Best of the Week
Most Popular
1.UK General Election BBC Exit Polls Forecast Accuracy - Nadeem_Walayat
2.UK General Election 2017 Seats Final Forecast, Labour, Conservative Lib-Dem, SNP - Nadeem_Walayat
3.UK General Election 2017 Forecast: Conservative 358, Labour 212 Seats - Nadeem_Walayat
4.Theresa May to Resign, Fatal Error Was to Believe Worthless Opinion Polls! - Nadeem_Walayat
5.UK House Prices Forecast General Election 2017 Conservative Seats Result - Nadeem_Walayat
6.The Stock Market Crash of 2017 That Never Was But Could it Still Come to Pass? - Sol_Palha
7.[TRADE ALERT] Write This Gold Stock Ticker Down Now - WallStreetNation
8.UK General Election Results Map 2017 vs 2015 vs Opinion Polls - Nadeem_Walayat
9.Orphaned Poisoned Waters,Severe Chronic Water Shortage Imminent - Richard_Mills
10.How The Smart Money Is Playing The Lithium Boom - OilPrice_Com
Last 7 days
Grenfell Fire: 600 of 4000 Tower Blocks Ticking Time Bomb Death Traps! - 22nd Jun 17
Car Sales About To Go Over The Cliff - 22nd Jun 17
LOG 0.786 support in CRUDE OIL and COCOA - 22nd Jun 17
More Stock Market Fluctuations Along New Record Highs - 22nd Jun 17
Understanding true money, Pound Sterling must make another historic low, Euro and Gold outlook! - 22nd Jun 17
Green Party Could Control Sheffield City Council Balance of Power Local Election 2018 - 22nd Jun 17
Ratio Combo Charts : Hidden Clues to the Gold Market Puzzle - 22nd Jun 17
Steem Hard Forks & Now People Are Making Even More Money On Blockchain Steemit - 22nd Jun 17
4 Steps for Comparing Binary Options Providers - 22nd Jun 17
Nether Edge & Sharrow By-Election, Will Labour Lose Safe Council Seat, Sheffield? - 21st Jun 17
Stock Market SPX Making New Lows - 21st Jun 17
Your Future Wealth Depends on what You Decide to Keep and Invest in Now - 21st Jun 17
Either Bitcoin Will Fail OR Bitcoin Is A Government Invention Meant To Enslave... - 21st Jun 17
Strength in Gold and Silver Mining Stocks and Its Implications - 21st Jun 17
Inflation is No Longer in Stealth Mode - 21st Jun 17
CRUDE OIL UPDATE- “0.30 risk is cheap for changing implication!” - 20th Jun 17
Crude Oil Verifies Price Breakdown – Or Is It Something More? - 20th Jun 17
Trump Backs ISIS As He Pushes US Onto Brink of World War III With Russia - 20th Jun 17
Most Popular Auto Trading Tools for trading with Stock Markets - 20th Jun 17
GDXJ Gold Stocks Massacre: The Aftermath - 20th Jun 17
Why Walkers Crisps Pay Packet Promotion is RUBBISH! - 20th Jun 17
7 Signs You Should Add Gold To Your Portfolio Now - 19th Jun 17
US Bonds and Related Market Indicators - 19th Jun 17
Wireless Wars: The Billion Dollar Tech Boom No One Is Talking About - 19th Jun 17
Amey Playing Cat and Mouse Game with Sheffield Residents and Tree Campaigners - 19th Jun 17
Positive Stock Market Expectations, But Will Uptrend Continue? - 19th Jun 17
Gold Proprietary Cycle Indicator Remains Down - 19th Jun 17
Stock Market Higher Highs Still Likely - 18th Jun 17
The US Government Clamps Down on Ability of Americans To Purchase Bitcoin - 18th Jun 17
NDX/NAZ Continue downward pressure on the US Stock Market - 18th Jun 17
Return of the Gold Bear? - 18th Jun 17
Are Sheffield's High Rise Tower Blocks Safe? Grenfell Cladding Fire Disaster! - 18th Jun 17
Globalist Takeover Of The Internet Moves Into Overdrive - 17th Jun 17
Crazy Charging Stocks Bull Market Random Thoughts - 17th Jun 17
Reflation, Deflation and Gold - 17th Jun 17
Here’s The Case For An Upside Risk In The Global Economy - 17th Jun 17
Gold Bullish on Fed Interest Rate Hike - 16th Jun 17
Drones Upending Business Models and Reshaping Industry Landscapes - 16th Jun 17
Grenfell Tower Cladding Fire Disaster, 4,000 Ticking Time Bombs, Sheffield Council Flats Panic! - 16th Jun 17
Heating Oil Bottom Is In.(probably) - 16th Jun 17
Here’s the Investing Reason Active Funds Can’t Beat Passive Funds—and It Worries Me a Lot - 16th Jun 17
Is There Gold “Hype” and is Gold an Emotional Trade? - 16th Jun 17
The War On Cash Is Now Becoming The War On Cryptocurrency - 15th Jun 17
The US Dollar Bull Case - 15th Jun 17
The Pros and Cons of Bitcoin and Blockchain - 15th Jun 17
The Retail Sector Downfall We Saw Coming - 15th Jun 17
Charts That Explain Why The US Rule Oil Prices Not OPEC - 15th Jun 17
How to Find the Best Auto Loan - 15th Jun 17
Ultra-low Stock Market Volatility #ThisTimeIsDifferent - 14th Jun 17
DOLLAR has recently damaged GOLD and SILVER- viewed in MRI 3D charts - 14th Jun 17
US Dollar Acceleration Phase is Dead Ahead! - 14th Jun 17
Hit or Pass? An Overview of 2017’s Best Ranked Stocks - 14th Jun 17
Rise Gold to Recommence Work at Idaho Maryland Mine After 60 Years - 14th Jun 17
Stock Market Tech Shakeout! - 14th Jun 17
The #1 Gold Stock of 2017 - 14th Jun 17

