Tuesday, August 17, 2010
Gold This Morning - Analyze This --'J'
Overnight volume based on my diminishing memory was the lowest I recall this summer with a trading range of $5. Friday's open interest was up exactly 4 contracts and the GSR was down an even handle at 66.0. The easy comment is it's summer and all the heavy traders are in the Hamptons or St-Trop buying bonds over brunch. However yesterday morning speaking with one of the best independent gold pit brokers I heard the lament that trading was too quiet even for August. Ok, it's August and traders always whine about low volume as gratuitously as Lady Gaga sheds her clothes but let me make a quick segue and point out that this low volume and lack of cover in no way diminishes the gearing in the paper market. As usual I shall not be held to my numbers, but trust me they are in the ball park. Let's assume annual mine output is ~2,500 tons. Let's assume on a decent day COMEX gold volume is 100,000 contracts which is ~300 tons. Now do the math and conclude that every 8 days COMEX turns over the worlds annual gold mine output (this does not even include additional volume from the London Bullion Market Association, LBMA, and other smaller markets). Bottom line: There is significant physical gold accumulation (witness the recent opaque BIS swap and sovereign purchases) outside a paper market that is heavily geared, easily moved, and regulated only by those who control that gearing and moving so let's not forget trader rule number 5 again, and never short a dull market particularly when volume is diminished.