-- Posted Tuesday, 30 March 2010 | | Source: GoldSeek.com

By Gene Arensberg       Esse quam videri – To be rather than to seem. 

GATA’s Bill Murphy:  “Whistle Blower” Bombshell Rocks CFTC Hearings on Gold, Silver 

ATLANTA – Despite short term moves to the contrary, it is difficult to imagine a scenario that would see increasing confidence in the world’s fiat paper currencies, the U.S. dollar included.  We have to believe that if things weren’t so “messed up” in Europe, the greenback would be doing its best swan dive imitation now that bond yields are spiking up on the heels of Congress ramming through the Obama-care experiment in U.S. socialism. 

What, oh what have “we” Americans done?  Never mind that a majority of the people are scared of the bill, (excuse us, the new law), which most of the members in Congress haven’t even read (a few probably are not able to read it or understand it).  Never mind that quite a few of the bill’s provisions are blatantly unconstitutional and that the law grants the federal government new, frightening powers over both the states and the people.  

Apparently the democrats in Washington felt that if the American people were stupid enough to vote them into absolute power, then the “stupids” ought not to mind the federal government running a lot more of their lives … or paying for it.

We suspect that this brave new world is really quite bullish for gold and silver longer term, but dang it all, people, it’s decidedly bearish for any freedom-loving, self-reliant taxpayers in the U.S.A.  That’s bearish in a putrid, festering, malignant sort of way…

Here’s this week’s closing table:

We think that overall currency confidence is trending lower and as it does more and more people will seek to park wealth in something else – something that can’t be printed or debased by the people we Americans foolishly elect to power.  Something like gold and silver as examples, but not the only ones.   

This Week’s Radar Screen  

The purpose of the Radar Screen is to briefly summarize our positioning for the gold and silver markets, and also to highlight one, two or maybe even three of the dozens of indicators, ratios and graphs we keep in constant touch with at Got Gold Report.  Long-time readers know we update most of the Got Gold Report linked charts each week, even the weekends when we don’t publish the full report.

For a little while longer, readers need only pull up the last full report and click on the chart links on “off weeks” to see any updated comments.  Changes are almost always completed by 6:00pm EDT on Sunday evening and occasionally during the week itself as events unfold.  

At some point in the near future, however, all of the chart links will have to change as we transition to a new permanent web home for the Got Gold Report, which should allow for a lot more of our analysis to be available for our valued readers.  And, in a more timely, more immediate fashion. We’ll have more about that soon, hopefully, so stay tuned!               

Back to this week’s Radar Screen:  Having returned to the gold bullish camp on February 5, with gold then in the $1,050s, we began the last full report two weeks ago with:  “We remain long gold and silver, currently with trading stops equivalent to the minor-profit low $1,080s for gold and the no-loss $15.90s-equivalent for silver. We are still of the mindset to allow for more than normal volatility with these fledgling trades, but we are unwilling to allow our “winners” to become losers and will step to the sidelines if stopped.”

That’s where we remain positioned as of March 26, but we will likely be raising stops for the silver portion of the trade later this week – if and only if silver regains and holds the $17s.  The particulars are in the linked graphs below.

Otherwise we are comfortable with our positioning, which allows us to participate should gold and silver advance, but gets us out with minor profits or at least no loss if the Trading Gods are not yet with us. 

This week we first want to call attention to what we see as interesting changes in one of the most important indicators in our gold arsenal, the positioning of the largest of the largest gold futures traders in North America.  Then, we’ll take a look at the latest move higher for the U.S. dollar in a longer-term context.  Then, finally we have a few comments on the Commodities Futures Trading Commission  (CFTC) open meeting held Thursday, March 25, but first, here’s the short-term gold graph:

Gold kissed its sister this week, showing a last print of $1,107.10 Friday which is $0.33 higher than one week ago, but there is a lot happening – behind the scenes -  in the indicators. 

Again, much of this week’s commentary is contained in comments inserted in the actual linked charts below as the Got Gold Report transitions from an overly-long report into a somewhat more compact and less burdensome read (hopefully) by popular request.  As always, we welcome your comments, criticisms and accolades about the work we share with the public.  The email address to contact us is at the bottom of the published reports in the disclosure section.

Our first blip on this week’s Radar Screen is just below and we see its “transponder” is attempting to signal us.        

COMEX Commercials Reduce Short Exposure in Gold Futures      

COMEX commercial futures traders, who jumped all over the short side in the gold futures market in February with gold in the $1,120s and $1,130s seem to have had a bit of a change of heart in March.  Just since March 9 (two reporting weeks) these cunning “hedgers” (we use the term loosely because the CFTC does) have reduced their collective net short positioning for gold futures by 27,964 contracts or 11.1% as gold itself dipped a net $16.13 or 1.4% from $1,121.62 on March 9 to $1,105.49 on March 23 (measured on COT reporting Tuesdays).  Gold down roughly 1% - LCNS down roughly 11% in two weeks.

