Dan Norcini: Gold Comments

You are either a lunatic or a masochist if you trade the Comex gold contract or the mining shares. It’s literally you against the Fed, the bullion banks, and the hedge funds, all working under the auspices and enabling eye of Uncle Sugar.

I choose to buy and hold the asset that defies man and his governments over the centuries. Gold has been managed for decades, but it’s real price in man made currency will be known regardless of the Fed, bullion banks, and hedge fund community. Best of all, it is Uncle Sugar and its actions that will ensure that physical gold will once again be the reserve asset of choice for both the central bank and the household.

Unplug from Comex gold price. Cheer lower prices and buy physical gold. Stack it and wait. The miners are play things for Wall St. and the hedge funds. GLD is a construct of the bullion banks and what gold in it is theirs. They created GLD in order to generate yield. They do this buy lending their shares to the short or simply shorting it themselves. When they want or need their gold back, they simply swap their shares for the bullion and you see a net drawdown in the bullion reported in GLD.

Everything has an angle except physical gold in your possession. No counter-party there. Just the dreams and wishes of men to pursue a free lunch. Dreams and wishes of men are built to be shattered.

Physical gold, the champion you simply have to choose.


Today’s comments

The mining shares continue being pummelled to the point where one wonders who is left in the sector to sell them at these levels.

Take a look at the following chart and marvel:


How many of us who were trading the shares can forget what happened to them back in the summer of 2008 when the credit crisis erupted causing an avalanche of selling across the paper and hard asset sectors. When the S&P 500 was crushed ( it lost over 50% of its value plunging from over 1500 to down under 750) the mining shares were unceremoniously trampled under the feet of men.

During that stage, the shares seriously underperformed against gold bullion losing value at a much faster rate than did the metal itself. The result was to take the HUI/Gold ratio down to levels not seen since the very early stages of the bull market in gold.

Look at where these same shares are now in relation to gold bullion again! Yep – you guessed it – down nearly to the exact same level that they had fallen against gold back in 2008.

Yet, today’s finishing quote for the S&P 500 was at 1393; a far cry from near the 740 level to which it had fallen back then.


Compare this to the monthly chart of the HUI and note their abysmal performance with the index now closing at levels last seen back in July 2010!

Looks like the guys who bought Apple were the smart ones and those who bought the shares expecting them to match the performance of gold have now ended up looking foolish. Investing is an art that demands a great deal of patience (at least it used to before the Fed perfected the art of creating funny money) but the patience of most of the gold mining share owners is about exhausted. The only ones left in the shares are the very strongest of hands at this point.


Gold is seeing a bit of buying across Asia this evening but the damage on the technical price charts has been done. We are now seeing hedge funds becoming active shorters of the Comex gold contract. They still remain net long (even with the liquidation) but a growing percentage of this category of traders is playing gold from the short side. This means that rallies are going to be sold UNLESS gold can clearly get back above $1680. A trip back towards $1660 will flush a few of the weaker handed shorts out but not until and unless gold proves that it has what it takes to stay above $1680 will some of the stronger shorts begin getting squeezed out.

We now have a boatload of brand, new fresh short positions by this category, all of which were put on below $1660. Keep an eye on how it behaves should it make it back to that level.

Downside support near $1600 is now in play with a breach of that setting the stage for an even deeper drop down towards $1570.


This entry was posted in Dan Norcini Gold Analysis, Technical Analysis, Trader Dan's Market Views. Bookmark the permalink.

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