Safehaven | Weird Goings-On In The Gold Market

December 14, 2005

Weird Goings-On In The Gold Market
by Rob Kirby

To say that the price of gold has been behaving somewhat strangely lately - is perhaps a bit of an understatement. In fact, the steady [bordering on dramatic] rise in the price of gold is becoming almost impossible to ignore. Consider, if you would, the following:

For the past few years at least, gold has been mostly portrayed in the greater mainstream financial press as being the 'anti dollar' - generally exhibiting strength when the dollar has shown any sign of weakness and visa versa on the slightest sniff of weakness. This previously adhered to axiom has changed markedly in the past few months - seemingly confounding so many of the "experts" that our responsible mainstream media trots out every other day to explain the machinations of today's gold market.

To illustrate the defiance of such widely held views, note that the price of gold [as depicted by GLD] has risen dramatically, of late, from sub 450.00 per ounce as recently as late Sept. 05 to

Charts Compliments: www.Stockcharts.com

over 530.00 per ounce at the time of writing - Dec. 11/05. Meanwhile the U.S. dollar - as depicted by the U.S. Dollar Index - has clearly strengthened over the same time period:

So What Gives?

What it all boils down to folks - is that mainstream punditry has no credible explanation as to why gold has rallied in the face of a strengthening U.S. Dollar.

Both charts above clearly point to late August 05 as being a definitive turning point in the relationship between the price of gold and the U.S. dollar. What stands out in my mind as being 'of significance' where this relationship is concerned is that GATA [Gold Anti Trust Action Committee] held their historic Gold Rush 21 conference [Aug. 8^th and 9^th] in Dawson City, The Yukon - Canada. GATA has long maintained that the price of gold has been surreptitiously suppressed - primarily by U.S. monetary interests [Fed and/or Treasury] in contravention of anti trust laws in the United States. GATA has long held the position that the price of gold could rise dramatically - without a required sell off in the U.S. dollar - but as a result of an enormous [and dangerously reckless] "short position" in COMEX gold futures that regulators have 'tacitly' not only allowed to be established - but maintained. That's slightly better than 16,000 tons in a market that has an annual supply demand deficit of approximately 1,500 tons - currently being 'satisfied' with gold from the vaults of Central Bank's sovereign stocks.

GATA's Gold Rush 21 did much to illuminate this situation by informing a great many foreign dignitaries to this [and other] glaring imbalance[s].

COMEX Trade Now Versus Then

In the words of GATA's Bill Murphy, reacting to the most recent COT [COMEX open interest trade data] report:

The gold open interest just came out ... more confirmation of what I wrote early this morning. It FELL 1905 contracts to 340,860 on a $5 move up in the gold price. Gold has now risen $75 per ounce with its open interest falling more than 30,000 contracts off of its old high this year. That is ASTOUNDING! More evidence the trapped shorts are doing everything they can to cover their positions.

Now, if you contrast this revelation to what had been the "norm" for years prior to Gold Rush 21 :

....many years ago when the gold open interest rose 77,000 contracts over a few weeks on a $7 gold rally. At the time the gold open interest was only around 220,000 contracts....

Now, let's remember that COMEX warehouses serve not only as depositories for 'gold for sale' - but also as a warehouse for folks who strictly want to 'store' their gold and silver. Then, consider that in December 05 alone [as pointed out last week by a regular contributor at Bill Murphy's subscription site Letmetropolecafe.com:

Meanwhile over on COMEX, one gold contract and 5 silver contracts were delivered bringing the December totals to 1,708,600 oz of gold and 30,470,000 oz of silver. As Bill Murphy has observed, none of these deliveries are leaving stockpiles so it is difficult to judge their significance. I say that none of these deliveries has left stockpiles yet, but they will. There is an extreme shortage of silver out there and gold is also tight. That makes COMEX stockpiles a target for a run on the last available supply and to do that, and not spook the spot market, the wisest strategy is to leave the metal in COMEX storage. Too many people watch the stockpile totals, yet few will realize until too late that the ownership has changed.

The long and short of what this all means folks is this:

The dudes who formerly shorted gold futures with 'reckless abandon' now appear [statistical evidence - COT data - supports this contention] to want no part of the same. In fact, it would appear that already in December - alarmingly, better than ¼ of all gold stocks held at COMEX warehouses has changed ownership with no substantial or meaningful decrease in the aggregate shorts. These same folks now appear to be 'trapped short' with no way to buy their positions back without sending the price of gold to the moon.

Merry Christmas to all - especially if you happen to be 'long gold'.

Rob Kirby
Kirby Analytics