That’s a pretty snappy pace of LCNS reduction.  (About 1,730 contracts for each dollar lower in gold, which is actually on the “hot” side.)    

For just the most recent week, in the Tuesday, 3/23 Commodities Futures Trading Commission (CFTC) commitments of traders report (COT) for gold metal the COMEX large commercial’s (LCs) collective combined net short positioning (LCNS) decreased a large 18,472 contracts or 7.6% from 242,295 to 223,823 contracts net short Tuesday to Tuesday as U.S. dollar spot gold declined $22.15 or 2% from $1,127.64 to $1,105.49.  The total open interest edged 1,338 contracts lower to 495,143 contracts open.

See the chart just below which tracks the nominal commercial net short positioning for gold futures (LCNS).  CFTC COT reports are released to the public on Fridays at 15:30 ET, but reflect the condition of the previous Tuesday.   

Source for data CFTC for COT, cash market for gold.

A net short position benefits if prices of the commodity fall and vice versa. 

The chart above looks at just the nominal amount of commercial net short positioning.  The chart below compares the COMEX commercial net short position for gold with the total open interest (LCNS:TO).  That gives us a better idea of how the largest hedgers and short sellers are positioned relative to all the rest of the COMEX traders. 

As measured against all COMEX open contracts, the relative commercial net short position dipped from 48.8% to 45.2% of all contracts open on the COMEX this week alone. Believe it or not, that is the lowest LCNS:TO of the young year thus far.  In fact, it is the lowest relative commercial net short positioning since April 28 of 2009 (11 months ago) when the LCNS:TO came in at 44.7% and gold was trading then in the $890s. 

Source for data CFTC for COT, cash market for gold.

For whatever reasons, it is crystal clear that the largest of the largest gold futures traders on the hedging side, are in the mood to reduce their exposure to the short side of the gold futures market in New York. 

Since December 15 of 2009, (three months ago) when the large commercials, led by one or two big U.S. bullion banks, held a daunting (and intimidating) 60.23% of the total open interest net short with gold trading then in the $1,125 neighborhood, gold really hasn’t done all that much price wise on a net closing basis.  Gold did test the $1,086 level this past week, twice, but ended the week near $1,107.  However, during that three-month timeframe, as gold in USD terms merely drifted a net $16 lower (measured on Tuesdays) the largest traders on the short side have significantly reduced their bets that the yellow metal will fall further in price.

Bullion Banks Reloading for Next Skirmish    

The big bullion banks remain staunchly on the net short side as we will see below, but there is a big difference between an LCNS:TO of 60.23% of the open interest like we witnessed in December with gold in the $1,125s and 45.2% with gold in the $1,100s as we see now on the COMEX. 

The chart below is of the disaggregated gold futures for the Producer/Merchant category, where the largest of the players on the short side “live.”  The left axis is just the price of gold; the right axis is the nominal producer/merchant net short position in COMEX 100-ounce contracts.  When that blue line is rising, the big bullion banks are reducing their short bets.  What do you see? 

Source for data CFTC for COT, cash market for gold.

What does this apparent reduction of net short positioning signal?  Well, on balance it suggests that the biggest commercial traders, who were obviously very motivated to “hedge” (we use the term loosely because the CFTC does) with gold in the $1,120s in December are now demonstrably less motivated to do so in March with gold in the $1,105 neighborhood. 

Does that mean that gold is heading up?  Not necessarily, but it does suggest that something material has changed in the way these big, well-funded and presumably well-informed traders have decided to position their collective firepower on the gold futures battlefield.  In essence, it suggests that there is a great deal less, that’s less, confidence on the part of the big shorts that the price of gold will be moving lower as of March 23 compared to December of 2009.

We think that is interesting given the recent U.S. dollar strength/euro weakness, when the short side should have been able to press their advantage for gold if they really thought they could. Instead, given near intense physical demand in London since at least January, they seem to be using this time of gold consolidation to re-load their magazines for a future skirmish, so to speak.    

All this activity could change and change quickly, of course, and that is why we must constantly update the data.  However, nothing in the COT “tea leaves” speaks louder to those of us addicted to the CFTC reports than large changes in commercial positioning on relatively small changes in the price of the commodity. 

Weaker Dollars – Stronger Gold  

Moving on to another of the Radar Screen-worthy items this week, take a look at this long-term, 20-year chart reflecting the purchasing power of the U.S. dollar in gold terms.  The chart speaks for itself as each year since 2001 it takes more and more greenbacks to buy an ounce of gold metal. 

