Gold Is Quickly Heading Into An Oversold Condition

As I mentioned in my closing comments early yesterday morning, the U.S. dollar rally that really began in earnest at 8:00 p.m. Wednesday evening in New York... 9:00 a.m. Thursday morning in Hong Kong... had a big negative effect not only in Far East trading, but in early London trading as well. As you are painfully aware, gold continued to fall [in stair-step fashion] through the entire New York session... and closed virtually on its low of the day... which, according to Kitco, was $1,093.80 spot.

I'm always suspicious of these stair-step falls in price... especially when they occur in the New York session. I wonder what not-for-profit seller would want to do such a thing... so I'm always wondering about motive. I may be imagining things, but I thought I'd point it out anyway. Gold also closed below it's 50-day moving average for the first time.

Silver suffered a similar fate, but didn't come anywhere near its low for this move. Kitco says the low yesterday was $17.05 spot. Ted Butler told me on several occasions that in order to get silver to close at new lows, the bullion banks would really have to beat the crap out of the gold price. Well, they did all of that yesterday, but it still didn't work.

Surprisingly... very surprisingly, actually... volume wasn't overly large yesterday. Considering the amount of the price drop in gold... and the fact that it took out its 50-day moving average with some authority... volume should have been enormous. Both Ted and I are somewhat taken aback by this. This situation applies to silver as well, because we've been below its 50-day moving average for a week now, and there hasn't been all that much liquidation... and open interest is still way up there, which is something I've pointed out a couple of times this week already. Needless to say, gold o.i. hasn't dropped that much either. We'll see what Thursday's final open interest numbers look like when they put them up at the CME website later this morning... if they report them all, that is. There may be some spill-over into Friday's o.i. numbers, which won't be available until around noon on Monday.

While I'm on the subject of open interest, here's what the CME reported for Wednesday's activity. Both gold and silver were up a bit in price on Wednesday, but there was still a decline in open interest in both metals. Gold o.i. fell a smallish 1,913 contracts on volume of only 167,639 contracts. Total o.i. in gold is sitting at 502,455 contracts. In silver, o.i. declined 414 contracts on very small volume of only 25,390 contracts... and, as I've said three times this week, silver o.i. is still a sky-high 121,373 contracts. I wouldn't read a lot into Wednesday's number, because in the grand scheme of things, small changes like this [even though their good changes] don't mean much when the overall open interest in both metals is where they are right now.

And lastly on the subject of open interest... Today is the day for the latest Commitment of Traders report. It will be issued at 3:30 p.m. Eastern time. I will comment on it in full on Saturday... as I'm sure Ted Butler will... in his usual Friday afternoon interview with Eric King over at King World News. I'll post the link to that interview as well.

As for the precious metals shares... what can I say. They got slaughtered... and finished on their absolute lows of the day. The HUI graph is below, but you can be forgiven if you scroll past it without looking.

Yesterday the CME reported that 34 gold and 38 silver contracts were scheduled for delivery on Monday. There were no reported changes in either the GLD or SLV ETFs yesterday. But the U.S. Mint had another update. They reported selling another 16,000 ounces of gold eagles in various sizes... and over at the Comex-approved depositories, they reported a smallish decline of 38,782 troy ounces of silver.

I have the usual number of stories today... and, as usual... I'll start off with the ones about precious metals.

The first story is a piece from The Telegraph in London. The headline pretty much says it all... "Jacqui Smith calls for 'cash-for-gold' websites to be regulated"... "Former Home Secretary Jacqui Smith blames a rise in burglaries on the prominence of gold websites that allow you to exchange jewellery for cash." [Note to Jacqui: Look sweet thing, that's usually the first thing that burglars look for is the family jewels... then the silver candlesticks. That hasn't changed in hundreds of years. Take a pill. - Ed] I thank Florida reader, Charles Dubelier, for sending this along... and the link is here.

In another story filed from London comes this Reuters piece headlined "Gold miners eye gains as bullion stabilizes"... "Gold's pullback from record highs above $1,225 an ounce this month is seen by some analysts as a key stage in its longer-term uptrend." The story is very much worth your time... and the link is here.

