February 2007


I posted a GATA dispatch this morning regarding a computer glitch at COMEX gold spot price tracking. This post has been removed because it was really a spoof (joke’s on us) from GATA as a jest follow-up to a previous dispatch regarding (and this is for real): “Computer problem exaggerated Dow’s plunge!…

You can read all about it …here
(Truly sorry if it confused people!)

Here’s a short yet sobering communique from Jim Sinclair:

What the market is showing us today are all the same items that occurred in the 70’s. I have been telling you this for months if not years.

Key Points in action right now:

We have witnessed the Dow rise on economic news,indicating deceleration of activity. This will continue until major corporations announce poor earnings, making the Dow fall faster than it rose and moving it deeply into the red.

I heard all this “slow business” as negative to gold talk in the 70’s. It was totally wrong then. It will be exactly the same now.

Those of you who were panicked by today’s action in gold and gold shares are simply doing the WRONG thing. If you had reviewed any of my public commentary you would know that what is taking place in general equities and the general economy is completely gold positive. Yet out you go in a state of total abandon.”

Forewarned is Forearmed

Only last week we drew readers’ attention to the technical aspects of the parabolic rise in the Shanghai Index.
Today the Shanghai Index semi-crashed by 8.8%

Here’s some relevant news items:

  • China stocks sink 8.8 pct on crackdown fears Reuters – Tue Feb 27, 7:25 AM ET

    SHANGHAI (Reuters) – Chinese stocks plunged nearly 9 percent on Tuesday, erasing about $140 billion of value in their biggest fall for a decade, amid fears that authorities would crack down on speculation that drove shares to record highs.

  • Stocks plunge after big decline in China AP –

    NEW YORK – Wall Street fell sharply Tuesday, joining a global stock decline sparked by growing concerns that the U.S. and Chinese economies are cooling and that U.S. stocks are about to embark on a major correction. The Dow Jones industrials dropped more than 180 points.

  • Stocks sink on China, economic concerns Reuters – Tue Feb 27, 10:01 AM ET

    NEW YORK (Reuters) – Stocks tumbled on Tuesday after a weaker-than-expected economic report and a sharp fall in China’s main stock index unnerved investors after two consecutive days of Wall Street losses.


Latest newsletter from GATA

8:21a ET Monday, February 26, 2007

Dear Friend of GATA and Gold:

There’s some awfully serious technical analysis of the gold and silver markets this morning:

GoldMoney founder, Freemarket Gold & Money Report editor, and GATA consultant James Turk writes that gold and silver are moving “from strength to strength.” He’ll be surprised if gold isn’t breaking through $715 soon. You can find Turk’s analysis in the “Founder’s Commentary” box at the top left of the GoldMoney home page here:

http://goldmoney.com

Gene Arensberg‘s “Got Gold Report” at Resource Investor is spectacularly detailed and very bullish on the precious metals but notes the failure of the mining stock indexes to break out. You can find it here:

http://www.resourceinvestor.com/pebble.asp?relid=29305

Merv Burak at Market Oracle writes that the gold and silver bulls are running strongly again. You can find his weekly report here:

http://www.marketoracle.co.uk/Article407.html

Of course Hank Paulson, Ben Bernanke, and their friends at the Western central banks and the Bank for International Settlements read all this stuff too. They HATE technical analysis that foretells higher precious metals prices, and with their fingers on the triggers for dishoarding government reserves, they are very good at proving technical analysis wrong and ensuring that government-sponsored metal goes into the market at the worst possible prices.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

R. Russell’s market wisdom on gold, silver and mine shares:

“..You don’t have to be a genius in order to read the chart below. This is GLD, the Exchange Traded Fund which serves as a proxy for gold. The breakout came this month when GLD filled the 65 box. Since then, GLD has rallied to the 67 box (670 in gold), and this gives us an upside gold “count” to 820.


Of course, the next real test is for GLD to reach the 72 box — and then to surpass it. I believe that’s going to happen. How it will happen and when — ah, I wish I could tell you. But I can tell you this — the great gold bull market is intact and right on course.

