Dear CIGAs,

Due to time constraints associated with trading I have to keep things short today – gold rebounded off of support near yesterday’s lows further reinforcing the area near $837 – $840 as an initial support level. The bounce put gold back above the 20 day moving average which is helpful but it will need to recapture the 10 day moving average which comes in exactly at today’s session high to put the bulls back in charge. Right now there is no clear advantage to either the bull or bear side.  As long as the market can hold above the $828 – $830 level you have to favor the bulls however. Judging from the sharp ramp up in open interest even as the market has fallen, the shorts are digging in their heels and attempting to hold the line just below $866 or so. Some of this selling is no doubt associated with commodity index fund rebalancing so until we get the COT data it is going to be mostly guesstimates as to who is doing what in regards to selling. I do feel quite confident however that the bullion banks are capping gold on the rallies into the highs. For now let’s say that gold continues to consolidate.

Crude oil backed off further from the $50 level while palladium could not hold the $200 level. Copper gave up all the gains that it managed to ridiculously acquire as the ninny index funds went diving into the red metal to add copper longs to their holdings. They are now all under water. Nice move guys. They are now hoping that the $1 trillion economic stimulus plan being put forth contains lots of new electrical wiring components. Who knows – maybe they will get lucky and look like geniuses.

I want to repeat from yesterday – until the index funds complete this rebalancing act attempting to get an accurate read on these markets is a fool’s errand. This is all about money flows – pure and simple – nothing else matters right now.

There were 114 deliveries in the January gold contract assigned this morning. Interestingly enough, JP Morgan futures has been the biggest stopper so far in January. Selling continues to come out of Fortis although not in the size seen back in December. Open interest continues to increase in the January indicating that more buyers are planning on taking delivery in January. Guys – listen up – if you merely exchange warehouse receipts and DO NOT REMOVE THE METAL FROM THE WAREHOUSES, you are wasting your time. The bullion banks will beat you with an ugly stick unless you strip them of their background support. Meanwhile perhaps we can get some numbers from the Comex warehouses that actually tell us something that people can believe.

Open interest is beginning to rapidly build in the April contract as funds roll out of the February in preparation for that contract’s delivery process later this month. Total open interest has rocketed the last few days which indicate plenty of fresh sellers are lurking around.

The Dollar was generally weaker today although it did move up off its worst levels of the session as the day wore on. It is barely holding its footing above the 100 day moving average and looks like it has had a technical failure near the 85.00 level.

Click chart to enlarge today’s hourly action in Gold in PDF format with commentary from Trader Dan Norcini