Here's another story that reader Charles Dubelier sent me yesterday. It, too, is from The Telegraph in London and it's all about silver. The headline reads "Buyers spurn gold for silver"... "A leading bullion dealer says that there has been a marked interest from investors for silver in recent weeks... one-ounce silver rounds are outselling anything else by a factor of 10 to one. The photo is pretty... and the story is worth reading... and the link is here.

Here's a Bloomberg story that Craig McCarty sent me yesterday. This one is real estate related... a bit on the long side... but very interesting nevertheless. It appears that homeowners with mortgages of more than $1 million are defaulting at almost twice the U.S. rate. "Payments on about 12 percent of mortgages exceeding $1 million were 90 days or more overdue in September, compared with 6.3 percent on loans less than $250,000 and 7.4 percent on all U.S. mortgages. 'The rich aren’t as rich as they used to be,' said Alex Rodriguez, a Miami real estate agent." The link to the story is here.

Here's another story courtesy of Mr. McCarty. It's also from Bloomberg and is headlined "Chinese Central Banker Zhu Says Dollar Set to Weaken"... "When the U.S. has to fund its deficit through the combination of issuing more Treasuries and printing more dollars, it is inevitable that the dollar will continue to weaken,” Deputy Governor Zhu said at a forum in Beijing today." It's not a long piece... and the link is here.

Craig McCarty's last offering today is another Bloomberg story headlined "Shirakawa May Signal Bank of Japan Is Prepared for More Easing". The Bank of Japan just shoved $111 billion worth of 'easing' into the economy two weeks ago, for heaven's sake! This is getting ridiculous... but all governments are starting to do it now. The link is here.

Well, the Russians dropped a "Climategate" bombshell of their own in Copenhagen the other day. "On Tuesday, the Moscow-based Institute of Economic Analysis (IEA) issued a report claiming that the Hadley Center for Climate Change based at the headquarters of the British Meteorological Office in Exeter (Devon, England) had probably tampered with Russian-climate data. The IEA believes that Russian meteorological-station data did not substantiate the anthropogenic global-warming theory. Analysts say Russian meteorological stations cover most of the country’s territory, and that the Hadley Center had used data submitted by only 25% of such stations in its reports. Over 40% of Russian territory was not included in global-temperature calculations for some other reasons, rather than the lack of meteorological stations and observations. [This is now a monstrous scientific scandal. - Ed] This is also a must read and the link is here.

And lastly comes this piece from leap2020.eu... and is their "GlobalEurope Anticipation Bulletin #40". Entitled "Spring 2010 -- A new tipping point of the global systemic crisis: When the slip knot around public deficits is going to strangle Western states and their social security systems". It's a longish read... and has some nice graphs that are worth spending some time on. I thank reader Brad Robertson for sending it to me... and the link is here.

I thought I'd run the 3-year gold chart at this point. After yesterday's 'action' you can see that gold is heading for oversold territory rather rapidly, so one would expect that we'll soon see a bottom. I thought it was already in... but yesterday's big move in the dollar and the drubbing that gold took... is obviously going to drag out this correction for a while longer. It will also be of great interest to see how many days that the gold price spends below its 50-day moving average.

Of course, opposite the gold price, is the 'value' of the U.S. dollar. Here's the 3-year U.S. dollar chart for comparison. The RSI trace is heading for overbought territory faster than the RSI trace for gold is heading into oversold territory.

For anyone with spare capital laying around... this is the time to consider putting it to work. A little over two weeks ago I was saying that a correction was imminent. Well, I was right. But now, with most of the pain out of the way, this is a time to re-invest... or invest for the first time, whatever the case may be. Just as nothing goes up forever... nothing goes down forever, either.

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In Far East trading earlier this morning, both gold and silver rose a little, while the US dollar fell a little. Both metals are now trading sideways as London opens for the day. Volume in gold is getting up there at 32,421 contracts... and silver, as usual, is lagging far behind at 2,581 contracts. This is as of 5:20 a.m. Eastern time.

I just took a peek at the preliminary volume numbers for both gold and silver on Thursday... as they are now posted at the CME website. It shows that around 258,000 gold contracts traded... which, although not big, is respectable. In silver, volume was a less-than-impressive 36,000 contracts... more or less. The final volume numbers will be up around lunch time today... as will the all-important changes in open interest.

I hope you have a great weekend... and I look forward to seeing you here tomorrow.