We thought it might be interesting for readers to see the recent move higher in the U.S. dollar in context as it relates to the trend.  The recent move higher in the dollar (against other currencies) is that little blip higher (relative to gold) in the lower right, labeled “Euro Fear.”

What is doubly interesting is that of the Big Three international fiat currencies, the U.S. dollar, the euro and the yen, not one – none – of them is actually on anything close to a sound, confidence-inspiring foundation. One might say that the Forex market today is the opposite of a beauty contest, or better, is like choosing the least sick member of the global fiat currency leper colony.

That is the sorry state of currency affairs today.  Soon the challenge may be to choose the one that will still be breathing as opposed to the one with the most fingers or toes.  It pays to remember that when the dollar index or DXY advances these days it is against the other, just-as sick lepers.  While a rising DXY still holds some sway on the short-term action in gold, we think it is important to keep such things in context, hence the longer-term chart above.         

Once again we reiterate our longer-term view that the world will most likely continue down a path of fiat currency debasement, weakening confidence in all fiat currencies.  We see the setup as long-term very bullish for gold metal and extraordinarily bullish for silver looking well ahead – if the world “holds it more or less together.”

The CFTC Open Hearing – It’s a Start   

Finally, this week was the open meeting held by the CFTC to consider Federal position limits for gold and silver futures on the exchanges regulated by the Commission.  For those with the time and an interest in such things we strongly urge anyone to take the time to view the archived webcast of the event which is available at this link. 

Our readers already know where we come down on this topic, as it is now a matter of public record in our comment letter to the CFTC Chairman, Gary Gensler and the CFTC Commissioners, delivered to them and published prior to the historic meeting.  That comment letter is available at this link.

We were pleasantly surprised that at least one focus of the meeting seemed, at least to us, to be in the “right” direction, which is to say that it seemed that the issue of the ability of a very few large actors to abuse exemptions to current position limits to intimidate and manhandle all the other traders in gold and silver received considerable attention.  We were grateful that there were other, important and influential participants sounding the same or similar themes and we hope everyone has the chance to see the hearings for themselves at the link above. 

In particular, we would highlight the testimony of fast-computer trader and futures market maker Mark Epstein, who pointed out that the largest single position short silver is held by a “a bank on the short side” (Ed. Probably JP Morgan Chase) and that one bank holds a short position equal to “150 million ounces, which is about 120 million ounces larger than the current accountability limit.”  Epstein echoes our own comments, when he said, “Presumably, they (the bank) must have been granted an exemption to the position limits, but this seems wrong to me.  Exemptions should only be granted to bona fide hedgers.” 

Yes, Mr. Epstein, that is the crux of the issue.  And now that the bright light of day has been shone on the problem, perhaps, maybe, the commission will revisit how the Commission defines the so-called “bona fide hedgers.” We’ll see.

Perhaps in another, subtle signal to the hedge abusers, we understand that Commission staff met with long-time CFTC critic and popular silver writer Ted Butler in a private meeting the day before the hearing.  We understand that Butler gave a summary of that meeting to Eric King of King World News, according to others, however we have not yet had the time to catch his remarks, which should be at this link.     

Of course there were representatives there determined to preserve the status quo and to maintain the U.S. futures markets as a playground for a few large bullion banks.  Their well-rehearsed, professional and probably expensive testimony is all at the CFTC link above. 

Conspicuously absent was any exec from the biggest of the big, JP Morgan Chase, but then they needed no representative at the hearings, being on a first name basis with anyone of import at the CFTC.

Lastly, the absolute show-stealing moment of the hearings has to be GATA Chairman Bill Murphy’s answer to CFTC Commissioner Bart Chilton’s question along the lines of if there was proof of manipulative behavior on the COMEX.

For those who have not yet seen it, stop right here and view the explosive spectacle as it unfolded courtesy of Youtube.com.  Video of Bill Murphy.  We won’t give away the whole plot, but Murphy announced there was a whistle blower which alerted the CFTC in advance of a JP Morgan raid or take-down of the gold market – in advance of it.  It’s powerful, dramatic and riveting stuff.  Just the kind of thing a super investigative reporter for the New York Times, or perhaps the Wall Street Journal, or maybe even one of the commercial T.V. media hubs would love to jump on, right?

Well, apparently it was either just too “hot,” was quickly un-confirmable or perhaps ruffled the wrong feathers, because as of Saturday, March 27, we’re still waiting for the U.S. Big News to pick up on it.

Having said that, the information is now in the public domain and we know now the CFTC Commissioners are focused on it.  Can we call that a start?

Whoa, Stop the Presses    

In a late-breaking twist, rushing now as we go to press, GATA reports that the whistle blower that Murphy quoted in the CFTC hearings, Andrew Maguire, was apparently involved in a hit and run auto accident one day following the CFTC hearings and Murphy’s dramatic quote of Maguire fingering the JP Morgan traders. 

