Dear CIGAs,

New all-time record highs were once again set in gold priced in both British Pound and in Euro terms at today’s London PM Fix. Gold priced in sterling terms came in 678.584 while euro priced gold was set at €766.976. It would appear that the former is making a run at 700 while the latter looks to be targeting €800. I have not yet had a chance to calculate the Canadian Dollar or Australian Dollar priced gold but it looks pretty certain that both of those have also set brand new all-time record highs as well. Meanwhile US Dollar priced gold hit a seven month high!

Fears concerning the former Soviet block countries of Eastern Europe were enough to send the Forex markets in convulsions overnight and into this morning with gold soaring upwards on fears of potential currency collapses in that region. Also, many European-based banks appear to be holding much of the debt of those nations and with default a real possibility, no one wants to own the Euro. The Dollar is winning by default (even the Yen got dumped this morning) but that is relative when you consider that it too continues to fall when measured against the gold price.

There was also further word out of Russia’s Central Bank that they intend to continue buying gold as part of their reserves in 2009. While the news was not particularly surprising, it did reinforce the notion that Central Banks are increasingly seen selling less and less gold moving forward. The market liked the news.

Meanwhile the stock market and the bond markets gave their vote on the Obama administration’s spending free for all, also known as the stimulus package. Stocks collapsed with the usual lemming-like response of a flight into the “safety” of Treasuries. Yep – those look mighty safe to me. Then again, they might make good kindling although I am sure the tree huggers would complain about burning all that paper.

Maybe bond buyers could add some of those California bonds to their portfolio. Those should be great performers considering that the state is $42 billion in the red. What a mess the politicians have made of the Golden State. To add some insult to the mix, the pols in Oregon are proposing at 1900% tax increase of a barrel of beer made in that state. Now Oregonians won’t even be able to afford a cold beer to help take their minds off of the mess that the country has become. Between Governor Schwarzenegger’s proposed tax on a round of golf, plus the beer tax, it looks to me like anything remotely resembling relaxation or recreation is going to end up becoming more like a luxury. I do not know which is worse, the fools that are elected to office or the people who voted them there. My advice to the young people out there is to plan a career either in meteorology or in politics. No matter how bad you mess up you always have job security. Barring that, become a US Marshall – you will stay quite busy entering the offices of financial entities as you seek to track down fraud.

Gold equities, aka, the mining shares, completely separated themselves from the stock selling orgy and shot strongly higher with both the HUI and the XAU pushing through last week’s highs. Technically many issues within this sector now have broken out on their weekly charts bettering the swing highs made late last year and look to be setting up strong trending moves. It is becoming obvious that gold is increasingly being viewed as one of the only true safe havens out there and many are looking seriously at the mining sector as a viable avenue of refuge from the economic storm. That is proving to make life quite difficult for the perma shorts in the mining sector. The XAU is trading right in the proximity of the 50% retracement level from the March 2008 peak and the October 2008 low. Technically, this is a significant resistance barrier so if the index can push through this level and hold those gains for the rest of the month, it will qualify as solid technical breakout on the long term monthly chart especially since that level near 137 is also quite close to the 50 month moving average. Stay tuned.

Open interest in Comex gold futures dropped another 5500 contracts on Friday bringing the overall number down near the 355,000 level. It is nothing short of astonishing to see gold at current levels with the open interest so low. Part of the reason for the lower readings is the reduction in the spreaders category but even with that, the level is so low that it is difficult to envision a more positive set up from a market-internal perspective.

Gold deliveries were decent with Morgan and Goldman again taking the bulk of the gold. Over 300,000 ounces have been assigned so far this month with 2,193 positions remaining open in the expiring February contract.

Incidentally, the silver chart looks very, very impressive. The weekly continuous charts show it having run to the confluence of the 50 week and the 100 week moving average. Should it be able to close above those levels on Friday of this week, silver could ignite quite easily. I should also mention that oddly enough, both platinum and palladium were higher today with platinum especially strong. It just missed $1100. I find this noteworthy because heretofore both of these metals have been trading as industrial metals are have seen their price battered especially given the woes in the auto industry globally. To see them running higher today tells me that they have become recipients of safe haven flows and are also trading as precious metals. If silver, platinum and palladium are all rising together with such crappy economic news, investment demand is driving them higher and is more than sufficient to make up for any drop off in industrial demand.

Crude oil and natural gas are both significantly lower today as demand side bears are shoving them down hard. Crude still remains above the low at the bottom of the recent trading range but it is sure looking vulnerable here to another leg down. Support is intact near $33 but a breach of that level and we could see crude prices below $30. I did not think that was possible. Natural gas too is hanging the low $4.00 range but it is conceivable that if the bottom does not hold, we could see a “3” handle on it soon.

Bonds – not much to say except the shorts got run out for now. They are getting a safe haven bid but I would be surprised to see that last very long. Technically the bond bulls have pulled off quite a feat and managed to put in what looks like a short term bottom. How high they can push them remains to be seen however since the issue of supply is not going to go away.

Jack Bauer missed getting the bad guy last night, barely, and that is probably why we are down in the equity markets truth be told…

Click chart to enlarge today’s hourly action in Gold in PDF format with commentary from Trader Dan Norcini