The next chart is SLV, the Exchange Traded Fund and a proxy for silver. Yesterday SLV filled the 142 box, signaling a bullish breakout. The count for SLV is now 184, which would take silver over 18 dollars an ounce. The immediate upside target for SLV is the 152 box. I think that high will be surpassed this year, possibly early this year. But hey, what’s the hurry? It’s a bull market, and it will progress at its own pace and in its own time.

Next, we have GDX which is the Exchange Traded Fund for the gold mines. This is an intelligent and easy way to be invested in assorted gold mines. GDX includes a good assortment of the best mines plus a number of smaller speculative mines. We’re still waiting for an upside breakout in GDX, and this would entail GDX rising to 43. The mining shares at this time are lagging the metal, but as I’ve said so many times, the mines and the metals alternate in leadership.

However, it’s important to remember this — gold, the metal, is timeless money, it’s the obvious base of the precious metals universe. The mines are always speculations, they have the leverage, but they also may have the problems. My personal preference would be to own two-thirds metals to one-third mine shares. Others may differ, but subscribers know me — I’m conservative and I always have risk in mind. A gold coin in the hand represents pure intrinsic wealth in any nation at any time in history. A hundred shares of a gold mine is a speculation and the hope of a profit in the period ahead.

I occasionally mention the Commercials in relation to gold. I consider the gold Commercials to be basically the gold mines themselves and perhaps the gold banks, those few banks that make a market in gold. The gold mines often sell forward gold, thereby locking in the current price. In doing so, they are also short gold. Occasionally, for instance, now, the Commercials will assume a large short position in gold. If gold rises, the mines lose on their short positions, but they can then either wait for a correction, at which time they can cover. Or, if need be, they can cover their short positions by supplying the actual gold which they mine.

But once in a great while, the Commercials get caught. They have assumed a large short position, and the metal goes against them. They don’t get the decline they need — and instead the metal powers higher. It’s possible that this is one of those times. Yesterday’s 23 dollar surge in the face of the current large Commercial short position had me thinking that way. If, indeed, the Commercials are caught here, we should see a concerted surge to the upside with very little “give” on the downside. Remember, trading is thin in the after market, and this is the time when the Commercials will try to knock the price of gold down, as they seek to present a picture of weakness in gold.

I want to emphasize the part that China and India and probably various Arab states could now be playing in the gold picture. Unlike US citizens, the three just mentioned are well versed in the value and the power of gold. The Chinese, Indians and Arabs understand that gold is real money, that it represents wealth that cannot be destroyed by governments or central banks. Thus, I believe that our overseas friends will be playing an increasingly large part in the gold picture.

In both ancient and modern history, gold has always flowed towards the strongest nations. Financial and even military strength has always acted as a magnet for gold. Thus, it will be most important to watch the flow of gold towards nations in the years ahead. Interestingly, the nations mentioned are all actively encouraging their citizens to accumulate gold. This is particularly true, I believe, in the case of China.

By the way, over the last five years gold has outperformed the S&P. In case you missed it, this rundown below shows gold’s progress in various currencies. In dollars, gold is up 6 % so far this year (chart borrowed from John Mauldin’s recent article.)

…”

Feb 21, 2007 14:40 NY Time
Bid/Ask 679.20 – 680.70
Low/High 656.60 – 682.90

Click for larger version

Gold rallies on above-consensus CPI
Traders see possibility of further upside for precious metal

