Monday, May 24, 2010

Compelling Evidence For A Big Move In Gold This Summer?

Trader Dan Norcini has outstanding commentary on the gold/silver markets (and other commodities), which can be found at http://www.jsmineset.com/ One aspect he monitors is the weekly Commitment of Traders report. Over the past few weeks he has uncovered a potentially extraordinary development which could support a very big move higher in the price of gold.

In summary, the swap dealers - the bona fide trading desks at banks that make markets in gold, paper vs. physical, for bona fide commercial users/hedgers - have been aggressively covering their net short position, in contrast to the proprietary "cartel" desks at banks, which have been increasing their paper short positions in an attempt to cap the price of gold/silver. In my view, based on Trader Dan's empirical analysis, I believe this is more evidence that the Comex paper fraud is moving closer to GATA's "commercial signal failure," which occurs when the demand for physical gold completely overwhelms the ability of the paper shorts to deliver the actual goods. Here's Dan's excellent analysis: Gold: Look Out Above?

One possible interpretation of this is that the swap desks, because they deal in both paper and physical gold, have a first-hand view of physical availability and are attempting to reduce their exposure to the growing shortage of physical bars in both London and NY by reducing their net position and actually increasing their long position in further out months, as pointed out Dan. This would be consistent with the ever persistent reports out of London, and the actual delivery experience of our bullion fund, of delivery delays and an increasing tightness of phsyical supply.

I have been discussing with long-time colleagues the possibility that this summer may experience a big move higher in gold, contrary to the seasonals, as Europe and the U.S. continue to melt-down fiscally and economically, and the world continues to shift from fraudulent paper currencies into safe haven of physical gold and silver. The COT report, as per Trader Dan, adds more evidence the support the view of a big move in gold soon.

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