Market Oracle FREE Newsletter

The MRI 3D Report

What’s Up with the HUI and Gold ?

Commodities / Gold and Silver 2016 Jan 11, 2016 - 12:32 PM GMT

By: Dan_Norcini

Commodities

“UP” it was, but the intermediate term chart is certainly not that impressive, given the pandemonium that has been taking place since the start of the New Year.

The index does seem to have carved out a bottom just above the 100 level but it must take out initial resistance near 140 and then again above the 50 period moving average to give chartists some reason to turn more solidly bullish. As things stand now, all it looks like the index has done is to bounce off a bottom and trek higher towards to the upper bounds of a sideways trading pattern. For a bullish breakout to occur, 150 will have to be cleared.


When looking at the long term chart, (monthly), the bounce occured back at the 2002 lows. Think about that for a moment! This sector had fallen to FOURTEEN YEAR LOWS.

The collapse/annihilation that began in 2012, wiped out an entire decade’s worth of gains in less than 4 years! Methinks future investors will think long and hard before tying up precious investment capital in the miners again. Perhaps this sort of horrific price action will steer more investment capital looking to diversify into gold into the gold ETF, GLD. If one is going to buy paper gold, at least the ETF does not have inept management issues to worry about.

I have said it before and will say it again, there was NO EXCUSE for any gold mining company NOT TO HAVE HEDGED expected future production when gold broke down on its price chart in early 2013 and began a bear market. Think about the huge sums of losses that could have been avoided or at the very least minimized with a solid, well thought out and properly implemented hedging program. Instead, many if not most of them, sat through a brutal bear market completely exposed to market price risk. That is why I would never tie up my own personal investment capital in one of these mining companies unless I had assurances that they had an informed, experienced risk management department which knew how to run a hedge book. Good luck finding one of those among this sorry crowd.

The reason I harp about this is because companies that deal with commodities must understand that their product experiences ups and downs in price. There is no such thing as a stagnant price. This entails an understanding of cycles. There is a time to have a bullish outlook and a time to have a bearish outlook. Grain elevator operators, exporters, cattle feeders, packers, refineries, growers, etc, all understand that part of their business involves not just producing a product but managing price risk. Without doing so, they are unnecessarily and recklessly – in my opinion – exposed to price flucutation which can seriously impact their profitability.

Why does the gold mining industry stand out as the one which refuses to join the crowd of responsible companies? The answer is simple – most miners are great at digging stuff out of the ground and presenting reasons why their product is great. What they are terrible at is recognizing that the have a fiduciary responsibilty to protect their profits. Well run companies are NOT SPECULATORS. Specs such as myself are willing to accept price risk for the sake of making profits off of movements in price. Companies are in the business of producing a product AT A PROFIT and attempting to minimize risk. You do that by locking in profitable prices when the market gives you the opportunity to do so or protecting yourself from adverse price movements with well designed hedges. Far too many of these mining companies failed to do just that. The results of this foolhardy “strategy” can be clearly seen in their abysmal share price.

Have some of them learned? Perhaps, but under pressure from uninformed shareholders, they will more than likely have learned nothing and will repeat the same mistakes the next time around. While being unhedged during a bull market in gold can accompany a soaring share price making management look like genuises, doing so requires no great skill. As a matter of fact, it requires NOTHING AT ALL. The challenge is having your company do well during times in which the price of gold is falling. THAT takes skill and knowledge of markets – something that Barrick at one time possessed but which it allowed itself to surrender under pressure from shareholders back in the mid 2000’s.

Consider that my rant for now…

Here is a quick look at the GLD holdings.