Please note the following on GATA’s website on Sunday, March 28, 2010.                  

“According to GATA's contact with Maguire, board member Adrian Douglas, Maguire and his wife were admitted to a hospital overnight and released today and are expected to recover fully.

“Maguire told Douglas by telephone today that his car was struck by a car careening out of a side road. When a pedestrian who witnessed the crash tried to block the other driver's escape, the other driver accelerated at the pedestrian, causing him to jump out of the way to avoid being hit. The other driver's car then struck two other cars in escaping. But the other driver was caught by police after a chase in which police helicopters were summoned.

“We'll convey more information about the incident as it becomes available,” GATA’s Sunday dispatch, provided by secretary/treasurer Chris Powell read. 

Coincidence? If it is, it’s just a little too much of one, if you ask us.         

We’ll undoubtedly have more about the ongoing review of the gold and silver futures markets by the CFTC in future reports, but for now we’re out of time and space. 

Got Gold Report Coming to a Website Near You 

We remain on the hunt for special situations and “vulture opportunities” via “stink bids” for obvious lack-of-liquidity, non-news-related, over-reaction sell-downs on the miners via our Vulture Bargain Hunter Method.  Companies we believe have been sold down too far with longer-term high-percentage recovery possibilities, like the candidates Brien Lundin covers in his highly acclaimed Gold Newsletter.

Please note:  This issue of the full Got Gold Report was filed Sunday, March 28, and delivered to Gold Newsletter Alert subscribers shortly afterward.   Portions of this excerpt of the report have been truncated or omitted in this public, condensed version.  

Before long, unless a wheel comes off our Texas-Georgia chariot, Got Gold Report will have its own web home, to be located appropriately at GotGoldReport.com.  (Nothing there yet, so please wait for an announcement.)  We expect to announce details of the new web site and blog in our next official report in about two weeks, but the situation is “fluid,” as they say, so don’t hold us to a tight schedule on that.   

The plan is to invite sponsors for the new blog initially, then, if there is enough reader support, we plan on moving to an exclusive subscription-based model. 

Our valued readers will find much more technical and fundamental commentary in the linked charts just below. Remember, the links to the charts just below will be changing in the near future, but will remain “live” for now and through at least April 14.     

Got Gold Report Charts

·         1-year daily gold

·         2-year weekly gold

·         1-year daily silver

·         2-year weekly silver

·         1-year daily HUI

·         3-year weekly HUI

·         1-year daily HUI:gold ratio

·         2-year weekly HUI:gold ratio

·         2-year weekly U.S. dollar index

·         3-year weekly CDNX index

·         2-year weekly CDNX:HUI ratio

·         2-year weekly CDNX:gold ratio

·         6-month gold:silver ratio

That’s it from Atlanta this week.  Until next time, good luck, good trading and as always, MIND YOUR STOPS. 

The above contains opinion and commentary of the author.  Each person should study the issues carefully and, as always, make their own informed decisions. Disclosure:  The author and/or his family currently holds a long position in SPDR Gold Shares, long  iShares Silver Trust, long the following “Vulture Bargain Hunter Stocks” mentioned in this report or within the last year: Timberline Resources (TLR), Paragon Minerals (PGR.V), Forum Uranium (FDC.V), Odyssey Resources (ODX.V), Terraco Gold (TEN.V), Hathor Uranium (HAT.V),  Gold Port Resources (GPO.V), Bravo Venture (BVG.V), Millrock Resources (MRO.V), Atna Resources (ATN.T), Riverstone Resources (RVS.V), Premium Exploration (PEM.V), Constantine Metal Resources (CEM.V), Canadian Shield Resources (EXP.V), Rye Patch Minerals (RPM.V) (new) and currently holds various (approximately 15) other long (and occasionally short) positions in mining and exploration companies. The author has received no compensation from any company mentioned in this report.  To contact Gene use LLCCMAN (at) AOL (dotcom).  

A land developer, professional numismatist, self-taught bullion trader and investor since 1980, Gene Arensberg analyzes technical and fundamental developments in the precious metals markets.  In 2000 Gene started sharing his own market research with fellow traders and fund managers.  Those email reports evolved into his popular Got Gold Report, a biweekly look at important indicators for gold and silver published on the web.

For the past fourteen months Gene’s more in-depth market reports, insights and trading ideas have been an added service for subscribers of the very popular Gold Newsletter (GNL). For more information visit GoldNewsletter.com.  Got Gold Report is currently transitioning to its own new web home. Watch for an official announcement shortly as we launch GotGoldReport.com in the very near future. We hope to see you there. 

Got Gold Report

Gene Arensberg

-- Posted Tuesday, 30 March 2010 | Digg This Article | Source: GoldSeek.com

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