Is the “Squeeze” Starting In Gold?

Short Note by jschulmansr of Dare Something Worthy Today Too!

Word is slowly leaking out on the street that a potential short squeeze is developing in the Gold Market where we are already seeing backwardation. If traders and investors etc. start taking delivery on their gold contracts we will see a lot of the “Shorts” scrambling to be able to make delivery, while chasing a very short supply. It would appear that we have a “perfect storm” starting to form. Since the “Shorts” are actually legally bound to make delivery there is a very real possibility of a “bidding war ensuing in the Gold Market Commodity Trading Pits.  In turn this may turn out to be the final catalyst needed to breakout gold above the $850 resistance level and “jump-start” the next upward leg of the “Golden Bull”. If you haven’t already started, get invested in Precious Metals especially Gold NOW! If already invested you may want to load up on some more and increase your holdings. Either way in the long term picture I do not think that you will be disappointed. However, remember to do your Due Diligence before making any investments.

Good Investing!-jschulmansr

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Counterparty Risk May Lead to Potential Squeeze in Gold Market – Seeking Alpha

By: Mark O’Byrne of Gold and Silve Investments  

Gold rallied sharply last week and was up nearly 9% despite continuing uncertainty and a very mixed performance in stock markets. The US dollar index fell some 4% on the week and it looks increasingly likely that the dollar may have topped out and may soon resume its bear market. For the year, gold is now up by more than 4% in dollar terms and by much larger amounts in euros (+11.7%) and pounds (+40.4%).

Gold rallied sharply on the open in Asia and has remained elevated as oil is stronger (up some 4%) and the dollar remains weak.

The FT reported late Friday on the potential for squeeze in the gold market by year end which would see prices rise materially.

The FT’s Chris Flood reported that:

Traders have been hearing talk that the gold market could face a potential squeeze at the end of this year if market participants with futures position on New York’s Comex exchange decide not to roll over their positions, because of concerns about counterparty risk and opt for physical delivery instead.

But dealers dismissed the threat of a squeeze, pointing out that Comex gold stocks stand at 8.5 million ounces, well above the five-year average of almost 6 million ounces. …”

The 8.5 million ounce figure cited by the FT is actually the total Comex gold inventory which includes gold that belongs to customers who are storing it on the exchange which is not available for delivery. The amount that is registered to dealers, and therefore available for delivery, is only 2.846 million ounces. The delivery notices that have been issued so far in December total 1.26 million ounces, which is 44 percent of the available deliverable gold. There is also the possibility that some of the gold may be encumbered in lending/swap operations.

According to the Gold Anti-Trust Action committee (GATA), the Comex authorities themselves have been alerting various futures firms about the potential of a squeeze on the December contract . The Comex is allegedly advising the $840 December shorts to exit their remaining open positions. There have been 12,636 notices of delivery. The shorts have until December 31 to make delivery. Normally they deliver early to take in cash and earn the interest.

This represents about 43 percent of the gold available at the Comex. Some speculate that concerned futures players could buy the February gold contract and then spread into December, which would shock the shorts and lead to a massive short squeeze sending prices markedly higher in a short period of time.

Former Federal Reserve Governor Says Fed’s Gold is Important Asset

Another bullish development for the gold market was former Federal Reserve Governor, Lyle Gramley reassuring that the Federal Reserve’s solvency was not at risk (due to its rapidly deteriorating balance sheet). Gramley denied such concerns were valid as he said the Fed has significant assets in the form of undervalued government gold certificates.

Interviewed Monday last week on the “Trading Day” program of the Business News Network in Canada, Gramley hinted that a big upward revaluation of gold may figure heavily in the Fed’s attempt to rescue the U.S. economy. Gramley, now senior adviser at Stanford Group in Houston, was asked about the seemingly grotesque expansion of the Fed’s balance sheet in recent months by the program’s guest host, Niall Ferguson, an author and history professor at Harvard.

Ferguson asked:

I’ve heard it said that the Fed has turned into a government-owned hedge fund, leveraged at 50 to 1. Do you feel nervous about what this might actually do to the Fed’s reputation?

Gramley reponse was:

I think you have to reckon with the fact that one of the Fed’s assets is gold certificates, which are priced, as I remember, at $42 an ounce, and if we were to price them at market prices, the Fed’s leverage would look a lot less than it is now.

More signs that gold is increasingly being viewed as the potential savior of central banks internationally from the global deflation gripping the world. The Federal Reserve is one of the largest holders of gold in the world with most of its foreign currency reserves in gold. A devaluation of the dollar and revaluation of gold may help the U.S. government and the Federal Reserve to protect their solvency and inflate their way out of a Depression.

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Gold Is One of The Few Investments That’s Up This Year

By: Tim Iacono of The Mess That Greenspan Made

Don’t look now, but the little yellow metal that pays no interest and provides no dividend is one of just a few assets that can make the claim of being in positive territory for the year.

It’s only eked out a gain of about one percent – a London PM fix of $833.75 last December 31st versus about $840 as this is written – but, most investors would be happy with any number that doesn’t start with a minus sign this year.

Interestingly, if you held the physical metal versus the paper variety, you’d be up somewhere around five percent at the moment.

The next two weeks could also be kind to gold as the second half of December has produced an average gain of about two percent over the last seven years, since the price began rising at the rate of almost 20 percent per year.

Just an average gain between now and New Year’s Day would put the price at around $860 an ounce, still down more than 15 percent from the high seen in the spring, but quite a good result, all things considered.

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These Commodities Are Starting To Look Tradable Again –

by Lee Lowell, Futures Options & Commodities Specialist, Smart Profits Report

In my last column on December 1, the price of crude oil had just slid under the $50 a barrel level – and over the past couple of weeks, the action has continued to be anything but boring.

We’ve seen the price drift down just shy of the $40 mark – a level we haven’t seen on a front-month futures contract since December 2004.

To illustrate how fast the market is moving these days, we saw a very brief bounce back to $50 earlier today before the gooey stuff fell right back down to $45.

Now that’s what I call some good, old-fashioned intraday volatility.

I don’t know about you, but I’ve noticed that the price of gasoline at my local station has shifted more than usual on an intraday basis, too.

But if the OPEC oil cartel has its way, we could see oil climb more forcefully again. The ministers have already promised to “shock” the market with a supply cut when they meet on Wednesday. I think anything under a two million barrel per day cut will be seen as bearish for the market.

Natural Gas Edges Closer To A Prime Bullish Level

Natural gas prices have made another move lower, finally falling under the $6 per MMBtu level to its current level of approximately $5.650 per MMBtu. We’re looking for natural gas prices to get down to the key $5 per MMBtu level.

Why? Because the $4.500 to $5.000 per MMBtu area has proven to be a solid support level for the past six years. The last time prices traded under $4.500 per MMBtu on a consistent basis was in early 2002. If it does so again, this is the price at which we could consider a bullish trade.

Has Logic Returned To The Precious Metals Market?

At last! The old theory of precious metals being in high demand during times of economic turmoil might finally be coming back into play.

It seems that gold and silver have washed out all the weak bullish speculators, with both metals enjoying decent technical bounces and possibly regaining some upside momentum.

Gold has already made solid upside moves over the last two weeks and silver looks like it might be able to break out of the narrow trading channel that has trapped it for the past two months.

Keep an eye on these because if the world markets continue with their downtrends, these metals could be the only bullish things around.

But hold on a second…

Grains Looking Good

Over in the grains world, we’ve seen some good upside action over the past week, with corn, wheat, and soybeans all beginning to look up.

Check out their charts here:

CORN: http://futuresource.quote.com/charts/charts.jsp?s=ZC%20H9
WHEAT: http://futuresource.quote.com/charts/charts.jsp?s=ZW%20H9
SOYBEANS: http://futuresource.quote.com/charts/charts.jsp?s=ZS%20F9

Along with the rest of the commodity sectors, these markets topped out in July after making new all-time highs and have been mired in stubborn downtrends ever since.

It may be too early to tell if these markets have finished with their downmoves as historically speaking, prices are apt to trend lower from this time forward until springtime, since most of the harvests have been concluded. But while we may see grains drift south just a little bit longer, we might have seen the last of the 2008 lows at this point.

Cotton Looks Tempting, But We’re Going To Hold Off A Little While Longer

As I’ve mentioned a few times in recent weeks, the cotton market was trending down towards its all-time low price of $0.28 per pound, which it set in 2001 (based on information spanning back to 1979). So with that possibility still in sight, I’m keeping a close watch on it.

The current front-month futures contract (March 2009) dipped under the $0.40 per pound level on November 20 and has since turned higher to its current level of $0.44 per pound.

In my opinion, it’s starting to coil itself into tighter trading ranges and when it finally blasts out, you can expect it do so with gusto. We just need to wait and see what direction it will break to.

Until next time… good trading.

Lee Lowell