-- Posted Tuesday, 9 August 2005 | Digg This Article
Open interest increased another 9,600 contracts during Friday’s session with the bulk of that coming into the December contract. It should be noted that Friday was a down day as the upmove in the dollar triggered fresh selling in the gold pit.
Here is what should be most disconcerting to the gold community.
In the last three trading sessions of the past week, 38,745 new long positions were instituted. All of those new longs were met with new shorts. The result of this incredible influx of buying was that gold moved from 437.70 as of Tuesday’s close to 442.80 basis December as of Friday. In other words, it took nearly 39,000 new long positions to move the market a measly $5.00.
Thus far this year, open interest totals above the 310,000 level portend near term tops in the gold market. The top in March came in when OI reached the 335,000 level. The near term top in June came in near the 312,000 mark.
At the current rate of cartel price capping, gold will require the addition of another 62,000 new longs to bring the price to the resistance level near 450. That is currently nearly $9.00 above the current trading price as of today’s pit session. That would bring the open interest to the 340,000 level.
The peak in Open Interest occurred last year in November when we hit 370,000.
While there is no limit as to how high open interest can climb, we will need to be especially vigilant if gold pushes above the 310,000 region.
The point in all this is quite simple.
There is a determined seller or sellers who are resolved to hold the line here and keep gold under $450 in the December contract. From a technical standpoint, if that level is taken out, fresh buying will surface in an attempt to run it up to near the $460 level along with short covering on the basis of some of the funds and small specs.
Ever since I began writing on this topic more than 3 years ago, I have long maintained that the gold market trades in such a fashion that any experienced trader can recognize as “abnormal”. Simply put, this past week is further proof of that statement as is today’s sickly performance.
It should be noted that tracking open interest is not a science; it is more of a fine art since there are so many variables that enter the equation. Still it is not encouraging to see gold struggling here with a weaker dollar, a South African strike, crude oil soaring into the stratosphere and the stock indices acting sickly.
It is going to take some incredible financial firepower to take out the “DO NOT PASS GO” sign that the monetary officials have erected. I suspect that the pit harlots known as the floor locals are emboldened as they have a strong seller at their backs and probably believe they can sell with impunity. Gold needs help from some other extraneous event along with a continued robust physical market to cause them to turn tail and run.
-- Posted Tuesday, 9 August 2005 | Digg This Article
