Monday, October 30, 2006 8:00:23 AM
*** Got Gold Report - Gold Breakout Watch in Effect ***
Got Gold Report - Gold Breakout Watch in Effect
By Gene Arensberg
29 Oct 2006 at 02:03 PM EST
HOUSTON (ResourceInvestor.com) -- With a little help from a flagging U.S. dollar both gold metal and mining shares are threatening to break out of bottom-looking technical formations. (Explained below.) The dollar is the most visible and often mentioned motivator these days, but it is by no means the only one. Conversion out of dollar denominated foreign exchange reserves, into hard assets such as gold (and silver) is another ongoing prime motivator. Those conversions very likely but quietly contribute to the “rising floor for gold” so often mentioned by this report.
Absent wholesale changes in the way the world’s governments are doing business, (unlikely) we can expect the portion of those conversions from paper back into what has been the global standard of wealth for over four millennia, gold, to escalate as we enter 2007 in this report’s opinion.
Whether we are witnessing a transition right now into a new gold up leg or not, which should be apparent fairly soon, there is little doubt that underlying support for gold has improved considerably since the last report two weeks ago, as expected. Got gold?
Because of the unusual length of the discussion of the indicators in this issue, the Observations section is omitted this time. However, dedicated readers might want to catch the online version of BullionVault director Paul Tustain's presentation at IX 2006 in London. It is an easy read, interesting and it conveys well one of the more important and profoundly bullish drivers for the Great Gold Bull. (It also contains a plug for BullionVault, but don’t let that stop you from enjoying the presentation.)
With that, we can move right into the indicators:
COT Changes. Tuesday 10/24 commitments of traders report (COT). The large commercials (LCs) collective combined net short positions (LCNS) declined by another 2,629 or 3% to 80,509 contracts net short Tuesday to Tuesday while gold metal shed $5.39 or 0.9% to $584.45. Since Tuesday gold reclaimed $15.35 closing at $599.80 Friday on the cash market.
Total COMEX gold open interest added a small 1,723 lots to 331,598 open contracts having dropped 4,454 the week before. Long-term, October ‘07 and beyond COMEX forwards fell significantly by 8,649 lots this week to 68,075 or 20.5% of open contracts. (Last week long-forwards were near flat.) Under current conditions, a drop in long forwards on flat to higher gold supports the bullish case.
Tuesday’s LCNS of 80,509 contracts net short is once again the lowest LCNS of the year and the lowest since June 7, 2005 (67,052) as gold was moving from the $410s to the $420s.
Since September 5, when the LCNS stood at 131,265 contracts net short and gold metal closed at $637.94, the largest of the largest paper gold traders have reduced their net short exposure by 50,756 contracts or 38.7%. This, while gold booked a net dip of $53.49 for the period or 8.4%. That’s good enough for a 4.6:1 ratio over the 7-week period and of course it is moving in the right direction from a long-gold point of view. In addition, the acceleration of the rate of change observed three weeks ago when gold tested below the $570s suggests that the LCNS would be reduced at an even higher pace if gold were to re-test that region.
Using just a normal accelerator (not a 2X near-bottom rate) would indicate that the LCs would be net long gold somewhere in the vicinity of $530. (About $54 or 9% below Tuesday’s close, more or less.) It is probably unlikely that the players on the hedging side (the LCs) would reach net long status prior to a new up leg especially given the larger number of long-forwards. All else being equal, we can expect that the acceleration of net-short reduction would substantially swell if gold were to take a shot below the October 4 low. So, intuitively, unless conditions change dramatically and abruptly, the LCNS is probably within 15% to 25% (12,000 to 20,000 contracts) of its low potential for this cycle, if not at its low now. (If true, unwelcome news for die-hard gold bears.)
Boiling it down, this week’s LCNS continues to suggest that the “big guys” are not positioning as though they see much potential downside below the October 4 low of $559.30. They have been gradually positioning for the opposite. That keeps this indicator on the bullish side of the gold market ledger for this report.
LCNS-Gold Graph as of Tuesday:
Continued at:
http://www.resourceinvestor.com/pebble.asp?relid=25181
Got Gold Report - Gold Breakout Watch in Effect
By Gene Arensberg
29 Oct 2006 at 02:03 PM EST
HOUSTON (ResourceInvestor.com) -- With a little help from a flagging U.S. dollar both gold metal and mining shares are threatening to break out of bottom-looking technical formations. (Explained below.) The dollar is the most visible and often mentioned motivator these days, but it is by no means the only one. Conversion out of dollar denominated foreign exchange reserves, into hard assets such as gold (and silver) is another ongoing prime motivator. Those conversions very likely but quietly contribute to the “rising floor for gold” so often mentioned by this report.
Absent wholesale changes in the way the world’s governments are doing business, (unlikely) we can expect the portion of those conversions from paper back into what has been the global standard of wealth for over four millennia, gold, to escalate as we enter 2007 in this report’s opinion.
Whether we are witnessing a transition right now into a new gold up leg or not, which should be apparent fairly soon, there is little doubt that underlying support for gold has improved considerably since the last report two weeks ago, as expected. Got gold?
Because of the unusual length of the discussion of the indicators in this issue, the Observations section is omitted this time. However, dedicated readers might want to catch the online version of BullionVault director Paul Tustain's presentation at IX 2006 in London. It is an easy read, interesting and it conveys well one of the more important and profoundly bullish drivers for the Great Gold Bull. (It also contains a plug for BullionVault, but don’t let that stop you from enjoying the presentation.)
With that, we can move right into the indicators:
COT Changes. Tuesday 10/24 commitments of traders report (COT). The large commercials (LCs) collective combined net short positions (LCNS) declined by another 2,629 or 3% to 80,509 contracts net short Tuesday to Tuesday while gold metal shed $5.39 or 0.9% to $584.45. Since Tuesday gold reclaimed $15.35 closing at $599.80 Friday on the cash market.
Total COMEX gold open interest added a small 1,723 lots to 331,598 open contracts having dropped 4,454 the week before. Long-term, October ‘07 and beyond COMEX forwards fell significantly by 8,649 lots this week to 68,075 or 20.5% of open contracts. (Last week long-forwards were near flat.) Under current conditions, a drop in long forwards on flat to higher gold supports the bullish case.
Tuesday’s LCNS of 80,509 contracts net short is once again the lowest LCNS of the year and the lowest since June 7, 2005 (67,052) as gold was moving from the $410s to the $420s.
Since September 5, when the LCNS stood at 131,265 contracts net short and gold metal closed at $637.94, the largest of the largest paper gold traders have reduced their net short exposure by 50,756 contracts or 38.7%. This, while gold booked a net dip of $53.49 for the period or 8.4%. That’s good enough for a 4.6:1 ratio over the 7-week period and of course it is moving in the right direction from a long-gold point of view. In addition, the acceleration of the rate of change observed three weeks ago when gold tested below the $570s suggests that the LCNS would be reduced at an even higher pace if gold were to re-test that region.
Using just a normal accelerator (not a 2X near-bottom rate) would indicate that the LCs would be net long gold somewhere in the vicinity of $530. (About $54 or 9% below Tuesday’s close, more or less.) It is probably unlikely that the players on the hedging side (the LCs) would reach net long status prior to a new up leg especially given the larger number of long-forwards. All else being equal, we can expect that the acceleration of net-short reduction would substantially swell if gold were to take a shot below the October 4 low. So, intuitively, unless conditions change dramatically and abruptly, the LCNS is probably within 15% to 25% (12,000 to 20,000 contracts) of its low potential for this cycle, if not at its low now. (If true, unwelcome news for die-hard gold bears.)
Boiling it down, this week’s LCNS continues to suggest that the “big guys” are not positioning as though they see much potential downside below the October 4 low of $559.30. They have been gradually positioning for the opposite. That keeps this indicator on the bullish side of the gold market ledger for this report.
LCNS-Gold Graph as of Tuesday:
Continued at:
http://www.resourceinvestor.com/pebble.asp?relid=25181
Dan 
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