The ETF has added 7.22 tons of gold since the start of the year. That is a good sign if you are bullish the metal. It does show that there is some Western-based investment demand stirring in the metal. This is a necessary condition for gold to continue to move higher. Should this demand falter, the metal will fall lower in price again.

Lastly, some comments on the gold Commitments of Traders data out this afternoon. Remember, this data only covers through Tuesday of this week. Gold closed at $1078.40 that day. It hit a high of $1113 in today’s session before reversing lower, a climb of another $35 since Tuesday.

According to the CFTC, hedge funds covered a total of 7606 short positions in gold, including futures and options. That is a signficant amount of buying which as stated above, does not account for an additional $35 climb higher in price. Rest assured that SIGNIFICANT amounts of hedge funds shorts were covered Wednesday, Thursday and Friday this week.

Here is a chart showing the HEDGE FUND OUTRIGHT positions and comparing those to the gold price. You can see the reduction in short positions. They did add some new long positions but by comparison to the buys associated with short covering, those were outnumbered by more than a 2:1 ratio. A careful look at the associated chart shows the red line above the blue line meaning that they were still net short as of Tuesday. That may not be the case any longer with that $35 price rise since Tuesday.

Additionally, it is interesting to note the Swap Dealer positioning on gold ( as well as the Commercials).

LAstly, you can see the short covering and reduction in the net short hedge fund position to see how that short covering is pushing gold higher.

gold hedg efund

Small specs were still net short as of Tuesday. No doubt most of them are now gone as well.

A quick look at the actual gold chart is in order.

Gold had a nice week to start off the New Year. It is interesting that this is exactly what it did last year to start 2015 as it rallied about $120 into the middle of last January before it began to break lower once more.

As noted in previous posts this week – as long as this financial stress and chaos remains in the markets – primarily with China – gold will remain well supported in price. As soon as the market comes to feel that the worst is over in that regard, gold is going to break lower. The question is when might that be? I wish I knew. The truth is not a single one of us know this. We just have to watch events unfold.

I should note here that when the strong payrolls number first hit the wires and were revealed to the markets, gold immediately came under strong selling pressure falling well below $1100.

Here is a 15 minute chart showing the sharp move lower that took gold down as far as $1091 minutes after the data hit the wirefeeds. Gold bulls should note this very well as it is a foretaste of what will happen to gold should the market come to believe that the worst is over as far as chaos in the Chinese/emerging markets. Gold will get hit and it will get hit hard. Do not forget that.

The reason is simple – that payrolls number caught a lot of people by surprise as most were looking for a good increase in jobs for December but mainly in the vicinity of 210,000. Instead we got a big 292,000. If that were not enough, November jobs were revised to +252K while October was revised to +307K. That in and of itself, would have fanned the flames of additional rate hikes coming from the Fed which would send the Dollar higher and by consequence, gold lower.

What the market did however, after this sharp selling reaction in gold and big move higher in the Dollar, was to focus back on the potential for further bad news out of China over the weekend, plus the fact that the wages number showed no upward pressure on wages. That brought the safe havens back into play again (Risk Aversion) with the Yen recovering from its losses along with gold and the bonds.

I only mention this to keep the readers soberminded so as not to get caught up in all the usual RA-RA that will now be coming out of the cult of gold. Gold is acting like it should be acting during a time of financial stress and chaos and uncertainty. If that goes away, gold will move lower as fears/concerns dissipate. Good traders will understand this and will therefore stay alert for any signs of stability or lessening of investor worries.

In other words, DO NOT GET MARRIED TO GOLD. It is insurance. Remember that, stay objective and be soberminded. Leave the wild-eyed gold cult to glory in its own rantings.

Dan Norcini

http://traderdan.com

Dan Norcini is a professional off-the-floor commodities trader bringing more than 25 years experience in the markets to provide a trader's insight and commentary on the day's price action. His editorial contributions and supporting technical analysis charts cover a broad range of tradable entities including the precious metals and foreign exchange markets as well as the broader commodity world including the grain and livestock markets. He is a frequent contributor to both Reuters and Dow Jones as a market analyst for the livestock sector and can be on occasion be found as a source in the Wall Street Journal's commodities section. Trader Dan has also been a regular contributor in the past at Jim Sinclair's JS Mineset and King News World as well as may other Precious Metals oriented websites.

Copyright © 2016 Dan Norcini - All Rights Reserved

All ideas, opinions, and/or forecasts, expressed or implied herein, are for informational purposes only and should not be construed as a recommendation to invest, trade, and/or speculate in the markets. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied herein, are committed at your own risk, financial or otherwise. The information on this site has been prepared without regard to any particular investor’s investment objectives, financial situation, and needs. Accordingly, investors should not act on any information on this site without obtaining specific advice from their financial advisor. Past performance is no guarantee of future results.

Dan Norcini Archive

© 2005-2017 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife