a huge number of buy stops were targeted and destroyed by longs who pushed hard to reach them and were successful in beating back their opposition. If the index funds decide to start returning to this market, the shorts are in serious trouble. They had been in the process of liquidating longs across a wide spectrum of the commodity markets, including gold but within the last couple of weeks, look to be starting to return. I am not quite sure about this but my gut tells me that a fair number of them are indeed returning to commodities. The price action in many of the markets I track and trade is showing their footprints. The combination of returning index funds and momentum chasing hedge funds should be enough to take gold above $1000 once again rather easily. The key is how much selling the bullion banks are willing to do in order to absorb this kind of potential buying. It is going to have to be quite substantial.

The mining shares are seeing the same kind of selling that has prevented them from outperforming, much less keeping up, with the performance of gold bullion for a long time now. Technically they refuse to break much lower but they are also unable to blow the shorts out of the water either. They are maintaining most of yesterday’s gains, a real plus, but cannot seem to advance much beyond these same regions which have so far thwarted their upward progress. The bulls will have to prove their convictions and demonstrate some resolve to push the perma bears out of the way.