By Polya Lesova, MarketWatch
Last Update: 2:34 PM ET Feb 21, 2007

NEW YORK (MarketWatch) — Gold futures rallied to a seven-month high on Wednesday, after data showed consumer inflation rising at a faster-than-expected pace in January, boosting the lure of gold as an inflation hedge.
Gold for April delivery closed up $23 at $684 an ounce, its highest close since July 7, on the New York Mercantile Exchange.
“A powerful reversal lifted gold out of its Tuesday slump and values closed today’s session at levels not seen since last spring,” said Jon Nadler, an investment-products analyst at bullion dealers Kitco.com.
“Spot gold ignited on the heels of core CPI [consumer price index] statistics and after Tehran’s outright refusal to halt uranium enrichment and the pursuit of nuclear power,” Nadler said.
Gold futures began their rally after the Labor Department said inflation at the retail level increased 0.2% in January, while the core CPI, which excludes food and energy prices, rose 0.3%. Economists polled by MarketWatch had been looking for increases of 0.1% and 0.2%, respectively.
Last week, Federal Reserve Chairman Ben Bernanke told lawmakers that the Fed expects core inflation to drift lower, but cautioned that the Fed is poised to raise rates if necessary to contain inflation. See full story.
Generally, when people think the Fed’s going to raise rates, gold goes down, said Peter Schiff, president of Euro Pacific Capital, based in Darien, Conn.
Today’s rally in gold “might be an indication that the Fed and Bernanke are losing credibility and that the Fed is all talk and no action,” Schiff said. “The Fed is afraid of raising interest rates, but it can’t let the market know that. Gold’s saying we don’t believe you. You’re still on pause.”
“The Fed wants to maintain the illusion that they’re going to raise rates, because the economy can’t stand it,” Schiff said.
A recovery in crude-oil prices also boosted gold. Crude futures rose sharply to trade back above $60 a barrel as traders eyed developments in Iran and braced themselves for weekly data on supplies for some measure of how the chilly weather of the past week has impacted higher-than-normal inventories.
Crude for April delivery was up $1.25 at $60.12 a barrel on its first day of trade as the front-month contract on the New York Mercantile Exchange. Prices have struggled to hold above $60 in recent weeks. See Futures Movers.
In the latest news from Iran, President Mahmoud Ahmadinejad said he is aiming to achieve nuclear capability as soon as possible, even to the exclusion of everything else, the BBC reported.
The president made this latest pronouncement to the Iranian Isna news agency. It coincides with a United Nations deadline for Tehran to freeze its uranium enrichment activities or face further sanctions.
“Gold’s sharp rebound is apparently being driven by short-covering as opposed to any major news or rethink in the markets,” said Brian Dolan, director of research at Forex.com.
However, “higher CPI and Iran noise continue to provide a fundamental basis for firmer gold prices,” he told clients.
On the currency markets, the yen slumped to a fresh record low against the euro and one-week low against the dollar Wednesday, after the Bank of Japan hiked its key interest rates but indicated that further rate increases would be gradual. See Currencies.
On Tuesday, gold closed down $11.80 at $661 an ounce, as the U.S. dollar strengthened and oil traded lower, providing an excuse for traders to lock in gains.
“We see yesterday’s fall as just flux on the way toward $700 later in the year, as both physical and investor demand is likely to be strong,” said Sherry Cooper, chief economist at BMO Capital Markets, in a morning note.
Nadler of Kitco.com said: “The gold market’s character now shifts to high volatility and possible de-coupling from conventional drivers. There is little that would surprise us in coming days — whether that means $700 or $650 gold — it is all fair game.”
Other metals prices also rose on Nymex. March silver futures rose 44.3 cents to $14.273 an ounce, April platinum surged $14.10 to $1,233.20 an ounce and March palladium was up $4.40 at $344.15 an ounce. March copper ended up 6.85 cents at $2.6545 a pound.
William Adams, analyst at BaseMetals.com, said that the base metals held up better than the precious metals on Tuesday, because there was trade buying interest in the former, while “the precious metals have been pushed higher in recent weeks by aggressive investment interest.”
“The market may not have to wait too long to see sentiment turn bullish across the board,” Adams said. “Don’t forget that the January-February period last year was relatively subdued, and it wasn’t until March that the rally took off.”
On the supply side, gold inventories were unchanged at 7.49 million troy ounces as of late Tuesday, according to Nymex data. Silver supplies added 272,835 troy ounces to stand at 116.54 million troy ounces, while copper stockpiles rose 274 short tons to reach 36,631 short tons.

The Shanghai Index has been in a “parabolic rise” since late last year, moving much higher and faster than the Internet bubble of the late 90ies:

It’s no rocket science figuring out the exponential rise. The Index went up 1060 points or 20.97% in 9 days, protracting the already ominous parabola.

Extreme caution is advised to all those involved!

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