Thanksgiving Gifts

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Nov 24 2008 12:34PM


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It was a very volatile week but in the end the shorts and option writers won the day smashing gold down below $750 when price blew through that mark as quickly as it went up it went down. It’s unfortunate and obvious. Friday was a new day and with option expiry over the price was allowed to move since there was nothing at stake. And move it did up a whole $57. When gold is allowed to trade the strong demand is obvious as price moves explosively. I expect to see more of that on the upside over the course of the next couple of weeks.

The DOW escaped narrowly from closing below the physiologically important 8,000 level and only lost 5.31% on the week. The Nasdaq was less fortunate and lost 8.74% while the S&P 500 lost 8.39% and closed right on the important 800 mark.

Up north in Canada the TSX lost a terrible 9.94% and the Vancouver exchange was slaughtered to the tune of 12.16. It just keeps getting worse and worse.

When the pain for metals will end is still up in the air, but I remain convinced that December tax loss selling will give us the climax we have been waiting for. If a default happens on the Comex in that month it will be all she wrote and the good times will be rolling. The Vancouver index will very likely double overnight and shock the world.

Gold ended up for a change to the tune of 6.64%. Although the price was capped to maximize gains by option writers on Thursday the price traded freely and very strongly on Friday rising $57. I expect the shorts to lose the battle in December and possibly call a force majeure if the Comex ends up defaulting. I am not getting my hopes up, but it is a real possibility.

RSI finally moved above 50 marking a real possibility of a trending move up. The 20 day moving average was smashed on Friday and even the 50 day was bested. Both averages are flat and about to turn up and the 100 day is close to being flat. The first Fibonacci line was beat but gold needs to stay above that line for another day before this move can be called more than a one day aberration. Resistance above here is not that strong so a follow through move all the way up to $841 could be fast and furious.

MACD is very low but moving up strongly with momentum above 0. Slow STO is above 50 now breaking the previous high at 50. I think this is it. With December delivery beginning soon we could be in for some spectacular fireworks to the upside.

On the gold supply front it is seen to likely be reduced by 15% to 20% over the next two years as credit conditions slow growth. The crisis is seen as an opportunity by majors to acquire great development assets on the cheap over that timeframe. I don’t think that problem will persist quite that long. Seeing how gold moved up today (Friday) $57 shows how explosive price can move making projects economical literally overnight. Credit is not hard to find if your project is of high quality.

The Perth Mint had to stop taking orders after demand could simply not be met. The mint is working three shifts 24/7 and cannot output enough metal to meet the demand tsunami. 80% of the demand is coming mainly from Europe then Russia, Ukraine, the Middle East and the US. One $30 million order was filed for a European customer.

Demand for silver is surging in Russia although a small amount but considering its only one bank the countries total must be far higher. Six tonnes of silver was purchased in the first ten months of 2008, triple the total for all of 2007. Gold demand from the bank was up 150% over last year’s total.

The recent 1998 crisis is fresh in their memory and they have learned their lesson and know better. As the saying goes, fool me once shame on you, fool me twice shame on me. They will not be fooled again. Banks in general are seeing large amounts of withdrawals lately so expect precious metal demand to continue to pick up strongly. On CNBC this week commentators were in Russia and saying how people were buying new cars and other real commodities to store value rather than holding cash. Metals must be hard to come by if they are buying new cars and expecting them to hold their value.

There seems to be quite a stir brewing over the potential of Chinese raising their gold reserves. The talk on the street is that they would raise the reserves from 600 tonnes presently to 4,000 tonnes to diversify their increasingly unstable dollar reserves. This story may just be a veiled warning to the west and other interests who would rather see gold stay lower to shape up or the threat will be carried out sending reverberations through western central banks.

If the Chinese are to acquire gold they will not want to pay up and will accumulate it as slowly and as stealthily as possible. China is on track to produce 285 to 300 tonnes of gold this year up from 270.49 tonnes in 2007. They will need to shop for gold in the open market rather than take more than ten years to grow reserves internally.