Thursday, 24 April 2008

A shocking bounce & new all-time high! 2008-03-05

Wednesday 5th March 2008. A shocking bounce and new all-time high!

Gold took a real hit yesterday. One might have expected a few weeks of consolidation after an instantaneous $30 hit to the price (3%) in any asset, including gold. Recent buyers would be likely to be selling on stop losses creating a cascade of selling pressure, taking the price down in gold's case typically $50 or more inthe short term or even $150-200 if the correction was going to be a major one like the one from May 2006 until mid-2007.

However, this didn't happen. Today, the trend completelty reversed and gold shot up over $30 to make a new all-time high. This is something I have never seen before in this bull market, not as glaringly obviously anyway, not even in the spike up in April-May 2006. See the excellent Dan Norcini chart on a pdf file here.

Maybe gold can reach $1000 before tonight's close or in the Asian market while the Americans are sleeping. I shouldn't think that short sellers will get much sleep tonight especially if they have no access to the overnight markets! Bid/Ask is $989.30/990.10 at 17:15 New York time and the spot market is closed. Missed a thousand by a whisker then! As an aside, I just noticed that on Kitco, the 1 year change in the gold price is given as +$351.70 i.e. +55.16% ! WOW!

On the NYMEX, gold futures had highs of 992.70 (March contract), $995.20 (April), $996.00 (May) and $1000.10 (June contract). So the near months' contracts hit virtually 1000, June's hit 1000+ over already but closed at $996.70. The August 2008 contract actually closed at $1001.20 andall later contracts are above that.

With the March, April and May contracts closing at 992.20, 991.10 and 990.00, does that mean we have a hint of 'backwardation' in the market? Is it time for Antal Fekete to remind us of his theory of what that would mean? This exceedingly bright man who often presents a challenging but rewarding read also wrote: GOLD, INTEREST, BASIS and GOLD - HOW HIGH IS HIGH? as well as many others. Try Googling him! I think it's fair to say that this guy believes in never selling gold: "Selling gold after a surge in the gold price is akin to canceling fire insurance after surviving unscathed a devastating fire destroying homes and property in the neighborhood. ... We do know that there were passengers aboard the sinking Titanic willing to sell their life-savers for cash."

i.e. "a low and falling basis and, in particular, backwardation, are always a warning signal indicating tightness in the cash market. ... In a nutshell, cash prices always appreciate relative to futures prices in case of a shortage, showing that delivery problems exist as the warehouseman is unable to replenish his dwindling supplies fast enough." He also connects it to hyperinflation and the cornering of the precious metals markets. The essay goes well beyond a single topic. For a good education, there it is on Jim Puplava's Financial Sense website, yet again!

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